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"They Shut Us Down": Michigan Businesses Sue Whitmer For Losses Due To COVID Lockdowns

"They Shut Us Down": Michigan Businesses Sue Whitmer For Losses Due To COVID Lockdowns Authored by Steven Kovac via The Epoch Times (emphasis ours), A coalition of five bowling alleys and family entertainment centers is suing Michigan’s Gov. Gretchen Whitmer, a Democrat, for losses incurred due to her mandatory COVID-19 shutdowns in 2020. Michigan Gov. Gretchen Whitmer listens to Democratic presidential candidate Sen. Kirsten Gillibrand (D-N.Y.) in Clawson, Mich., on March 18, 2019. (Paul Sancya/AP) Michigan Dept. of Health and Human Services director Robert Gordon is also a defendant in the case. The plaintiffs allege that the shutdowns imposed by Whitmer and Gordon were a “taking” of their businesses without just compensation in violation of both the state and the U.S. Constitution. The case has been winding its way through the federal courts since January 2021. Fred Kautz runs the lane oiler at Kautz Shore Lanes in Lexington, Mich., on May 13, 2022. (Steven Kovac/The Epoch Times) The coalition lost the first round of the legal battle when the U.S. District Court for the Western District of Michigan ruled against it. Oral arguments were recently held before a three-judge panel of the US Court of Appeals Sixth Circuit. Plaintiff’s chief counsel David Kallman told The Epoch Times after the appeals court hearing, “The oral arguments from both sides were vigorous. The judges asked a lot of questions. It was the kind of proceeding that makes you proud to be a lawyer. “Even the defense acknowledges that we are presenting ‘novel’ arguments. “Michigan is the only state in the nation where a governor’s public health emergency powers were overturned as unconstitutional. “If we lose in the court of appeals, we will take this case to the U.S. Supreme Court.” Scott Bennett, executive director of the Independent Bowling and Entertainment Centers Association, told The Epoch Times, “The governor’s actions were devastating to our industry. “Things went from ‘two weeks to slow the spread’ to indefinite shutdowns.” Bennett said that the forced closures were not based on solid scientific proof that bowling alleys and family entertainment centers would spread the virus any more than the Walmart stores or the GM plants that were allowed to remain open. “They were allowed to operate with hundreds and even thousands of people in them but we had to shut down. We feel our industry was unfairly singled-out. “We cannot stand for a repeat of such arbitrary treatment and don’t want the people of Michigan to forget what was done to them.” With the recent uptick in COVID cases and the approaching mid-term elections, Bennett said his members that survived the 2020 shutdowns feel like it can happen all over again. “It’s like operating day-to-day with a hammer held over your head. The uncertainty is altering business plans. The value of our businesses is dropping through the floor,” Bennett said. Brian and Mindy Hill work the counter at their bowling alley in Imlay City, Mich. on May 13, 2022. (Steven Kovac/Epoch Times) Fred Kautz, the proprietor of Kautz’s Shore Lanes in Lexington, Michigan, started working in the family business when he was 13. The business has 12 bowling lanes, a bar, an arcade, a restaurant, and living quarters upstairs. “We’ve owned this place for 42 years. For me and my family, it’s more than a place to work. It’s a way of life. And it has become an institution in our community—a real gathering place,” said Kautz. He said he is still smarting from what happened after Whitmer’s executive actions were ruled unconstitutional by the Michigan Supreme Court in the fall of 2020. “We got a little reprieve. We thought we were in the clear until she came back with another round of forced closures, this time under the authority of the Michigan Department of Public Health. “The first 30 days knocked us right on our butts. But we were willing to cooperate, to do our part. We were all scared and we did not want to see harm come to anybody. “We lost a lot of money at the time. We are coming back slowly, but our overall revenue is still down 20 percent from pre-pandemic days. That’s hard to make up. “In the spring of 2020, I tried to do what was recommended and go along. Never again! “If my Dad was still alive, he’d have never closed at all,” said Kautz. Brian and Mindy Hill, owners of I.C. Strikes, a 16-lane bowling alley, bar, and snack bar in Imlay City said their business was hit hard by the shutdowns. Brian was the town barber for 25 years, before purchasing the bowling alley where he learned to bowl as a child. “We took over in December 2018. We’d saved up money to buy this place and make some upgrades. When COVID hit, we were forced to close down. It took all the money we saved for improvements just to survive,” said Brian. The Hills said they never thought they’d see the day when their own government could do something like that to them. Mary Bacon, assistant manager of Jump City, a family recreation center, cleans an arcade machine in Imlay City, Mich., on May 13, 2022. (Steven Kovac/The Epoch Times) “They shut us down. They took away our livelihood with no end date in sight. Then they wanted to loan us money. Think about that. They first put us in a situation where we had zero income to pay our previous debt. And then they wanted to loan us more money. “Lots of small business people lost their businesses but kept their debt. It ruined them,” said Brian. The Hills did apply for and receive a Small Business Administration loan at 3.25 percent interest for 30 years, and they participated in the Paycheck Protection Program which helped their business survive. Up the road from the Hill’s bowling alley is Jump City, a large indoor recreation center offering an array of bouncy houses and arcade games for children. Assistant manager Mary Bacon told The Epoch Times, “We lost a lot of business. We were forced to close for 15 months and had to make our payments with no income.” Bacon remembers the morning of March 16, 2020, when many area businesses were gearing up for big St. Patrick’s Day celebrations. “By afternoon everybody had to close. All that food went to waste. “The shutdown was supposed to be for a couple of weeks. Nobody foresaw it would drag on for a year and three months. “Oh, they said we could open again, but they so severely restricted the number of customers that we lost all of our big birthday parties. With so few kids allowed in, we couldn’t operate. We were losing too much money.” Bacon said people are coming back to the center but are still scared, even though the games and bouncy houses are continuously cleaned and sanitized. Navaeh Smalstig, 8, climbs out of a bouncy house at Jump City in Imlay City, Mich., on May 13, 2022. (Steven Kovac/The Epoch Times) Before the pandemic, Danny Brown owned a roller rink in Grand Blanc and Owasso, two south-central Michigan towns. “The lockdowns forced us to sell the Owasso rink for less than half of what we paid for it. We will be trying to make up our loss for years to come.” Brown, who is a plaintiff in the lawsuit, told The Epoch Times, “To keep going I had to decide to triple our debt. Since the shutdown, I am three-quarters of a million dollars deeper in debt. “Small businesses put everything on the line. All of our personal and family money. I am personally responsible for our debt. If I die my children will have to pay it.” Brown said Michigan’s government acted without a real understanding and regarded the state’s small businesses as “nonessential throwaways.” “One of the reasons we filed suit is to push the government to think differently,” he said. According to Brown, family entertainment centers like skating rinks, bowling alleys, arcades, pool halls, miniature golf, and go-cart tracks have been nearly wiped out. “A few years ago, there were 3,500 roller skating rinks in the United States. Now there are 700. There were five rinks in Genesee County, now there are two.” he said. Brown attributes the decrease to years of ongoing government mandates and interference that led up to the COVID-19 lockdowns. “They took, they stole our businesses!” he said. Donn Slimmen, another plaintiff in the case, owns Spartan West Bowling in the west Michigan resort town of Ludington. “The lockdown just about killed us. It was 14 to 15 months of agony. Our bank payments and utility bills didn’t stop. We went from being two to three months behind to more months behind. “We entered into survival mode. We ate a lot of pork and beans and hotdogs. We’re still trying to work ourselves out of the hole. By the end of this summer, we might be solvent again. “We were lucky to survive. We are still hanging on by threads,” said Slimmen. Along with 16 bowling lanes, Slimmen operates a full-service restaurant. “It’s never come back. Pre-pandemic, we’d serve 200 customers at an ordinary Friday fish fry. Now our best night is 100. “Our restaurant went from a thriving seated-guest business to a take-out operation grossing only two to three percent of the seated sales. “We were spending $400 to take in proceeds of $100. “The politicians and bureaucrats don’t understand. They never cleaned a toilet seat or climbed into a bowling machine to fix it,” said Slimmen. Slimmen blames Gov.Gretchen Whitmer for the plight of his community and the state. “You didn’t see Republican governors closing businesses. Their states did so much better. “Drive through downtown Ludington or Muskegon and look at all the boarded-up storefronts. So many places are out of business. Michigan is in terrible shape,” Slimmen said. The Tomassoni family has been in the bowling business for 84 years in the western Upper Peninsula town of Iron Mountain, Michigan. “We had to close bowling and our banquet facility a total of 161 days in two different periods of time in 2020. After the second shutdown, we could operate at 25 percent occupancy and only during restricted hours. No wedding receptions, no special events. It was a disaster. “It ripped my heart out. I am so bitter towards my government,” said owner Pete Tomassoni. Tomassoni’s business suffered further because of its proximity to Wisconsin which is only minutes away. “Wisconsin closed for just 30 days. For the most part, they were wide open. That really hurt us. “Our governor was picking and choosing which of our state’s businesses could operate. To force a business to close with no notice and without proven science is straight out wrong. “I think that she came down so hard on small business because we, by and large, lean to the right. “The state dangled the threat of yanking business licenses to keep people in line. “Some of our businesses tried to defy the state and stayed open Tyler Durden Wed, 05/18/2022 - 21:25.....»»

Category: smallbizSource: nytMay 18th, 2022

The Great Crash Of 2022

The Great Crash Of 2022 Authored by Kristoffer Mousten Hansen via The Mises Institute, We are now well past the corona crisis of 2020, and most of the restrictions around the world have been repealed or loosened. However, the long-term consequences of arbitrary and destructive corona policies are still with us—in fact, we are now in the middle of the inevitable economic crisis. Proclaiming the great crash and economic crisis of 2022 is at this point not especially prescient or insightful, as commentators have been predicting it for months. The cause is still somewhat obscure, as financial and economic journalism still focuses on whatever the Federal Reserve announces. But the importance of the Fed’s moves is greatly exaggerated. The Fed cannot set interest rates at will; it cannot generate a boom or a recession at will. It can only print money and create the illusion of greater prosperity, but ultimately, reality reasserts itself. The real driver of the present crisis is monetary inflation. Back in 2020, I (along with many others) pointed out the role of inflationary monetary policy in the corona crisis. While consumer price inflation is now the most apparent consequence, the real damage occurred in the capital structure of the economy. This is the cause of the present crisis. A Business Cycle, of Sorts While to most people the most obvious consequence of the corona inflation was the transfer payments they received from the government, the real action occurred in the business sector. Through various schemes, newly created money was channeled to the productive sector from the Fed via the Treasury. The result was a classic business cycle of unsustainable expansion ending in inevitable depression. The immediate effect of the inflow of easy money was twofold. First, it hid some of the economic distortions that lockdowns and other restrictions caused. Since they received government funds to make up for lost revenue and to cover higher costs, businessmen maintained production lines that really should have been shut down or altered in some way due to lockdowns. Second, easy money induced capitalists to make new, unsound investments, as they thought the extra money meant greater capital availability. These investments were unsound not because the government quickly turned off the money spigot again: they were unsound because the real resources were not there; people had not saved more to make them available. The supply of complementary factors of production had not increased, or not as much as suggested by the increase in money available for investment. As the businesses expanded and increased demand for these complementary factors, their prices therefore rose. To keep the boom going, businesses have started to borrow more money in the market, driving up interest rates. But there is no cheap credit to be had at this point, since there haven’t been additional infusions of cheap money since the initial inflation of 2020, so interest rates are quickly rising. This is the real explanation of the inversion of the yield curve: businesses are scrambling for funding as they find themselves in a liquidity shortage, since their input prices are rising above their revenues. It’s not the market front-running the Federal Reserve or any other fancy expectations-based cause: interest rates rise because businesses are short on capital. The following chart shows the increase in producer prices compared to consumer prices—an increase of almost 40 percent since the beginning of 2020 is clearly unsustainable. That consumer prices have not increased as much is a clear indication that we’re dealing with a business boom and that businesses can’t expect future revenues that will cover their elevated costs. Nor are we simply seeing oil price increases due to disruptions in supply. Oil and energy commodities complement virtually all production processes, so inflation-induced investment will lead to an early rise in oil and energy prices. Figure 1: Producer and Consumer Price Indices, January 2019–May 2022 Eventually, interest rates will be bid too high, and businessmen will have to abandon their investments. Many will throw inventories on the market at almost any price to fund their liabilities, cut back their workforces, and likely go bankrupt. This appears to be happening already, as CNBC is reporting many layoffs in tech companies. A likely consequence of this bust will be a banking crisis: as the share of nonperforming loans increases, bank revenues will dry up, and banks may find themselves unable to meet their own obligations. A crisis could develop, leading to what has been called “secondary deflation”: the contraction of the money supply as deposits in bankrupt banks simply evaporate. While that is a consummation devoutly to be wished, it is unlikely, to put it mildly, that the Federal Reserve will let things get to that point. This neatly brings us to a central question: What is the central bank doing right now? The Contractionary Fed Surprising as it sounds, the Fed really is pursuing a tightening policy. Not necessarily the one they officially announced—they are not, in fact, reducing their balance sheet, but an extremely tight policy nonetheless. It is worth pointing out that the Fed is really a one-trick pony: all it can do is create money, either directly or indirectly by giving banks the reserves necessary for bank credit expansion. All the stuff about setting interest rates is secondary, if not irrelevant: the market always and everywhere sets interest rates. Central banks can only influence interest rates by, you guessed it, printing money. Figure 2: M2 (billions of dollars), January 2019–April 2022 While the Fed was very inflationary back in 2020 as figures 2 and 3 show, it has since reversed course and become not only conservative, but outright contractionary. That is, not only has the growth rate slowed down, but there was a real, if small, fall in the quantity of money in early 2022. Figure 3: M2 (percent change), January 2019–April 2022 This contraction is not immediately evident if we only look at the Fed’s overall balance sheet, because since March 2021, the Fed has aggressively increased the amount of reverse repurchase agreements (reverse repos) they hold (or owe, technically). In a reverse repo transaction, the Fed temporarily sells a bond to a bank (just as they temporarily buy a bond from a bank in a repo transaction). This sucks reserves from the system, just as repos add reserves to the system. From virtually zero in March 2021, the amount of reverse repos has increased to $2,421.6 billion as of June 15, reducing the amount of available reserves by the same amount. The Fed balance sheet has not shrunk due to simple accounting: the bond underlying the repo transaction is still recorded on the Fed balance sheet. Banks, meanwhile, benefit from this transaction even though their reserves are temporarily reduced, earning a practically risk-free 0.8 percent (the Fed increased the award rate on reverse repos to 1.55 percent on June 15 and will likely increase it in the near future as the market rate keeps rising). Figure 4: Reverse Repurchase Agreements, March 2021–June 2022 Whatever this is, it’s not a policy that will feed inflation—in fact, inflation really will be transitory if the Fed continues its present policy. This is somewhat ironic, as the Fed has increased its holdings of inflation-indexed bonds, suggesting its economists themselves do not believe the transitory narrative. Of course, it’s possible that the Fed may simply be gearing up for the next round of inflationary policy. What is certain is that the Fed is now neutralizing its previous inflation. The great 2020 inflation went first to the US Treasury account at the Fed and then to the government’s favored clients. As the government drew down its account, money went to the banks and was deposited at the Fed as reserves. At this point, the inflation could have accelerated. The banks were already flush with reserves and could have extended credit on top of the tidal wave of additional reserves flowing into them. This would likely have happened as the market rate of interest started rising, if not earlier, but by sucking banks’ reserves out the Fed is limiting banks’ inflationary potential. Credit expansion is still possible, as the banks maintain a historically elevated reserves-deposits ratio of around 20 percent and have since 2020 been liberated from any kind of legal reserve requirement. But by reducing the reserves in the system, the Fed is effectively preventing this development. After peaking at over 23 percent, the reserve ratio has steadily declined since September 2021, hitting 19 percent in April, as shown in figure 5. Since reverse repo transactions have continued in May and June, the monetary contraction seen in the first quarter is likely ongoing, although we will have to wait for more recent money supply figures to confirm this. Figure 5: Banks’ Reserve Ratio, May 2020–April 2022 What Happens Now? Whatever happens next, one thing is clear: the crisis is already upon us. Stock market declines and financial market chaos are really epiphenomena, headline capturing though they may be. The damage has already been done. And while I’ve here focused on the covid era, we were already heading for crisis in 2019—the coronavirus just provided an excuse for one last gigantic inflationary binge. This means that it’s not simply the malinvestments of the last two years that needs to be cleared out—it’s the accumulated capital destruction of the last fifteen years that’s now becoming apparent. How much capital was wasted in tech start-ups that had no chance of ever turning a profit? As this piece in The Atlantic points out, enormous amounts of capital were poured into technology projects aimed at the hip urban millennial lifestyle—and now that they cannot cover operating costs with endless infusions of venture capital, prices are spiking and companies are laying off workers. The boom in construction is also at an end, as demand for housing is unlikely to remain elevated as mortgage rates rise. In all likelihood, the Fed is not going to stay the course. Pressure from finance and from government is likely to force it back into inflation, but this inflation can’t prevent the bust. As Ludwig von Mises pointed out, you can’t paper over the economic crisis with yet another infusion of paper money; the crisis will play out, whatever the central bank decides to do. What the Fed can do is continue funding the government and bailing out the financial system when they come under pressure. Both will be very inflationary. We should not celebrate the Fed for refraining from inflating the money supply at the moment—after all, its previous recklessness caused the problems to begin with—but let’s hope the Fed stays the course for now. The longer a new round of inflation is delayed, the more radical will the purge of malinvestment and clown-world finance be. High inflation is also possible, perhaps even more likely, given the political pressures. In that case, Weimar, here we come! Tyler Durden Sat, 06/25/2022 - 15:30.....»»

Category: personnelSource: nytJun 25th, 2022

Stocks Stage Feeble Attempt At Dead Cat Bounce After Losing $1.3 Trillion In One Day

Stocks Stage Feeble Attempt At Dead Cat Bounce After Losing $1.3 Trillion In One Day US index futures staged a feeble, fading attempt to bounce on Tuesday, following Monday's crash that wiped out $1.3 trillion in market cap and topped a furious 4-day selloff that was the worst since March 2020 and culminated in a bear market amid expectations - even from permabull Goldman - that the Fed's now accepted 75bps rate hike on Wednesday will hurl the economy into a recession. Futures on the S&P 500 rebounded more than 1% in early trading before fading the gain to just 0.24%, while Nasdaq 100 futures climbed 0.5%. US stocks plunged on Monday to the lowest level since January 2021 and closed more than 20% below its January record high, triggering Joe Biden first official bear market. Global equities sold off after an unexpectedly strong reading Friday on US inflation sparked concern that the Fed will go too far in raising interest rates to tame soaring prices. Bond yields dipped after soaring to a peak last seen in 2011. The yield curve remained flat, however, underscoring worries about an economic downturn sparked by tighter monetary policy, with the 2s10s curve just 1bps away from inverting again.  Cryptocurrencies, meanwhile, plunged with bitcoin puking more than 10% to below $21,000 before paring much of the slide as dip buyers emerged. UBS said most long-term owners are now in the red and warned of more losses if coin miners buckle under the pressure and start selling. The dollar was steady near a two-year high. In Japan, the central bank boosted bond-purchase operations to keep yields in check. The yen hovered near a 24-year low against the greenback. “We remain bearish on equity outlook,” said Marija Veitmane, a senior strategist at State Street Global Markets. “Inflation is still a huge problem and central banks need to be very aggressive to fight it. This is a very negative outlook for stocks, so we would be sellers of any rally.” Among notable premarket movers, shares of megacap tech companies like Apple, Microsoft, Alphabet, Tesla and Meta Platforms were slightly higher and poised to recoup some of the losses from Monday: Apple (AAPL US) +1.4%, Amazon (AMZN US) +1.7%, Alphabet (GOOGL US) +1.5%, Meta Platforms (META US) +1.9% and Nvidia (NVDA US) +1.8% in premarket trading. Oracle shares rose 13% in premarket trading after the software company reported higher-than-expected fourth-quarter results. Here are the most notable premarket movers: AMC Entertainment (AMC US) shares rise as much as 3.7% in US premarket trading, in line with a broader rebound in risk assets, and after the movie theater operator said that last weekend’s admission revenues beat that of the same weekend of 2019. Adobe (ADBE US) slides 4.2% in premarket trading as Citi cut its price target on the company to $425, the lowest on Wall Street, citing weaker consumer spending and potentially rising competition. US-listed Chinese stocks post broad-based gains in premarket trading, on track to rebound from a three-day drop, as sentiment toward tech stabilizes: Alibaba (BABA US) shares rise 3.8%, Baidu (BIDU US) +4%, Pinduoduo (PDD US) +4.2%, JD.com (JD US) +3.2% and Li Auto (LI US) +6.1% Braze (BRZE US) shares jump 8% in premarket trading after the company’s first-quarter revenue beat estimates, and full-year guidance also topped expectations. Arista (ANET US) shares decline 4.1% in US premarket trading as Morgan Stanley says in a note that the company, as well as Wiwynn and memory stocks such as SK Hynix and Micron (MU US) are among those most at risk in the semiconductor and networking equipment space when tech firms cut spending on data centers. Kaival Brands (KAVL US) shares surge as much as 57% in US premarket trading, after the vaping products distributor reached deal with Philip Morris to distribute electronic nicotine delivery systems products outside of the US. Outset Medical (OM US) shares fall 4.6% in premarket trading as their price target was cut to a Street-low at Cowen, after the medical technology firm halted shipments on its Tablo Hemodialysis System for home use. The company also suspended guidance for the year. US Silica (SLCA US) shares may be in focus after they were upgraded to outperform from inline at Evercore ISI following the conclusion of the industrial minerals firm’s review of its Industrial & Specialty Products (ISP) segment. With just two weeks left until the end of Q2, a dismal picture emerges: this quarter is set to deliver the biggest combined loss for global bonds and stocks on record, according to Bloomberg. The highest inflation in a generation, stoked by supply-chain and commodity-market disruptions amid China’s Covid struggles and the war in Ukraine, is roiling the outlook. According to Bloomberg,  the big question is whether the Fed and other major central banks will tip their economies into recession as they tighten financial conditions. We disagree: a recession is now assured; the real big question is how sparking a recession in the US will force Putin to pump more gas. European gains were shorter-lived: Euro Stoxx 50 reverses a 1.1% bounce to trade down 0.2%, extending its decline to a sixth day, on track for the longest losing streak since the start of the pandemic and the lowest closing level in 15 months. Retail, media and travel are the weakest Stoxx 600 sectors with broad-based sectoral gains fading as the session progresses. Bonds in most of Europe edged lower, but gilts bucked the trend after data showed spending power of UK households plunged as inflation eroded wage increases. Here are the biggest European movers: Fortum shares rose as much as 9.5%, while Uniper gained 6.1% as Finland is prepared to give Fortum time to sell its Russian power plants and follow other western energy companies out of Russia. Rates-sensitive banking stocks in Europe outperform Tuesday as Treasury yields drop following four consecutive days of increases that lifted the 10-year to the highest level since 2011. HSBC shares gain as much as 3.2%, Standard Chartered +3.2%, Nordea Bank +2.7%, ING +2.8% Wizz Air shares rise as much as 6.2% after Berenberg upgraded the airline to buy from hold, citing the long-term potential of its business, despite numerous recent challenges. Go-Ahead rises as much as 15% amid a potential bidding war. The company accepted a £648m takeover bid from an investor group backed by Australian rival Kinetic, while Kelsian is assessing whether to make offer. Saipem gains as much as 8.5% after five sessions of declines; the company and Trevi signed memorandum of understanding for foundation drilling solutions and services for offshore wind farm projects. Atos shares plunge as much as 27% after the company announced the departure of newly arrived CEO Rodolphe Belmer and a separation into two publicly listed companies. Akzo Nobel shares decline as much as 6.1% after the company reduced 2Q forecasts due to China lockdowns and slower start to EMEA DIY season. Air France-KLM shares fall as much as 13% after the company raised EU2.3b in a deeply discounted rights offering to help repay state aid received during the pandemic. Earlier in the session, Asian stock market indexes hit bleak milestones in quick succession on Tuesday as investor concerns worsened that aggressive interest rate increases in the US could erode corporate earnings. The MSCI Asia Pacific Index dropped as much as 2% to its lowest level in a month after the world equities gauge entered a bear market overnight before paring losses. New Zealand’s stock index extended its decline to 20% from a peak reached last year, entering a bear market, while Singapore’s measure wiped out its gains for 2022. Traders are betting that the Fed will deliver a 75-basis-point rate increase in this week’s meeting -- the biggest since 1994 -- after US inflation hit a four-decade high in May. This is further muddying the economic outlook at a time supply chains are snarled, weighing on the valuation and profit estimates for the MSCI Asia index, which has lost 17% this year. “Bets are off for all asset classes as investors brace themselves for tough action from the Fed to counter higher-than-expected inflation,” said Justin Tang, head of Asian research at United First Partners in Singapore. “The renewed lockdowns in China are also not going to be helpful.” Central banks from South Korea and Australia to India have been raising rates in response to accelerating inflation, with the latter two announcing 50-basis-point increases in their latest decisions. China’s persistent zero-Covid strategy is another factor disproportionately affecting companies in Asia. Singapore’s Straits Times Index is near a correction, down 9.7% from an April high, while Australia’s S&P/ASX 200 Index has dropped 12% over a similar period. Elsewhere, the MSCI Asean Index is inching closer to a 20% drop from a peak reached in January 2021, while South Korea’s Kospi remains mired in a bear market.  Still, investors have identified some potential areas of outperformance, as Asia’s stock measure has held up better than global peers as it continues to trade at a lower forward price-to-earnings ratio. And while China has walked back on loosening some Covid-19 restrictions in Beijing and Shanghai, traders see the country’s fiscal and monetary easing stance giving its beleaguered stocks a further boost.  “China might outperform global equities, as it did in May and early June,” if consumption resumes in the coming months after a relaxation in lockdowns, said Herald van der Linde, head of APAC equity strategy at HSBC Holdings Plc. Meanwhile, commodity-exporting Southeast Asian countries such as Indonesia, which are also benefiting from border reopenings, are expected to continue to shine. The Jakarta Composite Index rose on Tuesday, taking its advance to 7.1% this year. India was no exception to the global rout, and stock gauges fell to their lowest levels in 11-months as inflation and interest-rate concerns continued to fuel selloffs across global equity markets.  The S&P BSE Sensex fell 0.3% to 52,693.57 in Mumbai after rising as much as 0.5% during the session. The NSE Nifty 50 Index dropped by an similar measure to its lowest since July 28. Both benchmarks have dropped more than 14% from October peaks. Foreign institutional investors have taken out $24.2 billion from local stocks this year through June 10, and the selloff is headed for its ninth consecutive month. However, the key indexes have still outperformed Asia Pacific and emerging-market peers this year, helped by net $26.4 billion of stock purchases by domestic investors, which include mutual funds and insurance companies. Consumer-price inflation in India has stayed above the central bank’s target in May while wholesale prices accelerated for a third-straight month as input costs continue to rise for manufacturers. “High inflationary environment, fresh curbs in China and rising crude oil prices are likely to keep the markets under pressure for a while,” Motilal Oswal analyst Siddhartha Khemka wrote in a note.  Reliance Industries contributed the most to the Sensex’s decline, decreasing 1.3%. Among the 30 shares in the Sensex Index, 15 rose, 14 fell and one was unchanged. In FX, the Bloomberg Dollar Spot Index fell as the greenback weakened against most of its Group-of-10 peers.  The euro rose from a one-month low against the dollar but still failed to retrace the recent plunge in a meaningful way. German June ZEW expectations came in at -28.0 versus estimate -26.8. Norway’s krone slumped to a fresh 4-week low against the euro after Norges Bank’s regional network report showed businesses were expecting growth to slow. Sweden’s krona got a temporary boost after inflation figures for May came in higher than the median estimate in a Bloomberg survey. A Riksbank survey showed businesses, which are seeing sharp cost increases, are concerned that the coming wage bargaining rounds will lead to higher salary costs than in previous collective agreements. The Swiss franc led G-10 gains as it pared most of yesterday’s drop against the dollar. The pound edged up from a two-year low against the dollar. Sterling remained on the back foot after UK labour market data showed limited further tightening in the jobs market, suggesting that the BOE may raise interest rates by 25bps this week, rather than 50bps. Australian sovereign bonds plunged in catch-up to a two-day rout in Treasuries as the specter of a 75bps Fed hike on Wednesday loomed large. Aussie steadied following a bounce in US stock futures. USD/JPY consolidated. The Bank of Japan ramped up the defense of its policy framework after yields came under renewed upward pressure, unveiling a further set of unscheduled buying operations, including purchases of much longer maturities In rates, treasuries bull steepened with front-end yields richer by 8.5bp on the day into US morning session. S&P futures slightly higher, although remain near Monday session lows as investors continue to position ahead of Wednesday’s Fed decision. Swaps market prices in just under 200bp of rate hikes over the next three meetings with 70bp priced into Wednesday’s decision. Three-month Libor fix jumps over 17bp. US yields richer by 8.5bp to 5bp across the curve with front-end led gains steepening 2s10s, 5s30s spreads by 2.1bp and 1.5bp; 10-year yields around 3.30% and outperforming bunds by 7bp on the day. IG dollar issuance slate; projections for the session remain murky amid markets turmoil and after a number of deals were put on ice Monday. Gilts put in a ~6bps parallel richening move across the curve. Bunds buck the trend, bear-steepening ahead of scheduled comments from ECB’s Schnabel on euro-area bond market fragmentation due later. In commodities, oil held above $120 a barrel as investors evaluated a tight supply outlook and the impact of China’s eventual return from virus curbs. WTI adds 0.7% to trade near $121.71, Brent holds above $123. Spot gold trades a narrow range, fading after hitting $1,830/oz. Base metals are mixed; LME tin falls 5.1% while LME zinc gains 0.3%. To the day ahead now. The ECB’s Schnabel speaks, while in data we get UK jobless claims, ILO unemployment rate, ZEW surveys for the Eurozone and Germany, US NFIB small business optimism and PPI, and Canadian manufacturing sales. Hold on to your hats. Market Snapshot S&P 500 futures up 1.1% to 3,790.50 STOXX Europe 600 up 0.1% to 413.07 MXAP down 0.9% to 159.98 MXAPJ down 0.6% to 529.25 Nikkei down 1.3% to 26,629.86 Topix down 1.2% to 1,878.45 Hang Seng Index little changed at 21,067.99 Shanghai Composite up 1.0% to 3,288.91 Sensex down 0.2% to 52,743.72 Australia S&P/ASX 200 down 3.5% to 6,686.03 Kospi down 0.5% to 2,492.97 Brent Futures up 0.7% to $123.15/bbl Gold spot up 0.6% to $1,829.72 U.S. Dollar Index down 0.34% to 104.72 German 10Y yield little changed at 1.62% Euro up 0.6% to $1.0473 Brent Futures up 0.7% to $123.17/bbl Top Overnight News from Bloomberg The latest jumps in consumer prices and inflation expectations will probably spur Federal Reserve officials to consider the biggest interest-rate increase since 1994 when they meet this week, after Chair Jerome Powell previously signaled a smaller move was the likely outcome JPMorgan Chase & Co. and Goldman Sachs Group Inc. are withdrawing from handling trades of Russian debt after the Biden administration’s surprise announcement last week it’s banning US investors from scooping up such assets As the BOJ escalates attempts to keep a lid on bond yields, BlueBay is betting the central bank will be forced to abandon a policy that’s increasingly out of sync with global peers. The BOJ’s so- called yield curve control is “untenable,” according to Mark Dowding, BlueBay’s London-based chief investment officer Investor fears of stagflation are at the highest since the 2008 financial crisis, while global growth optimism has sunk to a record low, according to Bank of America Corp.’s monthly fund manager survey A more detailed look at global markets courtesy of Newsquawk Asia-Pacific stocks were pressured following the global stock and bond slump as the aftershock from recent hot US inflation reverberated across risk assets and spurred further expectations for a 75bps Fed rate hike this week. ASX 200 was the worst performer as the losses caught up to the index on return from the extended weekend and with the declines led by underperformance in tech and metals. Nikkei 225 extended its declines despite the BoJ’s efforts to cap yields and with the recent rapid currency moves adding to the uncertainty. Hang Seng and Shanghai Comp. were negative as lockdown concerns lingered with China’s Vice Premier Sun suggesting it is necessary to strengthen COVID-19 prevention and control of key places, while Shanghai's Minhang district plans to conduct mass testing on Saturday. Top Asian News Shanghai's Minhang district is planning mass COVID-19 testing on Saturday, according to Bloomberg. BoJ announced additional bond purchases for Wednesday in which it will increase purchases of JGBs across several maturities, while it will continue to conduct additional buying as needed, according to Reuters. European bourses began on the front-foot but quickly slipped into negative territory, Euro Stoxx 50 -0.8%; since the post-open dip, price action has steadily deteriorated further. However, while US futures are directionally in-fitting they remain in positive territory, ES +0.3%; albeit, well of highs and the ES resides around 3760 currently awaiting Fed clarity amid increasing speculation for 75bp. Oracle Corp (ORCL) Q4 2022 (USD): Adj. EPS 1.54 (exp. 1.37), Revenue 11.8bln (exp. 11.66bln). Cloud License And On-Premise License: 2.54bln (exp. 2.19bln). Cloud Services And Licenses Support: 7.6bln (exp. 7.77bln). Total Hardware Revenues: 856mln (exp. 857.71mln). Total Services Revenues: 833mln (exp. 847.89mln). Added USD 15.8bln after Cerner acquisition and it expects cloud business to grow by over 30% in FY23; Co. expects Q1 rev. including Cerner to grow 17%-19%. (PR Newswire) +12% in the pre-market. German cartel office has commenced proceedings against Apple (AAPL) re. tracking regulations for 3rd party apps, via Reuters. Top European News The EU is set to launch three separate lawsuits against the British government after it published its plans to override the protocol, according to the Telegraph. One option would reportedly see the EU end financial equivalence for the City of London. US urged the UK and EU to return to talks to resolve differences over the Northern Ireland Protocol and said it remains a priority to protect gains of the Good Friday Agreement. White House said proposed changes to N. Ireland Protocol won't be an impediment to potential US-UK trade deal or trade dialogue talks in Boston, according to Reuters. UK PM Johnson is not looking to lower household taxes until inflation is brought under control, as such action is unlikely before next year, according to the Telegraph. FX Dollar consolidates after Monday’s melt up to new multi year peaks as clock ticks down to FOMC and US PPI data; DXY hovers around 105.00 and just shy of new 105.290 YTD high. Franc outperforms following suspension of trade in Russia against Rouble and Greenback; Usd/Chf probes 0.9000 to downside after pulling up only pips short of parity yesterday. Euro rebounds amidst more hawkish commentary from ECB’s Knot and irrespective of German ZEW survey misses; EUR/USD back above 1.0400 and decent option expiries between 1.0420-15. Aussie undermined by waning risk appetite and ongoing covid outbreaks in China, but underpinned by RBA Governor Lowe underlining determination to get inflation back to target, AUD/USD towards lower end of 0.6970-18 range. Pound fades after brief upturn in bigger than expected rise in UK employment as other labour market metrics fall short of expectations and EU rift over NI protocol persists; Cable on the cusp of 1.2100 after fleeting breach of round above, EUR/GBP crosses 0.8600 to set fresh 2 month apex. Fixed Income Recovery in EZ debt derailed by supply and hawkish remarks from ECB's Knot as Bunds retreat to 145.00 within a 145.58-144.51 range Gilts and 10 year T-note hold up better between 112.97-29 and 116-03/115-01+ parameters in consolidation after Monday's rout and ahead of US PPI data ** BTP/Bund** spread blows out beyond 250 bp in advance of ECB's Schnabel on fragmentation in bond markets Commodities WTI and Brent are firmer by circa. USD 1.0/bbl at present and reside towards the mid-point of a USD ~2.00/bbl range with specific newsflow thin and broader developments on familiar themes. Themes which include China COVID and travel demand, for instance; but, factors which are overshadowed by broader anticipation going into Wednesday's FOMC. US and Saudi Arabia will announce on Tuesday that US President Biden will visit Saudi Arabia on July 15th and 16th, according to NBC's Pegram citing sources. China's state planner is to increase retail prices of gasoline and diesel by CNY 390/tonne and CNY 375/tonne respectively as of June 15th, via NDRC. Spot gold is essentially unchanged on the session around USD 1820/oz after falling below the 10-, 21- & 200-DMAs yesterday; Copper softer amid broader risk. US Event Calendar 08:30: May PPI Final Demand MoM, est. 0.8%, prior 0.5%; YoY, est. 10.9%, prior 11.0% 08:30: May PPI Ex Food and Energy MoM, est. 0.6%, prior 0.4%; YoY, est. 8.6%, prior 8.8% 08:30: May PPI Final Demand DB's Jim Reid concludes the overnight wrap Where do we start this morning after as action packed a 24 hours as I can remember. The global equity and bond sell-off would have been bad anyway but the late US session headlines from a WSJ article (written by a journalist close to the Fed) that suggested the FOMC may need to surprise with a +75bp hike tomorrow was the last straw. Before we delve into the article and more detail on markets let’s take a one para overview of all the main market highlights. To start with, 2yr USTs capped their largest two-day move (+54.3bps, +29.1bps yesterday), since the week following Lehman’s collapse, while 10yr Treasuries have risen +31.8bps over the last two days (+20.4bps yesterday), the largest such move since December 2010, bringing the 10yr to 3.36%, the highest since 2011. Meanwhile, the 2s10s yield curve swung around violently before closing in inverted territory (-0.3bps) again for the first time since the first days of April and for only the 15th day out of the 3907 business days since May 2007. The historic moves didn’t end with the Treasury market, as Italian 10yr BTP yields (+26.2bps) crossed 4.0% for the first time since 2014, the crossover index widened +32.3bps to 534bps, its widest level since 2012 outside of peak initial Covid widening, Bitcoin fell -15.13% to its lowest since late 2020 and is down another -5.23% this morning, the S&P 500 (-3.88%) finally entered bear market territory (-21.8% from its YTD peaks), while the dollar index surged to its highest level since 2002. So quite a ride although as we'll see below risk is doing a bit better this morning with yields relatively flat. Going through things in more detail, the Treasury market has been at the epicentre of this sell-off after the shocking CPI from last Friday. Yields were drifting higher all day as some on the Street officially updated their call for +75bp on Wednesday and openly considered whether the Fed will need a +100bp hike. The WSJ report then later threw gasoline on the already raging fire, noting the Fed was indeed “considering surprising markets with a larger-than expected” +75bp hike as early as this week given Friday’s alarming CPI and inflation expectations data. All-in, Fed funds futures moved to price in a 94% chance of a +75bp hike on Wednesday. So a +75bp hike on Wednesday won’t come as a surprise anymore. At the end of the day, 2yr yields gained +29.1bps yesterday and +25.2bps Friday, bringing the rate to 3.35%. The 2s10s yield curve inverted, closing the day at -0.3bps, as 10yr yields climbed +11.4bps Friday and +20.4bps yesterday, bringing rates to 3.36%, their highest level since April 2011. As we go to press this morning, 2yr yields are up another 2bps with 10yr yields fractionally higher, thus inverting the curve a little more. US PPI today will be closely watched for the next inflation impulse. The policy rate at end 2022 implied by fed funds futures closed at 3.72%, its highest to date by some margin, and implies just shy of +300bps of tightening over 5 meetings. Markets also moved to price in a terminal rate above 4% in the middle of next year, closer to DB's call which has been the most aggressive on the street. It’s perhaps an understatement to say the market will be hyper focused on how the Fed communicates the near-term path of policy at this week’s FOMC, especially including what size rate hikes they’re considering as adequate for the rest of the year. The selloff was echoed in Europe, where 10yr bunds (+11.5bps), OATs (+15.4bps), and BTPs (+26.2bps) all soldoff, even before the blockbuster WSJ report. ECB speakers returned to the docket after last week’s meeting, where Governing Council member Kazmir noted there was a clear need for a +50bp hike in September, in line with our European economics team’s call. Kazmir went on to warn that the economy faces weak growth for several quarters, piling onto what the market had already deduced – the sharp global repricing in monetary policy would weigh on growth. One of the major fears following the ECB meeting was that absent a new tool designed to stem fragmentation, peripheral spreads would widen out, and yesterday brought a fresh round of peripheral widening, with 10yr Italian spreads widening +14.6bps to bunds, with Spanish bonds widening +9.9bps. Indeed, 10yr BTPs crossed 4.0% for the first time since 2014. Equity markets got the message, selling off across the Atlantic, with the S&P 500 falling -3.87% into bear market territory, down -21.82% from the all-time highs reached in early January, with the STOXX 600 down -2.41%. At one point, every single share in the S&P 500 was lower, though the index staged a heroic rally leaving 5 shares higher on the day. That’s the lowest amount since June 11, 2020 when only one share advanced. Unsurprisingly, every S&P 500 sector was lower, with all but two sectors declining by more than 3%. The NASDAQ fell -4.68% on the hit from higher discount rates, now -32.68% from its November high. Mega-cap shares bore the brunt of higher discount rates, with the FANG+ falling -6.50%, its worst day since September 2020, and -40.98% lower from its own all-time highs reached in November. Markets are trying to bounce this morning with S&P 500 futures +1% and Nasdaq futures +1.15% As we discussed yesterday, this sharp rates repricing is partly due to another attempt at forward guidance from the Fed. Having signalled 50bps at the next two meetings a few weeks ago they reduced volatility. However when it became clear that this guidance may be insufficient it has opened up a market attack. The last man standing continues to be the BoJ and to be honest the more the market attacks the Fed and the ECB the more likely it is that the BoJ own forward guidance (in the form of YCC) will end very messily with huge implications for global rates. If the BoJ throws in the towel in H2 then global bond markets lose a huge anchor. Certainly one to watch for every morning when you wake up! Indeed the BOJ ramped up its scheduled purchases of 5-to-10-year debt today from an expected ¥500 billion to ¥800 billion as the yield on the 10yr JGBs jumped to 0.255%, edging past the upper end of the central bank’s 0.25% target range. Talking of Asia, equity markets are lower this morning but markets are trying to fight back. The Nikkei (-2.00%) is the largest underperformer with the Hang Seng (-1.15%) and Kospi (-1.11%) also lagging. In mainland China, the Shanghai Composite (-1.60%) and CSI (-1.86%) are also lower. Elsewhere, the S&P/ASX 200 is -4.54% lower after returning to trade following a holiday yesterday. In such a broad-based selloff, many would have been interested in how crypto assets would hold up, supposedly uncorrelated with traditional assets. However, digital assets did not escape the wrath of plummeting risk sentiment, with bitcoin falling -15.13% and down another -5.28% this morning as we type. At one point this morning, Bitcoin fell about -10% to trade at $20,823 before recovering a little. There were reports that some exchanges were having trouble liquidating holdings of various crypto assets. This is a classic deleveraging and unwinding of a bubble trade. To the day ahead now. The ECB’s Schnabel speaks, while in data we get UK jobless claims, ILO unemployment rate, ZEW surveys for the Eurozone and Germany, US NFIB small business optimism and PPI, and Canadian manufacturing sales. Hold on to your hats. Tyler Durden Tue, 06/14/2022 - 07:49.....»»

Category: blogSource: zerohedgeJun 14th, 2022

Futures Jump, Tech Stocks Rally As Beijing Eases Covid Restrictions

Futures Jump, Tech Stocks Rally As Beijing Eases Covid Restrictions Global markets and US equity futures pushed sharply higher to start the new week (at least until some Fed speakers opens their mouth and threatens a 100bps emergency rate hike) as Beijing’s latest move to ease Covid restrictions injected a note of optimism into markets rattled by inflation and rate-hike concerns. Nasdaq 100 futures climbed 1.4% at 7:15 a.m. in New York after the underlying index erased more than $400 billion in market value on Friday amid renewed concerns about tightening monetary policy, as Beijing rolled back Covid-19 restrictions, boosting global risk appetite after reporting zero local covid cases on Monday while also finding no community cases for three straight days... ... while a Wall Street Journal report that China is preparing to conclude its probe on Didi Global boosted sentiment further, with Didi shares surging 50% and sending the Hang Seng Tech index soaring. S&P 500 futures also climbed, rising about 1% and trading near session highs. Treasuries and the dollar slipped. Among other notable movers in premarket trading, Apple rose 1.6%, Tesla jumped 3.9% after tumbling over 9% by the close on Friday, while cryptocurrency-tied stocks jumped with Bitcoin. Here are some other notable premarket movers: Amazon.com (AMZN US) shares rose as much as 2% following a 20-for-1 stock split. Didi Global Inc. (DIDI US) soared after a report that Chinese regulators are about to conclude a probe into the company and restore its apps to mobile stores as soon as this week. Cryptocurrency-tied stocks climb with Bitcoin, which rose beyond the $30,000 level after languishing at the weekend. Riot Blockchain (RIOT US) +7.1%; Coinbase (COIN US) +6.6%. Crowdstrike (CRWD US) shares rise as much as 3.9% following an upgrade to overweight from equal- weight at Morgan Stanley, with the broker saying that the cyber security firm offers “durable” growth and free cash flow at a discount. ON Semi (ON US) shares rise as much as 8.2%. The sensor maker will be added to the S&P 500 Index this month, S&P Dow Jones Indices said late US stocks slumped in last week’s final session after strong hiring data cleared the way for the Federal Reserve to remain aggressive in its fight against inflation by raising rates, and after repeat warnings by Fed presidents that the central bank was willing to keep hiking. This week, focus will be on the latest US CPI print to assess how much further the Fed will tighten policy. Inflation is likely to “stall by the end of this year unless the energy or oil prices double again, but a lot of it is already priced in,” Shanti Kelemen, chief investment officer at M&G Wealth, said on Bloomberg Television. While the economy is likely to slow, “I don’t think the US will flip into a recession this year. I think there is still too much of a tailwind from spending and economic activity.” Goldman economists said the Fed may be able to pull off its aggressive rate-hike plan without tipping the country into recession. The easing of Chinese lockdowns will help abate supply-chain pressures, said Diana Mousina, a senior economist at AMP Capital. “Positive news around Chinese economic activity and cheaper equity valuations could offer value from a long-term investment perspective, but volatility will remain high in the short-term,” Mousina said in a note. On the other hand, Morgan Stanley's permagloomish Michael Wilson warned that weakening corporate profit forecasts will provide the latest headwind to US stocks, which are likely to fall further before bottoming during the second-quarter earnings season. In Europe, the Stoxx 600 was up 0.9% with technology and mining stocks leading gains. Basic resources led an advance in the Stoxx Europe 600 index as copper rose to its highest since April, with sentiment across industrial metals bolstered by China’s gradual reopening. The technology sector also outperformed, following a gain for Asian peers and amid a recovery in Nasdaq 100 futures in the US. The Stoxx 600 Tech index was up as much as 2.1%; Stoxx 600 benchmark up 0.9%. Tencent-shareholder Prosus was among the biggest contributors to the gain amid a rise for Hong Kong’s Hang Seng tech index, driven by Didi Global and Meituan; Tencent shares rose 2.4% while    Semiconductor-equipment giant ASML was the biggest contributor to the gain; other chip stocks ASMI, Infineon and STMicro all higher too. Just Eat Takeaway also higher following a report that Grubhub co-founder Matt Maloney had worked with private equity investor General Atlantic to buy back the food delivery company he sold to the Dutch firm last year. Here are some of the other notable European movers today: Just Eat Takeaway.com shares rise as much as 12% in the wake of a report saying Grubhub co-founder Matt Maloney had worked with private equity investor General Atlantic to buy back the food delivery company he sold to the Dutch firm last year for $7.3b. Semiconductor-equipment giant ASML climbs as much as 3.1% as European tech stocks outperform the broader benchmark, following a gain for Asian peers and amid a recovery in Nasdaq 100 futures. LVMH gains as much as 1.7% with luxury stocks active as Beijing continues to roll back Covid-19 restrictions in a bid to return to normality. Kering and Hermes both climb as much as 1.9%. Melrose rises as much as 4.7% after the firm said it has entered into an agreement to sell Ergotron to funds managed by Sterling for a total of ~$650m, payable in cash on completion. Serica Energy jumps as much as 12%, the most since March 30, after the oil and gas company published a corporate update and said it expects to benefit from investment incentives packaged with the UK’s windfall tax. Airbus rises as much as 2.8% after Jefferies reinstated the stock as top pick in European aerospace & defense, replacing BAE Systems, as short-term production challenges should not overshadow the potential to double Ebit by 2025. EDF drops as much as 3.3% after HSBC analyst Adam Dickens downgraded to reduce from hold, citing “corroded confidence” Accell falls as much as 4.8%, the most intraday since December, after KKR’s tender offer for the bicycle maker failed to meet the 80% acceptance threshold. Meanwhile, the European Central Bank is set to announce an end to bond purchases this week and formally begin the countdown to an increase in borrowing costs in July, joining global peers tightening monetary policy in the face of hot inflation. The ECB is planniing to strengthen its support of vulnerable euro-area debt markets if they are hit by a selloff, Financial Times reported. Italian and Spanish bonds gained. Earlier in the session, Asian stocks climbed, supported by a rally in Chinese tech shares and positive sentiment following Beijing’s economic reopening.  The MSCI Asia Pacific index rose 0.6% as Hong Kong-listed internet names jumped after a report that authorities are wrapping up their probe into Didi Global. Hong Kong and Chinese shares were among the top gainers in the region, also helped by Beijing moving closer to returning to normal as it rolled back Covid-19 restrictions. “As policymakers continue to deliver on support pledges, the worst is likely behind us,” said Marvin Chen, strategist at Bloomberg Intelligence. “We are seeing the beginning of a recovery into the second half of the year as the growth outlook bottoms out.” Japanese shares were higher, with transportation and restaurant stocks gaining after the Nikkei reported the government is considering restarting the “Go To” domestic travel subsidy campaign as soon as this month. Japanese equities erased early losses and rose with Chinese stocks as a loosening of Covid-19 restrictions in Beijing increased bets that economic activity will pick up. The Topix rose 0.3% to 1,939.11 as of market close Tokyo time, while the Nikkei advanced 0.6% to 27,915.89. Daiichi Sankyo Co. contributed the most to the Topix gain, increasing 3.7%. Foreign investors are returning to emerging Asian equities after several weeks of outflows, data compiled by Bloomberg show. Weekly inflows for Asian stock markets excluding Japan and China climbed to almost $2.7 billion last week, the most since February. Asian stocks have been outperforming their US counterparts over the past few weeks, with the MSCI regional benchmark up 5.7% since May 13, more than double the gains in the S&P 500. Stock markets in South Korea, New Zealand and Malaysia were closed on Monday Stocks in India dropped amid concerns over inflation as the Reserve Bank of India’s interest rate setting panel starts a three-day policy meeting.  The S&P BSE Sensex fell 0.2% to 55,675.32 in Mumbai, while the NSE Nifty 50 Index declined 0.1%. Ten of the 19 sector sub-gauges managed by BSE Ltd. slid, led by an index of realty companies. Makers of consumer discretionary goods were also among the worst performers.  “The market has been exercising caution ahead of the credit policy announcement this week, and hence investors trimmed their position in rate-sensitive sectors such as realty,” according to Kotak Securities analyst Shrikant Chouhan.  The yield on the benchmark 10-year government bond rose to its highest level since 2019 on Monday amid a surge in crude prices and ahead of the RBI’s rate decision on Wednesday. Reliance Industries contributed the most to the Sensex’s decline, decreasing 0.5%. Out of 30 shares in the Sensex index, 9 rose and 21 fell. In Australia, the S&P/ASX 200 index fell 0.5% to close at 7,206.30 after a strong US jobs report reinforced bets for aggressive Fed tightening. The RBA is also expected to lift rates on Tuesday, with the key debate centering on the size of the move. Read: Australia Set for Back-to-Back Rate Hikes Amid Split on Size Magellan was the worst performer after its funds under management for May declined 5.2% m/m. Tabcorp climbed after settling legal proceedings with Racing Queensland. In New Zealand, the market was closed for a holiday In FX, the dollar fell against its Group-of-10 peers as hopes for a recovery in China’s economy damped demand for the haven currency. The Bloomberg Dollar Spot Index fell 0.3% after posting a weekly gain on Friday. China’s equity index jumped after Beijing rolled back Covid-19 restrictions and received a further boost after a report that a ban on Didi adding new users may be lifted. “Further lifting of restrictions in Beijing helped Chinese equities, which spilled over into Europe with risk more ‘on’ than ‘off’,” Societe Generale strategist Kit Juckes wrote in a note to clients. “The dollar is once again on the back foot.” USD/JPY dropped 0.1% to 130.73. It touched 130.99 earlier, inching closer to the 131.35 reached last month, which was the highest since April 2002.  “Dollar-yen is being sold for profit-taking because we don’t have enough catalysts to break 131.35,” said Juntaro Morimoto, a currency analyst at Sony Financial Group Inc. in Tokyo. But, should US inflation data due this week be higher than estimated, it will see dollar-yen break 131.35. In rates, Treasuries, though off session lows, remained under pressure as S&P 500 futures recover a portion of Friday’s loss. 10-year TSY yields rose 1bp to 2.95%, extending the streak of advances to five days, the longest in eight weeks; UK 10-year yield underperformed, jumping 6bps to 2.21% after domestic markets were closed Thursday and Friday for a holiday. US auctions resume this week beginning Tuesday, while May CPI report Friday is the main economic event. IG dollar issuance slate includes Tokyo Metropolitan Govt 3Y SOFR; this week’s issuance slate expected to be at least $25b. Three- month dollar Libor +3.90bp to 1.66500%. Bund, Treasury and gilt curves all bear-flatten, gilts underperform by about 2bps at the 10-year mark. Peripheral spreads tighten to Germany. In commodities, WTI crude futures hover below $120 after Saudis raised oil prices for Asia more than expected. Spot gold is little changed at $1,851/oz. Spot silver gains 1.5% near $22. Most base metals trade in the green; LME nickel rises 5.4%, outperforming peers. LME tin lags, dropping 0.7%. There is no major economic data on the US calendar. Market Snapshot S&P 500 futures up 1.1% to 4,152.50 STOXX Europe 600 up 0.9% to 443.90 MXAP up 0.6% to 169.12 MXAPJ up 0.8% to 558.02 Nikkei up 0.6% to 27,915.89 Topix up 0.3% to 1,939.11 Hang Seng Index up 2.7% to 21,653.90 Shanghai Composite up 1.3% to 3,236.37 Sensex little changed at 55,772.44 Australia S&P/ASX 200 down 0.4% to 7,206.28 Kospi up 0.4% to 2,670.65 German 10Y yield little changed at 1.29% Euro up 0.2% to $1.0742 Brent Futures up 0.5% to $120.28/bbl Gold spot up 0.0% to $1,851.93 U.S. Dollar Index down 0.22% to 101.92 Top Overnight News from Bloomberg Boris Johnson will face a leadership vote in his ruling Conservative Party on Monday following a series of scandals, including becoming the first sitting prime minister found to have broken the law. Chinese regulators are concluding probes into Didi and two other US-listed tech firms, preparing as early as this week to lift a ban on their adding new users, the Wall Street Journal reported, citing people familiar with the matter. The European Central Bank is set to strengthen commitment to support vulnerable euro-area debt markets if they are hit by a selloff, the Financial Times reported, citing unidentified people involved in the discussions. A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks traded mixed following last Friday's post-NFP losses on Wall St and ahead of this week's global risk events - including central bank meetings and US inflation data, while participants also digested the latest Chinese Caixin PMI figures and the North Korean missile launches. ASX 200 was pressured by weakness in tech and mining, with sentiment not helped by frictions with China. Nikkei 225 pared early losses but with upside limited by geopolitical concerns after North Korean provocations. Hang Seng and Shanghai Comp. were encouraged by the easing of COVID restrictions in Beijing, while the Chinese Caixin Services and Composite PMI data improved from the prior month but remained in contraction. Sony Group (6758 JT) said its planned EV JV with Honda Motor (7267 JT) may hold a public share offering, according to Nikkei. Top Asian News China’s Beijing will continue to roll back its COVID-19 restrictions on Monday including allowing indoor dining and public transport to resume in most districts aside from Fengtai and some parts of Changping, according to Reuters and Bloomberg. Furthermore, a China health official called for more targeted COVID control efforts and warned against arbitrary restrictions for COVID, while an official also said that Jilin and Liaoning should stop the spread of COVID at the border. Australia accused China of intercepting a surveillance plane and said that a Chinese military jet conducted a dangerous manoeuvre during routine surveillance by an Australian plane over international waters on May 26th, according to FT. BoJ Governor Kuroda said Japan is absolutely not in a situation that warrants tightening monetary policy and the BoJ's biggest priority is to support Japan's economy by continuing with powerful monetary easing, while he added Japan does not face a trade-off between economic and price stability, so can continue to stimulate demand with monetary policy, according to Reuters. European bourses are firmer on the session, Euro Stoxx 50 +1.3%, with newsflow thin and participants reacting to China's incremental COVID/data developments during reduced trade for Pentecost. Stateside, futures are bid to a similar extent in a paring of the post-NFP pressure on Friday, ES +1.0%, with no Tier 1 events for the region scheduled today and attention very much on inflation data due later. Chinese regulators intend to conclude the DiDi (DIDI) cybersecurity probe, and remove the ban on new users, via WSJ citing sources; could occur as soon as this week. DIDI +50% in pre-market trade Top European News Most of the ECB governing council members are expect to back proposals to create a bond-purchase programme to buy stressed government debt, such as Italy, according to sources cited by the FT. Confidence vote in UK PM Johnson to occur between 18:00-20:00BST today, results to be immediately counted, announcement time TBC. London’s Heathrow Airport ordered carriers to limit ticket sales for flights until July 3rd to maintain safety amid understaffing and overcrowding, according to The Times. French Finance Minister Le Maire expects positive economic growth this year although will revise economic forecasts in July, according to Reuters. EU Commissioner Gentiloni said he aims to propose reform for the EU stability pact after summer which could envisage a specific debt/GDP target for each country, while he added that Italy should show commitment to keeping public debt under control and needs to avoid increasing current spending in a permanent way, according to Reuters. FX Pound perky on return from long Platinum Jubilee holiday weekend as UK yields gap up in catch up trade and Sterling awaits fate of PM; Cable above 1.2550 to probe 10 DMA, EUR/GBP tests 0.8550 from the high 0.8500 area. Dollar eases off post-NFP peaks as broad risk sentiment improves and DXY loses 102.000+ status. Kiwi lofty as NZ celebrates Queen’s birthday and Aussie lags ahead of RBA awaiting a hike, but unsure what size; NZD/AUD above 0.6525, AUD/USD sub-0.7125 and AUD/NZD cross closer to 1.1050 than 1.1100. Euro firmer amidst further declines in EGBs, bar Italian BTPs, eyeing ECB policy meeting and potential news on a tool to curb bond spreads, EUR/USD nearer 1.0750 than 1.0700. Loonie underpinned by rise in WTI after crude price increases from Saudi Arabia, but Lira extends losses irrespective of CBRT lifting collateral requirements for inflation linked securities and Government bonds; USD/CAD under 1.2600, USD/TRY not far from 16.6000. Fixed income Gilts hit hard in catch-up trade, but contain losses to 10 ticks under 115.00 awaiting the outcome of no confidence vote in PM Johnson Bunds underperform BTPs ahead of ECB on Thursday amidst reports that a new bond-buying scheme to cap borrowing costs may be forthcoming; 10 year German bond down to 149.59 at worst, Italian peer up to 123.15 at best US Treasuries relatively flat in post-NFP aftermath and ahead of low-key Monday agenda comprising just employment trends Commodities Crude benchmarks are bid by just shy of USD 1.00/bbl; though, overall action is contained amid limited developments and two-way factors influencing throughout the morning. Saudi Aramco increased its prices to Asia for July with the light crude premium raised to USD 6.50/bbl from USD 4.40/bbl vs Oman/Dubai, while it raised the premium to North West Europe to USD 4.30/bbl from USD 2.10/bbl vs ICE Brent but maintained premiums to the US unchanged from the prior month. Oman announced new oil discoveries that will increase output by 50k-100k bpd in the next 2-3 years, while it noted that its crude reserves stand at 5.2bln bbls and gas reserves are at around 24tln cubic feet, according to the state news agency citing the energy and minerals minister. Libya's El Sharara oil field resumed production at around 180k bpd after having been shut by protests for more than six weeks, according to Argus. French Finance Minister Le Maire said that France is in discussions with the UAE to replace Russian oil supplies, according to Reuters. US will permit Italy’s Eni and Spain’s Repsol to begin shipping oil from Venezuela to Europe as early as next month to replace Russian crude, according to Reuters citing sources familiar with the matter. Austria released strategic fuel reserves to cover for loss of production at a key refinery due to a mechanical incident, according to Reuters. Indonesia will adjust its palm oil export levy with the regulations that will outline the changes expected soon, according to a senior official in the economy ministry cited by Reuters. Turkish presidential spokesman Kalin said deliveries of Ukrainian grain via the Black Sea and through the area of the strait could begin in the near future, according to TASS citing an interview with Anadolu news agency. US Event Calendar Nothing major scheduled DB's Jim Reid concludes the overnight wrap Later this morning, I will be publishing the 24th Annual Default Study entitled "The end of the ultra-low default world?". Please keep an eye out for it but I won't let you miss it in the EMR and CoTD over the next few days! For those in the UK, I hope you had a good four-day weekend. We went to two big parties and my digestive system and liver need a rest. Well, until my upcoming birthday this weekend!. One of the parties had a converted VW campervan with 5 or 6 self-service drinks taps on the outside of which one was filled with ice cold Prosecco. Thankfully the Queen doesn't have a 70-year Jubilee very often! The fun and games in markets this week are heavily back ended as an ECB meeting on Thursday is followed by US CPI on Friday. The rest of the week is scattered with production and trade balance data, while Chinese aggregate financing data is expected at some point. The Fed are now on their pre-FOMC blackout so the attention will be firmly on the ECB this week. So let's preview the two main events. For the ECB, our European economists believe the ECB will confirm that APP net purchases will cease at the end of the month, paving the way for policy rate lift-off at the July meeting. Our economists believe the ECB will have to hike rates by 50 basis points at either the July or September meeting, with the risks skewed toward the latter, to accelerate the policy hiking cycle in light of growing inflationary pressures. Our economists also believe that hiking cycle will ultimately reach a 2 percent terminal rate next summer, some 50 basis points into restrictive territory. As prelude, next week watch for the staff's forecast to upgrade inflation to 2 percent in 2024, satisfying the criteria for lift-off. With all three lift-off conditions met, expect the statement language to upgrade rate guidance for the path of the hiking cycle. Meanwhile, the June meeting should also bring about the expiration of the TLTRO discount. There are two interesting things for the ECB to consider at the extreme end of the spectrum at the moment. Firstly German wages seem to be going higher. In a note on Friday, DB's Stefan Schneider (link here) updated earlier work on domestic wage pressures by highlighting that on Thursday night, the 700k professional cleaners in the country achieved a 10.9% pay rise. In addition, with the nationwide minimum wage legalisation voted through on Friday, the lowest paid in this group will get a +12.6% rise from October. At the other end of the spectrum 10yr Italian BTPs hit 3.40% on Friday, up from 1.12% at the start of the year and as low as 2.85% intra-day the preceding Friday. We're confident that the ECB will create tools to deal with Italy's funding issues, but it is more likely to be reactive than proactive to ensure legal barriers to intervene are not crossed. However, the nightmare scenario we've all been hypothetically thinking about for years, if not decades, is here. Runaway German inflation at the same time as soaring Italian yields. The good news is that this should bring a lot more targeted intervention and a better-balanced policy response than in the last decade where negative rates and blanket QE was a one size fits all policy. High inflation will force the ECB to hike rates while managing the fall out on a more bespoke basis. It won't be easy, but it will likely be better balanced. Following on from the ECB, the next day brings the US CPI data. Month-over-month CPI is expected to accelerate to 0.7% from last month’s 0.3% reading. The core measure stripping out food and energy is expected to print at 0.5%. Those figures would translate to 8.3% and 5.9% for the year-over-year measures, respectively (from 8.3% and 6.2% last month). The Fed policy path for the next two meetings appears to be locked in to 50 basis point hikes, but Fed officials have highlighted the importance of inflation readings to determine the path of policy thereafter. There is a growing consensus that month-over-month inflation readings will have to decelerate in order to slow hikes to 25 basis points come September. Some Fed officials are still considering ramping the pace up to 75 basis points if inflation doesn’t improve. None appear to be considering zero policy action in September. Elsewhere, data will highlight production figures and the impact of the nascent tightening of financial conditions, with PMI, PPI, and industrial production figures due from a number of jurisdictions. Asian equity markets have overcame initial weakness this morning and are moving higher as I type. Across the region, the Hang Seng (+1.14%) is leading gains due to a rally in Chinese listed tech stocks. Additionally, the Shanghai Composite (+1.01%) and CSI (+1.06%) are also trading up after markets resumed trading following a holiday on Friday. The easing of Covid-19 restrictions in Beijing is helping to offset a miss in China’s Caixin Services PMI for May. It came in at 41.4 (vs. 46.0 expected), up from 36.2 last month. Elsewhere, the Nikkei (+0.30%) is also up while markets in South Korea are closed for a holiday. Outside of Asia, US stock futures have been steadily climbing in the last couple of hours before finishing this with contracts on the S&P 500 (+0.55%) and NASDAQ 100 (+0.65%) both in the green. US Treasuries are ever so slightly higher in yield. Recapping last week now and a renewed sense that global central banks would have to tighten policy more than was priced in given historic inflation drove yields higher and equity markets lower over the past week. This reversed a few weeks where market hike pricing had reversed. This move was driven by a series of inflationary data but also came right from the source, as Fed and ECB speakers sounded a hawkish tone ahead of their respective meetings in June. Elsewhere, OPEC+ met and agreed to expand daily production, which was followed by reports that President Biden would visit the Crown Prince in Saudi Arabia. Peeling back the covers. A series of ECB speakers openly considered the merits of +50bp hikes in light of growing inflation prints, as core Euro Area CPI rose to a record high, while German inflation hit figures not seen since the 1950s. In turn, 2yr bund yields climbed +30.9bps (+3.0bps Friday), and the week ended with +122bps of tightening priced in through 2022, the highest to date and implies some hikes of at least +50bps. A reminder that our Europe economists updated their ECB call to at least one +50bp hike in either July or September; full preview of that call and next week’s ECB meeting here. Yields farther out the curve increased as well, including 10yr bunds (+31.0bps, +3.6bps Friday), OATs (+32.3bps, +4.2bps Friday), and gilts (+23.8bps, +5.4bps Friday) on their holiday-shortened week. Italian BTP 10yr spreads ended the week at their widest spread since the onset of Covid at 212bps. The tighter expected policy weighed on risk sentiment, sending the STOXX 600 -0.87% lower over the week (-0.26% Friday). It was a similar story in the US, where a march of Fed officials, led by Vice Chair Brainard herself, again signed on for +50bp hikes at the next two meetings, and crucially, ruling out anything less than a +25bp hike in September. It appeared there was growing consensus on the Committee to size the September hike between +25bp and +50bps based on how month-over-month inflation evolves between now and then, with clear evidence of deceleration needed to slow the pace of hikes. The May CPI data will come this Friday but last week had a series of labour market prints that showed the employment picture remained white hot, capped on Friday with nonfarm payrolls increasing +390k and above expectations of +318k. Meanwhile, average hourly earnings maintained its +0.3% month-over-month pace. Treasury yields thus sold off over the week, with 2yr yields gaining +17.9bps (+2.5bps Friday) and 10yr yields up +20.1bps (+3.1bps Friday). The implied fed funds rate by the end of 2022 ended the week at 2.82%, its highest in two weeks, while the probability of a +50bp September hike ended the week at 66.3%, its highest in a month. The S&P 500 tumbled -1.20% (-1.63% Friday), meaning its run of weekly gains will end at a streak of one. Tech and mega-cap stocks fared better, with the NASDAQ losing -0.98% (-2.47% Friday) and the FANG+ fell -0.30% (-3.76% Friday). Elsewhere OPEC+ agreed to increase their production to +648k bls/day, after a steady flow of reports leaked that the cartel was considering such a move. Nevertheless, futures prices increased around +1.5% (+3.10% Friday) over the week, as it was not clear whether every member had the spare capacity to increase production to the new putative target, while easing Covid restrictions in China helped increase perceived demand. The OPEC+ announcement was closely followed by reports that President Biden would visit the Crown Prince in Saudi Arabia. Tyler Durden Mon, 06/06/2022 - 07:51.....»»

Category: blogSource: zerohedgeJun 6th, 2022

Recession, Prices, & The Final Crack-Up Boom

Recession, Prices, & The Final Crack-Up Boom Authored by Alasdair Macleod via GoldMoney.com, Initiated by monetarists, the debate between an outlook for inflation versus recession intensifies. We appear to be moving on from the stagflation story into outright fears of the consequences of monetary tightening and of interest rate overkill. In common with statisticians in other jurisdictions, Britain’s Office for Budget Responsibility is still effectively saying that inflation of prices is transient, though the prospect of a return towards the 2% target has been deferred until 2024. Chancellor Sunak blithely accepts these figures to justify a one-off hit on oil producers, when, surely, with his financial expertise he must know the situation is likely to be very different from the OBR’s forecasts. This article clarifies why an entirely different outcome is virtually certain. To explain why, the reasonings of monetarists and neo-Keynesians are discussed and the errors in their understanding of the causes of inflation is exposed. Finally, we can see in plainer sight the evolving risk leading towards a systemic fiat currency crisis encompassing banks, central banks, and fiat currencies themselves. It involves understanding that inflation is not rising prices but a diminishing purchasing power for currency and bank deposits, and that the changes in the quantity of currency and credit discussed by monetarists are not the most important issue. In a world awash with currency and bank deposits the real concern is the increasing desire of economic actors to reduce these balances in favour of an increase in their ownership of physical assets and goods. As the crisis unfolds, we can expect increasing numbers of the public to attempt to reduce their cash and bank deposits with catastrophic consequences for their currencies’ purchasing power. That being so, we appear to be on a fast track towards a final crack-up boom whereby the public attempts to reduce their holdings of currency and bank deposits, evidenced by selected non-financial asset and basic consumer items prices beginning to rise rapidly. Introduction In the mainstream investment media, the narrative for the economic outlook is evolving. From inflation, by which is commonly meant rising prices, the MSIM say we now face the prospect of recession. While dramatic, current inflation rates are seen to be a temporary phenomenon driven by factors such as Russian sanctions, Chinese covid lockdowns, component shortages and staffing problems. Therefore, it is said, inflation remains transient — it’s just that it will take a little longer than originally thought by Jay Powell to return to the 2% target. We were reminded of this in Britain last week when Chancellor Sunak delivered his “temporary targeted energy profits levy”, which by any other name was an emergency budget. Note the word “temporary”. This was justified by the figures from the supposedly independent Office for Budget Responsibility. The OBR still forecasts a return to 2% price inflation but deferred until early 2024 after a temporary peak of 9%. Therefore, the OBR deems it is still transient. Incidentally, the OBR’s forecasting record has been deemed by independent observers as “really terrible”. Absolved himself of any responsibility for the OBR’s inflation estimates, Sunak is spending £15bn on subsidies for households’ fuel costs, claiming to recover it from oil producers on the argument that they are enjoying an unexpected windfall, courtesy of Vladimir Putin, to be used to finance a one-off temporary situation. That being the case, don’t hold your breath waiting for Shell and BP to submit a bill to Sunak for having to write off their extensive Russian investments and distribution businesses because of UK government sanctions against Russia. But we digress from our topic, which is about the future course of prices, more specifically the unmeasurable general price level in the context of economic prospects. And what if the OBR’s figures, which are like those of all other statist statisticians in other jurisdictions, turn out to be hideously wrong? There is no doubt that they and the MSIM are clutching at a straw labelled “hope”. Hope that a recession will lead to lower consumer demand taking the heat out of higher prices. Hope that Putin’s war will end rapidly in his defeat. Hope that Western sanctions will collapse the Russian economy. Hope that supply chains will be rapidly restored to normal. But even if all these expectations turn out to be true, old-school economic analysis unbiased by statist interests suggests that interest rates will still have to go significantly higher, bankrupting businesses, governments, and even central banks overloaded with their QE-derived portfolios. The establishment, the mainstream media and government agencies are deluding themselves over prospects for prices. Modern macroeconomics in the form of both monetarism and Keynesianism is not equipped to understand the economic relationships that determine the future purchasing power of fiat currencies. Taking our cue from the stagflationary seventies, when Keynesianism was discredited, and Milton Friedman of the Chicago monetary school came to prominence, we must critically examine both creeds. In this article we look at what the monetarists are saying, then the neo-Keynesian mainstream approach, and finally the true position and the outcome it is likely to lead to. Since monetarists are now warning that a slowdown in credit creation is tilting dangers away from inflation towards recession, we shall consider the errors in the monetarist approach first. Monetary theory has not yet adapted itself for pure fiat Monetarist economists are now telling us that the growth of money supply is slowing, pointing to a recession. But that is only true if all the hoped-for changes in prices comes from the side of goods and services and not that of the currency. No modern monetarist appears to take that into account in his or her analysis of price prospects, bundling up this crucial issue in velocity of circulation. This is why they often preface their analysis by assuming there is no change in velocity of circulation. While they have turned their backs on sound money, which can only be metallic gold or silver and their credible substitutes, their analysis of the relationship between currency and prices has not been adequately revised to account for changes in the purchasing power of pure fiat currencies. It is vitally important to understand why it matters. A proper gold coin exchange standard turns a currency into a gold substitute, which the public is almost always content to hold through cycles of bank credit. While there are always factors that alter the purchasing power of gold and its relationship with its credible substitutes, the purchasing power of a properly backed currency and associated media in the form of notes and bank deposits varies relatively little compared with our experience today, particularly if free markets permit arbitrage between different currencies acting as alternative gold substitutes. This is demonstrated in Figure 1 below of the oil price measured firstly in gold-grammes and currencies under the Bretton Woods agreement until 1971, and then gold-grammes and pure fiat currencies subsequently. The price stability, while economic actors accepted that the dollar was tied to gold and therefore a credible substitute along with the currencies fixed against it, was evident before the Bretton Woods agreement was suspended. Yet the quantity of currency and deposits in dollars and sterling expanded significantly during this period, more so for sterling which suffered a devaluation against the dollar in 1967. The figures for the euro before its creation in 2000 are for the Deutsche mark, which by following sounder money policies while it existed explains why the oil price in euros is recorded as not having risen as much as in sterling and the dollar. The message from oil’s price history is that volatility is in fiat currencies and not oil. In gold-grammes there has been remarkably little price variation. Therefore, the pricing relationship between a sound currency backed by gold differs substantially from the fiat world we live with today, and there has been very little change in monetarist theory to reflect this fact beyond mere technicalities. The lesson learned is that under a gold standard, an expansion of the currency and bank deposits is tolerated to a greater extent than under a pure fiat regime. But an expansion of the media of exchange can only be tolerated within limits, which is why first the London gold pool failed in the late 1960s and then the Bretton Woods system was abandoned in 1971. Under a gold standard, an expansion of the quantity of bank credit will be reflected in a currency’s purchasing power as the new media is absorbed into general circulation. But if note-issuing banks stand by their promise to offer coin conversion to allcomers that will be the extent of it and economic actors know it. This is the basis behind classical monetarism, which relates with Cantillon’s insight about how new money enters circulation, driving up prices in its wake. From John Stuart Mill to Irving Fisher, it has been mathematically expressed and refined into the equation of exchange. In his earlier writings, even Keynes understood monetarist theory, giving an adequate description of it in his Tract on Monetary Reform, written in 1923 when Germany’s papiermark was collapsing. But even under the gold standard, the monetarist school failed to incorporate the reality of the human factor in their equation of exchange, which has since become a glaring omission with respect to fiat currency regimes. Buyers and sellers of goods and services do not concern themselves with the general price level and velocity of circulation; they are only concerned with their immediate and foreseeable needs. And they are certainly unaware of changes in the quantity of currency and credit and the total value of past transactions in the economy. Consumers and businesses pay no attention to these elements of the fundamental monetarist equation. In essence, this is the disconnection between monetarism and catallactic reality. Instead, the equation of exchange is made to always balance by the spurious concept of velocity of circulation, a mental image of money engendering its own utility rather than being simply a medium of exchange between buyers and sellers of goods and services. And mathematicians who otherwise insist on the discipline of balance in their equations are seemingly prepared in the field of monetary analysis to introduce a variable whose function is only to ensure the equation always balances when without it, it does not. Besides monetarism failing to account for the human actions of consumers and businesses, over time there have been substantial shifts in how money is used for purposes not included in consumer transactions — the bedrock of consumer price indices and of gross domestic product. The financialisation of the US and other major economies together with the manufacture of consumer and intermediate goods being delegated to emerging economies have radically changed the profiles of the US and the other G7 economies. To assume, as the monetarists do, that the growth of money supply can be applied pro rata to consumer activity is a further error because much of the money supply does not relate to prices of goods and services. Furthermore, when cash and bank deposits are retained by consumers and businesses, for them they represent the true function of money, which is to act as liquidity for future purchases. They are not concerned with past transactions. Therefore, the ratio of cash and instant liquidity to anticipated consumption is what really matters in determining purchasing power and cannot be captured in the equation of exchange. Monetarists have stuck with an equation of exchange whose faults did not matter materially under proper gold standards. Besides ignoring the human element in the marketplace, their error is now to persist with the equation of exchange in a radically different fiat environment. The role of cash and credit reserves In their ignorance of the importance of the ratio between cash and credit relative to prospective purchases of goods and services, all macroeconomists commit a major blunder. It allows them to argue inaccurately that an economic slowdown triggered by a reduction in the growth of currency and credit will automatically lead to a fall in the rate of increase in the general price level. Having warned central banks earlier of the inflation problem with a degree of success, this is what now lies behind monetarists’ forecasts of a sharp slowdown in the rate of price increases. A more realistic approach is to try to understand the factors likely to affect the preferences of individuals within a market society. For individuals to be entirely static in their preferences is obviously untrue and they will respond as a cohort to the changing economic environment. It is individuals who set the purchasing power of money in the context of their need for a medium of exchange — no one else does. As Ludwig von Mises put it in his Critique of Interventionism: “Because everybody wishes to have a certain amount of cash, sometimes more sometimes less, there is a demand for money. Money is never simply in the economic system, in the national economy, it is never simply circulating. All the money available is always in the cash holdings of somebody. Every piece of money may one day — sometimes oftener, sometimes more seldom — pass from one man’s cash holding to another man’s ownership. At every moment it is owned by somebody and is a part of his cash holdings. The decisions of individuals regarding the magnitude of their cash holdings constitute the ultimate factor in the formation of purchasing power.” For clarification, we should add to this quotation from Mises that cash and deposits include those held by businesses and investors, an important factor in this age of financialisation. Aside from fluctuations in bank credit, units of currency are never destroyed. It is the marginal demand for cash that sets it value, its purchasing power. It therefore follows that a relatively minor shift in the average desire to hold cash and bank deposits will have a disproportionate effect on the currency’s purchasing power. Central bankers’ instincts work to maintain levels of bank credit, replacing it with central bank currency when necessary. Any sign of a contraction of bank credit, which would tend to support the currency’s purchasing power, is met with an interest rate reduction and/or increases in the note issue and in addition today increases of bank deposits on the central bank’s balance sheet through QE. The expansion of global central bank balance sheets in this way has been mostly continuous following the Lehman crisis in 2008 until March, since when they began to contract slightly in aggregate — hence the monetarists’ warnings of an impending slowdown in the rate of price inflation. But the slowdown in money supply growth is small beer compared with the total problem. The quantity of dollar notes and bank deposits has tripled since the Lehman crisis and GDP has risen by only two-thirds. GDP does not account for all economic transactions — trading in financial assets is excluded from GDP along with that of most used goods. Even allowing for these factors, the quantity of currency liquidity for economic actors must have increased to unaccustomed levels. This is further confirmed by the Fed’s reverse repo balances, which absorb excess liquidity of currency and credit currently standing at about $2 trillion, which is 9% of M2 broad money supply. In all Western jurisdictions, consuming populations are collectively seeing their cash and bank deposits buy less today than in the past. Furthermore, with prices rising at the fastest rate seen in decades, they see little or no interest compensation for retaining balances of currencies losing purchasing power. In these circumstances and given the immediate outlook for prices they are more likely to seek to decrease their cash and credit balances in favour of acquiring goods and services, even when they are not for immediate use. The conventional solution to this problem is the one deployed by Paul Volcker in 1980, which is to raise interest rates sufficiently to counter the desire of economic actors to reduce their spending liquidity. The snag is that an increase in the Fed funds rate today sufficient to restore faith in holding bank deposits would have to be to a level which would generate widespread bankruptcies, undermine government finances, and even threaten the solvency of central banks, thereby bringing forward an economic and banking crisis as a deliberate act of policy. The egregious errors of the neo-Keynesian cohort Unlike the monetarists, most neo-Keynesians have discarded entirely the link between the quantity of currency and credit and their purchasing power. Even today, it is neo-Keynesians who dominate monetary and economic policy-making, though perhaps monetarism will experience a policy revival. But for now, with respect to inflation money is rarely mentioned in central bank monetary committee reports. The errors in what has evolved from macroeconomic pseudo-science into beliefs based on a quicksand of assumptions are now so numerous that any hope that those in control know what they are doing must be rejected. The initial error was Keynes’s dismissal of Say’s law in his General Theory by literary legerdemain to invent macroeconomics, which somehow hovers over economic reality without being governed by the same factors. From it springs the belief that the state knows best with respect to economic affairs and that all the faults lie with markets. Every time belief in the state’s supremacy is threatened, the Keynesians have sought to supress the evidence offered by markets. Failure at a national level has been dealt with by extending policies internationally so that all the major central banks now work together in group-thinking unison to control markets. We have global monetary coordination at the Bank for International Settlements. And at the World Economic Forum which is trying to muscle in on the act we now see neo-Marxism emerge with the desire for all property and personal behaviour to be ceded to the state. As they say, “own nothing and you will be happy”. The consequence is that when neo-Keynesianism finally fails it will be a global crisis and there will be no escape from the consequences in one’s own jurisdiction. The current ideological position is that prices are formed by the interaction of supply and demand and little else. They make the same error as the monetarists in assuming that in any transaction the currency is constant and all the change in prices comes from the goods side: money is wholly objective, and all the price subjectivity is entirely in the goods. This was indeed true when money was sound and is still assumed to be the case for fiat currencies by all individuals at the point of transaction. But it ignores the question over a currency’s future purchasing power, which is what the science of economics should be about. The error leads to a black-and-white assumption that an economy is either growing or it is in recession — the definitions of which, like almost all things Keynesian, are somewhat fluid and indistinct. Adherents are guided religiously by imperfect statistics which cannot capture human action and whose construction is evolved to support the monetary and economic policies of the day. It is a case of Humpty Dumpty saying, “It means what I chose it to mean —neither more nor less” Lewis Caroll fans will know that Alice responded, “The question is whether you can make words mean so many different things”. To which Humpty replied,” The question is which is to be master —that’s all.” So long as the neo-Keynesians are Masters of Policy their imprecisions of definition will guarantee and magnify an eventual economic failure. The final policy crisis is approaching Whether a macroeconomist is a monetarist or neo-Keynesian, the reliance on statistics, mathematics, and belief in the supremacy of the state in economic and monetary affairs ill-equips them for dealing with an impending systemic and currency crisis. The monetarists argue that the slowdown in monetary growth means that the danger is now of a recession, not inflation. The neo-Keynesians believe that any threat to economic growth from the failures of free markets requires further stimulation. The measure everyone uses is growth in gross domestic product, which only reflects the quantity of currency and credit applied to transactions included in the statistic. It tells us nothing about why currency and credit is used. Monetary growth is not economic progress, which is what increases a nation’s wealth. Instead, self-serving statistics cover up the transfer of wealth from the producers in an economy to the unproductive state and its interests through excessive taxation and currency debasement, leaving the entire nation, including the state itself eventually, worse off. For this reason, attempts to increase economic growth merely worsen the situation, beyond the immediate apparent benefits. There will come a point when the public wakes up to the illusion of monetary debasement. Until recently, there has been little evidence of this awareness, which is why the monetarists have been broadly correct about the price effects of the rapid expansion of currency and credit in recent years. But as discussed above, the expansion of currency and bank deposits has been substantially greater than the increase in GDP, which despite its direction into financial speculation and other activities outside GDP has led to an accumulation of over $2 trillion of excess liquidity no one wants in US dollar reverse repos at the Fed. The growth in the level of personal liquidity and credit available explains why the increase in the general price level for goods and services has lagged the growth of currency and deposits, because at the margin since the Lehman crisis the public, including businesses and financial entities, has been accumulating additional liquidity instead of buying goods. This accelerated during covid lockdowns to be subsequently released in a wave of excess demand, fuelling a sharp rise in the general level of prices, not anticipated by the monetary authorities who immediately dismissed the rise as transient. The build-up of liquidity and its subsequent release into purchases of goods is reflected in the savings rate for the US shown in Figure 2 below. The personal saving rate does not isolate from the total the accumulating level of spending liquidity as opposed to that allocated for investment. The underlying level of personal liquidity will have accumulated over time as a part of total personal savings in line with the growth of currency and bank deposits since the Lehman crisis. The restrictions on spending behaviour during lockdowns in 2020 and 2021 exacerbated the situation, forcing a degree of liquidity reduction which drove the general level of prices significantly higher. Profits and losses resulting from dealing in financial assets and cryptocurrencies are not included in the personal savings rate statistics either. This matters to the extent that bank credit is used to leverage investment. Nor is the accumulation of cash in corporations and financial entities, which are a significant factor. But whatever the level of it, there can be little doubt that the levels of liquidity held by economic actors are unaccustomedly high. The accumulation of reverse repos representing unwanted liquidity informs us that the public, including businesses, are so sated with excess liquidity that they may already be trying to reduce it, particularly if they expect further increases in prices. In that event they will almost certainly bring forward future purchases to alter the relationship between personal liquidity and goods. It is a situation in America which is edging towards a crack-up boom. A crack-up boom occurs when the public as a cohort attempts to reduce the overall level of its currency and deposits in favour of goods towards a final point of rejecting the currency entirely. So far, economic history has recorded only one version, which is when after a period of accelerating debasement of a fiat currency the public finally wakes up to the certainty that a currency is becoming worthless and all hope that it might somehow survive as a medium of exchange must be abandoned. To this, perhaps we can add another: the consequences of a collapse of the world’s major monetary institutions in unison. How excess liquidity is likely to play out We have established beyond reasonable doubt that the US economy is awash with personal liquidity. And if one man disposes of his liquidity to another in a transaction the currency and bank deposit still exists. But aggregate personal liquidity can be reduced by the contraction of bank credit. As interest rates rise, thereby exposing malinvestments, the banks will be quick to protect themselves by withdrawing credit. As originally described by Irving Fisher, a contraction of bank credit risks triggering a self-feeding liquidation of loan collateral. Initially, we can expect central banks to counter this contraction by redoubling efforts to suppress bond yields, reinstitute more aggressive QE, and standing ready to bail out banks. These are all measures which are in the central banker’s instruction manual. But the conditions leading to a crack-up boom appear to be already developing despite the increasing likelihood of contracting bank credit. The deteriorating outlook for bank credit and the impact on highly leveraged banks, particularly in Japan and the Eurozone, is likely to accelerate the flight out of bank deposits to — where? Regulators have deliberately reduced access to currency cash so a bank depositor can only dispose of larger sums by transferring them to someone else. Before an initial rise in interest rates began to undermine financial asset values, a transfer of a bank deposit to a seller of a financial asset was a viable alternative. That is now an increasingly unattractive option due to the changed interest rate environment. Consequently, the principal alternative to holding bank deposits is to acquire physical assets and consumer items for future use. But even that assumes an overall stability in the public’s collective willingness to hold bank deposits, which without a significant rise in interest rates is unlikely to be the case. The reluctance of a potential seller to increase his bank deposits is already being reflected in prices for big ticket items, such as motor cars, residential property, fine and not-so-fine art, and an increasing selection of second-hand goods. This is not an environment that will respond positively to yet more currency debasement and interest rate suppression as the monetary authorities struggle to maintain control over markets. The global financial bubble is already beginning to implode, and the central banks which have accumulated large portfolios through quantitative easing are descending into negative equity. Only this week, the US Fed announced that it has unrealised portfolio losses of $330bn against equity of only $50bn. The Fed can cover this discrepancy if it is permitted by the US Treasury to revalue its gold note to current market prices – but further rises in bond yields will rapidly wipe even that out. Other central banks do not have this leeway, and in the cases of the ECB and the Bank of Japan, they are invested in considerably longer average bond maturities, which means that as interest rates rise their unrealised losses will be magnified. So, the major central banks are insolvent or close to it and will themselves have to be recapitalised. At the same time, they will be required to backstop a rapidly deteriorating economic situation. And being run by executives whose economic advisers do not understand both economics nor money itself, it all amounts to a recipe for a final cock-up crack-up boom as economic actors seek to protect themselves. As the situation unfolds and economic actors become aware of the true inadequacies of bureaucratic group-thinking central bankers, the descent into the ultimate collapse of fiat currencies could be swift. It is now the only way in which all that excess faux liquidity can be expunged. Tyler Durden Sat, 06/04/2022 - 13:30.....»»

Category: worldSource: nytJun 4th, 2022

The US Oil Boycott Of Russia Will Push The Eurozone Into A Recession

The US Oil Boycott Of Russia Will Push The Eurozone Into A Recession Excerpted from Maartje Wijffelaars, Elwin de Groot and Erik-Jan van Harn of Rabobank (full note available to ZH professional subscribers in the usual place). Summary On Tuesday night EU leaders agreed to ban all Russian seaborne oil imports The ban, amid already high inflation and intense supply chain pressure, will push the Eurozone into a recession; this confirms our views expressed earlier this year We expect the Eurozone economy to enter a recession by the end 2022/early 2023 Helped by carry over effects we still expect the Eurozone economy to grow by 2.2% in 2022, yet to contract with 0.1% in 2023 The ban will not lead to lasting energy shortages, but it will take time before Russian oil imports are replaced and oil prices will almost certainly trend higher Our forecast is subject to quite some uncertainty, especially when it comes to the timing and depth of the recession. But, importantly, a grind down is in the works, with neither the ECB nor governments in the position to prevent that EU leaders agree to ban seaborne oil imports On Tuesday night, EU leaders agreed to ban all Russian seaborne oil imports. The sixth sanction package, including the details, still needs to be officially signed off, but based on earlier statements, import of Russian crude oil via seaborne shipments is set to be barred from the end of this year. The ban on seaborne import of petroleum products should then become effective about two months later. A “temporary” exception is being made for pipeline imports, to accommodate concerns over energy security for Hungary, Slovakia and the Czech Republic. When taking into account that Germany and Poland have said to cut Russian oil imports regardless of the exemption, the current agreement effectively means that about 90% of crude oil imports from Russia would be phased out by the end of the year- which represents around one quarter of total annual crude oil imports in the EU in recent years. It has not yet been agreed how long the exclusion of pipeline oil will last. Importantly, the package will also foresee in a provision to limit re-exports of Russian crude arriving via pipelines and petroleum products based on Russian crude oil. Eurozone economy to shrink due to energy crisis The oil boycott pushes us to downgrade our forecast. We had already highlighted this risk in previous research notes. We expect the Eurozone to enter a recession at the end of this year (Figure 1). Combined with carry over effects from the strong second half of 2021 this means that the economy is still set to grow in 2022, yet to contract in 2023. We have pencilled in growth of 2.2% in 2022 and -0.1% in 2023 -compared to, respectively, 2.9% and 1.5% in our previous forecast. Recently we had already lifted our inflation outlook to 7.5% this year and 3.6% next year, based on our expectation of a Russian oil embargo. Oil embargo will fuel non-Russian oil prices In our view, the Russian oil embargo will not lead to large lasting energy shortages. Yet adjustments are likely to take time and it will certainly fuel prices of both crude oil and refined petroleum products. In fact, this morning prices of both crude oil and refined petroleum products such as diesel already pushed higher (Figure 3). It is the price of refined petroleum products that is being felt most by households and hauliers and that price has in fact already seen much sharper increases than crude oil since Russia’s  invasion. Driving factors of the so-called crack spread so far have been capacity constraints at refineries worldwide and less imports from Russia. For now, lockdowns in China will continue to cap the price of crude oil, but once China’s lockdowns are lifted, we envisage that the price of crude oil could peak at over $170 a barrel - as can be read in the oil ban scenario analyses we have conducted earlier. Recession hits once reopening boost fades In the first quarter of the year the Eurozone economy still managed to grow, with 0.3% q/q - revised upwards from 0.2% q/q. We also expect the growth figure to hold just above the zero- mark in the current quarter, on the back of (i) the grand reopening of the economy, (ii) businesses still working their ways through backlogs, (iii) rather strong labour markets in many Member States, and (iv) excess savings that allow households to absorb part of the higher prices regime. Moving on to the third quarter, tourism activity is likely to benefit from the seemingly unstoppable drive of many to go on a holiday. Yet it will be ever more difficult for the economy to continue to post positive growth figures, as the boost of reopening fades amid very high inflation and equipment shortages. In our view, government support, already being ramped up across the block, will alleviate some inflation pressure and this should support economic growth by several decimal points. But it will not be able to prevent a downturn. Indeed, we are dealing with a supply shock induced crisis and you simply cannot solve a supply shock by ramping up demand. In fact, broad scale support might even accomplish the opposite, as it could support demand for which there is too limited supply. Meanwhile, we currently assume China to continue its zero-covid policy, with alternating lockdowns continuing to put pressure on global supply chains. In our projections, we incorporate that it will take until the final quarter of the year for supply chain pressures caused by China to soften materially. We note, however, that China’s reopening -even when gradual- will also feed into higher prices for energy commodities and metals as Chinese demand for these commodities rises. Supply chain disruptions and rising input prices hurt production From a supply side perspective, input and equipment shortages are likely to continue to hamper industrial production over the coming quarters, as will increased input prices to the extent that they cannot be fully passed on to customers. In past months, production of energy intensive products in the EU, such as fertilizers, paper, and construction materials, has already been cut back due to elevated energy prices. Meanwhile, in surveys, businesses report lengthening delivery times and record equipment shortages (Figure 4). Important sources of the supply chain disruptions are lockdowns in China and the war in Ukraine. We expect input deliveries from China to continue to be hampered for the better part of the year, while we also don’t envisage the end of the war or a reduction in energy price -quite the opposite in fact when it comes to the price of oil, as explained. On a positive note, the price of natural gas has come down over the past weeks and is almost back at its pre-war level, which should exercise some downward pressure on energy price inflation and support energy intensive production in the Eurozone. That said, it remains very high in historical context and has the potential to trend higher again. Inflation and uncertainty hurt demand From a demand side perspective, we expect the sharp and persisting price rises and growing uncertainty (Figure 5) to slowly ‘kill’ households’ ability and willingness to consume. Even though extra savings at European bank accounts accumulated during the pandemic (some 5% of annual GDP) will help to absorb the higher prices, a contraction in consumption is all but a given in our view. Both the magnitude of the inflation and the fact that savings are unequally distributed among households -with a decumulation of savings among low-income households- feed into this view. We foresee consumer spending to contract for several quarters, starting in the third quarter of this year. It usually takes time for higher inflation and uncertainty to translate into lower consumption growth, although the magnitude of both could well speed things up little when compared to history. We also believe that higher input costs and increased pessimism over the outlook will eventually lower the ability and willingness of businesses to invest, create jobs and raise wages. In addition, over time, increasing financing cost are also expected to bite. Although the ECB still hasn't raised rates so far, we expect it to start a tightening cycle in July, taking its deposit facility rate back to +0.25% by the end of the year. Market developments since the beginning of the year have already led to a considerable tightening of financial conditions; risk-free government bond yields, term and inflation risk premiums as well as corporate risk premiums have contributed to this. Whilst it could be argued that rates – both at the short and at the long end of the maturity spectrum – have not kept up with actual inflation rates, the fact that the bulk of the rise in inflation is due to a deterioration in the terms of trade, implies that one cannot compare these one for one. Indeed, the marked rise in long-term bond yields even when corrected for higher inflation breakeven rates since end-April underscores the higher interest rate environment. Together with the ongoing uncertainty over the outlook, this is also leading to a tightening of bank credit conditions, in terms of higher borrowing costs as well as a tightening in loan conditions. As such, whilst higher inflation and supply shortages remain the key drivers of the economic slowdown, the tightening of financial conditions is likely to contribute to an ‘acceleration’ of the economic slowdown as time progresses. Labor demand to contract Over the coming months, when demand cools and pessimism among businesses increases, we will likely first witness a reduction in outstanding vacancies. An actual contraction of hours worked will then follow further down the line. To what extent this will lead to layoffs and higher unemployment is rather uncertain, however. Short-time work schemes introduced during the pandemic will very likely limit official employment destruction and the rise in unemployment - and hence income losses. Still, we believe that economic growth and unemployment are not fully disconnected, which is why we project unemployment to increase from 7.2% this year to 7.5% in 2023 and 7.8% in 2024 -compared to 8.6% at the pandemic peak. Meanwhile we project wages to grow by 2.5% on average this year and 3% next year. This clearly is an improvement from the growth of 1.5% in collective wage agreements last year, but is largely insufficient to keep up with inflation. Hence real wages, are set to shrink big time, underscoring our view of contracting consumption further down the line. Risks to forecast are balanced We are finding ourselves in uncertain times, yet again. Forecasting a recession, and the timing thereof, is fraught with risks. Whilst the direction of travel is clear to us, the depth of the crisis is less obvious. Indeed, the relationship between inflation, uncertainty and GDP growth is not set in stone -it could either be more or less intense than we currently foresee. Other important sources of uncertainty are the timing and impact of China’s reopening, and of government support in the Eurozone. Finally, we currently only see it as a tail risk that the EU stops importing Russian gas in the short term or that Russia suddenly fully stops exporting gas to the EU on its own account. Admittedly, Russia has already stopped delivering gas to several smaller customers including Finland and particular providers in Germany and the Netherlands. Yet it would be a real financial blow for itself if  it were to fully cut off large countries such as Italy and Germany, for example. Still, more unforeseen things have happened over the past months and both EU sanctions and Russian countermeasures are clearly a moving target. As such we keep a close eye on developments. In any case, while the recent stop in gas flows is likely to cause some price effect already in the countries hit, the consequences of a sudden full stop in Russian gas inflows in the EU would be much larger. All in all, then, we regard the risks to our forecast rather balanced. Importantly, a grind down is in the works, with neither the ECB nor governments in the position to prevent that. Tyler Durden Wed, 06/01/2022 - 13:25.....»»

Category: blogSource: zerohedgeJun 1st, 2022

"They Shut Us Down": Michigan Businesses Sue Whitmer For Losses Due To COVID Lockdowns

"They Shut Us Down": Michigan Businesses Sue Whitmer For Losses Due To COVID Lockdowns Authored by Steven Kovac via The Epoch Times (emphasis ours), A coalition of five bowling alleys and family entertainment centers is suing Michigan’s Gov. Gretchen Whitmer, a Democrat, for losses incurred due to her mandatory COVID-19 shutdowns in 2020. Michigan Gov. Gretchen Whitmer listens to Democratic presidential candidate Sen. Kirsten Gillibrand (D-N.Y.) in Clawson, Mich., on March 18, 2019. (Paul Sancya/AP) Michigan Dept. of Health and Human Services director Robert Gordon is also a defendant in the case. The plaintiffs allege that the shutdowns imposed by Whitmer and Gordon were a “taking” of their businesses without just compensation in violation of both the state and the U.S. Constitution. The case has been winding its way through the federal courts since January 2021. Fred Kautz runs the lane oiler at Kautz Shore Lanes in Lexington, Mich., on May 13, 2022. (Steven Kovac/The Epoch Times) The coalition lost the first round of the legal battle when the U.S. District Court for the Western District of Michigan ruled against it. Oral arguments were recently held before a three-judge panel of the US Court of Appeals Sixth Circuit. Plaintiff’s chief counsel David Kallman told The Epoch Times after the appeals court hearing, “The oral arguments from both sides were vigorous. The judges asked a lot of questions. It was the kind of proceeding that makes you proud to be a lawyer. “Even the defense acknowledges that we are presenting ‘novel’ arguments. “Michigan is the only state in the nation where a governor’s public health emergency powers were overturned as unconstitutional. “If we lose in the court of appeals, we will take this case to the U.S. Supreme Court.” Scott Bennett, executive director of the Independent Bowling and Entertainment Centers Association, told The Epoch Times, “The governor’s actions were devastating to our industry. “Things went from ‘two weeks to slow the spread’ to indefinite shutdowns.” Bennett said that the forced closures were not based on solid scientific proof that bowling alleys and family entertainment centers would spread the virus any more than the Walmart stores or the GM plants that were allowed to remain open. “They were allowed to operate with hundreds and even thousands of people in them but we had to shut down. We feel our industry was unfairly singled-out. “We cannot stand for a repeat of such arbitrary treatment and don’t want the people of Michigan to forget what was done to them.” With the recent uptick in COVID cases and the approaching mid-term elections, Bennett said his members that survived the 2020 shutdowns feel like it can happen all over again. “It’s like operating day-to-day with a hammer held over your head. The uncertainty is altering business plans. The value of our businesses is dropping through the floor,” Bennett said. Brian and Mindy Hill work the counter at their bowling alley in Imlay City, Mich. on May 13, 2022. (Steven Kovac/Epoch Times) Fred Kautz, the proprietor of Kautz’s Shore Lanes in Lexington, Michigan, started working in the family business when he was 13. The business has 12 bowling lanes, a bar, an arcade, a restaurant, and living quarters upstairs. “We’ve owned this place for 42 years. For me and my family, it’s more than a place to work. It’s a way of life. And it has become an institution in our community—a real gathering place,” said Kautz. He said he is still smarting from what happened after Whitmer’s executive actions were ruled unconstitutional by the Michigan Supreme Court in the fall of 2020. “We got a little reprieve. We thought we were in the clear until she came back with another round of forced closures, this time under the authority of the Michigan Department of Public Health. “The first 30 days knocked us right on our butts. But we were willing to cooperate, to do our part. We were all scared and we did not want to see harm come to anybody. “We lost a lot of money at the time. We are coming back slowly, but our overall revenue is still down 20 percent from pre-pandemic days. That’s hard to make up. “In the spring of 2020, I tried to do what was recommended and go along. Never again! “If my Dad was still alive, he’d have never closed at all,” said Kautz. Brian and Mindy Hill, owners of I.C. Strikes, a 16-lane bowling alley, bar, and snack bar in Imlay City said their business was hit hard by the shutdowns. Brian was the town barber for 25 years, before purchasing the bowling alley where he learned to bowl as a child. “We took over in December 2018. We’d saved up money to buy this place and make some upgrades. When COVID hit, we were forced to close down. It took all the money we saved for improvements just to survive,” said Brian. The Hills said they never thought they’d see the day when their own government could do something like that to them. Mary Bacon, assistant manager of Jump City, a family recreation center, cleans an arcade machine in Imlay City, Mich., on May 13, 2022. (Steven Kovac/The Epoch Times) “They shut us down. They took away our livelihood with no end date in sight. Then they wanted to loan us money. Think about that. They first put us in a situation where we had zero income to pay our previous debt. And then they wanted to loan us more money. “Lots of small business people lost their businesses but kept their debt. It ruined them,” said Brian. The Hills did apply for and receive a Small Business Administration loan at 3.25 percent interest for 30 years, and they participated in the Paycheck Protection Program which helped their business survive. Up the road from the Hill’s bowling alley is Jump City, a large indoor recreation center offering an array of bouncy houses and arcade games for children. Assistant manager Mary Bacon told The Epoch Times, “We lost a lot of business. We were forced to close for 15 months and had to make our payments with no income.” Bacon remembers the morning of March 16, 2020, when many area businesses were gearing up for big St. Patrick’s Day celebrations. “By afternoon everybody had to close. All that food went to waste. “The shutdown was supposed to be for a couple of weeks. Nobody foresaw it would drag on for a year and three months. “Oh, they said we could open again, but they so severely restricted the number of customers that we lost all of our big birthday parties. With so few kids allowed in, we couldn’t operate. We were losing too much money.” Bacon said people are coming back to the center but are still scared, even though the games and bouncy houses are continuously cleaned and sanitized. Navaeh Smalstig, 8, climbs out of a bouncy house at Jump City in Imlay City, Mich., on May 13, 2022. (Steven Kovac/The Epoch Times) Before the pandemic, Danny Brown owned a roller rink in Grand Blanc and Owasso, two south-central Michigan towns. “The lockdowns forced us to sell the Owasso rink for less than half of what we paid for it. We will be trying to make up our loss for years to come.” Brown, who is a plaintiff in the lawsuit, told The Epoch Times, “To keep going I had to decide to triple our debt. Since the shutdown, I am three-quarters of a million dollars deeper in debt. “Small businesses put everything on the line. All of our personal and family money. I am personally responsible for our debt. If I die my children will have to pay it.” Brown said Michigan’s government acted without a real understanding and regarded the state’s small businesses as “nonessential throwaways.” “One of the reasons we filed suit is to push the government to think differently,” he said. According to Brown, family entertainment centers like skating rinks, bowling alleys, arcades, pool halls, miniature golf, and go-cart tracks have been nearly wiped out. “A few years ago, there were 3,500 roller skating rinks in the United States. Now there are 700. There were five rinks in Genesee County, now there are two.” he said. Brown attributes the decrease to years of ongoing government mandates and interference that led up to the COVID-19 lockdowns. “They took, they stole our businesses!” he said. Donn Slimmen, another plaintiff in the case, owns Spartan West Bowling in the west Michigan resort town of Ludington. “The lockdown just about killed us. It was 14 to 15 months of agony. Our bank payments and utility bills didn’t stop. We went from being two to three months behind to more months behind. “We entered into survival mode. We ate a lot of pork and beans and hotdogs. We’re still trying to work ourselves out of the hole. By the end of this summer, we might be solvent again. “We were lucky to survive. We are still hanging on by threads,” said Slimmen. Along with 16 bowling lanes, Slimmen operates a full-service restaurant. “It’s never come back. Pre-pandemic, we’d serve 200 customers at an ordinary Friday fish fry. Now our best night is 100. “Our restaurant went from a thriving seated-guest business to a take-out operation grossing only two to three percent of the seated sales. “We were spending $400 to take in proceeds of $100. “The politicians and bureaucrats don’t understand. They never cleaned a toilet seat or climbed into a bowling machine to fix it,” said Slimmen. Slimmen blames Gov.Gretchen Whitmer for the plight of his community and the state. “You didn’t see Republican governors closing businesses. Their states did so much better. “Drive through downtown Ludington or Muskegon and look at all the boarded-up storefronts. So many places are out of business. Michigan is in terrible shape,” Slimmen said. The Tomassoni family has been in the bowling business for 84 years in the western Upper Peninsula town of Iron Mountain, Michigan. “We had to close bowling and our banquet facility a total of 161 days in two different periods of time in 2020. After the second shutdown, we could operate at 25 percent occupancy and only during restricted hours. No wedding receptions, no special events. It was a disaster. “It ripped my heart out. I am so bitter towards my government,” said owner Pete Tomassoni. Tomassoni’s business suffered further because of its proximity to Wisconsin which is only minutes away. “Wisconsin closed for just 30 days. For the most part, they were wide open. That really hurt us. “Our governor was picking and choosing which of our state’s businesses could operate. To force a business to close with no notice and without proven science is straight out wrong. “I think that she came down so hard on small business because we, by and large, lean to the right. “The state dangled the threat of yanking business licenses to keep people in line. “Some of our businesses tried to defy the state and stayed open Tyler Durden Wed, 05/18/2022 - 21:25.....»»

Category: smallbizSource: nytMay 18th, 2022

Yuan Surges On Speculation China"s Covid Lockdowns Will End Soon

Yuan Surges On Speculation China's Covid Lockdowns Will End Soon Three weeks ago, when looking at the pattern in China's covid data, we said that China's covid panic is almost over... China's covid panic is almost over pic.twitter.com/H4jOSqXApM — zerohedge (@zerohedge) April 29, 2022 ... a view we repeated a week ago when we warned all those who were short oil - on the "thesis" that China's lockdowns would last indefinitely - to cover. Still short oil? China covid cases almost back to 0 pic.twitter.com/GHPDIh9Bqa — zerohedge (@zerohedge) May 11, 2022 Fast forward to today when after more than a month of growing lockdown (and mangled supply chain) fears, there was finally a glimmer of hope at the end of China’s covid tunnel and possibly for Chinese markets. As Bloomberg notes, Chinese lockdown conditions have improved over May 1-11, versus the April average, with the Goldman Effective Lockdown Index declining to 33.1 points for data so far in May, versus an average of 37.3 over April 1-25. The index is on a declining trend, and bits and pieces of news are mildly encouraging. Most recently, Shanghai reported no new Covid-19 infections in the broader community for a third consecutive day, a long-awaited milestone which authorities have said will allow them to start unwinding the lockdown (even though most residents will have to put up with confinement for a while longer before resuming more normal life). The commercial hub of 25 million set out on Monday its clearest timetable yet for exiting a lockdown now in its seventh week, but the plan was met with scepticism by many residents who have seen isolation extended time and again. "Normality is very far away," said one Shanghai resident still stuck at home. Still, Shanghai plans to resume outdoor activities in stages, with some shops reopening this week, but with most restrictions on movement remaining in place until May 21, after which public transport and other services will resume gradually. By June, the lockdown should be lifted, but residents will still be asked to get tested frequently. More people were allowed out of their homes this week, with some joggers and dog walkers spotted. One man was seen fishing in a Shanghai creek. But tall fences remained around many residential compounds and there were almost no private cars on the streets, with most people still confined to their homes. For other cities in China that have been under lockdown, three days with no new cases in the community usually means "zero COVID" status and the beginning of the lifting of restrictions. This suggests that activity will improve in May, albeit at a depressed level.  The correlation in levels terms between the official PMIs and the lockdown index since 2021 have been -67% and -95% for manufacturing and non-manufacturing respectively. In changes terms, correlations are -47% and -93%. Beijing's latest daily case count was 52, with authorities discovering a few dozen new infections on an almost daily basis despite gradually tightening restrictions over the past three weeks or so. Dine-in services are banned in the capital, some malls and other businesses are shut, public transport is curtailed and many residents have been advised to work from home. Residents in some COVID-affected parts of Beijing's Fengtai district were ordered not to leave their neighbourhoods, state television reported on Tuesday. In Beijing's largest district, Chaoyang, some compounds have closed side exits while main gates are manned by volunteers checking health credentials on the mobile app authorities use to track COVID. Security personnel patrolled the banks of the Liangma canal, which has become a picnic spot in recent weeks for residents not allowed to go elsewhere. Signs had been put up asking people to "avoid crowds, gatherings and eating together". * * * China's uncompromising "zero-COVID" policy has placed hundreds of millions of consumers and workers under various restrictions at a time when the rest of the world is lifting them to "live with the virus" even as infections spread. Data this week showed the havoc wreaked on the economy by Shanghai's lockdown and the curbs in dozens of other major cities, with retail sales and industrial output plunging at their fastest pace in more than two years in April. The capital Beijing saw a 16% plunge in retail sales in April, the beginning of its current outbreak, according to Reuters calculations based on January-April data released on Tuesday. Property sales dropped 26%.  The American Chamber of Commerce warned that COVID controls would hamper foreign investment in China for years to come as travel curbs disrupt due diligence on projects. Big firms are also exploring alternatives for supply chains, it said. News that China "finally" appeared to be getting over its second covid crisis sent the onshore yuan sharply higher, with the USDCNY falling as much as 0.7% to 6.7377, its biggest decline since October. It followed the 9th consecutive stronger-than-expected yuan fixing by the PBOC, at 6.7854 per dollar, stronger than the 6.7872 average estimate in a Bloomberg survey where forecasts ranged from 6.7830 to 6.7911. Market sentiment was also boosted by optimism that a meeting Tuesday between the Chinese regulators and tech giants would result in Beijing dialing back its yearlong clampdown of the industry. “The easing restrictions is a driver for yuan gains, but just as important is the general USD retreat,” says Alvin Tan, head of Asia currency strategy at RBC Capital Markets In light of the bullish reversal in sentiment, it is not surprising why Bloomberg's Simon Flint echoed what we have been saying for much of the past few weeks: "to the extent that markets should be focused on the second derivative of activity, there is some hope that the worst is over." Tyler Durden Tue, 05/17/2022 - 19:25.....»»

Category: personnelSource: nytMay 17th, 2022

Futures Jump Amid Optimism China"s Covid Lockdowns Are Ending

Futures Jump Amid Optimism China's Covid Lockdowns Are Ending Another day, another dead cat-bouncing, bear market rally. After Monday's flattish session which saw tech names slump on fresh inflation fears, Nasdaq futures rebounded on Tuesday, setting up technology stocks for solid gains after a six-week rout as investors were encouraged by China's easing covid lockdowns and amid speculation that Beijing regulators may ease a yearlong clampdown on internet companies at an upcoming meeting with tech executives. Nasdaq 100 futures jumped 2% by 7:00 a.m. in New York after the underlying gauge sank on Monday on concerns about a slowdown in economic growth; S&P 500 futures rose 1.6%. Treasury yields rose modestly above 2.90%, and the dollar retreated. Bitcoin managed to rebound back over $30K. Confirming what we said almost three weeks ago, Shanghai reported three days of zero community transmission, a milestone that could lead officials to start unwinding a punishing lockdown. However, flareups elsewhere in China showed how hard it is to tackle the omicron strain. Among notable moves in US premarket trading, Twitter shares fell 3.3%, set to extend declines for an eighth straight session amid uncertainties around the deal with Elon Musk, while Citigroup rose 4.9% after Warren Buffett’s Berkshire Hathaway unexpectedly disclosed a new stake in the lender, a return to banks for the billionaire who purged many of his bank holdings several years ago. Tech names including Advanced Micro Devices, Tesla and Nvidia were among the biggest premarket gainers as growing recession concerns prompt markets to reasses just how many rate hikes the Fed will pull off before it is forced to reverse. Cryptocurrency-exposed stocks climbed as Bitcoin rose above $30,000 on Tuesday in cautious trading, with the fallout from a collapsed stablecoin continuing to keep sentiment in check. Chinese stocks in US jumped across the board in premarket trading on speculation that regulators may ease a yearlong clampdown on internet companies at an upcoming meeting with tech executives. Here are the most notable premarket movers: Twitter (TWTR US) shares fell 2.4% in premarket trading, on course to extend their seven-day streak of declines, as uncertainties around a deal by buyer Elon Musk weigh on the stock. Tesla (TSLA US) shares rallied 3% in premarket trading. Chinese stocks in US jump across the board in premarket trading on speculation that regulators may ease a yearlong clampdown on internet companies at an upcoming meeting with tech executives. Alibaba (BABA US) +6.2%, JD.com (JD US) +5.6%, Pinduoduo (PDD US) +7% and Baidu (BIDU US) +3.6% Cryptocurrency-exposed stocks climb in US premarket as Bitcoin rises above $30,000 on Tuesday in cautious trading, with the fallout from a collapsed stablecoin continuing to keep sentiment in check. Riot Blockchain (RIOT US) +7.8%; Coinbase (COIN US) +6.8%; Marathon Digital (MARA US) +6.1% Advanced Micro Devices (AMD US) upgraded to overweight from neutral at Piper Sandler, which says in note that the company’s core businesses are running well and mid-to-long-term catalysts remain intact. Stock gains 3.6% in New York premarket trading. United Airlines Holdings’ (UAL US) updated second-quarter guidance is “a solid step in the right direction,” Citi says. United’s shares gained 4.3% in premarket trading. Bird Global (BRDS US) shares jump as much as 40% in US premarket trading with DA Davidson noting management’s announcement of a plan to streamline operations. Take-Two (TTWO US) reported better-than-expected fourth-quarter earnings helped by popular video games like NBA 2K22. The company’s shares rise 5.4% in premarket trading. Global-e Online (GLBE US) shares slump as much as 30% in US premarket trading as analysts slash their price targets on the e-commerce software firm after it lowered its full-year guidance for revenue and gross merchandise value. Imperial Petroleum (IMPP US) shares plunge 48% in US premarket trading. The shipping company priced an underwritten public offering of 72.7m units at $0.55 per unit, with expected gross proceeds of ~$40m. US stocks have been roiled in the past six weeks as the combination of high inflation and hawkish central banks fueled fears of a potential recession. While some strategists including Morgan Stanley’s Michael Wilson expect equities to fall further before finding a floor, they don’t foresee a recession as their base case. The main focus today will be on US retail sales data, which are expected to show a rise of 1% in April. “Investors’ appetite for riskier assets is on the rise after many welcomed today’s positive unemployment and GDP figures” from the eurozone and UK, said Pierre Veyret, an analyst at ActivTrades Plc. “The improving virus situation in China is also blowing a wind of relief in investors’ trading minds.” A challenging global economic outlook amid elevated food and record fuel costs, and tightening monetary settings continues to shape sentiment.  Oil has jumped to about $114 a barrel and an index of agricultural prices is at a record high. But one bond-market measure - the five-year breakeven rate - is signaling inflation has peaked, while the latest virus developments raised hopes China’s damaging lockdowns may soon be eased. On Monday, New York Fed President John Williams on Monday downplayed deteriorating liquidity conditions in financial markets, saying it was to be expected as investors grapple with uncertainty over global events and shifting U.S. monetary policy. No less than six Fed speakers - including Chair Jerome Powell - are due to speak later Tuesday. In Europe, technology and basic-resources stocks led a broad-based advance of the Stoxx Europe 600 following a rally in Chinese tech shares on optimism Beijing may ease up on a yearlong clampdown. Italy's FTSE MIB adds 1.6%, FTSE 100 lags, adding 0.7%. Miners, financial services and banks are the strongest-performing sectors. Equities were also buoyed by data showing the euro-area economy expanded more than initially estimated at the start of the year as the region moved past a wave of Covid-19 infections and defied headwinds from the early days of the war in Ukraine. Here are the biggest European movers: Clariant shares rise as much as 8.7% after the specialty chemical company announced its governance agreement with SABIC will expire at the June 24 AGM, and won’t be renewed. Imperial Brands climbs as much as 7.9% after the tobacco company reduced its losses from next-generation products and continued on a turnaround plan. Daimler Truck gains as much as 7.8% in Frankfurt; Oddo BHF notes strong 1Q report that will reassure in the current environment, while Citi says the company delivered an “encouraging” set of results. Engie rises as much as 6.9%, hitting the highest since March 1, after the French energy company boosted its profit guidance on higher European energy prices. CaixaBank advances as much as 5.4% after the Spanish lender released a new strategic plan that predicts a jump in a key profitability metric and announced a EU1.8b share buyback program. Prosus and Naspers both raised to overweight from neutral at JPMorgan following the broker’s upgrade of Tencent. Prosus shares gain as much as 6.5% in Amsterdam, Naspers climbs as much as 6.7% in Johannesburg. ContourGlobal gains as much as 34% after US private equity firm KKR agreed to buy the power generation business for 263.6p/share in cash, representing a premium of 36% to Monday’s close. Vodafone erases losses after dropping as much as 4.2% as the telecom operator’s forecast for adjusted Ebitda after-leases missed consensus estimates at mid- point. Earlier in the session, Asian stocks advanced for a third day -- its longest winning streak since mid-March -- amid a jump in some technology firms on the back of hopes for an unwind of Chinese lockdowns that have hurt the global economic outlook as well as a dialing back of Beijing’s regulatory crackdowns. The MSCI Asia-Pacific Index climbed as much as 1.5%, on track for a third day of gains. Chinese tech giants Tencent and Alibaba contributed most to the gain, while chipmakers TSMC and Samsung also helped. Shanghai reported no new Covid infections in the broader community for a third day, hitting a crucial milestone toward reduced restrictions. China’s top political advisory body is hosting a meeting Tuesday with some of the nation’s largest private-sector firms, sparking hopes for an improved business climate.  “The mood in Asia is risk on,” said Xue Hua Cui, a China equity analyst at Meritz Securities in Seoul. “Whether this remains a dead cat bounce or not depends on how quickly demand recovers following the end of Shanghai lockdowns.” Hong Kong outperformed, with the Hang Seng Index rising more than 3%. Benchmarks in India also advanced more than 2%, even as state-run insurer Life Insurance Corporation of India dropped in its Mumbai trading debut after a record initial public offering for the nation.  Japanese equities gained with Asian peers amid hopes that China will ease up on Covid lockdowns and regulatory crackdowns. The Topix rose 0.2% to close at 1,866.71. Tokyo time, while the Nikkei advanced 0.4% to 26,659.75. Recruit Holdings contributed the most to the Topix gain, rising 2% after its earnings report. Out of 2,172 shares in the index, 1,164 rose and 932 fell, while 76 were unchanged. Australia's S&P/ASX 200 index rose 0.3% to close at 7,112.50, taking its winning run to a third session. Miners and banks contributed the most to the gauge’s advance. Beach Energy was among the top performers, climbing with other energy shares as oil rallied. Brambles was the biggest laggard after saying CVC won’t be putting forward a proposal for the pallet maker. Investors also assessed minutes from the RBA’s May meeting. The central bank said it considered three options for the size of its first interest-rate increase since 2010. In New Zealand, the S&P/NZX 50 index fell 0.2% to 11,137.88. India’s key gauges surged on Tuesday, boosted by Reliance Industries Ltd. which climbed the most since early March. Still, Life Insurance Corp. of India, the country’s biggest listing so far, slumped on debut. The S&P BSE Sensex rose 2.5%, its biggest jump in three months, to 54,318.47 in Mumbai, while the NSE Nifty 50 Index advanced 2.6%. All of the 19 sector sub-indexes compiled by BSE Ltd. climbed, led by a gauge of metal companies. Reliance Industries advanced 4.2%, providing the biggest boost to the Sensex, which had all 30 members trading higher.  “It’s a much-needed breather for the bulls after five weeks of slide and we may further rise,” said Ajit Mishra, vice-president research at Religare Broking Ltd. “Since all the sectors are participating in the rebound, we suggest focusing more on stock selection. Despite strong gains in the broader market, shares in the state-controlled insurer plunged 7.8%, following a $2.7 billion IPO, India’s biggest on record. The stock trimmed losses from the low, but failed to touch the listing price in the session. LIC’s first-day performance makes for the second-worst debut among 11 global companies that listed this year after raising at least $1 billion through first-time share sales.  In FX, the Bloomberg Dollar Spot Index fell a third consecutive day and the greenback weakened against all of its Group-of-10 peers apart from the yen. The pound lead G-10 gains followed by Scandinavian and Antipodean currencies. The pound rallied and gilts slumped across the curve after a stronger-than-expected reading of the UK employment data stoked speculation that a tighter labor market may prompt the BOE to continue its monetary tightening cycle beyond a widely expected rate rise next month. Average weekly earnings surged 7% in the three months through March, compared to the 5.4% figure economists had expected. The euro rose on the back of a broadly weaker dollar. Bunds slid as haven demand was unwound. Italian bonds also tumbled as money markets wagered on up to 98bps of ECB hikes by December. The Aussie strengthened for a third day while Australia’s sovereign bonds fell after minutes from RBA’s May meeting indicated the central bank considered an outsized rate hike. The RBA said it considered three options for the size of its first interest-rate increase since 2010, according to minutes of its May 3 policy meeting, when it raised the cash rate by 25 basis points. The Australian and New Zealand dollars also benefitted from expectations that Covid lockdowns in Hong Kong and Shanghai will be lifted. The yen gave up earlier gains as US yields resumed their climb, which also weighed on Japan government bonds. In rates, yields rose as Treasuries cheapened with losses led by front-end of the curve, following a sharper bear flattening move across EGBs after ECB Governing Council member Klaas Knot said he supports a quarter-point increase in interest rates in July and that a bigger move may be justified if data show inflation worsening. US Treasury yields cheaper by up to 5.5bp across front-end of the curve, the 10Y TSY trading at 2.91% last and flattening 2s10s spread by 2.2bp on the day; 2-year German yields cheaper by 23bp on the day following Knot comments while German 10s are cheaper by 4bp vs. Treasuries. In U.S. session, focus on a stacked Fed speaker slate led by Chair Jerome Powell who will be interviewed during a Wall Street Journal live event in the afternoon. The Dollar issuance slate includes Export Development Canada 5Y SOFR, OKB 3Y SOFR and JICA 5Y SOFR; six deals priced $9.1n Monday in order books that were 3.3x oversubscribed In commodities, WTI drifts 0.2% higher to trade at around $114. Spot gold rises roughly $3 to trade above $1,825/oz. Base metals are mixed; LME tin falls 1.6% while LME zinc gains 2.4%. European gas prices hit four-week low after EU revised guidelines for purchases of Russian supplies. To the day ahead now, and there’s an array of central bank speakers including Fed Chair Powell, along with the Fed’s Bullard, Harker, Kashkari, Mester and Evans, ECB President Lagarde and BoE Deputy Governor Cunliffe. Data releases include US retail sales, industrial production and capacity utilisation for April, along with the NAHB’s housing market index for May. Elsewhere, there’s also the UK unemployment reading for March. Finally, earnings releases include Walmart and Home Depot. Market Snapshot S&P 500 futures up 1.3% to 4,057.75 STOXX Europe 600 up 1.6% to 440.47 MXAP up 1.4% to 162.83 MXAPJ up 2.2% to 535.18 Nikkei up 0.4% to 26,659.75 Topix up 0.2% to 1,866.71 Hang Seng Index up 3.3% to 20,602.52 Shanghai Composite up 0.6% to 3,093.70 Sensex up 2.1% to 54,080.42 Australia S&P/ASX 200 up 0.3% to 7,112.53 Kospi up 0.9% to 2,620.44 German 10Y yield little changed at 0.99% Euro up 0.4% to $1.0480 Brent Futures up 0.3% to $114.53/bbl Gold spot up 0.2% to $1,827.11 U.S. Dollar Index down 0.42% to 103.75 Top Overnight News from Bloomberg The euro-area economy grew more than initially estimated at the start of the year as the region moved past a wave of Covid-19 infections and defied headwinds from the early days of the war in Ukraine. Economic output rose 0.3% in the first quarter, exceeding a flash reading of 0.2%, according to Eurostat data released Tuesday. Employment, meanwhile, gained 0.5% during same period The UK will lay out its plan to amend its post-Brexit trade deal Tuesday in a direct challenge to the European Union, which is insisting that Prime Minister Boris Johnson must honor the agreement he signed China’s main bond trading platform for foreign investors has quietly stopped providing data on their transactions, a move that may heighten concerns about transparency in the nation’s $20 trillion debt market after record outflows The American and European Union chambers of commerce in separate briefings said their members are rethinking their supply chains and whether to expand investment in the face of China’s zero tolerance approach to combating Covid-19 Turkish President Recep Tayyip Erdogan said he won’t allow Sweden and Finland to join NATO because of their stances on Kurdish militants, throwing a wrench into plans to strengthen the western military alliance after Russia’s invasion of Ukraine A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks were positive but with gains capped after the uninspiring lead from Wall St and growth concerns. ASX 200 was kept afloat by strength in the commodity-related sectors after recent gains in underlying prices. Nikkei 225 traded marginally higher with Japan seeking to pass an extra budget by month-end and will begin permitting entry to a small number of tourists. Hang Seng and Shanghai Comp were both firmer with tech spearheading the outperformance in Hong Kong amid hopes of an easing of the crackdown on the sector, while the mainland lagged amid economic concerns and despite Shanghai reporting no cases outside of quarantine for a 3rd consecutive day. Top Asian News China's state planner said China's economy faces increasing downward pressure, while it will step up support for manufacturing companies, contact-intensive services, small companies and home businesses, according to Reuters. Senior Chinese officials are to meet with tech industry chiefs today amid talk of crackdown easing, according to Nikkei. It was later reported that China's top political consultative body began a conference on promoting the sustainable and healthy development of the digital economy, according to state media. Hong Kong Chief Executive Carrie Lam said they will proceed with the planned COVID curbs easing on May 19th, according to Bloomberg. BoJ Deputy Governor Amamiya said it is important to continue current powerful easing to firmly support the economy and that long-term interest rates have been stable since the adoption of fixed-rate operations, while he added that if monetary easing is reduced now, it would make the 2% price goal an even more distant target, according to Reuters. Japan is to permit small groups of tourists to visit this month as a trial ahead of its border reopening, according to Japan Times. European bourses are firmer across the board, Euro Stoxx 50 +1.7%, taking impetus from and extending on a positive APAC handover as the regions COVID situation improves. Stateside, futures are firmer across the board, ES +1.8%, following yesterday's  relatively lacklustre session with participants awaiting numerous Fed speak, including Chair Powell. Twitter (TWTR) prospective purchaser Musk says that his offer was based on the Co.'s SEC filing being accurate, however, yesterday the CEO refused to show proof of less than 5% of fake/spam accounts; deal cannot move forward until this has been disclosed. -3.5% in the pre-market. Home Depot Inc (HD) Q1 2023 (USD): EPS 4.09 (exp. 3.67/3.67 GAAP), Revenue 38.9bln (exp. 36.71bln); Raises Fiscal 2022 Guidance. +2.5% in the pre-market Top European News UK Foreign Secretary Truss is to declare her intention to bring forward legislation that rips up parts of the post-Brexit trade deal on Northern Ireland, according to LBC. Expected around 12:30BST/07:30ET Irish Foreign Minister Coveney says he spoke with UK Foreign Minister Truss on Monday, notes the EU and UK sides haven't met since February and says it is "time to get back to the table" ECB is expected to raise the deposit rate in July according to 39 out of 39 respondents in a Reuters survey, while 26 out of 48 economists see the deposit rate at 0% in Q3 and 21 out of 48 see the deposit rate at 0.25% in Q4. FX Pound the standout G10 performer in wake of outstanding UK labour report; Cable clears string of resistance levels on the way towards 1.2500 and EUR/GBP probes 0.8400 after breaching technical supports . Kiwi and Aussie relish renewed risk appetite and latter also helped by hawkish RBA minutes; NZD/USD above 0.6350 and 1.3bln option expiries at 0.6300, AUD/USD back on 0.7000 handle. Greenback concedes ground ahead of top tier US data and raft of Fed speakers including chair Powell, DXY down to 103.470 vs 104.320 at best; latest session low in wake of ECB's Knot. Franc, Euro and Loonie all up at the expense of the Buck but latter also fuelled by WTI topping USD 115/bbl; USD/CHF sub-parity, EUR/USD surpassing 1.05 in wake of hawk-Knot and USD/CAD near 1.2800. Yen lags as risk sentiment improves and yields outside of Japan rebound firmly; USD/JPY rebounds through 129.00 and just over 129.50. Norwegian Crown boosted by Brent in stark contrast to crude import dependent Turkish Lira and Indian Rupee; EUR/NOK under 10.1500, USD/TRY touches 15.8850 and USD/INR crosses 78.0000 to set fresh ATH Fixed Income Bonds make way for risk revival and brace for US data amidst a raft of global Central Bank speakers. Bunds down to 152.74, Gilts hit 119.25 and 10 year T-note as low as 119-08 before paring some heavy declines UK DMO gets welcome reception for 2015 issuance, but new German Schatz receives cold shoulder even before hawkish comments from ECB's Knot not ruling out a 50 bp July hike if data warrants more than 25 bp China's main bond trading platform is said to have stopped the reporting of bond trades by foreigners following the market downside, according to Bloomberg. Commodities WTI and Brent are firmer in-fitting with broader risk appetite and the aforementioned China COVID improvement; posting gains of circa USD 0.80/bbl. However, upside remains capped amid the ongoing standoff between the EU and Hungary over a Russian import embargo. Iran set June Iranian light crude price to Asia at Oman/Dubai + USD 4.25/bbl, according to a Reuters source   OPEC+ production was 2.6mln below quotas in April, according to a report cited by Reuters; Russian production 1.28mln below the required level in April, sources add. Spot gold is firmer, taking impetus from the USD pressure; though, the yellow metal is yet to move out of earlier ranges. Base metals are bid on risk while Wheat declined amid reports that India is easing some of its export restrictions. Central Banks ECB's Knot says a 25bp hike in July is realistic; says a 50bp rate hike should not be excluded if data in the next few months suggests that inflation is broadening and accumulating. NBH's Virag says they will increase rates further, via Reuters citing slides. NBP's Kotecki says that interest rates will continue to move higher but it is currently difficult to define their target level. US Event Calendar 08:30: April Retail Sales Advance MoM, est. 1.0%, prior 0.5%, revised 0.7% April Retail Sales Ex Auto MoM, est. 0.4%, prior 1.1%, revised 1.4% April Retail Sales Ex Auto and Gas, est. 0.7%, prior 0.2%, revised 0.7% April Retail Sales Control Group, est. 0.7%, prior -0.1%, revised 0.7% 09:15: April Industrial Production MoM, est. 0.5%, prior 0.9% 09:15: April Manufacturing (SIC) Production, est. 0.4%, prior 0.9% 10:00: March Business Inventories, est. 1.9%, prior 1.5% 10:00: May NAHB Housing Market Index, est. 75, prior 77 Fed Speakers 08:00: Fed’s Bullard Discusses Economic Outlook 09:15: Fed’s Harker Discusses Healthcare as Economic Driver 12:30: Fed’s Kashkari Takes Part in a Moderated Townhall Discussion 14:00: Powell Interviewed During Wall Street Journal Live Event 14:30: Fed’s Mester Gives Opening Remarks to Panel on Inflation 18:45: Fed’s Evans Discusses the Economic Outlook DB's Jim Reid concludes the overnight wrap Recession fears have continued to dominate markets over the last 24 hours, but Deutsche Bank Research is still the only bank to actually forecast one in the US. The tone was set for the day after some incredibly weak data out of China that we discussed yesterday, but that was then followed up with disappointing survey data from the US, which arrived ahead of an array of central bank speakers today (including Fed Chair Powell). Although markets in Asia are bouncing a little this morning, the S&P 500 (-0.39%) last night followed up its run of 6 consecutive weekly declines with a further loss. It was another volatile day that saw stocks trade in a 1.5% range, including going into positive territory briefly in the afternoon before slipping into the close. Sector dispersion was pretty wide, with energy shares gaining +2.62% and consumer discretionary stocks falling -2.12%, led by Tesla retreating -5.88%. Tech was the next biggest laggard, with the NASDAQ (-1.20%) and FANG+ index (-1.34%) underperforming the broader universe. That still leaves the S&P 500 index around 2% above its recent closing low on Thursday, but remember that if we get another week in negative territory, it would still be the first time since 2001 that the S&P has posted 7 consecutive weekly declines. After opening the week much lower, the STOXX 600 did recover through that day to post a slight +0.04% gain yesterday, continuing its recent outperformance. The prevailing risk-off mood meant that longer-dated sovereign bond yields also ended the day lower for the most part. Those on 10yr Treasuries were down -3.6bps to close at 2.88%, having already fallen by -20.8bps over the previous week as investors priced in a growing risk of recession over Fed and inflation concerns. The decline was split between breakevens and real yields. To be fair 10yr yields have gained +3.3bps this morning in Asia, thus almost reversing yesterday's losses so far. At the short-end, the amount of tightening priced in over the near-term has subsided somewhat of late, as it seems investors are searching high and low for a Fed put following a poor run of risk asset performance and the prior relentless repricing towards a more aggressive monetary tightening. Indeed if you were to stop the month right now, it would be the first month in 10 that the rate priced in by the December 2022 meeting has actually fallen rather than risen. That’s been echoed further out the curve as well, with investors now barely expecting the Fed Funds rate to get above 3% in 2023 at all, even though inflation has proven much stickier than the consensus expected over recent months. As Chair Powell put it in an interview last week, getting inflation back to target will “include some pain”. Markets are starting to price some of that out though. Over in Europe longer-dated sovereign bond yields also moved slightly lower, including those on 10yr bunds (-0.8bps), OATs (-1.4bps) and BTPs (-0.8bps). That came as we heard from Bank of France Governor Villeroy, who said to expect “a decisive June meeting, and an active summer”, which fits into the broader debate recently whereby markets are increasingly expecting an initial hike as soon as July. This saw the 2yr bund increase +3.0bps to 0.12%. Another point of interest were also his comments on the exchange rate, saying that “A euro that is too weak would go against our price-stability objective”. In line with the broader theme this year, one asset class that wasn’t impacted by the risk-off tone was commodities, and both Brent crude (+2.41%) and WTI (+3.36%) moved back above $114/bbl yesterday. This morning, both are seeing slight losses though (-0.36% and -0.46%, respectively). There were major gains for wheat futures (+5.94%) too, which saw a significant daily rise following India’s move over the weekend to restrict their exports. And that went alongside other rises in agricultural goods yesterday including corn (+3.6%) and sugar (+2.66%), which is an incredibly important story for emerging markets in particular given the much higher share of disposable income that consumers put towards food in those countries. Another asset class that has had a bad time of late is Bitcoin, shedding another -3.58% to $29,909 yesterday. This morning it is climbing back above the $30k threshold. Marion Laboure in my team published a piece yesterday looking at the recent selloff in crypto, adding some much needed context for what this means for broader adoption efforts. See here for more. Overnight in Asia, it has been a good start for the Hang Seng (+2.23%) amid optimism that today’s meeting between China’s corporates and regulators may lead to an easing of draconian measures on tech companies. Hong Kong is also on track to ease covid curbs on May 19th, a theme that also lifted the Shanghai Composite (+0.29%) after the city reported a third day of no new infections in the broader community, a threshold that allows it to roll back some of the restrictions. The sentiment is upbeat elsewhere in Asia too, with the Nikkei (+0.35%) and the KOSPI (+0.80%) also rising. This optimism is shared by S&P 500 futures, up +0.31%. Elsewhere, it’s likely that Brexit will be back in the headlines today as UK Foreign Secretary Liz Truss is expected to make a statement to parliament announcing a new law that would override parts of the Northern Ireland Protocol. For reference, the Protocol is a part of the Brexit deal which the UK and the EU agreed ahead of the UK’s departure, but has been a persistent source of controversy since. Northern Irish unionists view it as undermining their place in the UK because it places an economic border between Northern Ireland and Great Britain, and the DUP (the second-largest party in the Northern Ireland Assembly) are refusing to help form an executive following their recent elections unless action is taken on the Protocol. The EU have continued to warn the UK against any unilateral action, and there’s been fears of an UK-EU trade war if the row gets worse. There wasn’t much in the way of data yesterday, although the Empire State manufacturing survey for May underwhelmed with a reading of -11.6 (vs. 15.0 expected), which was beneath every estimate in Bloomberg’s survey. There was some easing in the prices paid index though, which fell to a 14-month low of 73.7. To the day ahead now, and there’s an array of central bank speakers including Fed Chair Powell, along with the Fed’s Bullard, Harker, Kashkari, Mester and Evans, ECB President Lagarde and BoE Deputy Governor Cunliffe. Data releases include US retail sales, industrial production and capacity utilisation for April, along with the NAHB’s housing market index for May. Elsewhere, there’s also the UK unemployment reading for March. Finally, earnings releases include Walmart and Home Depot. Tyler Durden Tue, 05/17/2022 - 07:43.....»»

Category: blogSource: zerohedgeMay 17th, 2022

Futures Slide After China"s "Huge" Data Miss Sparks "Broad-Based Recession Talk"

Futures Slide After China's "Huge" Data Miss Sparks "Broad-Based Recession Talk" Friday's bear market rally dead-cat bounce appears to be over, and global stocks have started the new week in the red with US equity futures lower after a "huge miss", as Bloomberg put it, in Chinese data fueled concerns over the impact of a slowdown in the world’s second-largest economy. As reported last night, China’s industrial output and consumer spending hit the worst levels since the pandemic began, hurt by Covid lockdowns. And even though officials took another round of measured steps to help the economy by cutting the interest rate for new mortgages over the weekend to bolster an ailing housing market, even as they left the one-year policy loan rate was left unchanged Monday, few believe that any of these actions will have a tangible impact and most continue to expect much more from Beijing.  As such, after a weekend that saw even Goldman's perpetually optimistic equity strategists slash their S&P target (again) from 4,700 to 4,300, and amid growing fears that a recession is now inevitable, Nasdaq 100 futures slid as much as 1.2%, before paring losses to 0.4% as of 730 a.m. in New York. S&P 500 futures were down 0.3%. 10Y Treasury yields were flat at 2.91% and the dollar dipped modestly while bitcoin traded just above $30,000 dropping from $31,000 earlier in the session. Among notable moves in premarket trading, Spirit Airlines jumped as much as 21% following a report that JetBlue Airways is planning a tender offer at $30 a share in cash. Major US technology and internet stocks were down after rebounding on Friday, while Tesla shares dropped, with the electric-vehicle maker set to recall 107,293 cars in China over a potential safety risk. Twitter shares fall 3.4% in premarket trading on Monday, on course to wipe out all the gains the stock has made since billionaire Elon Musk disclosed his stake in the social media platform. Twitter fell to as low as $37.86 -- below the the April 1 close of $39.31, before Musk disclosed his stake. US stocks have been roiled this year, with the S&P 500 on tick away from a bear market as recently as last Thursday, on worries of an aggressive pace of rate hikes by the Federal Reserve at a time when macroeconomic data showed a slowdown in growth. Data from China on Monday highlighted a massive toll on the economy from Covid-19 lockdowns, with retail sales and industrial output both contracting. Although lower valuations sparked a rally in stocks on Friday, strategists including Morgan Stanley’s Michael Wilson warned of more losses ahead as equity markets also price in slower corporate earnings growth. Goldman Sachs strategists led by David Kostin cut their year-end target for the S&P 500 on Friday to 4,300 points from 4,700.  "The broad-based recession talk is the major catalyzer this Monday,” Ipek Ozkardeskaya, a senior analyst at Swissquote, wrote in a note. “Activity in US futures hint that Friday’s rebound was certainly nothing more than a dead cat bounce” just as we said at the time.  The risk of an economic downturn amid price pressures and rising borrowing costs remains the major worry for markets. Goldman Sachs Group Senior Chairman Lloyd Blankfein urged companies and consumers to gird for a US recession, saying it’s a “very, very high risk.” Traders remain wary of calling a bottom for equities despite a 17% drop in global shares this year, with Morgan Stanley warning that any bounce in US stocks would be a bear-market rally and more declines lie ahead. In Europe, the Stoxx Europe 600 index fell as much as 0.8% before paring losses, with declines for tech and travel stocks offsetting gains for basic resources as industrial metals rallied. The Euro Stoxx 50 falls 0.4%. IBEX outperforms, adding 0.3%. Tech, personal care and consumer products are the worst performing sectors. Here are some of the biggest European movers today: Basic Resources stocks outperformed with broad gains among mining and steel companies; ArcelorMittal +3.5%; SSAB +2.6%; Glencore +2.1%; Voestalpine +3.1%. Sartorius AG and Sartorius Stedim shares gain as UBS upgrades both stocks to buy following a “significant de-rating” for the lab-equipment companies, seeing supportive global trends. Carl Zeiss Meditec gains as much as 4.9% after HSBC raised its recommendation to buy from hold, saying the medical optical manufacturer is “well-equipped to deal with supply chain challenges.” Interpump rises as much as 7.6%, extending winning streak to five days, as Banca Akros upgrades the stock to buy from accumulate following Friday’s 1Q results. Casino shares jump as much 5.8% after the French grocer said it’s started a process to sell its GreenYellow renewable energy arm, confirming a Bloomberg News report from Friday. Ryanair shares decline as much as 4.3% on FY results, with analysts focusing on the low-budget carrier’s recovery outlook. They note management is cautiously optimistic about summer travel. Vantage Towers shares decline after the company posted FY23 adjusted Ebitda after leases and recurring free cash flow forecasts that missed analyst estimates at mid- points. Unilever falls after a 13-F filing from Nelson Peltz’s Trian shows no position in the company, according to Jefferies, damping speculation after press reports earlier this year that the fund had built a stake. Michelin shares fall as much as 3.7% after being downgraded to neutral from overweight at JPMorgan, which says it writes off any chance of seeing a recovery in volume production growth in FY22. Earlier in the session, Asian stocks eked out modest gains as surprisingly weak Chinese economic data spurred volatility and caused traders to reassess their outlook on the region. The MSCI Asia-Pacific Index was up 0.1%, paring an earlier advance of as much as 0.9%  on stimulus hopes. The region’s information technology index rose as much as 1.5%, with TMSC giving the biggest boost. A sub-gauge on materials shares fell the most. Equities in China led losses, as Beijing’s moves to cut the mortgage rate for first-time home buyers and ease lockdown restrictions in Shanghai failed to reverse the downbeat mood. Asian stocks were trading higher early Monday, building on Friday’s rally, only to trim or reverse gains as data showed a sharper-than-expected contraction in Chinese activity in April. Signs of an earnings recovery in China are needed for investors to come back, Arnout van Rijn, chief investment officer for APAC at Robeco Hong Kong Ltd., said on Bloomberg Television. “It looks like China is not going to meet the 15% earnings growth that people were looking for just a couple of months ago. So now we’re looking for five, 10, maybe it’s even going to fall to zero.”   Meanwhile, JPMorgan analysts, who had called China tech “uninvestable” in March, upgraded some tech heavyweights including Alibaba in a Monday report, citing less regulatory uncertainties. Benchmarks in Japan, Australia, India and Taiwan maintained gains while Hong Kong also recovered some ground later in the day. Markets in Singapore, Thailand, Malaysia and Indonesia were closed for holidays.      Japanese equities were mixed, with the Topix closing slightly lower after worse-than-expected Chinese economic data amid the impact from virus-related lockdowns. The Topix fell 0.1% to close at 1,863.26, with Honda Motor contributing the most to the decline after its forecast for the current year missed analyst expectations. The Nikkei advanced 0.5% to 26,547.05, with KDDI among the biggest boosts after announcing its results and a 200 billion yen buyback. “Though the lockdowns in China are pushing down the economy and causing supply chain difficulties, there’s a positive outlook since the weekend that there could be a gradual easing of the lockdowns as it seems that virus cases have peaked out,” said Masashi Akutsu, chief strategist at SMBC Nikko Securities. In Australia, the S&P/ASX 200 index rose 0.3% to 7,093.00, trimming an earlier advance of as much as 1.1% after soft Chinese economic data stoked concerns about global growth. Read: Aussie, Kiwi Slump After Weak China Data: Inside Australia/NZ Brambles was the top performer after confirming it’s in talks with private equity firm CVC Capital Partners on a takeover proposal. Qube also climbed after completing a A$400 million share buyback.  In New Zealand, the S&P/NZX 50 index fell 0.1% to 11,157.66. In rates, Treasuries were steady with yields within 1bp of Friday’s close. US 10-year yield near flat ~2.91% with bunds cheaper by ~5bp, gilts ~3.5bp amid heavy. German 10-year yield up 5 bps, trading narrowly below 1%. Italian 10-year bonds underperform, with the 10-year yield up 8 bps to 2.93%. Peripheral spreads are mixed to Germany; Italy and Spain widen and Portugal tightens. The Italy 10-year was cheaper by more than 6bp on the day amid renewed ECB jawboning. Core European rates are higher, pricing in ECB policy tightening. During Asia session, Chinese data showed industrial output and consumer spending at worst levels since the pandemic began. The dollar issuance slate includes CBA 3T covered SOFR; $30b expected for this week as syndicate desks seek opportunities for pent-up supply. Three-month dollar Libor +1.13bp at 1.45500%. In FX, the Bloomberg Dollar Spot Index was little changed while the greenback advanced against most of its Group-of-10 peers. Treasuries inched lower, led by the front end, and outperformed European bonds. The euro inched up against the dollar. Italian bonds dropped, leading peripheral underperformance against euro- area peers, while money markets showed increased ECB tightening wagers after policy maker Francois Villeroy de Galhau said a consensus is “clearly emerging” at the central bank on normalizing monetary policy and that June’s meeting will be “decisive.” He also signaled that the weakness of the euro is focusing the minds of ECB policy makers at a time when the currency is heading toward parity with the dollar. The euro may resume its rally versus the pound in the spot market as options traders pile up bullish wagers. The pound fell against both the dollar and euro, staying under selling pressure on concerns that high UK inflation will weigh on the economy. Markets await testimony from Bank of England Governor Andrew Bailey and other central bank officials later in the day, ahead of a reading of April inflation later in the week. Australian and New Zealand dollars fell after Chinese industrial and consumer data fanned concerns of a further slowdown in the world’s second-largest economy. In commodities, WTI drifts 0.4% lower to trade above $110. Spot gold pares some declines, down some $6, but still around $1,800/oz. Most base metals trade in the green; LME tin rises 3.4%, outperforming peers. Bitcoin falls 4.6% to trade below $30,000 Looking ahead, we get the US May Empire manufacturing index, Canada April housing starts, March manufacturing, wholesale trade sales. Central bank speakers include the Fed's Williams, ECB's Lane, Villeroy and Panetta, BOE's Bailey, Ramsden, Haskel and Saunders. We get earnings from Ryanair, Take-Two Interactive. Market Snapshot S&P 500 futures down 0.3% to 4,008.75 STOXX Europe 600 little changed at 433.33 MXAP up 0.2% to 160.34 MXAPJ up 0.2% to 523.32 Nikkei up 0.5% to 26,547.05 Topix little changed at 1,863.26 Hang Seng Index up 0.3% to 19,950.21 Shanghai Composite down 0.3% to 3,073.75 Sensex up 0.6% to 53,119.79 Australia S&P/ASX 200 up 0.3% to 7,093.03 Kospi down 0.3% to 2,596.58 German 10Y yield little changed at 0.98% Euro up 0.1% to $1.0424 Brent Futures down 1.4% to $109.98/bbl Gold spot down 0.8% to $1,797.30 US Dollar Index little changed at 104.46 Top Overnight News from Bloomberg NATO members rallied around Finland and Sweden on Sunday after they announced plans to join the alliance, marking another dramatic change in Europe’s security architecture triggered by Russia’s war in Ukraine The euro area’s pandemic recovery would almost grind to a halt, while prices would surge even more quickly if there are serious disruptions to natural-gas supplies from Russia, according to new projections from the European Commission UK energy regulator Ofgem plans to adjust its price cap every three months instead of every six. Changing the level more often would help consumers to take advantage of falling wholesale prices more quickly, it said in a statement Monday. This would also mean higher prices filter through bills quicker Boris Johnson has warned Brussels that the UK government will press ahead with unilateral changes to parts of the Brexit agreement if it does not engage in “genuine dialogue” While debt bulls on Wall Street have been crushed all year, market sentiment has shifted markedly over the past week from inflation fears to growth. That theme gathered more strength Monday, when data showing China’s economy contracted sharply in April set off fresh gains for Treasuries China’s economy is paying the price for the government’s Covid Zero policy, with industrial output and consumer spending sliding to the worst levels since the pandemic began and analysts warning of no quick recovery. Industrial output unexpectedly fell 2.9% in April from a year ago, while retail sales contracted 11.1% in the period, weaker than a projected 6.6% drop Japanese manufacturers are increasingly looking to move offshore operations to their home market, according to a Tokyo Steel Manufacturing Co. executive. The rapidly weakening yen, global supply-chain constraints, geopolitical risks and shifting wages patterns are prompting the switch, Kiyoshi Imamura, a managing director of the steelmaker, said in an interview in Tokyo last week A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks traded mixed after disappointing Chinese activity data clouded over the early momentum from Friday’s rally on Wall St. ASX 200 was higher as tech stocks were inspired by US counterparts and amid M&A related newsflow with Brambles enjoying a double-digit percentage gain after it confirmed it had talks with CVC regarding a potential takeover by the latter. Nikkei 225 kept afloat as earnings releases provided the catalysts for individual stocks but with gains capped by a choppy currency. Hang Seng and Shanghai Comp initially gained with property names underpinned after China permitted a further reduction in mortgage loan interest rates for first-time home purchases and with casino stocks also firmer in the hope of a tax reduction on gaming revenue. However, the mood was then spoiled by weak Chinese data and after the PBoC maintained its 1-year MLF rate. Top Asian News PBoC conducted a CNY 100bln in 1-year MLF with the rate kept unchanged at 2.85% and stated the MLF and Reverse Repo aim to keep liquidity reasonably ample, according to Bloomberg. Beijing extended work from home guidance in several districts and announced three additional rounds of mass COVID-19 testing in most districts including its largest district Chaoyang, according to Reuters. Shanghai will gradually start reopening businesses including shopping malls and hair salons in China's financial and manufacturing hub beginning on Monday following weeks of a strict lockdown, according to Reuters. Shanghai city official said 15 out of the 16 districts achieved zero-COVID outside quarantine areas and the city's epidemic is under control but added that risks of a rebound remain and they will need to continue to stick to controls. The official said the focus until May 21st will be to prevent risks of a rebound and many movement restrictions are to remain, while they will look to allow normal life to resume in Shanghai from June 1st and will begin to reopen supermarkets, convenience stores and pharmacies from today, according to Reuters. Chinese financial authorities permitted a further reduction in mortgage loan interest rates for some home buyers whereby commercial banks can lower the lower limit of interest rates on home loans by 20bps based on the corresponding tenor of benchmark Loan Prime Rates for purchases of first homes, according to Reuters. China's stats bureau spokesman said economic operations are expected to improve in May and that China is steadily pushing forward production resumption in COVID-hit areas, while they expect China's economic recovery and rebound in consumption to quicken but noted that exports face some pressure as the global economy slows, according to Reuters. Macau is reportedly considering a tax cut for casinos amid a decline in gaming revenue in which a cut could be as much as 5% off the current 40% levied on casino gaming revenue, according to Bloomberg. European bourses are mixed, Euro Stoxx 50 -0.6%, following a similar APAC session with impetus from Shanghai's reopening offset by activity data and geopolitics. Stateside, futures are lower across the board, ES -0.4%, with the NQ marginally lagging as yields lift; Fed's Williams due later before Powell on Tuesday. US players are focused on whether the end-week bounce is a turnaround from technical bear-market levels or not. China's market regulator says Tesla (TSLA) has recalled 107.3k Model 3 & Y vehicles, which were made in China. JetBlue (JBLU) is to launch a tender offer for Spirit Airlines (SAVE); JetBlue is to offer USD 30/shr, but prepared to pay USD 33/shr if Spirit provides JetBlue with requested data, WSJ sources say. Elon Musk tweeted that Twitter’s (TWTR) legal team called to complain that he violated their NDA by revealing the bot check sample size and he also tweeted there is some chance that over 90% of Twitter’s daily active users might be bots. Top European News UK PM Johnson is reportedly set to give the green light for a bill on the Northern Ireland protocol, according to the Guardian. UK PM Johnson said he hopes the EU changes its position on the Northern Ireland protocol and if not, he must act, while he sees a sensible landing spot for a protocol deal and will set out the next steps on the protocol in the coming days, according to Reuters. UK PM Johnson is expected to visit Northern Ireland on Monday for talks with party leaders in an effort to break the political deadlock at Stormont, according to Sky News. Irish Foreign Minister Coveney says the EU is prepared to move on reducing checks on goods coming into the region from Britain, via Politico. UK Cabinet ministers have turned on the BoE regarding rising inflation, whereby one minister warned that the Bank was failing to "get things right" and another suggested that it had failed a "big test", according to The Telegraph. Group of over 50 economists warned that the UK's post-Brexit plans to boost the competitiveness of its finance industry risk creating the sort of problems that resulted in the GFC, according to Reuters. European Commission Spring Economic Forecasts: cuts 2022 GDP forecast to 2.7% from the 4.0% projected in February. Click here for more detail. Central Banks ECB's Villeroy expects a decisive June meeting and an active summer meeting, pace of further steps will account for actual activity/inflation data with some optionality and gradualism; but, should at least move towards the neutral rate. Will carefully monitor developments in the effective FX rate, as a significant driver of imported inflation; EUR that is too weak would go against the objective of price stability.   ECB’s de Cos said the central bank will likely decide at the next meeting to end its stimulus program in July and raise rates very soon after that, while he added that they are not seeing second-round effects and are monitoring it, according to Reuters. FX Euro firmer following verbal intervention from ECB’s Villeroy and spike in EGB yields EUR/USD rebounds from sub-1.0400 to 1.0435 at best. Dollar up elsewhere as DXY pivots 104.500, but Yen resilient on risk grounds as Chinese data misses consensus by some distance; USD/JPY capped into 129.50. Franc falls across the board after IMM specs raise short bets and Swiss sight deposits show SNB remaining on the sidelines; USD/CHF above 1.0050 at one stage. However, HKMA continues to defend HKD peg amidst CNY, CNH weakness in wake of disappointing Chinese industrial production and retail sales releases. Norwegian Crown undermined by pullback in Brent and narrower trade surplus, EUR/NOK over 10.2100. SA Rand soft as Gold retreats to test support around and under Usd 1800/oz. Loonie slips with WTI ahead of Canadian housing starts, manufacturing sales and wholesale trade, Sterling dips before BoE testimony; USD/CAD 1.2900+, Cable sub-1.2250. Fixed income EGBs rattled by ECB rhetoric inferring key policy meetings kicking off in June and extending through summer. Bunds down towards 153.00 and 10 year yield back up around 1%, Gilts almost 1/2 point adrift and T-note erasing gains from 12/32+ above par at best. Eurozone periphery underperforming with added risk-off angst following much weaker than expected Chinese data. In commodities WTI and Brent are pressured, but well off lows, and torn between China's lockdown easing and poor activity data amid numerous other catalysts Specifically, the benchmarks are around USD 110/bbl and USD 111/bbl respectively, Saudi Aramco Q1 net income rose 82% Y/Y to INR 39.5bln for its highest quarterly profit since listing, according to Sky News. Saudi Energy Minister says they are going to get to 13.2-13.4mln BPD, subject to what is done in the divided zone, by end-2026/start-2027; can maintain production when there, if the market demands this. OPEC+ to continue with monthly output increases, according to Bahrain's oil minister via Reuters. Iraqi state-run North Oil Company said Kurdish armed forces took control of some oil wells in northern Kirkuk, according to Reuters. Iraq oil minister says they aim to increase oil production to 6mln BPD by end-2027, OPEC is targeting a energy market balance not a price; adding, current production capacity is 4.9mln BPD, will reach 5mln BPD before the end of 2022. China is to increase fuel prices from Tuesday, according to China's NDRC; gasoline by CNY 285/t and diesel by CNY 270/t. US Event Calendar 08:30: May Empire Manufacturing, est. 15.0, prior 24.6 16:00: March Total Net TIC Flows, prior $162.6b DB's Jim Reid concludes the overnight wrap Markets managed a big bounce on Friday but the mood has soured again in the Asian session after a weak slew of data from China as covid lockdowns had an even worse impact than expected. Industrial production (-2.9% vs +0.5% expected), retail sales (-11.1% vs -6.6% expected) and property investment (-2.7% vs -1.5% expected) all crashed through estimates by a large margin. The slump in retail sales and industrial production was the weakest since March 2020. The latter also had the lowest print on record, with the worst decline coming from auto manufacturing (-31.8%). The surveyed jobless rate (6.1% vs estimates of 6.0%) also ticked up by more than expected from 5.8% in March and is now close to the high of 6.2% in February 2020. Although the 1-year policy loan rate was left unchanged today, the PBoC did ease the rate on new mortgages this weekend. In other data releases, Japan’s April PPI (+10.0%) came in above estimates of +9.4%, the highest since 1980. Amid this, the Shanghai Composite (-0.51%) and the Hang Seng (-0.43%) are in the red, and outperformed by the KOSPI (-0.21%) and the Nikkei (+0.46%). The sentiment has soured in American markets too, with S&P 500 futures also trading lower (-0.68%) and the US 10y yield declining by -2.2bps. Oil (-1.48%) is edging lower too on growth concerns. After last week’s meltdown in crypto markets, Bitcoin is back at above $30k this morning – a jump since the lows of nearly $26k last Thursday but way short of the $38k it traded at in the beginning of the month and $68k early last November. The infamous TerraUSD, the stablecoin that fuelled the crypto slide, is at $0.18. It is supposed to trade at $1 at all times. Looking forward now and there's not a standout event to focus on this week but they'll be plenty to keep us all occupied. US retail sales (tomorrow) looks like the highlight alongside Powell's speech the same day. There will also be US housing data smattered across the week and UK and Japanese inflation on Wednesday and Friday respectively. Let's start with US retail sales as it will be a good early guide for Q2 GDP. Our US economists are anticipating a +1.7% print, up from +0.7% in March. Rebounding auto sales should help the headline number. For more on the consumer, Brett Ryan put out this chartbook last week on the US consumer (link here). US industrial production is out the same day. We have a long list of central bank speakers this week headed by Powell and Lagarde (tomorrow) and BoE Bailey today. There are many more spread across the week and you can see the list in the day by day event list at the end. We do have the last ECB meeting minutes on Thursday but the subsequent push towards a July hike might make these quite dated. US housing will be a big focus next week. It's probably too early for the highest mortgage rates since 2009 to kick in but with these rates around 220bps higher YTD, some damage will surely soon be done after the highest YoY price appreciation outside of an immediate post WWII bounce, in our 120 year plus housing database. On this we will see the NAHB housing market index (tomorrow), April’s US building permits and housing starts (Wednesday), and existing home sales (Thursday). Turning to corporate earnings, it will be another quiet week after 457 of the S&P 500 companies and 368 of the STOXX 600 companies have reported earnings this season so far. Yet, it will be an important one to gauge how the US consumer is faring amid inflation at multi-decade highs, including reports such as Walmart, Home Depot (tomorrow), Target and TJX (Wednesday). Results will also be due from China's key tech and ecommerce companies like JD.com (tomorrow), Tencent (Wednesday) and Xiaomi (Thursday). Other notable corporate reporters will include Cisco (Wednesday), Applied Materials, Palo Alto Networks (Thursday) and Deere (Friday). A quick recap of last week’s markets now. Fears that global growth would slow due to the tightening task at hand for central banks sent ripples across markets, without a clear specific catalyst. Equities declined, credit spreads widened, the dollar rallied, and sovereign yields declined. The S&P 500 fell for the sixth consecutive week for the first time since 2011, falling -13.0% over that time. Even with a +2.39% rally on Friday, it fell -2.41% last week. Large cap technology firms underperformed, with the NASDAQ falling -2.80% (+3.82% Friday), while the FANG+ index fell -3.48% (+5.45% Friday). Volatility was elevated, with the Vix closing above 30 for 6 straight days for the first time since immediately following the invasion, narrowly avoiding a 7th straight day above 30 by closing the week at 28.8. European equities outperformed, with the STOXX 600 climbing +0.83% after a banner +2.14% gain Friday. The Itraxx crossover ended the week at 446bps, its widest level since June 2020. Crypto assets sharply declined, with Bitcoin down -12.51% and Coinbase -34.58% over the week, with a number of so-called ‘stablecoins’ breaking their pledged parity, forcing some to stop trading. The growth fears drove a flight to quality. The dollar index increased +0.87% (-0.27% Friday) to its highest levels since 2002. Only the yen outperformed the US dollar in the G10 space. Sovereign yields rallied significantly, with 10yr Treasuries, bunds, and gilts falling -19.3bps (+8.5bps Friday), -23.0bps (+6.2bps Friday), and -28.7bps (+4.7bps Friday), respectively. Reports that the EU was considering softening their oil-related sanctions due to member resistance combined with growth fears to send oil prices much lower at the beginning of the week, with Brent crude futures almost breaking $100/bbl. When all was said and done, a gradual rally over the back half of the week saw Brent merely -1.04% lower (+3.82% Friday). On the back of disappointing data from China it is down -1.48% this morning. There was a lot of high-profile central bank speak to work through, as there will be this week. The main takeaways included Fed officials aligning behind a series of +50bp hikes the next few meetings, downplaying the chances of +75bp hikes until September at the earliest. Meanwhile, momentum in the ECB is growing toward a July policy rate hike, with policy rates breaching positive territory by the end of the year. In terms of data Friday, the University of Michigan survey of inflation expectations for the next five years was unchanged at 3 percent, though inflation has weighed on consumers’ perception of the current situation. Tyler Durden Mon, 05/16/2022 - 08:02.....»»

Category: blogSource: zerohedgeMay 16th, 2022

Futures Slide Ahead Of Tech Earnings Deluge

Futures Slide Ahead Of Tech Earnings Deluge One day after stocks staged a remarkable rebound and closing well in the green after sliding as much as 1.5% (ostensibly after getting a boost from the latest bout of bearishness from Dennis Gartman), index futures are trading lower again despite another attempt by China's central bank to reassure investors overnight that China's sliding risk assets will rebound, with investors once again preoccupied by risks from aggressive monetary tightening. S&P500 futures contracts were 0.4% not too far off the worst levels ahead of a busy session of earnings releases including Google, Microsoft and Google; Nasdaq 100 futures declined 0.3%. Treasuries were steady and the dollar gained. “Markets in general are preoccupied by the prospect of tighter monetary policy conditions from global central banks to stem rising prices,” said Cesar Perez Ruiz, chief investment officer at Pictet Wealth Management. “Indeed, while the Federal Reserve and the ECB both stepped up their inflation-fighting rhetoric, they failed to prevent market-based inflation expectations from moving higher.” Twitter extended gains in premarket trading after Elon Musk agreed to buy the social media company for $44 billion. Its shares are still trading below the offer price of $54.20 per share. Analysts say Musk’s vision to reduce moderation to promote free speech could put the social media company’s advertising dollars at risk. Here are some of the other big U.S. movers today: Meme stock Cenntro Electric (CENN) drops as much as 15% in U.S. premarket trading, after the maker of commercial electric vehicles reported a net loss of $16.4 million for 2021. Redbox Entertainment (RDBX) shares rise 2.8% in U.S. premarket trading after the company disclosed after Monday’s close that CFO Kavita Sutha had resigned. O-I Glass (OI) “crushes” its first-quarter, according to Truist Securities, with the broker noting the glass bottle maker’s operating profit beat and a guidance hike. O-I shares were up 12% in postmarket trading. Venator Materials (VNTR) jumps as much as 27% in premarket trading Tuesday after the company reached an $85 million cash settlement with Tronox Holdings over a break fee from a failed chemical plant deal dating back to 2018. Nkarta (NKTX) shares slump 8% in U.S. premarket after launching a stock offering via Cowen, SVB, Evercore at a price of $15/share that represents 19.9% discount to last close. Universal Health’s (UHS) weaker-than-expected results and potential guidance downgrade were driven by labor headwinds, analysts say. Shares fell 12% in after-hours trading. Protagonist Therapeutics’ (PTGX) PN-943 drug candidate “still has legs to make it across the finish line,” despite the Phase 2 data showing that a 450 mg BID dose did not meet its primary endpoint. Shares fell 31% in postmarket trading. Barclays sees positive fundamentals for medical office building property category, expanding coverage with initiations on Healthcare Realty Trust (HR US) and Physicians Realty Trust (DOC) at overweight. Companies reporting earnings on Tuesday include Microsoft, Google parent Alphabet and Visa. European stocks traded well, the Stoxx 600 Index 0.8% higher with energy and mining shares gaining as commodity prices rebounded. Euro Stoxx rises as much as 1.25%, roughly halving Monday’s decline. Miners and real estate lead broad sectoral gains. A third of Stoxx 600 companies will be updating on earnings and sales this week.  Asian stocks pared most of their early Tuesday advance as Chinese shares gave up gains spurred by a renewed central bank pledge to support the region’s biggest economy. The MSCI Asia Pacific Index was up 0.3% as of 5:38 p.m. in Hong Kong, versus an earlier rally of as much as 0.8%. China’s CSI 300 Index ended 0.8% lower as worries about a potential city-wide lockdown in Beijing weighed on sentiment. Still, a gauge of the nation’s tech stocks jumped almost 3% in Hong Kong on fresh policy promises to end a regulatory crackdown in the sector. Continued losses in Chinese equities have weighed on the Asian stock benchmark, which is headed for a fourth straight month of losses. China’s government expanded Covid-19 testing to most of Beijing, sparking fears about an unprecedented lockdown. Traders have said a change in the nation’s Covid-Zero strategy is the key to turning around sentiment.  “It would be difficult to see a quick improvement in sentiment” amid weak market fundamentals and fund flows, said Kim Kyung Hwan, a Chinese equity strategist at Hana Financial Investment in Seoul. “Market players are waiting for stronger measures, such as an interest-rate cut.” Elsewhere in Asia, stocks rose in India and South Korea while those in Australia slipped. Traders are also monitoring results releases in what is set to be the busiest week of the current earnings cycle in Asia. Japanese equities rose for the first time in three sessions, boosted by gains in telecoms. Service providers also lifted the Topix, which rose 0.1%. SoftBank Group and M3 Inc. were the largest contributors to a 0.4% rise in the Nikkei 225 Australian stocks fell the most in two months on the continued Materials selloff. The S&P/ASX 200 index fell 2.1%, the most since Feb. 24, to close at 7,318.00, as trading resumed after a three-day break. The materials and energy groups led declines following drops in commodities prices. EML Payments tumbled to the lowest level in two years after lowering its revenue and earnings forecasts for the full year. Nufarm was among the biggest gainers, rising to its highest level since September 2018 after issuing 1H guidance.  In New Zealand, the S&P/NZX 50 index fell 0.8% to 11,813.18. Fixed income grinds higher with 10y bund and UST futures erasing Asia’s losses; the 10-year TSY is around 2.795% outperforming bunds by ~2.5bp, gilts by ~3.5bp. Treasuries are moderately richer across the curve, sharply outperforming bunds and gilts over the London session, although 10-year note futures remain inside Monday’s range. US yields are richer by 1bp-3bp across most of the curve with long-end lagging slightly, steepening 5s30s and 10s30s by ~2bp. Peripheral spreads widen to cover with long-end Portugal underperforming. Japan’s bond futures gained after the central bank said it will extend its unlimited debt buying operation by two more days. In FX, the Bloomberg Dollar Spot Index rose a fourth day, as the greenback advanced against most of its Group-of-10 peers. Treasury yields dropped 2-3 bps across the curve. The euro fell to touch $1.0673, the lowest level since March 2020. European bonds were little changed, underperforming U.S. Treasuries.  China’s yuan rose for the first time in six days after the nation’s central bank pledged to support the economy through targeted financing for small businesses, and a quick resolution of the ongoing crackdown on technology firms, in a bid to reassure investors nervous about growth and Covid lockdowns. Australian dollar climbed on leveraged buying as China’s policy-support pledge spurred a turnaround in the nation’s stock indexes and added to a bounce in oil and iron ore. The yen was set for its longest winning streak in almost a month.  The pound ticked lower against the dollar amid broad-based greenback strength and Gilts inched up, led by the short end. Prime Minister Boris Johnson will urge ministers to explore “innovative ways” to ease pressures on household finances on Tuesday In commodities, crude futures decline with WTI eventually finding support near $97. Spot gold posts small gains, Bitcoin holds a narrow range near $40,500. Binance has launched Binance Refugee Crypto Card for all current and new Binance users from Ukraine moving to EEA countries Looking at the day ahead, data releases from the US include the Conference Board’s consumer confidence indicator for April, preliminary March data on durable goods orders and core capital goods orders, the FHFA house price index for February, and new home sales for March. From central banks, we’ll hear from the ECB’s Villeroy and de Cos. Finally, earnings releases include Microsoft, Alphabet, Visa, Pepsico, UPS, Texas Instruments, General Electric and General Motors. Market Snapshot S&P 500 futures down 0.3% to 4,281.50 STOXX Europe 600 up 0.8% to 448.67 MXAP up 0.2% to 166.28 MXAPJ up 0.3% to 546.79 Nikkei up 0.4% to 26,700.11 Topix up 0.1% to 1,878.51 Hang Seng Index up 0.3% to 19,934.71 Shanghai Composite down 1.4% to 2,886.43 Sensex up 1.0% to 57,161.33 Australia S&P/ASX 200 down 2.1% to 7,317.98 Kospi up 0.4% to 2,668.31 German 10Y yield little changed at 0.84% Euro down 0.2% to $1.0687 Brent Futures down 0.3% to $101.97/bbl Brent Futures down 0.3% to $101.97/bbl Gold spot up 0.3% to $1,902.86 U.S. Dollar Index up 0.13% to 101.89 Top overnight News from Bloomberg ECB Governing Council member Martins Kazaks says the central bank should raise interest rates soon and has room for as many as three hikes this year, Reuters reports The renewed pledge by Chinese authorities to boost the economy is being met with skepticism by stock traders worried about a potential city-wide lockdown in Beijing China’s central bank pledged to increase support for the economy, seeking to reassure investors as financial markets take a hammering from a worsening growth outlook and threats of widespread Covid lockdowns. China’s economy slowed rapidly in April as the costs of both a worsening Covid outbreak and the nation’s stringent approach to eliminating the virus took their toll. Oil held its decline below $100 a barrel as investors assessed the impact of China’s Covid-19 resurgence on the outlook for global demand. Base metals in London plunged on Monday, following sinking iron ore markets in Asia as investors fret over deteriorating demand outlook in China and higher interest rates in western economies. A more detailed look at global markets courtesy of Newsquawk APAC stocks were mostly higher with bourses in the region encouraged after the rebound on Wall Street. ASX 200 bucked the trend as the prior day’s rout caught up with markets in Australia and New Zealand on return from the extended weekend, with miners pressured by tepid output from South32 and Woodside Petroleum. Nikkei 225 gained after a surprise decline in Unemployment and amid preparations for a relief package. Hang Seng and Shanghai Comp were lifted as strength in tech helped the former reclaim the 20k level and after further PBoC policy support pledges gradually offset the initial Beijing COVID-19 jitters in the mainland. Top Asian news BOJ Extends Unlimited Bond Buying Into Policy Meeting This Week China Tech Stocks Rebound as Beijing Renews Policy Support China Is Running Out of Ways to Stem Self-Made Market Meltdown Tencent-Backed Fintech Startup Airwallex Said to Seek New Funds European bourses feel some reprieve following the bout of selling seen in recent sessions and following Wall Street's afternoon bounce yesterday. Sectors are all in the green but to varying degrees – with Basic Resources rebounding with a vengeance after yesterday’s slide, albeit Energy has failed to hold onto early gains as the underlying commodity price wanes. Stateside, US equity futures trade relatively flat with a mild downside bias (ES -0.1%, NQ -0.1%, RYT -0.1%, YM -0.1%), trimming earlier losses. United Parcel Service Inc (UPS) Q1 2022 (USD): EPS 3.03 (exp. 2.88), Revenue 24.4bln (exp. 23.79bln), reaffirms guidance; doubles buy-back target to USD 2bln Top European News Germany to Send Anti-Aircraft Tanks to Ukraine in Policy Shift European Gas Prices Swing With Focus on LNG Imports, Russia Flow Gupta’s GFG Alliance Offices in Paris Raided by French Police Sunak Warns Future Generations at Risk From U.K. Debt Burden FX Dollar mixed as broad risk appetite returns after Monday’s flight to safety; USD down vs high betas, but up against most index components. Aussie and Kiwi refreshed following long holiday weekend and further rebound in Yuan on the back of China’s RRR reduction effective May 15 Euro and Pound flounder as DXY eyes 102.000 and conflict contagion weighs heavier in Europe relative to the US Yen continues to consolidate off multi year lows after a dip in Japan’s unemployment rate and Government rolls out fiscal relief measures Japanese PM Kishida said rapid FX moves are undesirable; no comment on specific JPY levels. Fixed Income Debt futures resume recovery rally or retracement from recent cycle lows with curves a tad flatter ahead of 2 year US auction    Bunds are just shy of Monday's 155.26 peak, Gilts back above 119.00 and 10 year T-note eyeing 120-00 BTPs hold firm following Italian issuance, irrespective marginally softer cover ratios UK debt lags after larger than forecast PSNB deficit and upwardly revised 2022/32 DMO remit UK DMO raises its 2022/23 Gilt issuance remit to GBP 131.5bln from GBP 124.7bln and sees GBP 7bln additional T-bill sales Commodities WTI and Brent June futures continue drifting lower as the crude complex continues to be dampened by China's COVID situation. Spot gold was pressured by the firmer Buck and fell to a current intraday low of USD 1,894/oz in early trade before finding a base and reclaiming a USD 1,900/oz handle   Base metals, meanwhile, are mostly firmer in what is seemingly a rebound following yesterday's downside. Shanghai Futures Exchange raises trading limits and margin requirements for steel rebar, wire rod, and hot rolled coils futures from settlement on April 28. US Event Calendar 08:30: March Durable Goods Orders, est. 1.0%, prior -2.1%; -Less Transportation, est. 0.6%, prior -0.6% 08:30: March Cap Goods Ship Nondef Ex Air, est. 0.5%, prior 0.3%; Cap Goods Orders Nondef Ex Air, est. 0.5%, prior -0.2% 09:00: Feb. S&P CS Composite-20 YoY, est. 19.20%, prior 19.10% Feb. S&P/CS 20 City MoM SA, est. 1.50%, prior 1.79% 10:00: April Conf. Board Consumer Confidenc, est. 108.2, prior 107.2 Present Situation, prior 153.0; Expectations, prior 76.6 10:00: April Richmond Fed Index, est. 9, prior 13 10:00: March New Home Sales, est. 768,000, prior 772,000 March New Home Sales MoM, est. -0.6%, prior -2.0% DB's Jim Reid concludes the overnight wrap I'll admit to being a bit tired this morning as at 2am I got woken by loud constant shouts of "Daddy, Daddy". On bleary eyed investigation one of the twins wanted to know when we are next going to a water park. As we haven't discussed this or been to one since last summer this was a bit random. I said it was inappropriate to shout the house down at 2am to ask this. He then said "what's inappropriate mean". I angrily shut the conversation down which didn't help him or I get back to sleep very quickly. The market felt tired and worn down by the building risks yesterday and by the time Europe closed things were looking pretty bleak. However a late rally turned the S&P 500 from being -1.67% to closing +0.57%. The Nasdaq closed +1.29% and was rallying back even before Twitter agreed to sell the company to Elon Musk. Outside of that late story it was hard to find a narrative for the strong rebound. Tech stocks will stay front-and-center though as earnings progress this week, with Microsoft and Alphabet both set to report after the close tonight. It was much easier to find a narrative for the earlier sell-off as investors grappled with the continued Covid outbreak in China, further signs of inflationary pressures, and the prospect that the Fed and other central banks’ hiking cycles might push their economies into recession. As Europe closed the S&P was over -7% lower in April and on track to see the worst month since the pandemic rout of March 2020. Even with the rebound, the index is still more than -5% lower over April and still at risk of taking the ignominious title of worst monthly return since Covid if it dips below this January’s -5.26% return. Bonds also sold off with the US equity bounce back but unlike equities held on a large proportion of the days gains. 10yr Treasuries closed down -7.9bps to 2.82%, after being as much as -14bps lower intraday. That decline was driven by declining inflation expectations, as growth fears dominated. Given the global growth fear flavour of yesterday’s risk off, the 2s10s curve flattened -3.7bps to 18.8bps, as 2yr yields lagged the longer-maturity rally. The curve has maintained its level this morning but the yield reversal has continued with 2 and 10yr yields both back up around +3.5bps as we type. The dollar was another significant beneficiary yesterday, strengthening +0.53% to levels not seen since March 2020, and leaving it on track for its best monthly performance since January 2015. It's given up -0.18% of the gains so far this morning. As discussed, the biggest concern yesterday came from China, where the potential that there could be a lockdown in Beijing (in addition to the one already in Shanghai) saw the CSI 300 (-4.94%) fall to a 2-year low in yesterday’s session, marking the index’s worst daily performance since the original Covid-19 outbreak there in February 2020. This morning the index is +0.90% higher with the Shanghai Composite (+0.67%) also trading in positive territory after the PBOC reassured markets of their policy support for the economy. That comes as Beijing expanded its Covid testing to 11 further districts from today until April 30, with growing questions as to how the economy will perform against the backdrop of further lockdowns, particularly if the country continues its Zero Covid strategy. Other Chinese assets are also struggling, with the offshore Yuan weakening to its lowest levels against the US Dollar since 2020, though yesterday the People’s Bank of China said in a statement that they will lower banks’ FX reserve ratio from 9% to 8% beginning May 15. Overnight, the Yuan has witnessed a rebound, climbing +0.4% to 6.533 against the US dollar, snapping five days of losses. Elsewhere in Asia, equity markets are mostly trading higher with the Hang Seng (+1.81%) leading gains across the region in early trading amid a gain in tech stocks. Elsewhere, the Nikkei (+0.51%) is up following the release of upbeat jobs data. Data showed that Japan’s jobless rate unexpectedly dropped 0.1 percentage points to 2.6% in March while the Job-To-Applicant Ratio improved to +1.22 in March from +1.21, climbing for the third consecutive month. Meanwhile, the Kospi (+0.60%) is climbing after South Korea’s Q1 GDP data surprised on the upside. The nation’s GDP expanded +0.7% q/q, slowing from +1.2% a quarter earlier, but slightly faster than the +0.6% expected. Looking ahead, stock futures in the US are pointing to a positive start with contracts on the S&P 500 (+0.23%) and Nasdaq (+0.25%) trading up with European future soaring (Stoxx 50 +1.66%) after the poor close yesterday. European sovereign bonds are likely to sell off at the open after a strong close yesterday before the risk relief rally. Yesterday, yields on 10yr German bunds (-13.5bps) saw the biggest declines as havens outperformed. The French 10yr spread over bunds did widen by +2.6bps, but that was part of a broader widening in European spreads rather than because of the election result that was mostly priced in already, and we also saw the Italian (+4.1bps) and Greek (+11.0bps) spreads move by even larger margins. That left the Italian spread at 173.6bps, its widest level since June 2020. Back to equities and earlier the STOXX 600 (-1.81%) slumped along with other bourses on the continent, closing during the nadir in US equities. On a sectoral basis, the biggest global underperformer for equities were energy stocks, but that was no surprise considering the decline in oil prices given concerns over Chinese demand going forward. By the close, Brent Crude fell by -4.06% to $102.32/bbl, but rallied along with equities after trading as much as -6.30% lower intraday and below $100/bbl for the first time in a couple of weeks. WTI was also down -3.46% at $98.54/bbl. And other energy prices lost ground too, with European natural gas futures (-2.15%) falling to their lowest levels since Russia’s invasion of Ukraine began, at €92.84/MWh. Oil is back up around 1% this morning after the renewed global risk appetite. In spite of the more negative growth tone in markets, the Ifo’s business climate indicator from Germany yesterday came in above expectations in April, with the reading at 91.8 (vs. 89.0 expected), marking an unexpected improvement from the March reading that had been the worst since August 2020. Otherwise on the data side, the Dallas Fed’s manufacturing activity index for April fell to 1.1 (vs. 5.0 expected), the lowest since July 2020. To the day ahead now, and data releases from the US include the Conference Board’s consumer confidence indicator for April, preliminary March data on durable goods orders and core capital goods orders, the FHFA house price index for February, and new home sales for March. From central banks, we’ll hear from the ECB’s Villeroy and de Cos. Finally, earnings releases include Microsoft, Alphabet, Visa, Pepsico, UPS, Texas Instruments, General Electric and General Motors. Tyler Durden Tue, 04/26/2022 - 07:45.....»»

Category: blogSource: zerohedgeApr 26th, 2022

The Era Of A Financialized Fiat-Dollar Standard Is Ending

The Era Of A Financialized Fiat-Dollar Standard Is Ending Authored by Alasdair Macleod via Goldmoney.com, In recent articles I have argued that the era of a financialised fiat dollar standard is ending. This article takes my hypothesis further and explains that it is not just the emergence of new commodity backed currencies in Asia that will threaten the dominance of Western currencies, but the Fed’s failing monetary policies and those of the other major central banks. An unstoppable rise in interest rates will in large part be responsible for their demise. Financial markets in thrall to the state underestimate the forces collapsing the financial bubble. Even the existence of the bubble is disputed by those within its envelope. But financial assets represent most of the collateral securing the banking system, and their collapse triggered by higher interest rates will take out businesses, banks, even central banks and make financing of soaring government deficits impossible without accelerated currency debasement. Will central banks try to preserve financial asset values to stop the West’s financial system from imploding? Keynesian theory demands increased deficit spending to counteract the contraction of bank credit. As long as this is the case, the planners will destroy their currencies - confirmed by the John Law episode in 1715-1720 France. It is from this fate that China, Russia, and the architects planning a new Central Asian trade currency are planning their escape. End of an era and how it all started It’s all about interest rates. Rising interest rates undermine financial asset values and falling rates increase them. From 1981 until March 2020, the trend has been for the inflation of prices to subside and interest rates to decline with them. And following Paul Volcker’s interest rate hikes at that time, this is when the era of economic financialisation commenced. In the early eighties, London underwent a financial revolution with banks taking over stockbrokers and jobbers. It was the end of single capacity, whereby you were either a principal or agent, but never both. America responded to London’s big-bang by rescinding the Glass-Steagall Act, which separated investment from commercial banking following the 1929—1932 Wall Street Crash. Money-centre banking was about to go all-in on financialisation. Increasingly, manufacturing of consumer goods was moving from America and Europe to China and the Far East. The Wall Street megabanks had less of this business as a proportion of total American and European economic activities to finance. Small, local banks, particularly in Europe, continued to be the financing backbone for small enterprises. Banking had begun to split, with financial activities increasingly dominating the business of the larger banks. The rise of derivatives, firstly on new regulated exchanges and then in unregulated over-the-counter markets became a major activity. They promised that risk was eliminated by being hedged — there was a derivative to cover anything and everything. Securitisations became all the rage: mortgage-backed securities, collateralised debt obligations and CDOs-squared. So great was the demand for this business that banks were financing it off-balance sheet due to lack of adequate capital, until the Lehman speedbump temporarily knocked the wheels off from under this business. Since then, government spending has dominated financing requirements, providing high quality collateral for yet further credit expansion, much of it in shadow banking, and leading to a veritable explosion in the size of central bank balance sheets. The decline in interest rates from Paul Volcker’s 20% in 1980 to zero in 2020 drove financial asset values forever upwards, with only brief interruptions. Crises such as in Russia, Asia, the Long-Term Capital Management blow-up, and Lehman merely punctuated the trend. Despite these hiccups the character of collateral for bank lending became increasingly financial as a result. Expanding credit on the back of rising collateral values had become a sure-fire money-spinner for the banks. The aging Western economies had finally evolved from the tangible to ethereal. For market historians it has been an instructive ride, contemporary developments that have matched or even exceeded bubbles of the past. What started as the emergence of yuppies in London wearing red braces, sporting Filofaxes, and earning previously undreamed-of bonuses evolved into a money bubble for anyone who had even a modest portfolio or could get a mortgage to buy a house. The trend of falling interest rates has now ended, and the tide of financialisation is on the ebb. Recent events, covid lockdowns, supply chain disruptions and sanctions against Russia provide the tangible evidence that this must be so. You do not need to be a seer to foretell a commodity price crisis and the prospect of widespread starvation from grain and fertiliser shortages this summer. Common sense tells us that the end of the financialisation era will have far-reaching consequences, yet the outlook is barely discounted in financial markets. With their noses firmly on their valuation grindstones, analysts do not have a grasp of this bigger picture. That is beginning to change, as evidenced by Augustin Carsten’s mea culpa over inflation. Carsten is the General Manager of the Bank for International Settlements, commonly referred to as the central bankers’ central bank, which takes a leadership role in coordinating global monetary policy. The objective of his speech was to assist central banks in coordinating their policy responses to what he belatedly recognises is a new monetary era. Inflation is not about prices: it’s about currency and credit One of the fatal errors made by the macroeconomic establishment is about inflation. The proper definition is that inflation is the debasement of a currency by increasing its quantitiy. It is not about an increase in the general level of prices, which is what the economic establishment would have us believe. The reason this is particularly relevant is because governments through their central banks have come to rely on increases in the quantity of currency and credit to supplement taxes, allowing governments to spend more than they receive in terms of revenue. To properly describe inflation draws unwelcome attention to the facts. Since the Lehman failure in 2008, the combined balance sheets of some of the major central banks have increased from just under $7 trillion to $31 trillion (Fed + ECB + BOJ + PBOC, according to Yardini Research). The steepest part of the rise was from March 2020, when assets for the Fed and ECB soared. While justified, perhaps, by the covid pandemic the effect has been to dilute the purchasing power of each currency unit. And as that dilution works its way into the economy it is reflected in higher prices. That bit is familiar to monetarists. What monetarists fail to account for is the human reaction to the currency dilution. When the public becomes aware that for whatever reason prices are rising at a faster pace, they will increase the ratio between goods purchased and therefore in hand to that of their available currency resources. That drives prices even higher still and there is then a risk that price rises will escalate beyond the authorities’ ability to control them. This phenomenon has been a particular weakness of American and British consumers, who have a low level of savings priority. When Paul Volcker raised interest rates to a penalising 20% in 1980 it was to reverse the tendency for individuals to dispose of their personal liquidity in favour of goods. The sanctions against Russia sent a clear signal to western consumers about rising energy costs, and already they are seeing the impact across a wide range of consumer products. Nothing could be more calculated to convince consumers that they should anticipate and satisfy their future needs now instead of risking yet higher prices and shortages of available goods. And we can be equally sure that governments and their central banks stand ready to ensure that no one need go without. That this has come as a surprise to central banks indicates an appalling failure to anticipate the entirely predictable consequences of inflationary monetary policies. Additionally, central banks have failed to grasp the true relationship between money and interest rates. The errors of interest rate policies Central banks use interest rates as their primary means of managing monetary policy. They make the error of assuming that interest rates are no more than the price of money. If they are raised, demand for money is meant to decrease and if they are lowered demand for money is expected to increase. And through demand for money, demand for goods and their prices can be managed. Therefore, it is assumed that inflation and economic performance are controlled by managing interest rates. This flies in the face of the evidence, as the chart in Figure 1 shows, which is of the relationship between the rate of inflation and interest rates in the form of wholesale borrowing costs in Britain, before the Bank of England muddied the waters by using interest rates to manage monetary and economic outcomes. The correlation was between the general price level and interest rates instead of between the rate of change and interest rates. The distinction might not at first be obvious, but the two are entirely different. Keynes, and all other eminent economists were unable to explain the phenomenon, attributed by Keynes to Arthur Gibson as Gibson’s paradox. The explanation is simple. In his business calculations, an entrepreneur must estimate the price his planned manufactured product would obtain, based on current prices. All his calculations hang on that assessment. It sets the basis of his affordable financing costs, from which he could estimate the profitability of an investment in production after his other costs. If prices were high, he could afford to pay a higher rate of interest and would be willing to bid up interest rates accordingly. If they were low, he could only afford a lower rate. That is why interest rate levels tended to track wholesale price levels and not their rate of change. Thus, it was entrepreneurial borrowers in their business calculations who set interest rates, not, as Keynes assumed, the idle rentier deriving an unearned income by demanding usurious rates of interest from hapless borrowers. If anything, fluctuations in the price level (ie the rate of price inflation) destabilised business calculations. To an investing entrepreneur, interest is certainly a cost. But the position for a lender is entirely different. When he lends money, its usefulness is lost to him over the term of a loan, for which he reasonably expects compensation. This is known as time-preference. Additionally, there is the risk the money might not be returned, if for example, the borrower defaults. This is the risk involved. And in these times of fiat currency, there is the further consideration of its potential debasement by the end of the loan. Unless all these issues are satisfied in the mind of the lender, the availability of monetary capital from savings for business investment and for cash flow purposes will be hampered. Under a gold standard, the debasement issue does not generally apply. An indication of the sum of time preference and lending risk can be judged from the coupons paid on government debt, which in the case of the British government in the nineteenth century was 3% on Consolidated Loan Stock issued between 1751 and 1888, subsequently reduced to 2.75% and then 2.5% in 1902. Even when a currency in which a loan is struck is gold backed, an interest rate of two or three per cent for a prime borrower was shown to be appropriate. For them to go any lower implies, as John Law stated in the quote later in this article, that currency is being expanded with a view to driving interest rates below a natural level. Not only are central bank interest rate policies founded on a misconception proved by Gibson’s paradox and its explanation, but the entire operation distorts economic outcomes and cannot ever succeed in their objective. And as for distortions taking bond yields into unnatural negative territory as has been the case in Japan and the Eurozone, the unwinding thereof promises to result in economic and monetary catastrophe, because borrowers, including governments, have been hoodwinked into irresponsible borrowing for borrowing’s sake. The monetary myths shared by Law and Keynes We know that financial asset values are going to fall, because with consumer and producer prices rising strongly, interest rates and bond yields will continue to rise. So far, the yield on the 10-year US Treasury note has risen from 0.5% in August 2020 to 2.9% this week. The value destruction for this indicator has been over 20% from par so far. But according to government statistics, US consumer prices are rising at 8.5%, and likely to increase at an even faster rate when the consequences of Russian sanctions begin to do their work. Therefore, the yield on US Treasuries of all maturities is set to increase considerably more. Unless, that is, the Fed adopts the policy of the Bank of Japan and intervenes to stop yields rising. We are witnessing the effect of yield suppression on the Japanese yen, which since 4 March has fallen over 12% against the dollar. The relationship between a central bank rigging financial asset values and the effect on the currency is being demonstrated. In 1720 France John Law similarly tried to stop his Mississippi shares from falling by issuing unbacked livres expressly to buy shares in a support operation. It is worth drawing attention to the similarities of that experience with current developments in markets and currencies. Like Keynes over two centuries later, Law believed in stimulating an economy with credit and by suppressing interest rates. Keynes formulated his approach as a response to the great depression, despite (or because of) the US Government’s attempts to fix it having continually failed. Keynes in effect started again, dismissing classical economics and invented macroeconomics in its place. Law similarly recommended a reflationary solution to a struggling French economy burdened by the bankruptcy of royal finances. Law proposed to stimulate it by issuing a new currency, livres, as receipts for deposits in coin. The convenience of notes, which would be accepted as settlement for taxes and other public payments, was expected to ensure they would replace coin. Keynes’ version was the bancor, which was not adopted, but the US dollar acted as the vehicle for global stimulation in its place. Both currency proposals were not overtly inflationary at the outset, nor was the adoption of the dollar in the bancor’s place. But they gave the issuers the flexibility to gradually loosen them from the discipline of metallic money. In October 1715 at a special session at the chateau de Vincennes, Law made his proposal to the Council of Finances, stressing that his proposed bank would only issue notes in return for deposits of coin. In other words, it would be a deposit bank only. The Council turned down Law’s proposal, but in May 1717, he finally got the go-ahead to establish a “general bank”. That became the Royal Bank the following year, a forerunner of today’s central banks. It was then to be merged with Law’s Mississippi venture in February 1720. The Mississippi venture included two other companies which all together represented a monopoly on France’s foreign trade and Law needed to raise funds to build ships. Having obtained his original banking licence, Law proceeded to inflate a financial bubble to finance his project, and to create sufficient revenues to pay down the royal debts. His appointment to the official role of Controller General of Finance in early 1720 enabled him to finance the bubble by expanding a combination of credit and paper currency without having to clear the expansion of currency through Parliament, which was the procedure until then. In late 1719, Law was already buying Mississippi shares using new currency, an action which foreshadowed today’s quantitative easing. Central to Law’s strategy was the suppression of interest rates. As early as 1715, he wrote: “An abundance of money which would lower the interest rate to 2% would in reducing the financing costs of the debts and public offices etc, relieve the King. It would lighten the burden of the indebted noble landowners. This latter group would be enriched because agricultural goods would be sold at higher prices. It would enrich traders who would then be able to borrow at a lower interest rate and give employment to the people.” Today, we know this as Keynesian economic theory. The expansion of the currency was especially dramatic in early-1720, with an already bloated one billion livres in circulation at the end of 1719 from a standing start in only thirty months. In a desperate attempt to support the shares in a falling market, this had expanded to 2.1 billion livres by the middle of May. The addition of all this paper and credit led to prices of goods rising at a monthly rate of over 20% by January 1720. Unsurprisingly, Law refused to pay out gold and silver for the supposedly backed livres, and the collapse of the whole scheme ensued. By September, the Mississippi shares had fallen from 10,000L to 4,000L, but the currency in which the shares were priced was worthless on the London and Amsterdam exchanges. The lessons for today cannot be ignored. Law ruined the French economy with his proto-Keynesian policies. Today, with quantitative easing the same policies are a global phenomenon. Law’s support operations for royal finances are no different from today’s suppression of government bond yields. And now that prices for goods are beginning to rise, in all certainty there will be an even greater crisis for food prices in the coming months, just as there was widespread starvation in France in the summer of 1720. How to profit from these mistakes Not only do we have in 1720s France a precedent for today’s economic and financial conditions, but Richard Cantillon gave us a strategy of how to profit from the situation. He showed that it was not sufficient just to sell financial assets for currency, but the currency itself presented the greater danger of losses. Today, Cantillon is known for his Essay on Economic Theory and the Nature of Trade in General. The Cantillon effect describes how currency debasement gradually progresses through the economy, driving up prices as it enters circulation. Cantillon operated as a banker in Paris during the Mississippi bubble, dealing in both the shares and the currency. He traded both Mississippi shares in Paris and South Sea Company shares in London on the bull tack, selling out before they collapsed. He proved to be an accomplished speculator in these bubble conditions. As a banker, Cantillon extended credit to wealthy speculators, taking in shares as collateral. From the outset he was sceptical of Law’s scheme and would sell the collateral in the market after prices had risen without informing his customers. When Law’s scheme collapsed, he benefited a second time by claiming the debts owed from the original loans, claims that were upheld in a series of court cases in London, because the shares being unnumbered were regarded as fungible property which like money itself could not be specifically identified and reclaimed by an earlier owner. His second fortune was from shorting the currency on the exchanges in London and Amsterdam by selling the livre forward for other currencies which were encashable for specie. And it is that action which can guide us through the end of the era of the dollar’s financialisation and the likely consequences for the currency. Today, the other side of the dollar’s difficulties is the availability of alternatives. Gold is still legally true money in coin form, and it can be expected to protect individual wealth in a livre-style collapse. Today, there are cryptocurrencies, such as bitcoin, but they will never be legal tender and because previous ownership can be traced through the blockchain they can be seized if identified as stolen property. Then there are central bank digital currencies, planned to be issued by the organs of the state that have already made a mess of fiat currencies. Whichever way this question is considered, we always return to gold as the sound money chosen by its users — and that was what Cantillion effectively bought in selling livres for specie-backed currencies. In the current context the concept that future currencies will relate to commodities and not financial assets is particularly interesting. This thinking appears to be embodied in a new pan-Asian replacement for the dollar as a payment medium. The Eurasia Economic Union Russia, China and the members, associates and dialog partners of the Shanghai Cooperation organisation appear to understand the dangers to them from a currency collapse of the dollar, other Western currencies and of associated financial assets. There are three pieces of evidence that this may be so. Firstly, China responded to the Fed reducing its funds rate to zero and the introduction of monthly QE of $120bn in March 2020 by stockpiling commodities, raw materials, and grains. Clearly, China understood the implications for the dollar’s purchasing power. By backing its economy with commodity stocks she was taking steps to protect her own currency from the dollar’s debasement. Secondly, sanctions against Russia rendered the dollar, euro, yen, and pounds valueless in its national reserves. At the same time, sanctions have pushed up commodity prices measured in those currencies. Russia has responded by insisting on payments for energy from “unfriendly nations” in roubles, while the central bank has resumed buying gold from domestic producers. Again, the currency is reflecting its commodity features. And lastly, the Eurasia Economic Union, which combines Russia, Armenia, Belarus, Kazakhstan and Kyrgyzstan, has proposed a new currency in conjunction with China. Details are sketchy, but we have been told that the new currency will combine the national currencies of the nations involved and twenty exchange-traded commodities. It sounds like it will be a statist version of earlier gold standards, with perhaps 40-50% commodity backing, presumably to be fixed against national currencies daily. Like the SDR, it will be supplemental to national currencies, but used for cross-border trade settlement. The involvement of both China and Russia suggests that it might be adopted more widely by the Shanghai Cooperation Organisation, representing 40% of the world’s population and freeing them from the dollar’s hegemony. The original motivation was to remove a weaponised dollar from pan-Asian trade, but recent developments have imparted a new urgency. Rapidly rising prices, in other words an accelerating loss of the dollar’s purchasing power, amounts to a transfer of wealth from dollar balances in Asian hands to the US Government. That is undesirable for the EAEU members. Furthermore, the flaws in the yen and the euro have become obvious as well. All Western currencies will almost certainly be undermined by their central banks’ resistance to rising bond yields as the John Law experience Mark 2 plays out. It might prove impractical for westerners to access this new currency to escape the collapse of their own national currencies. Anyway, a new currency must become established before it can be trusted as a medium of exchange. But the concept appears to be in line with Sir Isaac Newton’s rule of a 40% gold backing for a currency to be always maintained. The difference is that instead of the issuer lacking the flexibility to inflate the currency at will, the composition of the proposed Eurasian currency can be altered by the issuer. Putting this objection to one side, prices of commodities measured in goldgrams appear to have been remarkably stable over long periods of time. Certainly, wholesale prices in nineteenth century Britain under its gold standard confirm this is so. Figure 2 shows a remarkable stability of prices for a century under an uninterrupted gold coin exchange standard. The variations, most noticeable before the 1844 Bank Charter Act, are due to a cycle of expansion and contraction of bank credit. And the gentle increase from the late-1880s reflected the increased supply of gold from the Witwatersrand discoveries in South Africa. Whisper it quietly, but this remarkable price stability, coupled with technological developments, with minimum government saw a relatively small nation come to dominate world trade. If the Eurasia Economic Union manages to establish a stable currency similarly backed by commodities as the British pound was by gold, a pre-industrialised Central Asia holds out the promise of a similar economic advancement. But that will also require a hands-off approach to markets, which is not in character for any government, let alone the authoritarians in Central Asia. The value destruction ahead So far, this article has drawn attention to the ending of an era of fiat currency financialisation, the monetary policy errors, and the contrasting developments in Asia, where a preference for commodity backing for roubles, yuan and a new Eurasian currency is emerging. The success of the Asian currencies is set to destabilise those of the West. But irrespective of the future for Asian currencies, the West’s currencies bear the seeds of value destruction within themselves, simply because their evolution has nowhere further to go other than downhill. There is a complacent assumption that central banks are in control of interest rates and always will be. What is missing is an understanding of markets, which ultimately reflect human action. It is an error which eventually leads to states’ combined actions failing completely. We saw this in the 1970s, after the last vestiges of gold backing for the dollar were abandoned with the suspension of the Bretton Woods Agreement. Not only did the dollar lose its tie to gold, but all other currencies from that moment lost it as well. Consequently, inflation in the form of consumer prices began to rise shortly thereafter, fuelled by a combination of monetary expansion and loss of faith in currencies’ purchasing power — the latter particularly from OPEC members who demanded substantially higher dollar prices for crude oil. Despite the prospects for North Sea oil, the consequences for the UK’s government finances were catastrophic, leading to a bailout from the IMF in September 1976 (IMF bailouts were exclusively for third-world nations — for the UK this was beyond embarrassing). And the Labour government was forced to issue gilts bearing coupons of 15%, 15 ¼%, and 15 ½%. Globally, we have a similar situation today, except instead of entering the post-Bretton Wood years with the US dollar’s Fed Funds Rate at 6.62%, we have entered the new commoditisation era with the FFR at zero. We exited the 1970s with a FFR of over 19%. In August 1971 when the Bretton Woods Agreement was suspended the yield on the 10-year US Treasury constant maturity note was 6.86%. By September 1981 it stood at 15.6%. In August 2020 it was at an unnatural 0.5%, going to —who knows? In 1980, Paul Volker slayed the inflation dragon by hiking interest rates to economically destructive levels. It is hard to envisage a similar action being taken by the Fed today. But what we can see is the potential for consumer prices to rise, driven by currency debasement, to at least similar if not greater levels seen during the 1970s decade. Accordingly, bond yields have much, much further to rise. The bankruptcies of over-indebted businesses, their bankers, the central banks loaded with failing financial assets, and governments themselves all beckon. Financial assets are at the top of their bubble, of that there should be little doubt. As interest rates rise, all financial assets will begin to collapse in value. That cannot be denied. And where financial assets interact with the real world, such as mortgage finance, the disruption will undermine values of physical assets as well. Financial assets represent a higher level of collateral backing for bank credit than on previous credit cycles. Forced collateral liquidation will also drive financial asset prices lower. The potential for a crash on the scale of Wall Street between 1929—1932 should be obvious. Equally obvious is the likely reaction of central banks, which will surely redouble their efforts to prevent it happening. Quantitative easing is set to increase to finance all spendthrift government spending shortfalls, which can only escalate in these conditions. Central banks will be doing it not just because they want to preserve a “wealth effect” for the private sector, but to save themselves from the consequences of earlier currency debasement. The central banks of Japan, the euro system, the UK and the US have all loaded up on government bonds, whose prices are just beginning to collapse, if the higher bond yields seen in the 1970s return. Central bank liabilities are beginning to exceed their assets, a situation which in the private sector requires directors to admit to bankruptcy and cease trading. In most cases, recapitalising a central bank is a simple operation, whereby the central bank makes a loan to its government, and though double entry bookkeeping, instead of the government being credited as a depositor it is credited as a shareholder. Simple, but embarrassing in the middle of a developing financial crisis. When pure fiat currencies are involved. Undoubtedly, this is what the Bank of Japan will be forced to do, but for now it is refusing to accept the reality of higher interest rates and the effect on its extensive portfolio of JGBs, corporate bonds and equity ETFs. Consequently, its currency, the yen, is collapsing. The position of the ECB is more complex because its shareholders are the national central banks in the euro system which in turn will need bailing out. The imbalances in the TARGET2 settlement system are an additional complication, and outstanding repos last estimated at €8.725 trillion are there to be unwound. Between Japan and the Eurozone, we can expect to see their currencies collapse first. Initially, the dollar will appear strong on the foreign exchanges reflecting their decline. But foreigners possess financial assets and deposits totalling over US$33 trillion on current valuations. If the Fed is unable to prevent bond yields from soaring much above current levels, most of this, including the $15 trillion invested in equities, will be wiped out. The destruction of value measured in collapsing currencies will be economically catastrophic. It is to avoid this fate that first China, and now Russia are commoditising their currencies and even planning for a new cross-border settlement medium tied partially to commodity values. They hope to escape from interest rates rising in fiat currencies as they lose purchasing power. If the global conflict is financial, the West has lost it already. The geopolitical consequences are another story for a later day. Tyler Durden Sun, 04/24/2022 - 16:30.....»»

Category: blogSource: zerohedgeApr 24th, 2022

US Futures Ignore China Implosion, Reverse Overnight Losses as Oil Tumbles

US Futures Ignore China Implosion, Reverse Overnight Losses as Oil Tumbles Welcome to another rollercoaster session where US equity futures first tumbled alongside the second consecutive day of stocks plunging in China, which also dragged Europe lower, only to hit a U-turn around 5am at which point sentiment reversed higher, ahead of tomorrow’s expected Federal Reserve rate hike and amid mounting risks from the war in Ukraine and a Chinese equity rout. Nasdaq 100 contracts trade 0.5% higher at 7:15 a.m. after earlier slumping as much as 0.8% following the first bear-market close for the first time since March 2020. S&P 500 futures also turned 0.3% green, as did Dow futures. Much of the reversal in sentiment has been attributed to the latest drop in oil which tumbled over $8/bbl or 5.5%, sliding as low as $98 after hitting $139 one week ago. WTI crude oil also fell below $100 a barrel a barrel as traders reassessed the potential impact of disruptions in Russian oil supplies and a decline in demand from China. Iron ore futures fell for a sixth day, the longest streak since September. In other words, commodities are not sliding because of hopes for Russia peace, but because of fears about a global recession, but try explaining it all to algos. Treasuries gained, though the 10-year yield remains near the highest level since 2019. Yields across the euro region also declined. The dollar slipped, while the euro pushed higher and bitcoin dropped again. Earlier in the session, a selloff across Chinese equities deepened as concerns about ties with Russia, a growing covid crisis, and persistent regulatory pressure sent a key index to its lowest level since 2008. The Hang Seng China Enterprises Index, which tracks Chinese shares listed in Hong Kong, sank 6.6%, following a plunge in the previous session that was the biggest since the global financial crisis. The Hang Seng index tumbled Tech giants Alibaba Group Holding Ltd. and Tencent Holdings Ltd. led the decline. Hong Kong’s benchmark Hang Seng Index slumped 5.7%, its biggest fall since July 2015. China’s equities are looking increasingly risky on concerns that Beijing’s ties with Russia could spark new U.S. sanctions. That’s adding to worries from regulatory developments including a possible delisting from the U.S. exchanges. While upbeat economic data was a rare bright spot in the market, growing lockdowns in major Chinese cities are dimming the outlook. "The selloff is overdone, but so is everything else,” said Andy Maynard, head of equities at China Renaissance Securities. "The market is crazy -- there’s no fundamentals anymore. This might be worse than the 2008 financial crisis." “Risk-off sentiment stemming from both the Russia-Ukraine war and the current wave of Covid-19 in China has driven equity markets sharply weaker this morning,” Siobhan Redford, an analyst at Rand Merchant Bank in Johannesburg, said in a client note.  “This has been compounded by falling commodity prices as the intersection between limited supply -- given sanctions on Russia and the war in Ukraine -- and a weaker demand trajectory -- given further waves of the pandemic -- create a perfect storm of sorts.” With zero liquidity, and trigger happy traders looking to sell any rally, swings in S&P 500 and Nasdaq 100 futures signaled another volatile day ahead for U.S. stocks. U.S.-listed Chinese stocks sank again on Tuesday, following a brutal rout in Asia, amid concerns that China’s ties with Russia may bring sanctions to Beijing, while persistent regulatory pressures also weighed. Alibaba (BABA US) fell 6.5% in premarket trading, while rival JD.com (JD US) declined 4.5%. Apple Inc. inched lower, heading toward a bear market -- defined as a 20% drop from recent highs -- on worries that lockdowns in China to contain a surge in Covid-19 cases could worsen supply-chain constraints. Other notable premarket movers: Shares in big U.S. energy companies slide in premarket trading as crude price fall, declining after last week’s rally as worries over growing coronavirus cases in top crude importer China weigh. Exxon Mobil (XOM US) -3.1% and Chevron (CVX US) -3.7%. Coupa Software (COUP US) slides 30% in postmarket trading after the company’s revenue forecast for the first quarter misses the average analyst estimate. Gitlab (GTLB US) shares rose 12% in extended trading on Monday, after the software company reported fourth-quarter revenue that beat expectations and gave a full-year forecast that is stronger than the analyst consensus. U.S. technology stocks have been particularly hard hit in the past week with the Federal Reserve expected to begin a rate-hike cycle on Wednesday, another negative for growth stocks valued on future profits. Investors are also looking for cues from the central bank about how aggressively it plans to continue tightening monetary policy as Russia’s invasion of Ukraine sent commodity prices soaring when inflation was already running high. A reading on the producer price index is due on Tuesday. “If we are entering a world of above-target inflation for several years to come, investors should ditch the easy answers,” said Sahil Mahtani, strategist at Ninety One. “Conventional 60-40 type portfolios are likely to struggle. Investors should reflect about what specifically is driving the inflationary process and invest in equities that have pricing power but are not at frothy valuations.” The Stoxx Europe 600 index fell more than 1.5%, with basic resources, consumer and technology stocks leading a broad-based decline.  All sectors are in the red. Euro Stoxx 50 slumps 2.4%. IBEX outperforms peers but still trades off ~1.5%. Here are some of the biggest European movers today: Ahold Delhaize shares gain as much as 3.2%, the best performer in the Stoxx 600’s personal care, drug and grocery stores subgroup, after being upgraded to buy from neutral at UBS, which says the stock is at an “attractive entry point.” S&T rallied in Frankfurt, climbing as much as 18%, after the Austrian company said a forensic audit by Deloitte found allegations by short seller Viceroy Research were almost completely inaccurate. Sensirion shares spike as much as 13%, the most since June 2020, after the Swiss sensor manufacturer reported full- year sales and gave a revenue forecast that blew past analysts’ estimates. Stifel says the company’s growth is driven by all end markets and the performance of new environmental sensors looks “impressive.” Wacker Chemie shares gain as much as 6.9%, as Baader sees dividend proposal 56% above and midpoint ‘22 Ebitda guidance 3% ahead of consensus. Tecan falls as much as 16% after reporting sales for the full year that missed the average analyst estimate, and as the outlook disappointed. Dr. Martens shares tumble as much as 11% to the lowest since listing in January 2021 after RBC cut its price target to a Street-low, citing the bootmaker’s growth outlook. Swedish Match drops as much as 8.4%, the most intraday since February 2021, after the company suspended the spinoff of its U.S. cigar business. The move highlights regulatory risk, according to JPMorgan. Meanwhile, Russia has started the payment process of two bond coupons due this week. Investors are waiting to see if the nation defaults after the U.S. and its allies froze Russia’s foreign-currency reserves. The ruble gained in Moscow trading. Asian stocks plunged, on track for a third-straight daily loss, as the selloff in Chinese technology stocks continued after Monday’s plunge, while traders tried to gauge the impact of an imminent interest-rate hike by the Federal Reserve. The MSCI Asia Pacific Index fell as much as 1.9%, heading for its lowest close since August 2020. Tencent and Alibaba Group were among the biggest drags on the regional index, along with TSMC. The sustained selling pressure came as investors mulled the potential consequences of China’s assistance for Russia’s war in Ukraine and delisting risk for Chinese stocks traded in the U.S. Hong Kong’s benchmark Hang Seng Index tumbled 5.7%, its biggest fall since July 2015, while the Hang Seng Tech Index lost 8.1% following a wild intraday swing. Read: Relentless Selling in China Stocks Evokes Memories of 2008 Crash China’s CSI 300 Index slumped 4.6% as the nation’s strong set of economic data failed to lift sentiment amid market jitters on the rising case numbers of Covid-19. Japanese stocks rose for a second day as a weaker yen boosted the outlook for the nation’s exporters. “There are plenty of storms blowing through China right now,” said Jeffrey Halley, senior market analyst at Oanda Asia Pacific. “Fears continue to dog stock markets, that lockdowns could spread, which would severely impact China’s growth.” The risk of tighter monetary policies globally remained on investors’ minds as the Fed this week is expected to announce its first interest rate hike in three years in a bid to curb rising inflation amid surging commodity prices. Markets are now pricing in as many as seven quarter-point hikes for the full year. Lockdowns in major Chinese cities are dimming the outlook for economic growth and posing risks for energy and raw-materials demand, just as concerns about the country’s relationship with Russia stoke a relentless stock selloff.  The virus is also making a comeback in Europe: Germany on Tuesday set a fresh record for infection rates for the four straight day. Austria has also reached new highs, while cases in the Netherlands have doubled since lifting curbs on Feb. 25. Japanese equities rose, extending their rebound to a second day, supported by gains in exporters on a weaker yen. Auto and chemical makers were the biggest boosts to the Topix, which climbed 0.8%. KDDI and Recruit were the biggest contributors to a 0.2% rise in the Nikkei 225, while Fast Retailing fell. The Japanese currency extended its loss against the dollar to a seventh-straight session, weakening more than 3% in that span. Despite its “haven” status,” the yen has dropped as Russia’s war in Ukraine has driven up prices of oil and other raw materials which Japan imports. “The market has already factored in a lot of bad news” regarding Russia and Ukraine, said Hajime Sakai, chief fund manager at Mito Securities. “The weakening of the yen is positive for exporting, but looking further on we need to think of the negative effect from import costs.” In rates, Treasuries unwound a portion of Monday’s sharp selloff with yields richer by up to 4.5bp across front-end of the curve into early U.S. session. U.S. 10-year yield near 2.12% is down ~2bp vs Monday’s close, outperforming bunds and gilts in the sector by ~1bp; 2-year yield drop back to ~1.83% after topping near 1.89% during Asia session. Gilts and bund curves bull-flatten while Treasuries bull-steepen; short-dated USTs outperform bunds and gilts by roughly 2bps. In FX, the Bloomberg Dollar Spot Index fell 0.1% after rising to its highest level since July 2020 in early Asian trade. Treasury yields fell by up to 4bps led by the front-end after rising in early Asian session, when the 10-year yield climbed to 2.17%, the highest since June 2019. Antipodean currencies as well as the Canadian dollar and Norwegian krone were steady to lower as commodities extended losses. The euro extended an Asia session gain, to touch $1.1020 before paring. European benchmark bond yields also fell, yet underperforming Treasuries. Sweden’s krona advanced after inflation expectations rose considerably for the coming two years. Australia’s dollar pares reased an intraday loss, in part on short covering seen after Chinese economic data beat estimates. Reserve Bank said Russia’s invasion of Ukraine has the potential to prolong a period of elevated consumer-price growth and is clouding the economic outlook, minutes of its March 1 policy meeting showed. The yen whipsawed in the spot market as stocks and oil turned south, but options wagers suggest fresh lows versus the dollar may be in store. Whether the greenback can extend its recent rally and maintain its bullish momentum for long depends on options pricing changing course. In commodities, crude futures decline. WTI drifts 5.3% lower to trade around $97.50. Brent falls 5.3% but holds above $101. Most base metals trade in the red; LME aluminum falls 2.3%, underperforming peers. LME tin outperforms, adding 0.4%. Spot gold falls roughly $17 to trade near $1,934/oz. Elsewhere, nickel trading will resume on the London Metal Exchange on Wednesday, over a week after being suspended amid a historic short squeeze. Looking to the day ahead now, markets have PPI for February in the US. In Europe, Germany’s ZEW survey expectations, UK jobless claims change, ILO unemployment rate 3 months, Eurozone ZEW survey expectations and industrial production are all due. Elsewhere, housing starts and manufacturing sales in Canada will be released. Earnings include Volkswagen, RWE and Generali. Market Snapshot S&P 500 futures down 0.4% to 4,154.75 STOXX Europe 600 down 1.7% to 429.03 MXAP down 1.7% to 165.53 MXAPJ down 2.9% to 531.41 Nikkei up 0.2% to 25,346.48 Topix up 0.8% to 1,826.63 Hang Seng Index down 5.7% to 18,415.08 Shanghai Composite down 5.0% to 3,063.97 Sensex down 1.4% to 55,702.16 Australia S&P/ASX 200 down 0.7% to 7,097.45 Kospi down 0.9% to 2,621.53 Brent Futures down 5.7% to $100.79/bbl Gold spot down 0.9% to $1,934.19 U.S. Dollar Index down 0.21% to 98.79 German 10Y yield little changed at 0.33% Euro up 0.5% to $1.0995 Top Overnight News from Bloomberg Germany is preparing to boost the supply of a scarce bond entangled in Russian sanctions, a move that will likely ease pockets of tension in European repo markets. The nation is looking to sell on Tuesday an additional 5.5 billion euros ($6.1 billion) of the notes maturing 2024, which the German government believed became difficult to source after sanctions were imposed against some bondholders Chinese stocks suffered another deep selloff on Tuesday as concerns about the country’s ties with Russia and persistent regulatory pressure sent shares on a downward spiral. The Hang Seng China Enterprises Index, which tracks Chinese shares listed in Hong Kong, sank 6.6%, following a plunge in the previous session that was the biggest since the global financial crisis Fund managers are leery of buying Chinese stocks as the country’s close ties to Russia, extreme Covid-19 curbs and lack of clarity on the end of regulatory crackdowns overwhelm the dip buying opportunity presented by the 75% plunge from their peak China wants to avoid being impacted by U.S. sanctions over Russia’s war, Foreign Minister Wang Yi said, in one of Beijing’s most explicit statements yet on American penalties that are contributing to a historic market selloff The global economy is bracing for greater disruption as China scrambles to contain its worst outbreak of Covid-19 since the pandemic began Russia’s economy is fraying, its currency has collapsed, and its debt is junk. Next up is a potential default that could cost investors billions and shut the country out of most funding markets The dollar has powered ahead of every major currency over the past nine months due to the prospect of Federal Reserve interest-rate hikes but the end of its rally may be in sight, if history is any guide. The U.S. currency has weakened by an average of 4.1% during the Federal Open Market Committee’s four previous tightening cycles Traders are ramping up their bets on the amount of Federal Reserve rate hikes in 2022 but are still toying with the possibility of a rate cut as soon as next year U.K. unemployment dropped below its pre- pandemic level for the first time as companies generated more jobs and granted higher wages than expected. The jobless rate fell to 3.9% in the three months through January, the lowest since the start of 2020 US Event Calendar 8:30am: Feb. PPI Final Demand YoY, est. 10.0%, prior 9.7%; MoM, est. 0.9%, prior 1.0% 8:30am: Feb. PPI Ex Food and Energy YoY, est. 8.7%, prior 8.3%; MoM, est. 0.6%, prior 0.8% 8:30am: March Empire Manufacturing, est. 6.1, prior 3.1 4pm: Jan. Total Net TIC Flows, prior -$52.4b DB's Jim Reid concludes the overnight wrap Some hints of positive diplomatic developments in the Ukraine crisis that materialised on Sunday night helped contribute to another major sell-off in bonds and a mild risk on move in European equities yesterday. While in the States, the reality of the impending Fed tightening cycle pushed yields higher and drove equities lower. Bonds are in a strange situation at the moment as we seem to have reached a point where higher energy prices are deemed to be signalling recessionary risks and encourage flight to quality flows that push nominal yields lower, outweighing the potentially savage inflationary impact. Conversely, the collapse in the likes of oil and gas since early last week has led to a huge rise in yields as it appears policy tightening is back on the central bank menu. Brent is around -25% from its intra-day highs last Tuesday and 10yr bunds are +46.6bps higher since hitting -0.10% last Monday morning. Meanwhile, 1-month futures on Dutch Gas have fallen from a high of 335 last Monday morning to 110.50 at the close last night. Remarkable moves. On the conflict, Russia and Ukraine finished a fourth day of negotiations yesterday and decided to take a pause to assess outcomes. Still, it seems that negotiations are making some progress. Meanwhile, President Zelensky is set to address the US Congress tomorrow, while there were reports that President Biden was considering a trip to Europe to express the US’s steadfast support for NATO allies. Overnight in Asia, most equity markets are down with Hong Kong and Chinese stocks leading regional losses. The Hang Seng (-3.56%) opened sharply lower, slipping more than 4% before recovering slightly as a resurgence of Covid-19 in Hong Kong and China and potential delisting of Chinese stocks from US exchanges weighed on sentiment. The Shanghai Composite (-2.18%) and CSI (-1.75%) are also down even if losses were pared following the release of stronger-than-anticipated economic data. A fresh lockdown in China’s Jilin province of 24 million people is offsetting this. Elsewhere, the Nikkei (+0.33%) is advancing while the Kospi (-0.56%) is lagging. Moving forward, equity futures on the S&P 500 (+0.17%) and Nasdaq (+0.47%) are higher while DAX contracts (-0.45%) are weak. On that China data, industrial output rose a more-than-expected +7.5% y/y in January and February, (vs market estimates of +4.0%) and against a +9.6% gain in December while retail sales grew +6.7% y/y in the same period compared with analyst estimates of a +3.0% increase amid rising demand during the Lunar New Year holidays and the Winter Olympic Games. Meanwhile, fixed asset investment also beat, up by +12.2% y/y YTD in February and well above the forecast for a +5.0% increase. Separately, the People’s Bank of China (PBOC) unexpectedly kept the one-year medium-term lending facility rate (MLF) at 2.85%, resulting in a net injection of 100 billion yuan in fresh funds. The central banks’ action dashed hopes of a rate cut as the policymakers may want to avoid widening policy divergence with the US ahead of their expected hike tomorrow. Oil prices have extended their recent declines this morning with Brent futures sliding -4.0% to trade at $102.64/bbl and with WTI futures -4.2%, breaking below $100/bbl. It saw a similar fall yesterday after opening the week above $109/bbl. Elsewhere, the yield on the 10-year US Treasury note is roughly flat at 2.138%. As discussed at the top, the calm in yields overnight followed a rout yesterday. 10yr bunds eventually rose +11.9bps yesterday as risk premium eased, and to the highest level since November 2018. With a modest +2.2bps uptick in breakevens, most of the move was in real yields. Note that page 24 of the “Dislocations” chart book shows that 10yr real bund yields last week hit all-time low levels. Since those lows last week we’ve backed up +48.8bps. The move in other European sovereign yields was remarkably similar to bunds yesterday with BTPs (+11.3bps), Spanish (+11.0bps) and even Greek (+11.8bps) bonds seeing hardly any change in spreads. US Treasury yields sold even more (10yr +14.1bps) and unlike in Europe, higher yields were met with falling breakevens (-2.3bps) with real yields +16.4bps putting in their biggest daily move since February 2021. No small feat given the considerable sell-off in real rates that marked the beginning of this year. The 2s10s (+2.8bps) curve steepened a little which might be welcomed by the Fed. Yields across the US curve notched fresh cycle highs, with those on 2y (+11.3bps) and 10y reaching the highest levels since summer 2019. Notably, US futures moved to fully price in 7 Fed hikes in 2022 for the first time this cycle, in line with our US econ team’s view. While there were reports of incoming corporate issuance and hedging flows driving the Treasury rate sell-off, it appears markets are waking up to the magnitude of tightening the Fed is about to embark on, starting this week. If the war wasn’t enough to get the ECB to strike a dovish tone, the Fed will be all the more emboldened given fewer direct linkages to growth shocks from the conflict and the higher starting point for inflation. Indeed, in a new periodical we launched yesterday, Questions for the Chair, link here, DB Research personnel offer the questions they would ask Chair Powell at his FOMC press conference. A common question was wouldn’t policy rates need to be higher than current forecasts given the inflationary outlook. It seems markets are coming around to that view. That line of thinking passed through to US equities, where the S&P 500 slid -0.74%. The tech-heavy NASDAQ, which is more exposed to rising rates, underperformed, falling -2.04%. Sector-wise, amid plummeting oil prices energy stocks (-2.93%) performed the worst after a sustained run of outperformance, while financials (+1.23%) were the top performers in the S&P 500 amid a steeper yield curve. European stocks outperformed their American counterparts, with the positive geopolitical noise outweighing a tighter monetary policy path to push major indices into positive territory. The STOXX 600 rallied +1.20%, but gains in country-level benchmarks like the German DAX (+2.21%) and the French CAC 40 (+1.75%) were even more startling amid recent sharp underperformance relative to their US counterparts. The same positive risk sentiment pushed commodity prices lower. We've already mentioned the slump in Oil but European gas prices also fell, with front month Dutch TTF contracts losing -17.29%. Oil prices fell despite no additional supply via Iran, US, Venezuela, or OPEC appearing likely. Instead, it seems as though Russian supply may make its way to buyers such as China and India with fewer frictions than were previously feared. As a secondary consideration, reports of Covid-19 lockdowns in China may have pushed prices lower due to potential lower demand needs. Industrial metals lost steam as well, with aluminium and copper falling -4.69% and -2.24%, respectively, while gold lost -1.89% as markets revised geopolitical risks downwards. One developing story with unclear implications so far is Russia’s request for Chinese support of its invasion. There have been conflicting reports about the veracity of the original claims. We do know that the US National Security Advisor met with his Chinese counterpart yesterday to try and dissuade China from offering any such support. One to keep a very close eye on. To the day ahead now. In today’s data releases, markets have PPI for February in the US. In Europe, Germany’s ZEW survey expectations, UK jobless claims change, ILO unemployment rate 3 months, Eurozone ZEW survey expectations and industrial production are all due. Elsewhere, housing starts and manufacturing sales in Canada will be released. Earnings include Volkswagen, RWE and Generali. Tyler Durden Tue, 03/15/2022 - 07:53.....»»

Category: worldSource: nytMar 15th, 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 .af-body.af-standards 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 = "//mixi.media/data/js/95481.js"; 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

Global Economy Heading For "Mother Of All" Supply Chain Shocks As China Locks Down Ports

Global Economy Heading For "Mother Of All" Supply Chain Shocks As China Locks Down Ports Over the past month, as Wall Street turned increasingly optimistic on US growth alongside the Fed, with consensus (shaped by the Fed's leaks and jawboning) now virtually certain of a March rate hike, we have been repeatedly warning that after a huge policy error in 2021 when the Fed erroneously said that inflation is "transitory" (it wasn't), the central bank is on pace to make another just as big policy mistake in 2022 by hiking as many as 4 times and also running off its massive balance sheet... right into a growth slowdown. The Fed is going from one huge error (inflation is transitory) to another huge error (4 rate hikes and runoff won't crash markets). — zerohedge (@zerohedge) January 11, 2022 And, as we have also discussed in recent weeks, one place where this slowdown is emerging - besides the slowdown in US consumption of course where spending is now being funded to record rates by credit cards - is China and its "covid-zero" policy in general, and its covid-locked down ports in particular. But what until recently was a minority view confined to our modest website, has since expanded and as Bloomberg writes overnight, the effects of restrictions in China as the country maintains its Covid-zero policy "are starting to hit supply chains in the region." As a result of the slow movement of goods through some of the country’s busiest and most important ports means shippers are now diverting to Shanghai, causing the types of knock-on delays at the world’s biggest container port that led to massive congestion bottlnecks last summer that eventually translated into a record number of container ships waiting off the coast of California, a glut that hasn't been cleared to this day. With sailing schedules already facing delays of about a week, freight forwarders warn of the impact on already back-logged gateways in Europe and the US and is also why HSBC economists are warning that the world economy could be headed for the “mother of all” supply chain shocks if the highly infectious omicron variant which is already swamping much of the global economy spreads across Asia, especially China, at which point disruption to manufacturing will be inevitable. "Temporary, one would hope, but hugely disruptive all the same" in the next few months, they wrote in a research note this week first noted by Bloomberg. For those who have forgotten last year's global shockwave when China locked down its ports for several days, a quick reminder: it led to an unprecedented hiccup in global logistics and shipping which hasn't been resolved to this day. That's because China is the world’s biggest trading nation and its ability to keep its factories humming through the pandemic has been crucial for global supply chains. While the outbreak of omicron in China has been small compared to other nations (if one believes China's official data, which is a big if) authorities are taking no chances, especially with China's continued "zero-covid" policy. In recent weeks scattered infections of both the delta and omicron variants have already triggered shutdowns to clothing factories and gas deliveries around one of China’s biggest seaports in Ningbo, disruptions at computer chip manufacturers in the locked-down city of Xi’an, and a second city-wide lockdown in Henan province Tuesday. Below is a brief timeline of the most recent events courtesy of Deutsche Bank: China's first Omicron outbreak was detected in the city of Tianjin over the weekend. On the morning of Jan 8, two patients in Tianjin who actively sought medical treatment were confirmed as being infected with the Omicron variant. The local government immediately locked down certain districts, restricted travel, and conducted large-scale screening. A total of 41 positive cases have been reported as of the morning of Jan 11. The source of the local cases in Tianjin is still unknown, and community transmission is possible, according to local disease control officials. All previous local Omicron cases in Tianjin belonged to the same transmission chain. However, the above cases cannot be confirmed to be in the same transmission chain as the sequences of the imported cases of the Omicron variant that have been found in Tianjin. The early confirmed cases do not have any travel history outside Tianjin either. The specific source of the local cases found in Tianjin is still unknown at this time. More alarmingly, the same Omicron virus strain has already spread to outside Tianjin. Two positive cases were found in Anyang, Henan on Jan 8, and were later confirmed to be the same Omicron variant found in Tianjin. Through contact tracing and gene sequencing, the source was identified as a college student who returned to Anyang from Tianjin on December 28, 2021, and who did not show any symptoms. 81 cases have since been confirmed in Anyang over the past few days. This suggests that (1) the Omicron virus may have been transmitted in Tianjin for almost 2 weeks; and (2) other travelers might have already carried the Omicron virus from Tianjin to elsewhere in China. Looking at the recent data, China's Covid outbreak this winter could be worse than in the previous winter - as shown in the chart below more provinces have detected Covid outbreaks this winter. Entering Q4, there are 12 provinces which have found more than 19 local cases in the past 14 days. More significantly, the total number of new cases in the past 14 days in Shann’xi has already exceeded 1500, which is a record high, except for in Hubei when Covid first occurred in early 2020, and this has happened despite China now having very high vaccination rates and strict regulations such as lockdowns. In addition, comparing the differences between months near Chinese New Year in 2021 and 2022, not only have the number of news cases been larger this year, the provinces hit by Covid outbreaks this year also tend to have higher GDP and population density. As Bloomberg adds, Henan and Guangdong, which also has an outbreak, are centers of electronics production. If cases continue rising there, it could impact the supply of iPhones and other smartphones. This also brings us to what Bloomberg calls the paradox of China’s aggressive “Covid-zero” strategy: while on one hand it helps contain the virus spread, to do so usually requires significant disruption or lockdowns as authorities limit the movement of people. The repeated mandatory testing of whole cities interrupts businessess and production, although nothing to the extent seen in places like the US, where the omicron wave caused an estimated 5 million people to stay home sick last week, leading to further economic slowdown (as discussed in "A March Rate Hike? Not So Fast") That risk of disruption for factories is already prompting companies to spread their risk by ensuring they have alternative production facilities, Stephanie Krishnan, a supply chain expert at IDC in Singapore, told Bloomberg. “We are starting to see companies mitigating risk, seeing where they can increase capabilities for production of different products in different factories so they can shift that around,” she said. Echoing what we said last night in "New Year Brings New All-Time High For Shipping's Epic Traffic Jam", Krishnan doesn’t see an end to the global supply crunch anytime soon and cautions it could take several years for the snarls to unwind. It’s a sobering outlook to start a year that many had hoped would mark the beginning of the end of the Big Crunch which dogged producers and consumers through much of last year. Clearly what happens next is critical, and how China’s control of the virus plays out will ultimately be crucial, said Deborah Elms, executive director of the Singapore-based Asian Trade Centre. Those companies whose supply chains are fully located inside China may be insulated by the country’s mitigation strategy. But that won’t apply to everyone, she said. “Lots of products in supply chains come from outside China,” Elms said. “Given challenges elsewhere, even zero Covid doesn’t solve all the issues of disruption.” * * * In its assessment of next steps, Deutsche Bank expects the government will try to contain the Omicron outbreak with more lockdowns and quarantines rather than taking a "live with Covid" approach. This will pose downside risks to near-term growth. The impact on consumption could be significant, although probably not as large as what happened in 2020. While Omicron is far less deadly than other Covid variants, it is still deadly enough to cause healthcare service shortages in China, at least in some regions. Vaccination has proven to be ineffective in preventing Omicron from spreading, and while it offers protection against hospitalization, China still has some 20% of the population who are not vaccinated and will face serious health risks if Omicron becomes widespread. As such, DB says that a containment approach is still the government's optimal choice for this winter regardless of how fast Omicron spreads in the next few weeks. It will be good news if travel restrictions, lockdowns and large-scale testing and contact tracing work in containing the outbreak. Even if outbreaks cannot be contained in some regions, these measures will still be considered necessary in flattening the curve and preventing hospitals from being overwhelmed nationwide. What is much more important for the US, global capital markets and the Fed's monetary policy - which has assumed much stronger growth in 2022 - is that China's Omicron outbreaks are significant downside risks for near-term consumption demand. Restrictions will likely be imposed nationwide to reduce travel before the Chinese New Year and encourage people to stay where they are. Cities where new cases were found will reimpose lockdowns and social distancing measures. The impact in each city will depend on local authorities. Experience from the past 2 years was that while some cities (such as Shenzhen and Shanghai) can manage outbreaks in a less disruptive way, other cities (such as Xi'an) have resorted to stricter and larger scale lockdowns, causing severe disruptions to consumption and service sector activities. Businesses such as restaurants, as well as those linked to travel, and leisure & entertainment will suffer from sharp revenue reductions or even temporary shutdowns. This may also cause temporary job and income losses and negatively impact consumer goods purchases. Retail sales growth dropped by 3ppt in Jan-Feb 2021 (in 2-year average terms). Retail sales might weaken again in Jan-Feb 2022, though the YoY growth rate might not drop much owing to the low base in 2021. Nevertheless, consumption will likely recover rapidly once lockdowns are lifted. Similar to what happened before, such negative shocks will likely be transitory and will be followed by strong recovery once lockdowns are lifted and businesses reopen. Still, the notorious bull-whip effect will emerge once again, as supply chains once again become stretched, and like in 2021 the question will be how the trade off between rising costs - as goods in transit end up stuck on a ship far longer than expected - and slowing growth will impact the Fed's view on what the optimal policy response is. While the Fed's prerogative for now is clearly to contain inflation, the reality is that much of the inflation experienced today is on the supply side, something which Brainard told the Senate in her confirmation hearing the Fed is powerless to address. Meanwhile, if we see a "surprise" drop in growth in the coming months, the Fed will have no choice but to delay or at least stagger its tightening as the last thing the Fed can afford to do is hike into another recession, which will then quickly be followed with even more easing.  Tyler Durden Thu, 01/13/2022 - 13:06.....»»

Category: dealsSource: nytJan 13th, 2022

US Futures Hit All Time High As Santa Rally Spreads Markets Cheer

US Futures Hit All Time High As Santa Rally Spreads Markets Cheer The Santa Claus rally is here, and stocks are set to make their 69th all-time high for 2021 when they open in 90 minutes. US index futures rose to fresh all time highs despite amid thin, holiday-muted trading and a mood of caution as traders evaluated spiking coronavirus cases as investors monitored progress on the Biden administration’s economic stimulus and social spending plan after president-in-waiting Kamala Harris said neither her nor Joe Biden are giving up on the bill. Futures on the S&P 500 and the Nasdaq 100 futures both climbed 0.3% at 745 a.m. in New York, the former trading at all time highs of 4,733. The dollar strengthened, 10-year U.S. Treasury yields were little changed while crude oil and gold dipped. A dollar gauge ticked up. In overnight news, Kamala Harris said the Biden administration is seeking a path forward for its “Build Back Better” economic stimulus. Elsewhere, US holiday sales jumped 8.5% from last year as consumers spent more money on clothes, jewelry and electronics, a report from Mastercard SpendingPulse showed. Still, in U.S. premarket trading, U.S. travel stocks retreated, led by United Airlines Holdings Inc., after hundreds of flights were canceled over Christmas due to a spike in Covid-19 cases. Here are some of the more notable premarket movers: United Airlines Holdings (UAL US) -2.9%, Delta Air Lines (DAL US) -2% and American Airlines (AAL US) -2.1%. Velo3D (VLD US) rose in afterhours trading Thursday after announcing delivery of its first Sapphire XC to an aerospace customer. Surgalign Holdings (SRGA US) dropped in postmarket after filing for the potential sale of equity and debt securities. In the latest covid developments, Anthony Fauci, one of the top U.S. medical advisers, said Americans should stay vigilant because omicron cases can still overwhelm hospitals even if evidence suggests the strain’s symptoms may be less severe. That said, the predominant thread was one of lack of trading as most desks have closed for the year: for markets overall, “either the headline reel will spur ugly intraday moves on holiday-thinned liquidity, or volatility will remain so flatline, that if it were an ECG, the doctors and nurses would be yelling code blue,” Jeffrey Halley, a senior market analyst at Oanda, wrote in a note. In Europe, stocks edged up amid thinner trading volumes as investors monitored the surge in Covid-19 cases. Over the weekend, China’s central bank pledged greater economic support over the weekend, contrasting with steps by the Federal Reserve and other central banks to fight inflation by cutting stimulus. The outlook for monetary policy, Covid and company earnings are shaping views on whether global stocks can keep rising after nearly doubling from pandemic lows. Asian stocks slipped in thin trading ahead of the year-end holidays as investors weighed the latest developments in virus cases related to the omicron variant.  The MSCI Asia Pacific Index swung between a loss of 0.2% and a gain of less than 0.1%. Hardware technology giants provided the biggest support to the measure as chipmakers advanced, while industrial names and software companies fell. Coronavirus cases surged across the globe, with China reporting over the weekend the highest number of local cases since January. Singapore plans to make vaccination a condition for the approval of new applications for and renewal of existing long-term passes, work passes, and permanent residences starting Feb. 1. “While there is worry that infections will continue to spread, the sense is that it’s not likely to develop into serious cases or trigger another series of lockdowns,” said Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management. “I still see room for share price gains during the few trading days left this year.”  The Asian stock benchmark rose 0.4% last week, with sentiment boosted by positive U.S. economic-growth data and a U.K. study suggesting omicron infections are less likely to lead to hospitalization.   Benchmarks in South Korea and Japan were among the worst performers in the region for the day, while Malaysian and Philippine stocks outperformed. Markets in Australia, New Zealand and Hong Kong are shut for the holidays. India’s benchmark equity index advanced, overcoming a weak start to the session, boosted by gains in Tech Mahindra Ltd.  The S&P BSE Sensex rose 0.5% to 57,420.24 in Mumbai, reversing losses of as much as 1%. The NSE Nifty 50 Index also climbed by a similar measure. Sixteen of the 19 sector sub-indexes compiled by BSE Ltd. gained, led by a gauge of healthcare companies. Tech Mahindra Ltd. rose 3.6% and was the best performer on both key indexes. Out of 30 shares in the Sensex index, 24 rose and 6 fell. Private sector lender RBL Bank Ltd. dropped 18.5% after a decision by the nation’s central bank to appoint a new director to the board raised concerns about the outlook for the small private-sector lender. India also announced a program to vaccinate teenagers from the ages of 15 to 18 starting next year and booster doses for health-care workers as omicron-fueled Covid-19 cases spike. The announcement was made by Prime Minister Narendra Modi over the weekend. Still, several states have imposed night curfews and restrictions on public gatherings to keep a check on the spread of the new variant.  “Markets are facing pressure on every rise and it would only subside if the cases tally remains under control,” Ajit Mishra, vice president of research at Religare Broking Ltd. wrote in a note. “We recommend keeping a check on leveraged positions amid volatility and letting the markets stabilize.” In FX, the Bloomberg Dollar Index rose as much as 0.2%, rebounding from its lowest level in more than a month; the New Zealand dollar and the Norwegian krone led declines among G-10 peers. The pound outperformed peers following a report that Chancellor of the Exchequer Rishi Sunak plans to cut tens of thousands of jobs within the U.K. civil service to save government budgets 5% over the next three years. Turkey’s lira snapped a five-day rally, challenging government assurances that it’s on a more stable footing after measures were introduced a week ago to stem its collapse. In rates, 10- year Treasury yields dipped 1bp to 1.49% after rising nine basis points last week. Treasuries were mixed with short-maturity yields higher on the day as the final week of the year begins, ahead of $56b 2-year note auction at 1pm ET. Amid expectations that Fed will start raising interest rates next year, last month’s 2-year auction tailed by more than 1bp. Yields are higher by 1bp-2bp in 2- to 5-year sectors with longer-maturity tenors little changed, flattening curve spreads slightly; 10-year at 1.494% is inside last week’s range. WI 2-year yield at ~0.76% exceeds auction stops since February 2020; last month’s drew 0.623%. The auction cycle includes $57b 5-year note Tuesday, $56b 7-year Wednesday. Expected data include the Dallas Fed Manufacturing Outlook survey. No major earnings or central bank events are scheduled. Market Snapshot S&P 500 futures up 0.2% to 4,724.50 STOXX Europe 600 up 0.3% German 10Y yield up 2 bps to -0.23% Euro little changed at $1.1310 MXAP down 0.2% to 191.83 MXAPJ little changed at 624.02 Nikkei down 0.4% to 28,676.46 Topix down 0.4% to 1,977.90 Hang Seng Index up 0.1% to 23,223.76 Shanghai Composite little changed at 3,615.97 Sensex up 0.5% to 57,433.95 Australia S&P/ASX 200 up 0.4% to 7,420.30 Kospi down 0.4% to 2,999.55 Brent futures little changed at $76.06/bbl Gold spot down 0.3% to $1,805.61 U.S. Dollar Index up 0.2% to 96.22 Top Overnight News from Bloomberg The Biden administration is seeking a path forward for its “Build Back Better” economic stimulus and social spending plan, Vice President Kamala Harris said Sunday Coronavirus infections surged across the globe with China reporting the highest number of local cases since January, darkening the year-end holiday period China’s central bank pledged greater support for the economy on Saturday and said it will make monetary policy more forward-looking and targeted US Event Calendar 10:30am: U.S. Dallas Fed Manf. Activity, Dec., est. 13.0, prior 11.8     Tyler Durden Mon, 12/27/2021 - 08:07.....»»

Category: blogSource: zerohedgeDec 27th, 2021

Stocks, Futures, Oil Tumble On Omicron Lockdowns, Manchin Shockwave

Stocks, Futures, Oil Tumble On Omicron Lockdowns, Manchin Shockwave Global stocks and US equity futures are sharply lower to start the otherwise very quiet holiday week, dragged lower by Manchin's shock decision to kill Biden's economic agenda (which Goldman said would cut US Q1 GDP from 3% to 2%), accelerating government measures to counter the fast-spreading omicron variant and fears over the growth outlook amid a tightening Fed. US equity futures tumbled almost 100 points from their Friday close (and more than 200 points from Thursday's all time high before paring some losses buoyed by optimism from news that Moderna’s booster vaccine increases antibodies 37-fold against omicron. Treasury yields also pared a sharp drop as low as 1.35% and the dollar held a jump from Friday, while crude oil slid on worries that mobility curbs to tackle the strain will hurt demand. As of 730am S&P 500 futures were down down 1.1%, Nasdaq 100 -1.3%, and Dow -1.0%. Global stocks have retreated from record highs in recent weeks amid concerns about Covid-19 hurting the economic recovery and as central banks pivot toward fighting inflation. Federal Reserve Governor Christopher Waller said a faster wind-down of the central bank’s bond-buying program puts it in a position to start lifting interest rates as early as March. “In our view, markets can look through omicron concerns, and the gradual pace of monetary tightening won’t bring the equity rally to an end,” UBS Global Wealth Management wrote in a note. “Overall, the latest news does not change our outlook for equities.” Luke Hickmore, investment director at Standard Life Investments, also recommended buying the dip. “The prospects for growth will improve rapidly from here,” he said. “The market will likely see a recovery in the new year when liquidity returns.” In the weekend's biggest news, senator Joe Manchin blindsided the White House on Sunday by rejecting Biden’s $1.75 trillion tax-and-spending package, prompting a sharply critical statement from the White House which called Manchin’s decision a “sudden and inexplicable reversal.”  Biden and top Democrats must now regroup to see if a scaled-back version remains possible with little more than 10 months before midterm elections that will decide control of Congress. As noted late last night, Goldman Sachs Group Inc. cut its forecast for U.S. economic growth for next year after Manchin’s move (more below). On Monday, Chuck Schumer said the Senate will still vote “very early” in 2022 on Biden’s economic agenda, although it was unclear just what the new plan will look like now that Build Back Better is dead. Not helping matters were the latest development in the Omicron front where the biggest European countries are introducing more curbs, with U.K. officials keeping open the possiblity of stronger measures before Christmas and the Netherlands returning to lockdown, even as Biden’s chief medical advisor said further U.S. lockdowns are unlikely. In some "good" news, said a third dose of its Covid-19 vaccine saw a 37-fold increase in neutralizing antibodies against omicron. Ironically. While investors remain on edge over the outlook for economic activity, there remains little evidence that the new variant causes illness as severe as the delta variant, especially among those already vaccinated. “The main reason behind the market sell off today is the rejection of Biden’s $2 trillion tax-and-spending package, which will lead to a reduction in U.S. economic growth forecasts,” said Michel Keusch, a portfolio manager at Bellevue Asset Management. “With trading volumes getting thinner and thinner into the year end, this is the catalyst creating some short-term nervousness.”  Then there are tightening concerns: the Federal Reserve’s decision to increase the pace of tapering last week is also adding to investor nerves about the outlook for 2022. And now, without either fiscal or monetary support, economists see a policy-induced slowdown in the economy where Goldman on Sunday cut its real GDP forecast for 2022: 2% in Q1 (vs. 3% prior), 3% in Q2 (vs. 3.5% prior), and 2.75% in Q3 (vs. 3% prior). One place which is convinced the Fed will not meet its targets it the bond market where traders of eurodollar futures price rates much lower than FOMC targets for the end of 2023 and 2024. Finally, as Bloomberg notes, there is also the issue of divergent global monetary policy to contend with, as the People’s Bank of China stepped up easing overnight with the first rate cut in 20 months. Looking at the premarket, travel stocks fell the most with United Airlines down 3.4% leading declines among major U.S. carriers, while a 4% slide in Royal Caribbean Cruises led the fall among cruise operators. Energy and industrial bellwethers also declined, with Chevron, 3M and Caterpillar falling over 2% each. Major U.S. tech and internet stocks slumped hitting shares in most highly valued names, as well as in cyclicals. Apple fell as much as 2.1% premarket while fellow large- cap tech names also drop, with Facebook-owner Meta Platforms down 1.9%, Alphabet -1.2%, Amazon.com -1.7%, Twitter -2.1%, Microsoft -1.6%. Here are some of the other big U.S. movers today: Major U.S. tech and internet stocks drop in premarket trading as risk appetite sours globally amid worries over further pandemic- related restrictions, hitting shares in most highly valued names, as well as in cyclicals. Shares in U.S. renewables firms drop in premarket after U.S. Senator Joe Manchin’s surprise rejection of President Joe Biden’s $2 trillion package. Moderna (MRNA US) rises 6% in U.S. premarket after the company said that a booster dose of its Covid-19 vaccine increased antibody levels against the omicron variant. Society Pass (SOPA US) surges 22% in premarket after the loyalty platform operator said in a statement it has been added to the Russell 2000 Index. Boston Beer (SAM US) upgraded to hold at Jefferies following pullback of more than 60% in the shares related to “massive” reset in expectations for hard seltzers, removing the only negative rating on the stock. Shares up 0.3% on low volume in premarket. "After battling endless headwinds in recent weeks, markets have finally been knocked over as the rapid spread of Omicron finally reaches panic mode," Russ Mould, investment director at AJ Bell, wrote in a client note. Europe's Stoxx 600 also stumbled, now down about 1.4% after falling as much as 2.6%, weighed down the most by travel and insurance. All sectors are in red. FTSE 100 recovers slightly as energy gets a leg up, but is still off by 1.2%. Dax -2%. Germany’s new coalition government picked Joachim Nagel, a Bank for International Settlements official, as the central bank’s next president. Earlier in the session, Asian stocks were set for the biggest drop since March, as the spread of the omicron variant and a surprising setback to U.S. President Joe Biden’s economic agenda forced traders to take bets off the table. The MSCI Asia Pacific Index sank as much as 2%, headed for its lowest close since November 2020, with tech and consumer shares the biggest drags. Relatively thin trading ahead of the year-end exacerbated declines in the region, as investors grapple with fresh outbreaks of Covid-19 and monetary policy tightening globally. The MSCI Asia Pacific Index is down about 15% from a peak in February, compared with an 18% gain in the S&P 500. “Omicron’s spread over the festive holidays and Manchin” are driving the risk-off mood, said Wai Ho Leong, strategist at Modular Asset Management (Singapore). “But most of all, it is the lack of liquidity in all markets.” India was the worst performer around the region, with its benchmark index poised to enter a correction amid the spread of the omicron variant. Chinese stocks also dropped despite a cut to bank borrowing costs for the first time in 20 months In FX, the dollar reversed gains and was little changed. The pound fell in line with other risk- sensitive currencies as global market sentiment soured; gilts advanced. Hedging the major currencies over the next month comes at a similar cost, yet the pound turns expensive further out as it holds a higher beta on monetary policy divergence. The Australian and New Zealand dollars followed a broader move lower in commodity FX amid a slide in oil and stocks. The yen advanced with Japanese government bonds. The lira tumbled to another record low after Turkish President Recep Tayyip Erdogan pledged to continue cutting interest rates. In rates, Treasury yields fell by ~3bp in 5-year sector, steepening 5s30s spread by 3bp on the day as long-end yields were little changed; 10-year yields 1bp lower around 1.39%, outperforming bunds and gilts. Treasuries drifted higher Monday as global stocks extended losses. Gains were led by front- and belly of the curve, while eurodollars advanced and the amount of Federal Reserve rate-hike premium for 2024 and 2024 eased. Long-end lagged the move ahead of a 20-year bond auction Tuesday.  Bund and gilt curves are mixed. Italy lags in the peripheral complex, widening ~2bps to Germany. In commodities, Brent crude extends dropped to trade down as much as 5.3%, trading as low as $69.60/bbl before paring some losses, with Brent down 3% to $71 per barrel, and WTI -4% to around the $68-handle. Spot gold drifts below the $1,800-handle. Base metals complex under pressure; LME aluminum and nickel decline the most.  There is nothing on the economic calendar today except that Nov. Leading Index, which is estimated to print at  0.9%. Market Snapshot S&P 500 futures down 1.6% to 4,535.75 MXAP down 1.8% to 187.95 MXAPJ down 1.8% to 607.98 Nikkei down 2.1% to 27,937.81 Topix down 2.2% to 1,941.33 Hang Seng Index down 1.9% to 22,744.86 Shanghai Composite down 1.1% to 3,593.60 Sensex down 2.0% to 55,848.23 Australia S&P/ASX 200 down 0.2% to 7,292.16 Kospi down 1.8% to 2,963.00 STOXX Europe 600 down 2.2% to 463.29 German 10Y yield little changed at -0.40% Euro up 0.2% to $1.1259 Brent Futures down 3.9% to $70.67/bbl Gold spot up 0.1% to $1,800.19 U.S. Dollar Index little changed at 96.61 Top Overnight News from Bloomberg President Joe Biden faces the unexpected task of quickly rewriting his policy agenda in a crucial election year after a key Senate Democrat abruptly rejected his signature $1.75 trillion economic plan Germany’s new coalition government picked Joachim Nagel, a former Bundesbank senior official, as the central bank’s next chief, according to a person with knowledge of the matter The ECB will not raise interest rates in 2022 if inflation behaves as expected, governing council member Pablo Hernandez de Cos told Expansion newspaper in an interview Europe’s biggest countries are introducing more curbs to fight a surge in Covid-19 infections, from another lockdown in the Netherlands to stricter travel restrictions at the height of the holiday period Chinese property stocks tumbled close to a fresh five-year low after a series of asset sales underscored concern that equity investors will bear the brunt of losses as developers offload projects to repay debt Chinese banks lowered borrowing costs for the first time in 20 months, foreshadowing more monetary support to an economy showing strain from a property slump, weak private consumption and sporadic virus outbreaks A more detail look at global markets courtesy of Newsquawk Asia-Pac equities traded mostly lower following the volatile session on Wall Street on Friday, which saw the Dow Jones, S&P 500 and the Nasdaq all posting varying degrees of losses, whilst the Russell 2000 outperformed with decent gains. Overnight, US equity futures opened with a mild upside bias, albeit the optimism faded in early trade as risk aversion materialised, with the ES Mar 2022 contract falling below its 50 DMA (4,596) whilst the NQ and RTY saw losses of over 1% apiece. Sentiment was hit by the slew of concerning COVID headlines over the weekend, whilst Friday saw further hawkish rhetoric from Fed officials - with Fed’s Waller suggesting the whole point of accelerating the bond taper was to make the March Fed meeting a live meeting for the first hike, and under his base case March is very likely for lift-off, although it could be pushed back to May. The ASX 200 (-0.3%) was pressured by some large-cap miners and banks, whilst the Nikkei 225 (-2.1%) and KOSPI (-1.8%) conformed to the downbeat tone, with upside in the former also capped by recent JPY strength. The Hang Seng (-1.9%) and Shanghai Comp (-1.1%) initially saw shallower losses after the PBoC opted to cut the 1yr Loan Prime Rate by 5bps, whilst the 5yr rate was maintained, although the property sector faced more woes after S&P downgraded Evergrande to Selective Default, whilst Kaisa shares slumped after trade resumed following a two-week hiatus, with the Co. in discussions regarding a debt restructuring plan. The Hang Seng dipped below 23,000 for the first time since May 2020. Elsewhere, US 10yr futures continued edging higher as APAC risk aversion supported the haven, whilst Goldman Sachs also cut its US real GDP Growth forecasts on the Build Back Better blockade. Top Asian News Coal India Defends Quality Level of Shipments After Complaints Hong Kong Eyes New Security Law After Electing Loyalist Council Asian Stocks Drop to Lowest in 13 Months on Virus Woes, Manchin Best Way for China to Lower Market Rates is to Sell Yuan: Nomura European bourses commenced the week on the backfoot, continuing the broad pressure seen in APAC trade, as focus is firmly fixed on the Omicron variant. The downside in APAC hours was also a feature of the choppy trade in the US on Friday, and amid non-COVID catalysts such as US Senator Manchin presenting a stumbling block to BBB which effectively ends the chances it can be passed this year, while hawkish central banks is also a theme traders are cognizant of for next year. Euro Stoxx 50 -1.4%, benchmarks are lower across the board as further COVID-19 restrictions are imposed/touted; thus far, the most stringent has seen the Netherlands return to lockdowns, while the likes of the UK and Germany are mulling measures. Vaccine producer Moderna (+5.5% in premarket trade) released preliminary booster data vs Omicron, which saw a modest paring of the risk-off conditions; the vaccine boosts neutralising antibody levels by 37-fold vs pre-boost levels. All sectors remain in the red however, with underperformance in those most exposed to COVID restrictions, such as Travel & Leisure, Oil & Gas and Autos. Individual movers were predominantly dictated by the broader price action; however, THG (+12.5%) is the morning’s outperformer following reports that a notable short on the name has removed its position. Meanwhile, US futures are softer across the board (ES -1.3%) ahead of a very sparse docket where focus will, as it is in European hours, centre around the fiscal narrative and COVID. On the latter, President Biden is due to speak on the situation on Tuesday, calling for individuals to get vaccinated. Top European News Johnson Appoints Truss to Key Brexit Role After Torrid Week Germany Picks Bundesbank Veteran Nagel as Central Bank Chief Czech Billionaire Family Faces Final Showdown Over Bank Merger Flashpoints That May Heal or Deepen the Lira’s Pain in 2022 In FX, the Dollar is mixed across the board, but retaining an upward bias overall amidst greater gains vs high beta, activity and cyclical currencies compared to losses against safer havens as broad risk sentiment sours on a number of factors, but mainly COVID-19. Hence, the index is holding quite firmly above 96.500 within a 96.504-680 range even though US Treasury yields are soft and the curve is marginally flatter, with traction or the Greenback coming via hawkish comments in wake of last week’s FOMC from Fed’s Waller who would not object to lifting rates as soon as tapering is done next March. Ahead, a very sparse Monday agenda only comprises November’s leading index. JPY/EUR/CHF/XAU - As noted above, risk-off positioning due to the ongoing spread of Omicron has prompted demand for the Yen, the Euro, with added momentum from bullish Eur/Gbp cross flows, plus the Franc and Gold to lesser extents. Usd/Jpy is tethered around 113.50 in response, though unhindered by imposing option expiries in contrast to last Friday and the headline pair capped by technical resistance in the form of 21 and 50 DMAs that come in at 113.77 and 113.83 respectively today. Meanwhile, Eur/Usd is back above 1.1250 amidst mixed ECB vibes as de Cos underscores guidance for no hikes in 2022, but sources say that GC hawks wanted explicit recognition of upside inflation risks and were shouted down by chief economist Lane. However, Eur/Gbp has bounced even more firmly from sub-0.8500 lows on what looks like a combination of early year end demand or RHS orders and Pound underperformance on pandemic, political and Brexit-related factors. Elsewhere, Usd/Chf is hovering mostly sub-0.9250 and Eur/Chf is pivoting 1.0400 with latest weekly Swiss sight deposits showing no sign of intervention and Gold is rotating around Usd 1800/oz after a false upside breach of Usd 1810, but not quite enough follow-through buying to scale another upside target circa Usd 1815. GBP/AUD/NZD/CAD - The major fall guys, as Sterling loses 1.3200+ status yet again on all the aforementioned negatives, and also feels some contagion from weakness in Brent, while the Aussie is straddling 0.7100, the Kiwi is trying to keep its head above 0.6700 and the Loonie contain declines through 1.2900 alongside the latest retracement in WTI. In commodities, WTI and Brent are also risk-off, moving in tandem with the equity action, on the COVID-19 narrative and implementation/prospect of further restrictions hitting the demand-side of the equation. WTI relinquishes USD 67.00/bbl and Brent gave up the USD 70.00/bbl level. In fitting the broader market move, some easing of the initial downside was seen post-Moderna’s update. Elsewhere, in crude specifics, Libya’s NOC confirmed reports that the Petroleum Facilities Guard was blocking several fields in the region; some suggest production of oil has dropped to 950k BPD due to losses of production at El Sharara field (estimated at 280k BPD). Elsewhere, OPEC+ compliance has reportedly increased marginally in November, in-fitting with the assessments in earlier sourced reports. In metals, spot gold and silver are contained on the session with little evidence of risk-off making its self-known at this point in time, with the yellow metal pivoting USD 1800/oz. Elsewhere, copper is impacted on the risk tone but offset somewhat by Chile’s President-elect Boric saying he will oppose the Dominga copper-iron mine project. US Event Calendar 10am: Nov. Leading Index, est. 0.9%, prior 0.9% DB's Jim Reid concludes the overnight wrap As we arrive at the final week before Christmas, there’s plenty of newsflow from the weekend for markets to digest this morning. In particular, there was the announcement from the US that Senator Joe Manchin of West Virginia wouldn’t be able to support the Build Back Better Bill, which has been the subject of intense negotiations over recent weeks and marks a significant blow for President Biden’s economic agenda. Meanwhile on the Covid front, there was a further ratcheting up of concerns about the Omicron variant, with the Netherlands becoming the latest European country to go back into lockdown as of yesterday, as cases continue to spread elsewhere. But otherwise, the events calendar is looking fairly quiet for now in this holiday-shortened week, with just a few lower-tier data releases and the occasional central bank speaker. We’ll start with Omicron, since that remains one of the biggest issues for markets right now and has significantly clouded the outlook moving into year-end. In a nutshell, the news over the weekend from Europe has only pointed in the direction of further restrictions across multiple countries, with the Netherlands being the most severe as a full lockdown was announced by the Prime Minister on Saturday that leaves just supermarkets and essential shops open, with even schools shut. When it comes to socialising, people will not be allowed to receive more than 2 visitors aged 13 and over per day, although over 24-26 December, New Year’s Eve and New Year’s Day, this will be raised to 4 people. Elsewhere in Europe there was a similar pattern towards tougher measures, with the Irish PM announcing on Friday evening that there would be an 8pm closing time for bars, restaurants and theatres, among others, which would last from today until January 30. Over in Spain, Prime Minister Sánchez said in a televised address yesterday that he’d be meeting with regional leaders virtually on Wednesday to look at measures for the weeks ahead. In Italy, it’s been widely reported that the government is looking at further measures to contain the spread as well, and they’re set to meet on Thursday to discuss these, whilst here in the UK, Health Secretary Javid was not ruling out further restrictions this side of Christmas. Separately in the US, President Biden is set to deliver a speech tomorrow about Covid and the steps that the administration will be taking, with Press Secretary Jen Psaki tweeting that Biden would also be “issuing a stark warning of what the winter will look like for Americans that choose to remain unvaccinated.” For those after a bit more optimism ahead of Christmas, then a couple of DB research notes out on Friday about the new variant will definitely be of interest. The first by FX Strategist Shreyas Gopal (link here) looks at London, which is the epicentre of Omicron infections in the UK, and tracks cases there against those in the South African province of Gauteng a couple of weeks back. The good news is that if the relationship is similar, then that does suggest a peak in cases soon. The other note comes from our head of rates research Francis Yared (link here) who shows that although deaths are starting to increase in South Africa, they’re currently on a much lower trajectory relative to cases compared to previous waves. An important question for markets is whether these patterns from South Africa can be extrapolated over to the advanced economies, which have much higher vaccination rates on the one hand, but also much older populations on the other, so there are factors that could push in either direction. Keep an eye out on these leading indicators from South Africa, as well as London, since they’ll have implications for what could occur in the coming weeks elsewhere. Away from Covid, the other main piece of news over the weekend came from the US, where the moderate Democratic senator Joe Manchin said that he couldn’t support the Build Back Better package that forms a key part of President Biden’s economic agenda, with much of his proposals on social programs and climate change. The news broke in an interview from Manchin on Fox News Sunday, when Manchin said “I can’t get there” when it comes to supporting the package, and follows direct negotiations that he’d been having with the president. Manchin’s support is crucial for the bill’s passage, since the Senate is split 50-50 between the Democrats and Republicans, with the Democrats having control only by virtue of Vice President Harris’ casting vote. So with zero Republican support for the package, that required every single Democratic senator on board with the proposals, giving Manchin enormous influence. A statement from White House Press Secretary Jen Psaki in response to Manchin did not sound impressed, saying that his comments “are at odds with his discussions this week with the President, with White House staff, and with his own public utterances.” It went on to say that “we will continue to press him to see if he will reverse his position yet again, to honor his prior commitments and be true to his word.” Nevertheless, Manchin’s own written statement wasn’t using the language of compromise, saying that his “Democratic colleagues in Washington are determined to dramatically reshape our society in a way that leaves our country even more vulnerable to the threats we face.” So the implication from Manchin is that Build Back Better won’t be happening this side of the mid-terms in its current form, and would require a fundamental rethink and meaningful slimming down were it to have any chance of passing. Those twin factors of further Omicron restrictions and Manchin’s announcement have weighed heavily on Asian equities overnight, with the Nikkei (-2.17%), KOSPI (-1.66%), Hang Seng (-1.44%), CSI (-0.98%) and Shanghai Composite (-0.75%) all moving lower. In India, the benchmark NIFTY is also down 10% from its peak in October, putting the index in correction territory. However, we did get a policy easing in China, with banks lowering the 1yr prime rate by -5bps to 3.8%. That move came alongside separate remarks from Bank of Japan Governor Kuroda, who said it was too early to think about policy normalisation, and that discussion should take place once inflation is closer to the 2% target. European and US equities are set to follow Asia lower later on, with futures on both the S&P 500 (-0.97%) and the DAX (-1.63%) both pointing lower this morning. And oil prices been struggling overnight as well in light of the recent virus news, with Brent Crude down -3.02% to $71.30/bbl at time of writing. Recapping last week now, and the main events were the array of central bank meetings ahead of the holidays. In the US, the Fed doubled the pace of their tapering as expected, which would bring net asset purchases to an end in mid-March, and the median dot now expects three rate hikes in 2022. By the close on Friday, Fed funds futures were pricing in a 55% chance of an initial hike by the March meeting, and an 87% chance of one by the May meeting. The ECB was then up next, and started a wind down of net PEPP purchases that are also set to finish in March next year. The ECB is cushioning the landing though, having moved to increase APP purchases until October next year after PEPP ends, following which they’ll maintain a pace of €20bn a month until shortly before liftoff. The ECB maintained some policy optionality through flexibility on PEPP reinvestments, which our Europe economists read as a commitment to smoothing the transmission of monetary policy. In the UK, the BoE hiked Bank Rate by +15bps to 0.25%. The MPC noted the decision was finely balanced due to Covid uncertainty, but the vote was still 8-1 in favour of a hike. Over in Japan, the BoJ rounded out the major DM central bank meetings, keeping rates unchanged and announcing a slow reduction in corporate debt holdings. At the same time, they extended a special covid loans program targeted at small and medium-sized firms to September 2022. When all was said and done, many sovereign bond yields actually ended the week lower, even with the hawkish pivot from the various central banks. 10yr yields on Treasuries (-8.2bps) and bunds (-3.1bps) both declined, although those on gilts did post a small +1.7bps gain over the week. Meanwhile growing Covid pessimism served to dampen risk appetite and send global equity indices lower last week. By Friday the S&P 500 (-1.94%) had fallen for the 3rd week out of the last 4, hampered by an underperformance from tech stocks that saw the NASDAQ (-2.95%) and the FANG+ index (-4.53%) both lose significant ground. Over in Europe the moves were smaller, albeit still lower, and the STOXX 600 ended the week -0.35%.   Tyler Durden Mon, 12/20/2021 - 08:02.....»»

Category: blogSource: zerohedgeDec 20th, 2021

Futures Ramp On China Stimulus Hopes Ahead Of Central Bank Barrage

Futures Ramp On China Stimulus Hopes Ahead Of Central Bank Barrage U.S. futures rose again, starting the Santa rally predicted over the weekend by Goldman, after the underlying index surged to a record on Friday with risk appetite returning ahead of this week’s barrage of central bank meetings including the Fed on Wednesday, followed by the Bank of England and ECB. Nasdaq 100 futures climbed 0.4% as major technology and internet stocks rose in premarket trading with Apple inching closer to a $3 trillion market valuation; S&P 500 futures rose 11 points or 0.2%; with Dow Jones futures also rising 0.2%. Chinese developers’ bonds and shares experienced a wave of selling after the sudden plunge in Shimao Group's notes restarted concern over the health of the sector 10-year Treasury yields inched lower to 1.4684% and the dollar pushed higher. Bitcoin extended losses toward $48,000 as Binance bailed on plans for a Singapore exchange. Traders pared bets that the BOE will raise rates next year as concerns over fresh Covid restrictions outweighed inflation fears. Risk sentiment got a boost from predictions China will start adding fiscal stimulus in early 2022, said Ipek Ozkardeskaya, a senior analyst at Swissquote. “The chances of a massive hawkish surprise are limited, and the actual expectation doesn’t interfere with equity investors’ craving for a Santa rally to close a record-breaking year with one last record,” she wrote. Indeed, as we have been expecting for much of the past 6 months, China’s top decision makers last week signaled policies may become more supportive of growth next year. Economists predict China will start adding fiscal stimulus in early 2022. US stocks close Friday at a new record after in-line inflation data did not surprise to the upside for the first time in months and spurred bets that the Federal Reserve won’t have to accelerate plans to tighten monetary policy. That came amid a backdrop of uncertainty from the omicron coronavirus variant, a factor that traders are likely to also monitor closely as the week starts. Volatility should remain high as several central banks will decide on interest rates this week, Pierre Veyret, a technical analyst at ActivTrades, said in written comments. The “policies should set the trading tone, providing investors with more clues on next year’s investing environment.” The Federal Reserve on Wednesday is expected to speed up stimulus withdrawal and perhaps open the door to earlier interest-rate hikes in 2022 if price pressures stay near a four-decade peak. After repeated jawboning, it would be a major surprise if the bank doesn't announce a faster tapering, and the bond market will have to adapt to the new approach. “Global equities had a solid run last week and we’ll see if the goodwill lasts into what is a behemoth when it comes to event risk,” Chris Weston, head of research with Pepperstone Financial Pty Ltd., wrote in a note. Omicron and the Fed should dictate sentiment, he added. Meanwhile, in the world of covid, at least 30 U.S. states have reported omicron cases, with Anthony Fauci of course stepping up calls for boosters to increase protection and making pharma CEOs even richer. That said, all cases for which there's available information were asymptomatic or mild, European health chiefs said. That did not stop Boris Johnson from warning that the U.K. faces a tidal wave of infections and set a year-end deadline for its booster program. South Africa's Cyril Ramaphosa tested positive. Here are some of the biggest U.S. movers today: Arena Pharmaceuticals soars after Pfizer agrees to buy it for $100/Shr in Cash Apple shares rose 1%, leaving the stock close to hitting $3t market capitalization if the move holds. Airbnb, Lucid, Zscaler and Datadog shares all rise in U.S. premarket trading with the companies set to be added to the Nasdaq 100 index later this month. Peloton Interactive shares gain after the home-exercise firm put out an advert responding to a scene in the TV show “And Just Like That...” where a character dies using its product. The stock closed 5.4% lower on Friday, the day after the episode aired. TherapeuticsMD fell 25% in premarket trading after the FDA said it couldn’t approve revisions to some manufacturing testing limits for the Annovera birth-control ring requested by the company through a supplemental new drug application. European stocks also advanced, led by technology and mining stocks. The Euro Stoxx 50 rose as much as 1%, DAX outperforming at the margin.  In the U.K., traders are paring back bets on Bank of England rate hikes over the next year as concerns over fresh Covid restrictions outweigh inflation fears. Asian stocks erased an early advance as deepening losses in shares of Chinese property developers and persistent concerns over the omicron coronavirus variant soured sentiment. The MSCI Asia Pacific Index was down 0.2% after having climbed as much as 0.8%. Equity benchmarks in India and South Korea led regional declines. While stocks in China and Hong Kong rallied in morning trade on signals policies may become more pro-growth next year, the Hang Seng Index erased a gain of as much as 1.6%. That was owing to a selloff in real estate names after a plunge in the bonds and shares of Shimao Group sparked renewed concern over the health of the sector. Monday’s trading in Asia also highlighted investor caution as markets confront potential economic risks from omicron’s spread and a series of central bank meetings this week, including the Federal Reserve. The Fed on Wednesday is expected to speed up stimulus withdrawal and perhaps open the door to earlier interest-rate hikes in 2022 if price pressures stay near a four-decade peak. “We are in the last three weeks of the year -- no investor is going to place new bets and are more likely to be taking profits off the table,” said Justin Tang, head of Asian research at United First Partners. “Any negative news will be taken as a reason to press the sell button.” Meanwhile, China’s stocks climbed for the fourth day in five after the nation’s annual economic conference ended Friday with a vow to ensure “stability” and “front load” policies. Foreign investors on Monday added to record purchases of mainland shares last week. Focus now shifts to data due later in the week, including industrial production, retail sales and fixed-asset investment. India’s benchmark stock index dropped, with a fall in Reliance Industries Ltd. weighing on the market. The S&P BSE Sensex slipped 0.9% to close at 58,283.42 in Mumbai, reversing gains of as much as 0.7%. The index had posted its best weekly performance since mid-October on Friday. The NSE Nifty 50 Index also fell 0.8% on Monday. Still, a measure of small-cap companies gained 0.2%. Reliance, the nation’s most valuable company, dropped 2%. Out of 30 shares in the Sensex, 23 fell and seven rose. All but one of the 19 sector sub-indexes compiled by BSE Ltd. declined, led by a gauge of energy companies. “Selling is more evident in benchmark indices as overseas investors are booking at least a part of their profits ahead of the U.S. Fed’s rate-setting meeting that is likely to speed up the policy normalization process,” Abhay Agarwal, founder of Mumbai-based Piper Serica Advisors Pvt., an investment management company with assets of 5 billion rupees under management, said by phone.  The Fed.’s policy announcement is due Wednesday, where it is expected to speed up stimulus withdrawal and perhaps open the door to earlier interest-rate hikes in 2022. “Post-event, we expect to see a reallocation, though at a slower pace as FPIs will factor in the possible hike in interest rates, apart from the tapering of stimulus,” Agarwal said. Locally, the government will release its consumer inflation print for the month of November later on Monday. Inflation likely rose to 5.1% year-on-year in November from 4.5% in the previous month, according to a Bloomberg survey. Fixed income drifts higher with bund and UST curves bull flattening. Treasury yields were lower as the U.S. trading day begins, with the 10Y sliding to 1.46% and short-term little changed, prolonging the curve-flattening trend. With no U.S. economic data slated and Fed speakers silent ahead of Wednesday’s policy meeting, supply is a focal point, and Fed is slated to buy long-end sectors with no coupon supply until next week’s 20-year reopening. 10- to 30-year yields lower by about 1bp-2bp, 10-year by 1.5b at ~1.468%; 2- to 5-year yields little changed, narrowing 2s10s and 5s30s by 1bp-2bp.Peripheral spreads tighten slightly with short-dated BTPs leading a cautious move higher. Gilts bull steepen, trading ~2.5bps richer across the short end as money markets continue to price out hikes in light of the latest Covid restrictions. In FX, Bloomberg Dollar index drifts 0.3% higher, erasing Friday’s decline and rallying against all its peers with the focus on Wednesday’s Federal Reserve meeting amid speculation officials might accelerate the pace of policy normalization. Flows in the spot market are running at 70% of the recent average, a Europe-based trader told Bloomberg. Volatility term structures in the major currencies remain inverted as the market awaits forward guidance that could shape trading for the better part of 2022 U.S. inflation data in line with expectations on Friday “almost certainly won’t change the balance-of-risk assessment for the Fed, and the communications of late expressing concern over inflation risks remain valid,” says MUFG’s Derek Halpenny. “The week starts quietly in terms of data today but it remains likely that the dollar will remain supported into the FOMC on Wednesday with anticipation high of some hawkish rhetoric to accompany the decision to speed up QE tapering.” GBP/USD fell 0.2% to 1.3244 after gaining 0.5% over the previous two sessions. The Bank of England is set to opt for caution over Covid rather than worries about inflation, pushing back its first rate increase since the pandemic into 2022, according to economists. U.K. Health Secretary Sajid Javid said there’s no certainty the government will be able to keep schools in England open, as it battles to contain the spread of the omicron Covid-19 variant.  “This week is interesting for GBP as markets scrutinize labor-market report tomorrow ahead of BOE,” said Christopher Wong, senior foreign-exchange strategist at Malayan Banking Bhd. in Singapore. “There are concerns unemployment will spike if workers are made redundant or if people cannot find jobs, and this labor report will provide the first assessment.” The Yen outperformed amid broad dollar strength; USD/JPY still up 0.2% at 113.69. AUD and NOK are the weakest in G-10.  Turkish lira crashed again, plunging to a new record low in early London trade with USD/TRY initially rallying over 6% to highs of 14.7590, before fading some of the move after another intervention from the Turkish central bank. In commodities, crude futures give back Asia’s gains; WTI is little changed near $71.78, Brent dips below $75.50. Spot gold holds a narrow range near $1,785/oz. Most base metals are in the green with LME aluminum outperforming.  Bitcoin once again failed to rise above $50,000, extending losses toward $48,000 as Binance bailed on plans for a Singapore exchange There are no major economic developments on today's calendar, but it's a busy week with about 20 central banks making monetary policy announcements, including the Fed, the BOE and ECB, and the divergence of their paths will be evident. Jerome Powell may turn more hawkish as he fights rising inflation, while the ECB joins China in leaning dovish and playing down soaring prices. Market Snapshot S&P 500 futures up 0.4% to 4,728.00 STOXX Europe 600 up 0.7% to 478.82 MXAP down 0.2% to 193.62 MXAPJ down 0.3% to 630.93 Nikkei up 0.7% to 28,640.49 Topix up 0.1% to 1,978.13 Hang Seng Index down 0.2% to 23,954.58 Shanghai Composite up 0.4% to 3,681.08 Sensex down 0.9% to 58,278.65 Australia S&P/ASX 200 up 0.4% to 7,379.26 Kospi down 0.3% to 3,001.66 Brent Futures up 0.8% to $75.74/bbl Gold spot up 0.1% to $1,784.20 U.S. Dollar Index up 0.34% to 96.42 German 10Y yield little changed at -0.36% Euro down 0.4% to $1.1265 Top Overnight News from Bloomberg Almost 20 central banks meet this week, including the world’s biggest. No surprise that volatility term structures in the major currencies remain inverted as the market awaits forward guidance that could shape trading for the better part of 2022 The Bank of Japan offered to buy 2 trillion yen ($17.6 billion) of government bonds under repurchase agreements after repo rates jumped to a two-year high Turkey’s central bank intervened in the market by selling FX after the lira tumbled past 14 to the dollar for the first time, piling pressure on a central bank that’s forecast to keep cutting interest rates this week despite rising inflation. The decline came after S&P Global Ratings lowered the outlook on the nation’s sovereign credit rating to negative on Friday, citing risks from the “extreme currency volatility” The ECB’s biggest decision this week is to decide if it can still call the current inflation spike “transitory.” The answer will have a huge bearing on the euro-area economy, which is already dealing with resurgent coronavirus infections, new restrictions and lockdowns, and uncertainty about the omicron variant ECB Vice President Luis de Guindos is self-isolating after testing positive for Covid-19 on Saturday, the ECB said in a statement posted on its website. Guindos hasn’t been in close contact with ECB President Christine Lagarde over the past week, according to the statement. The Spaniard, who is double- vaccinated and has very mild symptoms, will work from home until further notice Two doses of the Pfizer Inc. and AstraZeneca Plc. vaccines induced lower levels of antibodies against the omicron variant, increasing the risk of Covid infection, according to researchers from the University of Oxford. A more detailed breakdown of overnight news from Newsquawk Asia-Pac equity markets took their cues from last Friday’s gains on Wall Street where the S&P 500 notched a fresh record close and its best weekly performance since February, with markets now bracing for a risk-packed week including a busy schedule of central bank meetings. The ASX 200 (+0.4%) traded higher with risk appetite supported by the reopening of Australia’s borders to international students and skilled workers from Wednesday, while the government will also partially underwrite up to AUD 7bln in new loans for small businesses impacted by lockdowns. The Nikkei 225 (+0.7%) benefitted from the mild outflows from the JPY, with the index unphased by mixed Tankan and Machinery Orders data in which the Tankan Large Manufacturers Index and Outlook missed expectations but sentiment among Large Non-Manufacturers and Small Manufacturers improved for the sixth consecutive quarter. The Hang Seng (-0.2%) and Shanghai Comp. (+0.4%) predominantly conformed to the upbeat mood amid economists' expectations for China to add fiscal stimulus from early next year following last week’s conclusion to the Central Economic Work Conference, which noted that China's economy faces shrinking demand, supply shock, and weakening expectations but added that economic operations are to be kept within a reasonable range. Alibaba shares were among the biggest gainers in Hong Kong as it extended its rebound from YTD lows. Finally, 10yr JGBs were rangebound with March futures contained by resistance at the key 152.00 level and amid the positive mood across riskier assets, although JGBs were off the lows seen late last week where there were source reports that the BoJ is likely to scale back its pandemic relief programs in March with a potential announcement as early as this week’s meeting. Top Asian News Shriram Units Merge to Form Largest India Retail Financier Intel to Spend $7 Billion on Big Malaysia Chipmaking Expansion Shimao Group Appoints Xie Kun as Executive Director Daimler Reveals Chinese Partner BAIC Raised Stake to Almost 10% Stocks in Europe have continued to gain since the cash open (Euro Stoxx 50 +1.0%; Stoxx 600 +0.5%) as the APAC sentiment reverberates through the region following a fleeting blip lower in early European trade. US equity futures are also firmer but to a lesser magnitude – with the RTY (+0.3%) narrowly outpacing the ES (+0.%), NQ (+0.4%) and YM (+0.2%). Focus this week will be on the slew of central bank updates which kicks off with the FOMC on Wednesday, followed by the BoE and ECB on Thursday - with Flash PMIs, Christmas liquidity and Quad Witching also part of this week’s concoction. Add to that the potential tail-risk from geopolitics and headline risk from COVID. Nonetheless, European cash markets at the moment seem unfazed by what’s ahead. Sectors are pro-cyclical with Basic Resources and Autos topping the charts, whilst the defensive Healthcare, Telecoms and Personal & Household goods reside at the bottom. A recent Citi note suggests that rising earnings should keep European stocks moving higher and offset expansive valuations and tightening monetary policy in the US. Citi targets some 9% upside for the Stoxx 600 next year, with a target of 520 (vs current c.477), whilst 12% upside is targeted in the FTSE 100 to 8,200 (vs current c. 7,303). Citi leans in favour of cyclicals vs defensives - with overweights in Banks, Insurance, Basic Resources, Industrials, Media, Luxury Goods and Chemicals. Citi is underweight Utilities, Telecoms, Food & Beverages, Personal Care, Travel, Autos and Financial Services. The bank has also added to its focus list: AstraZeneca (+0.1%), Aviva (+0.7%), Capgemini (+1.2%), Faurecia (+0.9%), Iberdrola (-0.3%), Lloyds (-0.7%), Prosus (+1.5%), Royal Mail (+1.6%), Sanofi (Unch), Tesco (+0.4%), UBS (+0.2%), Vodafone (Unch), Volvo (+1.1%). Separately, Goldman Sachs sees muted returns for global stocks next year amid negative real rates coupled with high equity risk premia and in the absence of a growth shock. GS suggests that risks are growing in the US on a relative basis and sees a maximum drawdown of between -5 to -10% over the next 12 months. Top European News European Gas, Power Prices Surge on Nord Stream 2 Worries U.K. Says Can’t Rule Out Shutting Schools as Omicron Spreads UBS Global Wealth Management Discontinues USDTRY Coverage Vivendi Has ‘Never Been a Threat’ to Lagardere: Arnaud Lagardere In FX, the Greenback has clawed back all and a bit more of its post-US inflation data losses, partly on reflection perhaps that the CPI prints were broadly in line, and actually a tad above consensus in terms of the m/m headline rate, so highly unlikely to derail the Fed from upping the pace of QE tapering this week and probably won’t deter the more hawkish FOMC members from pencilling in a steeper lift-off. Hence, having ended Friday’s session fractionally below a Fib retracement level (96.098), the index subsequently eclipsed the intraday peak (96.429) to turn what was a bearish technical close into a constructive start to the new week within a 96.080-450 range and a ‘close’ above 96.500 would be deemed positive, if not bullish. CHF/EUR/AUD - Very little traction from latest signs of building inflation pressure in the Eurozone via German wholesale prices reaching a record high 16.6% y/y in November, but the Euro has held above 1.0400 against the Franc in wake of latest weekly Swiss sight deposits showing a rise in domestic bank balances. Meanwhile, the single currency has absorbed some stops triggered on a breach of 1.1265 vs the Buck and could derive underlying support from decent option expiry interest at 1.1250 (1.5 bn) at the base of a band extending to 1.1320 (2 bn) through 1.1270-1.1300 (1.1 bn), and Usd/Chf is hovering around 0.9250 at the upper end of a 0.9257-00 band ahead of producer/import prices on Tuesday. Elsewhere, the Aussie has not been able to benefit from good news in the form of Australia opening its borders to international students and skilled workers from Wednesday, Government plans to partially underwrite up to Aud 7 bn new loans for small businesses impacted by lockdowns, or buoyant risk appetite, as it straddles 0.7150 against its US counterpart. JPY/NZD/CAD/GBP - Also conceding ground to their US peer, with the Yen back below 113.50 and hardly helped by mixed Japanese macro releases including December’s Tankan survey and October machinery orders, while the Kiwi is back under 0.6800 even though NZ PM Ardern said the COVID-19 alert level for Auckland is to be eased on December 30 and the next review is scheduled for January 17. The Loonie is slipping alongside WTI between 1.2753-06 parameters and Cable has tested Fib support into 1.3200 at 1.3200 amidst ongoing UK political furore over Conservative Party transgressions during lockdown last year and heightened Omicron restrictions to prevent a tidal wave of infections. In commodities, WTI and Brent front-month futures have been drifting lower since the European morning after the former tested USD 73/bbl to the upside and the latter briefly topped USD 76/bbl. Newsflow for the complex has been light but there have been further positive omens regarding the Iranian nuclear talks - Iran’s top nuclear negotiator said good progress was made in nuclear talks and can quickly pave the way for serious negotiations, whilst Russia's Deputy Foreign Minister said they have reason to anticipate some progress. That being said, we are yet to hear from some of the western nations. Meanwhile, on the OPEC front, Iraq’s Oil Minister said he expects OPEC to maintain its current policy of gradual monthly increases of 400k BPD at the next meeting – slated for early January. On the COVID front, the UK opted not to further tighten restrictions over the weekend but instead boosted the booster programme, whilst reports surrounding the Omicron variant have all highlighted a mild illness. The geopolitical space may require some more attention as tensions remain high on the Ukraine/Russia and Taiwan/China front, with the US involved in both. Russian Deputy Foreign Minister, according to reports this morning, said if the US and NATO do not provide them with guarantees around security, it may lead to confrontation – and emphasised that the lack of progress on this would lead to a military response. Further, there were reports that Saudi Arabia and Iran held security talks. Ahead, the monthly OPEC oil market report is due to be released, but focus this week will likely remain on the slew of central bank meetings. Elsewhere, spot gold and silver are constrained to recent ranges ahead of a risk-packed week, with the former still in a purgatory zone below its 50 DMA (1,789/oz), 200 DMA (1,793/oz) and 100 DMA (1,795/oz). Meanwhile, LME copper is firmer on the mild market optimism but has receded south of the USD 9,500/t mark. US Event Calendar Nothing major scheduled DB's Jim Reid concludes the overnight wrap We had our first Xmas lunch yesterday with my golf club hosting Santa (arriving on a golf buggy up the 18th fairway) and welcoming kids to the dinning room. I spent the whole lunch worrying their behaviour would get me black balled and banned from golf. Before we went my wife and I took lateral flow tests and Maisie asked if this was to stop Santa getting the virus? She then asked who would deliver all the presents if he had to self isolate. I must admit that I thought this was a very good question, especially as she’s starting to slowly question his existence. I said it was likely ok as Santa had just got his booster as he is over 50. I remember when the third week of December was one long string of Xmas client lunches that you desperately tried the leave as early as you could politely do so even if that was 8pm. This week they’ll be no time for lunches and we’ll be glued to our screens with just the eight G20 central banks deciding on monetary policy. The Fed’s decision on Wednesday will be key of course, with anticipation that they might accelerate the tapering of their asset purchases, but there’s also the ECB and Bank of England meetings to watch out for as well. All of them are very much “live” meetings. Elsewhere the flash PMIs for December (Thursday) could give us an initial indication as to how increased restrictions have begun to affect economic activity. US retail sales and UK CPI (both Wednesday) might be other interesting data points. Reviewing the main highlights in more details now. The Fed’s decision on Wednesday will be the focal point of the week. In terms of what to expect, our US economists write in their preview (link here) that they anticipate a doubling in the pace of tapering, which would bring the monthly drawdown of Treasury and MBS to $20bn and $10bn per month respectively. That would see the process of tapering conclude in March, giving them greater optionality for an earlier liftoff. Bear in mind that this meeting will also see the release of the latest dot plot, as well as the projections for inflation, growth and unemployment. On that, our economists see the median dot in 2022 likely showing two rate hikes, with risks of more, up from September when only half the dots saw any hikes by the end of 2022. The ECB’s decision will then follow on Thursday. In our European economists’ preview (link here) they write that until the arrival of the Omicron variant, the ECB appeared on track to initiate a transition to a monetary policy stance based more on policy rates and rates guidance and less on liquidity provision. They were also set to create a policy framework with more optionality to better respond to inflation uncertainties. The Omicron variant reinforces the need for optionality, but until there’s greater clarity on what it means for the pandemic and the recovery, the ECB may stall the expected decisions in part or in whole until early 2022. As with the Fed, it’ll be interesting to see the December staff forecasts on inflation, which could influence the market view on lift-off timing. The Bank of England’s decision will then take place on Thursday, and our UK economist expects the MPC will raise Bank Rate by +15bps to 0.25%. In the preview (link here) it argues that news of the Omicron variant has changed little on the medium-term economic outlook, with the labour market remaining as tight as it has been in recent memory, and inflation continuing to outpace staff forecasts. Nevertheless, the risks to this view are finely balanced, and risk management considerations may lead them to delay a rate hike, as they instead opt to find out more information on Omicron’s impact. Finally on the central bank front, the Bank of Japan will be holding their final monetary policy meeting of the year on Friday. In our economist’s preview (link here), it says that although there had been an expectation that the bank would revise their special pandemic corporate financing support program at this meeting, the emergence of the Omicron variant has changed the situation. Given the next meeting is only a month later, the view is now that they’ll maintain a wait-and-see stance in this meeting and adjust the policy in January, although a revision remains possible this week if more positive evidence is found on the new variant. Moving on to the data, the main highlight will be the flash PMIs for December from around the world on Thursday which will offer an initial indication as to whether there’s been any economic reaction yet to rise in restrictions and the emergence of the Omicron variant. There’ll also be an increasing amount of hard data out of the US for November, including retail sales (Wednesday), industrial production, housing starts and building permits (all Thursday). In China, Wednesday will see the release of their own retail sales and industrial production data for November, and in Germany on Friday there’s the Ifo’s business climate indicator for December. Finally on the inflation side, releases will include the US PPI data for November tomorrow, along with the UK and Canadian CPI readings for November on Wednesday. Late on Friday the UK released a paper looking at vaccine effectiveness against the Omicron variant. The good news is it suggested those who’d been boosted at least a couple of weeks ago still had decent protection, with 3 doses of Pfizer offering 75.5% effectiveness against symptomatic disease, and those who’d had two doses of AstraZeneca followed by a Pfizer booster had 71.4% effectiveness. Those are both lower than the 90+% effectiveness against delta with a booster, but is still much better than some of the worst outcomes had feared. Furthermore, if the past variants are anything to go by, then the protection against severe disease and hospitalisation could be even higher. However, the bad news is it indicated those who’ve been double-jabbed for some months now have significantly waning protection against this new variant from a purely symptomatic basis without a booster, so this will only encourage governments to ramp up their booster campaigns. The UK last night accelerated their plans to get all over 18s offered a booster. It’s now by the end of the year which will be a Herculean task. This follows PM Johnson last night telling the nation that there’s a tidal wave of Omicron cases coming. The government expects it to become the dominant strain very soon in what will be an incredibly short space of time. Overnight in Asia, markets are trading notably higher with the CSI (+1.31%), Hang Seng (+1.01%), Shanghai Composite (+1.00%), the Nikkei (+0.89%) and KOSPI (+0.28%) all strong after China's policymakers' hinted at more stimulus at the end of annual Central Economic Work Conference on Friday. Indeed our economists suggest that this is the decisive policy shift that markets have been waiting for and believe it’s a big deal. See their report on it here. This optimism is being reflected in the near 6% jump in Iron Ore trading overnight. DM futures are indicating a positive start to markets in the US and Europe with S&P 500 (+0.37%) and DAX (+0.44%) futures both in the green. Looking back at last week now and the focus remained squarely on Omicron, where the lack of any concrete bad news lent a more optimistic tone. This modestly improved risk sentiment sent equities and yields higher, and pushed volatility lower with the VIX ending the week -11.88 ppts lower at 18.79. The S&P 500 and Stoxx 600 gained +3.82% and +2.76% over the week (+0.95% and -0.30% Friday respectively). Cyclical sectors and tech stocks led the gains in the US. The small cap Russell 2000 advanced +2.43% (-0.38% Friday) while the Nasdaq climbed +3.61% (+0.73% Friday). The optimism also pushed yields higher and yield curves slightly steeper, with the 10yr treasury gaining +14.1bps this week after a poor close the previous week (-1.5bps Friday) and 10yr bunds climbing +5.1bps (+0.7bps Friday). The 2s10s treasury curve steepened +7.2bps (+1.6bps Friday). Ahead of the Fed’s meeting this week, the market is pricing the first full Fed rate hike by June. In the world of central banking, the Bank of Canada kept policy on hold and reinforced expectations for their inflation target to be sustainably achieved in the middle of 2022, enabling policy rate hikes. Like most DM central banks, they are focused on persistently elevated inflation, which they ascribe to supply constraints that will take time to alleviate. The Reserve Bank of Australia also left its benchmark interest rate unchanged while cautioning that price pressures remain subdued, in contrast to the rest of the DM space. In China, the PBoC cut the required reserve ratio by -50bps to support the economy, while FX reserve ratio was lifted +2.0% to lean against an appreciating renminbi. Property developers Evergrande and Kaisa defaulted on dollar debt. Chinese officials asserted the defaults would be dealt with “in a market-oriented way”. Geopolitical rumblings out of Europe also garnered focus. Presidents Biden and Putin held a phone call to discuss tensions following the build-up of Russian forces on the Ukrainian border. The readouts following the call offered few details but signalled both sides would follow up. President Biden has cautioned severe economic sanctions would be levied should Russia invade Ukraine, including sanctions on Putin’s inner circle, energy companies, and banks. The US would also consider severing Russian access to the US-run international payments system, SWIFT. On Friday, US CPI increased 0.8% and core US CPI increased 0.5% month-over-month in November, with the headline reading a tenth ahead of expectations. Commensurate year-over-year readings were 6.8% and 4.9%, the highest readings since 1982 and 1991, respectively. Measures of underlying and trend inflation continued to move higher, suggesting the Fed’s recent hawkish pivot will continue to be embraced by policymakers. Tyler Durden Mon, 12/13/2021 - 07:56.....»»

Category: blogSource: zerohedgeDec 13th, 2021

Futures Jump In Volatile Session Dragged By Latest Twists In Omicron Saga

Futures Jump In Volatile Session Dragged By Latest Twists In Omicron Saga Much of the overnight session was a snooze fest with stocks drifting first higher then lower after surging on Tuesday, as the narrative meandered from "omicron fears ease" optimism to "vaccines won't work" pessimism, before futures took a sudden leg lower, dropping into the red just after 530am ET, following news that UK's Boris Johnson would introduce new restrictions in England to curb Omicron spread, sparking fears that Omicron is more dangerous that expected (and than futures reflected). However, this episode of pessimism proved short-lived because just an hour later, the WSJ confirmed that Omicron is really just a pitch for covid booster shots when it reported that even though the covid vaccine loses significant effectiveness against Omicron in an early study, this is miraculously reversed with a booster shot as three doses of the vaccine were able to neutralize the variant in an initial laboratory study, and the companies said two doses may still protect against severe disease. Futures quickly shot up on the news, spiking above the gamma "all clear" level of 4,700 in a move best summarized with the following chart. And so, after going nowhere, S&P futures climbed for a third day, last seen 12 points, or 0.3% higher, just around 4,700 after rising the most since March on Tuesday. Europe’s Stoxx 600 Index rose following the biggest jump in more than a year. In addition to the omicron soap opera, which as we noted yesterday turns out was just one staged covid booster shot advertisement (because Pfizer and Moderna can always do with a bigger yacth), sentiment was also lifted by Chinese authorities' reversal to "easing mode" and aggressive efforts to limit the fallout from property market woes which lifted risk assets in Asia even as key debt deadlines at China Evergrande Group and Kaisa Group Holdings Ltd. passed without any sign of payment. "Clearly in the very short term uncertainty has risen over the Omicron virus... but overall at this stage we do not believe it will derail the macro picture in the medium-term," said Jeremy Gatto, multi-asset portfolio manager at Unigestion. Treasury yields were little changed after rising across the curve Tuesday. The VIX spiked first on the FT news, then dropped back into the red, while the dollar was flat and crude rose after turning red. Besides macro, micro was also in play and here are some other notable premarket movers Apple (AAPL US) ticks 1% higher in premarket trading following a Nikkei report that the tech giant told suppliers to speed up iPhone output for Nov.-Jan, citing people it didn’t identify. Amazon.com (AMZN US) shares in focus after an Amazon Web Services outage is wreaking havoc on the e-commerce giant’s delivery operation Stitch Fix (SFIX US) tumbles 25% in U.S. premarket trading after a 2Q forecast miss that analysts called “surprising,” while customer additions also disappointed Pfizer (PFE US) shares drop 2% in U.S. premarket trading after an early study showed that the company’s vaccine provides less immunity to the omicron variant Dare Bioscience (DARE US) soars 41% in premarket trading after Xaciato gets FDA approval for treating bacterial vaginosis EPAM Systems (EPAM US) soars 8% in premarket after S&P Dow Jones Indices said co. will replace Kansas City Southern in the S&P 500 effective prior to the opening of trading on Dec. 14 Goodyear Tire & Rubber (GT US) upgraded to buy from hold and target boosted to Street-high $32 from $29 at Deutsche Bank with the company seen as a major beneficiary from the shift to electric vehicles. Shares up 4.3% in premarket trading NXP Semiconductor (NXPI US) shares slide 2.2% in U.S. premarket trading after the chipmaker got a new sell rating at UBS Dave & Buster’s (PLAY US) gained 3.5% postmarket after the dining and entertainment company reported EPS that beat the average analyst estimate and authorized a $100 million share buyback program "Every day that passes without a wave of severe cases driven by Omicron is offering more hope that this won't be the curveball to throw the recovery off course," wrote Deutsche Bank strategist Jim Reid in a note to clients. In Europe, the Stoxx Europe 600 Index initially drifted both higher and lower then bounced 0.3% on the favorable Pfizer and BioNTech news one day after posting its bigger surge in a year. European benchmark index earlier rose as much as 2%, dropped 2.1%. Health care sub-index leads gains, rising 1.2%, followed by travel stocks. The Stoxx 600 closed 2.5% higher on Tuesday, biggest gain since November 2020 Earlier in the session, Asia stocks also rose for a second day as concerns about the omicron variant and China’s economic slowdown eased. The MSCI AsiaPacific Index climbed as much as 0.9% after capping its biggest one-day gain in more than three months on Tuesday. Technology and health-care shares provided the biggest boosts. Benchmarks in New Zealand and India -- where the central bank held rates at a record low -- were among the day’s best performers. “The biggest point appealing to investors is that the Omicron variant doesn’t seem to be too fatal,” which is encouraging to those who had been going short to close out their positions, said Tomoichiro Kubota, a senior market analyst at Matsui Securities in Tokyo. “Worry that the Chinese economy will lose its growth momentum has subsided quite a bit.” Thus far, Omicron cases haven’t overwhelmed hospitals while vaccine developments indicate some promise in dealing with the variant. While vaccines like the one made by Pfizer and BioNTech SE may be less powerful against the new strain, protection can be fortified with boosters. The two-day rally in the Asian stock benchmark marks a sharp turnaround following weeks of declines since mid-November. Stocks in China also climbed for a second day. The nation’s central bank said Monday it will cut the amount of cash most banks must keep in reserve from Dec. 15, providing a liquidity boost and helping restore investor confidence In FX, news on the Omicron variant rippled through G-10 currencies after a report the Pfizer vaccine could neutralize the Omicron variant boosted risk appetite. The pound underperformed other Group-of-10 peers, extending declines after reports that the U.K. government is poised to introduce new Covid-19 restrictions.  A gauge of the dollar’s strength fluctuated as Treasuries pare gains and stocks rally after a report that said Pfizer and BioNTech claim three vaccine doses neutralize the omicron variant. EUR/USD rose 0.1% to 1.1277; USD/NOK falls as much as 0.8% to 8.9459, lowest since Nov. 25 Sterling fell against the euro and the dollar, as traders pare bets on the path of Bank of England rate hikes following reports that the U.K. could introduce fresh Covid-19 restrictions such as working from home and vaccine passports for large venues. Money markets pare rate hike bets, with just six basis points of interest rate hikes priced in for the BOE meeting next week. GBP/USD falls as much as 0.6% to 1.3163, testing the key level of 1.3165, the 38.2% Fibonacci retracement of gains since March 2020. EUR/GBP gains as much as 0.7% to 0.85695, the highest since Nov. 11. “The market will probably see this as more U.K. specific and therefore an issue for the pound at least in the short term,” said Stuart Bennett, FX strategist at Santander. In rates, Treasuries were mixed with markets reacting in a risk-on manner to the Dow Jones report that Pfizer and BioNTech claim three vaccine doses neutralize the omicron variant. Yields remain richer by less than 1bp across long-end of the curve while front-end trades cheaper on the day, flattening curve spreads. Session’s focal points include $36b 10-year note reopening at 1pm ET, following Tuesday’s strong 3-year note auction. Treasury 10-year yields around 1.475%, near flat on the day; gilts outperform slightly after Financial Times report that further Covid restrictions will be announced imminently to curb the variant’s spread. U.S. 2-year yields were cheaper by 1bp on the day, rose to new 2021 high following Pfizer vaccine report; 2s10s spread erased a flattening move In commodities, crude futures turned red, WTI falling 0.8%, popping back below $72. Spot gold holds Asia’s modest gains, adding $8 to trade near $1,792/oz. Looking at the day ahead, and Olaf Scholz is expected to become German Chancellor in a Bundestag vote today. From central banks, the Bank of Canada will be deciding on rates, and we’ll also hear from ECB President Lagarde, Vice President de Guindos and the ECB’s Schnabel. Finally, data releases include the JOLTS job openings from the US for October. Market Snapshot S&P 500 futures up 0.2% to 4,693.75 STOXX Europe 600 little changed at 480.55 MXAP up 0.7% to 194.84 MXAPJ up 0.6% to 632.78 Nikkei up 1.4% to 28,860.62 Topix up 0.6% to 2,002.24 Hang Seng Index little changed at 23,996.87 Shanghai Composite up 1.2% to 3,637.57 Sensex up 1.8% to 58,654.25 Australia S&P/ASX 200 up 1.3% to 7,405.45 Kospi up 0.3% to 3,001.80 Brent Futures down 0.5% to $75.04/bbl Gold spot up 0.3% to $1,790.33 U.S. Dollar Index down 0.17% to 96.20 German 10Y yield little changed at -0.38% Euro up 0.2% to $1.1286 Brent Futures down 0.5% to $75.04/bbl Top Overnight News from Bloomberg The omicron variant of Covid-19 must inflict significant damage on the euro-area economy for European Central Bank Governing Council member Martins Kazaks to back additional stimulus “The current phase of higher inflation could last longer than expected only some months ago,” ECB vice president Luis de Guindos says at event The earliest studies on omicron are in and the glimpse they’re providing is cautiously optimistic: while vaccines like the one made by Pfizer Inc. and BioNTech SE may be less powerful against the new variant, protection can be fortified with boosters U.K. Prime Minister Boris Johnson is set to announce new Covid-19 restrictions in England, known as “Plan B,” to stop the spread of the Omicron variant, the Financial Times reported, citing three senior Whitehall officials familiar with the matter. French economic activity will continue to rise in December, despite another wave of the Covid-19 pandemic and fresh uncertainty over the omicron variant, according the Bank of France The Kingdom of Denmark will sell a sovereign green bond for the first time next month to help the Nordic nation meet one of the world’s most ambitious climate targets Tom Hayes, the former UBS Group AG and Citigroup Inc. trader who became the face of the sprawling Libor scandal, has lost his bid to appeal his U.K. criminal conviction Poland is poised for a hefty increase in interest rates after a spike in inflation to a two- decade high convinced central bankers that spiraling price growth isn’t transitory. Of 32 economists surveyed by Bloomberg, 20 expect a 50 basis-point hike to 1.75% today and 10 see the rate rising to 2%. The other two expect a 25 basis-point increase Australia is weighing plans for a central bank-issued digital currency alongside the regulation of the crypto market as it seeks to overhaul how the nation’s consumers and businesses pay for goods and services Bank of Japan Deputy Governor Masayoshi Amamiya dropped a strong hint that big firms are in less need of funding support, a comment that will likely fuel speculation the BOJ will scale back its pandemic buying of corporate bonds and commercial paper A detailed summary of global markets courtesy of Newsquawk Asian equity markets traded positively as the region took impetus from the global risk momentum following the tech-led rally in the US, where Apple shares rose to a record high and amid increased optimism that Omicron could be less dangerous than prior variants. This was after early hospitalisation data from South Africa showed the new variant could result in less severe COVID and NIH's Fauci also suggested that Omicron was 'almost certainly' not more severe than Delta, although there were some slight headwinds in late Wall Street trade after a small study pointed to reduced vaccine efficacy against the new variant. The ASX 200 (+1.3%) was underpinned in which tech led the broad gains across sectors as it found inspiration from the outperformance of big tech stateside, and with energy bolstered by the recent rebound in underlying oil prices. The Nikkei 225 (+1.4%) conformed to the upbeat mood although further advances were capped after USD/JPY eased off the prior day’s highs and following a wider-than-expected contraction to the economy with the final annualised Q3 GDP at -3.6% vs exp. -3.1%. The Hang Seng (+0.1%) and Shanghai Comp. (+1.2%) were less decisive and initially lagged behind their peers as sentiment was mired by default concerns due to the failure by Evergrande to pay bondholders in the lapsed 30-day grace period on two USD-denominated bond payments and with Kaisa Group in a trading halt after missing the deadline for USD 400mln in offshore debt which didn’t bode well for its affiliates. Furthermore, China Aoyuan Property Group received over USD 650mln in repayment demands and warned it may not be able to meet debt obligations, while a subdued Hong Kong debut for Weibo shares which declined around 6% from the offer price added to the glum mood for Hong Kong’s blue-chip tech stocks, as did reports that China is to tighten rules for tech companies seeking foreign funding. Finally, 10yr JGBs languished after spillover selling from T-notes and due to the heightened global risk appetite, but with downside stemmed by support at the key psychological 152.00 level and amid the presence of the BoJ in the market today for over JPY 1.0tln of JGBs. Top Asian News China Clean Car Sales Spike as Consumers Embrace Electric Gold Edges Higher as Traders Weigh Vaccine Efficacy, Geopolitics Paint Maker Avia Avian Falls in Debut After $763 Million IPO Tokyo Prepares to Introduce Same-Sex Partnerships Next Year Equities in Europe shifted to a lower configuration after a mixed open (Euro Stoxx 50 -0.7%; Stoxx 600 -0.1%) as sentiment was dented by rumours of tightening COVID measures in the UK. Markets have been awaiting the next catalyst to latch onto for direction amidst a lack of fresh fundamentals. US equity futures have also been dented but to a lesser extent, with the YM (-0.1%) and ES (Unch) straddling behind the NQ (+0.2%) and RTY (+0.2%). Sources in recent trade suggested an 85% chance of the UK implementing COVID Plan B, according to Times' Dunn; reports indicate such restrictions could be implemented on Thursday, with the potential for an announcement today. In terms of the timings, the UK cabinet is penciled in for 15:45GMT and presser for 17:30GMT on Plan B, according to BBC's Goodall. Note, this will not be a formal lockdown but more so work-from-home guidance, vaccine passports for nightlife and numerical restrictions on indoor/outdoor gatherings. APAC closed in the green across the board following the tech-led rally in the US. The upside overnight was attributed to a continuation of market optimism after early hospitalisation data from South Africa showed the new variant could result in less severe COVID, albeit after a small study pointed to reduced vaccine efficacy against the new variant. Participants will be closely watching any updates from the vaccine-makers, with the BioNTech CEO stating the drugmaker has data coming Wednesday or Thursday related to the new COVID-19 variant, thus markets will be eyeing a potential update this week ahead of the Pfizer investor call next Friday. Back to European, the UK’s FTSE 100 (Unch) and the Swiss SMI (+0.8%) are largely buoyed by their defensive stocks, with sectors seeing a defensive formation, albeit to a slightly lesser extent vs the open. Healthcare retains its top spot closely followed by Food & Beverages, although Personal & Household Goods and Telecoms have moved down the ranks. On the flip side, Retail, Banks and Travel & Leisure trade at the bottom of the bunch, whilst Tech nursed some earlier losses after opening as the lagging sector. In terms of individual movers, Nestle (+1.8%) is bolstered after announcing a CHF 20bln share repurchase programme alongside a stake reduction in L'Oreal (+1.0%) to 20.1% from 23.3% - worth some EUR 9bln. L’Oreal has shrugged off the stake sale and conforms to the firm sectoral performance across the Personal & Household Goods. Meanwhile, chip names are under pressure after Nikkei sources reported that Apple (+0.8% pre-market) was forced to scale back the total output target for 2021, with iPhone and iPad assembly halted for several days due to supply chain constraints and restrictions on the use of power in China, multiple sources told Nikkei. STMicroelectronics (-1.7%) and Infineon (-5.0%) are among the losers, with the latter also weighed on by a broker downgrade at JPM. Top European News ECB’s Kazaks Sets High Bar for Omicron-Driven Extra Stimulus Biden Is Left Guessing Over Putin’s Ultimate Aim in Ukraine Byju’s Buys Austria’s GeoGebra to Bolster Online Math Courses Scholz Elected by Parliament to Take Charge as German Chancellor In FX, the Dollar index continues to hold above 96.000, but bounces have become less pronounced and the range so far today is distinctly narrower (96.285-130) in fitting with the generally restrained trade in pairings within the basket and beyond, bar a few exceptions. Price action suggests a relatively muted midweek session unless a major game-changer arrives and Wednesday’s agenda does not bode that well in terms of catalysts aside from JOLTS and the BoC policy meeting before the second leg of this week’s refunding in the form of Usd 36 bn 10 year notes. AUD/EUR - Notwithstanding the largely contained currency moves noted above, the Aussie is maintaining bullish momentum on specific factors including strength in iron ore prices and encouraging Chinese data plus PBoC easing that should have a positive knock-on effect for one of its main trading partners even though diplomatic relations between the two nations are increasingly strained. Aud/Usd has also cleared a couple of technical hurdles on the way up to circa 0.7143 and Aud/Nzd is firmer on the 1.0500 handle ahead of the RBA’s latest chart pack release and a speech by Governor Lowe. Elsewhere, the Euro has regained composure after its sub-1.1250 tumble on Tuesday vs the Buck and dip through 0.8500 against the Pound, but still faces psychological resistance at 1.1300 and the 21 DMA that comes in at 1.1317 today, while Eur/Gbp needs to breach the 100 DMA (0.8513) convincingly or close above to confirm a change in direction for the cross from a chart perspective. CHF/CAD/JPY/GBP/NZD - All sitting tight in relation to their US counterpart, with the Franc paring some declines between 0.9255-30 parameters and the Loonie straddling 1.2650 in the run up to the aforementioned BoC that is widely seen as a non-event given no new MPR or press conference, not to mention the actual changes in QE and rate guidance last time. Nevertheless, implied volatility is quite high via a 63 pip breakeven for Usd/Cad. Meanwhile, Sterling lost grip of the 1.3200 handle amidst swirling speculation about the UK reverting to plan B and more Tory MPs calling for PM Johnson to resign, the Yen is rotating around 113.50 eyeing broad risk sentiment and US Treasury yields in context of spreads to JGBs, and the Kiwi is lagging after touching 0.6800 awaiting independent impetus from NZ manufacturing sales for Q3. SCANDI/EM - The Nok extended its advantage/outperformance against the Sek as Brent rebounded towards Usd 76/brl in early trade and Riksbank’s Jansson retained reservations about flagging a repo rate hike at the end of the forecast horizon, while the Mxn and Rub also initially derived some support from oil with the latter also taking on board latest hawkish talk from the CBR. However, the Cny and Cnh are outpacing their rivals again with some assistance from a firmer PBoC midpoint fix to hit multi-year peaks vs the Usd and probe 6.3500 ahead of option expiry interest at 6.3000 and a Fib retracement at 6.2946, in stark contrast to the Try that is unwinding recent recovery gains with no help from the latest blast from Turkish President Erdogan - see 10.00GMT post in the Headline Feed for more. Conversely, the Czk has taken heed of CNB’s Holub underscoring tightening signals and expectations for the next rate convene and the Pln and Brl are anticipating hikes from the NBP and BCB. In commodities, crude futures have been hit on the prospect of imminent COVID-related measures in the UK, albeit the measures do not involve lockdowns. Brent and WTI front month futures slipped from European highs to breach APAC lows. The former dipped below USD 74.50/bbl from a USD 76.00/bbl European peak while its WTI counterpart tested USD 71.00/bbl from USD 72.50/bbl at best. Overnight the benchmarks traded on either side the USD 75/bbl mark and just under USD 72/bbl after the weekly Private Inventories printed a larger-than-expected draw (-3.6mln vs exp. -3.1mln), albeit the internals were less bullish. Yesterday also saw the release of the EIA STEO, cut its 2021 world oil demand growth forecast by an insignificant 10k BPD but raised the 2022 metric by 200k BPD – with the IEA and OPEC monthly reports poised to be released next week. On the vaccine front, a small preliminary study of 12 people showed a 40x reduction in neutralization capacity of the Pfizer vaccine against Omicron, but early hospitalisation data from South Africa showed the new variant could result in less severe COVID. BioNTech CEO said they have data coming in on Wednesday or Thursday related to the new Omicron variant. The geopolitical space is also worth keeping on the radar, with US President Biden yesterday warning Russian President Putin that gas exports via Nord Stream 2 will be targeted and more troops will be deployed if he orders an invasion of Ukraine. Further, reports suggested, an Indian army helicopter crashed in Tamil Nadu, with Chief of Defence staff reportedly on board, according to Sputnik. Note, Tamil Nadu is located towards the south of the country and away from conflict zones. Elsewhere spot gold was supported by the overnight pullback in the Dollar, but the recent risk aversion took the yellow metal above the 100 DMA around USD 1,790/oz, with nearby upside levels including the 200 DMA (1,792/oz) and the 50 DMA (1,794/oz). Copper prices meanwhile consolidated within a tight range, with LME copper holding onto a USD 9,500/t handle (just about). Dalian iron ore extended on gains in a continuation of the upside seen in recent trade. US Event Calendar 7am: Dec. MBA Mortgage Applications, prior -7.2% 10am: Oct. JOLTs Job Openings, est. 10.5m, prior 10.4m DB's Jim Reid concludes the overnight wrap A reminder that we are currently conducting our special 2022 survey. We ask about rates, equities, bond yields and the path of covid in 2022, amongst other things, and also return to a festive question we asked in 2019, namely your favourite ever Christmas songs. The link is here and it’ll be open until tomorrow. All help filling in very much appreciated. My optimism for life has been shattered this morning. Not from the markets or the virus but just as I woke this morning England cricketers finally surrendered and collapsed in a heap on the first day of the Ashes - one the oldest international rivalries in sport. It was all I could do not to turn round and go back to bed. However out of duty I’m soldering on. After the twins nativity play went without incident yesterday, this morning it’s Maisie’s turn. Given she’s in a wheelchair at the moment she can’t get on stage so they’ve given her a solo singing spot at the start. I’m going so I can bring a bucket for all my wife’s tears as she sings!! If I shed a tear I’ll pretend it’s because of the cricket. The global market rebound continued to gather strength yesterday as investors became increasingly optimistic that the Omicron variant wouldn’t prove as bad as initially feared. To be honest, it was more the absence of bad news rather than any concrete good news helping to drive sentiment. Late in the US session we did see some headlines suggesting that the Pfizer vaccine may provide some defence against Omicron but also that the new variant does evade some of the immunity produced by this vaccine. This report of the small study (12 people!!) from South Africa lacked substance but you could take positives and negatives from it. More information is clearly needed. For the markets though, every day that passes without a wave of severe cases driven by Omicron is offering more hope that this won’t be the curveball to throw the recovery off course. Indeed, to get a sense of the scale of the market rebound, both the S&P 500 and the STOXX 600 in Europe have now clocked in their strongest 2-day performances of 2021 so far, with the indices up by +3.27% and +3.76% respectively since the start of the week. Meanwhile, the VIX fell below 25 for the first time in a week. On the day, the S&P 500 (+2.07%) put in its strongest daily performance since March, whilst the STOXX 600 (+2.45%) saw its strongest daily performance since the news that the Pfizer vaccine was successful in trials back in November 2020. Once again the gains were incredibly broad-based, albeit with cyclical sectors leading the way. The Nasdaq (+3.03%) outperformed the S&P 500 for the first time in a week as tech shares led the rally. Small cap stocks also had a strong day, with the Russell 2000 up +2.28%, on the back of Omicron optimism. This recovery in risk assets was also seen in the bounceback in oil prices, with Brent crude (+3.23%) and WTI (+3.68%) now both up by more than $5.5/bbl since the start of the week, which puts them well on the way to ending a run of 6 consecutive weekly declines. For further evidence of this increased optimism, we can also look at the way that investors have been dialling back up their estimates of future rate hikes from the Fed, with yesterday seeing another push in this direction. Before the Omicron news hit, Fed fund futures were fully pricing in an initial hike by the June meeting, but by the close on the Monday after Thanksgiving they’d moved down those odds to just 61% in June, with an initial hike not fully priced until September. Fast forward just over a week however, and we’re now not only back to pricing in a June hike, but the odds of a May hike are standing at +78.8%, which is actually higher than the +66.1% chance priced before the Omicron news hit. A reminder that we’re just a week away now from the Fed’s next decision, where it’s hotly anticipated they could accelerate the pace at which they’ll taper their asset purchases. With investors bringing forward their bets on monetary tightening, front-end US Treasury yields were hitting post-pandemic highs yesterday, with the 2yr Treasury yield up +5.8bps to 0.69%, a level we haven’t seen since March 2020. Longer-dated yield increases weren’t as large, with the 10yr yield up +3.9bps to 1.47%, and the 5s30s curve flattened another -1.8bps to 54.4bps, just above the post-pandemic low of 53.7bps. Over in Europe there was similarly a rise in most countries’ bond yields, with those on 10yr bunds (+1.4bps), OATs (+1.0bps) and BTPs (+4.4bps) all moving higher, though incidentally, the 5s30s curve in Germany was also down -2.2bps to its own post-pandemic low of 50.0bps. One pretty big news story that markets have been relatively unperturbed by so far is the rising tensions between the US and Russia over Ukraine. Yesterday saw a video call between US President Biden and Russian President Putin. The US readout from the call did not offer much in the way of concrete details, but if you’re looking for any optimistic news, it said that both sides tasked their teams with following up. Setting the background for the call, there were reports immediately beforehand that the US was considering evacuating their citizens and posturing to stop Nord Stream 2 if Russia invaded Ukraine. The Ruble appreciated +0.42% against the dollar, and is now only slightly weaker versus the dollar on the week. Overnight in Asia stocks are trading mostly higher led by the Nikkei (+1.49%), CSI (+1.11%), Shanghai Composite (+0.86%) and the KOSPI (+0.78%) as markets respond positively to the Pfizer study mentioned at the top. The Hang Seng (-0.12%) is lagging though. In Japan, the final Q3 GDP contracted -3.6% quarter on quarter annualised against consensus expectations of -3.1% on lower consumer spending than initially estimated. In India, the RBI left the key policy rate unchanged for the ninth consecutive meeting today while underscoring increasing headwinds from the Omicron variant. Futures markets indicate a positive start in the US and Europe with S&P 500 (+0.41%) and DAX (+0.12%) futures trading in the green. Back on the pandemic, despite the relative benign news on Omicron, rising global case counts mean that the direction of travel is still towards tougher restrictions across a range of countries. In fact here in the UK, we saw the 7-day average of reported cases move above 48,000 for the first time since January. In terms of fresh restrictions, yesterday saw Canada announce that they’d be extending their vaccine mandate, which will now require employees in all federally regulated workplaces to be vaccinated, including road transportation, telecommunications and banking. In Sweden, the government is preparing a bill that would see Covid passes introduced for gyms and restaurants, while Poland put further measures in place, including remote schooling from December 20 until January 9, while vaccines would become mandatory for health workers, teachers and uniformed services from March 1. One move to ease restrictions came in Austria, where it was confirmed shops would be reopening on Monday, albeit only for those vaccinated, while restaurants and hotels would reopen the following week. If you see our daily charts you’ll see that cases in Austria have dropped sharply since the peaks a couple of weeks ago, albeit still high internationally. In DC, Congressional leaders apparently agreed to a deal that would ultimately lead to the debt ceiling being increased, after some procedural chicanery. Senate Majority Leader McConnell voiced support for the measure, which is a good sign for its ultimate prospects of passing, but it still needs at least 10 Republican votes in the Senate to pass. McConnell indicated the votes would be there when the Senate ultimately takes it up, which is reportedly set to happen this week. The House passed the measure last night. Yields on Treasury bills maturing in December fell following the headlines. Looking ahead, today will mark the end of an era in Germany, as Olaf Scholz is set to become Chancellor in a Bundestag vote later on, marking an end to Chancellor Merkel’s 16-year tenure. That vote will simply be a formality given the three parties of the incoming coalition (the centre-left SPD, the Greens and the liberal FDP) have a comfortable majority between them, and the new cabinet will feature 7 SPD ministers, 5 Green ministers, and 4 from the FDP. Among the positions will include Green co-leader Robert Habeck as Vice Chancellor, Green co-leader Annalena Baerbock as foreign minister, and FDP leader Christian Lindner as finance minister. Running through yesterday’s data, the US trade deficit narrowed to $67.1bn in October (vs. $66.8bn expected), marking its smallest level since April. Meanwhile in the Euro Area, the latest Q3 growth estimate was left unchanged at +2.2%, but both Q1 and Q2’s growth was revised up a tenth. Over in Germany, industrial production grew by a stronger-than-expected +2.8% in October (vs. +1.0% expected), with the previous month’s contraction also revised to show a smaller -0.5% decline. In addition, the expectations component of the December ZEW survey fell by less than expected to 29.9 (vs. 25.4 expected), but the current situation measure fell to a 6-month low of -7.4 (vs. 5.7 expected). To the day ahead now, and Olaf Scholz is expected to become German Chancellor in a Bundestag vote today. From central banks, the Bank of Canada will be deciding on rates, and we’ll also hear from ECB President Lagarde, Vice President de Guindos and the ECB’s Schnabel. Finally, data releases include the JOLTS job openings from the US for October. Tyler Durden Wed, 12/08/2021 - 07:58.....»»

Category: blogSource: zerohedgeDec 8th, 2021

Mainstream Economists Are Struggling To Hide The Incoming Economic Collapse

Mainstream Economists Are Struggling To Hide The Incoming Economic Collapse Authored by Brandon Smith via Alt-Market.us, For many years now there has been a contingent of alternative economists working diligently within the liberty movement to combat disinformation being spread by the mainstream media regarding America’s true economic condition. Our efforts have focused primarily on the continued devaluation of the dollar and the forced dependence on globalism that has outsourced and eliminated most U.S. manufacturing and production of raw materials. The problems of devaluation and stagflation have been present since 1916 when the Federal Reserve was officially formed and given power, but the true impetus for a currency collapse and the destruction of American buying power began in 2007-2008 when the Financial Crisis was used as an excuse to allow the Fed to create trillions upon trillions in stimulus dollars for well over a decade. The mainstream media’s claim has always been that the Fed “saved” the U.S. from imminent collapse and that the central bankers are “heroes.” After all, stock markets have mostly skyrocketed since quantitative easing (QE) was introduced during the credit crash, and stock markets are a measure of economic health, right? The devil’s bargain Reality isn’t a mainstream media story. The U.S. economy isn’t the stock market. All the Federal Reserve really accomplished was to forge a devil’s bargain: Trading one manageable deflationary crisis for at least one (possibly more) highly unmanageable inflationary crises down the road. Central banks kicked the can on the collapse, making it far worse in the process. The U.S. economy in particular is extremely vulnerable now. Money created from thin air by the Fed was used to support failing banks and corporations, not just here in America but also banks and companies around the world. Because the dollar has been the world reserve currency for the better part of the past century, the Fed has been able to print cash with wild abandon and mostly avoid inflationary consequences. This was especially true in the decade after the derivatives crunch of 2008. Why? The dollar’s global reserve status means dollars are likely to be held overseas in foreign banks and corporate coffers to be used in global trade. However, there is no such thing as a party that goes on forever. Eventually the punch runs out and the lights shut off. If the dollar is devalued too much, whether by endless printing of new money or by relentless inflationary pressures at home, all those overseas dollars will come flooding back into the U.S. The result is an inflationary avalanche, a massive injection of liquidity exactly when it will cause the most trouble. We are now close to this point of no return. The difference between a crisis and a real crisis As I have said for some time, when inflation becomes visible to the public and their pocketbooks take a hit, this is when the real crisis begins. A Catch-22 situation arises and the Fed must make a choice: To continue with inflationary programs and risk taking the blame for extreme price increases Taper these programs and risk an implosion of stock markets which have long been artificially inflated by stimulus Without Fed support, stock markets will die. We had a taste of this the last time the Fed flirted with tapering in 2018. My position has always been that the Federal Reserve is not a banking institution on a mission to protect American financial interests. Rather, I believe the Fed is an ideological suicide bomber waiting to blow itself up and deliberately derail or destroy the American economy at the right moment. My position has also long been that the bankers would need a cover event to hide their calculated economic attack, otherwise they would take full blame for the resulting disaster. The Covid pandemic, subsequent lockdowns and supply chain snarls have now provided that cover event. Two years after the pandemic started and the Fed has pumped out approximately $6 trillion more in stimulus (officially) and helicopter money through PPP loans and Covid checks. On top of that, Biden is ready to drop another $1 trillion in the span of the next couple years through his recently passed infrastructure bill. In my article ‘Infrastructure Bills Do Not Lead To Recovery, Only Increased Federal Control‘, published in April, I noted that: “Production of fiat money is not the same as real production within the economy… Trillions of dollars in public works programs might create more jobs, but it will also inflate prices as the dollar goes into decline. So, unless wages are adjusted constantly according to price increases, people will have jobs, but still won’t be able to afford a comfortable standard of living. This leads to stagflation, in which prices continue to rise while wages and consumption stagnate. Another Catch-22 to consider is that if inflation becomes rampant, the Federal Reserve may be compelled (or claim they are compelled) to raise interest rates significantly in a short span of time. This means an immediate slowdown in the flow of overnight loans to major banks, an immediate slowdown in loans to large and small businesses, an immediate crash in credit options for consumers, and an overall crash in consumer spending. You might recognize this as the recipe that created the 1981-1982 recession, the third-worst in the 20th century. In other words, the choice is stagflation, or deflationary depression.” It would appear that the Fed has chosen stagflation. We have now reached the stage of the game in which stagflation is becoming a household term, and it’s only going to get worse from here on. Lies, damned lies and statistics According to official consumer price index (CPI) calculations and Fed data, we are now witnessing the largest inflation surge in over 30 years, but the real story is much more concerning. CPI numbers are manipulated and have been since the 1990’s when calculation methods were changed and certain unsavory factors were removed. If we look at inflation according to the original way of calculation, it is actually double that reported by the government today. In particular, necessities like food, housing and energy have exploded in price, but we are only at the beginning. To be clear, Biden’s infrastructure bill and the pandemic stimulus are not the only culprits behind the stagflation event. This has been a long time coming; it is the culmination of many years of central bank stimulus sabotage and multiple presidents supporting multiple dollar devaluation schemes. Biden simply appears to be the president to put the final nail in the coffin of the U.S. economy (or perhaps Kamala Harris, we’ll see how long Biden maintains his mental health facade). But how bad will the situation get? “Collapse” is not too strong a word I think most alternative economists have called the situation correctly in predicting a “collapse.” This is often treated as a loaded term, but I don’t know what else you could call the scenario we are facing. The covid lockdowns and the battle over the vax mandates have perhaps distracted Americans from an even larger danger of financial instability. That fight is important and must continue, but stopping the mandates does not mean the overarching threat of economic chaos goes away, and both serve the interest of central bankers and globalists. Some of the key policies within the literature for the “Great Reset” and what the World Economic Forum calls “The 4th Industrial Revolution” includes Universal Basic Income (UBI), the “Sharing Economy” and eventually a global digital currency system using the IMF’s Special Drawing Rights basket as a foundation. Essentially, it would be a form of global technocratic communism, and if you enjoy individual freedom, being forced into total reliance on the government for your very survival does not sound appealing. To obtain such a system would require a catastrophe of epic proportions. The Covid pandemic gets the globalists part of the way there, but it’s obviously not enough. Covid has not convinced many hundreds of millions of people around the world to give up their freedoms for the sake of security. But maybe a stagflationary collapse will accomplish what Covid has not? Accelerated price spikes in necessities including housing and food will generate mass poverty and homelessness. There is no chance that wages will keep up with costs. The government might step in with more stimulus to help major corporations and businesses increase wages, but this would basically be the beginning of a universal basic income (UBI, or free money for everyone) and it would only cause more dollar devaluation and more inflation. They could try to freeze prices as many communist regimes have in the past, but this only leads to increased manufacturing shut downs because the costs of production are too high and the profit incentives too low. I suspect that the establishment will bring back regular checks (like the Covid checks) for the public now struggling to deal with ever increasing expenses and uncertainty, but with strings attached. Don’t expect a UBI check, for example, if you refuse to comply with the vax mandates. If you run a business, don’t expect stimulus aid if you hire non-compliant workers. UBI gives the government ultimate control over everything, and a stagflationary crisis gives them the perfect opportunity to introduce permanent UBI. The mainstream can no longer deny the fact that stagflation is happening and it is a threat, so hopefully those people that have not been educated on the situation will learn quickly enough to complete the preparations necessary to survive. Countering stagflation will require localized production, decentralization and a move away from reliance on the global supply chain, the institution of local currency systems, perhaps using state banks like the one in North Dakota as a model, barter markets and physical precious metals that rise in value along with inflationary pressures. There is a lot that needs to be done, and very little time to do it. At bottom, the fight against economic collapse and the “Great Reset” starts with each individual and how they prepare. Each person caught by surprise and stricken with poverty is just another person added to the hungry mob begging the establishment for draconian solutions like UBI. Each properly-prepared individual is, as always, an obstacle to authoritarianism. It’s time to choose which one you will be. *  *  * With global tensions spiking, thousands of Americans are moving their IRA or 401(k) into an IRA backed by physical gold. Now, thanks to a little-known IRS Tax Law, you can too. Learn how with a free info kit on gold from Birch Gold Group. It reveals how physical precious metals can protect your savings, and how to open a Gold IRA. Click here to get your free Info Kit on Gold. Tyler Durden Tue, 12/07/2021 - 08:16.....»»

Category: worldSource: nytDec 7th, 2021

Futures Rebound From Friday Rout As Omicron Fears Ease

Futures Rebound From Friday Rout As Omicron Fears Ease S&P futures and European stocks rebounded from Friday’s selloff while Asian shares fell, as investors took comfort in reports from South Africa which said initial data doesn’t show a surge of hospitalizations as a result of the omicron variant, a view repeated by Anthony Fauci on Sunday. Meanwhile, fears about a tighter Fed were put on the backburner. Also overnight, China’s central bank announced it will cut the RRR by 50bps releasing 1.2tn CNY in liquidity, a move that had been widely expected. The cut comes as insolvent Chinese property developer Evergrande was said to be planning to include all its offshore public bonds and private debt obligations in a restructuring plan. US equity futures rose 0.3%, fading earlier gains, and were last trading at 4,550. Nasdaq futures pared losses early in the U.S. morning, trading down 0.4%. Oil rose after Saudi Arabia boosted the prices of its crude, signaling confidence in the demand outlook, which helped lift European energy shares. The 10-year Treasury yield advanced to 1.40%, while the dollar was little changed and the yen weakened. “A wind of relief may blow the current risk-off trading stance away this week,” said Pierre Veyret, a technical analyst at U.K. brokerage ActivTrades. “Concerns related to the omicron variant may ease after South African experts didn’t register any surge in deaths or hospitalization.” As Bloromberg notes, the mood across markets was calmer on Monday after last week’s big swings in technology companies and a crash in Bitcoin over the weekend. Investors pointed to good news from South Africa that showed hospitals haven’t been overwhelmed by the latest wave of Covid cases. Initial data from South Africa are “a bit encouraging regarding the severity,” Anthony Fauci, U.S. President Joe Biden’s chief medical adviser, said on Sunday. At the same time, he cautioned that it’s too early to be definitive. Here are some of the biggest U.S. movers today: Alibaba’s (BABA US) U.S.-listed shares rise 1.9% in premarket after a 8.2% drop Friday prompted by the delisting plans of Didi Global. Alibaba said earlier it is replacing its CFO and reshuffling the heads of its commerce businesses Rivian (RIVN US) has the capabilities to compete with Tesla and take a considerable share of the electric vehicle market, Wall Street analysts said as they started coverage with overwhelmingly positive ratings. Shares rose 2.2% initially in U.S. premarket trading, but later wiped out gains to drop 0.9% Stocks tied to former President Donald Trump jump in U.S. premarket trading after his media company agreed to a $1 billion investment from a SPAC Cryptocurrency-exposed stocks tumble amid volatile trading in Bitcoin, another indication of the risk aversion sweeping across financial markets Laureate Education (LAUR US) approved the payment of a special cash distribution of $0.58 per share. Shares rose 2.8% in postmarket Friday AbCellera Biologics (ABCL US) gained 6.2% postmarket Friday after the company confirmed that its Lilly-partnered monoclonal antibody bamlanivimab, together with etesevimab, received an expanded emergency use authorization from the FDA as the first antibody therapy in Covid-19 patients under 12 European equities drifted lower after a firm open. Euro Stoxx 50 faded initial gains of as much as 0.9% to trade up 0.3%. Other cash indexes follow suit, but nonetheless remain in the green. FTSE MIB sees the largest drop from session highs. Oil & gas is the strongest sector, underpinned after Saudi Arabia raised the prices of its crude. Tech, autos and financial services lag. Companies that benefited from increased demand during pandemic-related lockdowns are underperforming in Europe on Monday as investors assess whether the omicron Covid variant will force governments into further social restrictions. Firms in focus include meal-kit firm HelloFresh (-2.3%) and online food delivery platforms Delivery Hero (-5.4%), Just Eat Takeaway (-5.6%) and Deliveroo (-8.5%). Remote access software firm TeamViewer (-3.7%) and Swedish mobile messaging company Sinch (-3.0%), gaming firm Evolution (-4.2%). Online pharmacies Zur Rose (-5.1%), Shop Apotheke (-3.5%). Online grocer Ocado (-2.2%), online apparel retailer Zalando (-1.5%). In Asia, the losses were more severe as investors remained wary over the outlook for U.S. monetary policy and the spread of the omicron variant.  The Hang Seng Tech Index closed at the lowest level since its inception. SoftBank Group Corp. fell as much as 9% in Tokyo trading as the value of its portfolio came under more pressure. The MSCI Asia Pacific Index slid as much as 0.9%, hovering above its lowest finish in about a year. Consumer discretionary firms and software technology names contributed the most to the decline, while the financial sector outperformed.  Hong Kong’s equity benchmark was among the region’s worst performers amid the selloff in tech shares. The market also slumped after the omicron variant spread among two fully vaccinated travelers across the hallway of a quarantine hotel in the city, unnerving health authorities. “People are waiting for new information on the omicron variant,” said Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management in Tokyo. “We’re at a point where it’s difficult to buy stocks.” Separately, China’s central bank announced after the country’s stock markets closed that it will cut the amount of cash most banks must keep in reserve from Dec. 15, providing a liquidity boost to economic growth.  Futures on the Nasdaq 100 gained further in Asia late trading. The underlying gauge slumped 1.7% on Friday, after data showed U.S. job growth had its smallest gain this year and the unemployment rate fell more than forecast. Investors seem to be focusing more on the improved jobless rate, as it could back the case for an acceleration in tapering, Ichikawa said.  Asian equities have been trending lower since mid-November amid a selloff in Chinese technology giants, concern over U.S. monetary policy and the spread of omicron. The risk-off sentiment pushed shares to a one-year low last week.  Overnight, the PBoC cut the RRR by 50bps (as expected) effective 15th Dec; will release CNY 1.2tln in liquidity; RRR cut to guide banks for SMEs and will use part of funds from RRR cut to repay MLF. Will not resort to flood-like stimulus; will reduce capital costs for financial institutions by around CNY 15bln per annum. The news follows earlier reports via China Securities Daily which noted that China could reduce RRR as soon as this month, citing a brokerage firm. However, a separate Chinese press report noted that recent remarks by Chinese Premier Li on the reverse repo rate doesn't mean that there will be a policy change and an Economics Daily commentary piece suggested that views of monetary policy moves are too simplistic and could lead to misunderstandings after speculation was stoked for a RRR cut from last week's comments by Premier Li. Elsewhere, Indian stocks plunged in line with peers across Asia as investors remained uncertain about the emerging risks from the omicron variant in a busy week of monetary policy meetings.   The S&P BSE Sensex slipped 1.7% to 56,747.14, in Mumbai, dropping to its lowest level in over three months, with all 30 shares ending lower. The NSE Nifty 50 Index also declined by a similar magnitude. Infosys Ltd. was the biggest drag on both indexes and declined 2.3%.  All 19 sub-indexes compiled by BSE Ltd. declined, led by a measure of software exporters.  “If not for the new omicron variant, economic recovery was on a very strong footing,” Mohit Nigam, head of portfolio management services at Hem Securities Ltd. said in a note. “But if this virus quickly spreads in India, then we might experience some volatility for the coming few weeks unless development is seen on the vaccine side.” Major countries worldwide have detected omicron cases, even as the severity of the variant still remains unclear. Reserve Bank of Australia is scheduled to announce its rate decision on Tuesday, while the Indian central bank will release it on Dec. 8. the hawkish comments by U.S. Fed chair Jerome Powell on tackling rising inflation also weighed on the market Japanese equities declined, following U.S. peers lower, as investors considered prospects for inflation, the Federal Reserve’s hawkish tilt and the omicron virus strain. Telecommunications and services providers were the biggest drags on the Topix, which fell 0.5%. SoftBank Group and Daiichi Sankyo were the largest contributors to a 0.4% loss in the Nikkei 225. The Mothers index slid 3.8% amid the broader decline in growth stocks. A sharp selloff in large technology names dragged U.S. stocks lower Friday. U.S. job growth registered its smallest gain this year in November while the unemployment rate fell by more than forecast to 4.2%. There were some good aspects in the U.S. jobs data, said Shoji Hirakawa, chief global strategist at Tokai Tokyo Research Institute. “We’re in this contradictory situation where there’s concern over an early rate hike given the economic recovery, while at the same time there’s worry over how the omicron variant may slow the current recovery.” Australian stocks ended flat as staples jumped. The S&P/ASX 200 index closed little changed at 7,245.10, swinging between gains and losses during the session as consumer staples rose and tech stocks fell. Metcash was the top performer after saying its 1H underlying profit grew 13% y/y. Nearmap was among the worst performers after S&P Dow Jones Indices said the stock will be removed from the benchmark as a result of its quarterly review. In New Zealand, the S&P/NZX 50 index fell 0.6% to 12,597.81. In FX, the Bloomberg Dollar Spot Index gave up a modest advance as the European session got underway; the greenback traded mixed versus its Group-of-10 peers with commodity currencies among the leaders and havens among the laggards. JPY and CHF are the weakest in G-10, SEK outperforms after hawkish comments in the Riksbank’s minutes. USD/CNH drifts back to flat after a fairly well telegraphed RRR cut materialized early in the London session.  The euro fell to a day low of $1.1275 before paring. The pound strengthened against the euro and dollar, following stocks higher. Bank of England deputy governor Ben Broadbent due to speak. Market participants will be watching for his take on the impact of the omicron variant following the cautious tone of Michael Saunders’ speech on Friday. Treasury yields gapped higher at the start of the day and futures remain near lows into early U.S. session, leaving yields cheaper by 4bp to 5bp across the curve. Treasury 10-year yields around 1.395%, cheaper by 5bp vs. Friday’s close while the 2s10s curve steepens almost 2bps with front-end slightly outperforming; bunds trade 4bp richer vs. Treasuries in 10-year sector. November's mixed U.S. jobs report did little to shake market expectations of more aggressive tightening by the Federal Reserve. Italian bonds outperformed euro-area peers after Fitch upgraded the sovereign by one notch to BBB, maintaining a stable outlook. In commodities, crude futures drift around best levels during London hours. WTI rises over 1.5%, trading either side of $68; Brent stalls near $72. Spot gold trends lower in quiet trade, near $1,780/oz. Base metals are mixed: LME copper outperforms, holding in the green with lead; nickel and aluminum drop more than 1%. There is nothing on today's economic calendar. Focus this week includes U.S. auctions and CPI data, while Fed speakers enter blackout ahead of next week’s FOMC. Market Snapshot S&P 500 futures up 0.7% to 4,567.50 STOXX Europe 600 up 0.8% to 466.39 MXAP down 0.9% to 189.95 MXAPJ down 1.0% to 617.01 Nikkei down 0.4% to 27,927.37 Topix down 0.5% to 1,947.54 Hang Seng Index down 1.8% to 23,349.38 Shanghai Composite down 0.5% to 3,589.31 Sensex down 1.5% to 56,835.37 Australia S&P/ASX 200 little changed at 7,245.07 Kospi up 0.2% to 2,973.25 Brent Futures up 2.9% to $71.89/bbl Gold spot down 0.2% to $1,780.09 U.S. Dollar Index up 0.15% to 96.26 German 10Y yield little changed at -0.37% Euro down 0.2% to $1.1290 Top Overnight News from Bloomberg Speculators were caught offside in both bonds and stocks last week, increasing their bets against U.S. Treasuries and buying more equity exposure right before a bout of volatility caused the exact opposite moves Inflation pressure in Europe is still likely to be temporary, Eurogroup President Paschal Donohoe said Monday, even if it is taking longer than expected for it to slow China Evergrande Group’s stock tumbled close to a record low amid signs a long-awaited debt restructuring may be at hand, while Kaisa Group Holdings Ltd. faces a potential default this week in major tests of China’s ability to limit fallout from the embattled property sector China Evergrande Group is planning to include all its offshore public bonds and private debt obligations in a restructuring that may rank among the nation’s biggest ever, people familiar with the matter said China tech shares tumbled on Monday, with a key gauge closing at its lowest level since launch last year as concerns mount over how much more pain Beijing is willing to inflict on the sector The U.S. is poised to announce a diplomatic boycott of the Beijing Winter Olympics, CNN reported, a move that would create a new point of contention between the world’s two largest economies SNB Vice President Fritz Zurbruegg to retire at the end of July 2022, according to statement Bitcoin has markedly underperformed rivals like Ether with its weekend drop, which may underscore its increased connection with macro developments Austrians who reject mandatory coronavirus vaccinations face 600-euro ($677) fines, according to a draft law seen by the Kurier newspaper Some Riksbank board members expressed different nuances regarding the asset holdings and considered that it might become appropriate for the purchases to be tapered further next year,  the Swedish central bank says in minutes from its Nov. 24 meeting A more detailed look at global markets courtesy of Newsquawk Asian equities began the week cautiously following last Friday's negative performance stateside whereby the Russell 2000 and Nasdaq closed lower by around 2% apiece, whilst the S&P 500 and Dow Jones saw shallower losses. The Asia-Pac region was also kept tentative amid China developer default concerns and conflicting views regarding speculation of a looming RRR cut by China's PBoC. The ASX 200 (+0.1%) was initially dragged lower by a resumption of the underperformance in the tech sector, and with several stocks pressured by the announcement of their removal from the local benchmark, although losses for the index were later reversed amid optimism after Queensland brought forward the easing of state border restrictions, alongside the resilience in the defensive sectors. The Nikkei 225 (-0.4%) suffered from the currency inflows late last week but finished off worse levels. The Hang Seng (-1.8%) and Shanghai Comp. (-0.5%) were mixed with Hong Kong weighed by heavy tech selling and as default concerns added to the headwinds after Sunshine 100 Holdings defaulted on a USD 170mln bond payment, whilst Evergrande shares slumped in early trade after it received a demand for payments but noted there was no guarantee it will have the sufficient funds and with the grace period for two offshore bond payments set to expire today. Conversely, mainland China was kept afloat by hopes of a looming RRR cut after comments from Chinese Premier Li that China will cut RRR in a timely manner and a brokerage suggested this could occur before year-end. However, other reports noted the recent remarks by Chinese Premier Li on the reverse repo rate doesn't mean a policy change and that views of monetary policy moves are too simplistic which could lead to misunderstandings. Finally, 10yr JGBs were steady after having marginally extended above 152.00 and with prices helped by the lacklustre mood in Japanese stocks, while price action was tame amid the absence of BoJ purchases in the market today and attention was also on the Chinese 10yr yield which declined by more than 5bps amid speculation of a potentially looming RRR cut. Top Asian News SoftBank Slumps 9% Monday After Week of Bad Portfolio News Alibaba Shares Rise Premarket After Rout, Leadership Changes China PBOC Repeats Prudent Policy Stance With RRR Cut China Cuts Reserve Requirement Ratio as Economy Slows Bourses in Europe kicked off the new trading week higher across the board but have since drifted lower (Euro Stoxx 50 +0.1%; Stoxx 600 +0.3%) following a somewhat mixed lead from APAC. Sentiment across markets saw a fleeting boost after the Asia close as China’s central bank opted to cut the RRR by 50bps, as touted overnight and in turn releasing some CNY 1.2tln in liquidity. This saw US equity futures ticking to marginal fresh session highs, whilst the breakdown sees the RTY (+0.6%) outpacing vs the ES (Unch), YM (+0.3%) and NQ (-0.6%), with the US benchmarks eyeing this week’s US CPI as Fed speakers observe the blackout period ahead of next week’s FOMC policy decision – where policymakers are expected to discuss a quickening of the pace of QE taper. From a technical standpoint, the ESz1 and NQz1 see their 50 DMAs around 4,540 and 16,626 respectively. Back to trade, Euro-indices are off best levels with a broad-based performance. UK’s FTSE 100 (+0.8%) received a boost from base metals gaining impetus on the PBoC RRR cut, with the UK index now the outperformer, whilst gains in Oil & Gas and Banks provide further tailwinds. Sectors initially started with a clear cyclical bias but have since seen a reconfiguration whereby the defensives have made their way up the ranks. The aforementioned Oil & Gas, Banks and Basic Resources are currently the winners amid upward action in crude, yields and base metals respectively. Food & Beverages and Telecoms kicked off the session at the bottom of the bunch but now reside closer to the middle of the table. The downside meanwhile sees Travel & Tech – two sectors which were at the top of the leaderboard at the cash open – with the latter seeing more noise surrounding valuations and the former initially unreactive to UK tightening measures for those travelling into the UK. In terms of individual movers, AstraZeneca (+0.7%) is reportedly studying the listing of its new vaccine division. BT (+1.2%) holds onto gains as Discovery is reportedly in discussions regarding a partnership with BT Sport and is offering to create a JV, according to sources. Taylor Wimpey (Unch) gave up opening gains seen in wake of speculation regarding Elliott Management purchasing a small stake. Top European News Johnson Says U.K. Awaiting Advice on Omicron Risks Before Review Scholz Names Harvard Medical Expert to Oversee Pandemic Policy EU Inflation Still Seen as Temporary, Eurogroup’s Donohoe Says Saudi Crown Prince Starts Gulf Tour as Rivalries Melt Away In FX, the Buck has settled down somewhat after Friday’s relatively frenetic session when price action and market moves were hectic on the back of a rather mixed BLS report and stream of Omicron headlines, with the index holding a tight line above 96.000 ahead of a blank US agenda. The Greenback is gleaning some traction from the firmer tone in yields, especially at the front end of the curve, while also outperforming safer havens and funding currencies amidst a broad upturn in risk sentiment due to perceivably less worrying pandemic assessments of late and underpinned by the PBoC cutting 50 bp off its RRR, as widely touted and flagged by Chinese Premier Li, with effect from December 15 - see 9.00GMT post on the Headline Feed for details, analysis and the initial reaction. Back to the Dollar and index, high betas and cyclicals within the basket are doing better as the latter meanders between 96.137-379 and well inside its wide 95.944-96.451 pre-weekend extremes. AUD/GBP/CAD/NZD - A technical correction and better news on the home front regarding COVID-19 after Queensland announced an earlier date to ease border restrictions, combined to give the Aussie a lift, but Aud/Usd is tightening its grip on the 0.7000 handle with the aid of the PBoC’s timely and targeted easing in the run up to the RBA policy meeting tomorrow. Similarly, the Pound appears to have gleaned encouragement from retaining 1.3200+ status and fending off offers into 0.8550 vs the Euro rather than deriving impetus via a rise in the UK construction PMI, while the Loonie is retesting resistance around 1.2800 against the backdrop of recovering crude prices and eyeing the BoC on Wednesday to see if guidance turns more hawkish following a stellar Canadian LFS. Back down under, the Kiwi is straddling 0.6750 and 1.0400 against its Antipodean peer in wake of a pick up in ANZ’s commodity price index. CHF/JPY/EUR - Still no sign of SNB action, but the Franc has fallen anyway back below 0.9200 vs the Buck and under 1.0400 against the Euro, while the Yen is under 113.00 again and approaching 128.00 respectively, as the single currency continues to show resilience either side of 1.1300 vs its US counterpart and a Fib retracement level at 1.1290 irrespective of more poor data from Germany and a deterioration in the Eurozone Sentix index, but increases in the construction PMIs. SCANDI/EM - The aforementioned revival in risk appetite, albeit fading, rather than Riksbank minutes highlighting diverse opinion, is boosting the Sek, and the Nok is also drawing some comfort from Brent arresting its decline ahead of Usd 70/brl, but the Cnh and Cny have been capped just over 6.3700 by the PBoC’s RRR reduction and ongoing default risk in China’s property sector. Elsewhere, the Try remains under pressure irrespective of Turkey’s Foreign Minister noting that domestic exports are rising and the economy is growing significantly, via Al Jazeera or claiming that the Lira is exposed to high inflation to a degree, but this is a temporary problem, while the Rub is treading cautiously before Russian President Putin and US President Biden make a video call on Tuesday at 15.00GMT. In commodities, WTI and Brent front month futures are firmer on the day with the complex underpinned by Saudi Aramco upping its official selling prices (OSPs) to Asian and US customers, coupled with the lack of progress on the Iranian nuclear front. To elaborate on the former; Saudi Arabia set January Arab light crude oil OSP to Asia at Oman/Dubai average +USD 3.30/bbl which is an increase from this month’s premium of USD 2.70/bbl, while it set light crude OSP to North-West Europe at ICE Brent USD -1.30/bbl vs. this month’s discount of USD 0.30/bbl and set light crude OSP to the US at ASCI +USD 2.15/bbl vs this month’s premium of USD 1.75/bbl. Iranian nuclear talks meanwhile are reportedly set to resume over the coming weekend following deliberations, although the likelihood of a swift deal at this point in time seems minuscule. A modest and fleeting boost was offered to the complex by the PBoC cutting RRR in a bid to spur the economy. WTI Jan resides on either side of USD 68/bbl (vs low USD 66.72/bbl) whilst Brent Feb trades around USD 71.50/bbl (vs low 70.24/bbl). Over to metals, spot gold trades sideways with the cluster of DMAs capping gains – the 50, 200 and 100 DMAs for spot reside at USD 1,792/oz, USD 1,791.50/oz and USD 1,790/oz respectively. Base metals also saw a mild boost from the PBoC announcement – LME copper tested USD 9,500/t to the upside before waning off best levels. US Event Calendar Nothing major scheduled DB's Jim Reid concludes the overnight wrap We’re really at a fascinating crossroads in markets at the moment. The market sentiment on the virus and the policymakers at the Fed are moving in opposite directions. The greatest impact of this last week was a dramatic 21.1bps flattening of the US 2s10s curve, split almost evenly between 2yr yields rising and 10yrs yields falling. As it stands, the Fed are increasingly likely to accelerate their taper next week with a market that is worried that it’s a policy error. I don’t think it is as I think the Fed is way behind the curve. However I appreciate that until we have more certainly on Omicron then it’s going to be tough to disprove the policy error thesis. The data so far on Omicron can be fitted to either a pessimistic or optimistic view. On the former, it seems to be capable of spreading fast and reinfecting numerous people who have already had covid. Younger people are also seeing a higher proportion of admissions which could be worrying around the world given lower vaccinations levels in this cohort. On the other hand, there is some evidence in South Africa that ICU usage is lower relative to previous waves at the same stage and that those in hospital are largely unvaccinated and again with some evidence that they are requiring less oxygen than in previous waves. It really does feel like Omicron could still go both ways. It seems that it could be both more transmittable but also less severe. How that impacts the world depends on the degree of both. It could be bad news but it could also actually accelerate the end of the pandemic which would be very good news. Lots of people more qualified than me to opine on this aren’t sure yet so we will have to wait for more news and data. I lean on the optimistic side here but that’s an armchair epidemiologist’s view. Anthony Fauci (chief medical advisor to Mr Biden) said to CNN last night that, “We really gotta be careful before we make any determinations that it is less severe or really doesn’t clause any severe illness comparable to Delta, but this far the signals are a bit encouraging….. It does not look like there’s a great degree of severity to it.” Anyway, the new variant has taken a hold of the back end of the curve these past 10 days. Meanwhile the front end is taking its guidance from inflation and the Fed. On cue, could this Friday see the first 7% US CPI print since 1982? With DB’s forecasts at 6.9% for the headline (+5.1% for core) we could get close to breaking such a landmark level. With the Fed on their media blackout period now, this is and Omicron are the last hurdles to cross before the FOMC conclusion on the 15th December where DB expect them to accelerate the taper and head for a March end. While higher energy prices are going to be a big issue this month, the recent falls in the price of oil may provide some hope on the inflation side for later in 2022. However primary rents and owners’ equivalent rents (OER), which is 40% of core CPI, is starting to turn and our models have long suggested a move above 4.5% in H1 2022. In fact if we shift-F9 the model for the most recent points we’re looking like heading towards a contribution of 5.5% now given the signals from the lead indicators. So even as YoY energy prices ease and maybe covid supply issues slowly fade, we still think inflation will stay elevated for some time. As such it was a long overdue move to retire the word transitory last week from the Fed’s lexicon. Another of our favourite measures to show that the Fed is way behind the curve at the moment is the quits rate that will be contained within Wednesday’s October JOLTS report. We think the labour market is very strong in the US at the moment with the monthly employment report lagging that strength. Having said that the latest report on Friday was reasonably strong behind the headline payroll disappointment. We’ll review that later. The rest of the week ahead is published in the day by day calendar at the end but the other key events are the RBA (Tuesday) and BoC (Wednesday) after the big market disruptions post their previous meetings, Chinese CPI and PPI (Thursday), final German CPI (Friday) and the US UoM consumer confidence (Friday). Also look out for Congressional newsflow on how the year-end debt ceiling issue will get resolved and also on any progress in the Senate on the “build back better” bill which they want to get through before year-end. Mr Manchin remains the main powerbroker. In terms of Asia as we start the week, stocks are trading mixed with the CSI (+0.62%), Shanghai Composite (+0.37%) and KOSPI (+0.11%) trading higher while the Nikkei (-0.50%) and Hang Seng (-0.91%) are lower. Chinese stock indices are climbing after optimism over a RRR rate cut after Premier Li Kequiang's comments last week that it could be cut in a timely manner to support the economy. In Japan SoftBank shares fell -9% and for a sixth straight day amid the Didi delisting and after the US FTC moved to block a key sale of a company in its portfolio. Elsewhere futures are pointing a positive opening in US and Europe with S&P 500 (+0.46%) and DAX (+1.00%) futures both trading well in the green. 10yr US Treasury yields are back up c.+4.2bps with 2yrs +2.6bps. Oil is also up c.2.2% Over the weekend Bitcoin fell around 20% from Friday night into Saturday. It’s rallied back a reasonable amount since (from $42,296 at the lows) and now stands at $48,981, all after being nearly $68,000 a month ago. Turning back to last week now, and the virus and hawkish Fed communications were the major themes. Despite so many unknowns (or perhaps because of it) markets were very responsive to each incremental Omicron headline last week, which drove equity volatility to around the highest levels of the year. The VIX closed the week at 30.7, shy of the year-to-date high of 37.21 reached in January and closed above 25 for 5 of the last 6 days. The S&P 500 declined -1.22% over the week (-0.84% Friday). The Stoxx 600 fell a more modest -0.28% last week, -0.57% on Friday. To be honest both felt like they fell more but we had some powerful rallies in between. The Nasdaq had a poorer week though, falling -c.2.6%, after a -1.9% decline on Friday. The other main theme was the pivot in Fed communications toward tighter policy. Testifying to Congress, Fed Chair Powell made a forceful case for accelerating the central bank’s asset purchase taper program, citing persistent elevated inflation and an improving labour market, amid otherwise strong demand in the economy, clearing the way for rate hikes thereafter. Investors priced in higher probability of earlier rate hikes, but still have the first full Fed hike in July 2022. 2yr treasury yields were sharply higher (+9.1bps on week, -2.3bps Friday) while 10yr yields declined (-12.0bps on week, -9.1bps Friday) on the prospect of a hard landing incurred from quick Fed tightening as well as the gloomy Covid outlook. The yield curve flattened -21.1bps (-6.8bps Friday) to 75.6bps, the flattest it has been since December 2020, or three stimulus bills ago if you like (four if you think build back better is priced in). German and UK debt replicated the flattening, with 2yr yields increasing +1.3bps (-0.7bps Friday) in Germany, and +0.3bps (-6.7bps) in UK this week, with respective 10yr yields declining -5.3bps (-1.9bps Friday) and -7.8bps (-6.4bps Friday). On the bright side, Congress passed a stopgap measure to keep the government funded through February, buying lawmakers time to agree to appropriations for the full fiscal year, avoiding a disruptive shutdown. Positive momentum out of DC prompted investors to increase the odds the debt ceiling will be resolved without issue, as well, with yields on Treasury bills maturing in December declining a few basis points following the news. US data Friday was strong. Despite the headline payroll increase missing the mark (+210k v expectations of +550k), the underlying data painted a healthy labour market picture, with the unemployment rate decreasing to 4.2%, and participation increasing to 61.8%. Meanwhile, the ISM services index set another record high. Oil prices initially fell after OPEC unexpectedly announced they would proceed with planned production increases at their January meeting. They rose agin though before succumbing to the Omicron risk off. Futures prices ended the week down again, with Brent futures -3.67% lower (+0.55% Friday) and WTI futures -2.57% on the week (-0.15% Friday). Tyler Durden Mon, 12/06/2021 - 07:51.....»»

Category: smallbizSource: nytDec 6th, 2021