: 2 reasons U.S. airlines are better able to handle a recession, according to Citi

A looming recession, high fuel prices, and labor pressures are 'legitimate' risks that U.S. airlines face, but this isn't 2008, Citi says......»»

Category: topSource: marketwatchJun 23rd, 2022

Heathrow airport expects to handle more than 54 million passengers this year despite ongoing travel chaos

Britain's busiest airport raised its 2022 passenger forecast by 1.6 million, despite airlines being unable to say when flight cancelations will end. A British Airways plane at Heathrow airport.Steve Parsons/PA Images via Getty Images London Heathrow has increased its passenger forecast for the year, according to an investor report. The London airport has already handled 20.1 million passengers this year, per the report. The increase comes amid ongoing travel disruption that airlines have no end date for. London Heathrow expects to handle 54.4 million passengers this year despite the travel chaos affecting air travel this summer, according to an investor report released on Thursday. In April the airport said it forecast 52.8 million passengers but had raised the outlook due to a "steady traffic increase in 2022".Britain's biggest airport has already handled 20.1 million passengers this year even before the summer peak summer, overtaking the total for all of 2021. Last week it also reopened Terminal 4, which had remained closed since the pandemic struck. The increase in passengers comes despite airlines being unable to say when a wave of flight cancelations will end, Sky News reported.All carriers contacted by the broadcaster, including EasyJet and British Airways, were unable to provide a timeline for an end to last-minute flight cancelations that have caused chaotic scenes in airports across the UK.Airports told Sky News the matter was an issue for airlines. Heathrow said it was "working closely" with airlines and ground handlers to match supply with demand amid ongoing travel disruption, but warned: "Rebuilding resource and capacity across all European airports including airlines and ground handlers is expected to take at least 12 months."It said it was on track to recruit up to 1,000 new security officers this year and was working with airlines to increase automation at check-in.The number of last-minute flight cancelations has prompted the UK government and aviation regulator to order airlines to ensure their summer schedules are deliverable.Staff shortages and the economic impact of Russia's invasion of Ukraine are among some of the reasons blamed for the surge in cancelations.Read the original article on Business Insider.....»»

Category: dealsSource: nytJun 23rd, 2022

Travel & Leisure ETFs Turning Around: Will It Last?

As the pandemic is slowly turning into an endemic, travel stocks are finding reasons to fly higher. As the pandemic is slowly turning into an endemic, economic-reopening-friendly stocks, like leisure stocks, are finding reasons to fly higher. Pent-up demand is evident in the surge of new business openings in nightlife, beauty, and travel and hotels. Delayed trips and increased consumer savings have resulted in the wellbeing of the travel industry.There has been a steady rise in room prices, which hotel chain executives say will not come down soon, per an article published on CNBC. A recent Biden administration’s decision to repeal COVID-19 testing for inbound international air travelers has also aided the travel and leisure industry.The CNBC article indicated that Hyatt president and CEO Mark Hoplamazian said on “Squawk on the Street” on Tuesday that foreign travelers to the United States tend to spend a lot more than domestic travelers. Hence, hotel industry will get a huge benefit from no pre-departure COVID-19 testing now onward as it will boost international inbound travel.Agreed. There is a wall of worry as inflation is running high and has the ability to slow down economic growth (or even cause a recession). But such warnings are failing to cool down the hotel industry’s demand.Marriott CEO Tony Capuano said that over Memorial Day weekend the company’s revenue per available room was up about 25% in 2022 compared to 2019. Marriott’s luxury portfolio recorded a nearly 30% increase in rates in the first quarter of 2022 compared to 2019. The CEO of IHG Hotels & Resorts also expects travel and hotel demand to continue growing for the rest of the year.Hilton CEO Chris Nassetta is predicting that the hotel chain will “have the biggest summer we’ve ever seen in our 103-year history this summer,” per the CNBC article. Nassetta said that two things are keeping the hotel industry’s demand in fine fettle: the leisure consumers’ more than $2.5 trillion in additional savings, and strong corporate balance sheets. Plus, lack of capacity expansion is causing less supplies in the hotel industry and driving prices.STR and Tourism Economics have upgraded the recovery timeline for U.S. hotel revenue per available room (RevPAR). On a nominal basis, Occupancy for 2022 is expected to come in under the pre-pandemic comparable, while ADR and RevPAR are forecast at $14 and $6 higher than 2019, respectively. When adjusted for inflation, full recovery of ADR and RevPAR are not expected until 2024.The foodservice industry is forecast to touch $898 billion in sales in 2022, returning to the pre-COVID pandemic trajectory, the National Restaurant Association said. Pent-up demand for restaurant dining has also increased. Not only hotels and restaurants, airlines are also charging higher.Despite high inflation, consumers seem willing to spend more for airline tickets after keeping their travel plans on hold for about two years. The summer season has also been propelling them to indulge on such activities. Several companies are also asking employees to return, which in turn, may push up business travel to some extent (read: Airlines ETF Stuck Between Revenue & Cost Increases).Any Wall of Worry?There has been a surge in COVID-19 infections. U.K. COVID-19 cases rose for the first time in two months in the week to Jun 2, according to new estimates from the Office of National Statistics. The same is happening in countries like China and India. China's capital Beijing is experiencing an "explosive" COVID-19 outbreak connected to bars, a government spokesman said on Saturday, as the commercial hub, Shanghai, conducted mass testing to contain a jump in cases tied to a hair salon, as quoted on Reuters.Even if we have handled the latest strain Omicron, further mutations of the virus may continue to throw the global market occasionally in a wavering zone. The central banks will not likely be of much support anymore and massive fiscal support is also unlikely. All these factors may weigh on the travel sector all over again.Reopening-Friendly ETFs in FocusAgainst this backdrop, below we highlight a few travel and leisure ETFs that beat the S&P 500 (down 1%) past month (as of Jun 10, 2022).AdvisorShares Hotel ETF BEDZ – Up 1% Past MonthAdvisorShares Restaurant ETF EATZ – Up 0.7%ALPS Global Travel Beneficiaries ETF JRNY – down 0.5%   Want key ETF info delivered straight to your inbox? Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week.Get it free >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report AdvisorShares Restaurant ETF (EATZ): ETF Research Reports AdvisorShares Hotel ETF (BEDZ): ETF Research Reports ALPS Global Travel Beneficiaries ETF (JRNY): ETF Research Reports To read this article on click here. Zacks Investment Research.....»»

Category: topSource: zacksJun 15th, 2022

"Economic Hurricane" – Hyperbole Or Real Possibility?

"Economic Hurricane" – Hyperbole Or Real Possibility? Authored by Lance Roberts via, An “economic hurricane” is coming. That ominous warning comes from Jamie Dimon, CEO of J.P. Morgan Chase. “I said there were storm clouds. But I’m going to change it. It’s a hurricane. Right now it’s kind of sunny, things are doing fine, and everyone thinks the Fed can handle it. That hurricane is right out there down the road coming our way. We don’t know if it’s a minor one or Superstorm Sandy. You better brace yourself.” Of course, he isn’t the only CEO feeling this way. The most recent CEO Confidence Index suggests that most leaders are concerned about the economy over the next few quarters. Adding to that, the NFIB Small Business Survey also suggests that the economic backdrop is deteriorating rapidly. The chart below shows the number of firms expecting an economic improvement over the next 6-months. That number plunged to the lowest reading ever. Of course, businesses are gloomy because consumer confidence, which is where they derive their revenue and profits, suggests dismal growth ahead. Our consumer confidence composite index (UofM and Conference Board measures) of expectations less current conditions is already at levels associated with previous bear markets and corrections. So, is Jamie Dimon being hyperbolic, or is there a genuine concern for an economic hurricane? The Storm Clouds Are Closer Than They Appear Dimon’s two primary concerns about the economy are valid – the risk of a Fed policy mistake and the war between Russia and Ukraine. I am personally concerned about the first risk more than the second. An honest review of history shows the Fed is consistently a “day late and a dollar short” regarding monetary policy. The history of “financial accidents” due to the Fed’s monetary intervention schemes is evident. Not just over the last decade, but since the Fed became “active” in 1980. What should be evident is that before the Fed became active, economic growth was accelerating. There were few crisis events, and economic prosperity was broad. However, post-1980, the trend of economic growth declined. There are many reasons leading up to each event. However, the common denominator is the Fed tightening monetary policy. Notably, Fed rate hiking campaigns correlate with poor financial market outcomes, as higher rates impacted the credit and leverage markets. Such is where I agree with Dimon considering his comments on monetary policy. “We’ve never had QT like this, so you’re looking at something you could be writing history books on for 50 years,” When the Fed reduced its balance sheet in 2018, it ran at a pace of $30 billion monthly with very low inflation. Starting this month, the Fed will be ramping up that reduction to 3-times the previous run rate, with inflation at nearly 9%. While they believe they can achieve this reduction without disrupting the equity markets or causing an economic contraction, history suggests otherwise. The Russia/Ukraine conflict, rising interest rates, and soaring commodity costs exacerbate the collapse in confidence. Such has already significantly tightened monetary policy, elevating the risk that the Fed will again make a “policy mistake.“ Preparing For An Economic Hurricane From our perspective, I had often disagreed with Mr. Dimon’s outlooks (see here), like in December 2019 when he stated: “This is the most prosperous economy the world has ever seen. It’s going to be a very prosperous economy for the next 100 years.” – Jamie Dimon That statement didn’t age well. Just 3-months later, the economy plunged into the deepest recession since the “Great Depression.” However, this time I don’t. The risk of an “economic hurricane” is certainly elevated. But as someone who grew up on the Gulf Coast, Hurricanes can be unpredictable. More than once, my Dad and I boarded up windows and stocked up on non-perishable food and water, only to see the storm change course at the last minute. However, the preparation, while wasted, was better than the alternative. Between soaring inflation, falling wages, slowing economic growth, and a Fed bent on tightening monetary policy, there is a storm on the horizon. The magnitude, timing, and location of the “economic hurricane” are still anyone’s best guess. All we can do is prepare for the storm and then cross our fingers and hope for the best. The guidelines are simplistic but ultimately effective. Raise cash levels in portfolios Reduce equity risk, particularly in high beta growth areas. Add or increase the duration in bond allocations which tend to offset risk during quantitative tightening cycles. Reduce exposure to commodities and inflation plays as economic growth slows. If the hurricane hits, preparing for the storm in advance will allow you to survive the impact. It is a relatively straightforward process to reallocate funds to equity risk if it doesn’t. Given the numerous shocks to the system happening concurrently, I think investors will need more than just an umbrella to survive it. Tyler Durden Tue, 06/14/2022 - 12:45.....»»

Category: blogSource: zerohedgeJun 14th, 2022

Is "Normalcy Bias" Blinding Us To The Looming Economic Storm?

Is 'Normalcy Bias' Blinding Us To The Looming Economic Storm? Authored by Michael Maharrey via, Average people are worried about the economy. Consumer confidence has been falling. People undoubtedly feel the squeeze of inflation. But despite their general discontent, most people don’t seem to think a severe economic downturn is imminent - despite many warning signs. Why not? Peter Schiff has been warning that a recession is in all likelihood already here. In a recent interview on NTD News, he emphasized that the economic downturn will be much deeper than anybody expects. I don’t think it’s going to be a mild recession. I think this recession is going to be worse than the Great Recession that started following the 2008 financial crisis.” But most people remain sanguine about the economy. They may fret a bit about ongoing inflation – as reflected in the consumer sentiment numbers – but they assume the Fed will be able to tame the inflation dragon with some modest monetary tightening. They even concede this might cause a minor recession, but the mainstream believes Jerome Powell when he claims the economy is strong enough to handle higher interest rates and some balance sheet reduction. Virtually nobody besides Schiff and a few other contrarians sees anything major economic problems coming down the pike. But as Schiff pointed out in that same interview, nobody saw the 2008 recession coming either. In fact, when we were six or seven months into that recession, the Federal Reserve and other economists still claimed that there was no recession anywhere in sight. So, this recession is going to be much worse than that one.” In retrospect, the signs of a housing crash were pretty obvious in 2006 and early 2007. It was apparent that there were serious problems in early ’08. But almost nobody in the mainstream saw the financial crisis and Great Recession coming. Like today, there were only a few voices in the wilderness sounding a warning. Why is it that so few people are prepared for economic crashes when the warning signs are so obvious? There are certainly many factors, but one likely reason people don’t can’t see the train hurtling down the tracks is a psychological phenomenon known as “normalcy bias.” In a nutshell, normalcy bias is a form of denial based on the assumption that everything will continue as normal. Here’s a more formal definition. Normalcy bias is a psychological state of denial people enter in the event of a disaster, as a result of which they underestimate the possibility of the disaster actually happening, and its effects on their life and property. Their denial is based on the assumption that if the disaster has not occurred until now, it will never occur.” In simple terms, it’s the “it can’t happen to me (or us)” syndrome. Normalcy bias leads to inaction. It’s one of the reasons people often ignore hurricane warnings. The assumption is “we haven’t ever had a hurricane yet, and if we do, it probably won’t be that bad.” According to PsycholoGenie, there may be some evolutionary basis for normalcy bias. There is a theory that associates normalcy bias with the evolutionary aspect, that suggests that paralysis gives an animal a better chance of survival because predators are less likely to attack and feed on something that isn’t moving.” That’s great if predators are hunting you in the jungle. It’s not so great if an economic disaster is looming. I think normalcy bias is one of the reasons the Federal Reserve’s transitory inflation narrative gained so much traction. Despite the money printing after the 2008 financial crisis, consumer prices never rose as many predicted. Instead, inflation manifested in asset prices, particularly stocks and real estate. This led Fed policymakers to assume they could do quantitative easing again – and even double down on it – without severely impacting consumer prices. Of course, the dynamics were different during the pandemic. Not only was the Federal Reserve printing trillions of dollars, but the US government was also handing out cash in the form of stimulus checks, even as most Americans were sitting at home producing nothing. This was a recipe for rapidly rising consumer prices. But normalcy bias kicked in. We were told, “Inflation didn’t happen before, so don’t worry, it won’t happen now.” An assumption set in – things will continue as they always have. And when prices started to spike, these same people assured us that it was transitory. All along, Schiff was warning that inflation wasn’t transitory. But pretty much nobody listened. Similarly, I think normalcy bias has played a role in gold and silver’s lackluster performance in recent months. As Schiff put it in a video on the recent performance of gold, “Even though we have a lot of inflation today, investors still think we won’t have inflation tomorrow.” Because the Fed has been able to raise interest rates to keep inflation at bay in the past, the mainstream just assumes it will be able to modestly raise rates and keep inflation at bay this time around. Never mind that there are different dynamics in play and plenty of signs that inflation will likely remain entrenched over the coming months. Normalcy bias has blinded people to the fact that it would require a Paul Volker style hike to push real interest rates into positive territory — the only cure for inflation. At some point, reality will cut through the normalcy bias. It always does. But when the mainstream wakes up, it’s too late. As you survey the economic landscape, be aware of normalcy bias. There is no reason to assume things will continue as they always have. Keep your eyes on the economic data, analyze it objectively and keep basic economic principles in mind. And then, prepare accordingly. Tyler Durden Fri, 06/03/2022 - 06:30.....»»

Category: blogSource: zerohedgeJun 3rd, 2022

Is "Normalcy Bias" Blinding Us to the Looming Economic Storm?

Is 'Normalcy Bias' Blinding Us to the Looming Economic Storm? Authored by Michael Maharrey via, Average people are worried about the economy. Consumer confidence has been falling. People undoubtedly feel the squeeze of inflation. But despite their general discontent, most people don’t seem to think a severe economic downturn is imminent - despite many warning signs. Why not? Peter Schiff has been warning that a recession is in all likelihood already here. In a recent interview on NTD News, he emphasized that the economic downturn will be much deeper than anybody expects. I don’t think it’s going to be a mild recession. I think this recession is going to be worse than the Great Recession that started following the 2008 financial crisis.” But most people remain sanguine about the economy. They may fret a bit about ongoing inflation – as reflected in the consumer sentiment numbers – but they assume the Fed will be able to tame the inflation dragon with some modest monetary tightening. They even concede this might cause a minor recession, but the mainstream believes Jerome Powell when he claims the economy is strong enough to handle higher interest rates and some balance sheet reduction. Virtually nobody besides Schiff and a few other contrarians sees anything major economic problems coming down the pike. But as Schiff pointed out in that same interview, nobody saw the 2008 recession coming either. In fact, when we were six or seven months into that recession, the Federal Reserve and other economists still claimed that there was no recession anywhere in sight. So, this recession is going to be much worse than that one.” In retrospect, the signs of a housing crash were pretty obvious in 2006 and early 2007. It was apparent that there were serious problems in early ’08. But almost nobody in the mainstream saw the financial crisis and Great Recession coming. Like today, there were only a few voices in the wilderness sounding a warning. Why is it that so few people are prepared for economic crashes when the warning signs are so obvious? There are certainly many factors, but one likely reason people don’t can’t see the train hurtling down the tracks is a psychological phenomenon known as “normalcy bias.” In a nutshell, normalcy bias is a form of denial based on the assumption that everything will continue as normal. Here’s a more formal definition. Normalcy bias is a psychological state of denial people enter in the event of a disaster, as a result of which they underestimate the possibility of the disaster actually happening, and its effects on their life and property. Their denial is based on the assumption that if the disaster has not occurred until now, it will never occur.” In simple terms, it’s the “it can’t happen to me (or us)” syndrome. Normalcy bias leads to inaction. It’s one of the reasons people often ignore hurricane warnings. The assumption is “we haven’t ever had a hurricane yet, and if we do, it probably won’t be that bad.” According to PsycholoGenie, there may be some evolutionary basis for normalcy bias. There is a theory that associates normalcy bias with the evolutionary aspect, that suggests that paralysis gives an animal a better chance of survival because predators are less likely to attack and feed on something that isn’t moving.” That’s great if predators are hunting you in the jungle. It’s not so great if an economic disaster is looming. I think normalcy bias is one of the reasons the Federal Reserve’s transitory inflation narrative gained so much traction. Despite the money printing after the 2008 financial crisis, consumer prices never rose as many predicted. Instead, inflation manifested in asset prices, particularly stocks and real estate. This led Fed policymakers to assume they could do quantitative easing again – and even double down on it – without severely impacting consumer prices. Of course, the dynamics were different during the pandemic. Not only was the Federal Reserve printing trillions of dollars, but the US government was also handing out cash in the form of stimulus checks, even as most Americans were sitting at home producing nothing. This was a recipe for rapidly rising consumer prices. But normalcy bias kicked in. We were told, “Inflation didn’t happen before, so don’t worry, it won’t happen now.” An assumption set in – things will continue as they always have. And when prices started to spike, these same people assured us that it was transitory. All along, Schiff was warning that inflation wasn’t transitory. But pretty much nobody listened. Similarly, I think normalcy bias has played a role in gold and silver’s lackluster performance in recent months. As Schiff put it in a video on the recent performance of gold, “Even though we have a lot of inflation today, investors still think we won’t have inflation tomorrow.” Because the Fed has been able to raise interest rates to keep inflation at bay in the past, the mainstream just assumes it will be able to modestly raise rates and keep inflation at bay this time around. Never mind that there are different dynamics in play and plenty of signs that inflation will likely remain entrenched over the coming months. Normalcy bias has blinded people to the fact that it would require a Paul Volker style hike to push real interest rates into positive territory — the only cure for inflation. At some point, reality will cut through the normalcy bias. It always does. But when the mainstream wakes up, it’s too late. As you survey the economic landscape, be aware of normalcy bias. There is no reason to assume things will continue as they always have. Keep your eyes on the economic data, analyze it objectively and keep basic economic principles in mind. And then, prepare accordingly. Tyler Durden Fri, 06/03/2022 - 06:30.....»»

Category: blogSource: zerohedgeJun 3rd, 2022

Futures Rise For The First Time This Week As Oil Slumps

Futures Rise For The First Time This Week As Oil Slumps US futures advanced for the first time this week, as investors tentatively bought the dip and were cheered by a drop in oil prices. S&P 500 futures were 0.6% higher by 7:30 am in New York, while Nasdaq 100 futs gained 0.7%. Already light trading volumes are even lower, with UK markets shut for a long weekend holiday to mark Queen Elizabeth II’s Platinum Jubilee. Stocks slumped Wednesday after JPMorgan CEO Jamie Dimon’s warning to investors to prepare for an economic “hurricane”, reversing his cheerful comments from just one week earlier, and disagreeing with JPMorgan’s permabullish strategist, Marko Kolanovic, who expects stocks to rebound by the end of the year and the US to avoid recession. Treasuries held losses, with 10-year yields above 2.90%. The dollar slipped while the yen held near 130 per dollar after its recent decline on the prospect of widening interest rate differentials with the US. Oil dropped on a rehashed report - this time from the FT which echoed an almost verbatim report from the WSJ one day earlier - that Saudi Arabia could pump more crude should Russian output drop substantially due to increasing sanctions over its invasion of Ukraine. It could, of course, but it won't for various reasons we will discuss in a post shortly. In any case, OPEC+ meeting members are set to meet Thursday for their monthly gathering where no break up of OPEC+ is going to happen. It seems that #OPEC+ will continue its current policy of monthly increases until September, after which, depending on the market conditions, production limits will be lifted. In any case, we expect to see another lackluster meeting, as in previous months./3 #OOTT — Reza Zandi (@R_Zandi) June 2, 2022 Oil’s decline helped to steady sentiment after US manufacturing activity and job openings data Wednesday fueled concern the Federal Reserve will need to get more restrictive to slow runaway price gains. “There’s been a large correction in some stocks; those corrections led to valuations that are way more attractive that can benefit medium-to long-term investors, especially in Europe and the emerging-markets space,” Vanguard Asset Services Ltd. Investment Strategist Giulio Renzi Ricci said on Bloomberg TV, summarizing prevailing sentiment among the BTFD crowd. In premarket trading, bank stocks are higher as the US 10-year Treasury yield rises for a third straight day to about 2.91%. Elsewhere, Repare Therapeutics will be in focus as shares soared 20% in postmarket after it announced a worldwide license and collaboration agreement with Roche for Camonsertib, while GameStop reported mixed results in the first quarter as it shifts to cryptocurrencies and non-fungible tokens. In corporate news, tech-bloated hedge fund Tiger Global Management’s losses for the year reached 51.8% amid turbulent markets. Here are some other notable premarket movers: Hewlett Packard Enterprise (HPE US) drops as much as 8.1% in US premarket trading on Thursday after the computer hardware and storage company lowered its adjusted earnings per share forecast for the full year. Chewy (CHWY US) shares are up 16% in pre- market trading after the online pet products retailer reported quarterly adjusted Ebitda and net sales that topped analysts’ expectations. Jefferies called the results “impressive.” NetApp Inc. (NTAP US) shares gained in extended trading Wednesday. Analysts remain cautious about the outlook for the cloud business after the storage hardware and software company reported adjusted fourth-quarter earnings that were higher than analysts’ expectations. Inc. (AI US) tumbled 22% postmarket after the AI software company forecast revenue for fiscal 2023 that fell short of estimates. Piper Sandler’s analyst Arvind Ramnani cut his recommendation to neutral from overweight. Veeva (VEEV US)shares advanced 4.2% in postmarket trading Wednesday as it lifted its revenue forecast for the full year. Investors have been on edge over when (not whether) the US central bank’s tighter policies will induce a recession. A chorus of Fed officials has fallen behind calls to keep hiking to counter price pressures. Mary Daly of the San Francisco Fed and her more hawkish colleague James Bullard of St. Louis both backed a plan to raise rates by 50 basis points this month, while Richmond’s Thomas Barkin said it made “perfect sense” to tighten policy. “We do see the rise in probability of a recession in the second half of this year, potentially persisting into 2023 as the Fed continues to battle inflation,” Tracie McMillion, Wells Fargo Investment Institute head of global asset allocation strategy, said on Bloomberg Television. In Europe, the Stoxx 600 Index advanced amid low session volumes with the London market closed in commemoration of the Queen’s Jubilee festivities. Here are some of the biggest European movers today: Remy Cointreau shares advance as much as 5.6% after the spirits company reported FY earnings that Morgan Stanley called “reassuring.” Peer Pernod Ricard also climb, as much as 3.1%. Calliditas Therapeutics rise as much as 16% after Pareto Securities initiated with a buy recommendation, calling the Swedish biotechnology firm “highly undervalued” and a potential acquisition target. European energy stocks underperformed as oil slipped following a report that Saudi Arabia is ready to pump more should Russian output decline substantially. Earlier in the session, Asian markets were dragged lower by the technology sector, as strong US economic data bolstered the case for aggressive interest-rate hikes by the Federal Reserve. The MSCI Asia Pacific Index dropped as much as 1.2% as most sectors fell, with tech shares including TSMC and Alibaba among the biggest drags. South Korea led declines in the region as traders returned from a holiday, while China stocks eked out gains after authorities urged banks to set up a 800 billion yuan ($120 billion) line of credit for infrastructure projects.  An unexpected advance in US manufacturing activity and still-high job openings added to investor concerns about monetary tightening in the country and its impact on global growth. James Bullard of the St. Louis Fed urged policy makers to raise interest rates to 3.5% this year to try and curb inflation. The US policy outlook adds to pressure on Asian firms, whose earnings prospects have dimmed on higher costs and China’s economic slowdown. The MSCI regional benchmark is down 13% this year, largely tracking the S&P 500’s 14% loss. “We do think near term it’s likely to be bumpy,” Sunil Koul, Apac equity strategist at Goldman Sachs, told Bloomberg Television. “This combination of quantitative tightening, raising rates, combined with some growth risks we are seeing and a stronger dollar is what is causing pain in the markets.” Japanese stocks fell as the persistent risk of global inflation and the prospects of tighter monetary policy in the US damped sentiment.  The Topix closed 0.6% lower at 1,926.39 at the 3pm close in Tokyo, while the Nikkei 225 declined 0.2% to 27,413.88. Sony Group contributed the most to the Topix’s decline, decreasing 3.2%. Out of 2,171 shares in the index, 675 rose and 1,402 fell, while 94 were unchanged. “There are still worries over inflation in the US and rate hikes, so it will be quite hard for stocks to enter an upward trend,” said Hitoshi Asaoka, a senior strategist at Asset Management One.  Stocks in India overcame concerns over hawkish central bank moves to snap two days of declines as a drop in oil prices and attractive valuations buoyed investors. The S&P BSE Sensex rose 0.8% to 55,818.11 in Mumbai, while the NSE Nifty 50 Index advanced 0.6%. Reliance Industries provided the biggest boost to the key gauges, surging 3.5%, followed by software majors Infosys and Tata Consultancy Services.  Of the 30 member stocks on the Sensex, 20 rose, while 10 declined. All but four of the 19 sectoral indexes compiled by BSE Ltd., rose, led by a measure of energy companies. Stocks in Asia were mostly lower after strong US economic data bolstered the case for aggressive interest-rate hikes by the Federal Reserve. However, the trend soon changed as investors assessed attractive valuations, while crude oil slid to $113 a barrel before the monthly OPEC+ meeting later today. “Nifty valuations are now at a sweet spot where they offer good potential returns,” DSP Mutual Fund said in note. About half of the NSE Nifty 500 Index’s members have corrected more than 30%, which creates selective opportunities, the asset manager said. In Australia, the S&P/ASX 200 index fell 0.8% to close at 7,175.90, following US shares lower after Fed officials reinforced a hawkish stance and JPMorgan’s Jamie Dimon cautioned on the economy. Megaport led a drop in technology shares. Woodside was the top performer after a block trade. In New Zealand, the S&P/NZX 50 index fell 0.2% to 11,349.54. In FX, the Bloomberg Dollar spot Index fell as the greenback traded weaker against all of its Group-of-10 peers. The euro snapped two days of losses and approached $1.07. One-week options in euro-dollar now capture the next ECB meeting, and implied volatility in the euro heads for its strongest close since mid-May. The pound retraced about half of Wednesday’s loss, with UK markets shut for a holiday. Australia’s bonds dropped amid speculation that the Reserve Bank of Australia will follow its Canadian counterpart and keep raising rates aggressively. The yen fell to a three-week low before reversing losses. US Treasuries were flat in early US trading as equity futures rose for the first time this week. The 10Y Yield is trading unch at 2.91%, outperforming most euro-zone counterparts, with 2- to 5-year yields cheaper by 1bp-2bp with 10- to 30-year yields little changed, flattening 5s30s by ~2bp. IG dollar issuance slate empty so far; nine borrowers priced $14.6b Wednesday, largest daily total since May 17. European bonds posted modest losses after a steady start. As noted above, crude oil slid on a report that Saudi Arabia is ready to pump more oil if Russian output declines. OPEC+ is scheduled to meet to discuss supply policy, where it is not expected to surprise anyone. At last check, Brent was trading just above $113, and although the benchmark lifted around $1/bbl off of its overnight troughs, this has marginally pulled back. Looking at the day ahead, the economic data slate includes May Challenger job cuts (7:30am), ADP employment change (8:15am), 1Q final nonfarm productivity and initial jobless claims (8:30am) and April factory orders (10am). Fed speakers slated include Logan (12pm) and Mester (1pm). Market Snapshot S&P 500 futures up 0.5% STOXX Europe 600 up 0.5% MXAP down 0.7% to 167.84 MXAPJ down 0.8% to 552.13 Nikkei down 0.2% to 27,413.88 Topix down 0.6% to 1,926.39 Hang Seng Index down 1.0% to 21,082.13 Shanghai Composite up 0.4% to 3,195.46 Sensex up 0.8% to 55,825.08 Australia S&P/ASX 200 down 0.8% to 7,175.94 Kospi down 1.0% to 2,658.99 German 10Y yield up 2bps to 1.21% Euro up 0.4% to $1.0689 Brent futures down 2.3% to $113.65/bbl Gold spot up 0.3% to $1,851.88 U.S. Dollar Index down 0.3% to 102.23 Top Overnight News President Joe Biden is likely to visit Saudi Arabia later this month as part of an international trip for NATO and Group of Seven meetings, according to people familiar with the matter, with record high US gas prices weighing on his party’s political prospects The ECB must pare back stimulus as inflation is too strong and too broad, Governing Council member Francois Villeroy de Galhau said EU efforts to approve a partial ban on Russian oil imports hit an obstacle after Hungary raised new or already rejected demands, further slowing a push to clinch a deal, according to people familiar with the negotiations The pound is coming off the first positive month of 2022, but the mood in the market is as bleak as ever. Scorching inflation, an economy teetering on the edge of recession and a scandal-prone government are feeding into a view that the UK currency is vulnerable After years of pushing exports to China and building up energy links to Russia, Germany’s economy faces a poisonous cocktail of risks. Its heavy reliance on manufacturing makes it more vulnerable than European peers to war-related disruptions in Russian energy supplies and bottlenecks in trade. The upshot is risk of contraction and even higher prices squeezing unsettled consumers Beijing is turning to state-owned policy banks once again to help rescue an economy under strain, ordering them to provide 800 billion yuan ($120 billion) in funding for infrastructure projects Chinese officials have vowed to carry out a slew of government policies to stimulate growth following Premier Li Keqiang’s recent call to avoid a Covid- fueled economic contraction this quarter A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks followed suit to the subdued performance seen in global peers after the recent upside in yields and hawkish central bank rhetoric. ASX 200 was dragged lower by underperformance in tech and weakness in financials, with sentiment also not helped by frictions with China. Nikkei 225 lacked firm direction with automakers indecisive following sharp declines in their US sales last month. Hang Seng and Shanghai Comp traded mixed ahead of the Dragon Boast Festival tomorrow and with Hong Kong suffering from notable losses in property names and tech, while losses in the mainland were pared amid COVID-related optimism and after the latest support efforts in which Beijing announced CNY 800bln of increased credit quotas for state-owned policy banks to fund the construction of infrastructure projects. Top Asian News China's Ambassador to Australia said that Beijing is prepared to talk with Australia without preconditions but added that trade sanctions on Australia will not be removed until there is an improvement in the political relationship, according to AFR. China's Global Times tweeted that Chinese Coast Guard vessels patrolled the territorial waters off the Diaoyu Islands (Senkaku Islands) on Thursday, which is a disputed territory with Japan. Japan's Chief Cabinet Secretary Matsuno confirmed that the government wants to increase the average minimum wage to JPY 1000, according to Reuters. China's Commerce Ministry, on the US considering adding additional firms to the blacklist, says they will adopt measures to protect Chinese firms. A group of nations are to make a request for an international labour organisation mission to China to probe alleged violation in Xinjiang at a meeting today, according to Reuters sources. Chinese Officials Vow to Carry Out Plans for Economic Stimulus Toshiba Reveals Buyout Bids as Privatization Chances Rise Hong Kong Quarantine Backtrack Stokes Fears of Covid Zero Return European bourses are posting modest gains, Euro Stoxx 50 +0.6%, though volumes are lighter given UK Spring Bank Holiday. Stateside, futures are firmer across the board, ES +0.5%, with action similarly contained ahead of a busy PM docket featuring ADP and Fed's Mester. Top European News Deutsche Bank CEO’s Fixer Hoops Takes Another Leap as DWS Chief Ukraine Latest: Russia Ready to Settle Eurobond Payment Claims Euro Options Into ECB Meeting Are Now Most Overpriced in a Month Swiss Exchange Investigates Swissquote for Disclosure Delay FX Pound pounces on Dollar downturn to reclaim 1.2500 handle as UK prepares for Platinum Jubilee celebrations. DXY sub-102.500 amidst broad bounce in index components led by Franc initially; USD/CHF reverses around 0.9600 axis in wake of Swiss inflation data showing bigger overshoot vs SNB targets. Euro eyes 1.0700, but capped by hefty option expiry interest from round number up to 1.0740. Kiwi and Aussie boosted by recovery in risk sentiment, but Loonie lags as WTI sags on reports of Saudi Arabia standing ready to cover any shortfall in Russian oil output; NZD/USD probes 0.6500, AUD/USD approaches 0.7200 and Usd/Cad 1.2650+ Yen retrieves some losses as Greenback retreats and US Treasury yields slip from peaks ahead of busy pm agenda, USD/JPY circa 129.70 compared to 130.24 overnight peak. Fixed Income Bunds and Eurozone peers extend recent losing streak to set deeper cycle lows in futures/high yields, without Liffe support and despite steady US Treasuries. 10 year German benchmark down to 150.29 and 1.21%+ in cash terms. Multi-tranche Spanish and French issuance draw mixed covers irrespective of concession. T-note holds around par within 118-30+/18+ range awaiting slew of US data and more Fed speakers. Commodities WTI and Brent remain pressured after overnight FT reports re. Saudi being prepared to pump more oil if Russian output declines. Though, the benchmarks have lifted around USD 1/bbl off of their respective overnight troughs at best; however, this has marginally pulled back. Reminder, the JMMC commences from 13:00BST/08:00ET with the OPEC+ event following ~30-minutes later. US Private Energy Inventory Data (bbls): Crude -1.2mln (exp. -1.4mln), Gasoline -0.3mln (exp. +0.5mln), Distillate +0.9mln (exp. +1.0mln), Cushing +0.2mln. Norway's Hammerfest liquefied natural gas plant has restarted LNG production following a fire 20 months ago, according to Equinor (EQNR NO). Spot gold is bid but has failed to gain much additional traction after breaching USD 1850/oz and the 10-DMA at USD 1851.3/oz; base metals are bid ahead of the long Chinese weekend for Dragon Boat Festival. US Event Calendar 8:15am: U.S. ADP Employment Change, May, est. 300k, prior 247k 8:30am: U.S. Initial Jobless Claims, May 28, est. 210k, prior 210k; Continuing Claims, May 21, est. 1340k, prior 1346k 8:30am: U.S. Nonfarm Productivity, 1Q F, est. -7.5%, prior -7.5% 10am: U.S. Durable Goods Orders, April F, est. 0.4%, prior 0.4% 10am: U.S. Factory Orders, April, est. 0.6%, prior 2.2%, revised prior 1.8%; -Less Transportation, April F, est. 0.3%, prior 0.3% 10am: U.S. Cap Goods Orders Nondef Ex Air, April F, est. 0.4%, prior 0.3% 10am: U.S. Cap Goods Ship Nondef Ex Air, April F, no est., prior 0.8% DB's Tim Wessel concludes the overnight wrap Filling in while the UK is on holiday, I hope my use of “Z’s” and neglect of “U’s” does not prove jarring to regular readers. The start of the month was jarring to many asset holders, as bond and equities both sold off with more evidence that labor markets are historically tight while inflation remains well above target. Meanwhile, the Fed’s beige book provided anecdotes of slowing growth in some districts, while a majority of districts had respondents expecting growth to slow in the near future. St. Louis Fed President and Hawk Emeritus James Bullard joined San Francisco Fed President to echo previous Fed communications that policy would expeditiously get to neutral, while the CEO of J.P. Morgan gave the gloomy growth narrative his imprimatur. The mix drove policy pricing higher and all but one sector in the S&P lower. North of the border, the Bank of Canada hiked rates another +50bps, layering hawkish guidance into the statement such as “the risk of elevated inflation becoming entrenched has risen.” While in Europe, ECB Governing Council member Holzmann sang the virtues of a +50bp hike (in line with our Europe team’s updated ECB call, found here). Stepping through the developments. The rate selloff began in earnest following the mid-morning data dump in the US, which included May ISM manufacturing and April JOLTS data. The ISM print surprised to the upside at 56.1 versus expectations of 54.5, while prices paid printed at 82.2 versus expectations of 81.0. Meanwhile, the JOLTS data across quits, hiring, and opening painted an historically tight labor market picture, with the vacancy yield (hires-per-job opening) hitting a record low. The March revisions also leaned tighter. The data re-emphasized that policy would need to get much tighter to do the work of actually bringing inflation down despite bubbling fears that the growth outlook was on shaky footing. The Treasury curve sold off and flattened, with 2yr yields gaining +8.5bps and the 10yr yield increasing +6.2bps, with real yields gaining +6.1bps in line with the tighter expected policy path. Two of the more germane policy path questions – how to size the September hike and what is terminal – moved tighter, in turn. The odds of a +50bp September move reached a month-high 65%, while terminal pricing moved back north of 3.1%. Presidents Bullard and Daly, typically taking opposing corners in the ideological ring, both re-emphasized the need to tighten policy expeditiously to neutral in light of runaway inflation. While policymakers debate where neutral is and what to do once there, support to get there fast is robust; it is best to heed their harmonious message the next time growth fears or falling risk assets drive policy pricing lower. Balance sheet policy will augment tightening as June marks the start of the Fed’s balance sheet normalization process, or QT. For more details on what that entails, I published a playbook on QT in conjunction with US rates and economics colleagues, found here. Steeper policy paths gripped north of the border and across the Atlantic as well. On the latter, Austrian central bank governor Holzmann said that “a 50 basis-point rise would send the necessary clear signal that the ECB is serious about fighting inflation”, leading OIS rates to price in +38bps by the July meeting. Longer-dated sovereign yields sold off in concert, with 10yr bunds (+6.4bps), OATs (+6.6bps) and BTPs (+8.5bps) hitting fresh multi-year highs. The spread of 10yr Italian yields over bunds also moved back above 200bps. The Bank of Canada hiked rates +50bps as expected, though weaved in restrictive guidance that gave the meeting a hawkish hue. Namely, the central bank warned they could be “more forceful” if needed, updating their statement to note that the economy was “clearly operating in excess demand”, which risked elevated inflation becoming yet more entrenched, as mentioned. The daily stew got a dose of anecdotal growth fears with the release of the beige book and comments from the CEO of J.P. Morgan warning that an economic “hurricane” was on the horizon. The beige book had a majority of Fed districts with contacts reporting growth or recession fears. The impact was to bring 10yr yields around 5bps below their intraday highs. Those yields are less than a basis point higher from those levels as we go to press this morning. The mixture drove equities lower on both sides of the Atlantic. The S&P 500 retreated -0.75% to start the month, with all but one sector in the red. The NASDAQ was in line, falling -0.72%, though mega cap growth FANG+ felt the impact of higher discount rates, falling -0.92%. In Europe, stocks underperformed as the continent countenances yet tighter monetary policy, with the STOXX 600 falling -1.04%. Energy was the sole gainer in the S&P, though that outperformance may be short lived as the FT reported overnight that Saudi Arabia was primed to pump more oil onto the market should Russian exports be crimped by sanctions. Brent crude futures are -1.67% lower ahead of the OPEC+ meeting today. Asian equity markets are trading lower following yesterday’s selloff. Across the region, the Hang Seng (-1.72%) is the largest underperformer after the local government decided to revive its toughest Covid-Zero measures as Covid variants flare. US stock futures are swinging between gains and losses with contracts on the S&P 500 (+0.04%), NASDAQ 100 (+0.07%) virtually unchanged. Elsewhere, early morning data showed that Australia’s April trade surplus swelled to A$10.5 bn (v/s A$9.0 bn) from the A$9.7 bn. In terms of yesterday’s other data, German retail sales fell by a larger-than-expected -5.4% (vs. -0.5% expected). Otherwise, the final manufacturing PMIs for May only diverged slightly from the flash readings. The Euro Area manufacturing PMI was revised up to 54.6 (vs. flash 54.4), but the US manufacturing PMI was revised down to 57.0 (vs. flash 57.5). To the day ahead now, and data releases include the Euro Area’s PPI for April, as well as the US weekly initial jobless claims, April’s factory orders, and the ADP’s report of private payrolls for May. Central bank speakers include the ECB’s Villeroy and Hernandez de Cos, along with the Fed’s Mester. Tyler Durden Thu, 06/02/2022 - 08:03.....»»

Category: smallbizSource: nytJun 2nd, 2022

Futures Slip As Traders Read Between Powell"s Lines

Futures Slip As Traders Read Between Powell's Lines After yesterday's torrid, Powell-inspired meltup which saw the S&P soar the most since May 2020 (just days after its biggest drop since June 2020)... In the past week, S&P 500 has had both its best day since May 2020 and its worst day since June 2020 [Past performance is no guarantee of future results] — Liz Ann Sonders (@LizAnnSonders) May 5, 2022 ... U.S. futures paused their surge after Jerome Powell eased fears that the Federal Reserve will unleash an even more aggressive tightening path and took a 75bps rate hike off the table. As of 745am EDT, S&P 500 futures dropped 0.6%, while Nasdaq 100 contracts fell 0.8%, as investors digested Powell’s vow to curb inflation, while acknowledging it could inflict some “pain” to the economy. In fact, an example of just what the Fed is fearing came earlier today when the BOE hiked 25bps as expected, but warned a stagflationary recession is be imminent as the central bank now expects GDP to contract while inflation rises double digits in the coming months, which is precisely what happens when central banks are far behind the curve.  In other assets, the dollar jumped to session highs as cable tumbled to July 2020 lows, 10Y yields were flat around 2.95 while bitcoin traded off yesterday's highs between 39K and 40K. “Alongside tightening monetary policy, a number of risks - persistently high inflation, indications that consumer demand is softening, and the economic consequences of the Russian invasion of Ukraine - have raised investors’ concerns about the strength of future economic growth,” said Richard Flynn, U.K. managing director at Charles Schwab. “In this context, market volatility is likely to continue.” For those who missed yesterday's white knuckle session, the US central bank raised the benchmark rate by a half percentage point on Wednesday, the steepest increment since 2000, in order to keep inflation under control. By ruling out a more aggressive hike, the central bank gave a boost to equity markets, with the S&P 500 posting its biggest daily advance since 2020. The Nasdaq 100 closed 3.4% higher, but is still down 17% this year. “We are puzzled why the market thinks that Fed hikes are going to stop inflation,” said Nancy Davis, founder of Quadratic Capital Management. “We see inflation as driven by massive government spending, supply chain disruptions and, more recently, by Russia’s invasion of Ukraine.” Sure, the Fed is powerless to do anything against inflation, but it has to do something. Policy makers are trying to juggle the need to quell the fastest inflation in four decades against hard-won economic growth. In Europe, German factory orders plummeted, highlighting the toll from the war. The soaring price of commodities further complicates efforts to subdue price pressures. “The combination of high inflation and a weakening global economic outlook has fueled concerns about how far central banks will be able to raise interest rates without overburdening the economy,” Fraser Lundie, head of public fixed income markets at Federated Hermes, wrote in a note to clients. In premarket trading, EBay plunged 6.9% as analysts said macro headwinds, including the war in Ukraine, inflation and consumer confidence, will pressure results in the near term. The e-commerce firm gave a lackluster sales and profit outlook for the second  quarter, as a pandemic-driven sales bump fades. U.S.-listed Chinese stocks dropped again as investors mulled an expanding list of firms that face potential security delistings and the Federal Reserve’s rate decision. (JD US) shares trade down 2.8%, Pinduoduo (PDD US) -3.5% and Bilibili (BILI US)  -5% in premarket. Some other notable premarket movers: Albemarle (ALB US) shares jump 14% in premarket trading after the company boosted its profit and sales guidance for the full year, citing continued strength in pricing in the Lithium and Bromine businesses. . Hycroft Mining (HYMC US) shares surge as much as 36% in U.S. premarket trading after the precious metals producer gave an update for the first quarter, with the firm saying that its strengthened balance sheet allows it to cut debt, complete technical studies and launch an exploration program. Qorvo (QRVO US) analysts said that guidance from the radio frequency solutions fell short of expectations amid weakness in China and high inventory, prompting price target cuts among brokers. Qorvo shares fell 4.9% in postmarket trading on Wednesday after forecasting adjusted earnings per share for the first quarter that missed the average analyst estimate. Booking Holdings (BKNG US) impressed analysts with April bookings topping 2019 levels and positive comments on summer travel. The shares rose 7.7% in postmarket trading after the company’s first-quarter revenue and gross bookings both beat the average analyst estimate. Twilio (TWLO US) analysts highlighted the gross margin performance and reiteration of guidance as encouraging points in the communication-software provider’s results, though some were left wanting more from the firm’s revenue beat. The shares rose 3.8% in after-hours trading Wednesday after adjusted earnings per share for the first quarter beat the average analyst estimate. Fortinet (FTNT US) analysts lauded the infrastructure software company’s solid quarter in light of continued supply chain pressures. The company’s shares rose 7% in extended trading on Wednesday after it reported first-quarter results and raised its full-year forecast. Etsy (ETSY US) analysts were overall positive on the e-commerce firm’s results, though noted that challenges relating to the macroeonomic backdrop and the reopening of economies weighed on the company’s outlook. Etsy shares fell 10% in postmarket trading Wednesday after its forecast for second-quarter revenue fell short of the average analyst estimate. In Europe, the Stoxx 600 was up 1% after rising as much as 1.8%. FTSE 100 up 1.1%, and DAX +1.4%, with most indexes well off session highs. Tech, real estate and industrials were the strongest performing sectors, autos and insurance underperform as gains are faded. Positive results from large caps including Airbus SE, Shell Plc, UniCredit SpA and ArcelorMittal SA also helped brighten the mood. Some notable European movers: Airbus jumps as much as 8.5% on a “solid” 1Q, with adjusted Ebit “significantly” above consensus, Bernstein says, with Jefferies noting key highlight is plan to ramp up A320 production. Shell shares rise as much as 3.6% after company reports record profit for the quarter. Jefferies said the results signaled “strong” second-half buyback acceleration. UniCredit jumps as much as 7.6%, the most intraday since March 29, after reporting revenue for the first quarter that beat estimates. Analysts note “solid” earnings ex-Russia. S4 Capital shares soared as much as 20% on Thursday after Martin Sorrell’s media company said it will publish its results for last year tomorrow, following a lengthy delay. Outokumpu shares rise as much as 9.3% after the Finnish steel maker presented its latest earnings, which included several beats to consensus estimates, including on adjusted Ebitda. Argenx shares rise as much as 6.7% after the Belgian immunology firm posted its latest earnings, which included a large beat on sales for its key drug Vyvgart (efgartigimod). Netcompany shares rise as much as 6.1%, the most intraday in a month, after the software developer reported 1Q earnings that are broadly in line with estimates. Verbund dropped the most in two months after the Austrian Chancellor said he’s asked the finance and economy ministries to develop new rules to administer windfall profits at state-controlled companies. Virgin Money shares slide as much as 6.7% after the lender reported first-half results. Goodbody linked the share price drop to several factors, including the bank not announcing a buyback. Hikma Pharmaceuticals fell as much as 11%, the most since April 2020, after the company reduced guidance for its generics division. Peel Hunt calls update “obviously disappointing.” Earlier in the session, Asia’s stock benchmark rose, poised to snap a three-day decline, as the Federal Reserve’s policy announcement calmed fears about super-sized hikes. The MSCI Asia Pacific Index climbed as much as 1.2% before paring gains to around 0.4%. Tech and materials were the biggest boosts to the Asia gauge as most sectors rose, with TSMC and Infosys hauling up the measure. Bucking the trend, China’s stock gauge closed lower after a three-day holiday in a sign that Beijing’s vow to boost growth has failed to alleviate concerns over the outlook.  The Fed delivered a 50-basis-point increase that was in line with expectations on Wednesday, and said a bigger hike was not being actively considered. Benchmarks in the Philippines and Vietnam were among the top gainers in the region. Japan and South Korea markets were closed for holidays.  Tech stocks will likely “see a further rally until the next U.S. consumer price inflation reading next week,” said Jessica Amir, a market strategist at Saxo Capital Markets Australia. “The rate hikes weren’t as much as feared,” bond yields have pared and volatility is subsiding, she added. The rally marked a reprieve for Asia’s beaten-down shares, which remain mired in a bear market. The regional benchmark is underperforming U.S. and European peers this year, hurt by the impact of China’s strict Covid-19 restrictions and rising inflation around the region. In FX, the Bloomberg Dollar Spot Index jumped as cable tumbled on the BOE's recession warning, clawing back some of its post-FOMC losses when Powell ruled out a more aggressive pace of monetary tightening. The greenback traded higher against all of its Group-of-10 peers and the Treasury yield curve bear-flattened, trimming some of Wednesday’s aggressive bull steepening which followed the FOMC outcome. The euro fell back below $1.06 and yields on short-dated European bonds fell as ECB hike bets were pared. German factory orders plummeted, highlighting the toll from the war. The pound plunged after the Bank of England warned of a stagflationary recession even as it hiked another 25bps. Norway’s krone held a loss after the central bank kept its key policy unchanged, as widely expected among analysts, and confirmed its plan to deliver a fourth increase in borrowing costs next month. Australia’s dollar pared yesterday’s gains; weaker-than- expected Chinese economic data raised concerns over demand for the nation’s commodity exports and weighed on the Australia’s sovereign bond yields. China’s yuan dropped as weak economic data hit sentiment. The USD/CNH rose 0.4% to 6.6489; USD/CNY gains 0.2% to 6.6194 after China’s services activity slumped to its weakest level in more than two years in April as Covid outbreaks and lockdowns continued to pummel consumer spending and threaten economic growth. The Caixin China Services purchasing managers’ index crashed to 36.2 in April, the lowest since February 2020, as Covid outbreaks and lockdowns continued to pummel consumer spending, threatening economic growth. In rates, the Treasury front-end briefly extends losses, following move in gilts after Bank of England hiked 25bp with three voters looking for a bigger 50bp move. U.S. 10-year yields traded around 2.95%, little changed after retreating from day’s high; gilts outperform. Yields cheapened as much as 6bp across front-end of the curve before retreating; U.K. 2-year yields erased the 3bp increase that followed the Bank of England policy announcement; front-end led losses flatten 2s10s, 5s30s spreads by ~2bp and ~4bp on the day.  Bear-flattening move has 5s30s spread near session lows into early U.S. session, unwinding portion of Wednesday’s post-Fed bull-steepening. Fed speakers resume Friday with six events slated. In the aftermath of Wednesday’s policy announcement, overnight swaps are now pricing in close to 50bp rate hikes at the next three policy meetings. Dollar issuance slate empty so far; session has potential to be busy given a number of expected issuers have so far stood down this week. Three-month dollar Libor dropped -3.54bp at 1.37071%, its first decline since April 5.   Looking at today's calendar, we get the BoE policy decision (a hike of 25bps as noted earlier, but accompanied by a very dovish warning of recession in late 2022) and UK local elections. Otherwise from central banks, we’ll hear from the ECB’s Lane, Holzmann and Centeno. Data releases include the weekly initial jobless claims from the US and nonfarm productivity. Finally, earnings releases today include Shell. Market Snapshot S&P 500 futures down 0.7% to 4,267.00 MXAP up 0.4% to 167.94 MXAPJ up 0.4% to 556.06 Nikkei down 0.1% to 26,818.53 Topix little changed at 1,898.35 Hang Seng Index down 0.4% to 20,793.40 Shanghai Composite up 0.7% to 3,067.76 Sensex up 0.3% to 55,834.32 Australia S&P/ASX 200 up 0.8% to 7,364.65 Kospi down 0.1% to 2,677.57 STOXX Europe 600 up 1.2% to 446.50 Brent Futures up 0.4% to $110.56/bbl Gold spot up 0.5% to $1,890.84 U.S. Dollar Index up 0.34% to 102.94 German 10Y yield little changed at 1.01% Euro down 0.3% to $1.0587 Top Overnight NEws from Bloomberg ECB Executive Board member Fabio Panetta said economic expansion has almost ground to a halt in the euro area and faces further “high costs” as policy makers battle record inflation On the eve of the 25th anniversary of its independence, the U.K. central bank is widely expected to hike interest rates to 1% -- the highest since the financial crisis -- and lay out how it intends to take uncharted steps toward unwinding more than a decade of bond purchases U.K. Prime Minister Boris Johnson will meet his Japanese counterpart Fumio Kishida in London where they are expected to discuss a plan to support Asian nations in diversifying away from Russian oil and gas Boris Johnson has been engulfed by scandal for months and came close to being ousted by members of his Conservative Party. On Thursday, voters across the U.K. are likely to give him their own kicking. Local election results typically deliver losses for ruling parties, especially if they’ve been in power for 12 years as the Tories have The Reserve Bank of New Zealand’s Monetary Policy Committee will return to a full complement of seven for the first time this year when it meets later this month. Assistant Governor Karen Silk joins the RBNZ on May 16 and will be an internal member of the committee from that date The dollar fell Wednesday by the most in nearly a month on a trade-weighted basis following the latest Federal Reserve policy decision yet pairs some of those losses as the move was more down to short-term positioning A more detailed breakdown of global markets courtesy of Newsquawk Asia-Pac stocks traded positively as the region reacted to the FOMC meeting where the Fed hiked rates by 50bps as expected and announced to begin reducing the balance sheet from next month, while Fed Chair Powell dispelled concerns of a more aggressive  75bps rate hike. ASX 200 was firmer with gold miners buoyed by higher prices and as the energy sector benefitted from the proposed Russian oil embargo. Hang Seng and Shanghai Comp were higher following the mainland’s return from the Labour Day holidays but with advances initially contained by several headwinds including an extension of COVID restrictions in Beijing, the deterioration in Caixin Services and Composite PMIs, while the US SEC added over 80 companies to its list for possible delisting and HKMA also hiked its base rate by 50bps in lockstep with the Fed. Top Asian News Concerns Mount Over Asset Sales; Stocks Fall: Evergrande Update S&P 500 Remains Expensive Despite Yield-Driven Drop: Macro View North Korea Lifts Sweeping Lockdown After One Day, Yonhap Says India’s Surprise Rate Hike Spurs Aggressive Tightening Bets European bourses are firmer across the board, Euro Stoxx 50 +1.3%, benefitting from the perceived less-hawkish Fed and associated Wall St./APAC performance. Stateside, futures are softer across the board though the likes of the ES remain in relative proximity to overnight best levels, ES -0.5%. Back to Europe, sectors are mostly positive with Real Estate and Tech the outperformers while defensive-biased names are lagging. Top European News UniCredit Takes $2 Billion Hit on Russia to Cover Potential Exit U.K. April Composite PMI 58.2 vs Flash Reading 57.6 BMW Profit Beats Estimates on Strong Demand for Top-End Cars Norway Rate Hike Locked and Loaded for June to Quell Inflation FX: Dollar finds its feet after FOMC fall out on less hawkish than factored in policy guidance from Fed chair Powell, DXY back within reach of 103.000 vs 102.340 low. Aussie* undermined by much weaker than forecast building approvals, mixed trade, technical and psychological resistance; AUD/USD closer to 0.7200 than 0.7250 and AUD/NZD fades just shy of 1.1100. Sterling weak on super BoE Thursday on prospects that MPC may be more circumspect after latest 25 bp hike; Cable down around 1.2550 vs 1.2635 peak and EUR/GBP firm on 0.8400 handle. Euro underpinned by rebound in EGB yields and option expiries as 1.8 bn rolls off 1.0600. Loonie cushioned by crude alongside Norwegian Crown after no change in rates by Norges Bank that is sticking to schedule for next quarter point hike in June; USD/CAD mostly sub-1.2750 and EUR/NOK capped below 9.9000. Turkish Lira deflated as CPI soars even further beyond target and PPI over 100%. Polish Zloty awaits 100 bp hike from NBP and Czech Koruna 50 bp courtesy of CNB. Brazil's Central Bank raised the Selic rate by 100bps to 12.75%, as expected, while it left the door open to further monetary tightening at a slower pace and considered it appropriate to advance the process of monetary tightening significantly into even more restrictive territory. BCB also stated that inflationary pressures arising from the pandemic period have intensified due to problems related to the new COVID-19 wave in China and the Ukraine war, according to Reuters. Norges Bank: Key Policy Rate 0.75% (exp. 0.75%, prev. 0.75%). Reiterates that the next hike will “most likely” occur in June. Adds, the Krone has recently depreciated and is now weaker than projected. Fixed Income Very volatile moves in bonds between the FOMC, BoE and NFP, with Treasuries flipping from bull-to-bear steepening. 10 year note soft within wide 119-09+/118-19+ range, Bunds flat between 153.79-152.74 parameters and Gilts firm in catch-up trade either side of 118.00. Bonos and Oats off best levels after digesting Spanish and French multi-tranche debt issuance Commodities WTI and Brent have been pivoting relatively narrow ranges ahead of today's JMMC/OPEC+ gatherings, currently posting gains of USD 0.30/bbl. OPEC+ is expected to maintain its policy of increase the output quota by 432k BPD in June, lifted from the 400k BPD in May as part of the pacts terms; newsquawk preview here. Spot gold is bid but lost the USD 1900/oz mark in early-European trade, a figure it has spent the morning modestly below. Norway's labour unions said initial wage talks with oil firms broke down and they will proceed with mediation, according to Reuters. Crypto Bitcoin is subdued and returned to existing session lows of USD 39.4k amid coverage of the below WSJ story; more broadly, Bitcoin has been steady at the lower-end of the morning's ranges. US Senators Warren and Smith have sent a letter to Fidelity over its Bitcoin 401(k) plan which would allow investors to allocate as much as 20% of their portfolios into Bitcoin, according to WSJ; senators suggest that Bitcoin could be too risky for savers. US Event Calendar 08:30: 1Q Unit Labor Costs, est. 10.0%, prior 0.9% 08:30: 1Q Nonfarm Productivity, est. -5.3%, prior 6.6% 08:30: April Continuing Claims, est. 1.4m, prior 1.41m 08:30: April Initial Jobless Claims, est. 180,000, prior 180,000 DB's Jim Reid concludes the overnight wrap I'm normally asleep at around 945pm each evening but tense football games often disturb that equilibrium and last night was the ultimate sleep disrupter. I was just about to close down my iPad in bed and fall asleep as Man City we're two goals ahead in injury time in the Champions League semi. I stayed the extra minute and in that minute Real Madrid scored twice, took the game into extra time and ultimately won a stunning tie. I finally turned my iPad off 10 minutes before the end but couldn't sleep so turned it on again after they won. Liverpool vs Real Madrid will be an epic final! So all in all a hectic evening trying to watch the Fed while my wife and I watched Ozark (stressful in its own right) and then the football. I'm worn out this morning. So after all that, the Fed intentionally or unintentionally decided that the market has had enough stress for now and clamped down on the more hawkish potential near-term paths for policy. As a result equities soared, yields fell (especially at the front-end), credit tightened, the dollar slumped and oil built on its earlier rally. Let's very briefly get the boring bit out of the way in a line or two. Basically the FOMC rose rates by +50bps and signalled they would begin to reduce the size of their balance sheet in June, both in line with our expectations (Our full US econ review is here). However the most pressing question for markets was how willing the Committee was to consider future rate increases of +75bps. Market participants didn't have to wait long for an answer, as Chair Powell quickly noted that +75bp hikes were not actively being considered, while +50bp hikes were on the table for the "next couple" of meetings. In line, market pricing for the next two meetings ended the day at +100bps, having stripped out any of the small, but recently growing, premium priced in for +75bps over the June and July meetings. The firm rebuke led to a rally in Treasury yields, led by the short-end, as 2yr yields fell -14.0bps, while 10yr yields were a relatively benign -3.7bps by comparison. The move in nominal 10yrs again masked divergence in the decomposition driven by the market’s dovish interpretation, with breakevens widening +4.9bps to 2.88%, while real yields fell -8.6bps, still managing to finish the day in positive territory at 0.05% though. Elsewhere in the presser, the Chair made multiple mentions of the Committee’s intention to “expeditiously” get policy towards more neutral levels given the monumental inflation-fighting task at hand. He demurred when asked if policy would ultimately need to reach a restrictive rather than just neutral stance, but did not rule it out. He still maintained hope that the Fed could engineer a soft landing after this hiking cycle, but to be fair, it is hard to imagine him saying anything else. He cited strong household and consumer balance sheets as reasons for why the economy could withstand the hiking cycle, when indeed, that very strength when inflation is at multi-decade highs is why policy will probably need to reach restrictive levels not currently appreciated by market pricing. In my opinion the Fed can control the near-term market expectations but beyond that it is all about the inflation data. If it doesn't improve then 50bps will be live at every meeting and not just the "next couple", and 75bps risks will be back on the table. This is all for another day though. When all was said and done, the market took -11.7bps out of policy tightening during 2022, with futures implying fed funds hitting 2.77% after the December meeting. Futures are still implying that the Fed will hit its terminal rates sometime in the third quarter next year, but that rate was around -18bps lower following the meeting at 3.24%. Indeed the breathing space given by the removal of the price hike premiums sent US equities on a tear. Little changed heading into the meeting, the S&P 500 ended the day +2.99% higher, its largest one-day gain since May 2020. Every sector ended in the green, with a full 477 companies posting gains, the most since February. The gains were broad-based, with every sector but real estate (+1.09%) gaining at least 2%, though energy (+4.12%), communications (+3.68%) and tech (+3.51%) were the standouts. In line, the NASDAQ (+3.19%) and FANG+ index (+3.40%) outperformed, on the drop in discount rates. In Asia, mainland Chinese stocks returned following a few days of holidays and are in positive territory with the Shanghai Composite (+0.95%) and CSI (+0.28%) higher. Meanwhile, the Hang Seng (+0.76%) is trading up, but paring its early morning gains. Elsewhere, the S&P/ASX 200 (+0.67%) is climbing while the Japanese and Korean markets are closed for public holidays. Outside of Asia, contracts on the S&P 500 (-0.08%) and NASDAQ 100 (-0.07%) are fractionally lower. Stoxx 50 futures are +2.4% due to a post Fed catch-up effect. Early morning data showed that China’s services sector activity contracted further in April as the Caixin services PMI tumbled to 36.2, its lowest level since the initial onset of the pandemic in February 2020 and compared to March’s reading of 42. Back now to life pre the Fed. Earlier we had seen sovereign bonds sell off in Europe, with yields on 10yr bunds marginally up +0.7bps to 0.97%, having regularly traded above the 1% mark during the session. Those moves were echoed across the continent and there was a further widening in peripheral spreads, with the gap between Italian 10yr yields over bunds widening by +6.7bps to 198bps. That’s their 11th consecutive move wider, and takes the spread to its highest closing level in almost two years. We’ve also seen a similar move with the Spanish spread, which is at its highest in nearly two years as well, at 109bps. It is likely we'll get a decent reversal this morning though. That selloff in sovereign bonds came as oil prices reversed their declines so far this week, with Brent Crude up +4.93% to $110.14/bbl after EU President Von der Leyen proposed a ban on Russian oil in the latest sanctions package. Von der Leyen said this would be done “in an orderly fashion”, with the proposal seeing Russian crude oil phased out within 6 months, and refined products by year-end. Nevertheless, Hungary’s foreign minister said that “In its current form the Brussels sanctions package cannot be supported”, which risks holding up the package since it has to have unanimous agreement among the 27 member states. Bloomberg reported people familiar with the matter saying that Hungary and Slovakia would be granted a longer period until the end of 2023 to enforce the sanctions. Although energy stocks benefited from the rise in prices yesterday, they were mostly the exception in Europe, where the broader STOXX 600 underwent a larger -1.08% decline. This morning, Brent crude (+0.43%) is extending its gains. Looking forward now, central banks will remain on the agenda today as well, with the Bank of England decision at mid-day where the consensus and market pricing are expecting a 25bps hike, which would take Bank Rate up to its highest level since the GFC, at 1%. In his preview (link here), our UK economist is in line with this, and expects the core message from the MPC to remain similar to March, highlighting the uncomfortable and intensifying trade-off between growth and inflation. He’s also expecting that the MPC will confirm its intension to start selling gilts, but doesn’t think we’ll get the details until August, with sales commencing early September. Staying on the UK, we’ve got local elections taking place today as well that’ll be an important mid-term milestone for both the government and opposition, and our UK economists have put together a preview (link here). Last year the Conservatives had a very good set of results as the economy reopened amidst the vaccine rollout. But whereas they were 9 points ahead of Labour in the polls a year ago, they’re now 6 points behind them according to Politico’s average, so it’s a very different context. However, given most of the seats up for grabs today were last fought in 2018 when the Conservatives and Labour were roughly level in the polls during Theresa May’s premiership, the scale of Conservative losses may not be as big as the polling swing over the last 12 months would otherwise imply. One important contest to watch out for will be the Assembly elections in Northern Ireland, where the Irish nationalist Sinn Féin party are leading in the polls, and could become the largest party for the first time since Irish partition in the 1920s. Politico’s poll of polls puts Sinn Féin on 26%, ahead of the unionist DUP on 19%. On the data side yesterday, we saw the ADP’s report of private payrolls for April, which showed weaker-than-expected growth of 247k in April (vs. 383k expected). That comes ahead of tomorrow’s US jobs report, where our economists are expecting that nonfarm payrolls will have risen by +465k in April. Then there was the ISM services index for April, where the headline felt to 57.1 (vs. 58.5), but the prices paid index rose to a record 84.6. Over in Europe meanwhile, the final composite PMI for the Euro Area in April was in line with the flash reading at 55.8, and March’s retail sales fell by -0.4% (vs. -0.3% expected). To the day ahead now, and the highlights will include the aforementioned BoE policy decision and UK local elections. Otherwise from central banks, we’ll hear from the ECB’s Lane, Holzmann and Centeno. Data releases include German factory orders and French industrial production for March, the final UK services and composite PMIs for April, and the weekly initial jobless claims from the US. Finally, earnings releases today include Shell. Tyler Durden Thu, 05/05/2022 - 08:13.....»»

Category: blogSource: zerohedgeMay 5th, 2022

The Economy is Great. The Middle Class is Mad

Jeff Swope felt the first spurt of anger bubble up when he learned in February that his landlord was raising the rent on the empty two-bedroom apartment next door by more than 30%, to $2,075 a month. Though Swope, a 42-year-old teacher, and his wife Amanda Greene, a nurse, make $125,000 a year, they couldn’t… Jeff Swope felt the first spurt of anger bubble up when he learned in February that his landlord was raising the rent on the empty two-bedroom apartment next door by more than 30%, to $2,075 a month. Though Swope, a 42-year-old teacher, and his wife Amanda Greene, a nurse, make $125,000 a year, they couldn’t handle that steep a rent increase­—not alongside the student loans and car payments and utility bills and all the other costs that have kept growing for a family of three. “The frustration­—it was always a frog in the boiling water type of thing. I’d always felt it, but on a basic level. Something’s always brewing,” says Swope, from his modest apartment, where Atlanta Braves bobbleheads compete with books for shelf space. “We looked at the rent increase, and it was like, OK, this is ridiculous. I was like, ‘What the???’” [time-brightcove not-tgx=”true”] For Jen Dewey-Osburn, 35, who lives in a suburb of Phoenix, the rage arose when she calculated how much she owed on her student loans: ­although she’d borrowed $22,624 and has paid off $34,225, she still owes $43,304. (She’s in a dispute with her loan servicer, ­Navient, about how her repayments were calculated.) She and her husband know they’re more fortunate than most—both have good jobs—but they feel so stuck financially that they can’t envision taking on the cost of having children. “It’s just moral and physical and emotional exhaustion,” she says. “There’s no right choices; it feels like they’re all wrong.” The exasperation of Omar Abdalla, 26, peaked after his 12th offer on a home fell through, and he realized how much more financial stability his parents, who were immigrants to the U.S., were able to achieve than he and his wife can. They both have degrees from good colleges and promising careers, but even the $90,000 down payment they saved up was not enough when the seller wanted much more than the bank was prepared to lend on the home they wanted. Abdalla’s parents, by contrast, own two homes; his wife’s parents own four. “Their house probably made more money for them than working their job,” he says. “I don’t have an asset that I can sleep in that makes more money than my daily labor. That’s the part that kind of just breaks my mind.” “Our income supposedly makes us upper middle class, but it sure doesn’t feel like it.”Middle-class U.S. families have been treading water for decades—weighed down by stalled income growth and rising prices—but the runaway inflation that has emerged from the pandemic is sending more than a ripple of frustration through their ranks. The pandemic seemed at first as if it might offer a chance to catch up; they kept their jobs as the service sector laid off millions, their wages started climbing at a faster rate as companies struggled to find workers, and they began saving more than they had for decades. About one-third of middle-income Americans felt that their financial situation had improved a year into the pandemic, according to Pew Research, as they quarantined at home while benefiting from stimulus checks, child tax credits, and the pause of federal student-­loan payments. But 18 months later, they increasingly suspect that any sense of financial security was an illusion. They may have more money in the bank, but being middle class in America isn’t only about how much you make; it’s about what you can buy with that money. Some people measure that by whether a family has a second refrigerator in the basement or a tree in the yard, but Richard Reeves, director of the Future of the Middle Class Initiative at the Brookings Institution, says that what really matters is whether people feel that they can comfortably afford the “three H’s”—housing, health care, and higher education. In the past year alone, home prices have leaped 20% and the cost of all goods is up 8.5%. Families are paying $3,500 more this year for the basic set of goods and services that the Consumer Price Index (CPI) follows than they did last year. Average hourly earnings, by contrast, are down 2.7% when adjusted for inflation. That squeeze has left many who identify as middle class reaching to afford the three H’s, especially housing. In March, U.S. consumer sentiment reached its lowest level since 2011, according to the University of Michigan’s Surveys of Consumers, and more households said they expected their finances to worsen than at any time since May 1980. “The mantra has been: Work hard, pay your dues, you’ll be rewarded for that. But the goalposts keep getting moved back,” says Daniel Barela, 36, a flight attendant in Albuquerque, N.M., who is exquisitely aware that his father had a home and four kids by his age. Barela and his partner made around $69,000 between them last year, and he feels as if he’s been jammed financially for most of his adult life. He lost his job during the Great Recession and, after a major credit-card company raised his interest rate to 29.99% in 2008, he had to file for bankruptcy. “No matter what kind of job I’ve held and no matter how much I work, it never seems to be enough to meet the qualifications to own a home,” he says. Even if people Barela’s age, who make up much of the middle class today, earn more money than their parents did, even if they have college degrees and their choice of jobs, even if they have a place to live, an iPhone, and a flat-screen TV, many are now sensing that although they followed all of American society’s recommended steps, they somehow ended up financially fragile. “Our income supposedly makes us upper middle class, but it sure doesn’t feel like it,” says Swope. “If you’re middle class, you can afford to do fun things—and we can’t.” TIME talked to dozens of people across the country, all of whose incomes fall in the middle 60% of American incomes, which is what Brookings defines as the middle class. For a family of three, that means somewhere between $42,500 to $166,900 today. Here’s what we heard: “The American Dream is an absolute nightmare, and I just want out at this point.” “It’s really discouraging. I’m losing hope. I don’t know what to do.” “We did what we’re supposed to do—but we’re just so cost-­burdened.” “It’s the most money I’ve ever made, but I still can’t afford to buy a home.” “I’ve put down roots here. I don’t want to be forced out.” Many mentioned resentment toward their parents or older colleagues who don’t understand why this younger generation don’t bear the hallmarks of the middle class, like a single-­family home or paid-off college debt. “Boomers could literally work the minimum-­wage job, they could experience life—go to national parks or have children and own homes. That’s just not possible for us,” says Julie Ann Nitsch, a government worker in Austin who, when the home she rents goes up for sale in May, will no longer be able to live in the county she serves. “It can take some time for the economic tectonic pressure to build sufficiently—and now the volcano is erupting.”They have a point. Homeownership has become more elusive for each ­successive generation as real estate prices have outpaced inflation. More than 70% of people ages 35 to 44 owned a home in 1980, according to the Urban Institute, but by 2018, less than 60% of people in that age group had bought a place to live. The soaring value of owner-­occupied housing, which reached $29.3 ­trillion by the end of 2019, has created a divide, enriching the older Americans who own homes and shutting out the younger ones who can’t afford to break into the market. Millennials and younger generations came of age in the worst recession in decades, entered a job market where their wages grew sluggishly, and then weathered another recession at the beginning of the pandemic. Through it all, costs continued to rise. Median household income has grown just 9% since 2001, but college tuition and fees are up 64% over the same time period, while out-of-­pocket health care costs have nearly doubled. Just half of all children born in the 1980s have grown up to earn more than their parents, as opposed to more than 90% of children in the 1940s. Both millennials and Generation X have a lower net worth and more debt when they reach age 40 than boomers did at that age, according to Bloomberg. Their worries matter for the larger American economy. As Joe Biden said in 2019, “When the middle class does well, everybody does very, very well. The wealthy do very well and the poor have some light, a chance. They look at it like, ‘Maybe me—there may be a way.’” Mark Steinmetz for TIMEAmanda Greene and Jeff Swope outside their rental in Canton, Ga. If the middle class is feeling left out of one of the strongest economies in decades, when the unemployment rate is at a historic low, it’s a grave sign that social discord is coming. Right now, there’s no Great Recession, no tech meltdown, no collapse of complex real estate investment products to explain away why things are tight. On the surface, the economy looks buoyant. But like Swope’s slowly cooking frog, lots of middle-income earners are realizing that they’re in hot water and going under. “It’s not like this volcano came out of nowhere,” says Reeves, the Future of the Middle Class Initiative director. “To some extent, we’ve seen these long-term shifts in the economy like sluggish wage growth and downward mobility. It can take some time for the economic tectonic pressure to build sufficiently—and now the volcano is erupting.” The costs of all three H’s have soared over the past few decades, but it’s the cost of housing—usually the largest and most crucial expenditure for any family—that is fueling so much of the current discontent. Housing prices have climbed steadily for decades, with the exception of a dip from 2007 to 2009, but growth reached a fever pitch in the past year. Few places are immune; more than 80% of U.S. metro areas saw housing prices grow at least 10%. In the Atlanta metro area, where Swope and Greene live, the median listing price is $400,000, up 7.5% from last year. (They think they could afford a house that costs $300,000.) The rising prices are driven by a legion of forces, including a lag in building in the wake of the Great Recession, a rise in short-term rentals, speculation by institutional investors who own a growing share of single-family homes, a shortage of construction materials, and labor and supply-chain issues. They’re exacerbated by growing demand from families looking to spend the money they’ve saved, boomers who are aging in place rather risking life in a facility during the pandemic, and millennials anxious to start a family. The recent scramble to buy homes has been well documented, but in many places, renters are in a worse position than buyers. Rents rose almost 30% in some states in 2021, and are projected to rise further this year. David ­Robinson, 37, was born and raised in Phoenix and now lives with his girlfriend and three children in a modest three-bedroom apartment in Maryvale, which he considers a low-end part of town. In September, their rent went from $1,200 a month to $2,200, with extra fees, after, he says, “some property-­management company based out of Washington [State]” bought the building. His rent now represents about 50% of his income as a utilities surveyor. “It’s kind of hard to do anything with your family,” he says. “After buying clothes, food, and [paying] the other bills like electricity, water, stuff like that, the financial cushion wears really thin. I’m pretty much working to pay someone else’s bills.” He crosses his fingers that their cars hold out a little longer, not to mention their health. “The No. 1 threat to American constitutional government today is the collapse of the middle class.”Amanda Greene, Jeff Swope’s wife, knows that feeling. She owes $19,000 on her Toyota Corolla, which she downgraded to after her Jeep Cherokee died unexpectedly. And before she married Jeff and went on his health plan, insurance for herself and her 7-year-old daughter through her employer cost $1,400 a month. Greene covered only herself, and paid out of pocket for her daughter. She has a condition that requires extensive testing, and is still paying off thousands of dollars that her insurance didn’t cover. Medical costs have typically risen faster than inflation over the past two decades, propelled by the increased cost of care and more demand for services due to the aging population. National per capita spending on health care in 1980 was $2,968 when adjusted for inflation; by 2020 it was four times that. The pandemic compounded the challenges, as many people lost jobs and the insurance that came with them. More than half of adults who contracted COVID-19 or lost income during the pandemic also struggled with medical bills, according to a survey done by the Commonwealth Fund. Higher education, the third H, has also become steadily more expensive as the cost of college grew and federal funding for public universities plummeted. As prices rose, more students took out loans. Average student-­loan debt in 2020 was $36,635, roughly double what it was in 1990, when adjusted for inflation. Families struggle for decades to keep up with payments. Greene thought she was setting herself apart when she went to a private college to get a degree in nursing. Now she owes $99,000 in loans, while her two sisters who didn’t go to college are debt-free. For many college graduates, the pandemic provided some relief, when the CARES Act paused payments on federal student loans. Suddenly, people had money to pay their other bills, and saw what life would be like without crippling student debt. Greene watched an app on her phone as her loans paused at $99,000—and stayed there. She’s dreading when payments start up again. All told, the three H’s—rent, health care, and higher-­education loans—take up a growing share of Swope and Greene’s take-home pay. Add necessities like food and utilities, and they have months when they write their rent checks without having enough money in their checking account. (Swope gets paid monthly.) They don’t eat out. They switched to generic grocery brands. Although they both work full time, Swope is considering picking up a part-time job. Some economists argue that the parlous state of the middle class is being disguised by poor accounting. Eugene Ludwig, the former comptroller of the currency in the Clinton Administration, says the CPI distorts the real economic picture for lower- and middle-­income Americans because it counts the costs of discretionary items such as yachts, second homes, and hotel rooms. By his calculations, the cost of household minimal needs rose 64% from 2001 to 2020, 1.4% faster than inflation. In March, the Ludwig Institute for Shared Economic Prosperity released a report that suggested housing prices had actually risen 149% (the CPI put it at 54%) and medical costs were up 157% (vs. the CPI’s 90%). “We found that while people in 2001 maybe did have just a little bit of discretionary spending, by 2019 as a comparison, many households did not, particularly the ones with more children,” says the Ludwig Institute’s executive director, Stephanie Allen. (The pandemic made tracking these data too ­unreliable to estimate discretionary spending since then, she says.) The stress and anger people in their 30s and 40s feel is spilling over into their relationships with their parents’ generation. Today, a family in the U.S. making the median household income would need to pay six times that income to buy a median-price house. In 1980, they would have needed to pay double. But many boomers don’t seem to have much sympathy for their children’s predicament. Jeff Swope’s father was able to support a family of three on a social worker’s salary, and bought a house in Sandy Springs, Ga., for around $50,000. His mother sold it last year for $255,000, and that buyer sold it in March for 30% more than that. Swope, on the other hand, graduated from college with a marketing degree in 2003, and got a job selling Yellow Pages ads. When that business disappeared with the proliferation of online search engines, he waited tables and got a second degree so he could teach. He graduated in 2008 in the midst of the Great Recession and supported himself by working as a trivia host and taking whatever teaching placements he could find. He didn’t get an entry-level public school teacher job until 2013. Even now, his income, $55,000, wouldn’t be enough to support a family. He and Greene applied for preapproval for a mortgage but haven’t heard back. He feels stuck. “It’s kind of like, you’re not an adult unless you have a house,” he says. “The older generation looks down on you because they just don’t understand.” One of the things it’s harder for some folks to grasp are the ripple effects of structural changes that were just ­beginning when they were younger. The decades-long decline of unions, for example, has made it harder for workers to negotiate better wages and benefits. Swope is not in a teachers’ union, because Georgia doesn’t allow for collective bargaining for public educators, which is one reason the average public school teacher there made 5% less in the 2020–2021 school year than in 1999–2000, when adjusted for inflation. In Massachusetts, a state with strong teachers’ unions, the average public school teacher’s salary grew 19% over the same time period. Across the nation, a job with health care and other benefits is becoming harder to find. There are at least 6 million more gig workers than there were a decade ago. Even revenue-­rich companies like Google and Meta outsource such functions as cleaning, food service, and some tech jobs, excluding many of the people who work in their offices from the benefits of full-time employment. Adria Malcolm for TIMEThe relationship between Daniel Barela Jr., left, and Sr. has been strained by Daniel Jr.’s struggle to feel middle class At the same time, the unabated rise of automation and technology has meant that ever more employers want workers with a college education. About two-thirds of production supervisor jobs in 2015 required a college degree, according to a Harvard study, while only 16% of already-­employed production supervisors had one. Flight attendant Daniel Barela’s father Daniel Barela Sr. can’t understand why his children are struggling. When he first moved to Albuquerque in 1984, he was making $5.40 an hour as a custodian. He doesn’t have a college degree, but he worked his way up at his company and bought the house where Daniel grew up. He and his wife now own nine properties around New Mexico. “My generation—we didn’t end the week at 40 hours,” he says. “It started at 40 hours if you wanted to be successful, and we did whatever it took. This generation­—at 40 hours, they’re exhausted. They don’t call it the Me Generation for nothing.” The elder Barela has a pension, which people in his role wouldn’t receive today. And he acknowledges that housing is more expensive than it was when he was buying real estate. But he’s also been surprised how hard it is to find ­someone to help him fix up one of his rental ­properties for $12 to $15 an hour. “It’s not just my kids. I see it in other kids—they just don’t want to work,” he says. This frustrates his son to no end. He’s put in long hours to work his way up in the aviation industry and still can’t even qualify to own a home. Whenever he gets a raise, he says, health-­insurance premiums and other costs go up the same amount. It’s not just his imagination. According to the Ludwig Institute, a teacher and an ambulance driver in Albuquerque would make $77,000 a year, which is higher than the U.S. median income of $67,000—but they’d still have to go $6,000 into debt to meet their minimum adequate needs every year. During the pandemic, Barela did have a taste of what life might have been like for his father. Since he was furloughed, and receiving unemployment benefits and stimulus money, he was able to pay off all of his debt, he says. Now that he’s working again, he’s back to using credit cards and living paycheck to paycheck. “Absolutely ridiculous that you can have two of the most important jobs out there and still barely afford to live. I hate this country.”It’s getting so Barela is feeling as if he should just fulfill his father’s prophecy and stop trying so hard. Toil hasn’t gotten him anywhere. Why put in more hours dealing with angry passengers for pay that will get eaten up by bills? “I think if anything, COVID taught us: Is it worth working to the bone over quality of life?” he says. “For myself, I will start to just sustain what I need to sustain, but I’m not going to bend over backwards to fulfill some corporate mantra.” He—like Jeff Swope, and many of the other people interviewed for this story—direct much of their frustrations at the very rich, who accumulate wealth in investments, which when withdrawn are taxed at a far lower rate than wages. Widespread dissatisfaction and shrinkage in the ranks of the middle class has long been linked with political instability. In times of great economic inequality, the rich oppressed the poor or the poor sought to confiscate the wealth of the rich, leading to violence and revolution. But the presence of a middle class has helped America evade that conflict, says Vanderbilt University law professor Ganesh Sitaraman. That’s why he argues that “the No. 1 threat to American constitutional government today is the collapse of the middle class.” It’s no coincidence that the diminishing faith Americans have in their institutions has mirrored the decline in the fortunes of the middle class. And President Biden, who has long fashioned himself as a champion of those in the middle, is nevertheless losing their support; only a third of people approved of his handling of the economy in a March NBC poll, a drop of 5 percentage points since January. Some economists believe that the years following World War II were an anomaly—a period of unprecedented productivity growth and prosperity that will never be replicated. Millions of people went to college on the GI Bill, and wages shot up, allowing families to buy homes and cars and televisions. That means that comparing middle-­class workers with their parents may not be the most useful way to measure their economic state. If their childhoods were built in a period of exceptional economic growth, it’s no wonder that people like Swope and Barela feel left behind today. Moreover, previous generations kept many Americans, including people of color and women, from entering the workforce and from owning homes. “Some of the reasons middle-­class Americans were able to do so well before is that they were excluding people from the labor market, and they had strong trade unions that got them higher wages than the market would have given them,” Reeves says. Adjusting to the new world isn’t going to be easy. Reeves cautions families to compare themselves not with their parents’ generation, but instead with where they would be without the policy actions during the Great Recession and the pandemic recession. Where would the American economy be if the government hadn’t bailed out the banks and the auto companies? What if it hadn’t paused student-­loan payments during the pandemic and sent out stimulus checks and child tax credits? If families could compare themselves with the counter­factual, they might not get so angry—and maybe their anger wouldn’t be as easily weaponized against whoever they think created their economic woes, whether it be people of different races, or Big Business. A little while ago, after Jeff Swope found out about the rising prices in his apartment complex, he posted something in a Facebook group called No One Wants to Work that mocked all the businesses complaining about how they can’t find workers—while they’re offering minimum wage for terrible jobs. “A nurse and a teacher with a 125k household income are about to not be able to not get ahead with any savings. It’s that bad,” he wrote. Some of the commenters blamed him for poor money management. They couldn’t sympathize with someone making a six-figure income and still struggling. But many more of the hundreds of commenters felt something else—that they knew exactly what Swope was feeling. “My boyfriend and I have union jobs at a steel mill and are in about the same boat,” one wrote. Another, also a nurse, wrote that she and her husband, an engineer, were also living paycheck to paycheck. In the comments, their fury was unbridled. “Absolutely ridiculous that you can have two of the most important jobs out there and still barely afford to live,” another commenter said. “I hate this country.” —With reporting by Leslie Dickstein/New York.....»»

Category: topSource: timeApr 28th, 2022

Buy XOM, SLCA, CNC and R Before Earnings Reports?

The earnings season is coming in soft as expected, but there should be a boost from energy stocks later this week. This earnings season is likely to be unexciting if the first leg is any indication. Of the hundred S&P 500 members that have reported first-quarter results so far, 77% have topped EPS estimates while 72% have topped earnings estimates. And results are weaker than those numbers indicate: total earnings for these stocks were down 2.1% on the year on 9.1% higher revenues.What’s more, total earnings for the S&P 500 are expected to be up just 5.9% this quarter on 10.6% higher revenues (blending together actuals for these 100 index members and estimates for the still-to-come earnings reports) – and that too propped up by a super-strong energy sector.This is a function of the labor and input cost pressures as a result of low labor participation rates and disruptive supply chain issues, respectively, that we have been seeing for a while now.The thing is, it’s going to get much worse before it gets better. Because rate hikes remain a top priority with the Fed, which is trying to bring down demand. And obviously, demand is the only thing supporting these companies right now as they struggle with the escalation in costs. But as demand comes down, especially for durables, it will get reflected in the supply chain, which won’t have to juggle with quite as many component and finished goods. And this will help it get up to speed with deliveries.So there’s going to be a period during which demand will come down and costs will remain high. We can only hope that this period won't last too long, or that the consumer won’t be hit so bad that we slide into a recession.There are reasons to believe this may not happen, the most significant of which is the high employment level and high level of job openings, which is more likely to result in curtailment of spending rather than total inability, if economic conditions deteriorate. Additionally, the difficulty in acquiring human resources in the tight labor market is likely to lead employers to retain talent, even if it means temporary losses. This should lead to relative stability for the consumer.And stability with the consumer means that things like travel, which we were all hoping would come back this year, should still come back. That has to be good news for both hospitality and airlines segments.And that demand will be on top of industries like food and basic healthcare where demand is relatively inelastic.  Third, there are industries like automotive where supply remains behind current demand, so production may be expected to continue provided components are available.Fourth, there is energy. The U.S. is relatively insulated from the broader upheaval in oil and natural gas as a result of the Russia-Ukraine war, because it can produce more than internal consumption. China is a factor though because prolonged shutdowns in the country could pressure global pricing, which would be deflationary for the U.S. as well.So basically, the Fed’s “soft landing” depends a lot on the consumer because stability here is our best chance that a recession doesn’t actually happen.Two overheated sectors that badly need to regain equilibrium are transportation (particularly containers and freight) and construction (particularly residential). While the construction market is already correcting course, transportation bottlenecks and resultant price inflation are still a reality.So this may be a good time to cash out of smaller cap growth companies that are underperforming. Because in a couple of months’ time, there’s likely to be more weakness as a result of the increasingly hawkish Fed. Some experts are expecting a 0.5% rate hike in May; others are afraid of an economic impact from the socio-political developments sweeping the country. When markets weaken further in a couple of months, that would likely be the right time to get into some long-term growth names. Which brings us to the topic of stock picking.Since earnings season is ongoing with a chunk of big tech (and other) results about to be announced, it’s probably a good idea to focus on buy-ranked stocks with good potential that are set to report this week. That’s why I’ve picked a motley crowd from different industries (although there are many such options in oil & gas) that you may want to consider depending on the exposure you’re looking for:Exxon Mobil Corporation XOMIrving, Texas-based Exxon, formerly the largest oil company in the world, hardly needs an introduction. But it’s worth noting that it is an explorer and producer of crude oil and natural gas both in the U.S. and internationally. In addition to upstream, downstream and chemical operations, Exxon transports and sells crude oil, natural gas, petroleum products, petrochemicals, and other specialty products. It also manufactures and sells petrochemicals, including olefins, polyolefins, aromatics and various other petrochemicals. As of December 31, 2021, it had approximately 20,528 net operated wells with proved reserves.The shares carry a Zacks Rank #1 (Strong Buy). Its Value and Growth Scores are C and A, respectively. It belongs to the Oil and Gas - Integrated - International industry (top 7% of 250+ Zacks-classified industries). It has been seen historically that a buy-ranked stock in a top-ranked industry (top 50%) has stronger chances of price appreciation in the near-term than any stock in the bottom 50% of industries.The best part is its revenue and earnings growth, which are likely to come in at 23.1% and 74%, respectively in 2022. The strength in the earnings estimate is supported by an upwardly mobile estimate revision trend from $6.85 60 days ago to $9.36 today.Its Earnings Surprise Prediction (ESP) is 1.83%, an indication that Exxon will beat estimates this quarter. Exxon has posted positive surprises in each of the last four quarters at an average rate of 5.8%.U.S. Silica Holdings, Inc. SLCAKaty, Texas-based U.S. Silica Holdings produces and sells commercial silica as fracturing sand in the oil and gas industry, and whole grain silica products in various size distributions, grain shapes and chemical purity levels for the manufacturing of glass products. Various other related products are sold into foundry, manufacturing and industrial markets. Additionally, U.S. Silica offers transportation, equipment rental and contract labor services.U.S. Silica shares carry a Zacks Rank #2 and Value and Growth Scores of B. It is part of the Mining - Miscellaneous industry (top 20%).U.S. Silica’s revenue is expected to grow 19.0% this year and its year-ago loss of 45 cents is expected to break even. That is the result of a 34-cent improvement in its earnings estimate in the last 60 days.Its earnings ESP of 0% is also supportive of a positive outcome this quarter. The company has posted positive surprises in each of the last four quarters, averaging 23.2%.Centene Corporation CNCSt. Louis, Missouri-based Centene Corp. provides health programs and services to under-insured and uninsured individuals in the United States. Through the Managed Care segment, Centene offers health plan coverage to individuals through government subsidized programs, including Medicaid, the State children's health insurance program, long-term services and support, foster care, and medicare-medicaid plans, which cover dually eligible individuals, as well as aged, blind, or disabled programs. This segment also offers various individual, small group and large group commercial healthcare products to employers and directly to members.Through the Specialty Services segment it provides pharmacy benefits management services; nurse advice line and after-hours support services; vision and dental services, as well as staffing services to correctional systems and other government agencies; and services to Military Health System eligible beneficiaries. This segment offers its services and products to state programs, correctional facilities, healthcare organizations, employer groups and other commercial organizations.Centene shares carry a Zacks Rank #2. Both its Value and Growth Scores are A. Moreover, it belongs to the Medical – HMO industry (top 32%), indicating near-term upside potential.Centene’s earnings are expected to grow 5.2% this year on top of revenue that is expected to grow 9.0%.The Zacks Consensus Estimate has dropped a penny lower in the last 30 days resulting in a negative ESP. This seems to indicate that the Centene will miss earnings estimates this quarter. We’ll have to wait and see. Its earnings surprise history is hardly exciting since it has missed expectations in three of the four preceding quarters. The encouraging point is that it reversed trend in the last quarter to post a positive surprise.Ryder System, Inc. RMiami, Florida-based Ryder is a logistics and transportation company with global operations. Its three operating segments are Fleet Management Solutions (FMS), Supply Chain Solutions (SCS), and Dedicated Transportation Solutions (DTS). FMS covers things like leasing, maintenance and support services of various kinds as well as diesel fuel access, fuel planning, billing, tax reporting and used vehicle sales both from its 63 retail outlets and online. DTS covers equipment, maintenance, drivers, administrative and other services routing and scheduling, fleet sizing, safety, regulatory compliance, risk management, and technology and communication systems support services. SCS is in charge of distribution management services and includes designing and managing the customer's distribution network and facilities, coordination between its warehousing and transport facilities, material flows into and out of the premises, and value added services such as light assembly of components and other services.Ryder shares carry a Zacks Rank #2 and Value and Growth Scores of A. It belongs to the Transportation - Equipment and Leasing industry (top 19%).Ryder’s revenue and earnings are expected to be up a respective 11.5% and 22.1%. Its earnings estimate has jumped 60 cents in the last 60 days from $11.11 to $11.70.What’s more, its earnings ESP is 5.0%, indicating a positive surprise this quarter. Ryder has strongly beaten analyst estimates in each of the last four quarters and the four-quarter average surprise is 57.5%.One-Month Price MovementImage Source: Zacks Investment Research Bitcoin, Like the Internet Itself, Could Change Everything Blockchain and cryptocurrency has sparked one of the most exciting discussion topics of a generation. Some call it the “Internet of Money” and predict it could change the way money works forever. If true, it could do to banks what Netflix did to Blockbuster and Amazon did to Sears. Experts agree we’re still in the early stages of this technology, and as it grows, it will create several investing opportunities. Zacks’ has just revealed 3 companies that can help investors capitalize on the explosive profit potential of Bitcoin and the other cryptocurrencies with significantly less volatility than buying them directly. See 3 crypto-related stocks now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Exxon Mobil Corporation (XOM): Free Stock Analysis Report Ryder System, Inc. (R): Free Stock Analysis Report U.S. Silica Holdings, Inc. (SLCA): Free Stock Analysis Report Centene Corporation (CNC): Free Stock Analysis Report To read this article on click here......»»

Category: topSource: zacksApr 26th, 2022

Futures Jump On Relief From Tesla"s Blowout Earnings

Futures Jump On Relief From Tesla's Blowout Earnings US equity futures traded higher led by tech stocks, after Tesla’s results beat expectations boosting hopes for another strong earnings season and allayed fears of an imminent recession. The electric-vehicle maker’s shares jumped 7.2% in premarket trading on Thursday, while United Airlines rose 7% after forecasting it will return to profit this year. By contrast, Alcoa dropped 5.7% after reporting worse-than-expected sales and higher inventories due to supply-chain disruptions. S&P futures rose 0.85% or 37 points to 4,493 while Nasdaq 100 futs rose 1.2% to 14,175. A selloff in Treasuries resumed with a debate raging around whether inflation is peaking: the 10-year Treasury yield added 4 basis points. The euro and German bund yields rose after hawkish comments from European Central Bank officials. The dollar reversed losses, gold slumped to session lows and bitcoin jumped above $42,000. Tesla’s earnings provided some relief for investors in tech after Netflix’s 35% slump on Wednesday raised concerns that the industry is being hit by inflation and expected rapid monetary-policy tightening by the Federal Reserve, according to Swissquote analyst Ipek Ozkardeskaya. "The macroeconomic conditions are not favorable for tech companies this year,” she said. “Although we haven’t seen a shocking migration from tech to value names, the tech companies that have shaky future earnings, and that can’t pass inflation on to their customers will likely suffer more." Besides the surging Tesla, here are some other notable premarket movers: Alcoa (AA US) shares decline 5.7% in premarket trading Thursday after the aluminum producer’s 1Q revenue missed estimates. Netflix (NFLX US) shares fall 1.1% in premarket trading, extending Wednesday’s 35% plunge after the streaming firm announced a surprise decline in subscribers. Analysts highlight the company’s valuation and business model are under review, while inflation and competition are challenging for the stock. United Airlines (UAL US) shares rise 7.5% in premarket trading after forecasting a profit this year. It has experienced a “rapid improvement” in both demand and revenue, according to MKM Partners. U.S.-listed Macau casino operators Las Vegas Sands (LVS US), MGM Resorts (MGM US) and Melco Resorts (MLCO US) may be active after Shanghai reported a sharp increase in its number of seriously ill Covid patients. Meanwhile, Chinese stocks extended this week’s rout as investors fretted over the economic effects of the nation’s Covid-Zero strategy, with lower-than-expected policy stimulus adding to their disappointment. An address by President Xi Jinping failed to soothe investors pining for more measures to support growth. Bond bears have returned after Wednesday’s rally in Treasuries fueled by some investors including Bank of America and Nomura who said the panic over inflation and rate-hike bets had gone too far. However, a Federal Reserve anecdotal survey showed inflationary pressures remained strong. Meanwhile, equities stayed resilient to higher yields with their focus on earnings. While the peak-inflation debate is intensifying, it’s unlikely to derail global central banks from their tightening path as commodity shortages from the war in Ukraine keep prices elevated. New Zealand inflation accelerated in the first quarter to the fastest pace in 32 years, validating the central bank’s pursuit of an aggressive tightening cycle. As noted yesterday, the U.S. 10-year real yield turned positive on Wednesday for the first time since March 2020 as traders added to bets on an aggressive Fed hiking cycle. However, the level failed to hold for long. Separately, the Fed said in its Beige Book survey released Wednesday revealed that the U.S. economy grew at a moderate pace through mid-April, but rising prices and geopolitical developments created uncertainty and clouded the outlook for future growth. “Strong demand allowed firms to pass through input cost increases in consumers,” Carol Kong, a strategist at Commonwealth Bank of Australia, said in a note. “The anecdotal evidence supports our view the FOMC is well behind the curve and needs to tighten policy aggressively.” In Europe, the travel and construction sectors led gain, pushing the Stoxx Europe 600 Index 0.9% higher. CAC 40 outperforms, adding 1.2%, FTSE 100 lags, dropping 0.3%. Travel, construction and industrials are the strongest-performing sectors. French equities including Alstom and Saint-Gobain outperform after Wednesday’s sole debate between President Emmanuel Macron and nationalist leader Marine Le Pen reassured investors, with the pro-business incumbent seen as having dominated the encounter. Basic resources shares underperform in Europe, heading for the biggest three-day decline on a closing basis since January, as miners fall on 1Q production reports. ABB jumped 5.3% after the Swiss automation group reported better-than-expected earnings. Anglo American fell 8.2% in London after the mining company cut output goals and said costs would be higher than expected. Here are some of the biggest European movers today: Nestle shares advance as much as 1.9% after the food company reported quarterly sales that exceeded market expectations. Analysts were impressed by the quality of the beat, highlighting the company’s pricing power. ABB shares rise as much as 5.9% after the industrial automation and robotics group’s 1Q results topped expectations. Akzo Nobel shares rise as much as 7.7% after the paint maker’s first-quarter adjusted operating income beat estimates, which Citi says is the result of pricing offsetting increased raw material costs for the first time this cycle. Sartorius AG rises as much as 6.1%, biggest gainer on the Stoxx 600 Health Care subindex, after reporting earnings that included consensus beats on adjusted Ebitda and adjusted Ebitda margins. Rexel rose as much as 7.3% after reporting 1Q revenue that topped estimates. The electrical-supplies company enjoyed pricing benefits, though there may be questions about why it didn’t raise guidance, Citi writes in a note. Europeanlong-haul airlines rise on Thursday after U.S. peer United Air forecast a return to profit, with British Airways owner IAG +6.8%, Air France-KLM +4.1% and Lufthansa +3.9%. Anglo American stock drop as much as 9.3% after the miner cut some output goals and raised costs guidance; Antofagasta also slumps following production decline, trades “ex-dividend.” Carrefour falls as much as 4.4%, with Citi saying it could “pause” after a recent run even as it met 1Q sales expectations, with Latin America and French convenience stores outperforming. Kinnevik shares slide as much as 9.2%, the most since February, after reporting its latest earnings, which included a drop in NAV to SEK243.50 from SEK424 y/y Earlier in the session, Asian stocks edged lower, with Chinese and Hong Kong gauges leading losses on mounting growth concerns, while stocks in other parts of the region were mostly higher.  The MSCI Asia Pacific Index dropped as much as 0.5% Thursday before paring losses. Communication and consumer shares slipped as technology stocks got a boost for a second day from stabilizing bond yields. Japanese equities gained as the yen resumed weakening against the dollar. Chinese benchmarks extended declines as investors became increasingly worried about growth in the world’s second-largest economy. Chinese tech stocks fell for a third consecutive day, weighed by shares linked to electric-vehicle production as lockdowns on the mainland disrupt logistics. Investors have so far been disappointed at Chinese attempts to counter the economic impact of lockdowns. Inc. and Pinduoduo Inc. fell at least 1.4% each in New York premarket trading. The CSI 300 Index capped a fifth day of losses, with lockdown-induced disruptions to supply chains and a series of disappointing monetary policy decisions quelling sentiment. “The timing of the policy stimulus would be key,” said Wai Ho Leong, a strategist at Modular Asset Management, referring to China’s monetary policy. He added that investors are also watching for stabilization of Covid-19 cases. The U.S. 10-year Treasury yield is down from a three-year high as some investors called for dip buying after the recent rout. Still, more monetary tightening is expected as the Federal Reserve said inflation pressures remain strong and that rising prices are clouding the economic outlook. More aggressive tightening by the Fed in early May, “such as a 75 basis-point hike or start of balance sheet reduction, may limit the People’s Bank of China’s options going forward,” said Marvin Chen, a strategist at Bloomberg Intelligence. Japanese equities rose for a third day, driven by advances in electronics and machinery makers. Chemical makers also boosted the Topix, which gained 0.7%. Tokyo Electron and Fast Retailing were the largest contributors to a 1.2% rise in the Nikkei 225. The yen resumed weakening against the dollar after rallying 0.8% Wednesday. India’s stock gauges rose for a second consecutive session to further reduce their sharp losses in the previous five days, driven by a continued recovery in index heavyweight technology and banking stocks. Reliance Industries surged to a record, giving the biggest boost to the indexes, after Morgan Stanley raised the price target on India’s most valuable company by 11%, citing the company’s focus on hydrogen production amid global energy transition. The S&P BSE Sensex rose 1.5% to 57,911.68 in Mumbai, while the NSE Nifty 50 Index advanced by an equal measure. There were 27 advancers, while 3 stocks declined. All but one the 19 sector sub-indexes compiled by BSE Ltd. climbed. Auto, consumer discretionary and finance companies were among the top performers Australia's commodity-heavy stocks rose for a fifth day near a record high. The S&P/ASX 200 index rose 0.3% to close at 7,592.80, climbing for a fifth day, led by gains in the industrial and real estate sectors. The five-day advance brought the benchmark less than 1% shy of a record high hit in August. Brambles rose after boosting its underlying profit at constant FX rates forecast for the full year. Meanwhile, Megaport plunged the most on record following its third-quarter revenue update. Citi said the result was weaker than expected and saw misses on monthly recurring revenue (MRR) and Megaport Virtual Edge (MVE) additions. In New Zealand, the S&P/NZX 50 index fell 0.1% to 11,954.00 In FX, the Bloomberg dollar spot index rebounded back into the green after falling 0.1%. NZD and JPY are the weakest performers in G-10 FX. the Euro rallies while short-end German bond yields rise sharply in response to hawkish comments from ECB’s Wunsch and Guindos. EUR/USD rises 0.7% on to a 1.09 handle, outperforming in G-10. Money markets briefly price 75 bps of interest-rate hikes by the ECB’s December decision. China’s yuan dropped for a third day amid rising volatility; the currency extended declines amid rising volatility spurred by uncertainties surrounding policy support for the slowing economy. Cautious risk sentiment in global markets also weighed on the yuan ahead of Fed Chair Jerome Powell’s speech later on Thursday. In rates, treasuries resumed their drop and are cheaper across the curve, following wider losses across bunds after hawkish comments from ECB’s Wunsch and Guindos as money markets priced in a more aggressive rate path for the euro-zone central bank. Treasury yields cheaper by ~5bp across the curve with 10-year around 2.87%; bunds lead losses in core rates. The German curve leads a broad-based bear-flattening move. Short end moves sharply lower, with 2y and 5y yields rising 10-12bps. USTs and gilts follow but outperform by ~3bps at the 10y point. Peripheral spreads are mixed, tightening to core at the short end, widening a touch at the back end. Futures activity during Asia session and European morning has featured continued selling of 10-year note contracts via 5k-lot block trades, most recent at 6:38am. The IG corporate issuance slate is not too busy and includes Development Bank of Japan 5Y SOFR and KfW 5Y SOFR; four deals priced $10.5b Wednesday, taking weekly volume above $40b. Focal points of U.S. session focus include appearance by Fed Chair Powell and 5-year TIPS auction, both at 1pm ET. European bonds fell, with 10-year bund yields adding 5 basis points. Traders are betting on three quarter-point hikes from the ECB this year, after Governing Council member Pierre Wunsch said policy rates could be raised above zero before year-end, with the bank perhaps even deploying “restrictive” policy to get surging prices under control. Adding to the sense of urgency, fellow members Luis de Guindos and Martins Kazaks said a rate hike in July was possible. In commodities, WTI drifts 1% higher to trade around $103; Brent is also firmer but off best levels and currently reside around the mid-point of USD 2.50/bbl ranges amid multiple pertinent updates. Namely, Russian-Ukraine negotiations and Mariupol developments, though we await Western confirmation, and China's COVID situation with strict curbs seemingly set to remain. Brazilian Oil Minister discussed raising oil output with the US amid the Ukraine crisis, while Brazil is willing to meet India's oil needs and wants Indian investment. Furthermore, the oil minister hopes oil prices stabilise below USD 100/bbl and said a high oil price is not good for producers and consumers, according to Reuters. Spot gold has continued to slip below the USD 1950/oz mark losing the 21-DMA at USD 1947 ahead of potential 50-DMA support at USD 1936.05/oz. Bitcoin is firmer on the session but seemingly remains drawn to the USD 42k mark, in-spite of a brief foray above the figure. Looking to the day ahead now, and central bank speakers include Fed Chair Powell and ECB President Lagarde, who are taking part in a panel on the global economy, as well as BoE Governor Bailey and the BoE’s Mann. Data releases from the US include the weekly initial jobless claims, and from the Euro Area there’s also the European Commission’s advance consumer confidence reading for April. Finally, earnings releases include Danaher, NextEra Energy, Philip Morris International, Union Pacific and Blackstone. Market Snapshot S&P 500 futures up 0.8% to 4,489.75 MXAP down 0.2% to 171.95 MXAPJ down 0.4% to 567.72 Nikkei up 1.2% to 27,553.06 Topix up 0.7% to 1,928.00 Hang Seng Index down 1.3% to 20,682.22 Shanghai Composite down 2.3% to 3,079.81 Sensex up 1.4% to 57,837.40 Australia S&P/ASX 200 up 0.3% to 7,592.79 Kospi up 0.4% to 2,728.21 STOXX Europe 600 up 0.4% to 461.91 Brent Futures up 0.9% to $107.76/bbl German 10Y yield little changed at 0.93% Euro up 0.6% to $1.0916 Gold spot down 0.6% to $1,945.26 U.S. Dollar Index down 0.39% to 100.00 Top Overnight News from Bloomberg The ECB could lift policy rates above zero before the end of the year unless the euro-zone economy suffers a severe shock, and it might even have to deploy “restrictive” policy to get surging prices under control, Governing Council member Pierre Wunsch said The ECB should be able to phase out asset purchases in July to pave the way for an interest-rate increase as early as that month, according to Vice President Luis de Guindos The euro is being used less often as a global payment currency, posting its biggest percentage-point drop in more than a decade in March, as inflation and the war in Ukraine weigh on its appeal for transactions Liquefied natural gas suppliers are asking clients to pay much higher rates for new long-term contracts, as a global effort to cut Russian imports is expected to keep the market tight for the next decade President Xi Jinping defended China’s lockdown-dependent approach to fighting the pandemic, even as he sought to reassure the world that the country was still committed to opening its economy A more detailed look at global markets courtesy of Newsquawk   Top Asian News China State Energy Giants in Talks for Shell’s Russian Gas Stake Japan Upgrades View of Economy Following Lifting of Covid Curbs Bank of Korea Governor Rhee Warns of Debt, Aging Risks BofA Said to Relocate Some Hong Kong Dealmakers to Singapore European bourses are firmer across the board, Euro Stoxx 50 +1.2%, upside that occurred alongside renewed EUR upside; potentially, on a stronger currency alleviating some imported-inflation pain. However, the FTSE 100 -0.1% is the clear laggard in-spite of favourable GBP action with heavy-weight mining names pressured after Q1 production reports. Stateside, US futures are firmer across the board, NQ +1.0%, following a strong TSLA, +7% pre-market, report and ahead of commentary from Fed's Powell at two events. Top European News Fired BNP Boss Accused of ‘Emotional Terrorism’ Seeks $4 Million Macron Brushes Off Attacks as Debate Reassures Investors Dutch Government Votes to Tighten Bonus Rules For Finance Firms Binance Limits Russia Services After EU Sanctions on Crypto FX Euro outperforms as dovish-leaning ECB member de Guindos tilts towards July hike and markets factor in 75 bps tightening before year end; EUR/USD hits 1.0936 high after breaching series of tech resistance levels and huge option expiries between 1.0900-05 (3.3 bln). Dollar rattled by Euro exertions and DXY loses 100.000+ status in response. Loonie and Kiwi diverge after mixed Canadian and NZ inflation data in relation to consensus, USD/CAD sub-1.2500 where 1.36bln expiry interest resides and NZD/USD sub-0.6800. Yen back under pressure as yields rebound markedly and BoJ continues efforts to impose YCT, while keeping verbal currency intervention trained on the pace rather than scale of moves, USD/JPY above 128.00. Pound undermined by EUR/GBP rally through technical resistance awaiting BoE rhetoric, while Yuan extends losses after latest weaker CNY fix and comments from Chinese media citing factors that may lead to further depreciation; Cable capped into 1.3100 and cross up over 21 and 50 DMAs to circa 0.8367. Rouble rebounds as CBR says it is contemplating FX controls, USD/RUB just under 80.0000. Fixed Income Bonds reverse course after latest correction from bear market territory, with Bunds, Gilts and 10 year T-note trying to stay on 154.00, 118.00 and 119-00 handles. Eurozone debt hit by hawkish sounding remarks from usual ECB dove de Guindos to the effect that data may determine a July hike. French OATs hold up better than the rest after strong multi-tranche auction, on balance and Macron's outperformance during Presidential TV debate. Commodities WTI and Brent are firmer but off best levels and currently reside around the mid-point of USD 2.50/bbl ranges amid multiple pertinent updates. Namely, Russian-Ukraine negotiations and Mariupol developments, though we await Western confirmation, and China's COVID situation with strict curbs seemingly set to remain. Brazilian Oil Minister discussed raising oil output with the US amid the Ukraine crisis, while Brazil is willing to meet India's oil needs and wants Indian investment. Furthermore, the oil minister hopes oil prices stabilise below USD 100/bbl and said a high oil price is not good for producers and consumers, according to Reuters. Peru is to declare a state of emergency to restore copper output at the Cuajone mine which was halted by protests in late February, according to Reuters. Spot gold has continued to slip below the USD 1950/oz mark losing the 21-DMA at USD 1947 ahead of potential 50-DMA support at USD 1936.05/oz.   US Event Calendar 08:30: April Continuing Claims, est. 1.46m, prior 1.48m 08:30: April Initial Jobless Claims, est. 180,000, prior 185,000 08:30: April Philadelphia Fed Business Outl, est. 21.4, prior 27.4 10:00: March Leading Index, est. 0.2%, prior 0.3% Central Bank Speakers 13:00: Powell and Lagarde Take Part in IMF Panel on Global Economy DB's Jim Reid concludes the overnight wrap After a major selloff so far in April, sovereign bonds have pared back their losses over the last 24 hours as investors await comments today from Fed Chair Powell and ECB President Lagarde, who’ll be appearing together on an IMF panel on the global economy in the New York afternoon. The moves saw 10yr Treasury yields undergo a major intraday swing, falling more than -13bps from their intraday high of 2.98% during Asian trading, before closing at 2.83%, ahead of a +3bps move back higher this morning. There seemed to be a belief that if inflation was in the process of peaking out, the strength of the recent rates sell-off might be overdone. But even as longer-dated yields moved lower on both sides of the Atlantic, the front end has been much more subdued by comparison, with the 2yr yield falling just -1.6bps yesterday and actually up +3bps this morning as investors continue to price in yet more Fed hikes over the near term. In fact, the amount of hikes priced in by December hit a fresh high of 227bps yesterday, and when you include the 25bp hike from last month, that implies the Fed will have tightened by more than 260bps for the year as a whole, so more than the 250bps worth of tightening we saw back in 1994. Market pricing is in line with what the Fed has been communicating of late. Even yesterday’s dovish leaning speakers, Presidents Daly and Evans, expressed a desire to get policy rates to neutral by the end of this year, which the most recent dot plot pegs at right around 250bps. Looking beyond this year as well, the rate that futures are pricing in for June 2023 hit a fresh closing high of 3.10%, although that’s still beneath our US economists’ call for a rate of 3.6% by then. This growing drumbeat for monetary tightening was echoed in Europe too, where a couple of speakers signalled that an initial rate hike as early as July was potentially on the table. First, we heard from Latvian central bank governor Kazaks in a Bloomberg interview, who said that “A rate increase in July is possible”. And then Bundesbank President Nagel said that there could be a rate hike “at the beginning of the third quarter” if asset purchases were finished at the end of Q2. Currently, overnight index swaps are only fully pricing in a 25bp hike by the September meeting, and that’s when our own European economists are also expecting the ECB to move on rates as well. So if July were realised that would be a step up from where markets currently are right now. That said, this would fit the pattern we saw with the Fed, where markets progressively brought forward the expected timing of the first hike, having initially not expected one in 2022 at all to the point where one got priced in as early as March, even with the shock presented by Russia’s invasion of Ukraine. Even with the increasing chatter around a July ECB hike, sovereign bonds in Europe pretty much echoed their US counterparts, with yields on 10yr bunds (-5.5bps), OATs (-4.6bps) and BTPs (-3.6bps) all moving lower. That came as European natural gas prices fell to another post-invasion low yesterday, down -1.21% at €92.63/MWh, though the war itself continues to show no sign of ending, with the commentary around any negotiations still taking on a very negative tone from both sides. Equities put in a solid performance for the most part, although Netflix plunged -35.12% in trading after it reported a decline in subscribers in the first quarter, marking its worst daily performance since 2004. The move also leaves its share price at its lowest level in over 4 years, and the company’s YTD losses now stand at -62.45%, making it the worst performer in the entire S&P 500 on a YTD basis. My bingeing of Bridgerton 2 on holiday and starting the final series of Better Call Saul (the best show of the last few years) last night obviously hasn’t helped. Netflix’s decline dragged down a number of indices, with the FANG+ index of megacap tech stocks shedding -6.17%, primarily due to the Netflix move, whilst the NASDAQ fell -1.22%. The broader S&P 500 was more resilient, falling a mere -0.06%, with 378 stocks actually advancing showing that big cap tech was a drag. European shares were stronger, with the STOXX 600 gaining +0.84% as it more than recovered from the previous day’s losses. Contrary to Netflix, Tesla revealed a record profit on strong demand for electric vehicles and through the sale of carbon credits in their earnings after the close. Going forward, they believe production will continue to grow despite supply chain issues beleaguering the industry. TSLA shares were +5.59% higher in after hours trading, moving back above $1,000 a share. Most Asian equity markets are trading higher but with mainland China and Hong Kong stocks lagging, hurt by worries about the Chinese economy as the nation continues to battle Covid-19 outbreaks. The Shanghai Composite (-1.68%), CSI (-1.05%) and the Hang Seng (-1.56%) are trading in negative territory as a speech by the Chinese President Xi Jinping failed to bolster investor sentiment as markets have been disappointed with Chinese attempts at tackling the economic impact of lockdowns. Elsewhere, the Nikkei (+1.21%) and the Kospi (+0.48%) are trading up building on previous session gains. Looking ahead, stock futures are indicating a positive start after Tesla's earnings with the S&P 500 (+0.38%), Nasdaq (+0.55%) and DAX (+0.30%) in the green. Oil prices are higher this morning with pressure in Europe to impose formal sanctions on Russian oil mounting. As I type, Brent futures are +1.04% higher at $107.91/bbl. In FX, the Japanese Yen continues to remain weaker and is -0.32% lower. Elsewhere, we’re just 3 days away from the French presidential election runoff now. The second round candidates held their only debate last night, expounding their world views for about three hours. There didn’t seem to be anything from the debate that should tip the scales of the election in either direction. The polls continue to put President Macron ahead of Marine Le Pen, and yesterday’s releases maintained that pattern of Macron’s lead being outside the margin of error, with leads of 56.5-43.5 (Ipsos), 55.5-44.5 (Ifop), 55-45 (from Kantar), and 54-46 (from Harris). There wasn’t a massive amount of data yesterday, but we did get a fresh reminder on inflationary pressures from the German PPI data, which came in at a year-on-year rate of +30.9% in March (vs. +30.0% expected). It’s also the fastest annual rate since the official series begins in 1949. Otherwise, there were US existing home sales for March, which fell to an annualised rate of 5.77m as expected, the lowest rate since June 2020. Elsewhere the Credit Derivatives Determinations Committee said Russia’s remuneration of foreign currency bonds with rubles would constitute a default, triggering credit default swaps on Russian debt. Recall, US bank custodians were prevented from processing Russian dollar debt payments earlier this month. Russia still has some time to avoid a default, with a 30-day grace period to make creditors whole expiring on May 4. To the day ahead now, and central bank speakers include Fed Chair Powell and ECB President Lagarde, who are taking part in a panel on the global economy, as well as BoE Governor Bailey and the BoE’s Mann. Data releases from the US include the weekly initial jobless claims, and from the Euro Area there’s also the European Commission’s advance consumer confidence reading for April. Finally, earnings releases include Danaher, NextEra Energy, Philip Morris International, Union Pacific and Blackstone. Tyler Durden Thu, 04/21/2022 - 07:55.....»»

Category: blogSource: zerohedgeApr 21st, 2022


Perma-Bulloney! Authored by Mike Pento, The economy is faltering, and markets are becoming chaotic. In spite of this, the mainstream financial media is busy convincing investors that the bull market is solidly intact. The 10-2 Treasury yield curve inverted on Tuesday, March 29, 2022. This inversion has occurred for the first time since September 2019. Meanwhile, the 30-5-year Treasury yield spread has also inverted in late March, the first time such an inversion has occurred since 2006. Such inversions nearly always signal the economy has weakened sharply and is headed for a recession. But right on cue, Wall Street apologists are data mining parts of the yield curve to try and explain why the economy is strong and that a recession isn’t in the cards. They try to deflect your attention away from the most salient 10-2 curve inversion and instead point to the 3-month, 10-year curve spread to dismiss the whole flattening and inversion thing going on everywhere else. Why? Well, because they always need an excuse to stay bullish. Newsflash, the 10-3month Treasury yield spread is only temporarily lagging behind the more relevant parts of the curve simply because the Fed has long dithered to raise the Funds Rate. The fact is, the 3-month T-bill is always pegged very close to the FFR. And since the Effective Fed Funds Rate is still stuck at around .33%–again, that to Powell’s reticence to fight inflation– this part of the curve has yet to invert. However, once Mr. Powell really gets going with the tightening process, this part of the curve should invert too, as the overnight lending rate eclipses longer duration yields. Allow me to briefly explain why all this curve inversion stuff is so important. It is all about money supply growth and the access to credit. You see, we have a debt-based monetary system. This means money is created when a bank makes a loan. Banks make a profit between what they pay to depositors (borrow short) and the income they receive from their assets (lend long). When the yield curve inverts, their profit motive is greatly eroded, just as the risk of making new loans increases. This dynamic occurs at the same time consumer’s demand for credit decreases due to their need to reduce leverage. The monetary liquidity then dries up, and asset prices begin to tumble. Of course, Wall Street abounds with Pollyanna’s that come up with reasons for the investor lemmings to walk blindly off the cliff. Enter Deutsche Bank and its soothing words offered to us regarding the history of curve inversion. Their research indicates that after the 10’s-2’s inversion takes place, the market has peaked between 3-25 months later. And the average increase for the S&P 500 after that initial inversion is 19%. Let’s take a look at the more relevant data that the Deep State of Wall Street so conveniently overlooked. We will first dismiss the last curve inversion that occurred in the late summer of 2019–just a few months before the economy and markets tanked–because of the assumption that the yield curve just got lucky due to the unpredictable COVID-19 pandemic. So, let’s instead look at what happened during the time leading up to the Great Recession of December 2007 thru March 2009. The spread between the 10 and 2 Year Note first inverted on December 27th 2005. The economy was so strong back then that the Fed was able to hike rates by 325 bps (from 1% to 4.25%) during the timeframe beginning with the first hike in 2004 until that first inversion occurring at the end of 2005. But after that initial curve inversion, the Fed was only able to push through another 100 bps in rate hikes before it had to stop tightening policy in June 2006. This pause was due to a clear deceleration of economic activity. Despite the Fed’s relaxation of its hawkish monetary policy stance, the economy continued to deteriorate, and the stock market topped out a year later in the summer of 2007. The Great Recession began just a few months later. Today’s economic situation is very different. The economy is so weak right now that it only took one, 25 bp rate hike to invert the 10-2 yield spread. This leaves just about 100 bps of hiking that can be done before the economy slows enough to turn a hawkish central banker into a dove. The problem is, since inflation is at a 40-year high, Mr. Powell cannot easily turn dovish. In fact, he has scheduled another 225 bps of rate hikes this year alone. And, due to that 8.5% CPI, 11.2% PPI & 12.5% Import Price spike; he must continue with his rate hike campaign–in conjunction with QT—until inflation is under control or markets plunge…whichever comes first. Another part of the recession cover-up story is the idea that leverage in the system has all but disappeared. Let’s compare the period of time just prior to the start of the Great Recession, which is regarded as the most overleveraged economy in U.S. history, to the state of the economy as of the latest reported data at the end of 2021. In December 2007, corporate debt was $6.3 trillion (42% of GDP). At the end of last year, corporate debt soared to $11.6 trillion (48% of GDP, which is a record high). And, Total Non-financial debt was $33.5 trillion (227% of GDP) at the start of the Great Recession. But now, Total Non-financial debt has skyrocketed to $65 trillion, which is an incredible 270% of GDP. What we have in reality is an 84% increase in corporate debt and a 94% jump in Total Non-financial Debt in just the last 14 years! The major point here is the amount of debt has increased significantly in both nominal terms and as a percent of GDP after each recession. This means the level of interest rates it takes to break the economy keeps reducing. In the year 2000, it took a Fed Funds Rate of 6.5% before the market melted down. Leading up to the Great Financial Crisis of 2007-2009, that level dropped to 5.25%. Then, due to the massive leverage prompted by the Fed and Treasury following that crash, it then took a FFR of just 2.5% to cause the credit markets to freeze and stocks to falter in 2018. Today, it will probably take a FFR with just a one-percent handle before the financial markets once again meltdown. Therefore, don’t be fooled. The economy is much closer to a contraction than Wall Street wants you to believe. The Fed’s tightening cycle is very far from routine this time around. Inflation isn’t just high; it’s at a 40-year high! This means Mr. Powell will not only be raising the Fed Funds Rate by 50 bp increments instead of the usual 25 bp hikes, but he will also be engaged in the monetary destruction mechanism known as Quantitative Tightening at the same time. Powell will be burning around $95 billion of the base money supply each month beginning around May, which is $45 billion more than what was done during the height of the last QT. Indeed, the March FOMC minutes show that the ramp-up to that level will only take three months, instead of the baby steps that were taken the last time the Fed tried to reduce its balance sheet. The Fed is not now trying to slow down an economy that is overheating. In sharp contrast, GDP and earnings growth are now both rapidly slowing. An accurate recession indicator can still be found in an inverted yield curve. But that inversion usually occurs after the Fed has raised interest rates several hundred basis points over several years’ duration. However, this latest yield curve inversion has occurred after just one measly 25 bp rate hike. That is indicative of a very weak economy. The powerful inflation-fighting measures of monetary destruction (QT) and significant rate hikes still lie ahead. And that can only greatly exacerbate the current weakness; despite Wall Street’s best efforts to convince you otherwise. *  *  * Michael Pento is the President and Founder of Pento Portfolio Strategies, produces the weekly podcast called, “The Mid-week Reality Check”  and Author of the book “The Coming Bond Market Collapse.” Tyler Durden Tue, 04/19/2022 - 09:55.....»»

Category: blogSource: zerohedgeApr 19th, 2022

A housing bubble is on everyone"s mind right now — here"s what it is and how to know if the US is in one

Demand is booming and supply is lagging, triggering a heated debate about whether or not the US is in a housing bubble that's about to burst. An aerial view of a neighborhood.Getty Images Experts are wondering if the US housing market is in a bubble — and whether it could soon burst. A bubble is when the price of an asset surges, often for irrational reasons or reasons unrelated to underlying fundamentals. Home prices soared throughout the pandemic as debt was cheap and people sought more space during lockdown.  You may have heard, the US housing market is booming. But booms often end in a bust, and the housing situation across the country has led experts to debate the possibility of the whole market imploding. As the number of homes available for sale continues to fall short of historically high demand, talk has been simmering for months about whether or not the real estate market is bracing for a crash.Google searches for "housing bubble" soared during March as the Fed raised its benchmark interest rate for the first time during the pandemic, setting mortgage rates on an upward path. So what is a housing bubble, how did the US get here, and what will happen if it bursts?A housing bubble happens when home prices become artificially inflatedThe most recent housing bubble is borne out of a severe imbalance in the real estate market.It is somewhat different than the housing bubble that preceded the 2008 crisis, when a combination of cheap debt, perverse incentives among mortgage lenders, and complex financial engineering led to many borrowers being placed into mortgages they could not afford.When that bubble burst, it triggered a foreclosure crisis among homeowners, as well as a credit crisis among the investors who owned bonds backed by these underwater mortgages. The end result was a global recession.  Today, the problem is a bit simpler: housing supply is unable to meet demand. Spurred by cheap mortgage debt and the need for more space, buyers are clamoring for a limited amount of inventory, and home sellers capitalize on that by raising prices. Since 2020, buyer competition has intensified, sparking bidding wars and crushing affordability, especially for first-time buyers. The concern of a bubble bursting is when — and how quickly — the market rebalances. An abrupt shift could result in turmoil. For example, if prices see a sudden sharp decline, many people who recently bought a place could suddenly be paying for a mortgage that is worth more than their house. While the events that led to the housing crash of 2008 differ from the issues plaguing the housing market today, talk of a bubble bursting is again on the rise.Last week, the Federal Reserve Bank of Dallas published a report suggesting that although the underlying causes of home price growth differ from those during the last housing boom, there is growing concern that US house prices are again becoming unhinged from fundamentals — meaning that buyers are increasingly purchasing homes out of the fear of missing out, rather than based on their fundamental value or their own ability to afford them in the long run."Our evidence points to abnormal U.S. housing market behavior for the first time since the boom of the early 2000s," the Fed researchers wrote. The affordability crisis could lead to the bubble bursting "Housing affordability fell to a decade-low during the third quarter of 2020," Robert Dietz, the SVP and chief economist of the National Association of Homebuilders, told Insider. "Given that interest rates are expected to increase, housing affordability will be under additional pressure in 2022."While home builders are slowly increasing housing supply, the recent uptick in mortgage rates is likely to put additional pressure on affordability. With the median US listing price sitting at an all-time high of $405,000, that may be unsustainable as buyers adjust to the prospect of higher monthly mortgage payments. "The housing market is in the early stages of a substantial downshift in activity, which will trigger a steep decline in the rate of increase of home prices, starting perhaps as soon as the spring," Ian Shepherdson, chief economist and founder of research consulting firm Pantheon Macroeconomics, wrote in a research note.While the result may not be as severe as the Great Recession that came after the 2008 housing bust, there would still be consequences. As houses are the among the largest sources of wealth for many Americans, a plunge in home prices could lead to a serious wealth destruction that could take people many years to build back up.Housing is also a driver of economic activity more broadly, with consumer spending usually rising when the housing market is strong. If the market declines, that would be another economic headwind among many for the US as it climbs out of the pandemic. Read more Insider analysis on a possible housing bubbleA chief economist who called the 2008 housing crisis warns that the US housing market is in the 'early stages of a substantial downshift' as demand subsides — and says surging home prices and rents are due to cool off in a big wayAre we on the verge of a housing-bubble bust? An economist advises buyers to sit out the current 'irrational' market and lists the 11 most overvalued cities in the US.Out-of-town homebuyers are driving up real-estate prices in these 10 overvalued cities, and it's fueling housing-bubble fearsIs the housing market setting up for a crash? 2 experts — including one who called the 2008 bubble burst — share the warning signs that a real-estate downfall is coming.Are home prices going to crash? A real-estate expert who's written multiple books on investing strategy breaks down why prices could grow 'faster than we can get a handle on.' Read the original article on Business Insider.....»»

Category: topSource: businessinsiderApr 7th, 2022

Futures Rebound From Two-Day Plunge As Yield And Oil Rise

Futures Rebound From Two-Day Plunge As Yield And Oil Rise U.S. index futures edged higher, along with European shares, after the sharpest two-day drop in almost a month, as investors digested Federal Reserve’s hawkish path and were jerked higher by a fleeting moment of Ukraine ceasefire hope when Emini futures initially spiked to session highs on the following Reuters headline: RUSSIAN FOREIGN MINISTER SAYS UKRAINE PRESENTED A NEW DRAFT AGREEMENT TO RUSSIA ON WEDNESDAY - IFX ... only to reverse the entire move two minutes later when the following headline hit: LAVROV: UKRAINE PROPOSALS ON CRIMEA, DONBAS UNACCEPTABLE: IFX Mini hiccup aside, S&P futures were about 0.1% higher at 4,481 while Nasdaq futures gained 0.5% to 14,574, signaling an end to a selloff in the underlying index that erased $850 billion in market value over two days.  Ten-year Treasury yields were flat around 2.61%, the dollar extended its rally to a sixth day, the longest streak in almost 10 months, and oil rebounded from yestereday's IEA reserve release-driven plunge. Markets are showing signs of recovery after a selloff brought on by hawkish Fed minutes in which the central bank laid out a long-awaited plan to shrink their balance sheet by about $95BN per month or more than $1 trillion a year while raising interest rates “expeditiously” to counter the hottest inflation in four decades. “The FOMC minutes gave the clarity that every investors was looking for,” said Ipek Ozkardeskaya, senior analyst at Swissquote. “The US 2-10 year spread is back in the positive after having slipped below zero, but the recession threat is real, keeping the investor mood sour as the Fed pulls back support.” “The Fed delivered what most market watchers were looking for, with details around the pace and composition of the balance sheet runoff,” said Janus Henderson global bond PM Jason England. Along with recent hawkish comments from Fed officials, the minutes showed “the Fed has pivoted from a gradual approach to tightening monetary policy to now moving more rapidly toward a neutral stance,” he said. In premarket trading, HP shares were up 13% after Warren Buffett’s Berkshire Hathaway bought an 11% stake worth $4.2 billion in the laptop maker valued at more than $4.2 billion. SoFi shares declined 5.1% in premarket after the fintech firm gave new guidance as the U.S. government extended the pause on student-loan payments. Other notable premarket overs include: Levi Strauss & Co. (LEVI US) gains 5.5% in premarket trading after it said revenue during the most recent quarter increased 22% to $1.6 billion. Wells Fargo said comments about a strong first quarter and good momentum in March should help dispel investor concerns, at least in the near term. Wayfair (W US) falls 4.4% in premarket trading after Wells Fargo downgrades to underweight from equal weight in sector note turning more cautious on housing-impacted retailers. SoFi (SOFI US) drops 5.1% in premarket trading as Morgan Stanley cuts its 2022 Ebitda estimate by $42m to $100m after the fintech firm gave new guidance as the U.S. government extended the pause on student-loan payments. Sprinklr’s fourth- quarter results were a positive, though the most impressive point was the software company’s guidance, Barclays analysts led by Raimo Lenschow write in a note. The shares rose 4.7% in postmarket trading on Wednesday. Vapotherm (VAPO US) falls 23% in premarket trading after the respiratory-device company reported preliminary quarterly revenue that fell short of analysts’ estimates and withdrew its annual guidance. In Europe, the Stoxx 600 added 0.7%, boosted by a rally in shares of Atlantia SpA, the billionaire Benettons’ highway and airport group. Atlantia added 10% in Italian trading after a non-binding bid from Global Infrastructure Partners and Brookfield Asset Management Inc. European healthcare and chemical stocks outperformed, while energy and miners declined. IBEX outperformed, adding 1.5%, FTSE 100 lags, dropping 0.1%. Health care, chemicals and travel are the strongest performing sectors. The energy sector was in the red, dragging the U.K.’s benchmark FTSE 100 down, as Shell’s $4-$5BN hit from its withdrawal from Russia weighed on oil producers. The statement from the London-based giant shows that, despite a surge in oil and gas prices, Russia’s invasion of Ukraine has upended the supermajors’ plans and left them scrambling to adapt to historic shifts in energy markets. Here are the most notable European premarket movers: Atlantia shares rise as much as 12%, extending yesterday’s gains, after a Bloomberg report that the motorway and airport company could become the target of a bidding war. Electrolux advances as much as 5.8% after announcing a positive non- recurring item of $70.5m in 1Q. Euronav shares gain as much as 12% on news of a potential stock-for-stock combination with Frontline to create a tanker company with a market capitalization of more than $4.2b. Daetwyler shares jump as much as 6% after it announced the acquisition of U.S. electrical connector seals company QSR, with Baader saying the deal may benefit earnings from day one. 888 shares surge as much as 31% after the gambling company announced a share placement to pay for its now-cheaper acquisition of William Hill’s international assets, with analysts reacting positively. Verbio shares surge to a record high after Hauck & Aufhauser lifts its PT on the biodiesel manufacturer by almost 33% ahead of what the broker expects to be “another outstanding quarter.” European basic resources and energy shares decline, lagging all other sectors, as commodity prices start to pull back, with Anglo American, Rio Tinto and Glencore all posting declines. PageGroup and other staffing companies fall after Jefferies lowers EPS estimates across the sector and takes a “more risk-off approach” in note, downgrading PageGroup in the process. Countryside shares sank as the home developer forecast a decline in profit after conducting a review of its business following a dispute with an activist investor. TI Fluid Systems falls as much as 12% after Jefferies downgraded the automotive parts maker to hold from buy, saying conditions faced by the company are among the most difficult in its coverage. Earlier in the session, Asian stocks slid to a three-week low as traders feared a rapid rise in U.S. interest rates and aggressive scale-back of the Federal Reserve’s bond holdings could stymie growth and hurt earnings. The MSCI Asia Pacific Index lost as much as 1.4% on Thursday, with tech shares leading the losses in many countries, after minutes of the Fed’s March meeting showed plans to shrink its balance sheet by more than $1 trillion a year. The fall came after the Asian benchmark slumped 1.5% on Wednesday following similarly hawkish comments from Fed Governor Lael Brainard. Worries that hawkish policy tightening by the Fed may cool the world’s largest economy or even tip it into a recession are hitting equities broadly across Asia. Stocks in China also buckled, even as the state council renewed its pledge to use monetary policy tools at an “appropriate time” and consider other measures to boost consumption, according to the readout from a meeting of the State Council chaired by Premier Li Keqiang on Wednesday. “The Fed is telling us that the party is over. It is saying it will take away the punch bowl,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo. “This will have a serious impact on all risk assets.” Fujito saw tech shares with rich valuations as the most vulnerable, adding that investors will be trying to seek shelter in utilities and defensive stocks. The MSCI Asia Pacific Information Technology Index fell about 2%.  Benchmarks in Japan and South Korea underperformed other Asian peers, while gauges in Australia and India posted smaller declines on Thursday.   For April, the MSCI Asia is now down more than 2% on top of a slump of almost 7% last quarter -- the most since the first three months of 2020 -- amid concern about the war in Ukraine, higher rates and inflation.  Japanese equities fell by the most in almost four weeks, deepening declines in tandem with U.S. peers amid concerns over the Federal Reserve’s plans to tighten monetary policy. Electronics makers and service providers were the biggest drags the Topix, which dropped 1.6%, in its third day of decline. Tokyo Electron and Fast Retailing were the largest contributors to a 1.7% loss in the Nikkei 225.  Minutes from the latest Federal Reserve meeting showed the U.S. central bank is prepared to raise rates sharply and reduce its balance sheet to cool the economy. Indian stocks dropped with peers across Asia as the weekly expiry of derivative contracts weighed on the market.  The S&P BSE Sensex slipped for a third session, dropping 1% to 59,034.95, its biggest fall since March 21. The NSE Nifty 50 Index slipped 0.9%. HDFC Bank retreated 2.2%, while Reliance Industries declined 1.8%. Seventeen of 30 shares on the Sensex traded lower.  Fifteen of 19 sectoral sub-indexes compiled by BSE Ltd. declined, led by a gauge of oil & gas stocks. The Fed’s plan to prune its near $9 trillion balance sheet, which was swollen by pandemic-era bond purchases, points to more volatility in global markets. Locally, the nation’s central bank will likely raise its inflation outlook to reflect costlier oil while leaving borrowing costs steady in its policy decision on Friday. “U.S. Fed’s hawkish stance has raised concerns of steeper interest rate hikes going ahead,” Kotak Securities analyst Shrikant Chouhan said. He sees volatility in global crude oil prices leading to profit taking in Reliance Industries and other energy stocks. The S&P/ASX 200 index fell 0.6% to close at 7,442.80, retreating alongside global peers after the Federal Reserve outlined plans to trim its balance sheet by more than $1 trillion a year while raising interest rates. Life360 was the biggest laggard as tech stocks dropped. Magellan Financial was the top performer after its funds under management update showed a slowdown in net outflows. In New Zealand, the S&P/NZX 50 index was little changed at 12,075.91 In FX, the Bloomberg dollar spot index is near flat, handing back earlier gains that saw it at a three-week high. RUB leads gains in EMFX. In rates, the treasuries curve extends steepening counter-trend as front-end and belly yields retreat further from Wednesday’s YTD highs while long-end cheapens slightly. Yields richer by up to 3bp across front-end of the curve, steepening 2s10s by ~3bp with 10-year little changed near 2.60%; bunds and gilts keep pace. Bund, Treasury and gilt curves all bull steepen. Meanwhile commodity markets continue to be whipsawed by disruptions sparked by Russia’s war in Ukraine and efforts to curb raw-material costs. WTI crude climbed toward $98 a barrel, paring a slump that was triggered by the International Energy Agency’s decision to deploy 60 million barrels from emergency stockpiles. WTI added 1.4% to trade near $98. Brent rises 1.5% to over $102. Most base metals trade in the red; LME nickel falls 2.3%, underperforming peers. Spot gold is little changed at $1,926/oz. Raw materials could surge by as much 40% -- taking them far into record territory -- should investors boost their allocation to commodities at a time of rising inflation, according to JPMorgan. In crypto, bitcoin is pressured and towards the low-end of a range that continues to drift from the USD 45k mark. Meta (FB) is exploring a virtual currency for the metaverse, according to the FT. U.S. economic data slate includes initial jobless claims (8:30am) and February consumer credit (3pm). Fed speakers scheduled include Bullard (9am) and Bostic (2pm). U.S. session highlights include speech and Q&A by St. Louis Fed’s Bullard --who dissented from March FOMC decision in favor of a bigger rate increase -- at 9am ET.  Other central bank speakers include Bostic and Evans, as well as the BoE’s Pill. We’ll also get the minutes from the ECB’s March meeting, along with remarks from the Fed’s Bullard, Market Snapshot S&P 500 futures little changed at 4,476.75 MXAP down 1.4% to 176.33 MXAPJ down 1.4% to 584.33 Nikkei down 1.7% to 26,888.57 Topix down 1.6% to 1,892.90 Hang Seng Index down 1.2% to 21,808.98 Shanghai Composite down 1.4% to 3,236.70 Sensex down 0.7% to 59,191.33 Australia S&P/ASX 200 down 0.6% to 7,442.83 Kospi down 1.4% to 2,695.86 Brent Futures little changed at $101.14/bbl Gold spot up 0.1% to $1,928.10 U.S. Dollar Index little changed at 99.69     Top Overnight News from Bloomberg ECB President Christine Lagarde said she tested positive for Covid-19, adding that her symptoms are “reasonably mild” and that there won’t be any impact on the operations of her institution Surging U.S. real yields suggest bond traders believe the Federal Reserve can get a grip on inflation, but are likely to put further pressure on stocks and precious metals German Economy Minister Robert Habeck said the nation has already cut its reliance on Russian coal by at least half in the past month and won’t stand in the way of a European Union ban on imports of the fuel from the country In the days after the Ukraine war began, the ruble’s collapse was a potent symbol of Russia’s newfound financial isolation. Now, the ruble has surged all the way back to where it was before Putin invaded Ukraine Hungary kept its effective key interest rate unchanged at the highest level in the European Union after the forint plunged on the bloc’s announcement that it is triggering a process that may block the country’s aid funds China signaled it will step up monetary stimulus for the economy, acknowledging that domestic and global risks are now bigger than previously expected Bank of Japan board member Asahi Noguchi says it’s vital to continue with monetary easing as it will take some time before the possibility of shrinking stimulus comes into sight. A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks traded lower throughout most of the session as the downbeat mood reverberated from Wall Street. ASX 200 was dragged lower by its tech sector following a similar sectoral performance in the West. Nikkei 225 was hit by losses across its energy, mining and manufacturing names. KOSPI conformed to the global losses whilst Samsung Electronics (-0.3%) failed to benefit from better-thanexpected prelim earnings. Hang Seng and Shanghai Comp were choppy and initially swung between gains and losses before stabilising in the red. Samsung Electronics (005930 KS) - Prelim Q1 (KRW) Revenue 77tln (exp. 75.7tln), Operating Profit 14.1tln (exp. 13.3tln), via Reuters Top Asian News Suspected Chinese Hackers Collect Intel From India’s Grid SoftBank Tripled Share Buybacks to $1 Billion in March Thailand Mulls Easing Covid Test Rules for Overseas Visitors Japan to Release 15m Barrels From Oil Reserves: Kyodo European bourses are firmer across the board and back in proximity to post-cash open levels after initial strength waned in choppy price action, Euro Stoxx 50 +0.7%. US futures have been relatively in-fitting with European peers, though the NQ, +0.5%, is the modest outperformer as yields take a breather from their recent surge. China's Shanghai City is to cap the load factor of international flights by foreign airlines at 40% (prev. 75%), according to Reuters sources; effective from April 11th until month-end. Top European News Turkey Transfers Khashoggi Case to Saudi Arabia to Improve Ties Shunned Oil Piling Up Off China as Virus Outbreak Worsens EU Full Ban on Russia Coal to Be Delayed Until Mid-August: Rtrs Yellen Says U.S. Would Use Sanctions If China Invaded Taiwan FX: Greenback sets marginal new YTD best after hawkish FOMC minutes reveal tight call between 25 bp and 50 bp lift-off plus large cap balance sheet reduction, DXY up to 99.823, thus far. Albeit, the DXY has waned from best levels and turns flat ahead of the arrival of US participants as yields continue to pare Euro eyeing option expiries for support ahead of ECB minutes following loss of 1.0900 handle vs Dollar; EUR/USD down below Fib at 1.0895. Aussie unwinds more RBA inspired upside as trade surplus narrows on zero export balance; AUD/USD around 0.7475 vs circa 0.7661 only yesterday. Yen benefits from retreat in yields rather than BoJ rhetoric reaffirming ultra easy policy and merits of a weaker currency, USD/JPY capped below 124.00. Commodities: Crude benchmarks consolidate near WTD lows after reserve release pressure; specifically, near lows of USD 95.43/bbl and USD 100.13/bbl for WTI and Brent. Updates elsewhere have been slim, and focused on China's Shanghai City from a demand-side perspective amidst ongoing Ukraine-Russia developments; albeit, nothing fundamentally new in terms of negotiations. China is to strictly control new production capacity in the oil refining industry, according to the industry ministry Gas flows via Yamal-Europe pipeline resume westward, according to Gascade data. Spot gold/silver are contained and the yellow metal is once again capped by USD 1930/oz and LME Copper has failed to benefit from the equity pickup. US Event Calendar 08:30: April Initial Jobless Claims, est. 200,000, prior 202,000; Continuing Claims, est. 1.3m, prior 1.31m 15:00: Feb. Consumer Credit, est. $18.1b, prior $6.84b Central Bank Speakers 09:00: Fed’s Bullard Discusses the Economy and Monetary Policy 14:00: Fed’s Bostic and Evans Discuss Inclusive Employment 16:05: cancelled: Fed’s Williams Makes Closing Remarks DB's Henry Allen concludes the overnight wrap We might be less than a week into Q2, but based on how markets are performing it’s shaping up to be very similar to Q1 thus far, with yesterday seeing another bond selloff and significant declines for global equities as markets gear up for the fastest monetary tightening we’ve seen in decades. Indeed, it seems to be progressively dawning on investors that this cycle of hikes is going to be very different to the one we saw from 2015, when even at its fastest in 2018, the Fed still only hiked rates by 100bps in a single year. As Jim has written, if we could erase the post-GFC cycle from people’s memory banks, there’s a case that markets would be pricing 300-400bps this year given where inflation is right now, not least given we saw hikes on that scale in the late-80s and from 1994 with inflation at much lower levels than it is at the minute. Given the rapid expected tightening (as well as the negative shock of Russia’s invasion of Ukraine), it’s worth noting that DB Research’s new World Outlook came out on Tuesday, (link here), where we downgraded our global growth forecasts and are now forecasting a US recession by the end of next year as our baseline. We also got a look into the Fed’s outlook yesterday with the release of the March FOMC minutes, where it looks like they would have hiked by 50bps in March were it not for the Russian invasion, and they are ready to entertain 50bps hikes going forward. The markets got the message, and upgraded the probability of a 50bp hike at the next meeting in early May to 85%. The other big takeaway from the minutes were details around QT, which they signalled would start in May, in line with recent Fed speakers. The FOMC noted the balance sheet would rundown at a pace of $60bn Treasuries and $35bn MBS a month once QT hits terminal velocity, which should be by July if the minutes are to be believed. Markets digested the news, with Treasury yields more or less in line with their pre-minute levels into the close after declining modestly in the New York afternoon. With the pace of the runoff now set, the focus will turn to who buys the securities with the Fed stepping away and when the Fed has to stop QT. Alongside the minutes, remarks from a number of officials yesterday helped to reiterate the point that policy will become tighter this year. Philadelphia Fed President Harker said that he expected “a series of deliberate, methodical hikes as the year continues”, whilst on the question of whether to move by 50bps, Richmond Fed President Barkin said that the FOMC “could certainly do that again if it is necessary to prevent inflation expectations from unanchoring”. With all said and done, sovereign bond yields moved up to fresh highs on both sides of the Atlantic, with those on 10yr Treasuries up +5.1bps to 2.598%, which was its highest closing level since 2019, albeit some way beneath its intraday high of 2.656% shortly before noon in London, and this morning they have fallen a further -1.5bps to 2.583%. That increase yesterday was entirely driven by a rise in real yields, which rose +7.3bps to -0.24%, their highest level since March 2020, whilst a rally at the short end of the curve meant the 2s10s slope steepened for a 3rd day running, heading up to 12.2bps by the close. Those declines in shorter-dated yields came as futures actually took out a bit of Fed tightening from 2022, modestly reducing the expected number of additional hikes this year from 220bps in the previous session to 217bps by the close. Over in Europe there were similar moves, with sovereign bond yields reaching fresh highs before paring back some of that increase towards the close. Yields on 10yr bunds (+3.3bps), OATs (+3.1bps) and BTPs (+3.8ps) all closed at multi-year records, although a key difference with US Treasuries were that the rise in European yields yesterday were driven by higher inflation expectations rather than real rates. In fact the 10yr German breakeven hit 2.81%, its highest in the data series that starts back in 2009, whilst the Italian 10yr breakeven hit 2.63%, its highest since 2008. As on Tuesday, the selloff in bonds went hand in hand with further declines in equities, and by the close the S&P 500 (-0.97%) and Europe’s STOXX 600 (-1.53%) had both lost ground as well, with cyclical sectors leading the declines. Tech stocks in particular were an underperformer once again, and the NASDAQ (-2.22%) and the FANG+ index (-3.46%) both struggled again, bringing their declines over the last 2 sessions to -4.43% and -6.63% respectively. Amidst the equity declines, the VIX index of volatility rose +1.1pts yesterday to 22.1pts, taking it up to its highest level in 2 weeks. Overnight in Asia, equities have very much followed that retreat on Wall Street as monetary tightening remained in focus. Among the main indices, the Nikkei (-2.00%) is leading the moves lower, whilst the Kospi (-1.42%), Hang Seng (-1.04%), Shanghai Composite (-0.99%), and the CSI (-0.78%) are also trading in negative territory. Separately, we heard from China’s State Council yesterday that they would use monetary policy at an “appropriate time”, as they acknowledged downward pressures on the economy. Looking forward, stock futures in the US are pointing to further declines today, with contracts on the S&P 500 (-0.37%) and Nasdaq 100 (-0.33%) both lower following those Fed minutes. In terms of the latest on Ukraine, the EU continued to edge towards a fresh sanctions package, although that wasn’t finalised yesterday as had initially been suggested, with Reuters reporting that technical issues needed to be addressed like whether the ban on Russian coal would affect existing contracts. The report said that diplomats were optimistic about achieving a compromise today, so we could potentially see some news on that later, whilst in his speech to the European Parliament yesterday, European Council President Charles Michel also said that “I believe that measures on oil and even on gas will also be needed sooner or later.” Otherwise on sanctions, the US imposed further measures, including full blocking sanctions on Sberbank and Alfa Bank, along with a prohibition on new investment in Russia. The various decisions came amidst a further decline in oil prices yesterday, with Brent crude down -5.22% to $101.07/bbl, its lowest closing level in 3 weeks. That was supported by confirmation that the International Energy Agency would release 60m barrels of crude, on top of the Biden Administration’s release from the Strategic Petroleum Reserve. Brent has recovered somewhat this morning however, up +1.85% to $102.94/bbl. Turning to the French presidential election, we’re now just 3 days away from the first round on Sunday, and the polls have continued to tighten between President Macron and his main challenger Marine Le Pen. Yesterday’s polls for the second round runoff put Macron ahead of Le Pen by 54%-46% (Ipsos), 53-47% (Opinionway), and 52.5%-47.5% (Ifop), which are all much tighter than the 66%-34% margin in the 2017 election. French assets have continued to underperform against this backdrop, with the CAC 40 equity index (-2.21%) seeing a weaker performance than the broader STOXX 600 (-1.53%) for a 6th consecutive session. On yesterday’s data, the Euro Area PPI reading for February came in at a year-on-year rate of +31.4% (vs. 31.6% expected), which is the fastest pace since the formation of the single currency. Separately, German factory orders contracted by a larger than expected -2.2% in February (vs. -0.3% expected). To the day ahead now, and data releases include German industrial production and Euro Area retail sales for February, along with the weekly initial jobless claims from the US. Meanwhile from central banks, we’ll get the minutes from the ECB’s March meeting, along with remarks from the Fed’s Bullard, Bostic and Evans, as well as the BoE’s Pill. Tyler Durden Thu, 04/07/2022 - 07:49.....»»

Category: blogSource: zerohedgeApr 7th, 2022

State Governors Weigh In On The Financial Literacy Crisis In America

Following is the unofficial transcript of a CNBC interview with Tate Reeves, Mississippi Governor, Former State Treasurer and Chartered Financial Analyst; Steve Sisolak, Nevada Governor; and Phil Murphy, New Jersey Governor and Vice Chairman of the National Governors Association moderated by CNBC Senior Personal Finance Correspondent Sharon Epperson live during the “Invest in You: The […] Following is the unofficial transcript of a CNBC interview with Tate Reeves, Mississippi Governor, Former State Treasurer and Chartered Financial Analyst; Steve Sisolak, Nevada Governor; and Phil Murphy, New Jersey Governor and Vice Chairman of the National Governors Association moderated by CNBC Senior Personal Finance Correspondent Sharon Epperson live during the “Invest in You: The Governors Strategy Session on Financial Education” event today, Wednesday, April 6. The full video is available here: if (typeof jQuery == 'undefined') { document.write(''); } .first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; } Get The Full Henry Singleton Series in PDF Get the entire 4-part series on Henry Singleton in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues (function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true); Q4 2021 hedge fund letters, conferences and more State Governors Weigh In On The Financial Literacy Crisis In America All references must be sourced to CNBC’s “Invest in You: The Governors Strategy Session on Financial Education” event. SHARON EPPERSON: Today we’ve brought together three of our nation's governors to talk about the state of financial education in America, and why that knowledge is so very critical to advancing economic opportunity for all. New Jersey Governor Phil Murphy, Mississippi Governor Tate Reeves and Nevada Governor Steve Sisolak, It is an honor to have you with me here today to talk about such a very important issue. You know, here at CNBC, are our job is to talk to money managers and CEOs and economists and analysts about the markets, about investments, all facets of finance. But when we drill down to a personal finance level, why is it so hard to talk about money at home and in school? And is that silence actually contributing to Americans unhealthy financial habits? You know, Governor Murphy, I want to start with you because I'm really eager to learn how you learned about money and why financial education is so important to you? GOVERNOR MURPHY: Sharon, thank you for having us. This is an incredibly timely and relevant gathering. I want to acknowledge my fellow governors Reeves and Sisolak, it's an honor to be with them. And financial literacy is a topic that erases party lines and requires us to learn from each other's states and work together on best practices. I grew up in a family that I call middle class on a good day. So we had scarce resources for my entire childhood. So that was probably the biggest early lesson for me and that is that you have to work within constraints that you might not otherwise have in your life. But I think it's an incredibly – financial literacy is incredibly important for Americans, as you say, to secure their personal financial footing, to be better positioned, to provide for their families and set themselves up for future success. It could not be a more relevant topic. In fact, today, by coincidence, we're launching in New Jersey a website here to enhance financial literacy for all residents called to give you a sense of how important we think this is. EPPERSON: Absolutely. And Governor Reeves, I know from your background, maybe you did actually talk about money at home. Many people don't, but did you in your household growing up? GOVERNOR REEVES: Well I had the opportunity – and Sharon thank you for having myself and my fellow governors on today because this is an incredibly important topic. I had the opportunity to grow up in a family and with a father, who was a small business owner and he came from a very modest background, to say the least. He was one of 11 who grew up in a two room home in Mississippi and as he became a small businessman, as he worked to build his business, he made sure that myself and my brother were aware of the sacrifices that he made but also to not only understand what it takes to be successful in life, but also what it means to be successful in the money side of things as well. I then went to college and had the opportunity to obviously major in economics and take classes that were there with not only on personal finance, but also on investing in other things and led me to a career in it, which is one of the reasons that I'm so passionate about trying to encourage my fellow Mississippians and really, my fellow Americans, to make sure that financial literacy is available to as many people as possible because I really do think it can help Americans have a better life. EPPERSON: Absolutely. Absolutely. Governor Sisolak, did you ever take a class on personal finance or anything financial when you were in kindergarten through 12th grade or did you have to just learn by doing? GOVERNOR SISOLAK: Well Sharon, thanks for having me and my colleagues on here to talk about this very important subject. We learned in the home, my brother and sister and I did. My mom and dad did an incredible job teaching us and I personally always encourage parents to be involved in their kids education, all education, particularly financial literacy. We have a formal curriculum, and that's great and I think it does a lot for us. But right now it's important that their families get involved and kids understand that they want that new bicycle or they're going to save for their first car, they have to start saving money and save it early. You put so much of the when grandma and grandpa give you $10 for your birthday, you put a couple bucks of that aside for your future. And my parents delved into that and really encouraged my siblings and I to do that and I think we had a good foundation. It's unfortunate that a great percentage, I think 50 some odd percent of Americans can't cover $1,000 emergency costs if it comes up without borrowing the money. So it tells us we need to invest more. We've invested $2.5 million from the state into these programs. And to make sure that it gets out we address access and equity so that everybody gets this education, it’s not just reserved for the upper class. EPPERSON: Absolutely. Access, equity and financial responsibility is so very important. And you know, students who have taken a class in personal finance are more likely to engage in financially responsible behaviors. One study from the Council for Economic Education found that of the students who have taken a personal finance class, they're 9% more likely to save their money, 15% more likely to invest the money, and they're 21% less likely to take on credit debt. And when it comes to student loan debt, financial education in terms of high school graduation requirements has been shown to increase aid for applications for federal loans and decrease private student loans. So with all these positive results, it's just a wonder why it is not mandatory in all schools. Why is there such a difference in each state's approach to financial education? Governor Reeves, let me start with you. What is Mississippi's approach? GOVERNOR REEVES: Well, I think one of the challenges that we have across America is that we're all working very hard to ensure that the we improve educational attainment levels of our citizens. And you know, in our state, we actually were the seventh state in America to mandate a class we call it the Mississippi College and Career Readiness class. It's really about teaching life skills but 75% of the life skills that are taught in that class are with respect to financial education, because one of the things that you were talking about the importance earlier, I would just point out those individuals that have a fundamental understanding of their finances and financial literacy, they're also much more likely to improve their educational attainment level, they're much more likely to go back to maybe the local community college and learn a skill, so that they can increase their earning capacity, because they have a better understanding of what that means to them on a day to day basis. Obviously each state – and we believe very strongly here in our state about home rule – and each state has to make their own decision and make their own priorities as to what classes are most appropriate for their young people. But I am absolutely convinced that a fundamental understanding of finances is incredibly important to one's ability to be successful in life. EPPERSON: Absolutely. But Governor Sisolak, every state does have the authority to make its own rules in terms of how they have financial education in schools. And in Nevada, it's a part of the social studies curriculum, not necessarily a standalone class. Why is that the approach in Nevada? Why isn’t it just a mandatory class for every student? GOVERNOR SISOLAK: Well mandatory class might be the next step that we go to. I mean, social studies class indoctrinates students into the idea about this, it gives them the first touch and I think that's a good way to get that to put that curriculum into the social studies classes as opposed to developing a whole new program to begin with. But we've had it at every level. I can tell you that I had it when I was on the Board of Regents of our universities I served in. We had credit card companies in the arenas give it all the college kids and signing them up for $1,000 credit cards. And I’d go into the classes and say look, you're running up these credit cards, the max limits on beer and pizza. Then you graduated from college and you got to understand that you’ve got to pay that all back. Kids don't understand that. It was an eye opening experience. We got to the point where we wouldn’t let them give out t-shirts and sweatshirts and swag to get them to sign up for the credit card because it was misleading so many students and they didn't have the background in order to handle that kind of credit. EPPERSON: You know, Governor Murphy I was in a class in West Orange, New Jersey a couple of years ago when the first students were taking their financial class – their personal finance class. They were in sixth, seventh, eighth grade. And this was the time that the state had decided that middle schoolers were going to have to take a personal finance class. These students loved learning about stocks, they knew every company that they wanted to invest in. Why is the approach of having financial education in middle school so important, and when will it become a high school requirement in New Jersey as well for students? GOVERNOR MURPHY: I think we're all in agreement that you need to get to folks while they're young. And that's the animating reason behind getting financial literacy into our curriculum and middle school, as you rightly point out in grades six, seven and eight. The combination I think of skills that folks don't have a need to learn, but also as I think my colleagues have alluded to, there's a temptation that comes with a lot of different things that you all of a sudden think you can afford. And you don't realize the consequences on the backend. Whether it's physical items, whether it's meme stocks or whatever it might be, and so getting kids at the earliest ages possible we think is critical. Could I see this extending into high school? Absolutely. Right now it's working. I have to say that the payoff for the investment we've made in grade six, seven and eight is evident. And if we think we need to do more, we will. EPPERSON: Yeah, you know, there is a real difference though in terms of some communities and the resources that are available. Some students in the classes I've seen in New Jersey, they actually have their own accounts, they are trading stocks, their parents set it up for them. Others are learning about that work for the very first time. So if advancing economic opportunity is the ultimate goal, how do we make sure that everyone is provided for including under resourced communities, that we make sure that there's equal access to that opportunity? And Governor Murphy, you were starting to mention this financial literacy program that just launched in New Jersey for adults, too. So what are you doing there? GOVERNOR MURPHY: Yeah, so we're launching it literally today, Sharon, as luck would have it – And it was developed with two outstanding firms in this space, Enrich and iGrad. Yeah, I think you make a very fair point. Getting folks while they're young, but accepting as well that this is a lifelong reality that never goes away. You've got to be able to manage your circumstances and manage it intelligently. And the other point you're making, Sharon, is a big one. Equity. You know, we're proud to have the number one rated public education system in America but that banner has to apply not just to most of our kids, but to all of our kids. And again, remember that this is a lifelong reality. So we want to get at it early and stay at it as folks grow up and we'll continue to do that. EPPERSON: Yeah, you know, when you're talking about under resourced communities, Governor Reeves, you know, there are some that are saying, just get the basics right. Make sure the kids know how to read and write, make sure they know how to solve math problems. Why do we have to add something else to the mix in terms of financial education? How do you impress upon communities, and particularly under resourced communities, that it's important to have financial education? Because that improves learning all around. GOVERNOR REEVES: To be honest with you, I think we've got to say that this is not an either or scenario. It's a both and. There's no doubt that we have to continue to focus on improving the basics. We have to continue to focus on improving the math literacy of the students in all of our schools. Because the reality is it's very hard to teach financial literacy if there's not a basic understanding of math. And then it’s very hard to teach financial literacy, because there's not a basic understanding of reading as well. And so, I think that we can do both. And then quite frankly, I think we can do both in such a way that we utilize the same techniques. In our state, for instance, we hired dating years ago, we started hiring math coaches to go into various schools that were underperforming so that the math coaches were not only teaching students how to do the math problem, but also teaching the teachers how to be better math teachers. We did the same thing with reading coaches years ago, and the results have been fantastic. If you look at the nape testing, for instance, in our state in fourth grade reading, fourth grade math, eighth grade reading and eighth grade math, our results in terms of ten-year growth numbers are in the top five in the nation in each of those categories for each of the last three years. But it's because of that model that we've used. And now we've taken that model to the financial education side of things where we're actually having a master teacher of a personal finance program here in our state. We've got over 250 teachers that have gone through that and we're making sure that the resources are available in all of our school districts, and we utilize our online network to make sure that all of those resources are available to every single school in Mississippi. EPPERSON: Yes, well, in Mississippi the Council for Economic Education has been a really key supporter for the initiatives you're doing there in that state. But when we talk about teachers, we also have to talk about parents as well, Governor Sisolak, and how they are supporting these initiatives. How is that happening in your state because there's often you know, the need for parents to be involved as well as Governor Murphy has mentioned. GOVERNOR SISOLAK: It's important that we have the curriculum in the schools and the younger we stat, as Governor Murphy said, the better off we are. Unfortunately, a lot of these kids can't get a lot of education from their parents at home because the parents didn't get the education. We've still got a problem with parents going for short term payday loans in order to make their rent paid and so forth and so on. And they have to understand the absolute cost of borrowing that money. And we've done a lot. We are trying to educate the parents to have a well-rounded approach as we deal with that. But financial literacy is something you need for your entire life. Whether it's buying your first car, saving up for a new pair of jeans, or buying a home at some point. And understanding what the interest rates are and what the long term effects are and what payments are and the depreciation and amortization and those sort of things. It's a skill that is necessary for your entire life. We have to approach it more long term in that regard, and break the cycle of people that are just kind of left on their own in terms of not having the knowledge, how to handle their money and how to borrow money and when it's necessary and how to save and how to invest. EPPERSON: Yeah, when I talked to some of the students in New Jersey, Governor Murphy, they were the advocate saying that we need to have more financial education, that we need to try to impress upon some of our classmates that aren't so into this in sixth grade that we need to have it. And in ninth grade when one of the students I talked to had advanced to high school, she said she was encouraging her colleagues, her classmates to take those classes. How important is the advocacy among students in your state but in other states as well do you think in terms of getting financial education legislation passed? GOVERNOR MURPHY: Well I think it is incredibly important. And moms and dads as well, both the kids who are living it and they want more, I'm not sure earlier than sixth grade make sense, but does it make sense to put more resources into post eighth grade? If the market – in this case the market is our precious kids, if they and their moms and dads think that that would meaningfully improve their understanding of financial literacy, you got to be open minded to that. As I mentioned with the website that we're launching today, we think it's a lifelong experience. But absolutely is the answer. The answer is yes to your question, Sharon. Kids influence – enormous amounts and moms and dads have enormous influence on boards of education, on how we construct curriculum. And financial literacy is no exception to that. EPPERSON: Yeah, you know, and they have a lot of input in terms of what they want to learn about their finances. Governor Sisolak, let's talk about cryptocurrencies because you know, when we talk about crypto a lot of young people very interested in learning more about that a lot of Americans in general. There are no specific laws or regulations regarding cryptocurrency in your state. Casinos can use it, businesses can accept it for payment. With the rising popularity of cryptocurrency, what do you think is the responsibility that we have to teach young people about the risks and about how they need to be smart about new ways to spend and invest their money? GOVERNOR SISOLAK: Well, I think you're absolutely right. And cryptocurrencies, it's in its infancy right now. What it looks like today versus what it's going to look like three to five years or 20 years I can't even begin to imagine. Most folks right now are not dealing in cryptocurrencies. We do have some casinos that you can use it at, we've got about businesses that accept it and so forth. But you know, I think there's something we could maybe have a second or an advanced class in terms of financial literacy with cryptocurrency. But I'm talking about nickels and dimes and dollars, you know, when I'm talking about financial literacy. And kids have to understand that you know, that's how they save and that's how things are done. The investment I know a lot of the classes are doing these stock market games where they get grouped together, and they get a sum of money and they invest in it see who does the best over a year or two years in class or whatnot. Cryptocurrency is something that will be used in the future. I think it's something that is not understood by enough people – I don't have enough of an understanding on it to be very candid with you – to be able to advocate or to not advocate for it. But I think that we need to get to the basics of borrowing money, saving money, and you know, those sorts of things. EPPERSON: Yeah, you know, Governor Reeves, a lot of teachers are concerned about the students wanting to learn about meme stocks, about crypto because they don't necessarily have as great a grasp of that, either. How do you make sure that teachers are well equipped? These are the unsung heroes for our children. We need to make sure that they understand the material that they're presenting to the children but in some cases, they're at a loss. So how do you make sure that they're up to date on the latest that young people want to know about their money that they should know about their money? GOVERNOR REEVES: It's true in all levels of education that you've got to – the best way for the kid to get a quality education is for there to be a quality teacher in the classroom teaching it. There's no doubt about that. And that's the reason we started our master teacher personal finance program, wherein we actually offer some 75 hours of training for those teachers. We also have coaches that are going in and help teaching them. And the reality is cryptocurrency is relatively new here and so you’ve got to continuously have continuing education for the personal finance teachers, just like you’ve got to do so whether it's in English or math or social studies or the other subjects. But as was mentioned earlier, and I think this is important. You know, one of the primary foundations of teaching financial literacy is the recognition and understanding of risks. That's true when it comes to crypto. That's also true when it comes to these stock market games. What we're really trying to teach these individuals is not to pick an individual stock and do phenomenally well and get wealthy, but to teach them that what the real risk reward is of making decisions and particularly making financial decisions. EPPERSON: So very important, and they're learning though this risk reward – some are learning it at home, but it was very interesting as CNBC recently did a survey that looked at the fact that parents overwhelmingly say that they should be responsible for teaching their children about money. But only about 40% or so said that they talked about money at home more than once a month. And so we're having about a third of the parents admitting that they don't even discuss household finances at home. So how important when you have many studies also have shown that young people believe that cryptocurrencies may be a path to retirement savings, that it may be a good investment long term. Governor Murphy, how do you make sure that although parents think it should be their responsibility, the schools are playing a very important role from an early age in some of these new ways to invest and grow your money and some of the traditional ways that everyone should know? GOVERNOR MURPHY: Yeah, I think Governor Reeves said earlier and said it the right way this is and both. It's something that needs to be talked about at the kitchen table, but that’s not in lieu of our need and responsibility to teach it in schools. And I think it's got to be both of those. And I think so that's the general financial literacy. How do you assess risk? How do you price risk? Everything that is associated with that. As it relates to the newer realities, Web 3.0, blockchain, crypto, we're all kind of learning that together. And I think we've got to be committed to that. And I think in particular, folks and our kids, especially need to understand the risk reward equation, generally, but specifically within crypto. There’s a phrase that Warren Buffett uses that anything that seems too good to be true, usually is. And that's not to say you can’t make money, you can’t make smart investments in the crypto space and because the answer is you can. But boy, you’ve got to understand the basics of that reality and you've got to understand the risks associated with it. I think that's incumbent upon all of us to be shoulder to shoulder in that regard. EPPERSON: You know, there's a focus on the short term, perhaps profit of crypto and there's the reality that families across this country are going through in terms of inflation, and what we need to understand about how it works, the impact it's having, and their understanding that because they know what they're paying at the grocery store, at the gas pump and how it's impacting their daily budgets. But I'm wondering Governor Reeves, how we can impress upon schools and how states can come together to have some type of standardization of these are the key lessons that everyone needs to learn, including about inflation so that we can move forward in these difficult situations. GOVERNOR REEVES; Well, given the significant inflation that we're seeing in the U.S. economy today, I think it would be fair to say that we ought to have a requirement for a financial literacy class for all of our members of Congress. And I don't think that's unique to one political party either by the way. But the fact of the matter is that we find ourselves in a position in which if more people understood the reason that prices were rising, that I think we would probably see better policies to combat those. You mentioned earlier about parents and there's no question that parents play a significant role in every child's education, and it's a critical component. But you also mentioned earlier that 50-something percent of parents – only 50% of parents felt that they were adequate in their own knowledge and financial education. And the reality is some of them probably aren't telling the whole truth. And so it's a both and thing where we can provide foundational information to individual students in our classes, but also hopefully, involve our parents in the long term conversation to get more people more comfortable talking about these issues. EPPERSON: You know, another word that comes to mind is recession because Governor Sisolak, in our recent CNBC and Acorns survey, 81% of Americans said they expect a recession sometime this year. So what does that word mean to you for your state, for your students, and what should they learn about recession? GOVERNOR SISOLAK: Yeah, we're just coming through the pandemic and you're absolutely right a recession is not something that anticipating or hoping is on the horizon for us. We got through one a few years back and just devastated our economy and hopefully not going that way again. I think it's important that our students understand what a recession is, what a depression is, what a slowdown in the economy means, what a heating up in the economy means. These are real world situations that they'll need, not only when they're in middle school or high school, but in their adult life that they're going to be dealing with regularly about unemployment, and jobs, and inflation as Governor Reeves said. These are real issues that people – that these kids are going to have to deal with multiple times. It's the cyclical nature – the economy is – and they're going to be dealing with these multiple times over their lives. So it's important that we give them that foundation and I think you got at what we're talking about, you know, the initials, the basics of savings and interest and whatnot and cryptocurrency. We've got to get kids in the shallow end of the pool before we drop them in on the deep end and overwhelm them with some of these things. Cryptocurrency most folks deal with it as a get rich kind of thing. They can invest in it and it goes from $1,000 to $50,000, Bitcoin and they are suddenly going to be rich. It doesn't work like that in the real world. Sure, some people can be beneficiaries of that, but that's not the everyday opportunity that Americans have. So I am focused on as my wife is, this is one of her main priorities in the First Lady's initiatives in teaching basic financial literacy to our kids in terms of saving, borrowing and oftentimes the kids are teaching to their parents as well. So I think that's a good thing. EPPERSON: So your main money lesson if you're teaching a class would be what? What’s the first lesson you would give, Governor Sisolak? GOVERNOR SISOLAK: Well the first lesson I'd give them is you should pay yourself first when you're making a living, when you're saving, you need to pay your necessary bills before you go buy, whether it's an ice cream cone or that $6 cup of coffee, put a few dollars away for your future. It's hard to think about retirement when you're you know, 17, 18, or 20 years old. But those years go by quickly. And I would encourage people to save a little bit – not save your whole paycheck. You got to enjoy your life, but save a little bit and understand the cost of borrowing money. When you borrow money, you've got to pay it back and you got to pay the interest on that money. And sometimes that's a lesson that's lost a lot of folks. They look at hey you just whip out that piece of plastic and you can get whatever you want and they'll realize that that bill comes every month and you’ve got to keep making payments on it. EPPERSON: Absolutely. Governor Murphy, what would be the money lesson that you would most want to teach to a sixth grade class? GOVERNOR MURPHY: I think it's similar to Governor Sisolak. It's what does it mean to live within your means? And not just in the here and now but over time. Very basic building blocks. I'm also in huge agreement that you start with the basics. But living within your means, I think would be the first chapter of lesson number one for me. EPPERSON: Absolutely. And Governor Reeves, in terms of college career readiness, what is that first class that you're going to teach when you go to visit one of those Mississippi classrooms? GOVERNOR REEVES: Well, I always tell young folks when I visit with them one of the most important things that I've learned is, and it was taught by my dad first but also in learning things about finance is it turns out the harder you work, the luckier you seem, and the luckier you get. And so hard work makes a difference and what I always try to tell young folks is their education across the board, if they're in the fifth or sixth grade, what they do in the 7th, 8th, 9th, 10th, 11th and 12th it really matters. It matters in terms of their ability to be successful in life and be successful in getting a job and be able to provide for themselves and their families. And I really like to remind them how rewarding it can be to be self-sufficient to be able to take for yourself and not to depend upon others to do so. And that starts every single day by doing the little things in school. And then ultimately, in terms of investing, it's all about risk and reward and teaching the basic principles about risk and reward I think are incredibly important. EPPERSON: Incredibly important, you know, financial education leads to financial freedom. And I thank all of you for being here today to talk about this. Governor Reeves, Governor Murphy, Governor Sisolak, thank you all for being here with us today. Very critical topic that we've been discussing financial education in America. And if you all would like to watch this event again and access more personal finance resources, go to Also our Money 101 newsletter is available in English and Spanish. You can sign up, go to or I'm Sharon Epperson for CNBC.   Updated on Apr 6, 2022, 3:56 pm (function() { var sc = document.createElement("script"); sc.type = "text/javascript"; sc.async = true;sc.src = "//"; sc.charset = "utf-8";var s = document.getElementsByTagName("script")[0]; s.parentNode.insertBefore(sc, s); }()); window._F20 = window._F20 || []; _F20.push({container: 'F20WidgetContainer', placement: '', count: 3}); _F20.push({finish: true});.....»»

Category: blogSource: valuewalkApr 6th, 2022

Jamie Dimon laid out 3 reasons the economy is so hard to explain right now

Stimulus, the war in Ukraine, and Fed tightening "present completely different circumstances" than what economists have seen before, Dimon said. JPMorgan CEO Jamie DimonBrian Snyder/Reuters The US economy is healing, but the path forward remains uncertain, JPMorgan CEO Jamie Dimon said in his annual letter to shareholders. Unprecedented stimulus, the Fed's fight with inflation, and the Russia-Ukraine war all pose major risks. The three events "present completely different circumstances" to what economists have seen before, Dimon said. The current rebound is unlike any seen in modern history. That's both a good and a bad thing, JPMorgan CEO Jamie Dimon said Monday in his latest annual letter to shareholders.The US is squarely in recovery mode, but several factors make the path forward hard to see. The war in Ukraine and related sanctions against Russia quickly lifted commodity prices and risk keeping inflation permanently high. Massive government stimulus fueled a rebound of unprecedented speed. And as inflation looms large, the Federal Reserve is embarking on a tricky mission to cool price growth without starting a new recession.These three factors are "unique" in their own rights, Dimon said. It's possible that all the events have "peaceful resolutions," but the US should also prepare for worse outcomes and some turbulence on the way to a full recovery, he added."They present completely different circumstances than what we've experienced in the past – and their confluence may dramatically increase the risks ahead," Dimon said.Here's why Dimon sees each of the three aforementioned factors bringing new risks to the US's rebound.Trillions and trillions of stimulus dollarsThe government deployed previously unthinkable amounts of cash to keep the economy afloat during the pandemic. Stimulus packages signed by President Donald Trump and President Joe Biden amounted to roughly $5 trillion in aid, and emergency asset purchases conducted by the Fed pumped another $4.4 trillion into the economy.The programs stabilized markets, saved small businesses, accelerated rehiring, and helped the economy rebound extremely quickly in 2021 even as the Delta and Omicron waves slammed the US. They also helped bridge the period during which COVID-19 vaccines were being developed, leaving Americans ready and willing to boost the economy once it reopened.Yet the country is now paying the price for its unprecedented rescue packages. Fiscal stimulus "has been and always will be inflationary," Dimon said. Headline inflation measures show prices rising at the fastest pace since 1982, and there haven't been any major signs of the rally slowing. The pace should cool as the global economy heals, but the path of inflation will remain murky throughout 2022, Dimon said."While clearly some of this rise is transitory due to supply chain shortages, some is not, because higher wages, higher housing costs, and higher energy and commodity prices will persist," he added.The Fed's plans for a 'soft landing'Some of the inflation cooldown will come from the Fed, but how the central bank handles that is another unknown.The Fed raised its benchmark interest rate in March, starting a cycle that will lead to higher borrowing costs and, if all goes according to plan, weaker inflation. It's also poised to start reducing its holdings of Treasurys and mortgage-backed securities, the same assets the Fed was scooping up at the start of the coronavirus recession.Managing both programs will be a precarious balancing act for the central bank. Raising rates and offloading assets too quickly could remove support before the economy is fully healed and start an entirely new recession. Yet moving too cautiously could keep inflation soaring higher. With the Russia-Ukraine conflict adding yet another variable to the Fed's decision-making process, the central bank's tightening plan will almost certainly look extremely different from previous ones, Dimon said."The Fed needs to deal with things it has never dealt with before (and are impossible to model), including supply chain issues, sanctions, war and a reversal of QE in the face of unparalleled inflation," Dimon said. "The data will likely continue to be inconsistent and volatile — and hard to read."The war in Ukraine and sanctions on RussiaRussia's invasion of Ukraine is the most obvious factor that makes today's economy so murky. The conflict, while largely confined to Ukraine's borders, has sent shockwaves throughout the global economy. Sanctions against Russia have effectively removed the country from the world's financial system, leading to a major devaluation of the ruble and forecasts of economic disaster.The US, UK, and EU have also moved to dramatically cut their use of Russian energy commodities like crude oil and natural gas. That sparked a sharp rally for energy prices, including higher gas costs at the pump. Though Biden has announced plans to pad against additional price hikes, the gap between oil supply and demand still risks exacerbating inflation.Other key commodities like wheat and fertilizer have also seen prices soar in connection to the invasion. The increases have raised concerns of famine shocks in developing countries less equipped to handle pricier food.JPMorgan's own forecasts see the conflict slowing US economic growth to 2.5% in 2022 from 3%, but even that estimate is cloudy, Dimon said. The projections are only based on the sanctions in place today and a "fairly static" view of the conflict. Should the situation worsen, the consequences stand to be much more negative, the CEO said."Many more sanctions could be added — which could dramatically, and unpredictably, increase their effect," Dimon said. "Along with the unpredictability of war itself and the uncertainty surrounding global commodity supply chains, this makes for a potentially explosive situation." Read the original article on Business Insider.....»»

Category: topSource: businessinsiderApr 4th, 2022

US Equity Futures Reverse Overnight Decline, Turn Positive As Oil Surges

US Equity Futures Reverse Overnight Decline, Turn Positive As Oil Surges U.S. equity futures and European bourses stocks reversed modest overnight losses and turned higher as US traders got to their desks on Monday as crude oil extended a climb and investors monitored diplomatic efforts to bring an end to Russia’s almost month-old war in Ukraine.  S&P futures rose 0.07% or 3 points after earlier sliding almost 30 points; Nasdaq futures were flat. Focus on Monday will be on a speech by Fed Chair Jerome Powell after the central bank kicked off a rate-hiking cycle last week.  Powell is set to speak at the annual meeting of the National Association for Business Economics at 12pm ET; text release and Q&A are expected. In addition to concerns about Russian crude supply, which Russia's deputy prime minister Novak said could surge to $300/bbl if Russian oil is shunned, also jumped after Saudi Arabia announced a “temporary reduction” in oil output at an Aramco facility after Yemen’s Houthi rebels launched multiple cross-border attacks on Sunday .A drone assault on the YASREF refinery, in the Yanbu Industrial City on the Red Sea, has “led to a temporary reduction in the refinery’s production, which will be compensated for from the inventory,” the energy ministry said in a statement. WTI rose as high as $108, surging $15 from prices hit last Tuesday, with Brent trading around $113. The S&P 500 last week had its biggest gain since November 2020 and European equities recouped all of their losses triggered by Russia’s invasion of Ukraine nearly a month ago as peace negotiations and the lure of cheap valuations drew investors back. But that optimism may not be justified, given the “increasingly brutal measures that Russian forces are taking,” according to  Michael Hewson, chief analyst at CMC Markets in London. “There appears to be a growing disconnect between what markets are doing and what is happening on the ground in Ukraine,” he said in a report. “Commodity markets continue to chop wildly” and “concerns about inflation are still posing awkward questions for central banks,” Hewson wrote. A key question is whether last week’s stock rebound and drop in volatility are durable. European equities have recouped all of their losses triggered by Russia’s invasion of Ukraine nearly a month ago as optimism around peace negotiations and the lure of cheapened valuations draw investors back. But a historic spike in commodity prices on supply concerns shows little sign of easing, keeping traders on high alert over inflation and shaking their faith in the Federal Reserve to douse price pressures while keeping the economic recovery on track. “The Fed comes out last week and basically tells you they have to do more -- into higher inflation but slowing growth,” Brian Weinstein, head of global fixed income at Morgan Stanley Investment Management, said in an interview with Bloomberg TV. “It certainly looks like the market is afraid of a traditional Fed goes too much, slows the economy down, and we don’t get the much-anticipated soft landing.” In premarket trading, Boeing stock tumbled 6.6% after a China Eastern Airlines Boeing 737-800NG (yes, THE 737 MAX) plane carrying 132 people crashed in southwestern China. Additionally, US-listed Chinese stocks slumped in premarket trading Monday, following their Asian peers lower, as investors were disappointed after Chinese banks left the loan prime rate unchanged despite expectations of some easing. Large-cap technology stocks are leading the decline including Alibaba -5.6%, -6%, NetEase -5.7%, Pinduoduo -5.6% and Baidu -3.4%. Among other China stocks listed in the U.S. that are lower this morning: Nio -2%, Li Auto -4.2%, XPeng -4.3%, Didi -5.9%, KE Holdings -6.4%, Lufax -3.2%, -6.2%, Bilibili -7.6% and Tencent Music -7.5%. Other notable premarket movers: Anaplan (PLAN US) shares jump 27% in U.S. premarket after Thoma Bravo agreed to acquire U.S. enterprise software company in a deal valued at $10.7 billion, adding to a string of deals this year by cash-rich private equity firms. Nielsen Holdings (NLSN US) shares decline in U.S. premarket after it rejected an acquisition proposal from a private equity consortium, valuing the company at $25.40/share, a price that doesn’t “adequately compensate shareholders for Nielsen’s growth prospects.” Uber (UBER US) shares are slightly lower in U.S. premarket trading after price target is lowered at RBC Capital Markets, with broker less positive on the ride-hailing giant versus peer Lyft following proprietary driver supply analysis. Alleghany Corp. (Y US) shares could be active as Berkshire Hathaway Inc. is buying it for $11.6 billion in cash. In the latest developments, Ukraine rejected a Russian demand that its forces lay down their arms Monday and leave the besieged southern port of Mariupol, which has been under intense Russian bombardment. Morgan Stanley’s chief U.S. equity strategist Michael Wilson said the recent rebound in U.S. stocks is an opportunity to sell and position more defensively.  Meanwhile, U.S. President Joe Biden will speak with European leaders ahead of his trip to the continent this week. Senior U.S. officials will also meet with executives of Exxon Mobil Corp., JPMorgan Chase & Co. and other firms about the impact of the invasion and sanctions.  European equities had a subdued start to the week with most indexes opening flat. Euro Stoxx 50 and DAX rise slightly, while the FTSE MIB outperformed gaining 0.7%. Energy and mining stocks lead gains, tech and travel are in the red. Commodity-linked stocks are the biggest gainers on the Stoxx Europe 600 as prices rally with the war in Ukraine nearing the end of its first month with no conclusion in sight. The basic resources sub-index rises 1.8% as the energy sub-index gains 1.5%. Rio Tinto, Glencore and Anglo American are among the miners rising while Shell, BP and Equinor lead gains among energy stocks. Meanwhile, Europe’s formerly “unstoppable” luxury stocks are facing a swath of new challenges, from rising rates, war in Ukraine and China risks, leaving investors and analysts divided on whether valuations have fallen far enough yet. The MSCI Europe Textiles Apparel & Luxury Goods Index is down 14% this year, following three years of outsized gains. Hermes, the maker of $10,000 Birkin bags, is among top decliners, down 21% after a whopping 75% jump last year. Louis Vuitton owner LVMH, meanwhile, recently lost its crown as Europe’s biggest company to food giant Nestle. Investors were already dumping pricey luxury stocks in favor of cheaper shares amid concerns about rate hikes, while the war in Ukraine added further uncertainty. Valuation-wise, the group now trades at about a 60% premium to the broader market, near pre-pandemic levels and below its 5-year average. Asia stocks fell after China’s lenders kept borrowing costs unchanged. The MSCI Asia Pacific Index was down 0.5% as of 3:13 p.m. in Singapore, erasing an earlier gain of 0.4%, weighed by declines in financials and communication services. The regional benchmark’s bumpy day followed its best week since February 2021. “Some may have clung to expectations for an LPR cut today, which I think will come later when they assess the growth drag from the outbreak,” said Wai Ho Leong, strategist at Modular Asset Management. “Peace talks and the Xi-Biden call also did not deliver substantive outcomes.” Stocks climbed last week as China pledged to stabilize its markets, and some traders had expected some help from banks’ loan prime rate announcement Monday. Talks between Xi Jinping and Joe Biden held Friday also failed to excite investors, although China’s top envoy to Washington pledged his country “will do everything” to de-escalate the war in Ukraine.  Hong Kong Lifts Overseas Flight Ban; Cuts Hotel Quarantine Shares slid in China and Hong Kong, erasing earlier gains. Stocks in South Korea and Malaysia led declines in the region. Japanese markets were closed for a holiday. India’s stocks took a breather on Monday after a sharp rally last week, as a drop in financial and consumer goods companies weighed on the indexes. The S&P BSE Sensex fell 1% to 57,292.49 in Mumbai, while the NSE Nifty 50 Index dropped by an equal measure. The gauges posted their biggest single-day drop since March 15. All but three of the 19 sector sub-indexes compiled by BSE Ltd fell, led by a gauge of utility companies. “Slowing rural sector is a risk even as urban consumption is showing signs of relatively better performance,” according to JM Financial analyst Dhananjay Sinha. Lower than expected growth and higher inflation are a key risk to Indian companies’ profitability, he added. Metal stocks were among gainers as Vedanta, Hindalco Industries and Coal India rose on the back of rising prices and worsening demand-supply scenario.   ICICI Bank contributed the most to Sensex’s decline, decreasing 1.3%. Out of 30 shares in the Sensex, 25 fell, while 5 declined. In FX, most FX majors are range-bound, as the DXY hovers on 98.000 handle awaiting speeches from Fed’s Bostic and chair Powell. Loonie underpinned by strong oil prices -Usd/Cad straddling 1.2600. Franc firm ahead of SNB policy assessment as Swiss sight deposits suggest less intervention; USD/CHF near 0.9300 and EUR/CHF sub-1.0300. Euro straddles 1.1050 with hawkish ECB commentary supportive, but hefty option expiries capping the upside (almost 2.8bln at 1.1100) Aussie unwinding recent gains on technical grounds and in wake of defeat for PM Morrison’s liberal party in local election - Aud/Usd back below 0.7400. Sterling still smarting after last week’s dovish BoE hike - Cable around 1.3150 and Eur/Gbp probing 100 DMA at 0.8415. In rates, Treasuries followed wider losses across gilts while front-end leads the move lower, flattening the curve.  2Y-5Y yields cheaper by ~4bp, flattening 5s30s spread by ~3bp; 10-year yields around 2.18%, higher by ~2bp vs ~4bp for U.K. 10- year. Bunds and gilts bear steepen, cheapening roughly 3bps across the back end. Cash USTs open bear flatter with short dated yields up close to 5bps. Peripheral spreads are slightly wider to core. In commodities, crude futures extend Asia’s gains; WTI adds ~4% to trade just shy of a 109-handle. Spot gold trades a narrow range in small positive territory near $1,924/oz. Base metals are mixed; LME nickel trades limit down for the fourth straight session. LME aluminum gains 3.8%, trading just off the late-Asia highs after Australia, the world’s biggest exporter of alumina, announced a ban on shipments to Russia. Bitcoin is modestly pressured but contained within last week's parameters overall, holding above USD 41k. Today's calendar is relatively quiet, with just the Chicago Fed National Activity Index on dex (exp 0.5, down from 0.69). Powell speaks at NABE at 12pm although it is unlikely he will make any monetary policy comments. Market Snapshot S&P 500 futures up 0.1% to 4,448.75 STOXX Europe 600 little changed at 455.00 MXAP down 0.5% to 177.54 MXAPJ down 0.7% to 579.14 Nikkei up 0.7% to 26,827.43 Topix up 0.5% to 1,909.27 Hang Seng Index down 0.9% to 21,221.34 Shanghai Composite little changed at 3,253.69 Sensex down 0.8% to 57,428.60 Australia S&P/ASX 200 down 0.2% to 7,278.55 Kospi down 0.8% to 2,686.05 Brent Futures up 3.8% to $112.03/bbl Gold spot up 0.2% to $1,924.77 U.S. Dollar Index little changed at 98.27 German 10Y yield little changed at 0.39% Euro little changed at $1.1048 Brent Futures up 3.8% to $112.03/bbl Top Overnight News from Bloomberg Ukraine rejected a Russian demand to surrender of the embattled southern port city of Mariupol, and an aide to President Volodymyr Zelenskiy said Russian forces are using “more destructive artillery.” More talks on ending the war are expected on Monday after Turkey said the two sides had made progress on key points Chinese banks left borrowing costs unchanged in line with expectations as the focus shifts to other possible easing measures from the central bank after top leaders pledged to boost the economy European Central Bank Vice President Luis de Guindos has yet to see any indication that soaring inflation rates are leading to higher wage demands, according to an interview with Handelsblatt Oil rose for a third day as the war in Ukraine neared the end of its first month with no end in sight, and Iranian-backed rebels attacked energy facilities in key exporter Saudi Arabia Hong Kong will lift a ban on flights from nine countries including the U.S. as of April 1, and cut the time incoming travelers need to spend in hotel quarantine in half provided they test negative, Chief Executive Carrie Lam said China and Russia’s trade relationship has become more complicated since the war started more than three weeks ago, raising questions about the future flow of energy, metals and crops between the two powerhouses A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks were choppy with sentiment clouded amid the uncertain geopolitical climate and higher oil prices. ASX 200 was indecisive as outperformance in tech was offset by losses in financials and with PM Morrison’s Liberal Party defeated in South Australia's state election, raising concerns for the government ahead of the federal election in two months Nikkei 225 was closed for the Vernal Equinox holiday. Hang Seng and Shanghai Comp. swung between gains and losses with an early surge in Hong Kong tech stocks ahead of a widely speculated relaxation to COVID restrictions after the city’s daily cases fell to a threeweek low and with China’s tech hub of Shenzhen resuming normal work output. However, the gains were wiped out with the mainland hampered as Shanghai tussles with a COVID-19 outbreak, while the PBoC also kept its Loan Prime Rates unchanged, as expected. Top Asian News Indonesia Ends Quarantine Requirement for Overseas Travelers Asia Stocks Edge Down as Concerns Linger on China Policy Support Russia’s War Lifts Default Risk for Distressed Economies China Confirms Ambassador Met With Russian Defense Official European bourses are contained and haven't differed too far from the unchanged mark overall, Euro Stoxx 50 +0.1%, as we await updates on Russia-Ukraine. Developments throughout the morning have been limited, and commentary from the Kremlin is predominantly infitting with last-week's/weekend updates. US futures are pressured, ES -0.2%, awaiting geopolitical catalysts with Fed speak, including Chair Powell, ahead. China Eastern airlines passenger jet flying from Kunming to Guangzhou on Monday experienced an accident in Guangxi, via State Media; unknown injuries/deaths from the accident. Craft was a Boeing (BA) 737 . Subsequently, China's Aviation Regulator confirms the crash of the China Eastern airlines passenger jet carrying 132 people. Boeing -8.3% in the pre-market Berkshire Hathaway (BRK/B) is to purchase Alleghany Corp (Y) for USD 848.02/shr (vs. close USD 676.75 /shr) in a USD 11.6bln transaction. Top European News ECB’s Lagarde Says She’s Not Seeing Elements of Stagflation Now LSE Group to Sell BETA+ to Motive Partners, Clearlake: Sky S&T CEO’s Grosso Tech to Offer EU15.30/Shr for ~5.5m S&T Shares Julius Baer Says Sanctioned Clients in ‘Low Single Digits’ In FX, DXY hovers on 98.000 handle awaiting speeches from Fed’s Bostic and chair Powell. Loonie underpinned by strong oil prices -Usd/Cad straddling 1.2600. Franc firm ahead of SNB policy assessment as Swiss sight deposits suggest less intervention; USD/CHF near 0.9300 and EUR/CHF sub-1.0300. Euro straddles 1.1050 with hawkish ECB commentary supportive, but hefty option expiries capping the upside (almost 2.8bln at 1.1100) Aussie unwinding recent gains on technical grounds and in wake of defeat for PM Morrison’s liberal party in local election - Aud/Usd back below 0.7400. Sterling still smarting after last week’s dovish BoE hike - Cable around 1.3150 and Eur/Gbp probing 100 DMA at 0.8415. In commodities, WTI and Brent have been dipping from best-levels, but remain underpinned on the session amid weekend geopolitical premia.; albeit, the European morning's developments have been more limited. WTI May resides around USD 107/bbl (vs high ~108.20/bbl) while its Brent counterpart trades just under USD 112 /bbl (vs high ~112.75/bbl). Saudi-led coalition reported that Yemen Houthis targeted a gas station in Khamis Mushait on Saturday which resulted in material damage to civilian cars and homes but no casualties, according to the state news agency. Saudi-led coalition also said it destroyed an explosive-laden boat to thwart an attack on shipping in the Red Sea, while it was also reported that Aramco’s petroleum products distribution plant in Jeddah was attacked and production at a Saudi oil refinery in Yanbu declined momentarily after an attack by Houthis. Saudi Aramco reported FY net income USD 110.0bln vs prev. USD 49.0bln Y/Y, while the CEO expects oil demand to return to pre-pandemic levels by year-end and said they are seeing healthy demand especially in Asia. Saudi Aramco's CEO also noted that there is limited spare capacity which is declining every month with global spare capacity around 2mln bpd and that the market is very tight in terms of available barrels. US Event Calendar and Central Bank speakers 8am: Fed’s Bostic Gives Speech at NABE Conference 8:30am: Feb. Chicago Fed Nat Activity Index, est. 0.50, prior 0.69 12pm: Fed Chair Powell speaks at NABE DB's Jim Reid concludes the overnight wrap After a few weekends with some dramatic news of late, this weekend was relatively sparse in terms of new incremental news flow. The conflict and negotiations continue but without any major developments. Last week was the best for US and European equities since November 2020’s US election week; so markets are coming to terms with the current state of the conflict. Over the weekend, Ukrainian officials rejected an offer given by the Russian military for its forces and civilians to surrender the city of Mariupol as shelling continued in Kyiv. Separately, the White House announced that President Joe Biden will travel to Poland in his upcoming trip to Europe for urgent talks with NATO and European allies. Mr. Biden is also hosting a call with his counterparts in the UK, Germany and Italy today at 11am UK time. Overnight, Turkey’s Foreign Minister Mevlut Cavusoglu indicated that Ukraine and Russia are close to an agreement following progress in peace talks and is hopeful for a ceasefire if both the sides do not backtrack from their current positions. However there is no other developments on the current state of negotiations. Asian equity markets have started the week on a weaker footing with the Hang Seng (-0.69%), reversing its early morning gains after it rose more than 1%. Mainland Chinese stocks are also dipping as I type with the CSI (-0.66%) and Shanghai Composite (-0.10%) lower after the PBOC kept the one-year loan prime rate unchanged at 3.7%. Elsewhere, markets in Japan are closed for a holiday. Moving on, stock futures in the DMs are also falling, as contracts on the S&P 500 (-0.42%), Nasdaq (-0.60%) and DAX (-0.58%) are all down. Oil prices are up this morning with Brent futures advancing +3.08% to $111.25/bbl while WTI futures are up +3.23% at $108.08/bbl, as I type. Elsewhere, today's holiday in Japan means no USTs trading in Asia. One of the key events this week will be Thursday’s March flash PMIs from around the world where we’ll see the first impact of the Russia/Ukraine conflict on activity, especially in Europe. Outside of that, UK CPI data on Wednesday is going to be very interesting after the BoE warned on both growth and inflation last week in their surprisingly dovish hike. See our UK economist’s review here. There is also the Spring UK (Budget) Statement on Wednesday (preview here) where all things fiscal will be in focus. Wednesday's new home sales, Friday's pending home sales and Thursday's durable goods are the main economic releases in the US. There's plenty of Fed speak to sharpen up the message from last week's FOMC but don't expect a chorus line singing from the same song sheet. The dot plot showed the range of YE '22 Fed funds rates, as forecast by the committee, was a historically wide 1.4% to 3.1%. Boston (non-voter hawk) and Chair Powell himself are up today with the latter also on the docket on Wednesday. Williams (dove) will be on a panel tomorrow but also gives a speech on Friday. Daly (non-voter / dove) speaks tomorrow, Wednesday and Friday. Mester (voter / hawk) speaks tomorrow. Bullard (voter / hawk) is up on Wednesday and remember he was the lone 50bps dissenter last week. Kashkari (non-voter / dove), Governor Waller (hawk) and Chicago President Evans (non-voter / dove) speak on Thursday. Barkin (non-voter / hawk) concludes the Fed's business for the week on Friday. Looking back at last week now and the conflict raged on but peace negotiations between Ukraine and Russia continued, with the headlines presenting a staccato back and forth about Ukrainian and Russian leaders’ current perceptions of the negotiation outlook. Markets seemed to look through this back-and-forth and took solace that negotiations were even happening, which was a material step up from where we were but a short time ago. In particular, both sides reported common ground on Ukraine’s neutral status and lack of NATO membership as a positive. Another positive came on Friday after Presidents Biden and Xi Jinping spoke. China’s support for Russia remained a key unknown, but following the call both sides expressed aspirations for a peaceful resolution to the conflict, and for tensions to not escalate any further. Ahead of the meeting, US diplomatic officials warned that the US would impose costs on China were it to support the Russian invasion. Russian sovereign bond payments made their way to creditors via custodians, despite some uncertainty, avoiding a default. Nevertheless, S&P cut the rating on Russian sovereign debt another notch, considering it at high risk of default. However, Russia’s remaining interest repayments this month will keep investors anxious as a $447 million payment is due on March 31, followed by a $2 billion payment as a bond comes due on April 4. Dragging on sentiment were American intelligence reports that President Putin was prepared to re-engage in nuclear sabre rattling should the conflict drag on. That drove futures lower at the time of release but was not enough to drag risk negative on the week. That said it was a good week for risk with the S&P 500 and STOXX 600 gaining +6.16% (+1.17% Friday) and +5.43% (+0.91% Friday) over the week, respectively. That marked the best weekly performance for both indices since the week of the US Presidential election in November 2020. Financials and mega cap tech stocks performed even better. The S&P and STOXX bank indices gained +6.60% (-0.15% Friday) and +8.72% (+0.22% Friday), respectively, while the FANG+ gained +13.61% (+3.37%). That was the best weekly performance ever for the FANG+, which also put in its best daily performance ever on Wednesday following the Fed meeting, and more positive Chinese state support news (the index contains Baidu and Alibaba), gaining +10.19%. Speaking of the Fed, after two years at the zero lower bound, the FOMC raised policy rates by 25 basis points, with the dots projecting an additional 150 basis points of tightening this year, in line with DB expectations. Further, the Fed’s projections put policy into an explicitly restrictive stance by 2023. Despite the tightening, Chair Powell did not place particularly high risks on a recession occurring in the next year, which was apparently enough to help equities, with the S&P gaining +2.24% the day of the meeting in addition to the gangbusters day for the FANG+ index. The Fed also announced plans to start reducing their bond holdings at a coming meeting. Chair Powell noted the asset holding reductions would roughly equate to an additional 25 basis points of tightening this year and could commence as early as the FOMC’s next meeting in May. Money markets ended the week pricing around 167 basis points of additional policy rate tightening, suggesting some probability of a 50 basis point hike this year, which the Chair did not rule out. 10yr Treasury yields gained +15.8bps (-2.1bps Friday) on the week, driven entirely by real yields, which increased +22.7bps (+1.5bps Friday). The 2s10s yield curve continued its flattening, as 2yr yields gained +18.8bps (+2.2bps Friday), bringing the level to 20.5bps, the lowest since early March 2020. The Bank of England also hiked rates, raising the Bank Rate by 25 basis points in an 8-1 decision. The lone dissenter preferred to keep policy rates on hold, in contrast to the four dissenters in the February meeting which voted for a 50 basis point increase. Forward guidance added to the dovish tone, as it emphasised two-sided risks around the outlook, with downside impacts to growth featuring as prominent as upside risks to inflation, in contrast with recent advanced economy central bank communications. In line, 10yr gilt yields lagged other DM yields, gaining +0.6bps (-6.8bps Friday), as 10yr bunds increased +12.4bps (-1.2bps Friday). 2yr gilt yields priced out hikes, falling -10.9bps (-8.9bps Friday). Markets are pricing the Bank Rate to end the year at 1.87%, as opposed to 2.0% a week ago. Meanwhile, the Bank of Japan left policy unchanged, and warned of downside risks to growth stemming from the invasion of Ukraine, picking up the BoE’s dovish mantle. In line with the improvement in risk sentiment, crude oil prices fell a modest -3.97% over the week (+1.21% Friday), but still put in some large intraday swings. Prices also eased following reports that progress on the Iran nuclear deal would not be handcuffed by sanctions on Russia. European natural gas also fell -23.42% (-0.65% Friday). Given the volatility in energy markets, French President Macron warned the state may need to seize control of some energy firms. Elsewhere, sentiment was boosted by reports that China would actively introduce policies that benefit markets and take steps to avoid the most spartan lockdown measures. Tyler Durden Mon, 03/21/2022 - 07:52.....»»

Category: blogSource: zerohedgeMar 21st, 2022

Ways To Build An Emergency Fund On An Unsteady Income

Having stable finances amidst the pandemic has become more crucial than ever. The rising costs of healthcare and rent are crippling, especially to low-income families. Worse, economic uncertainties persist as the threat of the Omicron variant emerges. Also, unexpected home and car damages may happen during this freezing season. Q4 2021 hedge fund letters, conferences […] Having stable finances amidst the pandemic has become more crucial than ever. The rising costs of healthcare and rent are crippling, especially to low-income families. Worse, economic uncertainties persist as the threat of the Omicron variant emerges. Also, unexpected home and car damages may happen during this freezing season. if (typeof jQuery == 'undefined') { document.write(''); } .first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; } Get The Full Series in PDF Get the entire 10-part series on Charlie Munger in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues. (function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true); Q4 2021 hedge fund letters, conferences and more Despite the improvement in the labor market, the employment rate has not bounced back yet. It is no surprise that more people are willing to accept lower wages to make ends meet. We are more concerned about today’s concerns due to a lack of resources. So, we do not have adequate means to set aside an amount for unforeseen expenses. However, we may face serious problems in emergencies. Banks became more rigid with loan approval while other lenders charged higher fees. That is why regardless of our income levels, we must try to save or look for other side hustles. In this article, we will look at how to build an emergency fund on an unsteady income. Emergency Fund: An Overview An emergency fund pertains to the amount set aside to maintain financial security. In essence, this is the portion of your savings that you should only spend for emergencies. You can use it to cover your urgent needs in times of financial distress. It creates a safety net not to withdraw money from your primary savings account. It also prevents you from resorting to costly options like bank or payday loans and credit cards. Hence, your retirement fund will remain untouched. More often than not, an emergency fund consists of liquid assets. These are cash and other assets that can be converted into cash quickly. It is because you need to have the means to cover urgent expenses. Your investments in financial markets and receivables from debtors are some examples. They give you an instant buffer to stay afloat even when your earnings are inconsistent. When you build an emergency fund, do not save a considerable portion of your income right away. Only set aside the amount that will not hurt your financial growth since you have constant expenses. But, be sure that the extra money will be adequate during future mishaps. It includes unexpected hospitalizations, unannounced layoffs, and property damages. The crisis in 2020 served as a lesson for us to be wiser in spending, investing, and saving. The ideal value varies with several factors, such as your income level, expenses, and borrowings. Many financial advisors agree that the adequate fund will suffice outlays for three to six months. That way, your home can weather a stormy economic downturn. It is more valuable during unexpected unemployment or when facing an overwhelming hospital bill or student loans. But, other experts suggest higher value to cushion the impact of emergencies. For instance, Suze Orman believes that it should cover expenses for eight to twelve months. She also highlighted the devastating impact of the pandemic crisis. For her, building an emergency fund is more valuable than investing in the financial market. Emergency Funds During the Pandemic Crisis In 2019, over 70 percent of Americans could sustain urgent expenses for at least three months. It proved their increased financial stability. The vast majority could handle crises without having to borrow or touch their retirement savings account. The remaining 20 percent could cover their expenses for only one to two months. Almost two-thirds of the population has emergency funds for three months in Canada. Also, 65 percent said they could spend $2,000 if needed in the following month. Those earning at least $40,000 had more chances to come up with that amount. The impressive numbers moved in line with the enhanced financial literacy globally. Investments and insurance are some of their typical manifestations. The world has witnessed several crises that turned economies upside down. The Asian Financial Crisis, the Global Financial Crisis, and natural disasters served as reminders. Economist Emily Gallagher said that the ideal emergency funds should be $2,467. Indeed, most people learned that earning more was as important as saving. Even so, the pandemic showed that our financial efforts were no match to its lasting impact. The global economic resilience dropped amidst the recession and limited opportunities. In the US alone, the statistics dropped as most Americans depleted their emergency savings. From 14 percent, a survey showed that 51 percent could only cover less than three months of expenses. Moreover, only 39 percent could come up with $1,000 in unexpected situations. Even more alarming was that a huge portion would resort to borrowing to raise it. Less than a fifth said they would reduce their spending on non-essential goods and services. It was pretty disappointing that a crisis could harm our financial security and literacy. In 2021, 25 percent of the interviewed individuals admitted to not having emergency funds at all. Their reasons were the exhaustion of their funds due to fluctuations in 2020. Others said they did not have savings even before the crisis. Today, almost half of the population struggles to get $400 for emergency expenses. In another survey, 58 percent of those earning below $40,000 could not save for at least three months of expenses. Among those earning above $80,000, 39 percent had emergency funds for less than three months. Despite this, people across different generations are still optimistic about their finances this year. Fifty-three percent of younger millennials believe that their financial situation will improve. Other age groups are also hopeful, as the older millennials with 47 percent, Gen X with 45 percent. Likewise, 46 percent of the younger Baby Boomers anticipate financial recovery. So as the global economy rebounds, more people expect they will get back on their feet. Given all the tolls of the pandemic, it was proven that emergency funds are crucial to stability. Having an amount for at least three to six months will help you get through a crisis. But, the greatest challenge lies in those living paycheck-to-paycheck. The unemployed, underemployed, and those with unsteady income will have to sweat more. Fortunately, there are some tips to secure funds for emergencies regardless of income. We will discuss them in more detail in the succeeding sections. Top Emergencies People Face Emergency expenses come in many shapes and sizes. The problem is that we do not know when or whether or not it will take place. Now that we are still at the height of the pandemic, these expenses are harder to avert. They will cause more problems if we do not have enough money to cover them. Bank or payday loans and credit cards are our go-to options. But little do we know that their interest rate leads to higher costs. Here are the emergencies people face, making emergency funds vital for financial freedom. Job Loss The pandemic led to lockdowns that contracted operations and disrupted supply chains. With massive losses across industries, many businesses shut down and laid-off employees. These scenarios drove the drastic increase in the unemployment rate. It was evident in hard-hit companies, such as hotels, restaurants, logistics, beaches, and casinos. The global unemployment rate rose from 5.4 percent in 2019 to 6.5 percent in 2020 or 220 million people. The unemployment rate ballooned from 3.6 percent to 13 percent in only two quarters in the US. In Canada, the rate was a bit lower at 9.5 percent. The cost of losing jobs amidst the pandemic was not limited to lost income. It extended to depletion emergency funds to cover their expenses and other urgent needs. Fortunately, things are starting to get better despite the threat of the new variant. The unemployment rate is decreasing, showing improvement in the labor market. Medical or Dental Emergency Emergency funds play a crucial role in providing a safety net in times of sickness. Going to hospitals or dental clinics has been an inconvenience to many people. It has become more expensive due to other costs associated with it. For example, patients and companions had to wear PPEs as safety measures. The overcapacity in the healthcare sector led to rising costs of medical products and services. But, the biggest toll was driven by hospitalizations due to COVID-19. The global mean cost per patient was €10,744. So, it was no surprise that many people have used up their savings since the pandemic started. It was more burdensome for those without or who had lower funds. Unexpected Home Repairs Unexpected home repairs are more common now. Heavy snowfalls can cause damage to our roof, walls, and driveways. Trees in our yard may fall and hit our houses. Fires may break out due to overuse of heating equipment or neglected fireplaces. It can cost us thousands of dollars for a single repair. Emergency funds provide us with a buffer for our primary savings without home insurance. Car Troubles The demand for cars rose dramatically as more people avoided taking public transportation. The rising costs of buying cars came with the sudden increase in repair costs. Emergency funds are more valuable today, especially if you do not have car insurance. Also, this cold season can cause serious damage to tires and engines. Even if we checked everything during Autumn, it is better to set aside money for possible repairs. Unplanned Travel Expenses After locking ourselves in our homes for almost two years, travel is the best way to release stress. Indeed, there is a pent-up demand for travel and leisure as restrictions start to ease. But, travel expenses are not as essential as the others on the list. That is why we should make a separate space for our budget here. We should have at least three layers of savings. These include our primary savings, then emergency savings, and savings for non-essential expenses. That way, our finances are secure. Benefits of Having an Emergency Fund The purpose of emergency funds is to have something to use in unforeseen situations. That way, you will not touch your primary savings and retirement funds. Here are the benefits of building an emergency fund. Benefit #1 Emergency funds help you make prudent financial decisions. Sure, you earn a lot of money, but even the top-earners are susceptible to bankruptcy. You may have instant access to cash through borrowings that may bear a high interest rate. For instance, payday loan approval only takes a day or two. But, you have to return the money on the next payday. Worse, it bears at least 15% interest rate and can go up as high as 600%. Another type of instant loan is personal installment loans. Note that these types of loans can be predatory, especially if you do not pay on time. Beware of unregistered lenders to avoid fraud and harassment. In 2021, many borrowers experienced bullying from lenders. Some borrowers were on the brink of losing their jobs due to lenders calling their employers. In other news, someone ended up with loans of almost $6,000 due to over 20% interest rate. These can show why emergency savings provide financial stability. You will not also need to touch your other sources of funds. You can continue reaching your dreams while ensuring adequacy and sustainability. Benefit #2 It helps you choose the best fund allocation. Suppose you are saving money for your dream house and car. You may allocate your savings solely on properties for faster payment completion. You may also want to invest in stock or cryptocurrencies due to promising returns. But in case of emergencies, you have nothing to use to pay your expenses. Worse, you may even have to sell them to cover your unemployment or hospital bills. Given this, it is wise to allocate your savings to different areas. Even online banking apps have features to save funds for every goal. These include houses, cars, education, business, and of course, emergency funds. As the famous adage goes, “Don’t put your eggs in one basket.” Otherwise, you may lose most of your hard-earned money during unforeseen circumstances. Benefit #3 Having emergency funds increases self-discipline. Have you seen the latest deals on your favorite online shop? There may be new items with huge discounts. But think twice before tapping on the add to cart and check out buttons. Financial advisors say that you should wait for a while and reflect on your planned purchases. If you ever change your mind after such a time, you don’t want those products. That way, you avoid spending on a whim. In the same way, emergency funds make you aware of your spending habits. It helps you identify which is necessary and which is not. It will also help you determine how much you need to spend and save. It is better to put your money away from your debit card. After all, the phrase out of reach, out of sight has always been true. Put your savings, investment, and emergency funds in separate accounts. Benefit #4 Having adequate emergency funds keeps you and your loved ones protected. The COVID-19 pandemic crisis damaged the financial security of many people in the last two years. Different studies showed that it led to the exhaustion of emergency funds. It became an eye-opener for most of us. The overwhelming hospital bills and the sudden business shutdowns led to a recession. As such, these funds can give an extra layer of protection. Imagine those who lost their jobs or were hospitalized and had to borrow money with high charges. Many people and businesses went bankrupt. Even so, bankruptcy filings dipped in 2020. Thanks to debt moratoriums, fiscal stimulus, and state re-openings. But those with emergency savings had more time protecting their finances. The statistics in the previous section are a testament to its importance. Benefit #5 Adequate emergency funds keep your stress level low. Even in trying times, it prevents you from getting anxious. Our financial health can affect our physiological and mental health. The relationship between finances and well-being is more evident in retirees. In a 2013 study, it was found that loans could affect our blood pressure. Data showed that those with loans had higher perceived stress and depression levels. These were higher than the mean values by 11.7% and 13.2%, respectively. Likewise, they had higher diastolic blood pressure, 1.3% higher than the mean. The combined findings could tell that they had a higher risk of hypertension and stroke. Other studies did the same and applied Cronbach Alpha to prove the significance of the data. With that, it is safe to say that emergency funds prevent us from incurring higher costs. It will eliminate or reduce our need to borrow money or touch our retirement funds. Due to financial instability, physiological and mental health problems can lead to more costs. You do not have to suffer from these consequences with funds for emergencies. The Difference Between Emergency and Savings Funds In general, savings are the portion of our income that we aside for future needs or investments. It has different purposes, ranging from unforeseen expenses to financial goals. But, our common mistake is that we put all our savings in a single pool of funds. Maybe that was our idea of savings funds when we were young. Now, we have to understand that saving is similar to budgeting. It also has many areas where we should put our money for better management. Meanwhile, emergency savings are savings that we only use for emergencies from the name itself. Some examples are joblessness, hospitalization, and home damages. Of course, there are savings funds for medical expenses. But think of your emergency savings as your source of instant funds when your medical savings are insufficient to cover the total hospital costs. These are money separate from our savings funds. That way, our savings for other aspects, such as business and retirement, will remain intact. To understand them better, these are some examples of savings funds. Retirement Savings Even if you have a pension fund, a 401(k) plan, and an IRA, saving for your future is wiser. Retirement savings will help you have higher funds when you are already in your sixties. You can use this for your other important needs that your retirement plan cannot meet. Many retirement savings accounts have advantages over taxes. For example, the value you can contribute can be as much as your income before taxes. But of course, it has a catch. You cannot withdraw the money until you retire, or you will pay penalties for early withdrawals. College Savings College savings accounts will serve as your children’s educational plans. The purpose of this plan is designed to save for tertiary education. For example, you can put in a 529 plan, which promises tax benefits. This fund is separate from time deposits if you have any. Just use it solely to cover education-related expenses. These include their tuition fees, student loans, and even lodging fees if they rent near the school. Personal Savings These include funds for whatever plans you have for your future, depending on your financial circumstances. It can be your dream car, dream house, or even your dream travel package. Medical Savings Health insurance is a benefit in many companies globally. But, it cannot always cover all your expenses. For example, some doctors do not accept payments via health insurance. It is common in the field of neurology. As such, you will have to shell out more money because their fees and procedures are costlier. You can cover your medical expenses that health insurance cannot with medical savings. Cash Cushion A cash cushion is money that prevents overdrawing and bouncing checks. It is more common in checking accounts and provides more protection against overdrafts. The typical cash cushion amount ranges from $100 to $1,000. Rainy Day Savings Emergency funds and rainy day funds are similar in how we use them for unexpected situations. But they differ in terms of the costs incurred. Unlike emergency funds, rainy day savings do not have to be large. It often covers smaller unexpected expenses like field trips and vet bills for your pets. It ranges from $100 to $1,000 on average. Emergency Savings Unlike the previous savings, emergency savings are used for big unexpected expenses. Some examples are hospitalizations due to COVID-19, accidents requiring surgeries, and massive unplanned house damages. The large amount of money you will have to spend and the circumstances separate it from medical and rainy day savings. It will serve as our lifebuoy during mishaps. Hence, it keeps our financial health solid and intact. How to Build an Emergency Fund Financial experts often talk about the 50-30-20 rule. Fifty percent of your income goes to your constant expenses, such as food, utilities, and housing. The other thirty percent goes to the goods and services you want to buy. These pertain to your luxuries, such as gadgets, relaxation, and even spending on online games. The remaining twenty percent will become your savings. But, other people advise us to save first and spend what remains, encouraging us to become more frugal. But either way, it is challenging when our income is lower than our needs. It will never be easy-peasy to live within our means when our expenses are higher than we expect. How much more during this time when underemployment becomes more rampant? As such, here are the steps in building an emergency fund, especially on an unsteady income. Step 1: Tally All Non-Discretionary Expenses Non-discretionary expenses are mandatory or necessary expenses. In other words, these are expenses we incur regularly. We can limit them, but we cannot avoid them. Here are the typical examples of non-discretionary expenses you must tally. Housing Food Utilities Child care Taxes Education and student loans Since we pay them every month, it is easy for us to keep track of our expenses. Housing or rent, taxes, and education and student loans are fixed in general. But, the other three can be adjustable. We have to check which among them incur more expenses. From there, we can find a way to limit our consumption and save more. For example, you can limit your spending on food by buying groceries and cooking at home instead of dining out or having food delivered. You can also reduce your water consumption by doing simple hacks like putting a plastic bottle in your toilet tank or turning the faucet off while brushing your teeth. Often, we do not turn off or unplug appliances when not in use. We overlook these simple but helpful tips. Step 2: Tally and Adjust Discretionary Expenses In contrast, discretionary expenses are our expenses on non-essential items and services. These include your new clothes, phones, and hobbies like shopping and watching movies. Our Spotify and Netflix subscriptions are also part of it. Often, we exceed our target spending because of these. We tend to spend more on discretionary expenses as online shops increase. Yet, we forget that it is up to us to limit and even avoid spending on them. For example, having a car means increasing your property. But are you going to pay it fully or resort to bank financing? Why buy a car if you can take a bus, cab, or train? In microeconomics, discretionary goods and services are price elastic. Meaning we can constantly adjust when there are price changes. So, when they become more expensive, or our income drops, we can remove them from our budget. In recent years, spending on non-essential items was at least $18,000. If we compare it to the average income of $48,672, we can see that it comprised at least 37% of income. Given this information, it is always important to tally and adjust our discretionary expenditures. Doing so will help us maintain the security of a stable income. We will not have to turn to financial institutions for interest-bearing accounts during unexpected financial emergencies. Here are some tips for doing it, especially on an irregular income. If you mainly use your debit card for purchases, comb through your bank account statements. Comb through your credit card statements if you mainly charge purchases and pay them off in full by your statement due date. If you mainly use cash, track or reverse-engineer your spending over months. Step 3: Calculate Your Average Monthly Income Keeping track of the average monthly income is an important step to identifying our consumption and savings. It’s as essential as monitoring your business expenses, and is a must for freelancers and business owners who are not working fixed hours or earning irregular income. That way, you can also calculate and set a target consumption and savings rate. Keep in mind that unfortunate events may come when we least expect them. So, having an emergency fund, especially on an unsteady income, is crucial. It will prevent you from borrowing from lending and other financial institutions. Here are some pointers to guide you in calculating your average monthly income. Trace back your income far enough to cover seasonal ups and downs. That will be twelve months. Check the outliers or the months when your income was much higher or lower than the typical values. Compare it to the months with similar income ranges to see if the variation is still predictable. If the variation is too high, you can go back further. That way, you will determine if the highs and lows are due to seasonal or sudden fluctuations. Once done, calculate the average monthly income, flexible enough to massive changes. Step 4: Find Your Effective Savings Rate This step is dependent on the third step. Once you determine your average monthly income, you can set an effective savings rate. An effective savings rate should be enough to plan for your goals and cover unexpected instances. But, it should not hurt your budget for non-discretionary expenses. It is more crucial for those earning unsteady incomes. If ever you receive a pay raise, you may increase your target savings rate. Here are some tips for calculating an effective savings rate. Subtract your target savings from the average gross monthly income Divide the difference by your average gross monthly income If discretionary expenses include scheduled savings, add those back to your income before subtracting your expenses. Step 5: Calculate Your Ideal Emergency Fund Size Once you set an effective savings rate, it is time to calculate your ideal emergency fund size. You need to be dedicated to saving money to set aside an emergency fund. Your savings and emergency should be ideal, especially in times of income lows. For example, your average income is $4,000. During seasonal ups and downs, your income amounts to $7,000 and $2,000, respectively. From there, you can calculate your savings and ideal emergency fund size. If you are a seasonal worker, be sure to save an emergency fund that can cover you once your work ends. It will help if you have many side hustles. Step 6: Create Separate Accounts for Income and Short-Term Spending We tend to change our spending habits when combining our income and short-term spending accounts. Regardless of our employment or business type, it is wise to have separate accounts for our income and consumption. It makes keeping track of our expenses easy and accurate. Chances are, we limit our spending, which can increase our savings. These are the things you can do for this step. If you’re an independent contractor or sole proprietor with a legal business structure, open a business checking account to receive income. If you’re not formally incorporated or not qualified to incorporate because you’re classified as a traditional employee, open a second personal checking account to receive income only. Want to Know More About Savings and Retirement Tips? Visit Us Today. Our financial literacy increases as crises teach us to handle our finances better. The pandemic has shown us how our wealth can be depleted in the wink of an eye. The thing is, emergency funds have become more crucial than ever before. It provides another layer of financial protection in times of unexpected misfortunes. There are still many things to understand in spending, investing, and saving. But with emergency savings, you are sure to achieve your goals while ensuring your financial security. Did the article help you with your concerns and questions? To read more articles, check out our page on DUE. Due specializes in guiding people towards prudent financial decisions for a secure future. If you wish to know more about retirement plans, pensions, and insurance, reach out to our experts. Article by Chris Porteous, Due About the Author Chris Porteous is a growth marketer, helping freelancers and small businesses become financially independent. Previous to this, Chris worked at prestigious financial institutions including: Goldman Sachs, UBS Securities, Garrison Hill Capital Management and DBRS. He is a frequent contributor and has been featured in publications, including: Entrepreneur, Forbes, Inc, Zerohedge, Lifehack, and more. Fun fact, his previous company Our Paper Life (that was acquired), built the largest cardboard beach in the world. Updated on Feb 25, 2022, 11:42 am (function() { var sc = document.createElement("script"); sc.type = "text/javascript"; sc.async = true;sc.src = "//"; sc.charset = "utf-8";var s = document.getElementsByTagName("script")[0]; s.parentNode.insertBefore(sc, s); }()); window._F20 = window._F20 || []; _F20.push({container: 'F20WidgetContainer', placement: '', count: 3}); _F20.push({finish: true});.....»»

Category: blogSource: valuewalkFeb 25th, 2022

Reality Is Impinging Upon The Democrats" Carefully Constructed COVID Tyranny

Reality Is Impinging Upon The Democrats' Carefully Constructed COVID Tyranny Authored by Andrea Widburg via, Biden ran on a promise: He was going to federalize the COVID response and end COVID in America. He introduced vaccine mandates for federal employees and those doing business with the federal government and had OSHA do the same for every business with more than 100 employees. Various states, cities, and businesses, especially when it came to healthcare, followed suit. We were also told that, if we even breathed the same air as a COVID person, we had to quarantine ourselves for ten days. In the last two days, that promised federal response, COVID mandates, and quarantines have all fallen apart, thanks to the very contagious but seemingly relatively harmless Omicron variant. Biden made a lot of promises during the campaign and the media graciously refused to demand details: I'm not going to shut down the country. I'm not going to shut down the economy. I'm going to shut down the virus. — Joe Biden (@JoeBiden) October 30, 2020 We're eight months into this pandemic, and Donald Trump still doesn't have a plan to get this virus under control. I do. — Joe Biden (@JoeBiden) October 16, 2020 Those claims—that Biden would use the federal government to end the pandemic—went a long way with people weary of 2020’s madness. On Monday, after a COVID year more deadly and dispiriting than 2020, Biden admitted that the federal government can’t fix things: Joe Biden on covid: “There is no federal solution. This gets solved at a state level.” — RealMac (@beingrealmac) December 27, 2021 Trump, of course, said from the beginning that his role as president was to support the states because each state was best equipped to handle COVID as it presented within that state. Meanwhile, as Omicron spreads, especially in New York City, one of the most vaccinated places in America, other Democrat-driven initiatives are falling. The CDC has had to shorten by 50% its COVID isolation and quarantine period recommendations, reflecting (a) that Omicron seems to be a cold and (b) that America can’t shut down because of a cold: U.S. health officials on Monday cut isolation restrictions for Americans who catch the coronavirus from 10 to five days, and similarly shortened the time that close contacts need to quarantine. Centers for Disease Control and Prevention officials said the guidance is in keeping with growing evidence that people with the coronavirus are most infectious in the two days before and three days after symptoms develop. The decision also was driven by a recent surge in COVID-19 cases, propelled by the omicron variant. Early research suggests omicron may cause milder illnesses than earlier versions of the coronavirus. But the sheer number of people becoming infected — and therefore having to isolate or quarantine — threatens to crush the ability of hospitals, airlines and other businesses to stay open, experts say. Image: Omicron by Alexandra Koch. Pixabay license. And finally, and most ironically, as Omicron cases increase, hospitals are facing staff shortages because their ludicrous, unscientific vaccine mandates saw them firing thousands of employees. Last week, the CDC updated a document entitled “Strategies to Mitigate Healthcare Personnel Staffing Shortages.” It appears that more than 13 states are struggling to deal with Omicron cases because of staff shortages. Interestingly, the Forbes article to which I linked talks about staff burnout and more patients as reasons for the shortage but makes no mention of mass firings. Funny that. The point is that Democrats made pie in the sky promises and completely failed to make good on them. More people died from COVID under Biden than under Trump, Biden’s had to admit that Trump’s state-based approach was the correct one, unreasonably long quarantines are becoming impossible to maintain, and all the things that Democrats, and Democrat-driven businesses, did to destroy the workforce are now becoming a serious problem. I’m deeply sorry for sick people, overworked people, and unemployed people. I’m grateful, though, that reality is striking so hard and fast. That speed means there’s still time for sanity to return before the system collapses completely. Tyler Durden Tue, 12/28/2021 - 11:10.....»»

Category: blogSource: zerohedgeDec 28th, 2021

Hedge Funds Are Liquidating At A Furious Pace.... And Retail Investors Are Buying It All

Hedge Funds Are Liquidating At A Furious Pace.... And Retail Investors Are Buying It All Over the weekend, and then again on Monday we reported that It had been a catastrophic week for hedge funds: heading into Black Red Friday, losses were staggering with Goldman Prime reporting that many hedge funds were caught off-guard by news of the Omicron variant as they had bought Reopen stocks and sold Stay-at Home names in the past week. As a result, in the week ending Nov 25, GS Equity Fundamental L/S Performance Estimate fell -1.57% between 11/19 and 11/25, driven by alpha of -1.12% which was "the worst alpha drawdown in nearly six months" and beta of -0.45% (from market exposure and market sensitivity combined). It only got worse on Friday and then again Monday, when Moderna - the 3rd most popular short in the hedge fund universe with some $4.5BN of the stock held short by the 2 and 20 crowd... ... exploded higher, resulting in massive double-digits losses for funds who were aggressively short the name... and just in general as the following P&L charts from Goldman Prime show. So having been hammered one too many times in just a few days, perhaps the "smart money" finally learned its lesson, and as the S&P 500 suffered its biggest two-day rout since October 2020, hedge funds went risk off big time, because according to the latest update from Goldman Prime, net leverage fell to a one-year low this week. A similar analysts from BofA also confirmed the deleveraging trend of deleveraging - the firm’s hedge-fund clients dumped more than $2 billion of stocks last week, exiting the market at the fastest pace since April. While it doesn't take a rocket surgeon to figure out why hedge funds were rapidly derisking, among the reasons for the mass exodus were both tax-loss harvesting ahead of the end of the year, as well as locking in profits that despite the recent turmoil remain more than 20% for 2021. But the most proximal catalyst remains the sharp change in tone from the Fed where Powell now appears hell bent to consummate the worst policy mistake since Jean-Claude Trichet's ECB hiked right into a recession: “We’ve seen inflation be more persistent. We’ve seen the factors that are causing higher inflation to be more persistent,”  Powell told lawmakers Wednesday after decommissioning the term transitory to describe higher prices a day earlier. This has led to a rush to reprice assets with the prospect of higher interest rates sooner than investors had been anticipating. Confirming our recent observations, Dennis DeBusschere, founder of 22V Research, told Bloomberg that “many have mentioned hedge fund pain leading to weird internal moves” among speculative tech stocks. “This latest negative omicron news leads to just closing the books up and moving on.” Yet while hedge funds puked stocks, aggressively deleveraging into Wednesday's rout, retail investors did just the opposite and bought what HFs had to sell like there is no tomorrow: as we noted earlier, retail stock purchases rose to a new record on Tuesday of $2.2 billion, after reaching $2.1 billion during Friday’s rout, according to Vanda Research. The firm flagged big retail buying in cyclical stocks like airlines and energy on Friday, versus Tuesday’s tech-heavy flows, and noted that institutional investors did the opposite, selling cyclicals on Friday and then tech on Tuesday. In other words, retail investors were busy bidding up everything hedge funds had to sell. Professional managers are often quicker to sell because of pressure to deliver returns, said Mark Freeman, CIO at Socorro Asset Management LP. After their concentrated bets on expensive technology shares backfired last week, hedge funds now face a fast-closing window to bolster a year of spotty performance. That aversion to risk probably underlined the latest rout in unprofitable tech shares, a group that usually sells off when long-end Treasury  yields spike. On Wednesday, however, 10-year yields slipped and a Goldman basket of extremely expensive software stocks plunged 7.1%. Yet while Vanda sees strong retail demand persisting, and limiting the downside to equities in December, Nomura advises caution when buying this dip. As Bloomberg reports, strategists Chetan Seth and Amit Phillips wrote in a note that investors need to carefully assess if “buy the dip” will prove to be a good strategy, because elevated inflation implies the bar is higher for central banks to suppress volatility by providing policy support, if omicron does become a major threat. A combination of a hawkish Fed and virus uncertainty implies that stocks are likely to be volatile until at least the FOMC's December meeting. But hey, as former Dallas Fed head Richard Fisher warned previously, retail BTFD investors are "getting ahead of itself, because the market is dependent on Fed largesse... and we made it that way...but we have to consider, through a statement rather than an action, that we must wean the market off its dependency on a Fed put." Fisher went on... "The Fed has created this dependency and there's an entire generation of money-managers who weren't around in '74, '87, the end of the '90s, anbd even 2007-2009.. and have only seen a one-way street... of course they're nervous." "The question is - do you want to feed that hunger? Keep applying that opioid of cheap and abundant money?" Blasphemy? Or perhaps just once, Jay Powell has got religion. And while we would have once upon a time said that hedge funds will have the last laugh, performance from the last decade has made it clear that when it comes to dumb money, there is nobody dumber than those getting paid millions to underperform the market year after year. Or maybe this time will be different: as the last chart shows, have dramatically outperformed hedge funds for much of 2021, the retail favorite stocks are suddenly in danger of wiping out most if not all of their YTD gains... Tyler Durden Thu, 12/02/2021 - 08:25.....»»

Category: personnelSource: nytDec 2nd, 2021

Futures Surge After Powell-Driven Rout Proves To Be "Transitory"

Futures Surge After Powell-Driven Rout Proves To Be "Transitory" Heading into yesterday's painful close to one of the ugliest months since March 2020, which saw a huge forced liquidation rebalance with more than $8 billion in Market on Close orders, we said that while we are seeing "forced selling dump into the close today" this would be followed by "forced Dec 1 buying frontrunning after the close." Forced selling dump into the close today. Forced Dec 1 buying frontrunning after the close — zerohedge (@zerohedge) November 30, 2021 And just as expected, despite yesterday's dramatic hawkish pivot by Powell, who said it was time to retire the word transitory in describing the inflation outlook (the same word the Fed used hundreds of times earlier in 2021 sparking relentless mockery from this website for being clueless as usual) while also saying the U.S. central bank would consider bringing forward plans for tapering its bond buying program at its next meeting in two weeks, the frontrunning of new monthly inflows is in full force with S&P futures rising over 1.2%, Nasdaq futures up 1.3%, and Dow futures up 0.9%, recovering almost all of Tuesday’s decline. The seemingly 'hawkish' comments served as a double whammy for markets, which were already nervous about the spread of the Omicron coronavirus variant and its potential to hinder a global economic recovery. "At this point, COVID does not appear to be the biggest long-term Street fear, although it could have the largest impact if the new (or next) variant turns out to be worse than expected," Howard Silverblatt, senior index analyst for S&P and Dow Jones indices, said in a note. "That honor goes to inflation, which continues to be fed by supply shortages, labor costs, worker shortages, as well as consumers, who have not pulled back." However, new month fund flows proved too powerful to sustain yesterday's month-end dump and with futures rising - and panic receding - safe havens were sold and the 10-year Treasury yield jumped almost 6bps, approaching 1.50%. The gap between yields on 5-year and 30-year Treasuries was around the narrowest since March last year. Crude oil and commodity-linked currencies rebounded. Gold remained just under $1,800 and bitcoin traded just over $57,000. There was more good news on the covid front with a WHO official saying some of the early indications are that most Omicron cases are mild with no severe cases. Separately Merck gained 3.8% in premarket trade after a panel of advisers to the U.S. Food and Drug Administration narrowly voted to recommend the agency authorize the drugmaker's antiviral pill to treat COVID-19. Travel and leisure stocks also rebounded, with cruiseliners Norwegian, Carnival, Royal Caribbean rising more than 2.5% each. Easing of covid fears also pushed airlines and travel stocks higher in premarket trading: Southwest +2.9%, Delta +2.5%, Spirit +2.3%, American +2.2%, United +1.9%, JetBlue +1.3%. Vaccine makers traded modestly lower in pre-market trading after soaring in recent days as Wall Street weighs the widening spread of the omicron variant. Merck & Co. bucked the trend after its Covid-19 pill narrowly gained a key recommendation from advisers to U.S. regulators. Moderna slips 2.1%, BioNTech dips 1.3% and Pfizer is down 0.2%. Elsewhere, Occidental Petroleum led gains among the energy stocks, up 3.2% as oil prices climbed over 4% ahead of OPEC's meeting. Shares of major Wall Street lenders also moved higher after steep falls on Tuesday. Here are some of the other biggest U.S. movers today: Salesforce (CRM US) drops 5.9% in premarket trading after results and guidance missed estimates, with analysts highlighting currency-related headwinds and plateauing growth at the MuleSoft integration software business. Hewlett Packard Enterprise (HPE US) falls 1.3% in premarket after the computer equipment maker’s quarterly results showed the impact of the global supply chain crunch. Analysts noted solid order trends. Merck (MRK US) shares rise 5.8% in premarket after the company’s Covid-19 pill narrowly wins backing from FDA advisers, which analysts say is a sign of progress despite lingering challenges. Chinese electric vehicle makers were higher in premarket, leading U.S. peers up, after Nio, Li and XPeng reported strong deliveries for November; Nio (NIO US) +4%, Li (LI US ) +6%, XPeng (XPEV US) +4.3%. Ardelyx (ARDX US) shares gain as much as 34% in premarket, extending the biotech’s bounce after announcing plans to launch its irritable bowel syndrome treatment Ibsrela in the second quarter. CTI BioPharma (CTIC US) shares sink 18% in premarket after the company said the FDA extended the review period for a new drug application for pacritinib. Allbirds (BIRD US) fell 7.5% postmarket after the low end of the shoe retailer’s 2021 revenue forecast missed the average analyst estimate. Zscaler (ZS US) posted “yet another impressive quarter,” according to BMO. Several analysts increased their price targets for the security software company. Shares rose 4.6% in postmarket. Ambarella (AMBA US) rose 14% in postmarket after forecasting revenue for the fourth quarter that beat the average analyst estimate. Emcore (EMKR US) fell 9% postmarket after the aerospace and communications supplier reported fiscal fourth-quarter Ebitda that missed the average analyst estimate. Box (BOX US) shares gained as much as 10% in postmarket trading after the cloud company raised its revenue forecast for the full year. Meanwhile, the omicron variant continues to spread around the globe, though symptoms so far appear to be relatively mild. The Biden administration plans to tighten rules on travel to the U.S., and Japan said it would bar foreign residents returning from 10 southern African nations. As Bloomberg notes, volatility is buffeting markets as investors scrutinize whether the pandemic recovery can weather diminishing monetary policy support and potential risks from the omicron virus variant. Global manufacturing activity stabilized last month, purchasing managers’ gauges showed Wednesday, and while central banks are scaling back ultra-loose settings, financial conditions remain favorable in key economies. “The reality is hotter inflation coupled with a strong economic backdrop could end the Fed’s bond buying program as early as the first quarter of next year,” Charlie Ripley, senior investment strategist at Allianz Investment Management, said in emailed comments. “With potential changes in policy on the horizon, market participants should expect additional market volatility in this uncharted territory.” Looking ahead, Powell is back on the Hill for day 2, and is due to testify before a House Financial Services Committee hybrid hearing at 10 a.m. ET. On the economic data front, November readings on U.S. private payrolls and manufacturing activity will be closely watched later in the day to gauge the health of the American economy. Investors are also awaiting the Fed's latest "Beige Book" due at 2:00 p.m. ET. On the economic data front, November readings on U.S. private payrolls and manufacturing activity will be closely watched later in the day to gauge the health of the American economy. European equities soared more than 1.2%, with travel stocks and carmakers leading broad-based gain in the Stoxx Europe 600 index, all but wiping out Tuesday’s decline that capped only the third monthly loss for the benchmark this year.  Travel, miners and autos are the strongest sectors. Here are some of the biggest European movers today: Proximus shares rise as much as 6.5% after the company said it’s started preliminary talks regarding a potential deal involving TeleSign, with a SPAC merger among options under consideration. Dr. Martens gains as much as 4.6% to the highest since Sept. 8 after being upgraded to overweight from equal- weight at Barclays, which says the stock’s de-rating is overdone. Husqvarna advances as much as 5.3% after the company upgraded financial targets ahead of its capital markets day, including raising the profit margin target to 13% from 10%. Wizz Air, Lufthansa and other travel shares were among the biggest gainers as the sector rebounded after Tuesday’s losses; at a conference Wizz Air’s CEO reiterated expansion plans. Wizz Air gains as much as 7.5%, Lufthansa as much as 6.8% Elis, Accor and other stocks in the French travel and hospitality sector also rise after the country’s government pledged to support an industry that’s starting to get hit by the latest Covid-19 wave. Pendragon climbs as much as 6.5% after the car dealer boosted its outlook after the company said a supply crunch in the new vehicle market wasn’t as bad as it had anticipated. UniCredit rises as much as 3.6%, outperforming the Stoxx 600 Banks Index, after Deutsche Bank added the stock to its “top picks” list alongside UBS, and Bank of Ireland, Erste, Lloyds and Societe Generale. Earlier in the session, Asian stocks also soared, snapping a three-day losing streak, led by energy and technology shares, as traders assessed the potential impact from the omicron coronavirus variant and U.S. Federal Reserve Chair Jerome Powell’s hawkish pivot. The MSCI Asia Pacific Index rose as much as 1.3% Wednesday. South Korea led regional gains after reporting strong export figures, which bolsters growth prospects despite record domestic Covid-19 cases. Hong Kong stocks also bounced back after falling Tuesday to their lowest level since September 2020. Asia’s stock benchmark rebounded from a one-year low, though sentiment remained clouded by lingering concerns on the omicron strain and Fed’s potentially faster tapering pace. Powell earlier hinted that the U.S. central bank will accelerate its asset purchases at its meeting later this month.  “A faster taper in the U.S. is still dependent on omicron not causing a big setback to the outlook in the next few weeks,” said Shane Oliver, head of investment strategy and chief economist at AMP Capital, adding that he expects the Fed’s policy rate “will still be low through next year, which should still enable good global growth which will benefit Asia.” Chinese equities edged up after the latest economic data showed manufacturing activity remained at relatively weak levels in November, missing economists’ expectations. Earlier, Chinese Vice Premier Liu He said he’s fully confident in the nation’s economic growth in 2022 Japanese stocks rose, overcoming early volatility as traders parsed hawkish comments from Federal Reserve Chair Jerome Powell. Electronics and auto makers were the biggest boosts to the Topix, which closed 0.4% higher after swinging between a gain of 0.9% and loss of 0.7% in the morning session. Daikin and Fanuc were the largest contributors to a 0.4% rise in the Nikkei 225, which similarly fluctuated. The Topix had dropped 4.8% over the previous three sessions due to concerns over the omicron virus variant. The benchmark fell 3.6% in November, its worst month since July 2020. “The market’s tolerance to risk is quite low at the moment, with people responding in a big way to the smallest bit of negative news,” said Tomo Kinoshita, a global market strategist at Invesco Asset Management in Tokyo. “But the decline in Japanese equities was far worse than those of other developed markets, so today’s market may find a bit of calm.” U.S. shares tumbled Tuesday after Powell said officials should weigh removing pandemic support at a faster pace and retired the word “transitory” to describe stubbornly high inflation In rates, bonds trade heavy, as yield curves bear-flatten. Treasuries extended declines with belly of the curve cheapening vs wings as traders continue to price in additional rate-hike premium over the next two years. Treasury yields were cheaper by up to 5bp across belly of the curve, cheapening 2s5s30s spread by ~5.5bp on the day; 10-year yields around 1.48%, cheaper by ~4bp, while gilts lag by additional 2bp in the sector. The short-end of the gilt curve markedly underperforms bunds and Treasuries with 2y yields rising ~11bps near 0.568%. Peripheral spreads widen with belly of the Italian curve lagging. The flattening Treasury yield curve “doesn’t suggest imminent doom for the equity market in and of itself,” Liz Ann Sonders, chief investment strategist at Charles Schwab & Co., said on Bloomberg Television. “Alarm bells go off in terms of recession” when the curve gets closer to inverting, she said. In FX, the Turkish lira had a wild session, offered in early London trade before fading. USD/TRY dropped sharply to lows of 12.4267 on reports of central bank FX intervention due to “unhealthy price formations” before, once again, fading TRY strength after comments from Erdogan. The rest of G-10 FX is choppy; commodity currencies retain Asia’s bid tone, havens are sold: the Bloomberg Dollar Spot Index inched lower, as the greenback traded mixed versus its Group-of-10 peers. The euro moved in a narrow range and Bund yields followed U.S. yields higher. The pound advanced as risk sentiment stabilized with focus still on news about the omicron variant. The U.K. 10-, 30-year curve flirted with inversion as gilts flattened, with money markets betting on 10bps of BOE tightening this month for the first time since Friday. The Australian and New Zealand dollars advanced as rising commodity prices fuel demand from exporters and leveraged funds. Better-than-expected growth data also aided the Aussie, with GDP expanding by 3.9% in the third quarter from a year earlier, beating the 3% estimated by economists. Austrian lawmakers extended a nationwide lockdown for a second 10-day period to suppress the latest wave of coronavirus infections before the Christmas holiday period.  The yen declined by the most among the Group-of-10 currencies as Powell’s comments renewed focus on yield differentials. 10-year yields rose ahead of Thursday’s debt auction In commodities, crude futures rally. WTI adds over 4% to trade on a $69-handle, Brent recovers near $72.40 after Goldman said overnight that oil had gotten extremely oversold. Spot gold fades a pop higher to trade near $1,785/oz. Base metals trade well with LME copper and nickel outperforming. Looking at the day ahead, once again we’ll have Fed Chair Powell and Treasury Secretary Yellen appearing, this time before the House Financial Services Committee. In addition to that, the Fed will be releasing their Beige Book, and BoE Governor Bailey is also speaking. On the data front, the main release will be the manufacturing PMIs from around the world, but there’s also the ADP’s report of private payrolls for November in the US, the ISM manufacturing reading in the US as well for November, and German retail sales for October. Market Snapshot S&P 500 futures up 1.2% to 4,620.75 STOXX Europe 600 up 1.0% to 467.58 MXAP up 0.9% to 191.52 MXAPJ up 1.1% to 626.09 Nikkei up 0.4% to 27,935.62 Topix up 0.4% to 1,936.74 Hang Seng Index up 0.8% to 23,658.92 Shanghai Composite up 0.4% to 3,576.89 Sensex up 1.0% to 57,656.51 Australia S&P/ASX 200 down 0.3% to 7,235.85 Kospi up 2.1% to 2,899.72 Brent Futures up 4.2% to $72.15/bbl Gold spot up 0.2% to $1,778.93 U.S. Dollar Index little changed at 95.98 German 10Y yield little changed at -0.31% Euro down 0.1% to $1.1326 Top Overnight News from Bloomberg U.S. Secretary of State Antony Blinken will meet Russian Foreign Minister Sergei Lavrov Thursday, the first direct contact between officials of the two countries in weeks as tensions grow amid western fears Russia may be planning to invade Ukraine Oil rebounded from a sharp drop on speculation that recent deep losses were excessive and OPEC+ may on Thursday decide to pause hikes in production, with the abrupt reversal fanning already- elevated volatility The EU is set to recommend that member states review essential travel restrictions on a daily basis in the wake of the omicron variant, according to a draft EU document seen by Bloomberg China is planning to ban companies from going public on foreign stock markets through variable interest entities, according to people familiar with the matter, closing a loophole long used by the country’s technology industry to raise capital from overseas investors Manufacturing activity in Asia outside China stabilized last month amid easing lockdown and border restrictions, setting the sector on course to face a possible new challenge from the omicron variant of the coronavirus Germany urgently needs stricter measures to check a surge in Covid-19 infections and protect hospitals from a “particularly dangerous situation,” according to the head of the country’s DIVI intensive-care medicine lobby. A more detailed breakdown of global markets courtesy of Newsquawk Asian equity markets traded mostly positive as regional bourses atoned for the prior day’s losses that were triggered by Omicron concerns, but with some of the momentum tempered by recent comments from Fed Chair Powell and mixed data releases including the miss on Chinese Caixin Manufacturing PMI. ASX 200 (-0.3%) was led lower by underperformance in consumer stocks and with utilities also pressured as reports noted that Shell and Telstra’s entrance in the domestic electricity market is set to ignite fierce competition and force existing players to overhaul their operations, although the losses in the index were cushioned following the latest GDP data which showed a narrower than feared quarterly contraction in Australia’s economy. Nikkei 225 (+0.4%) was on the mend after yesterday’s sell-off with the index helped by favourable currency flows and following a jump in company profits for Q3, while the KOSPI (+2.1%) was also boosted by strong trade data. Hang Seng (+0.8%) and Shanghai Comp. (+0.4%) were somewhat varied as a tech resurgence in Hong Kong overcompensated for the continued weakness in casinos stocks amid ongoing SunCity woes which closed all VIP gaming rooms in Macau after its Chairman's recent arrest, while the mood in the mainland was more reserved after a PBoC liquidity drain and disappointing Chinese Caixin Manufacturing PMI data which fell short of estimates and slipped back into contraction territory. Finally, 10yr JGBs were lower amid the gains in Japanese stocks and after the pullback in global fixed income peers in the aftermath of Fed Chair Powell’s hawkish comments, while a lack of BoJ purchases further contributed to the subdued demand for JGBs. Top Asian News Asia Stocks Bounce Back from One-Year Low Despite Looming Risks Gold Swings on Omicron’s Widening Spread, Inflation Worries Shell Sees Hedge Funds Moving to LNG, Supporting Higher Prices Abe Warns China Invading Taiwan Would Be ‘Economic Suicide’ Bourses in Europe are firmer across the board (Euro Stoxx 50 +1.6%; Stoxx 600 +1.1%) as the positive APAC sentiment reverberated into European markets. US equity futures are also on the front foot with the cyclical RTY (+2.0%) outpacing its peers: ES (+1.2%), NQ (+1.5%), YM (+0.8%). COVID remains a central theme for the time being as the Omicron variant is observed for any effects of concern – which thus far have not been reported. Analysts at UBS expect market focus to shift away from the variant and more towards growth and earnings. The analysts expect Omicron to fuse into the ongoing Delta outbreak that economies have already been tackling. Under this scenario, the desk expects some of the more cyclical markets and sectors to outperform. The desk also flags two tails risks, including an evasive variant and central bank tightening – particularly after Fed chair Powell’s commentary yesterday. Meanwhile, BofA looks for an over-10% fall in European stocks next year. Sticking with macro updates, the OECD, in their latest economic outlook, cut US, China, Eurozone growth forecasts for 2021 and 2022, with Omicron cited as a factor. Back to trade, broad-based gains are seen across European cash markets. Sectors hold a clear cyclical bias which consists of Travel & Leisure, Basic Resources, Autos, Retail and Oil & Gas as the top performers – with the former bolstered by the seemingly low appetite for coordination on restrictions and measures at an EU level – Deutsche Lufthansa (+6%) and IAG (+5.1%) now reside at the top of the Stoxx 600. The other side of the spectrum sees the defensive sectors – with Healthcare, Household Goods, Food & Beverages as the straddlers. In terms of induvial movers, German-listed Adler Group (+22%) following a divestment, whilst Blue Prism (+1.7%) is firmer after SS&C raised its offer for the Co. Top European News Wizz Says Travelers Are Booking at Shorter and Shorter Notice Turkey Central Bank Intervenes in FX Markets to Stabilize Lira Gold Swings on Omicron’s Widening Spread, Inflation Worries Former ABG Sundal Collier Partner Starts Advisory Firm In FX, the Dollar remains mixed against majors, but well off highs prompted by Fed chair Powell ditching transitory from the list of adjectives used to describe inflation and flagging that a faster pace of tapering will be on the agenda at December’s FOMC. However, the index is keeping tabs on the 96.000 handle and has retrenched into a tighter 95.774-96.138 range, for the time being, as trade remains very choppy and volatility elevated awaiting clearer medical data and analysis on Omicron to gauge its impact compared to the Delta strain and earlier COVID-19 variants. In the interim, US macro fundamentals might have some bearing, but the bar is high before NFP on Friday unless ADP or ISM really deviate from consensus or outside the forecast range. Instead, Fed chair Powell part II may be more pivotal if he opts to manage hawkish market expectations, while the Beige Book prepared for next month’s policy meeting could also add some additional insight. NZD/AUD/CAD/GBP - Broad risk sentiment continues to swing from side to side, and currently back in favour of the high beta, commodity and cyclical types, so the Kiwi has bounced firmly from worst levels on Tuesday ahead of NZ terms of trade, the Aussie has pared a chunk of its declines with some assistance from a smaller than anticipated GDP contraction and the Loonie is licking wounds alongside WTI in advance of Canadian building permits and Markit’s manufacturing PMI. Similarly, Sterling has regained some poise irrespective of relatively dovish remarks from BoE’s Mann and a slender downward revision to the final UK manufacturing PMI. Nzd/Usd is firmly back above 0.6800, Aud/Usd close to 0.7150 again, Usd/Cad straddling 1.2750 and Cable hovering on the 1.3300 handle compared to circa 0.6772, 0.7063, 1.2837 and 1.3195 respectively at various fairly adjacent stages yesterday. JPY/EUR/CHF - All undermined by the aforementioned latest upturn in risk appetite or less angst about coronavirus contagion, albeit to varying degrees, as the Yen retreats to retest support sub-113.50, Euro treads water above 1.1300 and Franc straddles 0.9200 after firmer than forecast Swiss CPI data vs a dip in the manufacturing PMI. In commodities, WTI and Brent front month futures are recovering following yesterday’s COVID and Powell-induced declines in the run-up to the OPEC meetings later today. The complex has also been underpinned by the reduced prospects of coordinated EU-wide restrictions, as per the abandonment of the COVID video conference between EU leaders. However, OPEC+ will take centre stage over the next couple of days, with a deluge of source reports likely as OPEC tests the waters. The case for OPEC+ to pause the planned monthly relaxation of output curbs by 400k BPD has been strengthening. There have been major supply and demand developments since the prior meeting. The recent emergence of the Omicron COVID variant and coordinated release of oil reserves have shifted the balance of expectations relative to earlier in the month (full Newsquawk preview available in the Research Suite). In terms of the schedule, the OPEC meeting is slated for 13:00GMT/08:00EST followed by the JTC meeting at 15:00GMT/10:00EST, whilst tomorrow sees the JMMC meeting at 12:00GMT/07:00EST; OPEC+ meeting at 13:00GMT/08:00EST. WTI Jan has reclaimed a USD 69/bbl handle (vs USD 66.20/bbl low) while Brent Feb hovers around USD 72.50/bbl (vs low USD 69.38/bbl) at the time of writing. Elsewhere, spot gold and silver trade with modest gains and largely in tandem with the Buck. Spot gold failed to sustain gains above the cluster of DMAs under USD 1,800/oz (100 DMA at USD 1,792/oz, 200 DMA at USD 1,791/oz, and 50 DMA at USD 1,790/oz) – trader should be aware of the potential for a technical Golden Cross (50 DMA > 200 DMA). Turning to base metals, copper is supported by the overall risk appetite, with the LME contract back above USD 9,500/t. Overnight, Chinese coking coal and coke futures rose over 5% apiece, with traders citing disrupted supply from Mongolia amid the COVID outbreak in the region. US Event Calendar 7am: Nov. MBA Mortgage Applications, prior 1.8% 8:15am: Nov. ADP Employment Change, est. 525,000, prior 571,000 9:45am: Nov. Markit US Manufacturing PMI, est. 59.1, prior 59.1 10am: Oct. Construction Spending MoM, est. 0.4%, prior -0.5% 10am: Nov. ISM Manufacturing, est. 61.2, prior 60.8 2pm: U.S. Federal Reserve Releases Beige Book Nov. Wards Total Vehicle Sales, est. 13.4m, prior 13m Central Banks 10am: Powell, Yellen Testify Before House Panel on CARES Act Relief DB's Jim Reid concludes the overnight wrap If you’re under 10 and reading this there’s a spoiler alert today in this first para so please skip beyond and onto the second. Yes my heart broke a little last night as my little 6-year old Maisie said to me at bedtime that “Santa isn’t real is he Daddy?”. I lied (I think it’s a lie) and said yes he was. I made up an elaborate story about how when we renovated our 100 year old house we deliberately kept the chimney purely to let Santa come down it once a year. Otherwise why would we have kept it? She then asked what about her friend who lives in a flat? I tried to bluff my way through it but maybe my answer sounded a bit like my answers as to what will happen with Omicron. I’ll test both out on clients later to see which is more convincing. Before we get to the latest on the virus, given it’s the start of the month, we’ll shortly be publishing our November performance review looking at how different assets fared over the month just gone and YTD. It arrived late on but Omicron was obviously the dominant story and led to some of the biggest swings of the year so far. It meant that oil (which is still the top performer on a YTD basis) was the worst performer in our monthly sample, with WTI and Brent seeing their worst monthly performances since the initial wave of market turmoil over Covid back in March 2020. And at the other end, sovereign bonds outperformed in November as Omicron’s emergence saw investors push back the likelihood of imminent rate hikes from central banks. So what was shaping up to be a good month for risk and a bad one for bonds flipped around in injury time. Watch out for the report soon from Henry. Back to yesterday now, and frankly the main takeaway was that markets were desperate for any piece of news they could get their hands on about the Omicron variant, particularly given the lack of proper hard data at the moment. The morning started with a sharp selloff as we discussed at the top yesterday, as some of the more optimistic noises from Monday were outweighed by that FT interview, whereby Moderna’s chief executive had said that the existing vaccines wouldn’t be as effective against the new variant. Then we had some further negative news from Regeneron, who said that analysis and modelling of the Omicron mutations indicated that its antibody drug may not be as effective, but that they were doing further analysis to confirm this. However, we later got some comments from a University of Oxford spokesperson, who said that there wasn’t any evidence so far that vaccinations wouldn’t provide high levels of protection against severe disease, which coincided with a shift in sentiment early in the European afternoon as equities begun to pare back their losses. The CEO of BioNTech and the Israeli health minister expressed similar sentiments, noting that vaccines were still likely to protect against severe disease even among those infected by Omicron, joining other officials encouraging people to get vaccinated or get booster shots. Another reassuring sign came in an update from the EU’s ECDC yesterday, who said that all of the 44 confirmed cases where information was available on severity “were either asymptomatic or had mild symptoms.” After the close, the FDA endorsed Merck’s antiviral Covid pill. While it’s not clear how the pill interacts with Omicron, the proliferation of more Covid treatments is still good news as we head into another winter. The other big piece of news came from Fed Chair Powell’s testimony to the Senate Banking Committee, where the main headline was his tapering comment that “It is appropriate to consider wrapping up a few months sooner.” So that would indicate an acceleration in the pace, which would be consistent with the view from our US economists that we’ll see a doubling in the pace of reductions at the December meeting that’s only two weeks from today. The Fed Chair made a forceful case for a faster taper despite lingering Omicron uncertainties, noting inflation is likely to stay elevated, the labour market has improved without a commensurate increase in labour supply (those sidelined because of Covid are likely to stay there), spending has remained strong, and that tapering was a removal of accommodation (which the economy doesn’t need more of given the first three points). Powell took pains to stress the risk of higher inflation, going so far as to ‘retire’ the use of the term ‘transitory’ when describing the current inflation outlook. So team transitory have seemingly had the pitch taken away from them mid match. The Chair left an exit clause that this outlook would be informed by incoming inflation, employment, and Omicron data before the December FOMC meeting. A faster taper ostensibly opens the door to earlier rate hikes and Powell’s comment led to a sharp move higher in shorter-dated Treasury yields, with the 2yr yield up +8.1bps on the day, having actually been more than -4bps lower when Powell began speaking. They were as low as 0.44% then and got as high as 0.57% before closing at 0.56%. 2yr yields have taken another leg higher overnight, increasing +2.5bps to 0.592%. Long-end yields moved lower though and failed to back up the early day moves even after Powell, leading to a major flattening in the yield curve on the back of those remarks, with the 2s10s down -13.7bps to 87.3bps, which is its flattest level since early January. Overnight 10yr yields are back up +3bps but the curve is only a touch steeper. My 2 cents on the yield curve are that the 2s10s continues to be my favourite US recession indicator. It’s worked over more cycles through history than any other. No recession since the early 1950s has occurred without the 2s10s inverting. But it takes on average 12-18 months from inversion to recession. The shortest was the covid recession at around 7 months which clearly doesn’t count but I think we were very late cycle in early 2020 and the probability of recession in the not too distant future was quite high but we will never know.The shortest outside of that was around 9 months. So with the curve still at c.+90bps we are moving in a more worrying direction but I would still say 2023-24 is the very earliest a recession is likely to occur (outside of a unexpected shock) and we’ll need a rapid flattening in 22 to encourage that. History also suggests markets tend to ignore the YC until it’s too late. So I wouldn’t base my market views in 22 on the yield curve and recession signal yet. However its something to look at as the Fed seemingly embarks on a tightening cycle in the months ahead. Onto markets and those remarks from Powell (along with the additional earlier pessimism about Omicron) proved incredibly unhelpful for equities yesterday, with the S&P 500 (-1.90%) giving up the previous day’s gains to close at its lowest level in over a month. It’s hard to overstate how broad-based this decline was, as just 7 companies in the entire S&P moved higher yesterday, which is the lowest number of the entire year so far and the lowest since June 11th, 2020, when 1 company ended in the green. Over in Europe it was much the same story, although they were relatively less affected by Powell’s remarks, and the STOXX 600 (-0.92%) moved lower on the day as well. Overnight in Asia, stocks are trading higher though with the KOSPI (+2.02%), Hang Seng (+1.40%), the Nikkei (+0.37%), Shanghai Composite (+0.11%) and CSI (+0.09%) all in the green. Australia’s Q3 GDP contracted (-1.9% qoq) less than -2.7% consensus while India’s Q3 GDP grew at a firm +8.4% year-on-year beating the +8.3% consensus. In China the Caixin Manufacturing PMI for November came in at 49.9 against a 50.6 consensus. Futures markets are indicating a positive start to markets in US & Europe with the S&P 500 (+0.73%) and DAX (+0.44%) trading higher again. Back in Europe, there was a significant inflation story amidst the other headlines above, since Euro Area inflation rose to its highest level since the creation of the single currency, with the flash estimate for November up to +4.9% (vs. +4.5% expected). That exceeded every economist’s estimate on Bloomberg, and core inflation also surpassed expectations at +2.6% (vs. +2.3% expected), again surpassing the all-time high since the single currency began. That’s only going to add to the pressure on the ECB, and yesterday saw Germany’s incoming Chancellor Scholz say that “we have to do something” if inflation doesn’t ease. European sovereign bonds rallied in spite of the inflation reading, with those on 10yr bunds (-3.1bps), OATs (-3.5bps) and BTPs (-0.9bps) all moving lower. Peripheral spreads widened once again though, and the gap between Italian and German 10yr yields closed at its highest level in just over a year. Meanwhile governments continued to move towards further action as the Omicron variant spreads, and Greece said that vaccinations would be mandatory for everyone over 60 soon, with those refusing having to pay a monthly €100 fine. Separately in Germany, incoming Chancellor Scholz said that there would be a parliamentary vote on the question of compulsory vaccinations, saying to the Bild newspaper in an interview that “My recommendation is that we don’t do this as a government, because it’s an issue of conscience”. In terms of other data yesterday, German unemployment fell by -34k in November (vs. -25k expected). Separately, the November CPI readings from France at +3.4% (vs. +3.2% expected) and Italy at +4.0% (vs. +3.3% expected) surprised to the upside as well. In the US, however, the Conference Board’s consumer confidence measure in November fell to its lowest since February at 109.5 (vs. 110.9 expected), and the MNI Chicago PMI for November fell to 61.8 9vs. 67.0 expected). To the day ahead now, and once again we’ll have Fed Chair Powell and Treasury Secretary Yellen appearing, this time before the House Financial Services Committee. In addition to that, the Fed will be releasing their Beige Book, and BoE Governor Bailey is also speaking. On the data front, the main release will be the manufacturing PMIs from around the world, but there’s also the ADP’s report of private payrolls for November in the US, the ISM manufacturing reading in the US as well for November, and German retail sales for October. Tyler Durden Wed, 12/01/2021 - 07:47.....»»

Category: blogSource: zerohedgeDec 1st, 2021