A magnificent Tuesday to you as Asia extends stock rally into U.S inflation report.

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In brief (TL:DR)

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• U.S. stocks closed higher on Monday with the Dow Jones Industrial Average (+0.71%), the S&P 500 (+1.06%) and the Nasdaq Composite (+1.27%) all up.

• Asian stocks extended the global rally in risk assets amid speculation Tuesday’s US consumer price data will support bets that inflation there is near peaking.

• Benchmark U.S. 10-year Treasury yields fell two basis points to 3.34% (yields fall when bond prices rise).

• The dollar edged lower.

• Oil rose with October 2022 contracts for WTI Crude Oil (Nymex) (+0.47%) at US$88.19 as global demand concerns offset tailwinds from the greenback’s recent decline.

• Gold edged lower with December 2022 contracts for Gold (Comex) (-0.38%) at US$1,733.90.

• Bitcoin (+2.27%) rose to US$22,310.

In today's issue...

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1. As Goes Goldman, So Goes the Economy

2. Evergrande Vows to Build Again

3. Short Ether Ahead of Software Upgrade is a Crowded Trade

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Market Overview

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The inflation report is expected to show headline CPI cooled in August to an 8% a year pace while the core measure that excludes food and energy is seen accelerating.

Traders almost fully expect another jumbo-sized hike next week, following two 75-basis-point increases, taking their cue from officials supporting that view.

US bond-market indicators suggest that investors are gaining confidence that this year’s spike in inflationary pressures will be brought under control.

Asian markets mostly rose on Tuesday with Tokyo's Nikkei 225 (+0.25%), Sydney’s ASX 200 (+0.65%) and Seoul's Kospi Index (+2.74%) up, while Hong Kong's Hang Seng Index (-0.21%) was down.

1. As Goes Goldman, So Goes the Economy

• Goldman Sachs announced plans to cut serveral hundred job starting this month, its biggest round of jobs cuts since the start of the pandemic.

• A significant slowdown in investment banking has hit many Wall Street firms as interest rates rise and deal flow slows to a trickle.

They say that you only need to look to the birds to figure out if winter will be coming earlier this year.

But winter may already have set in on Wall Street as Goldman Sachs (+0.73%) announced plans to cut serveral hundred job starting this month, its biggest round of jobs cuts since the start of the pandemic.

The headcount reductions are a resumption of Goldman’s annual culling cycle that it had largely paused during the pandemic and also reflect changing fortunes in the financial services industry.

A significant slowdown in investment banking has hit many Wall Street firms as interest rates rise and deal flow slows to a trickle.

While Goldman’s trading operation posted a 32% surge in revenue in the second quarter, investment-banking revenue fell 41%, reflecting a sharp drop in underwriting.

Goldman shares are down more than 10% this year and about 15% from a year ago, and the worst may yet be over.

According to data compiled by Bloomberg, analysts expect Goldman Sachs to post a more than 40% drop in earnings this year with the move to cut jobs, the clearest sign yet of a chill that has set in across the industry amid a slump in revenue after record-breaking years.

In July, Goldman said that that it planned to slow hiring and reinstate annual performance reviews in an effort to rein in expenses amid what it called a “challenging operating environment.”

Goldman had 47,000 employees at the end of the second quarter, compared with 39,100 two years earlier, aided by recent acquisitions.

­2. Evergrande Vows to Build Again

• Evergrande pledged to resume its remaining stalled projects by the end of the month, as it tries to allay concerns that prompted some homebuyers to refuse to pay mortgages for unfinished apartments.

• Although the news of restarting projects may be music to the ears of homebuyers, there’s still no word about the numerous bonds that Evergrande Group remains in default on.

The epicenter of China’s real estate crisis, Evergrande Group, may yet live to build again.

Evergrande, which defaulted on its debt in December is at the center of a credit crisis that has rippled through China’s property sector and is threatening to take down the world’s second-largest economy along with it.

In July, Evergrande failed to deliver a preliminary restructuring plan for its offshore bonds despite promises to do so.

Nevertheless, the debt-laden developer pledged to resume its remaining stalled projects by the end of the month, as it tries to allay concerns that prompted some homebuyers to refuse to pay mortgages for unfinished apartments.

Evergrande said in a statement late Monday that it has already resumed building on 668 of the total 706 projects and will restart construction on 38 developments by the end of this month.

Chinese developers are facing strong political pressure to complete presold homes after angry buyers nationwide stopped making loan payments.

Chinese authorities are taking steps to ensure real estate companies finish apartments by offering US$29 billion in special loans to ensure stalled housing projects are delivered to buyers.

Local governments are urging builders to raise funds by selling undeveloped land and other assets, while at the same time providing financing to keep projects moving forward.

Financing platforms set up by the local authorities will take over projects of developers who have liquidity difficulties.

Last week Evergande was said to have been actively applying for special purpose loans and trying to receive support fund money designated for distressed developers.

Although the news of restarting projects may be music to the ears of homebuyers, there’s still no word about the numerous bonds that Evergrande Group remains in default on.

­3. Short Ether Ahead of Software Upgrade is a Crowded Trade

• Trading data shows that more traders are shorting Ether in the derivatives market, as the underlying blockchain is scheduled to go through its biggest technical upgrade this week.

• It could be that traders are hedging as the price of Ether has mostly increased while funding rates have gone negative with “The Merge” happening this week.

Buy the rumor sell the news – at least that seems to be the mantra as cryptocurrency traders are approaching the long-awaited Ethereum software upgrade set to move Ethereum’s current system of using miners to a more energy-efficient one using staked coins, otherwise known as “The Merge.”

Trading data shows that more traders are shorting Ether in the derivatives market, as the underlying blockchain is scheduled to go through its biggest technical upgrade this week, possibly to hedge against downside risk and also in anticipation of a sharp correction.

The native token of Ethereum has been underperforming Bitcoin since Friday, despite having led Bitcoin for weeks up to now, which suggests that many traders are taking some money off the table.

Ether's underperformance stems from traders rotating money out of Ether and into Bitcoin, over growing concern that the Ethereum software upgrade will not be as smooth as priced in.

According to crypto data firm Kaiko, the funding rates of Bitcoin and Ether perpetual futures contracts diverged sharply over the past weekend ant the funding rate for Ether dipped to its most negative since July 2021.

It could be that traders are hedging as the price of Ether has mostly increased while funding rates have gone negative with “The Merge” happening this week.

A lot of investors are hedging their long spot positions on Ether and shorting Ether on the derivatives market is one way to hedge their risk.

Some traders expect that “The Merge” will become a “sell-the-news” event for the market.

Ether has fallen about 50% this year alone, but is up nearly 70% in as many weeks.

As the prospect of “The Merge” draws closer, some traders may be looking to lock-in some of the gains over the past several weeks.