| Energy crunch bites, inflation hits investor confidence, and Texas mandates no mandates. Crude is holding above $80 a barrel this morning as shortages of coal and natural gas heading into the Northern Hemisphere winter are expected to keep demand high. The latest pressure on energy supplies comes from record thermal coal prices in China as key mining regions are hit by flooding. The high cost of power is already feeding through to metal prices, with aluminum rising to the highest since July 2008. It seems there is not a lot policy makers and politicians in consumer countries can do beyond asking OPEC to please pump more oil. 
Evidence is mounting that the rise in costs will hold back the economic recovery. This morning's ZEW institute survey from Germany showed investor confidence dropped for a fifth month in October, driven by supply bottlenecks and a rapid increase in costs. Lisa Shalett, chief investment officer of Morgan Stanley Wealth Management, warned that corporate profits are vulnerable as consumers sentiment sours. Investors are also becoming increasingly worried that central banks may be set to tighten policy too soon -- with the positioning of currency traders suggesting a Bank of England rate hike would be a mistake.
  | In the latest round of what is increasing looking like a series of "Texas Vs the U.S." fights, State Governor Greg Abbott issued an executive order prohibiting any entity, including private businesses, from enforcing a Covid-19 vaccine mandate on workers. President Joe Biden has pushed employers to require employees to be vaccinated, saying his administration would issue regulations requiring companies with more than 100 workers to ensure compliance or face mandatory weekly testing. Beyond the U.S., Asian economies are continuing to reopen, while a parliamentary report in the U.K. was strongly critical of the government response to the pandemic there. Fears about the outlook for inflation and a crackdown on China's financial sector are weighing on equity investor sentiment. Overnight the MSCI Asia Pacific Index dropped 0.8% while Japan's Topix index closed 0.7% lower. In Europe the Stoxx 600 Index was little changed at 5:50 a.m. Eastern Time with traders favoring defensive companies. S&P 500 futures were steady, the 10-year Treasury yield was at 1.60% and gold rose. August job openings data is at 10:00 a.m. The WASDE report at 12:00 p.m. is expected to show U.S. farmers are having a good year. The U.S. sells $58 billion of 3-year notes at 11:30 a.m. and $38 billion of 10-year notes at 1:00 p.m. The International Monetary Fund publishes its world economic outlook and global financial stability report. Fed Vice Chair Richard Clarida is among the speakers at the Institute of International Finance annual meeting today. Here's what caught our eye over the last 24 hours. A rule in financial journalism is when bonds and stocks both fall you have to write about risk parity. I weirdly haven't lately, so here's a brief take. The 40-day correlation between Treasuries and the S&P 500 is getting close to positive territory again owing to inflation risks. In turn, we have seen performance drop in a risk-parity benchmark, and more sharply in the typically volatile $1.5 billion Wealthfront fund. When the two assets are no longer diversifying, the portfolio becomes more volatile, which forces de-risking given the strategy's mechanism. (Although at least commodities -- another common component in risk parity -- have been rallying.) This is why the post-crisis era has been ideal: Bonds and stocks both went up over the years but on a shorter-term basis maintained a largely negative correlation, which allowed higher leverage. This makes the relatively extended period of positive correlation in 2021 somewhat unusual -- a reflection of just how substantive inflation fears have become. JPMorgan strategist Nikolaos Panigirtzoglou wrote last week that this could induce fund managers to seek other hedges for the stock market. A popular one in the bank's client conversations is apparently long dollar, which has been reliably negatively correlated with stocks over the past year. And to delve briefly into another self-reinforcing mechanism, trend-following Commodity Trading Advisors also look like they've been turning more short bonds and less long stocks. An index for CTA performance has perked up lately. We all know the consistently strong bull run in commodities has been a boon, but possibly their bearish bond exposure is also starting to help. In short, there's some quant momentum behind the concurrent bond and stock declines, but all eyes will be on the inflation outlook. Follow Bloomberg's Justina Lee on Twitter at @justinaknope Like Bloomberg's Five Things? Subscribe for unlimited access to trusted, data-based journalism in 120 countries around the world and gain expert analysis from exclusive daily newsletters, The Bloomberg Open and The Bloomberg Close. | 
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