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Biden Economic Adviser Asserts That More Government Spending Will Solve Inflation Crisis

Biden Economic Adviser Asserts That More Government Spending Will Solve Inflation Crisis Biden's “Build Back Better” efforts have been a phenomenal failure so far, but maybe that's because Americans just don't understand a good thing when they see it? This has been Biden's argument on the state of the economy lately, as he persistently argues that there is no threat of recession because the US jobs market still “strong.”  There is no mention from the White House regarding the fact that covid stimulus spending artificially drove up retail demand and created a temporary spike in jobs.  If they were to admit that layoffs are about to ramp up because the covid checks are gone and people's credit cards are maxed out because of inflation, then Biden would have nothing left to brag about.     Biden economic adviser Cecilia Rouse responded to media question on the inflation situation in particular this week and offered even more propaganda, rather than an honest assessment of the dangers ahead.  Remember, this is the same administration that was still saying only a year ago that inflation was “transitory” despite all evidence to the contrary.  Yet, we're now supposed to trust their opinions on the potential for recession and solving inflation?  One of the key obstacles to “Build Back Better” is the reality of high inflation.  If Biden gets what he wants, which is at bottom an infrastructure renewal plan similar to the New Deal plan under FDR during the Great Depression.  Whether or not the New Deal actually saved the US economy is up for debate (the destruction caused by WWII left the US as one of the only major manufacturing nations still intact, and this was the main reason for the explosion in wealth and the national escape from poverty), but even if it made a difference the circumstances today are not the same. The problem is that FDR was facing a deflationary crash in which the US dollar remained viable and strong.  Today, we are dealing with a stagflationary crash in which price inflation is rampant and the dollar's buying power is growing ever weaker.  One of the main reasons for this inflation is due to government spending and massive Federal Reserve stimulus created from thin air. The US national debt when Barack Obama and Joe Biden entered office in 2008 was around $10 trillion.  By the time Obama and Biden left in 2016, the national debt had doubled to $20 trillion.  That's a 100% increase in only 8 years.  Since 2016 the national debt has expanded to around $30 trillion.  The Federal Reserve created over $6 trillion in a single year in 2020 to supply the government with currency for covid checks and PPP loans during the lockdowns.   To be sure, the Federal Reserve is happy to continue destroying the dollar, but exponential government spending gives them the excuse to do it. This is not even counting the spending required for long term government programs such as medicare and social security.   And yes, programs like Social Security DO add to US debt and the Federal deficit and anyone that tells you otherwise is lying.  Just because something is “off budget” does not mean it's not adding debt. In March, Nancy Pelosi made a bizarre claim that in order to deal with inflation and bring down the national debt America need MORE spending, not less.  Of course, anyone with a brain and a mediocre knowledge of fiscal responsibility knows that the national debt has little to do with inflation directly, and government spending always creates more national debt and inflation when it relies on fiat money printing from a central bank, which the US government does.  One might write off Pelosi as a complete moron and they would be right to do so, but politicians like Pelosi do not make these kinds of statements in a vacuum. Biden, Pelosi and other politicians rely on economic advisers and gatekeepers to write their talking points for them, and the narrative that government spending is a “good thing” that will eventually stop inflation is part of a much larger concerted propaganda effort; it is not just the ramblings of senile government hacks. As we have seen recently from Biden's advisers, the all encompassing narrative is in support of massive spending as the magic talisman to ward off collapse.  In other words, the claim is that we can print our way to prosperity.  Cecilia Rouse argued that: "The president is focused on inflation and in fact, Build Back Better is a long-run investment to increase economic capacity so that we're better able to address inflation. Parts of Build Back Better include addressing costs, such as prescription drugs. It includes making investments to make the transition to clean energy which we know we need to be making as well. So that's not the kind of dollars that is stimulus, it's investment, and it's the kind of investments that actually pay for themselves over time. So that's smart economic policy right now..."   This is utter nonsense.  Infrastructure spending is stimulus; this is a fact.  Increasing economic “capacity” does not address dollar devaluation, and creating projects from nothing in order to encourage spending does not address too many dollars chasing too few goods if you have to print even MORE dollars to make those infrastructure projects possible.   Ultimately, the government has no tools whatsoever to reduce inflation, they only know how to increase inflation.  Beyond that, price controls (which Rouse seems to be embracing) do nothing but cause even more inflation because they destroy profit incentives.  If producers and manufacturers can't make a profit on their goods because of price controls, then they will stop making those goods.  Now you have increased shortages and prices rise again.   The true cost of the Build Back Better program if approved will hit approximately $5 trillion, and this spending would occur swiftly over the course of a couple of years, flooding the economy with even more fiat dollars at a time when inflation is (officially) at 40 year highs.  Never in history has fiat spending ever reduced inflationary pressures, it only makes them worse.  The real solution is a complete restructuring of the currency model, such as coupling a nation's money to a hard commodity like gold and a moratorium on deficit spending.  Obviously Biden will never do this, and so, inflation is going to be a problem that Americans face for many months to come.   In the meantime, we get to listen to the people that told us inflation was not a threat now tell us that inflation can be solved with more inflation.  Tyler Durden Thu, 06/23/2022 - 05:45.....»»

Category: blogSource: zerohedgeJun 23rd, 2022

How To Stop Inflation From Deflating Your Savings

No, you aren’t imagining things. Everything costs more than it did before, and these higher prices make it hard to balance the budget while saving and thinking about retirement. But you can stop inflation from deflating your savings! In April, the Bureau of Labor released the latest data from the Consumer Price Index (CPI), revealing […] No, you aren’t imagining things. Everything costs more than it did before, and these higher prices make it hard to balance the budget while saving and thinking about retirement. But you can stop inflation from deflating your savings! In April, the Bureau of Labor released the latest data from the Consumer Price Index (CPI), revealing inflation’s steady creep upward hasn’t stopped yet. The rate of U.S. inflation climbed to a whopping 8.5% in March, marking this spike as the most significant increase in the cost of living in 4 decades. .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 Ray Dalio Series in PDF Get the entire 10-part series on Ray Dalio 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); Q1 2022 hedge fund letters, conferences and more You aren’t alone if you’re struggling to handle prices at their 40-year high. Nearly half of Americans (45%) polled by Gallup last year admitted inflation caused financial hardship at a time when the CPI was just 6.8%. Moreover, of those that reported facing difficulties, 10% revealed their challenges impacted their standard of living. While the Federal Reserve claims inflation’s bubble will pop soon, experts anticipate the CPI won’t fall below 4% by the year’s end. That means you can expect another year of high inflation bumping up prices. Is your budget ready? If not, don’t panic. Instead, keep reading to understand more about inflation and what you can do to protect your savings. Inflation: An Overview Inflation is not a product of the pandemic, although it may initially seem that way. On the contrary, between lockdowns and labor shortages — and now the Russia-Ukraine crisis — the past 3 years have kept inflation well-fed. These special circumstances allowed inflation to grow to dizzying heights, but it’s been around a lot longer than COVID. Have you ever heard your dad tell you a story about buying a bag of candy for a nickel, only for your grandfather to chime in to say he bought the same thing for a penny? They aren’t just yearning for the good old days of their youth. That’s inflation at work. Inflation is an economic principle describing how the prices of goods and services generally increase over time. Another way to think of it is how your money — or what’s called your purchasing power — decreases in value as time goes on. Usually, inflation only increases by around 2% each year. And if you’re lucky, your employer matches this increase with an equivalent raise. This zero-sum game means a lot of people may not notice inflation. Sure, things cost more, but you also earn more, so it all evens out. The problem with today’s record-breaking inflation rate is that prices are climbing far too fast for wages to keep up. While employers have been handing out raises, a survey shows they averaged 3.4% in 2021, less than half of today’s current inflation rate. With inflation and wages out of balance, you may notice how your dollar doesn’t stretch as far as it used to before the pandemic. Each expense takes up more of your very finite budget as a result. Americans Are Living Paycheck to Paycheck Now that everything costs more, many Americans are feeling the financial crunch. According to CNBC, nearly two-thirds of Americans (64%) live paycheck to paycheck today. This isn’t necessarily new. In fact, survey after survey has revealed people have been living this way for nearly a decade. If you’re living paycheck to paycheck, most, if not all, of your monthly income goes towards making ends meet. With your income tied up with bills, you may have practically no cash for anything else. Your Paycheck May Not Go As Far - But Don’t Deflate Your Savings It’s hard to keep up with your savings goals when you live like this. You might even hit pause on savings altogether. And without contributing to savings, Americans increasingly turn to credit cards and short-term personal loans for help in an emergency. CNBC reports that 56% of Americans could not handle an unexpected $1,000 expense with savings. Most of those without savings would charge credit cards or ask a loved one for some help. But others would go into debt and borrow money online via short-term personal loans to cover unexpected expenses. While credit cards and short-term personal loans function as emergency backups in unexpected cash crunches, they’re meant as temporary stopgaps for singular expenses. Moreover, borrowing money won’t solve the issue that high inflation is an ongoing problem that will long outlast most cash advances and personal loan terms. More still, debt can add to your money troubles. If you’re already living paycheck to paycheck, you may not have the cash available to repay your personal loan on time. Late fines and extra interest are soon to follow. Updating Your Budget with Inflation in Mind Americans point to high costs preventing them from saving as much as they want, regardless of whether they rely on credit cards or short-term personal loans as crutches. Unfortunately, there’s no telling just how long high inflation will hang around. Still, one thing is for sure: a higher-than-normal inflation rate will affect prices for the foreseeable future. Higher prices are the new normal, so it’s time to tweak your budget, updating it for another expensive year. Let’s dive into how you can do that. Make a List of Priorities When things are tight, you need a plan of action to understand your next move. So sit down and write out your list of priorities. These expenses are the absolute essentials you need to pay each month to keep a roof over your head and food on the table. Besides housing costs and groceries, this list may include insurance payments, utilities, basic household items, and toiletries. In addition, the minimum payments for personal loans, cash advances, and lines of credit also belong on this list. These minimum payments will help you avoid late fines, extra interest, and credit damage. This list shows the bare minimum for what you need each month. It serves as a good reminder of what you need to pay first before moving on to other things. Cut Discretionary Expenses As judge, jury, and executioner of expenses, you should be looking to slash non-essential spending until you have more wiggle room in your budget. Then, the unnecessary expenses (i.e., those you don’t need to lead a safe or comfortable life) should be on the chopping block. Which expenses didn’t make it on your list of priorities? It can be daunting to say goodbye to the fun things in life, but it’s easier to let go knowing it won’t be forever. You can reintroduce the non-essentials when you start to feel less pressure. To help you get started, here are some discretionary expenses you can cut: Streaming services: If you have multiple streaming subscriptions, pare them down to the one you use most often. Subscription boxes: While the average subscription box doesn’t cost a lot, it may be too much if you’re living paycheck to paycheck. Put them on pause until you have more wiggle room in your budget. Gym memberships: The average gym membership costs about $600 a year. You can pocket that change by switching to a free at-home workout. Takeout: According to The Fool, the average American spends $2,375 on takeout a year. If you eat out multiple times a week, you stand to save a lot by eating at home. Alcohol: Happy hours after work and wine with dinner add up. Going dry can help you free up more cash for bills. Finding it hard to say no when you’re out and about? Apply the 30-day rule. In other words, wait for 30 days before you commit to the purchase. A month is long enough to take the wind out of your sails, revealing the splurge for what it is: a waste of money. Automate Savings Even at this time, savings are an essential part of your budget. It can help you weather unexpected emergencies, reducing how often you tap into credit cards and short-term personal loans. Admittedly, saving through high inflation is challenging, so you might want to ignore the usual advice to save 3 to 6 months. But, that’s a goal for another day. For now, save as much as you can to get started, even if it’s just $10 a month at first. Financial advisor David Ramsey suggests lowering your goal to $1,000 when you’re first starting out. Tweak Your Phone and Internet Package Having a phone and access to the Internet is as close to essentials as possible nowadays. You might need them for work, or it may be the only way you can contact the outside world. So cutting these expenses for the sake of saving money just doesn’t make sense. If you’re on an unlimited plan, consider downsizing to a cheaper plan with strict data and talk limits. Be careful not to exceed these limits to ensure you aren’t penalized. You stand to save even more each month if you can stomach a prepaid contract. Update Your Insurance Like your phone and Internet packages, insurance is another essential with some wiggle room. But first, you’ll want to do some research. Go online to compare other insurance companies to see what they offer. Then, when talking to your current provider, you can leverage this info to know if they’re willing to match the competition. Another thing you can leverage is your loyalty. If you’ve been with the company for a long time, bring this history up while talking to your provider. They might be willing to cut you a better deal knowing you’re thinking about jumping ship. You may also get a better deal if you’re willing to bundle your life, home, and auto insurance under one company. Eat Better for Less Putting food on the table has never been more expensive. But, unfortunately, you can’t precisely cut groceries from your budget! Meat and dairy have been some of the hardest-hit items in the grocery stores, with bacon, eggs, and beef taking most of the brunt. Now that bacon is 26% more expensive per pound than last year, you might think twice about including it on your breakfast plate. Plant-based eating promises some financial savings at the grocery store, especially if you stay away from costly prepared meat replacements. Instead, focus on tried-and-true cheap ingredients like lentils and rice. Following a meal plan is also another great way to keep your spending in check at the supermarket. Make a list of meals you want to eat every week, adjusting your plan for weekly flyers and coupons. Use Less Energy Your utility bills are taking a bigger bite of your budget, like electricity, water, and gas cost more. According to the Guardian, utility prices in the U.S. rose by 33% last year. Reducing energy consumption across these utilities can help you control runaway expenses. One of the biggest things you can do to save is set your thermostat according to the Department of Energy’s recommendations. These tips can help you save as much as 10% of your annual heating and cooling costs. Summer: If you have an air conditioner running, set it to 78°F when you’re at home. Try increasing the temperature as high as you feel comfortable when you’re out. Winter: During the cooler months, try to keep your thermostat to 68°F while you’re at home, reducing it even lower when you’re at work or in bed. Reduce Your Fuelling Costs Between inflation and the Russia-Ukraine crisis squeezing the American fuel supply, drivers can expect to spend more at the pumps. If you can’t reduce how often you’re behind the wheel, you should download an app like GasBuddy to find the lowest gas prices in your area. More often than not, this ends up being Costco, but they don’t get a membership just to qualify for their gas. So you probably won’t save more at their pumps than what it costs to become an annual member. Another way to keep your driving costs low is by using gas station loyalty cards so that you can redeem points as often as possible. You can also consider carpooling with local friends and colleagues to share the burden of driving. Learn How to Negotiate The art of negotiation is a hard-earned skill that can do wonders for your budget. Depending on your strategy and your creditor’s policies, you can push out due dates to take the pressure off your budget and reduce what you owe. If you aren’t sure how to persuade big companies, check out this script for guidance. When it comes to medical expenses specifically, ask if they offer a financial plan that offsets your costs. In many cases, healthcare businesses are willing to give you a discount if you offer to pay the reduced amount in full immediately. Investigate Financial Assistance Let’s face it — juggling all your bills as inflation nudges them higher, and higher is hard. Sometimes, not even your best attempts at negotiating bills and saving money at the grocery store will be enough to help you balance your budget. Reach out to a free credit counseling organization for advice. They can provide more significant insights into how to shrink your budget. But more importantly, they can direct you towards government assistance programs that help you offset the burden of your living expenses. The Takeaway for : Although inflation is beyond your control, there are ways you can get back in the financial driver’s seat. As prices continue to rise, your budget is your most crucial resource throughout it all. You can refer to this spending plan to understand your priorities and focus on areas of your spending that need work. You can reduce your monthly spending and save more, whether it’s unnecessary splurges or excessive fuel spending. Keep these tips in mind for the rest of the year. But more importantly, know that you aren’t alone in facing these prices. There are resources you can fall back on for more guidance if you can’t balance the budget, no matter how hard you try. Article by Pierre Raymond, Due About the Author Pierre Raymond is a 25-year veteran of the Financial Services industry. Driven by his passion for financial technology he has transitioned from being a quantitative stock picker, to an award-winning hedge fund manager, credit risk manager to currently a RISK IT Business Consultant. Pierre is the cofounder of Global Equity Analytics & Research Services LLC (GEARS) and a current partner at OTOS Inc. Updated on Jun 21, 2022, 3:20 pm (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: valuewalkJun 22nd, 2022

Inflation-Deniers Are Finally Admitting They Were Wrong

Inflation-Deniers Are Finally Admitting They Were Wrong We heard it for the past couple of years - Inflation is merely "transitory."  Government and central banking officials as well as the Biden White House were in full spin mode on rising prices and the decline in the dollar's buying power while the mainstream media backed them every step of the way.  As a result, the public was grossly misinformed on the dangers ahead. The alternative financial media called the establishment out on their lies and we provided an endless array of evidence to support the position that an inflationary crisis was in fact imminent.  We were called "conspiracy theorists" and "doom mongers" in response.  Now comes the time of reckoning.  We were right, they were wrong, but they'll still try to convince the masses that THEY are the proper people to solve the problem even though they used to deny it even existed. Former Fed Chairman and Biden Treasury Secretary Janet Yellen finally admitted this month what most of us already knew - The inflation crisis is not transitory.  She follows a long line of banking elites who are suddenly feeling like being honest about our fiscal prospects, with JP Morgan CEO Jamie Dimon and Goldman Sachs President John Waldron both openly voicing concerns about economic disaster.  This was on top of admissions from globalist institutions such as the IMF, BIS, World Bank and the UN that global food shortages would be coming this year.   Yellen's announcement is specifically concerning because administration economists are usually the last to admit economic mismanagement or mistaken predictions, because their jobs depend on the public remaining uninformed.  Yellen is also in a unique position of being unable to deny personal involvement; as a former Fed official she directly presided over some of the most egregious inflationary actions in the central bank's history.  If she is admitting that she was wrong, then the system must be on the verge if an epic downturn. The problem with such admissions is that they are often followed up with disinformation.  The current narrative is to blame Russia for the majority of our economic ills.  This is a lie.  While sanctions against Russia will certainly contribute to supply chain problems in the future, the inflationary/stagflationary crisis started well before the invasion of Ukraine.  In December of last year the CPI had already hit 40 year highs and gasoline prices where skyrocketing through 2021. There are a couple of realities that governments and central banks will NEVER admit to:  First, they will never admit that government deficit spending and central bank stimulus measures are the overall causes of inflation.   Tens of trillions of dollars created from thin air to support various QE programs as well as a bloated government is now resulting in the exact thing we warned about for years - a loss of buying power in our currency as well as too many dollars chasing too few goods.  The Ukraine event is nothing in comparison.  Second, they will never admit how bad the crisis is going to get.  They will continue to use softball words like "recession" and they will continue to mislead the public on the gravity of the threat.  This is what they do; string people along with false perceptions of safety until the bottom drops out completely from the economy.  Then, as the public stumbles about in pure shock, these same officials swoop in to offer their "solution" to the the calamity.  Usually the solution involves giving them more power. This is exactly what they did during the Great Depression, it's exactly what they did after WWI and WWII, and it's exactly what they did after the credit implosion of 2008.  The media was even calling central bankers "heroes" after they dumped trillions in fiat bailouts and QE into the economy.  And yes, they will try to do the same thing again.   We have to ask ourselves, why should we take the advice of the people who got it all wrong?  Either they were too stupid to see the impending disaster right in front of their faces, or, they knew exactly what was about to happen and they lied to the population about it.  Either way, these banking officials and puppet politicians cannot be trusted.  Perhaps a better model would be to ignore them completely and remove the power from their hands to make any decisions.  Perhaps it's time to punish such people for being consistently wrong or being consistently dishonest.  Why should it be that they are allowed to fail so often while continuing to enjoy positions of influence and authority?  Perhaps it is time to throw these con-men to the gutter where they belong?  The overarching danger of inflation/stagflation is that it tends to become a feedback loop in which every new action only exacerbates the problem.  One thing that is almost never tried though is the removal of the bankers and leaders that caused the instability in the first place.  A considerable economic decline is already baked into the cake and there is not much that can be done to slow it down at this stage, but at the very least we could take measures to ensure that such a catastrophe doesn't happen again.  However, this will require actually holding the deniers of fiscal crisis accountable.        Tyler Durden Tue, 06/14/2022 - 09:05.....»»

Category: blogSource: zerohedgeJun 14th, 2022

UK PM Boris Johnson Survives "No Confidence" Vote

UK PM Boris Johnson Survives 'No Confidence' Vote Update (1600ET): UK prime Minister Boris Johnson has survived a vote of no confidence with a of 'secret' vote of 211 (confident) to 148 (not confident) leaving him remaining in office but significantly weakened. Sir Graham Brady says: "I can announce that the parliamentary party does have confidence in the prime minister." 211-148: UK Prime Minister Boris Johnson survives confidence vote that could have ousted him from power. pic.twitter.com/iAcYKtD4FP — The Recount (@therecount) June 6, 2022 This reportedly a worse result than former PM Theresa May suffered. Current rules prevent another vote from taking place within 12 months, although Tory party sources indicated that rule could be changed if there was sufficient demand.  One Conservative MP said: "It's the beginning of the end. It's actually far better for everyone if he goes voluntarily." Another predicted that Johnson would "be gone in six months… It is Theresa May 2.0 [and] she lasted seven months." A third said his win would leave the party "bitter" and divided. He said another vote of no confidence would be triggered as early as September, after the privileges committee report into whether Johnson misled Parliament, is published.  As The Telegraph's Camilla Tominey reports, as it stands, the only thing really keeping the Prime Minister in place right now is the lack of a viable alternative. The vultures, however, are circling. It is going to take a unique amount of doggedness to bring this disobedient party to heel. Some people seem happy... Meanwhile in the UK.....pic.twitter.com/Z7kW942uDX— FJ (@Natsecjeff) June 6, 2022 *  *  * Authored by Bill Blain via MorningPorridge.com, “I think he honestly believes that it is churlish of us not to regard him as an exception, one who should be free of the network of obligation which binds everyone else.” Big theme for the week in UK politics will be the last act in The Tragedy of Boris Johnson. His likely denouement coincides with rising economic stress, increasing corporate defaults and doubts on sterling. Time to Panic? Not at all! Bring it on..  We’ve suffered worse! Before getting stuck into Markets through the rest of the month, it’s worth a quick comment on the UK and politics. Change is coming… likely this week if the papers are to be believed. It’s not that I worry about UK Inc – we’ve been doing just fine for over a 1000 years with just a few hic-cups. Its just things are about to get, well, fraught and uncertain – and markets dislike uncertainty. Why do I not worry? History. Perhaps the very least well-known Shakespeare play is King John – yet it contains a singular line that sums up this Barmy Little United Kingdom best: “Come the three corners of the world in arms, and we shall shock them”. We may be a tiny, windswept Isle off the unfashionable west of Yoorp.. but we know ourselves. Change may be coming.  We thrive in adversity.. perhaps because we are so used to it. We’ve just spent a bonkers long weekend celebrating the Platinum Jubilee of Her Majesty and the absolute rightness of being British. It was all about being incredibly nice about monarchy – saying thanks to our Monarch. She is Queen Elizabeth the Second of England, and Queen Elizabeth of Scotland. A drone display over Buckingham Palace of a Corgi licking a bone got a massive cheer! At least we now know where The Queen keeps her Marmalade Sandwiches – that’s what handbags are for. Yet, perhaps it is now time to leave aside these childish things and face the uncertain future. However funny the Paddington having tea with Her Majesty skit was, in the real-world Priti Patel would be shipping him off to Rwanda next week. Britain’s great success has always been our multiculturism – blending successive waves of immigration into our cosmopolitan and inventive society. The degree of love for Her Majesty is reciprocated in the growing contempt for our Premier. Boris the Buffoon was booed whenever he had the temerity to appear. National Treasure Sir Stephen Fry caught the mood of the nation suggesting Her Majesty “tolerates” him. The monarchy will thrive as long as long as the alternative is “President Thatcher ” or “Chairman Blair”. (Like many disillusioned voters, I was quite looking forward to the high-point of our national celebration being the Queen appearing on the balcony to announce Boris has been sent on a one way trip to the Tower.) Patience…. After the party, sadly, its back to reality this morning as the global economy stumbles, the pound tumbles, stocks wobble, bond yields rise, recession looms, rail strikes and civil service failure abound, and a likely non-confidence vote in our Premier as the requisite number of Tory MPs realise they will otherwise be looking for new jobs. Last week my youngest got made redundant. Her firm was barely keeping its head above water through Covid. Inflation and the rising cost of living has mortally wounded it. She will not be the only one to lose out. Companies think the looming recession and cost of living crisis will do what Covid could not – decimate the corporate landscape. In a survey of over 500 CEOs, BDO cite rising energy costs, inflation, and supply chains as the main threats to UK commerce. Consumers with zero discretionary spending should be front and centre. Things are only going to get worse as earnings decline. Yet, the increasingly unstable UK financial base of the economy is not dominating the narrative. Instead, we’re focused on and distracted by politics – which, even if we get change, will ultimately solve little. It’s time to move on. While I am tolerated in Yacht Clubs as a token lefty, members tend to be Conservative in nature. Not any more; the main subject in the bars during our Jubilee Regatta was government failure and disgust with Boris in particular. When sensible business leaders and frothing-at-the-mouth Brexiteers are all demanding Boris goes… it’s finally going to happen. When Tory councillors tell you they despair at the what they hear on the doorsteps.. it’s time to listen. Sir Graham Brady, chairman of the 1922 Committee of backbench Conservative MPs, said on Monday morning, “The threshold of 15 percent of the parliamentary party seeking a vote of confidence in the leader of the Conservative Party has been exceeded.” Boris’ inevitable departure (this week or soon), will leave a massive political vacuum at the heart of the UK. [ZH: As The MailOnline details, the PM has sent a letter to MPs pleading for them to “draw a line” under the infighting, after backbench chief Graham Brady confirmed this morning that at least 54 MPs have asked for a full ballot. The vote will be held between 6pm and 8pm, with Mr Johnson addressing the parliamentary party before that and the results declared shortly afterwards. The development raises the possibility that Mr Johnson’s tenure could come to a crashing end less than three years after he won a stunning 80-strong Commons majority. However, if half of the 359 eligible MPs back him in the secret vote in theory he is safe for a year – with some insurgents fearing they have moved too early ahead of key by-elections later this month. ... Meanwhile, Mr Hunt – who lost the last leadership contest to Mr Johnson – tweeted saying that he will vote against the PM. “Anyone who believes our country is stronger, fairer and more prosperous when led by Conservatives should reflect that the consequence of not changing will be to hand the country to others who do not share those values. Today’s decision is change or lose. I will be voting for change,” he wrote] Excellent. His departure will remove the distraction… Buying boots on? Maybe… The Tories will be leaderless. Is there one among their number with the credibility with the public to replace him? The Labour party looks rudderless with its own leadership issues. There is talk of a new centre party or alliance. If I was a gambling man I’d be betting on a Liberal Democrat resurgence – at which point I either go off sailing round the world in despair or accept that anything is better than current broken UK politics…. Cometh the hour, cometh the woman… (or maybe man..)? The crisis of politics about to engulf the UK is about priorities: How to cope with, and how to pay for the coming global recession? How to reopen the doors to Europe? How to secure energy and food, and how to plan an energy transition policy? How to balance budgets, reform the NHS, improve Education, raise productivity and defend the nation? How to right size government while providing social support, benefits and ensuring equality and social justice? Standard political stuff – but wholly unanswered since 2019. (I blame myself. I voted for him – and now regret it.)  In a world where the answers are not obvious, then addressing these issues will be fraught. What’s the alternative? More weeks and months of Boris clinging on? Long-Term in Boris’ book is surviving through to the middle of this week, achieved by distracting the nation from the business of recovery? Time for change. As has been previously said in Westminster…. ‘You have sat there too long for all the good you have done, in the name of God, go!” A Number 10 spokeswoman said: “Tonight is a chance to end months of speculation and allow the government to draw a line and move on, delivering on the people’s priorities. “The PM welcomes the opportunity to make his case to MPs and will remind them that when they’re united and focused on the issues that matter to voters there is no more formidable political force.” Meanwhile.. outside the amusement park… Lots of market positivity out there as China reopens from lockdowns, folk hope that inflation is easing, and that central banks will hold off on further hikes…. Yeah.. sure..  Buckle up! Tyler Durden Mon, 06/06/2022 - 16:06.....»»

Category: personnelSource: nytJun 6th, 2022

UK Faces "Massive Political Vacuum" As Boris Johnson "No Confidence" Vote Looms

UK Faces "Massive Political Vacuum" As Boris Johnson 'No Confidence' Vote Looms Authored by Bill Blain via MorningPorridge.com, “I think he honestly believes that it is churlish of us not to regard him as an exception, one who should be free of the network of obligation which binds everyone else.” Big theme for the week in UK politics will be the last act in The Tragedy of Boris Johnson. His likely denouement coincides with rising economic stress, increasing corporate defaults and doubts on sterling. Time to Panic? Not at all! Bring it on..  We’ve suffered worse! Before getting stuck into Markets through the rest of the month, it’s worth a quick comment on the UK and politics. Change is coming… likely this week if the papers are to be believed. It’s not that I worry about UK Inc – we’ve been doing just fine for over a 1000 years with just a few hic-cups. Its just things are about to get, well, fraught and uncertain – and markets dislike uncertainty. Why do I not worry? History. Perhaps the very least well-known Shakespeare play is King John – yet it contains a singular line that sums up this Barmy Little United Kingdom best: “Come the three corners of the world in arms, and we shall shock them”. We may be a tiny, windswept Isle off the unfashionable west of Yoorp.. but we know ourselves. Change may be coming.  We thrive in adversity.. perhaps because we are so used to it. We’ve just spent a bonkers long weekend celebrating the Platinum Jubilee of Her Majesty and the absolute rightness of being British. It was all about being incredibly nice about monarchy – saying thanks to our Monarch. She is Queen Elizabeth the Second of England, and Queen Elizabeth of Scotland. A drone display over Buckingham Palace of a Corgi licking a bone got a massive cheer! At least we now know where The Queen keeps her Marmalade Sandwiches – that’s what handbags are for. Yet, perhaps it is now time to leave aside these childish things and face the uncertain future. However funny the Paddington having tea with Her Majesty skit was, in the real-world Priti Patel would be shipping him off to Rwanda next week. Britain’s great success has always been our multiculturism – blending successive waves of immigration into our cosmopolitan and inventive society. The degree of love for Her Majesty is reciprocated in the growing contempt for our Premier. Boris the Buffoon was booed whenever he had the temerity to appear. National Treasure Sir Stephen Fry caught the mood of the nation suggesting Her Majesty “tolerates” him. The monarchy will thrive as long as long as the alternative is “President Thatcher ” or “Chairman Blair”. (Like many disillusioned voters, I was quite looking forward to the high-point of our national celebration being the Queen appearing on the balcony to announce Boris has been sent on a one way trip to the Tower.) Patience…. After the party, sadly, its back to reality this morning as the global economy stumbles, the pound tumbles, stocks wobble, bond yields rise, recession looms, rail strikes and civil service failure abound, and a likely non-confidence vote in our Premier as the requisite number of Tory MPs realise they will otherwise be looking for new jobs. Last week my youngest got made redundant. Her firm was barely keeping its head above water through Covid. Inflation and the rising cost of living has mortally wounded it. She will not be the only one to lose out. Companies think the looming recession and cost of living crisis will do what Covid could not – decimate the corporate landscape. In a survey of over 500 CEOs, BDO cite rising energy costs, inflation, and supply chains as the main threats to UK commerce. Consumers with zero discretionary spending should be front and centre. Things are only going to get worse as earnings decline. Yet, the increasingly unstable UK financial base of the economy is not dominating the narrative. Instead, we’re focused on and distracted by politics – which, even if we get change, will ultimately solve little. It’s time to move on. While I am tolerated in Yacht Clubs as a token lefty, members tend to be Conservative in nature. Not any more; the main subject in the bars during our Jubilee Regatta was government failure and disgust with Boris in particular. When sensible business leaders and frothing-at-the-mouth Brexiteers are all demanding Boris goes… it’s finally going to happen. When Tory councillors tell you they despair at the what they hear on the doorsteps.. it’s time to listen. Sir Graham Brady, chairman of the 1922 Committee of backbench Conservative MPs, said on Monday morning, “The threshold of 15 percent of the parliamentary party seeking a vote of confidence in the leader of the Conservative Party has been exceeded.” Boris’ inevitable departure (this week or soon), will leave a massive political vacuum at the heart of the UK. [ZH: As The MailOnline details, the PM has sent a letter to MPs pleading for them to “draw a line” under the infighting, after backbench chief Graham Brady confirmed this morning that at least 54 MPs have asked for a full ballot. The vote will be held between 6pm and 8pm, with Mr Johnson addressing the parliamentary party before that and the results declared shortly afterwards. The development raises the possibility that Mr Johnson’s tenure could come to a crashing end less than three years after he won a stunning 80-strong Commons majority. However, if half of the 359 eligible MPs back him in the secret vote in theory he is safe for a year – with some insurgents fearing they have moved too early ahead of key by-elections later this month. ... Meanwhile, Mr Hunt – who lost the last leadership contest to Mr Johnson – tweeted saying that he will vote against the PM. “Anyone who believes our country is stronger, fairer and more prosperous when led by Conservatives should reflect that the consequence of not changing will be to hand the country to others who do not share those values. Today’s decision is change or lose. I will be voting for change,” he wrote] Excellent. His departure will remove the distraction… Buying boots on? Maybe… The Tories will be leaderless. Is there one among their number with the credibility with the public to replace him? The Labour party looks rudderless with its own leadership issues. There is talk of a new centre party or alliance. If I was a gambling man I’d be betting on a Liberal Democrat resurgence – at which point I either go off sailing round the world in despair or accept that anything is better than current broken UK politics…. Cometh the hour, cometh the woman… (or maybe man..)? The crisis of politics about to engulf the UK is about priorities: How to cope with, and how to pay for the coming global recession? How to reopen the doors to Europe? How to secure energy and food, and how to plan an energy transition policy? How to balance budgets, reform the NHS, improve Education, raise productivity and defend the nation? How to right size government while providing social support, benefits and ensuring equality and social justice? Standard political stuff – but wholly unanswered since 2019. (I blame myself. I voted for him – and now regret it.)  In a world where the answers are not obvious, then addressing these issues will be fraught. What’s the alternative? More weeks and months of Boris clinging on? Long-Term in Boris’ book is surviving through to the middle of this week, achieved by distracting the nation from the business of recovery? Time for change. As has been previously said in Westminster…. ‘You have sat there too long for all the good you have done, in the name of God, go!” A Number 10 spokeswoman said: “Tonight is a chance to end months of speculation and allow the government to draw a line and move on, delivering on the people’s priorities. “The PM welcomes the opportunity to make his case to MPs and will remind them that when they’re united and focused on the issues that matter to voters there is no more formidable political force.” Meanwhile.. outside the amusement park… Lots of market positivity out there as China reopens from lockdowns, folk hope that inflation is easing, and that central banks will hold off on further hikes…. Yeah.. sure..  Buckle up! Tyler Durden Mon, 06/06/2022 - 08:07.....»»

Category: blogSource: zerohedgeJun 6th, 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

Gas prices are at an all-time high. Here are 3 reasons why Democrats" gas tax cut proposal won"t do much to curb rising prices or cool inflation

Gas prices may still rise due to mismatches between supply and demand, and some of the benefits may flow to oil and gas companies. Senate Majority Leader Chuck Schumer of N.Y., speaks during a news conference on Capitol Hill in Washington, Tuesday, Jan. 4, 2022.Susan Walsh/AP Democrats are pitching a temporary gas tax cut to curb rising prices at the pump. But it's not likely to be all that effective at stopping inflation in its tracks. Gas prices may still rise due to supply crunches and some of the benefits may flow to oil and gas companies. Gas prices hit a record high this week, and there's little sign they will fall sharply in the immediate future.The average cost for a gallon of gas hit $4.40 on Wednesday, according to AAA data. To combat soaring prices at the pump, some Democrats are still pushing a gas tax holiday. House Speaker Nancy Pelosi effectively took it off the table in late March, but some vulnerable Democrats still want to see it enacted.One measure — rolled out in February by Sens. Mark Kelly and Maggie Hassan — would suspend the federal government's 18.4-cent tax on every gallon of gas until Jan. 1, 2023. If the holiday passes and works as intended, that would essentially lower the average price per gallon to $3.303 from $3.487.Surging gas prices have been one of the biggest ills of the economic recovery. While inflation has affected practically every good and service in the US, the price of gasoline is among the fastest growing. But there are some big reasons to be skeptical about whether or not the proposed holiday would do much to curb inflation.A gas tax holiday might not move prices at the pump all that muchSuspending the federal gas tax could modestly lower prices at the pump, but the move would do little to solve the underlying problem. Marc Goldwein, policy director at the Committee for a Responsible Federal Budget, argued that some of the benefits may flow to oil and gas producers since they'd be incentivized to raise pre-tax gas prices to net additional profits.Like the rest of the economy, gas stations are struggling to match Americans' voracious demand with their strained supply. The gap between the drove gas prices sharply higher through the first weeks of 2022.EIAA tax would lower prices slightly, but the imbalance would remain. Without new oil supply from US drilling rigs or the Organization of the Petroleum Exporting Countries, gas prices would likely keep climbing. It's no help that demand is also running hotter than usual. Nationwide demand rose to 9.7 million barrels in the week that ended April 29, according to the US Energy Information Administration. That's up 700,000 barrels  from a year ago.Lowering gas prices won't make too much of a dent in otherwise skyrocketing inflationEven if Democrats pass the tax holiday and gas prices temporarily edge lower, headline inflation will probably still hold strong. Gas prices are only one component of the Consumer Price Index, which serves as one of the country's top inflation gauges. Even a major drop in the price-per-gallon would only place a small drag on the overall measure.The Committee for a Responsible Federal Budget's Goldwein said that consumers with more money in their pockets could worsen inflation in other parts of the economy."If what you want to do is defund infrastructure, worsen the climate crisis, add to the deficit, and increase inflationary pressures, then this is a great policy," Goldwein said in an interview. Senators from both parties are skeptical and see it as a political gimmickPassing the tax holiday could also ease intense pressures on Democrats defending razor-thin majorities in the House and Senate. Elevated inflation has been Republicans' favored political cudgel for hammering Democrats and fighting against their spending plans. Pricey gas gave the GOP an even more pointed weapon for skewering the Biden administration.But it appears that the idea is sputtering out just as Democrats put the keys into the ignition. Some in the party like Sen. Joe Manchin of West Virginia pushed back on its potential benefits, and Republicans derided it as a political gimmick ahead of the midterms. While monthly CPI prints can mean little to the average American, it's easier to grasp that gas is roughly $1.50 more expensive per gallon than it was one year ago. Several Senate Republicans raised the issue during a February press conference and frequently pointed to high gas prices as one of the biggest threats to the still-recovering economy.  Sen. Mike Crapo of Idaho criticized it as a "gimmick," while Sen. Dan Sullivan of Alaska slammed the policy as "political window dressing from some vulnerable US senators." Even if the holiday lowers prices, it also cuts into government tax revenue and could worsen the country's debt situation, Crapo added."You would reduce 18 cents of that $1, so there would be a step there. But what you would create is a greater amount of debt in the US and a greater inability for us to finance our infrastructure," Crapo said.Read the original article on Business Insider.....»»

Category: topSource: businessinsiderMay 11th, 2022

Global Markets Tumble On Hawkish Central Bank Anguish, China Lockdown Fears

Global Markets Tumble On Hawkish Central Bank Anguish, China Lockdown Fears The global selloff that started in Asia, sending China's CSI300 plunging to the lowest level since May 2020, slamming the offshore yuan below 6.60 and sparking a liquidation in oil and cryptos amid fears that the Shanghai lockdown will spread to the capital Beijing and lead to an even greater slowdown in the global economy... ... has quickly spread around the globe, slamming not just European markets but US equity futures which slid as much as 1% as traders fretted over the prospects of aggressive tightening by the Federal Reserve, Chinese lockdowns and disappointing earnings. S&P 500 futures were down 0.9% as of 7:00am EDT after plunging 2.8% on Friday, while Nasdaq futures retreated 0.8%, with the rout hammering tech stocks especially hard. Some context: the Nasdaq 100 Index has erased about $1 trillion in market value since Netflix released disappointing earnings and is closing in on oversold levels; the tech-heavy FANGMAN basket has lost $2.4 trillion in market cap from 2021 ATH as Netflix and Facebook  Meta, have lost most of their gains from past 5yrs. Remember when Facebook hit the $1tn market cap club in 2021? Now it’s worth exactly half that. But now the tech bear market is finally spreading all US stocks which closed at their lowest levels in more than a month on Friday as fears over a more aggressive Federal Reserve tightening cycle led to broad-based selling. Investors are entering another busy week for big technology companies’ earnings, with Alphabet, Microsoft, Meta Platforms, Paypal and Apple all reporting results although don't expect some miraculous surge. Investor mood was already morose after Fed chair erome Powell’s hawkish comments last week hurt sentiment already sapped by the war in Ukraine, a slowdown in China and the risks inflation poses to company earnings, according to Michael Hewson, chief analyst at CMC Markets in London. “The final straw appears to be a concern about the prospect of a policy mistake by central banks, and a possible recession by the end of the year,” he said. One sole glimmer of green, Twitter shares, rose 0.6% in premarket trading after a WSJ report that Elon Musk met with the social media platform’s executives on Sunday as the company turns more receptive toward the billionaire’s $43 billion takeover offer. As discussed earlier, U.S.-listed Chinese stocks fell in premarket trading as expanded Covid lockdown measures in major Chinese cities spark concerns over the country’s growth outlook. Pinduoduo led a decline in American depositary receipts, down 4.7% in premarket trade. E-commerce peers Alibaba Group fell 3.9% and JD.com lost 2.5%. Electric carmakers including Nio and Li Auto also fell. The weakness tracks a 4.9% slump in China’s CSI 300 Index, which closed at its lowest level in two years. Here are some other notable premarket movers: U.S.-listed Chinese stocks look set to open lower on Monday as expanded Covid lockdown measures in major cities sparked concerns over the country’s economic growth outlook. Pinduoduo (PDD US) led a decline in American depositary receipts, down 4.7% in premarket trade. E-commerce peers Alibaba (BABA US) fell 3.9% and JD.com (JD US) lost 2.5%. Electric carmakers including Nio (NIO US) and Li Auto (LI US) also fell. AT&T (T US) reinstated with a buy rating at Goldman Sachs with the focus turning to the telecom giant’s core business, while the broker cuts its rating on Verizon (VZ US) on valuation grounds. AT&T up 0.6% in premarket, Verizon -1.4%. Cenntro Electric (CENN US) rises as much as 22% premarket ahead of the electric-vehicle company’s quarterly update due after the close on Monday. Kellogg (K US) was downgraded to hold from buy at Deutsche Bank, which stays cautious and below consensus ahead of 1Q22 results because of headwinds including worsening inflation and supply chain disruptions. Shares down 1.4% in premarket. Morgan Stanley says DoorDash (DASH US) is the “best executor around” among food delivery companies, but awaits a better entry point as initiates at equal-weight with Street- low $100 target. Shares down 1.1% in premarket on low volume. GoDaddy (GDDY US) upgraded to overweight at Piper Sandler on strong free cash flow potential, with the broker cutting its ratings on Wix.com (WIX US) and Squarespace (SQSP US) in a rejig of its digital presence coverage. GoDaddy little changed in premarket, Wix.com and Squarespace not traded. Coca-Cola and Activision Blizzard are among companies reporting earnings today. In Europe, markets are under heavy pressure: Euro Stoxx 50 drops as much as 2.6% with several other core indexes down over 2%. Spain’s IBEX outperforms. Miners are the weakest performers with the Stoxx 600 sector down over 5%. Energy and consumer products and services similarly lag.  Europe’s Basic Resources Index  crashed 6%, and was set for the worst daily drop since March 2020. Here are some of the biggest European movers today: Ubisoft shares rise as much as 12% after Bloomberg reported the video-game publisher is attracting takeover interest from private equity firms including Blackstone and KKR. Garanti stock rallies as much as 5.6% after parent BBVA sweetened its voluntary offer for the Turkish lender and the unit said 1Q net income tripled. Biogaia shares rise as much as 9.6% after the Swedish food-additives and supplements maker published preliminary 1Q sales figures, which included a large beat on operating profit and net sales. Barco shares rise as much as 4.2% after the projector maker’s Cinionic JV won a contract to install laser projectors in 3,500 U.S. auditoriums of cinema chain operator AMC. The Stoxx 600 Basic Resources and Energy sub- indexes both slumped on Monday amid broad declines for commodities prices on concerns that a growing Covid-19 outbreak in China will hit demand. Shell -4.5%, TotalEnergies SE -3.1%, Glencore -6.0%, Anglo American -6.5% Philips stock falls as much as 11% after publishing its latest earnings, where higher provisions related to its recall of Dreamstation breathing machines overshadowed better-than-expected 1Q sales. Roche shares fell as much as 3.6% after the Swiss pharma company reported mixed first quarter results. Sales beat expectations due to a boost to the diagnostics division, while the pharmaceutical unit missed. As we reported on Sunday, the big news out of France is that Macron won the second round of the Presidential Election with 58.6% of the vote vs Le Pen at 41.4%, while Le Pen conceded defeat after the initial projections, according to Reuters and Sky News. Elsewhere, ECB President Lagarde commented that interest rate hikes will not lower energy prices, according to Barron’s. ECB policymakers are said to be keen to finish bond purchases as soon as possible and possibly hike rates in July but no later than August, while they are leaning towards two rate moves this year with three also a possibility, according to Reuters sources. However, an ECB spokesperson declined to comment on the timing of ending bond purchases and potential interest rate increases. The EU is said to prepare the creation of a new trade and tech council with India, according to FT sources. The new forum could be unveiled on Monday during the European Commission President’s visit to India. Earlier in the session, Asian stocks slumped the most since March 11 as China’s worsening Covid-19 outbreak and a looming rate hike by the Federal Reserve hurt risk sentiment.  The MSCI Asia Pacific Index fell as much as 2.2% Monday, setting off a grim start to the region’s busiest week for earnings. The biggest drags were technology stocks sensitive to higher interest rates, including Taiwan Semiconductor Manufacturing, Alibaba and Tencent.  Equities in mainland China and Hong Kong were among the region’s worst performers. Chinese stocks slid to a two year low amid fears that rising infections in Beijing may spur an unprecedented city-wide lockdown of the capital. The Chinese regulator also ordered platform companies to better handle online violence, dragging tech stocks lower. READ: China Lockdown Angst Rips Through Markets as Stocks, Yuan Plunge The lockdowns that have now expanded to parts of Beijing will “cause a logistical problem that’s going to affect not just China but also the rest of the world,” Jeffrey Halley, Asia Pacific senior market analyst at Oanda, said in an interview with Bloomberg TV.  With no signs of change in Covid zero policy and very little in terms of actual stimulus, “that all points to lower China stocks and we are going to see a weaker yuan going forward,” he added. Investors are also on guard for corporate earnings. Stock-market heavyweights including Kweichow Moutai in China and Samsung Electronics in South Korea are expected to release first-quarter results this week.   With a number of Fed speakers recently showing support for 50-basis-point hikes, tech shares led declines of major gauges in the region. Taiwan’s Taiex dropped 10% from its January high.   Japanese equities dropped, extending a global selloff amid prospects for aggressive U.S. interest-rate hikes and a worsening Covid outbreak in China. Electronics and machinery makers were the biggest drags on the Topix, which fell 1.5%, with 32 of 33 industry groups in the red. Fast Retailing and SoftBank Group were the largest contributors to a 1.9% loss in the Nikkei 225. Indian stocks also fell, joining their peers across Asia, as appetite for risk waned amid renewed concerns over Covid infections and its possible impact on business growth.  The S&P BSE Sensex dropped 1.1% to 56,579.89, while the NSE Nifty 50 Index slipped 1.3% to 16,953.95. Reliance Industries Ltd. lost 2.3%, the most in seven weeks. It was the biggest drag on the Sensex, which saw 23 of its 30 stocks trading lower.   All but one of 19 sectoral sub-indexes compiled by BSE Ltd. declined, led by a gauge of metal stocks.  The continued war in Ukraine and fears of a wider lockdown in Beijing are weighing on sentiment, already impacted by the risk of a global slowdown as the U.S. Fed raises rates to tame inflation. Of the six Nifty 50 firms that have announced results so far, four have missed, while two have beaten analyst estimates. Bajaj Finance, Hindustan Unilever, Axis Bank are among the companies releasing Jan-March earnings this week.  With risk off, safe havens were mostly bid: Treasuries advanced across the curve, with yields on the belly falling about 10bps and 10Y yields sliding 8bps to 2.833%. The belly of the UST curve outperforms by 1-2bps. Peripheral spreads widen to core with 10y Italy lagging peers on the rally. European bonds advanced, yet underperformed Treasuries; the spread between French 10-year bond yields and German equivalents tightened at the open after President Emmanuel Macron was re-elected as French president, only to widen as haven demand supported bunds. IG dollar issuance slate empty so far; preliminary estimates are for around $25 billion this week. •    Three-month dollar Libor +1.11bp to 1.22486%. In FX, the Bloomberg Dollar Spot Index rose a third day to the highest level since May 2020; the greenback advanced against all of its Group-of-10 peers apart from the yen and the Swiss franc; AUD and NZD lag G-10 peers. USD/JPY holds above 128. The euro fell to its lowest level versus the dollar since March 2020, erasing earlier gains amid broader greenback strength.  The pound slumped to the lowest versus the dollar since September 2020 and gilts advanced. The Aussie was the worst G-10 performer amid fears over the outlook for China’s demand for iron ore and with the selloff boosted by options-related selling. The yen rose, as concerns about the economic impact of accelerating U.S. rate increases put a pause on the recent aggressive selling of the currency. Japan’s government bonds tracked Treasuries higher with support from purchases by the Bank of Japan. Perhaps most importantly, the yuan - which until now had resisted any weakness - plunged again, dropping to the lowest level in 17 months as the offshore yuan dropped below 6.60 the lowest level since Nov 2020, spurring a selloff in emerging-market currencies. In commodities, crude futures sold ell off with WTI down over 4% and back on a $97-handle. Base metals are similarly deep in the red. Spot gold drops ~$14 to trade near $1,916/oz. Monday’s pullback in the soaring price of commodities since Russia’s invasion of Ukraine has done little to assuage concerns about runaway inflation. Fed Jerome Powell had outlined his most bold approach yet to reining in surging prices and the European Central Bank signaled stronger tightening. Bitcoin continued to tumble alongside the broader crypto market, even though the harder the stocks fall and the more the Fed tightens, the more it will eventually have to ease, unleashing the next surge higher in cryptos which we expect to push bitcoin over $100,000 and Ether over $10,000. Looking at the calendar, the economic data slate includes March Chicago Fed national activity (8:30am) and April Dallas Fed manufacturing activity(10:30am); consumer confidence, GDP, PCE deflator and University of Michigan sentiment are ahead this week. Today we will earnings from Coca-Cola, Activision Blizzard, Vivendi. Market Snapshot S&P 500 futures down 0.7% to 4,235.25 STOXX Europe 600 down 1.8% to 445.31 MXAP down 2.0% to 166.02 MXAPJ down 2.4% to 546.02 Nikkei down 1.9% to 26,590.78 Topix down 1.5% to 1,876.52 Hang Seng Index down 3.7% to 19,869.34 Shanghai Composite down 5.1% to 2,928.51 Sensex down 1.0% to 56,637.35 Australia S&P/ASX 200 down 1.6% to 7,473.28 Kospi down 1.8% to 2,657.13 German 10Y yield little changed at 0.89% Euro down 0.4% to $1.0751 Brent Futures down 4.4% to $101.96/bbl Gold spot down 0.6% to $1,920.54 U.S. Dollar Index up 0.20% to 101.43 Top Overnight  News from Bloomberg China’s coronavirus outbreak worsened as rising cases in Beijing sparked jitters about an unprecedented lockdown of the capital, with policy makers racing to avert a Shanghai-style crisis that’s already wrought havoc on the financial hub China must take stronger action to boost growth above 5% in the second quarter, said a central bank adviser who warned the country needs to lay a foundation for achieving its full-year target in the face of rising economic risks A sustained and substantial increase in U.S. real yields would be bad news for developing nations as it typically boosts the dollar and sucks capital out of riskier assets, like in 2008 and 2013 The U.S. announced it would start sending diplomats back to Ukraine and provide more military aid as Secretary of State Antony Blinken and Secretary of Defense Lloyd Austin visited Kyiv late on Sunday night, in the highest- level U.S. visit to the war-torn country since Russia invaded China’s central bank stepped up its support for several distressed developers by allowing banks and bad-debt managers to loosen restrictions on some loans to ease a cash crunch, according to people familiar with the matter A more detailed look at global markets courtesy of Newsquawk APAC stocks traded negatively after last Friday's stock rout on Wall Street with risk sentiment hampered by holiday closures, China's COVID-19 woes and as participants brace for a busy week of key earnings releases. Nikkei 225 shed around 500 points with sentiment not helped by several earnings guidance downgrades and with Nissan shares were hit as alliance partner Renault mulls selling a partial stake in the Japanese automaker. Hang Seng and Shanghai Comp underperformed on the COVID situation after daily deaths in Shanghai rose again and with the city to conduct another round of mass testing, while Beijing also scrambles to contain an outbreak with its Chaoyang district to require residents and workers to undergo three COVID-19 tests this week. Top Asian News Asia Stocks Fall Most in Six Weeks as China Outbreak Worsens China Woes Stoking Inflation Angst Set to Weigh on the Euro Shimao Unit Proposes to Pay Down Puttable Bond Faster: REDD Loan Curbs Eased for Distressed Developers: Evergrande Update European cash markets kicked off the week lower across the board with a relatively broad-based performance seen across the majors. Sectors are lower across the board with a clear defensive tilt: Energy and Basic Resources sit at the bottom of the bunch amid hefty downside in underlying commodities. Stateside futures are lower in tandem with the broader market sentiment, whilst the NQ is slightly more cushioned by the earlier decline in yields. Twitter is reportedly re-examining Elon Musk’s bid and be more receptive to a deal with the sides meeting on Sunday to discuss the proposal. It was separately reported that Twitter is facing increasing shareholder pressure to negotiate with Elon Musk in his takeover bid and that the Co. is in talks with Elon Musk in which a potential deal could be made as early as this week, according to WSJ. Top European News Macron Gets Second Chance to Show France His Vision Can Work Credit Suisse Special Audit Backed by Norway’s Wealth Fund SocGen Too Quick to Axe Boss Accused of Trying to Kiss Colleague Art Seized at U.S. Homes Part of Crackdown on Wealthy Russians FX: DXY sets new 2022 peak at 101.750 amid safety flight and sharp slide in crude alongside other commodities. Yen back in favour as risk sentiment sours irrespective of denials about joint Japanese and US intervention discussion - Usd/Jpy towards base of 128.87-127.89 range. Aussie underperforms on Anzac Day due to steep decline in copper and iron ore - Aud/Usd tests 0.7150 and Aud/Nzd cross under 1.0850 vs 1.0940 at one stage overnight. Yuan extends depreciation as Covid spreads to a district in Beijing and PBoC continues to lower Cny midpoint reference rate - Usd/Cnh just shy of 6.6000, Usd/Cny eyeing 6.5650. Euro averts 1.0700 test, narrowly, and pares more losses after surprisingly upbeat Ifo survey, on the surface - Eur/Usd rebounds to circa 1.0750, but still well below Macron victory high. Pound loses Fib support on the way through 1.2800 and sub-8400 vs Dollar and Euro respectively. Fixed Income Debt futures firm as risk appetite wanes, but bonds fade beyond 154.50 in Bunds, 119.00 in Gilts and 119-25 in the 10 year T-note. Core EZ bonds lose momentum after German Ifo survey beats and irrespective of less encouraging accompanying statements. French OATs off peak within 147.38-146.28 range posted on confirmation of Macron defeating Le Pen to retain Presidency. European Commission sells EUR 2.499bln (exp. EUR 2.500bln) 0.4% 2037 NGEU; b/c 2.05x (prev. 1.49x), average yield 1.626% (prev. 0.375%). Commodities: WTI and Brent June contacts have continued to decline since the resumption of futures trading. Spot gold has been caged to a near-USD 5/oz range since the European open as the impact of a firming Buck negated the effects of lower yields at the time. Base metals are in a sea of red as China's lockdown woes hit the demand side of the equation – with LME aluminium and zinc the laggards at the time of writing. US Event Calendar 08:30: March Chicago Fed Nat Activity Index, est. 0.45, prior 0.51 10:00: Revisions: Retail Sales, Inventories 10:30: April Dallas Fed Manf. Activity, est. 4.8, prior 8.7 DB's Jim Reid concludes the overnight wrap I survived a weekend alone with my kids but the only way for all of us to cope was to comfort eat and spend so much time on Netflix that I may as well cancel my subscription as there is nothing left to watch now. Never has Mum been so welcome by an adult, 3 kids and a dog, as she was on her return last night. Parenting is hard! Central bankers are finding it hard too at the moment and it was a fascinating past week on that front as several important central bankers belatedly played a game of leapfrog on who could make the most aggressively hawkish rhetoric on taming inflation. Those speaking at the start of the week might have seemed hawkish at the time but by the end of the week they almost looked dovish. The IMF/World Bank gathering probably focused the minds of all the Governors, Presidents and Chairs present and hawkishness spread through the event like wildfire with the notable exception of Japan's Kuroda who is seemingly sticking to the country's YCC. We are now in the Fed blackout period so they won't add to the hawkishness for the 9.5 days before we get the FOMC decision. Note that the BoJ meet on Thursday although nothing suggests they are going to pivot and will remain the last hawkish shoe to drop. The French election has passed without incident with President Macron gaining 58.6% of the vote vs. 41.4% for Le Pen. Macron won 66.1% of the second round vote in 2017 and with him unable to stand in 2027 and with the traditional parties share of the vote at record lows who knows where French politics will be by then. However much water will flow under Le Pont des Arts before we need to worry about that. Meanwhile, the next hurdle for Macron will come with the Parliamentary elections on the 12th and 19th of June. Commonly referred to as the ‘third round’, the elections will be crucial as it will define the make-up of the government Macron must rely on to push through his reform program. See Marc de-Muizon's blog last night here for more on this. The Euro popped nearly +0.6% higher at the Asian open after the results became clear but has subsequently dipped into negative territory as risk off dominates in Asia. Mainland Chinese stocks are sliding with the Shanghai Composite (-1.95%) and CSI (-2.39%) down, falling to its lowest level since 2020 amid the worsening Covid situation in China, particularly in the financial hub of Shanghai. Strict restrictions have begun to spread, with authorities ordering mandatory Covid tests in a district of Beijing and many buildings locked down. The Hang Seng (-2.47%) is also lagging and elsewhere, the Nikkei (-1.94%) and Kospi (-1.44%) are weak. Outside of Asia, futures contracts on the S&P 500 (-0.42%) and Nasdaq (-0.30%) are lower with 2 and 10yr US yields both around -5bps lower. Brent and WTI are both around -2.9%. Moving on to this week now and it is an important one for European inflation with German CPI on Thursday and the French and Italian equivalent (plus PPI) on Friday with the overall Euro CPI the same day. US (Thursday) and European Q1 GDP (Friday) will also be of interest. Back to the US and inflation related data will be the closest watched with Friday's ECI expected to be strong. This is one of the key indicators the Fed use for labour market strength. The core PCE deflator (the Fed's preferred inflation measure) also comes out as part of the income and spending report data on Friday. The rate of growth may well tick down here so this might provide a shred of good news on inflation without changing the story too much. It will be an important week for corporate earnings too with 179 of the S&P 500 reporting and 134 in the Stoxx 600. Big US tech will be the highlight with Microsoft and Alphabet (tomorrow), Meta (Wednesday), and Apple and Amazon (Thursday). Consumption patterns will be in focus when we get results from Coca-Cola (today), Mondelez, Chipotle (tomorrow), Kraft Heinz (Wednesday) and McDonald's (Thursday). Meanwhile, a range of banks across the globe will give a pulse check on consumer credit. Notable reporters will include HSBC, UBS, Santander (tomorrow), Credit Suisse (Wednesday), Barclays (Thursday), finishing with BBVA and NatWest on Friday. Other notable financials reporting will include Visa (tomorrow), PayPal (Wednesday) and Mastercard (Thursday). Other tech-related companies releasing results will include Activision Blizzard (Monday), LG, Qualcomm, Spotify (Wednesday), Samsung, Intel and Twitter (Thursday). In healthcare, another sector that benefitted from the pandemic, reporters will include Novartis (tomorrow), GlaxoSmithKline (Wednesday), Eli Lilly, Merck, Sanofi (Thursday) and AstraZeneca (Friday). To see how the commodity rally and the focus on energy transition affected major commodity companies worldwide, markets will get earnings from Iberdrola, Vale (Wednesday), Total, Repsol (Thursday), Exxon, Orsted, Chevron and Eni (Friday). Downstream users like transport firms will report too, including General Motors (tomorrow), Boeing, Mercedes-Benz and Ford (Wednesday). Other notable corporates releasing results will include Texas Instruments, General Electric, UPS and Caterpillar. The rest of the day by day calendar of events appears at the end as usual on a Monday. Reviewing last week now, as discussed at the top a cadre of central bank officials reinforced the idea that monetary policy needs to tighten on both sides of the Atlantic this year, thus driving sovereign yields higher. Chair Powell, in his last remarks before the Fed’s May meeting communications blackout, lent credence to the wisdom of front loading the hiking cycle and getting policy rates to neutral as quickly as possible. Regional Fed presidents, spanning ideologies, concurred throughout the week. Short-term markets ended the week pricing more than 150 basis points of tightening over the next three meetings, embedding some risk premium for a 75 basis point hike at each meeting. Futures markets are implying Fed policy rates will be north of 2.80% by the end of the year, above the Fed’s estimates of neutral. President Lagarde was careful to draw a distinction between the US and European situation, but nevertheless would not rule out an increase to ECB policy rates as early as July, following the cessation of net APP purchases, which is likely early in the third quarter. Markets are pricing 24 basis points of ECB tightening by the July meeting, and 85 basis points of tightening for the rest of the year. Bank of England Governor Bailey highlighted the path of policy was laced with uncertainty, but inflation was likely to increase due to rising energy costs. Bailey added the bank would not sell its security holdings into fragile markets. Even committed dove, Ingves of the Swedish Central Bank, rowed back on his previous mantras and acknowledged tightening was needed. As a result, Sovereign yields were higher in each jurisdiction, with 10yr Treasury, bund, and gilt yields increasing +8.2bps (-1.2bps Friday), +10.6bps (+2.4bps Friday), and +7.4bps (-4.9bps Friday), respectively. For their part, 10yr OAT yields closed the week at a +44.5bp spread above bund equivalents, their tightest since March, as President Macron’s polling advantage increased heading into yesterday’s election. Equity indices retreated on the tighter policy path. The STOXX 600 fell -1.42% (-1.79% Friday) while the S&P 500 was -2.75% lower (-2.77% Friday), bringing it into correction territory YTD (-10.37%) again. Mega cap tech stocks bore the brunt, with FANG+ falling -8.76% (-1.99%) as higher discount rates hit valuations. The mega cap losses accelerated after Netflix reported it lost subscribers in the first quarter, which sent its share prices more than -35% lower. The reprieve was only temporary the following day when Tesla reported a record profit on the back of surging electric car demand. Brent crude oil futures were relatively subdued by comparison to other asset classes and recent volatility, falling -5.43% (-2.48% Friday) over the week to $105.64/bbl. Elsewhere the IMF revised down their global growth expectations in light of Russia’s invasion, expecting the global economy to grow 3.6 percent in each of the next two years. Fighting continued in eastern Ukraine, with Russia declaring victory over the port city of Mariupol, while there was not any material public progress in peace negotiations. The Credit Derivatives Determinations Committee said Russia’s remuneration of foreign currency bonds with rubles would constitute a default and trigger credit default swaps. Russia has a 30-day grace period, which ends May 4, to make creditors whole. Tyler Durden Mon, 04/25/2022 - 07:48.....»»

Category: worldSource: nytApr 25th, 2022

Basic Solutions To Our Economic Problems That Establishment Elites Won"t Allow

Basic Solutions To Our Economic Problems That Establishment Elites Won't Allow Authored by Brandon Smith via Alt-Market.us, I think one of the great misconceptions about economic crisis is that solutions are always dependent on centralized government action. In truth, most financial disasters are actually caused by too much government action and involvement. Central banks like the Federal Reserve are also primary culprits; as I outlined in last week’s article their machinations, which are independent of government oversight, fall into the category of deliberate sabotage. The Fed bankrolls corruption through fiat money creation while government officials and corporations utilize that money to wreak havoc on our living standards. Ending the Fed would solve the fiat money problem, but there’s still a host of agenda driven politicians and bureaucrats to deal with before our nation can right the ship. One clear way to fix our system would be to first force government to interfere less. As a point of reference, consider the common media narratives surrounding the covid pandemic. Along with the White House the media has been the premier driver of irrational fear over the spread of covid, which ended up being a minor threat compared to the hype as the average Infection Fatality Rate was no more that 0.27%. Yet, in response to a virus that was a mortal danger to less than one-thrid of 1% of the population, bureaucrats declared a national emergency requiring insane and unconstitutional lockdowns. The lockdowns damaged the economy in ways people are only now beginning to comprehend, with hundred of thousands of small businesses lost across the country. Not only that, but the establishment responded to the economic implosion they created by printing over $6 trillion in new money through the Fed in 2020 alone. This helicopter money or beta test for UBI (Universal Basic Income) has expedited a stagflationary disaster and helped to push prices on necessities to 40 year highs (the official number). The media claims it is “covid that is causing the crash,” but this is a lie. It was the RESPONSE to covid that is causing the crash. The virus was incidental to the economic sabotage initiated by governments and central banks. As we saw in conservative red states that defied the lockdowns and the vax mandates, economic activity thrived while leftists blue states suffered. And what did these blue states get in return for their economic sacrifices? Nothing. Covid infections continued to rage in blue states and deaths often outpaced red states with similar sized populations. In other words, the lockdowns, the mask mandates and the attempts force vaccinations through medical tyranny saved ZERO lives and possibly made things worse. This is the legacy of government micro-management (And yes, let’s not forget that Trump went along with these lockdowns in the beginning of the pandemic also. Biden is just the dirt-bag that continued the measures despite the massive amount of evidence that they don’t work). While the covid event illustrates my point in a big way, there are a lot of deeply rooted problems that government intervention has caused that add up to one big fiscal calamity. Many of these threats require a basic but sweeping return to fundamentals that government elites will rarely address and will try to stop at all costs. Here are just a few examples… Inflation And Stagflation? Back The Dollar With Hard Commodities The federal reserve and their minions have spent the better part of a century trying to convince the public that a gold standard for our currency is what caused the Great Depression and what could cause future depressions. They claim that limitations on money printing strangle liquidity and disrupt velocity. This is a lie. Former fed chairman Ben Bernanke openly admitted in 2002 in a speech in honor of Milton Friedman that it was the CENTRAL BANK that actually caused the deflationary collapse of the 1930s, not the existence of the gold standard. This rare moment of truth from a fed official was perhaps due to the sheer amount of evidence that Friedman often cited that contradicted the original anti-gold propaganda. Or maybe it happened because the banking elites did not see Friedman as a particular threat, and figured no one among the public would read Bernanke’s speech anyway. In fact, a commodities foundation held the American economy together for centuries until the Fed came along and the government slowly began removing gold from the picture. All subsequent economic crisis events have been exponentially worse ever since. When a commodities standard is employed, stability always follows. Just look at what has happened in Russia recently; their currency was on a downward spiral due to international sanctions, yet, when they reopened markets this past week the Ruble skyrocketed back to normal. Why? Because Putin had the currency coupled to gold. It’s really that simple. The US and parts of Europe are facing their own inflationary disasters and this is largely due to the unchecked avarice of central bank stimulus and government spending. The ONLY way to secure the dollar’s existence as a stable store of wealth would be to back it with hard commodities like precious metals (among others). This might kill the dollar’s world reserve status because fiat printing would be impossible from that point on, but I got a news flash for those that hate the idea of grounding the dollar in commodities: We’re going to lose world reserve status anyway, and it’s going to happen soon. One third of the world’s population including Russia, China and India are already breaking from the dollar in bilateral trade. The US might as well accept this is the reality and prepare to mitigate the coming currency collapse by supporting the dollar with commodities. Oil Shortages And Energy Inflation? Stop Interfering With Oil Exploration In early February of this year the Biden Administration made legal filings which halted new oil and gas leases including exploration due to conflicts over “climate costs.” This interference with America’s oil independence is only one of many instances starting with Biden’s sabotage of the Keystone Pipeline in 2021. Interestingly, with gas prices doubling ever since Biden entered office, the White House now claims that they have nothing to do with energy inflation and are not preventing drilling in the US. During the same period Russia was establishing a decades long oil and gas contract with China and laying the groundwork for a major pipeline to be finished by 2025. And yes, China DOES in fact have the capacity along with India to absorb most of the oil and gas that might be shunned by Europe should they follow through with energy sanctions. Russia was planning ahead while the US was shifting from energy independence and net exporter status to once again becoming dependent on authoritarian regimes in the Arab world. Why? Biden’s excuse is usually climate alarmism. The Earth’s temperature has only risen by ONE DEGREE CELSIUS in the past 100 years according to the NOAA, so the main argument against oil production in the US is based on the fallacy that man-made carbon has any bearing whatsoever on climate changes. But maybe the carbon fraud is just a distraction from something else? To fix any supply and demand issues in the US, we only need to start producing once again at levels which were easily obtainable in 2020. But what if the issue of supply contraction is not the main cause of oil inflation? I would note that the dollar is not only the world reserve currency but also the global petro-currency. Until recently, almost all oil was traded internationally using dollars. The decline or collapse of the dollar’s buying power due to money printing and runaway inflation is more likely the direct cause of rising oil prices, and supply issues are secondary. If the dollar was about to collapse due to inflation, oil would be one of the first early warning indicators. With the establishment blocking new oil production and hindering the most cost effective method for oil transport (pipelines), an engineered decline in supply becomes a very effective smokescreen for the death of the dollar. The crisis caused by the government and the Federal Reserve’s currency destruction could then be blamed on supply chain issues and climate “peril.” This is the reason why the establishment will not allow any future growth in US oil production. They cannot allow the public to realize the precarious position our currency is in. Supply Chain Interdependency Leading To Shortages? Bring Back Manufacturing There are a lot of reasons why manufacturing has left the US, from greedy and corrupt labor unions driving up wages to higher taxes and land costs to extremely cheap shipping from overseas exporters. There is also the theory that US factories were outsourced to places like China in order to deliberately force the public into a global interdependency scheme. In other words were are stuck with the supply chain we have, not because it’s the best system, but because the globalists want it that way. It’s unlikely that the federal government and the elitist establishment would ever allow real manufacturing to come back to the US in a way that would make us more self sufficient. As long as our country relies on outsourced goods and raw materials from other nations we remain beholden to the global chain for our survival. Being completely independent might be impossible, but we could be producing far more domestically than we are today. State governments could create incentives to manufacture within their borders by removing property taxes, reducing state taxes and protecting businesses from certain federal obstructions such as carbon restrictions. As long as those companies do not support anti-freedom initiatives with the money they make, they should be aided so that real jobs and real production make a comeback in the US. I would also note that if states want to survive the coming financial crisis that is about to strike, they are going to have to start ignoring federal restrictions on land use and the production of raw materials (like oil or coal). Some environmental rules are good, but some are pointless and are only designed to control rather than protect. States will have to stand in defiance of these rules if anything is going to change for the better. Debt And Liquidity Crisis? Let States Establish Their Own Banks And Currencies The state of North Dakota has an interesting model for economic independence, which utilizes a state sponsored bank designed specifically to help businesses in ND. I would say it’s bizarre that this idea has not become popular across the nation, but I understand that if it did the federal government and the central bankers would be very unhappy. Here’s the thing, while it is true that the constitution explicitly states that the US Treasury be the only issuer of US currency, this was done at a time when our currency was backed by gold and silver and there was no corrupt middleman in the form of a central bank. In truth, the Treasury is now second fiddle to the Federal Reserve, and the constitutional regulations on money have already been broken. It’s time for a new currency model and new banking model. An official bank in each state could decentralize power away from the Federal Reserve in terms of how debt and interest rates are handled, creating something closer to free market discovery of interest rates rather than a rate dictatorship control by the Fed. By extension, each state could also issue currency scrip legal for use only within the borders of those states. This would create a secondary safety net against inflation in the dollar. In other words, we decentralize the banking system and we offer state alternatives which function not so much as competing currencies but as parallel or complementary currencies backed by and exchangeable in certain commodities. I believe very strongly that this model (along with a couple dozen other measures I don’t have space to cover here) could save our country from decades of economic mismanagement and bring us back from the brink of inflation and debt catastrophe. States could do this without the permission of the federal government or the Federal Reserve, but I have little doubt that the elites would be in an uproar. Make no mistake, states will have to move to decouple from the national financial system and build alternatives as soon as they realize that the dollar is tanking and stagflation is here to stay. And when they do, the establishment will declare such actions on par with “insurrection.” In the meantime, there are numerous preparations each individual can make in their local communities to insulate themselves from economic dangers. There are those that will say that local measures are only a stop gap and more national action needs to be taken. They are partially correct; in the long run there needs to be wider organization towards free markets once again, along with redundancies in state economies. In the short term we must do what we can. Ultimately, the most clear solutions to our fiscal fate are not pursued because the elites do NOT WANT to save the economy, at least not in a way that ends up with them having less power. They want even more power and centralization that extends beyond national boundaries into the realm of global management. Fixing the system can’t happen because they won’t let it happen. This means that the fix that will save us in the long run will be the one that allows all others to progress; and that fix is to remove these people from positions of influence and authority. You can’t really repair the body in the wake of an illness until the offending disease is eliminated. For now, all we can do is keep the country on life support until a cure is applied. *  *  * If you would like to support the work that Alt-Market does while also receiving content on advanced tactics for defeating the globalist agenda, subscribe to our exclusive newsletter The Wild Bunch Dispatch.  Learn more about it HERE. Tyler Durden Sat, 04/16/2022 - 17:30.....»»

Category: worldSource: nytApr 16th, 2022

Biden Will Allow Higher Ethanol Gas This Summer to Reduce Prices. Here’s What That Means

The move comes as Biden is facing growing political pressure over inflation. WASHINGTON (AP) — President Joe Biden is visiting corn-rich Iowa on Tuesday to announce he’ll suspend a federal rule preventing the sale of higher ethanol blend gasoline this summer, as his administration tries to tamp down prices at the pump that have spiked during Russia’s war with Ukraine. Most gasoline sold in the U.S. is blended with 10% ethanol. The Environmental Protection Agency will issue an emergency waiver to allow widespread sale of 15% ethanol blend that is usually prohibited between June 1 and Sept. 15 because of concerns that it adds to smog in high temperatures. Senior Biden administration officials said the move will save drivers an average of 10 cents per gallon at 2,300 gas stations. Those stations are mostly in the Midwest and the South, including Texas, according to industry groups. [time-brightcove not-tgx=”true”] The move comes as Biden is facing growing political pressure over inflation, as new data Tuesday showed prices are rising at the fastest pace in more than 40 years, driven in part by soaring energy prices during the Russia-Ukraine war. The Labor Department said Tuesday that its consumer price index jumped 8.5% in March from 12 months earlier, the biggest year-over-year increase since December 1981. Gas prices accounted for more than half of the monthly jump in prices. Food and housing costs also climbed in March in ways that could weigh on families. Inflation began to accelerate last year amid robust hiring after the passage of Biden’s $1.9 trillion coronavirus relief package, a challenge for U.S. consumers that Russia’s invasion of Ukraine then amplified. Administration officials said the EPA has begun analyzing the “emergency” step of allowing more E15 gasoline sales for the summer and determined it is not likely to have significant on-the-ground air quality impacts. That’s despite some environmentalists long arguing that more ethanol in gas increases pollution, especially during warmer summer months. Biden is to announce the move at a biofuel company in Menlo, west of Des Moines. Iowa is the country’s largest producer of corn, key to producing ethanol. The waiver is another effort to help ease global energy markets that have been rocked since Russia invaded Ukraine. Last month, the president announced the U.S. will release 1 million barrels of oil per day from the nation’s strategic petroleum reserve over the next six months. His administration said that has helped to slightly reduce gas prices lately, after they climbed to an average of about $4.23 a gallon by the end of March, compared with $2.87 at the same time a year ago, according to AAA. “Not only is this decision a major win for American drivers and our nation’s energy security, it means cleaner options at the pump and a stronger rural economy,” Emily Skor, CEO of the biofuel trade association group Growth Energy, said in a statement. Members of Congress from both parties also had urged Biden to grant the E15 waiver. “Homegrown Iowa biofuels provide a quick and clean solution for lowering prices at the pump and bolstering production would help us become energy independent once again,″ said Iowa Republican Sen. Chuck Grassley. He was among nine Republican and seven Democratic senators from Midwestern states who sent Biden a letter last month urging him to allow year-round E15 sales. The trip will be Biden’s first as president to Iowa, where his 2020 presidential campaign limped to a fourth-place finish in the state’s technologically glitchy caucus. After bouncing back to win the Democratic nomination, Biden returned for a rally at the Iowa state fairgrounds four days before Election Day 2020, only to see Donald Trump win the state by 8 percentage points. Biden heads back to the state at a moment when he’s facing yet more political peril. He’s saddled with sagging approval ratings and inflation at a 40-year high while his party faces the prospect of big midterm election losses that could cost it control of Congress. Read More: Russia’s Ukraine Invasion Could Break Oil’s Grip On U.S. Politics The president also planned to promote his economic plans to help rural families struggling with higher costs, while highlighting the $1 trillion bipartisan infrastructure law enacted last fall. The law includes money to improve internet access, as well as for modernizing wastewater systems, reducing flooding threats and improving roads and bridges, drinking water and electric grids in sparsely populated areas. “Part of it is showing up in communities of all sizes, regardless of the results of the last election,” said Jesse Harris, who was a senior adviser to Biden’s 2020 campaign in Iowa and directed get out the vote and early voting efforts for Barack Obama’s presidential campaign in 2008. Harris said most presidents who visit Iowa typically go to the state’s largest cities. Hitting an area like Menlo, part of Guthrie County, which backed Trump over Biden by 35 percentage points in 2020, “does speak to the importance the administration places on infrastructure broadly but also infrastructure in rural and smaller communities.” The Biden administration plans to spend the coming weeks pushing billions of dollars in funding for rural areas. Cabinet members and other senior officials will travel the country to help communities get access to money available as part of the infrastructure package. “The president is not making this trip through a political prism,” White House press secretary Jen Psaki said. “He’s making this trip because Iowa is a rural state in the country that would benefit greatly from the president’s policies.” Still, administration officials have long suggested that Biden travel more to promote an economy that is rebounding from the setbacks of the coronavirus pandemic. The number of Americans collecting unemployment has fallen to the lowest levels since 1970, for example. But much of the positive jobs news nationally has been overshadowed by surging gas, food and housing prices that have offset wage gains. “Maybe a trip back to Iowa will be just what Joe Biden needs to understand what his reckless spending, big government policies are doing to our country,” Iowa Republican Party Chairman Jeff Kaufmann said in a statement. After Iowa, Biden will visit Greensboro, North Carolina, on Thursday. Psaki blamed Russia’s war in Ukraine for helping to drive up gas prices and said the administration expects the consumer price index for March to be “extremely elevated” in large part because of it. The EPA has lifted seasonal restrictions on E15 in the past, including after Hurricane Harvey in 2017. The Trump administration allowed for selling E15 in the summer months two years later but had the rule struck down by a federal appeals court. A group representing petroleum refiners blasted the move, saying the only emergency was Biden’s dropping poll numbers. “We are right there with the administration on wanting to see relief for consumers at the pump, but an unlawful executive order is not how to solve the problem,” said Chet Thompson, president & CEO of the American Fuel & Petrochemical Manufacturers. Emergency fuel waivers are meant to be short-term solutions to supply disruptions from disasters such as a hurricane, Thompson said. The new waiver “is politics, not a real solution for drivers.” ___ Associated Press writer Matthew Daly contributed to this report......»»

Category: topSource: timeApr 12th, 2022

Futures Flat On Last Day Of Dismal Quarter, Oil Tumbles As Biden Preps Massive SPR Release

Futures Flat On Last Day Of Dismal Quarter, Oil Tumbles As Biden Preps Massive SPR Release US equity futures were muted and flat on the last trading day of the month and quarter, fading a modest overnight gain as the underlying index headed for its first quarterly decline in two years on worries about surging inflation, hawkish monetary policy and an economic slowdown. Contracts on the S&P 500 were down 0.1% at 730 a.m. ET while Dow futures were little changed and Nasdaq 100 futures rose 0.2%, while European stocks fell, heading for the first quarterly decline since 2020. Asian equities retreated on lackluster Chinese PMI data and regulatory concerns. Treasuries held gains with the 10Y yield dropping to 2.31% (from 2.50% earlier this week when the 2s10s inverted) and the dollar ticked up against almost all G-10 peers. Fed watchers will be focused on the PCE deflator, which may have sped up in February. The big overnight action was in oil, which plunged following the news late on Wednesday that the White House was (again) mulling a plan to release roughly a million barrels a day from reserves to combat crashing Democrat approval rating ahead of the midterms as a result of soaring gasoline prices coupled with supply shortages in response to US sanctions of Russia. The proposal, which includes 180 million barrels being freed over several months, may help the market rebalance this year but won't solve a structural deficit, Goldman said. The reserve release news came just hours ahead of an OPEC+ supply meeting, where the cartel is expected to stick with its strategy of a modest output boost in May. Equities globally are poised for their worst quarter since the early days of the pandemic on concerns about tightening monetary policy, red-hot inflation and a looming recession. While stocks remained resilient to the historic rout in bond markets this month, some strategists see little room for them to rally this year, partly as high costs threaten corporate profits. French inflation accelerated more than expected to reach another record, following unexpectedly high readings on Wednesday from Germany and Spain. “Our base case now is for only modest upside for stocks,” said Mark Haefele, chief investment officer at UBS Global Wealth Management, adding that he expects the S&P 500 to end the year at 4,700, about 2% higher than current levels. He also trimmed his estimate for global earnings growth to 8% from 10% for 2022. “Aside from quarter-end considerations, oil is very much the center of attention,” Simon Ballard, chief economist at First Abu Dhabi Bank, wrote in a note to investors. Still, “all the usual suspects are still in play, keeping the market in check, including the specter of the Fed pursuing an aggressive path of monetary policy normalization over the coming months.” Elsewhere, officials from Ukraine and Russia are set to resume talks via video conference on Friday, according to a Ukrainian negotiator, though there was no immediate confirmation from Moscow. Friday’s video discussions between Ukraine and Russia would follow in-person talks this week in Turkey that didn’t produce a short-term cease-fire or major progress toward a broader peace deal. Ukraine’s negotiator said the hope was to have enough agreed on paper in another week to be able to move toward a meeting between President Vladimir Putin and President Volodymyr Zelenskiy. Going back to the US market, shares in big U.S. energy companies slumped in premarket trading along with crude prices drop (Exxon Mobil -1.9% and Chevron -1.5% premarket, Occidental Petroleum -2.6%, Gran Tierra Energy -3.1%, Imperial Petroleum -3.8%, Camber Energy -4.3%). Bank stocks are also lower putting them on track to fall for a second straight day as the U.S. 10-year yield falls to 2.31%. Goldman Sachs warned that stagflation could make bank stocks less profitable. U.S.-listed Chinese stocks slipped in premarket trading as Securities and Exchange Commission Chair Gary Gensler dialed down prospects of an imminent deal to allow Chinese firms to keep trading on American exchanges. Russian equities advanced as the nation partly lifted the short-selling ban on local stocks on Thursday, removing one of the measures that helped limit the declines in the market after a record long shutdown. Other notable premarket movers include: Vipshop ADRs (VIPS US) rise 8.4% in premarket trading after the Chinese online retailer announces a $1b share buyback plan. Robinhood Markets (HOOD US) shares rise 1.4% in U.S. premarket trading, set to extend the previous day’s 24% gains after the online brokerage announced plans to expand the trading day by four hours, while Morgan Stanley begins coverage of the stock with an equal-weight rating. Energy companies decline in premarket trading as crude prices drop. The U.S. is considering tapping its reserves again in a potentially massive release aimed at managing inflation and supply shortages. Exxon Mobil (XOM US) -1.9%, Chevron -1.5% (CVX US). U.S.-listed Chinese stocks are heading for a lower open after Securities and Exchange Commission Chair Gary Gensler dialed down prospects of an imminent deal to allow Chinese firms to keep trading on American exchanges. Alibaba (BABA US) fell 1.7% in premarket, while its e-commerce rival JD.com (JD US) lost 2.8%. Advanced Micro Devices (AMD US) shares fall 1.3% in U.S. premarket trading, after the semiconductor maker is downgraded to equal- weight from overweight at Barclays, which says that the growth story “needs a pause.”. IZEA Worldwide (IZEA US) shares surge 27% in U.S. premarket trading after the influencer marketing company reported fourth-quarter earnings and saw total revenue increase 62% to a record of $10.3m. In Europe, the Stoxx 600 reversed initial gains and dropped 0.3%, the Euro Stoxx 50 fell 0.2%, and other major indexes trade flat to slightly lower with retailers, telecoms and energy the worst performing sectors. Retail and telecom stocks led declines while utilities and insurance sectors outperformed. Some notable premarket movers: Brewin Dolphin shares rise as much as 62% and trade slightly below the agreed bid for the firm from RBC Wealth Management. The transaction, being carried out at a high premium, highlights the attractiveness of the U.K. wealth sector, analysts say. Orpea shares climb to their highest level in almost 2 months after Societe Generale says that allegations of mistreatment at its facilities are likely to have “limited” financial impact. Fresenius SE shares rise as much as 3.3% on news that the company’s Kabi intravenous drug unit has bought a majority stake in mAbxience SL and acquired Ivenix. Pernod Ricard shares rise as much as 2.6% as Citi says 3Q sales are likely to beat expectations, also lifting its which lifts EPS estimates and PT, as well as opening a positive catalyst watch. Tate & Lyle shares gain as much as 3.7% after saying it would buy Quantum Hi-Tech, a prebiotic dietary fiber business in China. The deal enhances Tate & Lyle’s portfolio, Goodbody says. Pearson shares rise as much as 3.5%, rebounding from Wednesday’s losses after private equity firm Apollo Global Management said it won’t make an offer for the education publisher. Earlier in the session, Chinese data and regulatory concerns weighed on Asia stocks. China's NBS manufacturing PMI declined to 49.5 in March from 50.2 in February, missing estimates, likely due to Covid-related restrictions and geopolitical tensions. The output sub-index in the NBS manufacturing PMI survey fell by 0.9 points in March, and the new orders sub-index fell by 1.9 points. The NBS non-manufacturing PMI fell to 48.4 in March from 51.6 in February, also missing expectations, and entirely driven by the decline of services sector due to recent Covid outbreaks in multiple provinces. Separately, Bloomberg reported that Chinese authorities are considering a plan to raise several hundred billion yuan for a new fund to backstop troubled financial firms. Asian stocks retreated after a two-day advance, as the U.S. securities regulator’s tough stance on a potential delisting of Chinese firms and weak China manufacturing data worried investors.  The MSCI Asia Pacific Index declined as much as 0.8%, and was poised to finish its worst quarterly performance in two years, with Taiwan Semiconductor Manufacturing and Tencent among the biggest drags. Benchmarks in Hong Kong and China underperformed regional peers. Japanese equities headed for a second day of declines while Australia stocks retreated after seven straight day of gains in response to a stimulatory federal budget.  The U.S. Securities and Exchange Commission’s chief said Chinese firms need to fully comply with audit requirements in order to stay on American exchanges. Meantime, China’s manufacturing contracted in March, underscoring the growing toll of lockdowns. Investors are also watching how a tumble in oil prices can alleviate inflation risks and affect corporate earnings.  “If you look at the PMIs there’s an obvious explanation for why PMIs are weak, which is China pursuing zero-Covid strategy,” Kieran Calder, head of Asia Equity Research at Union Bancaire Privee, said in an interview with Bloomberg Television. “The reality of Covid-19 versus the response in China, the mismatch is too strong right now and I think that’s the biggest worry for us.”  For the quarter, Asian stocks were poised for nearly a 7% loss, the worst performance since early 2020 when the emergence of the pandemic shocked investors. Investors had to grapple with a U.S. rate hike, a war in Ukraine and continued regulatory risks out of China, which caused huge volatility Japanese equities fell for a second day following a rally in the yen. Electronics makers and banks were the biggest drags on the Topix, which fell 1.1%. Recruit and SoftBank were the largest contributors to a 0.7% loss in the Nikkei 225. The yen was little changed after gaining 1.6% against the dollar over the previous two sessions. Both key gauges still capped their first monthly gains of the year. The Nikkei 225 rose 4.9% in March, the most since November 2020, while the Topix climbed 3.2% on the month. India’s benchmark equity index clocked its best monthly advance since August, as buying by local funds amid war-induced volatility supported sentiment. The S&P BSE Sensex fell 0.2% to 58,568.51 in Mumbai, trimming its gain for March to 4.1%. The NSE Nifty 50 Index also slipped 0.2% on Thursday. Stocks swung between gains and losses several times during the day ahead of the expiry of monthly derivative contracts Thursday. Institutional investors in India have bought $5 billion worth of shares this month, while foreign investors are set to extend their selling to a sixth consecutive month. Reliance Industries Ltd. was the biggest drag on the 30-share Sensex, which saw an equal number of shares closing up and down. Twelve of the 19 sectoral indexes compiled by BSE Ltd. gained, led by a gauge of telecom stocks. S&P BSE Healthcare Index was the worst performing sub-index.   “Markets took a breather on a monthly expiry day and ended the last day of the financial year on a flat note,” said Ajit Mishra, vice president of research at Religare Broking Ltd. “We reiterate our positive yet cautious stance citing lingering geopolitical tension between Russia-Ukraine and its impact on the global markets.” In rates, Treasuries extended this week’s rally with yields richer by up to 5bp across belly of the curve, which continues to outperform vs wings. Wider bull-steepening move grips bunds and gilts, as central-bank rate-hike premium is pared. Oil futures are sharply lower, weighing on energy stocks, following reports that Biden is considering a massive release of crude from U.S. reserves to fight inflation. The 10-year yield was around 2.31%, richer by ~4bp vs Wednesday’s close, underperforming bunds in the sector by ~4bp while keeping pace with gilts. Long-end swap spreads are sharply tighter, with 30- year dropping as low as -19.5bp. Euro-area, bonds extended their advance as money markets pare central bank tightening wagers. French bonds underperformed bunds as EU-harmonized CPI rose 5.1% from a year ago in March -- the most since the data series began in 1997 -- and above the 4.9% median estimate in a Bloomberg survey of economists.  The belly of the German curve richened 6-7bps, leading gains. Peripheral spreads are mixed: Italy tightens, Portugal and Spain widen to core. Money markets trim rate hike pricing. Japanese government bonds extended their advance as the central bank’s aggressive bond purchases this week reassured players that an excessive rise in yields won’t be tolerated. Yen was little changed in choppy trade. Bank of Japan’s offer to buy an unlimited amount of 10-year government bonds at fixed yields recorded no takeup, the central bank said. In FX, Bloomberg dollar spot index snapped two days of losses after rebounding in early European session; the dollar advanced versus all of its Group-of-10 peers and commodity currencies were the worst performers. The euro gave up earlier gains after earlier touching a four-week high versus the greenback. Norway’s krone slumped by as much as 1.6% versus the greenback after the central bank announced a ramp-up of FX purchases on behalf of the government. The pound declined for a third day against the euro, touching its weakest level versus the common currency since Dec. 23. A report from the British Retail Consortium gave another glimpse into the cost-of-living crisis, showing prices in U.K. shops rose in March at the fastest annual pace since September 2011. Japan’s factory output eked out its first gain in three months in February, offering only a tepid sign of resilience amid fears the economy has slipped back into reverse. Production inched up 0.1% from the previous month. The Australian dollar declined against most of its Group-of-10 peers as oil prices tumbled on news that the Biden administration is weighing a massive release of crude from U.S. reserves. Sales of Aussie back into euro have seen option-related Australian dollar bids attached to large option strikes get filled, according to Asia-based currency traders In commodities, crude futures hold Asia’s losses triggered by reports that the White House may make an announcement on the U.S. oil reserve release as soon as Thursday. WTI drops over $6.50 near $101.10. European natural gas faded an initial drop after Germany signaled Russia is softening its demand for ruble payments. Precious metals and much of the base metals complex traded heavy. Looking to the day ahead now, data releases include German retail sales for February and unemployment for March, French and Italian CPI for March, and the Euro Area unemployment rate for February. From the US, there’s also February’s personal income and personal spending, the weekly initial jobless claims, and the MNI Chicago PMI for March. Otherwise, central bank speakers include ECB Vice President de Guindos, Chief Economist Lane, and New York Fed President Williams. Market Snapshot S&P 500 futures up 0.1% to 4,601.75 STOXX Europe 600 down 0.2% to 459.49 MXAP down 0.7% to 180.37 MXAPJ down 0.6% to 591.98 Nikkei down 0.7% to 27,821.43 Topix down 1.1% to 1,946.40 Hang Seng Index down 1.1% to 21,996.85 Shanghai Composite down 0.4% to 3,252.20 Sensex down 0.2% to 58,590.32 Australia S&P/ASX 200 down 0.2% to 7,499.59 Kospi up 0.4% to 2,757.65 German 10Y yield little changed at 0.62% Euro down 0.3% to $1.1130 Brent Futures down 3.6% to $109.40/bbl Gold spot down 0.4% to $1,924.94 U.S. Dollar Index up 0.24% to 98.03 Top Overnight News from Bloomberg The Biden administration is weighing a plan to release roughly a million barrels of oil a day from U.S. reserves, for several months, to combat rising gasoline prices and supply shortages following Russia’s invasion of Ukraine, according to people familiar with the matter Bank of Japan Governor Haruhiko Kuroda is determined to stick with targeting long-term bond yields near zero, even as it leaves him increasingly at variance with global peers and propels a depreciating exchange rate The yen has taken a beating in recent weeks but technicals suggest that it may be on the road to a recovery. Japan’s currency may rebound to 116 per dollar in the coming months after sliding as low as 125.09 on Monday, the weakest in almost seven years, an analysis by Bloomberg shows Russian President Vladimir Putin said that European buyers could continue making gas payments in euros, according to a German readout of a call he had with Chancellor Olaf Scholz Russian government bondholders would be left with no viable path to recover their money if the country defaults, according to one of the top global lawyers in sovereign debt litigation Hungary kept its key interest rate unchanged after the forint staged the second-biggest emerging-market currency rally this week, relieving pressure on policy makers to deliver more monetary tightening China’s cabinet vowed to stabilize the economy and called on officials to avoid measures that harm market expectations as the government struggles to control Covid outbreaks across the country including in the financial center of Shanghai For the first time in more than a decade, China’s yield advantage over Treasuries may be erased. The yield spread between the benchmark bonds of the world’s two biggest debt markets has narrowed to around 40 basis points from 150 a year ago, well below the People’s Bank of China’s “comfortable” range Australia will invest more to find new buyers for its exports in an effort to ease trade dependence on China, its treasurer said, in the face of “economic coercion” from Beijing that shows little sign of abating A more detailed look at global markets courtesy of Newsquawk Asia=Pac stocks traded cautiously at month-end following the weak lead from the US due to increased Russia-Ukraine scepticism and as the region digested disappointing Chinese PMI data. ASX 200 was kept afloat by outperformance in the mining and materials industries although upside was capped as the tech sector suffered from profit-taking and with energy hit by a drop in oil prices. Nikkei 225 traded indecisively amid a choppy currency and after Industrial Production data missed forecasts. Hang Seng and were subdued following the weak Chinese PMI data and with the mood inShanghai Comp. stocks not helped by the US SEC chief casting doubt regarding an imminent deal to avert a delisting of Chinese stocks. Top Asian News Thirteen-Hour Power Cuts Get Sri Lanka to Shorten Stock Trading Effissimo Would Tender Toshiba Shares in Event of Bain Bid BOJ Looks Ready for a Victory Lap With Yields on the Retreat BOJ Boosts Bond Buying in April-to-June Quarter European equities (Eurostoxx 50 -0.3%) kicked the final trading session of the month off on the front foot before drifting towards the unchanged mark. Sectors in Europe exhibit a mostly positive tilt with airline names cheering the declines in the energy space as the Energy sector suffers. The biggest laggard in the region is the retail section following a disappointing Q1 update from H&M (-8%). Futures in the US are modestly firmer as the NQ (+0.5%) marginally outpaces the ES (+0.1%) with inflation set to continue to remain in focus today, with the release of US PCE metrics for March; core PCE is seen rising to 5.5% Y/Y Top European News Iron Ore Futures Advance as Outlook for Demand Brightens Sorrell’s S4 Capital Audit Delay No Longer Down to Covid EU Commission Confirms Raids in Germany’s Natural Gas Sector Pearson Shares Rebound; Barclays Sees a ‘Resilient Business’ In FX, Dollar finds its feet as month, quarter and fiscal year end approach, albeit with a helping hand from others - DXY back on the 98.000 handle, narrowly. Commodity currencies reverse course alongside underlying prices, with crude crushed on reports of US SPR and IEA opening reserve taps - Usd-Cad rebounds through 1.2500 after sliding to new y-t-d low sub-1.2450 only yesterday. Yen choppy amidst residual repatriation flows and more BoJ action to cap JGB yields - Usd/Jpy circa 122.00 within a 122.45-121.35 range. Euro fades into 1.1200 vs Buck again as option expiries and tech resistance impinge, but Aussie  may derive traction from expiry interest at 0.7500 - EURUSD now eyeing support at 1.1100 after tripping stops. In commodities, WTI and Brent remain firmly on the backfoot in the wake of reports suggesting that the Biden administration is considering a 'massive' SPR release. The news has sent May’22 WTI and Jun’22 Brent to respective lows of USD 100.53/bbl and USD 107.39/bbl to leave them a few dollars above their weekly lows of USD 98.44/bbl and USD 102.19/bbl respectively. US President Biden's administration is considering a 'massive' release of oil to combat inflation and may release up to 1mln bpd for months from the strategic reserve in which the total release could be 180mln , according to Bloomberg.bbls Goldman Sachs says a potentially large SPR release would ease the situation but wouldn't resolve the structural deficit in the oil market. Says adjustments for SPR release, Iran supply delays would lower H2 22 Brent forecast by USD 15, to USD 120/bbl - still above market forwards. US President Biden will deliver remarks today at 13:30EDT/18:30BST regarding the administration's actions to reduce gas prices in the US, according to the White House. It was also reported that the US mulls permitting, according to Reuters sources.summertime sales of higher ethanol blends of gasoline to ease pump prices IEA called an emergency ministerial meeting for Friday, according to the Australian Energy Minister's office. It was later reported that , according to New Zealand'sIEA countries are to decide on a collective oil release Energy Minister's office OPEC+ JTC replaced IEA reports with Wood Mackenzie and Rystad Energy as secondary sources to assess crude oil output and conformity, according to sources cited by Reuters. In fixed income, bonds on track to see out extremely bearish month, quarter and end to FY on a firmer note. Curves more even after wild swings between flattening, inversion and steepening.BoJ ramps efforts to maintain YCC via a mostly larger JGB buying remit for Q2. US Event Calendar 08:30: March Initial Jobless Claims, est. 196,000, prior 187,000 08:30: Feb. Personal Income, est. 0.5%, prior 0% 08:30: Feb. Personal Spending, est. 0.5%, prior 2.1%; Real Personal Spending, est. -0.2%, prior 1.5% 08:30: Feb. PCE Deflator MoM, est. 0.6%, prior 0.6%; PCE Deflator YoY, est. 6.4%, prior 6.1% 08:30: Feb. PCE Core Deflator MoM, est. 0.4%, prior 0.5%; YoY, est. 5.5%, prior 5.2% 09:45: March MNI Chicago PMI, est. 57.0, prior 56.3 DB's Jim Reid concludes the overnight wrap After a great deal of optimism in markets on Tuesday following the Russia-Ukraine negotiations in Turkey, the last 24 hours have proven to be much more negative as investor hopes for a de-escalation in Ukraine were dampened by more gloomy comments on the war from both sides. From Russia, the Kremlin spokesman Dmitry Peskov said that they hadn’t seen a breakthrough in the talks, whilst Ukrainian President Zelensky said that “Russia is deploying new forces on our terrain to try to continue destroying us”, and NATO leaders continued to strike a sceptical tone. Indeed, it was reported by Dow Jones that the European Commission was considering new sanctions against additional Russian banks, and UK Prime Minister Johnson said that the UK was “looking at going up a gear” in its support to Ukraine. President Biden expressed similar sentiments, pledging $500 million of additional aid to Ukraine in a call with President Zelensky. Against this backdrop, oil prices rose again for the first time this week, with Brent Crude up +2.92% to $113.45/bbl, but there’s been a sharp turnaround overnight on the back of news that the US are planning a major release from their reserves, with Bloomberg reporting it would be a million barrels a day over several months. Biden is due to speak about efforts to lower prices at 1:30pm Eastern, so all eyes will be on that, and overnight we’ve seen Brent Crude prices come down by -4.54% to $108.30/bbl, more than reversing their gains from the previous session. However, European natural gas (+9.77%) rose for a third consecutive session to €118.97/MWh, which is its highest closing level in nearly 3 weeks. That occurred amidst a continued dispute about Russian gas payments, which President Putin wants paid for in rubles, but which multiple European countries have rejected as a breach of contract. In response, Germany’s economy minister Robert Habeck activated the “early warning phase” of an emergency law, which could eventually lead to gas rationing if supplies fall short. With Russia’s invasion having lasted for over 5 weeks now, we’re increasingly seeing the impact reflected in the official inflation numbers, and yesterday’s releases out of Europe gave fresh life to the bond selloff. In terms of the numbers, German inflation rose to +7.6% in March on the EU-harmonised measure, which was up from +5.5% back in February and some way above the +6.8% reading expected by the consensus. It was the same story in Spain, where inflation rose to +9.8% (up from +7.6% in February), which will heighten interest in tomorrow’s flash release for the entire Euro Area. In turn, that’s led to growing expectations of ECB rate hikes this year, with a total of 63bps being priced in by the December meeting, which is the most we’ve seen to date. On top of that, more than 30bps are even being priced in by the September meeting, which surpasses their pre-invasion peak. Given the strong inflation numbers and the prospect of a more aggressive ECB, European bonds sold off across most of the continent, with yields on 10yr bunds (+1.3bps), OATs (+2.3bps) and BTPs (+1.3bps) all hitting fresh multi-year highs. Furthermore, the 2yr German yield (+5.6bps) closed in positive territory for the first time since 2014, having briefly got there on an intraday basis during the previous session. Unsurprisingly, the latest rise in yields was driven by higher inflation breakevens rather than real rates, and the 10yr German breakeven surged another +6.0bps to 2.71%, its highest level in data available back to 2009, whilst the Italian breakeven rose +4.0bps to 2.53%, its highest level since 2008. Even as European bonds were selling off once again, it was the reverse story in the United States, where Treasuries recovered somewhat yesterday as we come to the end of one of their worst quarterly performances in decades. Yields on 10yr Treasuries fell -4.6bps to 2.35%, whilst yield curves remained incredibly flat; the 2s10s curve steepened marginally by +1.3bps to 3.6bps, avoiding another inversion, and this morning is up another +0.3bps to 3.9bps. In terms of other developments this morning, Asian equity markets have followed Wall Street’s lead overnight with the Nikkei (-0.18%), Hang Seng (-0.59%), Shanghai Composite (-0.14%), CSI (-0.26%) all losing ground, though the Kospi (+0.54%) is the exception to this pattern. The weakness in Asian gauges has come amidst declines in the PMI data, with China’s manufacturing PMI down to 49.5, and the non-manufacturing PMI down to 48.4. For reference, that’s the first time that both readings have been below the 50-mark that separates expansion from contraction since February 2020, and comes as multiple cities are undergoing further lockdowns in response to the current Covid outbreak. Additionally, a slide in Chinese tech stocks is weighing on sentiment after the US Securities and Exchange Commission added Hong Kong listed Baidu Inc. to its long list of companies potentially facing delisting from US exchanges. Outside of Asia, stock futures in the US and Europe are pointing to a more positive start, with contracts on the S&P 500 (+0.28%), Nasdaq (+0.56%) and DAX (+0.59%) all trading higher. Those equity declines overnight in Asia follow a broader decline in risk appetite yesterday given the more negative geopolitical developments, and both the S&P 500 (-0.63%) and Europe’s STOXX 600 (-0.41%) unwound some of their gains from the previous day. More cyclical industries underperformed in general, whilst the German DAX (-1.45%) also put in a weaker performance relative to the other main European indices. The VIX Index of volatility (+0.43pts) also ticked up to 19.33pts, after closing at to its lowest level since Russia’s invasion of Ukraine on Tuesday. In France, we’re now just 10 days away from the first round of the presidential election, and there are continued signs of a narrowing in the polls, albeit with President Macron still in the lead. In terms of yesterday’s polls (from Opinionway, Harris, Ipsos, Ifop and Elabe), all of them pointed to a repeat of the second-round contest from 2017, with the first-round polling putting President Macron in first place followed by Marine Le Pen in second. That said, they’re also implying a noticeably tighter result in the second round than Macron’s 66%-34% victory against Le Pen in 2017. Looking through the numbers, the second round estimates ranged from a 55%-45% Macron victory (from Opinionway and Ipsos), to a 52.5%-47.5% Macron victory (from Elabe). Finally on yesterday’s other data, the ADP’s report of private payrolls from the US showed growth of +455k in March (vs. +450k expected). That comes ahead of tomorrow’s jobs report, where our US economists are expecting nonfarm payrolls to have grown by +400k, with the unemployment rate ticking down to a post-pandemic low of 3.7%. To the day ahead now, and data releases include German retail sales for February and unemployment for March, French and Italian CPI for March, and the Euro Area unemployment rate for February. From the US, there’s also February’s personal income and personal spending, the weekly initial jobless claims, and the MNI Chicago PMI for March. Otherwise, central bank speakers include ECB Vice President de Guindos, Chief Economist Lane, and New York Fed President Williams. Tyler Durden Thu, 03/31/2022 - 07:56.....»»

Category: blogSource: zerohedgeMar 31st, 2022

Gasoline Stimmies: This Is How You Return To A 70"s-Style Wage-Price Spiral

Gasoline Stimmies: This Is How You Return To A 70's-Style Wage-Price Spiral By Michael Every of Rabobank I have to repeat yet again that this is not just a war but an economic war, and not just a crisis but a metacrisis. As such, the latest attack from Moscow was always obvious to those expecting both sides to deliberately hurt the other while strengthening their own geostrategic position: using Russian energy as a weapon against Western sanctions. Russia’s key Caspian oil pipeline is to be closed “for repairs” that will last two months, taking around 1mbpd out of circulation; but, eclipsing that, within a week Russia will demand payment in roubles for its gas from “hostile countries” – which means Europe. Obviously, this is a breach of contract. Shock! Horror! Contracts might be broken! You think freezing FX reserves, sanctions, talking about naval blockades, proposing the introduction of letters of marque allowing privateers to seize Russian property at sea, as well as Russian forced nationalisations --to say nothing of blowing up civilians and threatening the use of nuclear weapons on state TV-- is business as usual? Contract, shmontract. Equally obviously, this has a benign interpretation and a grave one. The benign one is Europe will swap EUR for RUB and then give the RUB back to Russia for gas. Except that Putin is introducing this new radical measure because he says there is no point in selling Russian gas or oil for dollars or euros if he can’t spend them: they are funny money to him under sanctions. As such, the grave interpretation is Putin attempting to get his own funny money accepted as equivalent to the dollar and euro, even if it is managed by a central bank where everyone is either quitting or trying to quit, and as the last remaining Russian liberal, Anatoly Chubais, leaves both the Kremlin and the country in opposition to the war. Yet paying Russia in roubles would both prop up RUB and undermine Western sanctions. Putin would clearly chisel away at them: “Yes, I have the euros: but now I need you to remove the following measures so I can benefit from them….” Indeed, EU countries are already saying they won’t pay in roubles. Yet don’t expect Putin to blink: he “loses money” by not selling energy, but it’s money he literally cannot spend. Better to escalate, ‘shake the box’, and try to split the West, as I have repeatedly warned was the risk. As such, we could be looking at the scenario where Russian energy taps are turned off. Helpfully for Russia, Germany just underlined this will mean a crippling recession. European gas prices jumping 30% was a knee-jerk reaction that is only a down-payment on what we would ultimately see. We were already getting market calls that oil was heading back over $150 in the near future, and Brent was up to $121.50 at time of writing: that benchmark also overlooks the far larger squeeze on the industrial workhorse fuel that is diesel. That is what drives the trucks that drive goods from farms, factories, or ports to warehouses or retailers. As soon as Friday, the US may announce a plan to help Europe move away from Russian gas: well, it better kick in before the following Friday. And this is the same US unable to square the circle of its own energy needs, its own shale energy (due to green policies), Canadian energy (due to green policies), energy held by geopolitical opponent Venezuela, and energy held by traditional Middle East allies (due to Iran policy, which is the inverse of what the US is doing vs. Russia, and yet expecting good outcomes - as dismembered in this Wall Street Journal op-ed.) The EU was already looking at spending lots on energy subsidies. Some in the US Congress are talking about stimulus cheques if retail gasoline prices are over $4 a gallon. The UK government, whose Office for Budget Responsibility is forecasting the steepest one-year decline in living standards since records began in the 1950s, just cut fuel duty 5bp a litre, which takes prices all the way back to the level of a week ago(!), and tweaked national insurance thresholds while promising income tax cuts, which will help the middle class and not the poor. Clearly, even while not doing enough, fiscal deficits and public debt will growth – and as rates are also rising. Moreover, unless the surge in energy prices is short-lived --which hinges on the war and the metacrisis suddenly resolving themselves(!)-- then this is how you return to something like a 70’s-style wage-price spiral. Yes, it isn’t firms paying higher salaries to compensate for inflation, it’s the state, via direct transfers – but is the final outcome better? If we don’t do that we face stagflation, recession, and soaring populism. But if we do, global market prices won’t go down, and it is the world’s poorest who will bear the brunt of higher prices. They do populism too. Indeed, fertilizer is soaring – leading to headlines like “Coffee Farmers Face ‘Mega Emergency’ as Fertiliser Costs Soar”, talking about Central America; Ukrainian media reporting “Russian invaders try to undermine Ukraine's sowing campaign” and are “chaotically mining the Ukrainian territory and deliberately destroying agricultural machinery” means staple food prices are going to go up for another reason; steel prices are leaping, which will hit manufacturing and construction; and LME nickel went limit up yesterday – as trading was shut down and trades cancelled *again*. This is what key commodity ‘markets’ look like now: a total mess.   So much so, that commodity trading houses are calling for emergency central-bank intervention, evidenced by a letter sent by the European Federation of Energy Traders pleading for emergency liquidity support. The warnings of ‘this smells like 2008’ for the real economy are now there for all to see. Yet the lesson from 2008 is that printing money pushes up asset prices without resolving underlying structural problems. If we don’t get central-bank support, current volatility and margin calls may, as some in the industry warn, see firms fail. However, if we CTRL-P into a market with not enough energy, fertilizer, Ukrainian wheat, steel, etc., then what do you think the impact will be for everyone except those trading them – who had been making massive profits until recently? Higher prices, until we deal with the real underlying problem. Which is the entire world order. Which higher prices destabilise. Meanwhile, Russia Today chief Simonyan says: "Next step - barter payments with airplanes, high speed trains, whatever we need." I was warning about barter and countertrade returning just last week. Except who will be swapping stuff with Russia to help them evade sanctions? As NATO meets today and US President Biden pow-wows with the EU, what might be their response to Russia’s rouble move? Logically, either: kick the can down the road - for a week; blink and let Putin win  (which is unlikely); or escalate - which is most probable. If so, how? More weapons into Ukraine and more sanctions on Russia. But that won’t solve the energy problem. In which case, the risks increase of the West trying to pressure China economically to get it to pressure Russia – all the more so if the scenario ahead is a Western recession anyway – which itself hits all Asian exporters. Oh, how clever we thought we were with our slick 70’s-proof economies! Oh, how clever we thought we were with our 20’s- and 30’s-proof global architecture! Tyler Durden Thu, 03/24/2022 - 11:25.....»»

Category: personnelSource: nytMar 24th, 2022

Futures Fade As Yields Soar, Oil Slides And China Stocks Crater

Futures Fade As Yields Soar, Oil Slides And China Stocks Crater US equity futures held on to modest gains overnight as the market desperately clung on to hope that the latest ceasefire talks between Russia and Ukraine which started on Monday, may yield results (clearly forgetting how the rug was pulled from under the market on Friday in an identical setup), which initially sent stocks higher especially in Europe, despite a surge in 10Y TSY yields to 2.10%, the highest since July 2019, two days ahead of the first Fed rate hike, and a complete collapse in Chinese stocks. And while U.S. index futures were still pointing to a positive open around 8am ET this gain is fading fast, with spoos now up just 0.5% after rising 1% earlier... ... as headlines from the Kremlin suggested that a ceasefire is the last thing on Putin's mind. *KREMLIN: RUSSIA WILL REALIZE ALL ITS PLANS IN UKRAINE OPERATION *KREMLIN: UKRAINE OPERATION WILL BE COMPLETED ON SCHEDULE *KREMLIN: RUSSIA DIDN'T REQUEST CHINA MILITARY AID FOR OPERATION *KREMLIN: RUSSIA HAS RESOURCES NEEDED TO COMPLETE UKRAINE ACTION And while futures would normally be deep in the red by now, and will be shortly now that AAPL is at LOD... APPLE FALLS TO SESSION LOW, DROPS 1.6% IN PREMARKET TRADING ... this morning algos are confused by the drop in oil which has emerged as an inverse barometer for peace, however the reason oil is down today is due to the unprecedented lockdown of China's Shenzhen, announced over the weekend, and which the market is worried may spread to the rest of the market and lead to another Chinese shutdown (spoiler alert: it won't, but it will cripple US-facing supply chains as the Russia-China alliance makes itself felt). Meanwhile, and as previewed last night, in addition to the latest surge in covid cases and Shenzhen lockdown, Chinese stocks listed in Hong Kong had their worst day since the global financial crisis, as concerns over Beijing’s close relationship with Russia and renewed regulatory risks sparked panic selling. The Hang Seng index dropped more than 4%, sliding below 20,000 to the lowest level since 2015... ... while the Hang Seng China Enterprises Index closed down 7.2% on Monday, the biggest drop since November 2008. The Hang Sang Tech Index tumbled 11% in its worst decline since the gauge was launched in July 2020, wiping out $2.1 trillion in value since a year-earlier peak, after the southern city of Shenzhen, a key tech hub near Hong Kong, was placed into lockdown to contain rising Covid-19 infections. The broader Hang Seng Index lost 5%. “If the U.S. decides to impose sanctions on China in total or on individual Chinese companies doing business with Russia, that would be a concern,” said Mark Mobius, who set up Mobius Capital Partners after more than three decades at Franklin Templeton Investments. “The whole story is still up in the air in this case.” In premarket trading, U.S.-listed Chinese stocks resumed a steep selloff on Monday, following an 18% rout last week, as concerns about Beijing’s close relationship with Russia added to losses spurred by a Chinese crackdown on tech giants and the growing risk of U.S. delistings. Alibaba (BABA US), JD.com (JD US) both fall 5%. U.S. casinos stocks are also lower in premarket, with multiple headwinds weighing on the sector, including inflation, while listed names with exposure to Macau face additional pressure from surging Covid cases in China’s Guangdong province and in Hong Kong. Wynn Resorts (WYNN US) -1.8%; Las Vegas Sands (LVS US) and MGM Resorts (MGM US) also down in thin trade. Meanwhile, Apple is down 1.6% after supplier Foxconn announced it was halting operations at its Shenzhen sites, one of which produces iPhones, in response to a government- imposed lockdown on the tech-hub city. Apple +0.2% in premarket. Besides all the geopolitical chaos, this week’s main focus will be on the Fed’s policy meeting, with traders expecting a quarter percentage-point rate hike. “There is little a central bank can do about commodity prices -- Fed Chair Powell can hardly dig an oil well in the middle of Washington D.C.,” said Paul Donovan, chief economist at UBS Global Wealth Management. “The concern will be about second-round effects -- prices encouraging higher wage costs.” In Europe, the Stoxx 600 was 1.7% higher with automakers and banks leading gains, while miners and energy stocks underperformed.  Tech investor Prosus falls as much as 11% in Amsterdam, the most since March 2020 and touching a record low, following a continued selloff in Chinese technology shares as concerns about Beijing’s close relationship with Russia added to worries over regulatory headwinds. Naspers, which holds a 29% stake in Chinese online giant Tencent through Prosus, slides as much as 15% in Johannesburg, the steepest plunge since November 2000. Here are some of the biggest European movers today: VW preference shares jump as much as 8.7% in Frankfurt and are among the top performers in a buoyant Stoxx 600 Automobiles & Parts Index after the carmaker pre-released results late Friday. Stifel called it a strong fourth quarter and a “surprisingly confident” outlook. Uniper gains as much as 11%; the power plant operator might benefit from the U.K. government’s potential plans to extend the life of coal-fired power plants, RBC says. Telecom Italia shares rise as much as 9.7% after the firm agreed to a deeper review of KKR’s takeover proposal and said it will ask the private equity giant for more details about its business plan. Phoenix Group shares rise as much as 3.7% after reporting full-year results, with Peel Hunt saying the insurer’s cash generation was “better than expected.” Danone rises as much as 5.6% after Bernstein says the French yogurt maker “seems to be doing everything right” under new management. The brokerage raises its recommendation on Danone and downgrades Reckitt and Unilever. Prosus shares fall as much as 11% in Amsterdam, the most since March 2020, following a continued selloff in Chinese technology shares as concerns about Beijing’s close relationship with Russia added to worries over regulatory headwinds Sanofi slumps as much as 6.2% after the French drugmaker says its mid- stage trial for amcenestrant in breast cancer didn’t meet the primary endpoint. Basic resources shares drop in Europe as commodity prices decline, underperforming the benchmark Stoxx Europe 600, which is gaining on Monday. Rio Tinto falls as much -4.2%, Glencore -4.5%, Anglo American -5.3% lead drop in the Stoxx Europe 600 basic resources sub-index. As noted above, Asian stocks plunged, led by a record 11% plunge in Chinese tech shares as a lockdown in Shenzhen added to woes including Beijing’s crackdown on the sector and mounting concerns about the economic fallout from sanctions on Russia. The MSCI Asia Pacific Index dropped as much as 1.5% to reach a low last seen September 2020, with heavyweights Alibaba and Tencent diving 11% and 9.8%, respectively. The Hang Seng Tech Index plunged 11% after the southern city of Shenzhen, a key tech hub near Hong Kong, was placed into lockdown to contain rising Covid-19 infections. The broader Hang Seng Index lost 5%. “The latest coronavirus outbreak is raising uncertainties over the Chinese economic outlook while high commodity prices are a drag for the Chinese economy no less than for many other countries, limiting the room for monetary easing,” said Aw Hsi Lien, a strategist at Tokai Tokyo Research. “There’re rising perceptions that this year’s growth target of 5.5% is becoming difficult to achieve.”    Investors also remain on edge over risks for Chinese companies stemming from U.S. actions due to Russia’s invasion of Ukraine. Sentiment was also rattled late last week as U.S. regulators identified Chinese companies that could be kicked off exchanges if they fail to open their books to U.S. auditors. While the delisting risk has been known since last year, the Securities and Exchange Commission’s list served as a “wake up call,” said Willer Chen, an analyst at Forsyth Barr Asia Ltd. “I see no way to solve the dispute” between the U.S. and China under current policies, he said.  The historic sell-off in China also drove many peer Asian equity gauges into the red. Still, shares in resource-rich Australia gained and Japan’s Topix climbed amid expected benefits for exporters from the yen’s fall to a five-year low near 118 per dollar. Japanese equities climbed, rebounding after last week’s losses, as a weaker yen bolstered the outlook for exporters and a decline in oil provided a respite amid recent inflation concerns. Auto makers and banks were the biggest boosts to the Topix, which gained 0.7%. Tokyo Electron and Advantest were the largest contributors to a 0.6% rise in the Nikkei 225. The yen approached 118 per dollar, extending its loss after weakening more than 2% last week.  The Nikkei 225 dropped 3.2% last week, its worst since November, while the Topix fell 2.5%. In addition to developments on Russia’s war in Ukraine, investors this week will be monitoring monetary-policy decisions from the Bank of Japan and Federal Reserve. “As Japan’s economy and wage growth are more subdued than in the U.S., and, thus, the BOJ will be slower to tighten than the Fed, the yen may well trend weaker, although any move beyond 120 would not be encouraged by officials,” Nikko Asset Management strategist John Vail wrote in a note. In FX, the Bloomberg Dollar Spot Index inched inched lower and the greenback traded mixed against its Group-of-10 peers. European currencies, lead by the Swedish krona and Norwegian krone, were the best performers while the Australian and New Zealand dollars, as well as the yen, fell. Sweden’s krona rallied as much as 1.8% as sentiment improved and as economists expect the country’s central bank to make a policy U-turn later this year, after inflation reached a new 28-year high last month and as price increases are seen accelerating on the fallout from Russia’s invasion of Ukraine The pound was steady after falling to November 2020 lows on Friday, while gilts slumped. Focus this week will be on the Bank of England, which is expected to raise interest rates for a third time in a bid to control inflation. The yen fell to a five-year low against the dollar as traders boosted bets on the pace of the Federal Reserve’s rate hikes this year amid accelerating U.S. inflation and as risk reversals backed a less-favorable outlook for the Japanese currency. Australia’s dollar dropped for a second day as oil and iron ore lead commodity prices lower, while sliding Chinese equities weighed on risk sentiment. In rates, as noted above, Treasuries sold off, led by the belly, following wider losses across bunds as core European rates aggressively bear-steepen. Treasuries and the 5-year Treasury yield topped 2% for the first time since May 2019 while the yield on 10-year Treasuries rose to 2.10%, the highest since July 2019, before easing back to 2.06%. The US front-end slightly outperforms, steepening 2s5s and 2s10s spreads by 1.7bp and 1.3bp. IG dollar issuance slate empty so far; volumes projected for the week are around $30b, following one of the busiest weeks on record In commodities, WTI drifts ~5% lower to trade at around $103. Brent falls more than 4% to the $107 level. Spot gold falls roughly $27 to trade near $1,962/oz. Spot silver loses 2.6% near $25. Most base metals trade in the red; LME aluminum falls 3.6%, underperforming peers. Bitcoin was initially subdued beneath USD 38,000 ahead of an EU vote on environmental sustainability standards measure that could lead to a ban on Bitcoin, but later recovered with support also seen following a tweet from Elon Musk. Elon Musk tweeted "I still own & won’t sell my Bitcoin, Ethereum or Doge fwiw". Japan demanded that cryptocurrency transactions be blocked if they are sanctions related. Besidesall that, it is a quiet start to thge week with no macro news on today's calendar. Market Snapshot S&P 500 futures up 0.5% to 4,223.50 STOXX Europe 600 up 0.4% to 433.05 German 10Y yield little changed at 0.31% Euro up 0.4% to $1.0952 MXAP down 1.4% to 168.91 MXAPJ down 2.1% to 549.22 Nikkei up 0.6% to 25,307.85 Topix up 0.7% to 1,812.28 Hang Seng Index down 5.0% to 19,531.66 Shanghai Composite down 2.6% to 3,223.53 Sensex up 1.2% to 56,207.96 Australia S&P/ASX 200 up 1.2% to 7,149.40 Kospi down 0.6% to 2,645.65 Brent Futures down 2.7% to $109.60/bbl Gold spot down 0.8% to $1,971.65 U.S. Dollar Index down 0.21% to 98.92 Top Overnight News from Bloomberg The U.S. and China plan to hold their first high-level, in- person talks since Moscow’s invasion on Monday. The meeting comes after China rejected accusations by U.S. officials that Russia had asked it for military equipment to support the invasion of Ukraine Chinese stocks listed in Hong Kong had their worst day since the global financial crisis, as concerns over Beijing’s close relationship with Russia and renewed regulatory risks sparked panic selling Global bond markets are flirting with a 10% drawdown for the first time in over a decade as surging inflation forces yields higher. The Bloomberg Global Aggregate Index, a benchmark for government and corporate debt, has fallen about 9.9% from a high in early 2021, the biggest decline from a peak since 2008, the data show Already pivoting to tightening monetary policy amid the fastest consumer price gains in four decades, Fed Chair Jerome Powell and colleagues now have to deal with the economic fallout of the war, which threatens to deliver the twin blows of weaker growth and even-quicker inflation ECB Governing Council member Martins Kazaks says “it’s very possible that the bond-buying program will end in the third quarter” Germany’s coronavirus infection rate hit a record for the third straight day on Monday, with the renewed surge prompting the country’s top health official to issue a grim warning Leveraged fund net short aggregate Treasuries bets across the curve have hit the highest in over a year, the latest CFTC data show. The U.S. Treasury market just endured one of its worst weeks of the past decade, with yields propelling toward their highest levels of the past year thanks to worsening inflation and the imminent expected shift in policy The yen’s plunge to a five-year low shows no signs of easing as surging commodity prices have worsened the outlook for Japan’s trade balance and put pressure on the currency’s haven credentials. The nation is a net importer of a long list of raw materials from crude oil and grains to metals, exposing it to higher costs as prices of all these have risen due to sanctions imposed on Russia over its invasion of Ukraine Russia has already lost access to almost half of its reserves and sees more risks to President Vladimir Putin’s war chest due to increased pressure from the West on China, said Finance Minister Anton Siluanov Nickel’s 250% price spike in little more than 24 hours plunged the industry into chaos, triggering billions of dollars in losses for traders who bet the wrong way and leading the London Metal Exchange to suspend trading for the first time in three decades. It marked the first major market failure since Russia’s invasion of Ukraine jolted global markets, showing how the removal of one of the world’s largest exporters of resources from the financial system in the space of weeks is having ripple effects across the world A more detailed look at global markets courtesy of newsquawk Asia-Pacific stocks were somewhat mixed as participants digested varied geopolitical headlines ahead of key risk events. ASX 200 was underpinned by strength in its largest-weighted financial sector and encouragement from M&A related headlines. Nikkei 225 benefitted from further currency weakness but failed to hold above the 25,500 level. Hang Seng and Shanghai Comp. were pressured amid several headwinds, including COVID-19 concerns with the technology hub of Shenzhen under a one-week lockdown, which pressured tech and weighed on Macau casino names, as well as dragged the Hong Kong benchmark beneath the 20K level for the first time since 2016 Top Asian News Developers Sink After Weak Home Mortgage Data: Evergrande Update Marcos Keeps Big Lead in Philippine Presidential Survey Funds Managing $130 Trillion Target Lobbying in Climate Plan Hang Seng China Stock Gauge Sinks 7.2%, Most Since Nov. 2008 China Locks Down Shenzhen, Entire Jilin Province as Covid Swells European bourses are firmer, Euro Stoxx 50 +2.1%, following a mixed APAC handover amid conflicting headlines as we await details of the latest Ukrainian-Russia talks. Stateside, US futures are firmer across the board but with magnitudes more contained, ES +0.9%, ahead of multiple risk events. Sectors in Europe are mostly firmer though some of the more defensive names are lagging modestly, Autos outperform post-Volkswagen Top European News European Gas Slumps as Russia, Ukraine to Hold Further Talks British Airways-Operator Comair Still Grounded in South Africa Funds Managing $130 Trillion Target Lobbying in Climate Plan ECB’s Kazaks: ‘Very Possible’ Net Bond-Buying Will End in 3Q U.S.-Listed Chinese Stocks Sink Again as China-Russia Ties Weigh In FX, Aussie bears the brunt of reversal in commodity prices; AUD/USD hovering around 0.7250 ahead of RBA minutes tomorrow. Yen extends decline on yield and BoJ policy divergence towards 118.00 vs the Dollar. Euro rebounds with risk appetite amidst hopes of constructive Russian-Ukrainian dialogue; EUR/USD finds support around 1.0900 where 1.84bln option expiries reside to trade above 1.0960. Rouble firmer on the premise that positive words will speak louder than negative actions. Yuan depreciates as Covid cases mount in China and PBoC sets a weaker than expected onshore midpoint rate, USD/CNH probes 6.3800 at one stage. Swedish Crown strong in line with latest inflation data and hawkish Riksbank rate calls from Nordea and SEB, EUR/SEK tests Fib support circa 10.5252 In commodities, WTI and Brent continue to unwind geopolitical premia amid mixed Russia-Ukraine developments and the possibility of progress soon. Currently, benchmarks lie near fresh lows of USD 103.42/bbl and USD 107.59/bbl respectively, further impeded by IEA's Birol. Iraq set April Basrah medium OSP to Asia at Oman/Dubai + USD 3.50/bbl, OSP to Europe at Dated Brent - USD 3.05/bbl and OSP to North and South America. UK PM Johnson is seeking a mega oil deal with the Saudis and is pushing for solar and nuclear energy to cut reliance on foreign oil, while the UK is also considering keeping some coal-fired power stations operational, according to Express and The Times. IEA Chief Birol says responsible producers should increase oil output. French PM Castex said the government will offer EUR 0.15/litre rebate on petrol prices from April to counter high prices with the rebate on fuel to last four months and is expected to cost around EUR 2bln. Japanese PM Kishida will look at measures for high oil prices and raw material food prices whilst watching the situation carefully, according to the Japanese ruling party secretary general; subsequently, Japanese government is to increase the petrol subsidy to around JPY 24/litre and close to the ceiling of JPY 25/litre. Gazprom says it is continuing shipping gas to Europe via Ukraine, Monday's volume is broadly unchanged at 109.5mln cubic metres; does not intend holding spot gas sale sessions on its electronic sales platform this week. China is planning to boost its coal output by as much as it imports. Spot gold and silver are pressured unwinding safe-haven appeal in-fitting with other typical havens In Fixed income, the debt rout rages on on as futures take out near term technical supports and yields reach or breach psychological levels. Curves continue to steepen on resurgent risk sentiment rather than any read respite from sharp retracement in crude prices. USTs and Gilts anticipating tightening from the Fed and BoE later this week. US Event Calendar Nothing major scheduled DB's Jim Reid concludes the overnight wrap I've tried to keep the introductory paragraphs fairly sober in recent weeks as the challenging time for the world doesn't really need my flippancy. However I have to share with you this morning that 5 minutes before I started typing this I started walking again for the first time in 6 weeks. The crutches were left by the bed and my morning coffee made without hopping between the cupboard, the sink and the fridge, and then working out how to get my coffee back upstairs while on crutches. It's amazing how good normality felt. Fingers crossed this operation will buy me a few years before knee replacement. We will see. The newsflow didn't look good late on Friday as some earlier positive signs on the conflict talks petered out. In terms of developments there was mixed news last night though as on the positive side some progress seemed to be made on talks, but on the negative side the FT reported that US officials suggested that Russia have asked China for military and economic assistance since the invasion began. The article said that the officials didn't details China's response but this came just few hours after White House officials announced that a high-level delegation from the US would meet with a top Chinese official in Rome today. On the positive side however, Ukrainian negotiator and presidential adviser Mykhailo Podolyak tweeted and posted a video online saying, "Russia is already beginning to talk constructively... ... I think that we will achieve some results literally in a matter of days,". A Russian delegate echoed the sentiment and US Deputy Secretary of State Wendy Sherman also highlighted that Russia was showing signs of willingness to engage in substantive negotiations. DM equity futures are making modest gains in Asia with contracts on the S&P 500 (+0.59%), Nasdaq (+0.35% and DAX (+0.59%) all trading higher. US Treasuries are seeing a pretty big move for an Asian session with the 5-yr yield (+6.3bps) moving above 2% for the first time since May 2019 whilst the 10-yr yield is up +5.3bps to 2.044%. Elsewhere Brent futures (-1.93%) are down to $110.50/bbl while WTI futures (-2.41%) are at $106.70/bbl. Asian equity markets are mostly trading lower though as we start the week following the broadly negative cues from Wall Street on Friday. The Hang Seng (-3.81%) is leading losses across the region with Chinese tech stocks again seeing major declines. Shares in mainland China are also weak with the Shanghai Composite (-1.30%) and CSI (-1.73%) both in negative territory after the southern Chinese tech hub Shenzhen was put under a citywide lockdown over the weekend to slow an outbreak of Covid-19. Elsewhere, the Kospi (-0.72%) is down but the Nikkei (+0.95%) is trading up this morning, reversing its previous session's losses. Coming back to the Covid news, the Chinese authorities have placed 17.5 million residents of Shenzhen under lockdown after the city reported 66 fresh Covid cases on Sunday while the nationwide official figure nearly doubled to 3,400. The lockdown and suspension of public transport will last until March 20 and will be accompanied by three rounds of mass testing of residents. At the same time, the surge in cases across China has also prompted the authorities to shut schools for students from kindergarten through middle schools next week in Shanghai. In the neighbouring Hong Kong, the health authorities reported 32,430 new Covid-cases on Sunday with city leader Carrie Lam highlighting that the outbreak has not past its peak yet despite recent number of daily cases “slightly levelling off”. Looking forward now, and as we all know it's a big central bank week with the Fed the obvious focal point mid-week. The BoE and the BoJ also hold meetings, along with some of their emerging markets counterparts. We'll also see CPI for Japan and Canada and a number of housing market statistics in the US and China. Earnings will include Volkswagen, FedEx and Enel, among others. Wednesday will also be a landmark day even outside of the Fed as this is the date that two Russian Eurobonds have coupon payments. These are small (c.$120bn out of c.$1.75bn of annual hard currency coupons) but will be hugely symbolic. Speaking to one of our EM strategists, Christian Wietoska, and one of our European economists, Peter Sidorov, over the weekend their view was that this would likely mark the start of the 30-day grace period that issuers have before a default is officially triggered. 30-days still gives time for there to be a negotiated end to the war and therefore this probably isn't yet the moment where we see where the full stresses in the financial system might reside. There has already been a huge mark to market loss already anyway with news coming through or write downs. However this is clearly an important story to watch. Onto the Fed now and the FOMC concludes on Wednesday, with the Fed expected to raise rates for the first time since December 2018. Markets are pricing in a +25bps hike, in line with the rhetoric from Chair Powell at his congressional testimonies a couple of weeks back. Before the invasion we thought a 50bps was likely this week and the problem is that by delaying such a move they may have to do more later. The market seems to agree to some degree as at Friday's close the market was pricing in 6.7 hikes this year, the most seen in this cycle and above the post invasion intra-day lows of 4.45. This morning we are at 6.92. A full preview from our US economists is available here. With regards to QT, they anticipate that the Fed will use this upcoming meeting to announce caps determining the maximum monthly runoff and, in May, announce QT that would begin in June. They think we will see $800bn of runoff this year and an additional $1.1tn drawdown in 2023, a cumulative reduction we think is roughly equal to between three and four rate increases (see "QT update: The sooner the better"). The fascinating thing for me is what this does to the yield curve if they are correct. For me nirvana for the Fed is getting to around neutral, somewhere with a 2 handle on Fed Funds and trying to ensure that 10yr yields rise enough to prevent inversion but not enough to lead to a tightening of financial conditions. So if in 12-18 months time 2 year yields are 2.25-2.5%, 10 year yields are 2.75-3% and inflation is coming back towards trend then the Fed have pulled off a masterstroke. If however, 2yr yields are above 2% and 10yr yields below this level, the inversion will likely bite. On the other hand, if the curve steepens up too much and longer end yields are notably above 3% the risk is that financial conditions tighten too much given the global debt load. So the Fed are trying to thread a needle and its possible inflation will give them an impossible task. Time will tell. Ahead of the Fed watch out for US PPI (Tuesday) and Retail Sales (Wednesday). They are highly unlikely to change the equation for this FOMC but will be important for the direction of the economy and inflation thereafter. We also get a plethora of US housing data to end the week with Thursday's housing starts and Friday's existing homes sales. These are going to be important for both activity and the rents component in CPI. Back to central banks and on Thursday, it will be the BoE's turn. Our UK economist previews the meeting here, and is expecting a +25bps hike to 0.75%, the pre-pandemic level. Their projected terminal rate is 1.75%. Finally, on Friday, the Bank of Japan will hold a meeting as well and a preview can be found here. The central bank is expected to hold the key rate steady but there is a chance of economic assessment being downgraded. The Bank of Russia's decision on the same day will be scrutinised for the response to risks to the economy from the ongoing geopolitical turmoil. Back to the week that was now. The war in Ukraine raged on, while negotiations continued to generate little tangible progress as leaders managed expectations down for any near-term resolution. However, there were various green shoots throughout the week when it appeared both Ukrainian and Russian officials left some room for compromise from their original positions. The glimmers of hope on the war front, along with a more hawkish-than-expected ECB sent sovereign bond yields higher on both sides of the Atlantic this week. Positive news about the supply of oil and gas sent futures lower on the week, despite the US and UK moving to restrict Russian imports. Oil and European natural gas prices fell -5.07% (+3.05% Friday) and -30.15% (+3.82% Friday) over the week, following a proclamation from President Putin that Russia would honor its energy export commitments, instead of unilaterally cutting off supply in retaliation to sanctions. For its part, the Iraqi oil minister noted OPEC would increase oil production were supply to reach scarcity levels. The other major story on the week was the ECB meeting, where the central bank signaled more focus on price stability than the potential downside impact to growth from the war. The governing council announced an accelerated tapering of its APP purchases, which would end in Q3, maintaining the option for increases to their policy benchmark rate sometime thereafter should the data merit. The ECB also updated their forecast for 2022 inflation to 5.1 percent and 2.1 percent for 2023. The tighter than expected policy stance gave rise to higher sovereign bond yields on both sides of the Atlantic, with 10yr bunds, OATs, gilts, and Treasuries rising +31.8bps (-2.5bps Friday), +28.9bps (-2.6bps Friday), +28.3bps (-3.2xbps Friday), and +26.1bps (+0.5bps Friday), respectively. For 10yr bunds that was the largest weekly gain since June 2015, 10yr gilts the largest weekly gain since September 2017, September 2019 for Treasuries, and March 2020 for OATs. Money markets ended the week pricing +40.5bps of ECB tightening this year, up from +24.1bps of tightening at last week’s close. European equities latched on to this week’s marginally more optimistic news, with the STOXX 600 finishing +2.23% (+0.95% Friday), the first weekly gain in a month. The DAX and CAC also finished the week +4.07% (+1.38% Friday) and +3.28% (+0.85% Friday) higher, respectively. US investors proved more pessimistic, with the S&P 500 retreating -2.88% (-1.30% Friday), with tech underperforming again, as the NASDAQ fell -3.53% (-2.18% Friday). The US indices took a leg lower Friday afternoon after Europe called it a week when Ukrainian leadership didn’t strike as optimistic a tone as Russian leaders surrounding the prospects of negotiations, as well as reports that Belarussian troops were about to join the invasion of Ukraine. University of Michigan consumer inflation expectations for the next year increased to 5.4 percent, above expectations of 5.1 percent on Friday. This followed the February US CPI data which showed headline and core measures increasing to their highest readings in four decades, which would have headlined just about any other week. In line with this, market-based measures of inflation expectations increased, with 10yr Treasury breakevens widening +27.3bps on the week. Tyler Durden Mon, 03/14/2022 - 08:15.....»»

Category: blogSource: zerohedgeMar 14th, 2022

Futures Recover Overnight Losses After Torrid Thursday Rally As Uneasy Calm Returns

Futures Recover Overnight Losses After Torrid Thursday Rally As Uneasy Calm Returns After yesterday's furious gamma-squeeze rally, U.S. stock futures were slightly lower on the day, although near the overnight session highs as the ongoing Ukraine conflict and impact of Western sanctions continue to drive risk; sentiment was boosted after the Kremlin said that Ukraine’s neutrality offer is a move “toward positive” and following reports that China's president Xi held a phone call with Putin who said Russia is willing to conduct high-level negotiations with Ukraine. S&P futures were down 10 points to 0.25% at 7:30am, after paring earlier declines of more than 1%, with Nasdaq futures down -0.15% and Dow futures down 0.4%. Europe's Stoxx Europe 600 was in the green, and oil was steady after Bloomberg reported that oil importers in China are briefly pausing new seaborne purchases as they assess the potential implications of handling the shipments following the Ukraine invasion. Gold was steady, while Brent crude reached $100 a barrel and Treasuries rose. In the latest developments, Ukraine’s president Zelensky said Moscow-led forces were continuing attacks on military and civilian targets on the second day of their invasion. Leaders from the North Atlantic Treaty Organization will hold virtual talks on the alliance’s next steps starting at 3 p.m. in Brussels. Meanwhile, President Joe Biden imposed stiffer sanctions on Russia, promising to inflict a “severe cost on the Russian economy” that will hamper its ability to do business in foreign currencies after Moscow-led forces attacked military targets in Ukraine, triggering the worst security crisis in Europe since World War II. China urged Russia and Ukraine to negotiate to address problems, according to Chinese state TV.  Here is a full recap of the latest Ukraine developments: There were reports of heavy explosions rocking the Ukrainian capital of Kyiv and US Senator Rubio tweeted it appeared that at least three dozen missiles were fired at the Kyiv are in 40 minutes, while Ukrainian Foreign Minister Kuleba confirmed Russian rockets fired at Kyiv and President Zelensky also noted Russia resumed missile strikes at 04:00 local time/02:00GMT. Russia has not undertaken missile strikes on Kyiv, according to Russian press citing a source in the Defence Ministry. There is currently gunfire in Kyiv with Russians in the City, according to a reporter (08:45GMT/03:45EST) Gunfire has been heard near the government quarter of Kyiv, Ukraine, via LBC News (09:09GMT/04:09EST) Ukrainian military vehicles seized by Russian troops wearing Ukrainian uniforms, heading for Kyiv, defense official says - UNIAN, cited by BNO News. Russian paratroopers take control of Chernobyl nuclear power plant, according to the Ministry of Defence cited by Sputnik. Additionally, Ukraine nuclear agency says it is seeing higher radiation levels in Chernobyl; note, Sky News reports that the increase is insignificant and is due to military vehicles moving around the reactor. Ukraine President adviser says that Ukraine wants peace, if negotiations are still possible, they should be undertaken. Subsequently, Russian Foreign Minister Lavrov says that Ukraine President Zelenskiy is "lying" when he says he is prepared to discuss the neutral status of Ukraine; however, the Kremlin says it has taken note of Kyiv's willingness to discuss neutral status; will need to analyze this. Ukraine President Zelensky says the Russian assault is like a repeat of WW2, accuses Europe of an insufficient reaction, Europe can still stop the Russian aggression if they act quickly. Ukrainian President Zelensky has proposed Russian President Putin joins him at the negotiating table, according to Ria. In premarket trading, Block jumped after fourth-quarter sales beat consensus, while Coinbase dropped after warning that trading volume will decline in the first quarter. Zscaler slumped 13% after the security software company’s second-quarter results failed to live up to the most optimistic expectations, even though they beat estimates. Analysts slashed their price targets, including a new Street-low at Barclays. Here are some of the other notable U.S. premarket movers today: Block Inc. (SQ US) shares climb 15% in U.S. premarket trading after the firm posted fourth-quarter sales that beat Street consensus. Analysts say the results are a relief, supported by “impressive” Cash App figures. Coinbase Global Inc. (COIN US) shares were 1.6% lower in premarket trading after the biggest U.S. cryptocurrency exchange cautioned that trading volume will decline in the first quarter. Etsy (ETSY US) shares are up about 18% in premarket trading, after the e- commerce company reported fourth-quarter results that featured better-than-expected revenue and gross merchandise sales. It also gave a forecast. Beyond Meat (BYND US) shares dropped 10% in premarket as analyst questioned its profitability outlook and pricing strategy after the maker of plant-based foods forecast sales that missed market expectations. KAR Auction Services (CVNA US) climbs 50% in U.S. premarket after agreeing to sell its Adesa U.S. physical auction business to Carvana for $2.2 billion in cash. Truist Securities sees positive implications for both stocks. Farfetch (FTCH US) shares rally 27% in premarket trading after co. posted a smaller-than-expected 4Q loss. A prolonged conflict could deliver a major blow to global markets and slow the normalization of central bank policy that’s expected this year. Wall Street strategists cut their forecasts on European equities on concern that the war in Ukraine will hurt economic growth, with Goldman Sachs Group Inc. expecting virtually no full-year returns. A the same time, disruptions of raw materials and food could stoke already-high prices and heap pressure on central banks to act faster to curb inflation. Russia remains a commodity powerhouse and Ukraine is a major grain exporter. Markets still see around six quarter-point increases by the Federal Reserve, but bets on other central bank’s hiking cycles have been pared in recent days. “This conflict implies a further deterioration of the already tricky growth-inflation trade-offs central banks have been facing, making the upcoming decisions particularly hard,” Silvia Dall’Angelo, senior economist at the international business of Federated Hermes, wrote in a note to clients. “Downside growth risks from the geopolitical backdrop mean that they are likely to proceed gradually and cautiously.” Penalties by the U.S. and its allies spared Russia’s oil exports and avoided blocking access to the Swift global payment network. With flows of natural gas returning to Europe, prices reversed a record-breaking rally with the benchmark contract down as much as 28%. European stocks climbed as investors bought the dip after a volatile week led by developments on the Ukrainian front. Stocks trade at session highs after the Kremlin says that Ukraine’s neutrality offer is a move “toward positive” while oil slips to session low. U.S. futures decline. Euro Stoxx 50 rallies 1.2%. FTSE 100 outperforms, adding 1.8%, IBEX lags, adding 0.9%. CAC 40 up 1.3%. Utilities, real estate and food & beverages are the strongest sectors. Russia’s MOEX index rebounds, rising ~15%. Here are some of the biggest European movers today: European shares in sectors that were beaten down by Russia risk on Thursday rebound, with travel and basic resource stocks among the top gainers, as well as banks with exposure to eastern Europe. Bank Polska Kasa Opieki +14%, Dino Polska +7.3%, Polymetal International +7.5%, Wizz Air +5.8% The European utility sector leads gains among subindexes on the Stoxx 600, gaining about 5%, after European natural gas prices halted their rally rally, as Russian flows to the continent ramped up. Rightmove shares rise as much as 7.4% after the online property listings firm reported FY revenue growth of 48% from a year earlier. The results show encouraging momentum into 2022, Numis says. Pearson has its biggest gain in almost a year, rising 11% after results. Goldman Sachs notes the education publisher’s adjusted operating profit for FY22 was in line with market expectations. Freenet rises as much as 6.7% after results, the most since May, as analysts see positive profitability updates despite revenue weakness. Vallourec climbs as much as 20% after the French steel-pipe maker gave guidance that Oddo BHF calls “reassuring” in spite of incidents at a Brazil mine. Valeo falls as much as 12% in Paris after the French company set out targets for this year and 2025, with analysts noting 2022 guidance came in below expectations. BASF drops as much as 4.9% in Frankfurt after adjusted Ebit missed consensus and results show a squeeze on margins, Berenberg said. Swiss Re plunges as much as 8.4% after reporting results that missed analyst estimates. The insurer also proposed new targets that “don’t seem supportive enough,” Citi writes. Casino slumps as much as 17% to its lowest level in more than three decades after the French grocer reported FY results that Jefferies says showed “no progress” on deleveraging. An uneasy calm returned to Asia’s stock markets on Friday, as investors assessed the fallout of Russia’s invasion of Ukraine and the outlook for China’s tech sector. The MSCI Asia Pacific Index climbed as much as 1.2%, rallying from its worst drop in a year on Thursday. Weaker-than-expected U.S. sanctions on Russia supported market sentiment, helping lift tech and industrial shares. China’s tech stocks advanced even after Alibaba announced the slowest revenue growth since it went public.  Benchmarks in Japan and India were among the top performers. India’s Sensex turned from the biggest loser in Asia to the biggest winner on Friday. Hong Kong’s Hang Seng Index dropped as the city deals with record Covid-19 cases.  Asian equities “showed signs of excessive drops, so today’s rise appears to be a technical rebound,” Seo Jung-hun, a strategist at Samsung Securities, said by phone. “Markets will continue to face volatility as Russia-sparked risks, the Fed’s policy tightening and inflation issues still persist.” Federal Reserve Governor Christopher Waller said a half percentage-point increase in U.S. interest rates next month could be justified, although the Ukraine conflict has added to uncertainty. The Asian stock benchmark is set for its worst week this month, down almost 4%, and remains close to entering a bear market. Geopolitical risks, regulatory concerns for Chinese private enterprises and a relatively slower pace of earnings growth compared with the rest of the world are all weighing on sentiment Japanese equities climbed, sealing their first gain in six sessions, as blue chips led the charge following a late U.S. rally from the recent selloff in anticipation of Russia’s invasion of Ukraine. Electronics makers and telecoms were the biggest boosts to the Topix, which rose 1%. Tokyo Electron and SoftBank Group were the largest contributors to a 2% rise in the Nikkei 225. The yen retraced some of its 0.5% loss against the dollar overnight. “Expectations are spreading that the pace of rate hikes will be slowed down in the U.S. and Europe, considering the impact the Ukraine situation will have on the economy,” said Nobuhiko Kuramochi, a market strategist at Mizuho Securities In rates, treasuries were slightly cheaper across the curve, with yields higher by 1bp to 1.5bp from Thursday’s session close. U.S. 10-year yield around 1.975%, cheaper by 1bp on the day with bunds lagging a further 1bp following data including France CPI beat, while Estoxx rally 1.5%; gilts outperform by around 2bp vs. Treasuries. Treasuries pared an advance after Federal Reserve Governor Christopher Waller said a half percentage-point rate increase may be justified if economic data remain hot. European benchmark bonds traded steady to slightly lower. Gilts gained, led by the belly of the curve; Bank of England’s Huw Pill speaks later, with the pace of tightening in focus. IG dollar issuance slate empty so far; borrowers stepped away from debt sales Thursday leaving weekly total around $18b vs. $25b expected. German bunds bear-flatten on the back of a stronger-than-expected French CPI print, while money markets price as much as 42bps of ECB tightening in December, an increase of 5bps compared to Thursday. In FX, the Bloomberg Dollar Spot Index was little changed as the greenback traded mixed versus its Group-of-10 peers, though most currencies were confined to narrow ranges relative to yesterday’s moves. The Australian and New Zealand dollars led G-10 gains on short covering after Thursday’s plunge; The yen was also higher while the euro fell a third consecutive day to trade below $1.12 and the pound erased an early advance. Hedging costs in the major currencies turned south early Friday, but investors aren’t ready to shift bias into risk-on exposure. French consumer prices rose 4.1% in February from a year earlier versus 3.3% in January. That’s the strongest reading since the data series started in 1997. Economists had forecast a 3.7% advance. Currencies from the European Union’s east weakened against the euro and the dollar, but were far from levels reached Thursday. A gauge of one-week implied volatility in the dollar against the Taiwan dollar jumped to a six-month high on Friday while the Taiwan dollar slid to the weakest since October in the spot market. The conflict in Ukraine may raise the risk premium for China and Taiwan over the medium term, according to Morgan Stanley. In commodities, Brent trades around $99, while WTI slips below $93. Spot gold rises roughly $6 to trade near $1,910/oz.  European natural gas prices halt a record-breaking rally. Benchmark futures fell as much as 28%, after four consecutive days of gains. Most base metals trade in the red; LME aluminum falls 2.5%, underperforming peers. LME lead outperforms Looking at the day ahead, data highlights from the US include the personal income and personal spending data for January, preliminary durable goods orders and core capital goods orders for January, pending home sales for January, and the final University of Michigan consumer sentiment index for February. In Europe, we’ll also get the preliminary French CPI reading for February, and the Euro Area’s economic sentiment indicator for February. Market Snapshot S&P 500 futures down 1.1% to 4,237.75 MXAP up 1.0% to 181.44 MXAPJ up 0.8% to 593.50 Nikkei up 1.9% to 26,476.50 Topix up 1.0% to 1,876.24 Hang Seng Index down 0.6% to 22,767.18 Shanghai Composite up 0.6% to 3,451.41 Sensex up 2.5% to 55,878.05 Australia S&P/ASX 200 up 0.1% to 6,997.81 Kospi up 1.1% to 2,676.76 STOXX Europe 600 up 0.8% to 442.68 German 10Y yield little changed at 0.16% Euro down 0.2% to $1.1172 Brent Futures up 0.9% to $99.98/bbl Gold spot up 0.3% to $1,909.09 U.S. Dollar Index little changed at 97.18 Top Overnight News from Bloomberg Federal Reserve officials stuck to their resolve to raise interest rates next month despite uncertainty posed by Russia’s invasion of Ukraine, with at least one policy maker considering a half-point move Out of 18 potential red flags in Citi’s global Bear Market checklist, only seven are currently waving, far fewer than before bear markets of 2000 and 2007, strategists led by Beata Manthey wrote in a note. In Europe, the number of danger signs is only five, they said China’s Politburo vowed to strengthen macroeconomic policies to stabilize the economy this year, suggesting more support could be on the cards to boost growth ahead of a key leadership meeting later this year Russia still has about $300 billion of foreign currency held offshore - - enough to disrupt money markets if it’s frozen by sanctions or moved suddenly to avoid them China’s central bank ramped up its short-term liquidity injection in the banking system, providing support just as global markets are roiled by geopolitical tension A more detailed look at global markets courtesy of Newsquawk Asia-Pacific stocks mostly gained after the firm rebound on Wall St. ASX 200 was capped amid a slew of earnings and with outperformance in tech offset by weakness in miners and financials. Nikkei 225 outperformed and reclaimed the 26k status with exporters underpinned by a more favourable currency. KOSPI gained with index heavyweight Samsung Electronics underpinned as it launched global sales of its flagship smartphone and latest tablet which have attracted record pre-orders. Hang Seng and Shanghai Comp. were mixed with the mainland underpinned after the PBoC boosted its daily liquidity operation which resulted in the biggest weekly cash injection in more than two years. although Hong Kong was constrained by losses in the energy majors and with financials subdued amid pressure in HSBC shares and after China Communist Party inspections on financial institutions. Top Asian News China Pledges Stronger Economic Policies to Stabilize Growth China Leaves Russia’s War Off Front Pages as Xi Stays Silent Currency Traders Remain Vigilant Even as Hedging Costs Retreat Asian Stocks Gain as China Tech, India Rebound; Hong Kong Drops European bourses are firmer and back in proximity to initial best levels after losing traction shortly after the cash open, Euro Stoxx 50 +1.3%; FTSE 100 +1.9% outperforms amid Basic Resources strength. US futures are lower across the board, ES -0.9%, after yesterday's significant intra-day reversal to close positive; albeit, action has been rangebound within the European morning. US SEC's EDGAR feed is reportedly down; fillings cannot be made. In Europe, sectors are all in the green featuring noted outperformance in Utilities and  Basic Resources, Energy remains firmer in-spite of the crude benchmarks pullback Top European News Wall Street Cuts European Stock Targets as War Prompts Outflows U.K. Takes Aim at Russia’s Opaque Embrace of London Property UBS Triggers Margin Calls as Russia Bond Values Cut to Zero What to Watch in Commodities: Ukraine Impact Roiling Markets In FX, Aussie regroups alongside broad risk sentiment and rebound in Aud/Nzd cross amidst mixed NZ consumption and trade data - Aud/Usd near 0.7200 vs sub-0.7100 low yesterday. Buck bases after abrupt reversal from new 2022 highs in DXY terms and residual rebalancing may underpin alongside underlying safe haven bid - index above 97.000 again vs 96.770 low and 97.740 y-t-d best. Rouble supported by ongoing CBR intervention via higher repo auction cap - Usd/Rub around 84.000 compared to almost 90.000 record peak. Yen and Gold off best levels, but both retain elements of safety premium - Usd/Jpy circa 115.35 and Xau/ Usd hovering above Usd 1900/oz In commodities, WTI and Brent have continued to pull back after overnight consolidation, Brent April notably below USD 99.00/bbl vs USD 101.99/bbl highs. Focus remains firmly on geopolitics (see section above) while participants are also attentive to next week's OPEC+ meeting. Japan's Industry Minister said they will appropriately deal with an oil release from national reserves in cooperation with relevant countries and the IEA. Spot gold is rangebound after an initial move higher failed to gather steam and hit resistance at USD 1922/oz. Goldman Sachs recently commented that the rally for gold has a lot further to go on the situation in Ukraine and prices and that prices could reach as high at USD 2,350/oz if there is a build in demand for ETF. Geopolitical updates US Senior US administration official said the US still has room to further tighten sanctions if Russian aggression accelerates further and is keeping the option open to impose import-export controls on less advanced mainline chips such as those used in the Russian auto industry. European Commission President von der Leyen said steps agreed by EU leaders include financial sanctions and they are targeting 70% of the Russian banking market, as well as key state owned companies including defence. Furthermore, the export ban will impact Russia's oil sector by making it impossible to upgrade refineries and EU is limiting Russia's access to key technologies such as semiconductors. EU Council President Michel says they are urgently preparing additional sanctions against Russia, via AFP; subsequently, a German gov't spokesperson says a discussion of third sanctions package against Russia is in its early stages. French President Macron said EU sanctions will be followed by French national sanctions on certain people which are to be announced later, while they will offer EUR 300mln of aid to Ukraine and military equipment, as well as target Belarus for penalties. Russian Central Bank said it will provide any support needed for sanctions-hit banks and that banks have been well prepared in advance, while Ukraine's Central Bank banned operations with RUB and BYR, as well as banned banks from making payments to entities in Russia and Belarus. Russia may retaliate for UK ban on Aeroflot flights to Britain, according to Tass citing the aviation authority; subsequently, Russia banned London registered craft from its airspace. Russian Parliamentary Upper Chamber speaker says that Russia has prepared sanctions to hit the weak points of the West, according to Interfax. Australian PM Morrison announced the nation is to impose further sanctions on Russian individuals and said it is unacceptable that China is easing trade restrictions with Russia at this time. Taiwan will join democratic countries to put sanctions on Russia for invasion of Ukraine and Japanese PM Kishida said they will immediately impose sanctions in Russia in three areas including the financial sector and military equipment exports, while Russia's envoy to Japan later said there will be a serious Russian response to Japanese sanctions. UK Defence Minister Wallace says we would like to cut Russia off from SWIFT; French Finance Minister Le Maire says the option of cutting Russia off from SWIFT remains an option, but it a last resort. India is reportedly exploring setting up INR trade accounts with Russia to soften the blow on India from Russian sanctions, according to Reuters sources. Central Banks Fed's Waller (voter) said it is too soon to judge how Ukraine conflict will impact the world or US economy and concerted action to rein in inflation is needed. Waller said rates should be raised by 100bps by mid-year and there is a strong case for a 50bps hike in March if incoming data indicates economy is still exceedingly hot, but added it is possible a more modest tightening is appropriate in wake of Ukraine attack , while he also stated the Fed should start trimming the balance sheet no later than the July meeting, according to Reuters. ECB's Lane said there would be a significant increase to 2022 inflation forecast amid the Ukraine crisis but hinted at inflation below target at end of horizon according to Reuters sources; Lane presented several scenarios: Mild scenario: no impact to EZ GDP; seen as unlikely; Middle scenario: 0.3-0.4ppts shaved off EZ GDP; Severe scenario: EZ hit by almost 1ppt. Note, sources cited by Reuters suggested these were rough calculations. BoE's Mann says all of the MPC agree that UK inflation is way above the BoE's goal; Mann added that domestic demand is strong and UK labour market is tight. BoE agents survey has been fundamental in guiding Mann's view on policy. US Event Calendar 8:30am: Jan. Personal Income, est. -0.3%, prior 0.3% 8:30am: Jan. Personal Spending, est. 1.6%, prior -0.6% 8:30am: Jan. Real Personal Spending, est. 1.2%, prior -1.0% 8:30am: Jan. Cap Goods Orders Nondef Ex Air, est. 0.3%, prior 0.3% 8:30am: Jan. Cap Goods Ship Nondef Ex Air, est. 0.5%, prior 1.3% 8:30am: Jan. -Less Transportation, est. 0.4%, prior 0.6% 8:30am: Jan. PCE Deflator MoM, est. 0.6%, prior 0.4%; PCE Deflator YoY, est. 6.0%, prior 5.8% 8:30am: Jan. PCE Core Deflator MoM, est. 0.5%, prior 0.5%; PCE Core Deflator YoY, est. 5.2%, prior 4.9%; 8:30am: Jan. Durable Goods Orders, est. 1.0%, prior -0.7% 10am: Feb. U. of Mich. Sentiment, est. 61.7, prior 61.7; Current Conditions, est. 68.5, prior 68.5; Expectations, est. 57.3, prior 57.4 10am: Feb. U. of Mich. 1 Yr Inflation, prior 5.0% 10am: Feb. U. of Mich. 5-10 Yr Inflation, prior 3.1% 10am: Jan. Pending Home Sales (MoM), est. 0.2%, prior -3.8%; YoY, est. -1.8%, prior -6.6% DB's Jim Reid concludes the overnight wrap It's been a pretty seismic 36 hours and at some points yesterday the outlook for markets and economies felt very bleak. However remarkably after an 8 dollar round trip that first sent Brent crude over $105/bbl, oil (+2.31% on the day) eventually closed last night at $99.08 (still the highest since 2014), and only around the levels seen just before Russia launched the invasion just over 24 hours ago. It's edged up again in the Asian session to $100.75 as I type but the fact that oil stopped going parabolically higher helped turn the whole market around yesterday. Indeed markets hit peak pessimism around lunchtime in Europe but Biden not yet putting sanctions on Energy or restricting Russian access to SWIFT seemed to cap off a more positive tone thereafter. Indeed the S&P and Nasdaq rose +4.23% and +7.04% respectively from the opening lows to close up +1.50% and +3.34% on the day. A remarkable turnaround. S&P 500 (-0.53%) and Nasdaq (-0.76%) futures are down again this morning but this is still clearly well off the lows. If this event is going to have a lasting macro and market impact it has to hit energy prices and for much of yesterday it looked like it was on course to aggressively do so, and to be fair still might. European natural gas will be one to watch today as it soared +63.89% at its peak yesterday, only to fade towards the close to be 'only' up +33.31%. On a bigger picture basis the events of this week have to be forcing governments to think of their energy security in much more detail than they have in the past. Will it also impact the green transition? Surely it makes it more urgent in the medium-term but tougher to stick with in the short-term. Much will depend on what happens next for energy prices. Clearly the West may still put sanctions on this Russian supply which will undoubtedly risk a renewed spike in energy. Diving into yesterday. The intraday turnaround in asset prices followed clarity on what the west’s next round of sanctions would look like. The sanctions were expanded to more connected individuals and entities, were designed to cut off high-tech exports crucial to Russian defense and tech industries, impinge Russia’s ability to raise capital on foreign markets by restricting access and freezing assets of some of their largest banks, and restrict Russia’s ability to deal in dollars, yen, and euros. The sanctions not applied, however, drove an intraday turn in risk assets and reversed measures of inflation compensation. Namely, President Biden noted the sanctions package was specifically designed to allow energy payments to continue, and that the US would release strategic oil reserves as needed to help ameliorate price pressures. Further, they did not cut off Russia’s access to the international payments system, SWIFT, though maintained the option of doing so. Before the rally back there was a complete rout in numerous markets yesterday, and when it came to Russian assets there was frankly a capitulation, with the MOEX equity index (-32.28%) shedding more than a third of its value in a single day (-45.06% at the session lows). Bloomberg wrote a piece saying that the worst single day equity loss in their database for any country’s index was Argentina’s -53.1% fall in January 1990. In total, there have been seven worst days in stock market history than -33.3%. For what it’s worth, those equity declines are the sort that would trigger circuit breakers if they happened elsewhere. For example we couldn’t see that for the S&P 500 in a single day, since trading rules stipulate that there’s a complete halt for the day once you get to a -20% loss. On top of that, the Russian Ruble -5.15% hit a record low against the US dollar, after suffering its worst daily performance since the height of the Covid crisis back in March 2020. And yields on 10yr Russian sovereign debt were up by +435.0bps to 15.23%. The STOXX 600 fell -3.28% as it reached its lowest level since last May, with major losses for the other European indices including the FTSE 100 (-3.88%), the CAC 40 (-3.83%) and the DAX (-3.96%). With investors pricing in a less aggressive reaction function from central banks, sovereign bonds saw a decent rally yesterday, having also been supported by the dash for haven assets. However the moves didn’t match the severity of the flight to quality shock, even at the worse point of the day, as the real return consequence of buying government bonds at a yields of 0-2% was all too apparent with inflation rife. There was some big ranges though. 10yr US real yields were -27.7bps lower and breakevens +14.4bps wider as news of the invasion, and commensurate stagflation fears hit. However, the intraday turn around led to much more modest closing levels, with 10yr real yields -4.2bps lower and breakevens +1.5bps higher. 10yr nominal Treasury yields settled -2.8bps lower on the day at 1.96%. At shorter tenors, 5yr breakevens also displayed a remarkable intraday roundtrip, finishing +1.4bps higher after having hit an intraday peak +24.8bps wider at +3.39%, which would have been the highest reading on record. In Europe the breakeven widening was more sustained, and the 10yr German breakeven actually managed to close above 2% for the first time in over a decade yesterday, having climbed +12.9bps to +2.10%. Meanwhile nominal yields on 10yr bunds (-5.8bps), OATs (-7.0bps) and gilts (-3.2bps) all moved lower. Energy prices are going to continue to keep central bankers awake at night, since they can’t do anything about the supply issues directly. More shocks will lead to both lower growth (absent fiscal suppprt) and higher inflation, with the risk being that you start to see second-round effects if higher inflation becomes entrenched. Notably, one of the ECB’s biggest hawks, Robert Holzmann of Austria, said in a Bloomberg interview that the conflict meant “It’s possible however that the speed may now be somewhat delayed.” That was music to the ears of peripheral sovereign debt in particular, which rallied strongly on the news, with the Italian spread over 10yr bunds moving from an intraday high of 178bps to close at 164.5bps. In Asia the Nikkei (+1.63%), Kospi (+1.15%), Shanghai Composite (+0.54%), and the CSI (+0.78%) all are higher in line with the second half rally yesterday. Meanwhile, the Hang Seng (-0.16%) is lower. In economic data, overall inflation for Tokyo rose +1.0% y/y in February, its fastest pace of growth since December 2019, on higher energy prices and after an upwardly revised +0.6% increase in January. Bloomberg estimates were for a +0.7% rise. Excluding fresh food, consumer prices in Japan advanced +0.5% in February y/y, accelerating from a +0.2% increase in January and outpacing a +0.4% gain expected by analysts. In central banks news, the People’s Bank of China (PBOC) beefed up liquidity by injecting 300 billion yuan ($47.4 bn) into the financial system via 7-day reverse repos, amid concerns over the Russia-Ukraine conflict. For the week, the PBOC injected a net 760 billion yuan – the biggest weekly cash offering since January 2020. Data releases understandably took a back seat yesterday, but we did get the weekly initial jobless claims from the US for the week through February 19, which fell to 232k (vs. 235k expected). We also saw the continuing claims for the week through February 12 fall to a half-century low of 1.476m, a level unseen since 1970. Otherwise, new home sales in January fell to an annualised rate of 801k (vs. 803k expected), and the second estimate of Q4’s GDP was revised up by a tenth from the initial estimate to an annualised +7.0%. To the day ahead now, and data highlights from the US include the personal income and personal spending data for January, preliminary durable goods orders and core capital goods orders for January, pending home sales for January, and the final University of Michigan consumer sentiment index for February. In Europe, we’ll also get the preliminary French CPI reading for February, and the Euro Area’s economic sentiment indicator for February. Tyler Durden Fri, 02/25/2022 - 07:57.....»»

Category: smallbizSource: nytFeb 25th, 2022

Inflation Is A Policy That Cannot Last

Inflation Is A Policy That Cannot Last Via SchiffGold.com, Are we heading toward a Fed policy that fixes inflation at a permanent rate of five to six percent? We could be. But inflation is a policy that cannot last. We’re currently experiencing a massive wave of price inflation. This should come as no surprise. The Fed has increased the M2 money supply by around 40% since the end of 2019. The US government showered that newly created money on American consumers in the form of stimulus. Meanwhile, governments effectively shut down the US economy. That led to a big drop in production. This created the perfect inflationary storm. We have more money chasing fewer goods and services. Prices are rising. Now the Federal Reserve has a big problem. It needs to tighten monetary policy to take on inflation. But the economy depends on easy money. Economic growth is built on borrowing. Any significant tightening of monetary policy will pop the bubble and the whole house of cards will fall down. The Fed has finally abandoned the “transitory” inflation narrative and it appears to be getting more serious about addressing the issue. But how will the central bank really play this? In an article published by the Mises Wire, economist Thorsten Polleit asserts there are basically two scenarios in play. (1) The Fed means business; it really wants to lower consumer goods price inflation back toward the 2% mark. (2) The Fed just wants to keep inflation from spiraling out of control, but it does not want to abandon the new regime of increased inflation. Scenario (1) is not impossible, but it is relatively unlikely. Under the prevailing economic and political doctrine, the Fed is not meant to curb inflation at the expense of triggering another economic and financial crisis. Weighing the costs of a recession against the costs of higher inflation, the latter is considered the lesser evil, especially since many people have probably not lived through a period of high inflation and do not know much about the economic, social, and political damage caused by persistent higher inflation. Scenario (2) appears to be more likely. That means that the Fed would take its foot off the monetary policy accelerator a little—by reducing its monthly bond purchases (that is, reducing the rate of increasing the quantity of money) and/or raising interest rates. However, such tightening of policy would not be intended to cause a recession-depression to rebalance the economy. It would only intend to keep inflation from spinning out of control and, at the same time, allow inflation to settle at a higher level, in the range of 4 to 6 percent per year, permanently. Let that sink in for a moment. If Polleit is correct, we could be looking at prices increasing by up to 6% per year as a matter of policy. Polleit believes this would postpone the inevitable, but it would not solve the underlying problem – which is inflation. You can’t fight inflation with inflation. Ultimately, inflation (in the true sense of the word – the expanding money supply) cannot last. Economist Ludwig von Mises warned against such an inflation policy. With regard to these endeavors, we must emphasize three points. First: Inflationary or expansionist policy must result in overconsumption on the one hand and in mal-investment on the other. It thus squanders capital and impairs the future state of want-satisfaction. Second: The inflationary process does not remove the necessity of adjusting production and reallocating resources. It merely postpones it and thereby makes it more troublesome. Third: Inflation cannot be employed as a permanent policy because it must, when continued, finally result in a breakdown of the monetary system.” The question then becomes: how long until that inevitable breakdown occurs? Tyler Durden Sat, 12/25/2021 - 15:15.....»»

Category: blogSource: zerohedgeDec 25th, 2021

Futures Tumble, Oil And Treasury Yields Plunge As Lockdowns Return

Futures Tumble, Oil And Treasury Yields Plunge As Lockdowns Return Having briefly touched new all time highs of 4,723.5 overnight, S&P futures tumbled shortly after Europe opened as a fourth wave of the pandemic in Europe resulted in a new lockdown in Austria and the prospect of similar action in Germany wiped out earlier gains and forced stock markets down close to 1% as it overshadowed optimism about corporate earnings and the economic recovery. Friday is also a major options-expiry day, which could trigger volatility in equities. Two progressive Democratic senators said they oppose the renomination of Federal Reserve Chair Jerome Powell to a second term, because he "refuses to recognize climate change" joining Elizabeth Warren in urging President Joe Biden to choose someone else. S&P and Dow futures fell tracking losses in banks, airlines, and other economically sensitive sectors. Uncertainty over rising inflation and the Federal Reserve's tightening also kept demand for value stocks low. At 745am Dow e-minis were down 218 points, or 0.609%. S&P 500 e-minis were down 12.25 points, or 0.26% and Nasdaq 100 e-minis were up 68 points, or 0.41%. With the lockdown trade storming back, Nasdaq futures hit a record high on Friday as investors sought economically stable sectors after a small delay in voting on President Joe Biden's $1.75 trillion spending bill, while fears of Europe-wide lockdowns sent yields plunging. The U.S. House of Representatives early on Friday delayed an anticipated vote on passage of Biden's social programs and climate change investment bill, and will instead reconvene at 8 a.m. EST (1300 GMT) to complete the legislation “Everyone is holding his and her breath to find out who will be the next Fed Chair,” said Ipek Ozkardeskaya, senior analyst at Swissquote. “More or less dovish, will it really matter? The one that will take or keep the helm of the Fed will need to hike rates at some point.” Among major premarket movers, Intuit Inc jumped 10.3% as brokerages raised their price targets on the income tax software company after it beat quarterly estimates and raised forecast. The stock was the top S&P 500 gainer in premarket trade. Chipmaker Nvidia also boosted Nasdaq futures, rising 1.7% in heavy trade after posting strong quarterly results late Wednesday. On the other end, Applied Materials dropped 5.7% after the chipmaker forecast first-quarter sales and profit below market estimates on supply chain woes. Oil firms Exxon and Chevron slipped 2.1% and 1.8% as crude prices sank, while big banks including JPMorgan and Bank of America were down between 0.9% and 1.1%, tracking a fall in U.S. Treasury yields. Carriers Delta Air Lines, United Airlines and American Airlines and cruiseliners Norwegian Cruise Line and Carnival Corp fell between 1.4% and 2.3%. Here are all the other notable movers: Farfetch (FTCH US) shares drop 23% after the online apparel retailer reported 3Q revenue that missed estimates and trimmed its FY forecast for digital platform gross merchandise value growth. Analysts see scope for the shares to stay in the “penalty box” in the near term, but recommend buying on weakness. Workday (WDAY US) analysts say that the software firm’s strong quarterly results and guidance were not quite enough to meet high expectations. The stock dropped as much as 11% in extended trading on Thursday. Intuit (INTU US) climbed 9.7% in premarket as analysts said the tax software company posted strong results that were ahead of expectations and raised its outlook. Several increased their price targets for the stock, including a new Street high at Barclays. Palo Alto Networks (PANW US) shares rise 2.8% in U.S. premarket trading after the cyber- security firm reports results and hikes full-year sales guidance, with RBC saying co. saw a strong quarter. Tesla (TSLA US) shares dip 0.5% in premarket trading. The EV maker’s price target is raised to a joint Street-high at Wedbush, with the broker saying that the EV “revolution” presents a $5t market opportunity over the next decade. Datadog (DDOG US) rises 1.8% after it is upgraded to outperform from sector perform at RBC, with the broker saying that it has more conviction on the software firm following its TMIT conference. Mammoth Energy (TUSK US) jumps as much as 34% in U.S. premarket trading after the energy-services company said a subsidiary has been awarded a contract by a major utility to help build electric-vehicle charging station infrastructure. Ross Stores (ROST US) shares dropped 2.2% in postmarket trading on Thursday after its profit outlook for fourth quarter missed the average analyst estimate. In Europe, banks and carmakers led the Stoxx Europe 600 Index down 0.3%, reversing early gains. Fears of fresh lockdowns have hit travel stocks, but boosted the delivery sector and other pandemic winners, with German meal-kit company HelloFresh jumping as much as 7.1% to a record. Stoxx Europe 600 index tumbled after Germany’s health minister said he couldn’t rule out a lockdown as infections surge relentlessly in the region’s largest economy. That came after Austria said it would enter a nationwide lockdown from Monday. Here are some of the biggest European movers today: Ocado shares jump as much as 8.4%, the most intraday since November 2020, after a Deutsche Bank note on joint venture partner Marks & Spencer highlighted scope for a potential transaction. VGP shares gain as much as 7.7% to a record after KBC raised its rating to accumulate from hold, based on a “strong” 10-month trading update. HelloFresh shares surge as much as 7.1% and other lockdown beneficiaries including Delivery Hero, Logitech and Zalando gain after the German health minister says a lockdown can’t be ruled out. Mall landlords Unibail and Klepierre and duty-free retailer Dufry drop. Truecaller shares rise as much as 14% after it received its first analyst initiations after last month’s IPO. Analysts highlighted the company’s potential for continued strong growth. JPMorgan called current growth momentum “unparalleled.” Hermes shares jump as much as 5.2% to a fresh record, rising for a seventh day, amid optimism that the stock may be added to the Euro Stoxx 50 Index as soon as next month. Shares also rise after bullish current- trading comments of peer Prada. Kingfisher shares drop as much as 5.8%, even after the home-improvement retailer said it expects profit to be toward the higher end of its forecast. Investor focus has probably shifted to 2022, and Friday’s update doesn’t have any guidance for next year, according to Berenberg. GB Group shares tumble as much as 18%, the most since October 2016, after the identity-verification software company raised about GBP300m in a placing of new shares at a discount. Mode Global shares sink as much as 19%, reversing most of this week’s gains, after it said some brands had withdrawn the company as an affiliate. In Fx, the Bloomberg Dollar Spot Index jumped at the London open and the greenback was higher versus all of its Group-of-10 fears apart from yen. Norway’s krone was the biggest loser as energy prices prices dropped after Austria announced a nationwide lockdown starting on Monday, while Germany’s health minister refused to rule out closures in the country.  The pound fell on the back of a stronger dollar; data showed U.K. retail sales rose for the first time in six months as consumers snapped up toys, sports equipment and clothing, while the cost of servicing U.K. government debt more than tripled in October from a year earlier due to surging inflation The euro plunged by 1% to a new YTD low of $1.1255 as the repricing in the front-end of euro options suggests the common currency is settling within a new range. The euro is also falling at the end of the week following the announcement that Austria will begin a 20-day full Covid-19 lockdown from Monday in response to surging case numbers which have far surpassed last year's peak. While fatalities remains well below the peak, they are accelerating and the government is clearly keen to arrest it before the situation potentially becomes much worse. With Germany seeing a similar trend, the question now becomes whether the regions largest economy will follow the same path. Its Health Minister, Jens Spahn, today suggested nothing can be ruled out and that they are in a national emergency. In rates, Treasury yields fell by around 4bps across the board and the bunds yield curve bull flattened, with money markets pushing back bets on a 10bps ECB rate hike further into 2023. Treasury 10-year yields richer by 4.5bp on the day at around 1.54% and toward lows of the weekly range -- bunds, gilts outperform Treasuries by 1bp and 1.5bp in the sector as traders reassess impact of future ECB rate hikes. Treasuries rally across the curve, following wider gains across EGB’s and gilts as investors weigh the impact of further European lockdowns amid a fourth wave of Covid-19. Flight-to-quality pushes Treasury yields lower by up to 5bp across front- and belly of the curve, which slightly outperform.  Bunds and Treasury swap spreads widen, while gilts move tighter as risk assets mostly trade to the downside and demand for havens increases on news regarding coronavirus restrictions. German 10-year swap spreads climbed above 50bps for the first time since March 2020. In commodities, spot gold is little changed around $1,860/oz, while base metals are in the green, with LME copper and aluminum leading peers. Oil tumbled with WTI and Brent contracts down well over 2%.  Brent crudes brief dip below $80 was short-lived on Thursday and prices were continuing to recover on the final trading day of the week until Austria announced its lockdown. Brent crude quickly reversed course and trades almost 2% lower on the day as it takes another run at $80. Oil has been declining over the last week as demand forecasts have been pared back, OPEC and the IEA have warned of oversupply in the coming months and the US has attempted to coordinate an SPR release with China and others. The market still remains fundamentally in a good position but lockdowns are now an obvious risk to this if other countries follow Austria's lead. A move below $80 could deepen the correction, perhaps pulling the price back towards the mid-$70 region. This looks more likely now than it did a day ago and if Germany announces similar measures, it could be the catalyst for such a move. Perhaps OPEC+ knows what it's talking about after all. Looking at To the day ahead now, there is no macro news; central bank speakers include ECB President Lagarde, Bundesbank President Weidmann, Fed Vice Chair Clarida, the Fed’s Waller and BoE Chief Economist Pill. Separately, data highlights include UK retail sales and German PPI for October. Market Snapshot S&P 500 futures down 0.09% to 4,696.25 STOXX Europe 600 up 0.2% to 488.66 MXAP little changed at 199.11 MXAPJ down 0.2% to 648.18 Nikkei up 0.5% to 29,745.87 Topix up 0.4% to 2,044.53 Hang Seng Index down 1.1% to 25,049.97 Shanghai Composite up 1.1% to 3,560.37 Sensex down 0.6% to 59,636.01 Australia S&P/ASX 200 up 0.2% to 7,396.55 Kospi up 0.8% to 2,971.02 Brent Futures little changed at $81.17/bbl Gold spot up 0.1% to $1,860.34 U.S. Dollar Index up 0.43% to 95.96 German 10Y yield little changed at -0.32% Euro down 0.6% to $1.1304 Top Overnight News from Bloomberg Germany’s Covid crisis is about to go from bad to worse, setting the stage for a grim Christmas in Europe. With infections surging relentlessly and authorities slow to act amid a change in power, experts warn that serious cases and deaths will keep climbing Austria will enter a nationwide lockdown from Monday as a record spike in coronavirus cases threatens to overwhelm the country’s health care system The pundits are coming for the Fed and Chair Jerome Powell. Mohamed El-Erian, chief economic adviser to Allianz SE and a Bloomberg Opinion columnist, recently said the central bank has made one of the worst inflation calls in its history. Writing in the Financial Times, the economist Willem Buiter called on the Fed to abandon the more flexible inflation target it established last year Bitcoin continued its slide Thursday, falling for a fifth consecutive day as it slipped below $57,000 for the first time since October, in a retreat from record highs. The world’s largest cryptocurrency hasn’t slumped that long since the five days that ended May 16 House Democrats pushed expected passage of President Joe Biden’s $1.64 trillion economic agenda to Friday as Republican leader Kevin McCarthy delayed a vote with a lengthy floor speech that lasted into the early morning hours ECB President Christine Lagarde said policy makers “must not rush into a premature tightening when faced with passing or supply- driven inflation shocks” Markets are increasingly nervous about the common currency with the pandemic resurgent, geopolitical tensions rising and gas supply issues mounting A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks traded mostly positive after the mixed performance stateside where the S&P 500 and Nasdaq notched fresh record closes, but cyclicals lagged as comments from Senator Manchin cast some uncertainty on the Build Back Better bill. The ASX 200 (+0.2%) was rangebound with upside in healthcare and consumer stocks offset by weakness in tech and a lacklustre mining sector. Crown Resorts (CWN AT) was the stellar performer after it received an unsolicited, non-binding takeover proposal from Blackstone (BX) valued at AUD 12.50/shr which boosted its shares by around 16%, although gains in the broader market were limited as COVID-19 concerns lingered following a further jump of cases in Victoria state. The Nikkei 225 (+0.5%) benefitted from a mostly weaker currency and after PM Kishida confirmed the details of the incoming stimulus package valued at a total JPY 79tln including JPY 56tln in fiscal spending. The KOSPI (+0.8%) was also positive but with gains initially capped as South Korean wholesale inflation surged to a 13-year high and further added to the case for the BoK to hike rates for the second time this year at next week’s meeting. The Hang Seng (-1.1%) and Shanghai Comp. (+1.1%) were mixed with the mainland kept afloat amid press reports that China is considering measures to reduce taxes and fees by up to CNY 500bln, although the mainland was initially slow to start after another liquidity drain by the PBoC and with stocks in Hong Kong spooked amid substantial losses in Alibaba following a miss on its earnings and Country Garden Services suffered on reopening from the announcement of a 150mln-share placement. Finally, 10yr JGBs were rangebound with mild gains seen after the modest bull flattening stateside, but with upside restricted amid the gains in Japanese stocks and lack of BoJ purchases, as well as the incoming fiscal spending and extra budget from the Kishida government. Top Asian News Bitcoin Falls Almost 20% Since Record as Crypto Bulls Retreat Singapore’s Insignia Ventures Intensifies Push Into Healthtech Binance Chief Zhao Buys His First Home in ‘Pro-Crypto’ Dubai Property Stocks Surge; Land Sale Rules Eased: Evergrande Update The earlier positive sentiment in Europe dissipated amid a string of back-to-back downbeat COVID updates – with Austria now resorting to a full-scale lockdown and Germany sounding alarms over their domestic COVID situation and not ruling out its own lockdown. European bourses flipped from the mostly positive trade at the open to a negative picture (Euro Stoxx 50 -0.5%; Stoxx 600 Unch), with headlines also flagging the European stock market volatility gauge jumping to three-week highs. It is also worth noting the monthly option expiries for stocks today, with desks pointing to the second-largest expiry day on record. US equity futures have also seen headwinds from the pullback in Europe, but US futures are mixed with the NQ (+0.4%) benefitting from the slide in yields. Back to Europe, Austria’s ATX (-1.0%) sit as the laggard after the Austrian Chancellor said a full domestic COVID lockdown will be imposed as of Monday for a maximum of 20 days with compulsory vaccination from 1st February 2022. Switzerland’s SMI (+0.2%) owes its gains to the defensive flows into healthcare propping up heavyweights Novartis (+0.5%) and Roche (+0.7%). Sectors overall are mostly negative with Healthcare the current winner, whilst Tech benefits from the yield slump and Basic Resources recover from yesterday’s slide as base metals rebound. The downside sees Banks on yield dynamics, whilst Oil & Gas lost the ranks as crude prices were spooked by the COVID headlines emanating from Europe. In terms of individual movers, Ocado (+6%) resides at the top of the FTSE 100 – with some citing a Deutsche Bank note which suggested shareholder Marks & Spencer could be mulling a buyout, although the note is seemingly speculation as opposed to chatter. Top European News Ryanair Drops London Listing Over Brexit Compliance Hassles ECB Mustn’t Tighten Despite ‘Painful’ Inflation, Lagarde Says Austria to Lock Down, Impose Compulsory Covid Vaccinations German Covid Measures May Bolster ECB Stimulus Stance: El-Erian In FX, it remains to be seen whether the Dollar can continue to climb having descended from the summit, and with no obvious fundamental drivers on the agenda in terms of US data that has been instrumental, if not quite wholly responsible for the recent bull run. However, external and technical factors may provide the Greenback and index with enough momentum to rebound further, as the COVID-19 situation continues to deteriorate in certain parts of Europe especially. Meanwhile, the mere fact that the DXY bounced off a shallower low and appears to have formed a base above 95.500 is encouraging from a chart perspective, and only the Yen as a safer haven is arguably capping the index ahead of the aforementioned w-t-d peak within 95.554-96.090 extremes. Ahead, more Fed rhetoric and this time via Waller and Clarida. EUR - The Euro has been hit hardest by the Greenback revival, but also the latest pandemic waves that have forced Austria into total lockdown and are threatening to see Germany follow suit. Moreover, EGBs are front-running the latest squeeze amidst risk-off trade in stocks, oil and other commodities to widen spreads vs Treasuries and the divergence between the ECB/Fed and other more hawkishly or less dovishly positioned. Hence, Eur/Usd has reversed further from circa 1.1374 through 1.1350 and 1.1300, while Eur/Yen is eyeing 128.50 vs almost 130.00 at one stage and Eur/Chf is probing fresh multi-year lows around 1.0450. NZD/GBP/AUD/CAD - All catching contagion due to their high beta, cyclical or activity currency stature, with the Kiwi back under 0.7000, Pound hovering fractionally above 1.3400, Aussie beneath 0.7250 and Loonie striving to contain declines beyond 1.2650 pre-Canadian retail sales against the backdrop of collapsing crude prices. JPY/CHF - As noted above, the Yen is offering a bit more protection than its US counterpart and clearly benefiting from the weakness in global bond yields until JGBs catch up, with Usd/Jpy down from 114.50+ towards 113.80, but the Franc is showing its allure as a port in the storm via the Euro cross rather than vs the Buck as Usd/Chf holds above 0.9250. In commodities, WTI and Brent front month futures retreated with the trigger point being back-to-back COVID updates – with Austria confirming a full-scale lockdown from Monday and Germany not ruling out its own lockdown. Crude futures reacted to the prospect of a slowdown in activity translating to softer demand. That being said, COVID only represents one factor in the supply/demand equation. Oil consuming nations are ramping up rhetoric and are urging OPEC+ to release oil. The White House confirmed the US discussed a possible joint release of oil from reserves with China and other countries, while it reiterated that it has raised the need for available oil supply in the market with OPEC. Meanwhile, the Japanese Cabinet said it will urge oil-producing nations to increase output and work closely with the IEA amid risks from energy costs. Further, energy journalists have also been flagging jitters of Chinese crude demand amid the likelihood of another tax probe into independent refiners. All in all, a day of compounding bearish updates (thus far) has prompted the contracts to erase all of their APAC gains, with WTI Dec just above USD 76/bbl (76.06-79.33/bbl range) and Brent Jan back under USD 79/bbl (78.75-82.24/bbl range). Elsewhere, spot gold saw a pop higher around the flurry of European COVID updates and despite a firmer Buck – pointing to haven flows into the yellow metal – which is nonetheless struggling to convincingly sustain a breach its overnight highs around USD 1,860/oz and we are attentive to a key fib at USD 1876/oz. Base metals prices are relatively mixed but have waned off best levels amid the risk aversion that crept into the markets, but LME copper holds onto a USD 9,500+/t status. US Event Calendar Nothing major scheduled Central Banks 10:45am: Fed’s Waller Discusses the Economic Outlook 12:15pm: Fed’s Clarida Discusses Global Monetary Policy Coordination DB's Jim Reid concludes the overnight wrap It was another mixed session for markets yesterday, with equities and other assets continuing to trade around their recent highs even as a number of risk factors were increasingly piling up on the horizon. By the close of trade, the S&P 500 had advanced +0.34% to put the index at its all-time high, whilst oil prices pared back their losses from earlier in the day to move higher. That said, there was more of a risk-off tone in Europe as the latest Covid wave continues to gather pace, with the STOXX 600 (-0.46%) snapping a run of 6 successive gains and being up on 17 out of the previous 19 days as it fell back from its all-time high the previous day, as haven assets including sovereign bonds were the beneficiaries. Starting with those equity moves, it was difficult to characterise yesterday’s session in some ways, since although the S&P advanced +0.34%, it was driven by a relatively narrow group of sectors, with only a third of the index’s components actually moving higher on the day. Indeed, to find a bigger increase in the S&P 500 on fewer advancing companies, one needs to go back to March 2000 (though it came close one day in August 2020, when the index advanced +0.32% on 153 advancing companies). Consumer discretionary (+1.49%) and tech (+1.02%) stocks were the only sectors to materially advance. Nvidia (+8.25%), the world’s largest chipmaker, was a key outperformer, and posted very strong third quarter earnings and revised higher fourth quarter guidance. Following the strong day, Nvidia jumped into the top ten S&P 500 companies by market cap, ending yesterday at number eight. The S&P gain may have been so narrow due to some negative chatter about President Biden’s build back better package, with CNN’s Manu Raju tweeting that Senator Joe Manchin “just told me he has NOT decided on whether to vote to proceed to the Build Back Better bill.” Manchin’s position in a 50-50 senate has given him an enormous amount of influence, and separate comments created another set of headlines yesterday on the Fed Chair decision, after The Hill reported Manchin saying that he’s “looking very favourably” at supporting Chair Powell if he were re-nominated, following a chat between the two about inflation. Mr Manchin is seemingly one of the most powerful people in the world at the moment. While the Senate still presents a hurdle for the President’s build back better bill, House Democrats are close to voting on the bill but couldn’t last night due to a three hour speech by House Republican leader McCarthy. It will probably happen this morning. This follows the Congressional Budget Office’s ‘score’ of the bill, which suggested the deficit would increase by $367bn as a result of the bill, higher figures than the White House suggested, but low enough to garner support from moderate House Democrats. Over in Europe there was a much weaker session yesterday, with the major equity indices falling across the continent amidst mounting concern over the Covid-19 pandemic. Germany is making another forceful push to combat the recent increase in cases, including expanded vaccination efforts, encouraging work from home, and restricting public transportation for unvaccinated individuals. Elsewhere, the Czech Republic’s government said that certain activities will be limited to those who’ve been vaccinated or had the virus in the last six months, including access to restaurants and hairdressers. Slovakia also agreed a similar move to prevent the unvaccinated accessing shopping malls, whilst Hungary is expanding its mask mandate to indoor spaces from Monday. Greece imposed further restrictions for its unvaccinated population. So a theme of placing more of the restrictions in Europe on the unvaccinated at the moment and trying to protect the freedoms of those jabbed for as long as possible. That risk-off tone supported sovereign bonds in Europe, with yields on 10yr bunds (-3.0bps), OATs (-4.1bps) and BTPs (-5.5bps) all moving lower. That was a larger decline relative to the US, where yields on 10yr Treasuries were only down -0.3bps to 1.59%, with lower real yields driving the decline. One asset class with some pretty sizeable moves yesterday was FX, where a bunch of separate headlines led to various currencies hitting multi-year records. Among the G10 currencies, the Swiss Franc hit its strongest level against the euro in over 6 years yesterday on an intraday basis. That came as the Covid wave has strengthened demand for haven assets, though it went on to weaken later in the day to close down -0.15%. Meanwhile, the Norwegian Krone was the weakest G10 performer (-0.72% vs USD) after the Norges Bank said it would be stopping its daily foreign exchange sales on behalf of the government for the rest of the month. Finally in EM there were some even bigger shifts, with the Turkish Lira falling to a record low against the US dollar, which follows the central bank’s decision to cut interest rates by 100bps, in line with expectations. And then in South Africa, the Rand also fell to its weakest in over a year, in spite of the central bank’s decision to hike rates, after the decision was interpreted dovishly. Overnight in Asia stocks are trading mostly higher led by the Nikkei (+0.45%), KOSPI (+0.43%), Shanghai Composite (+0.34%) and CSI (+0.18%). The Hang Seng (-1.76%) is sharply lower and fairly broad based but is being especially dragged down by Alibaba which dived -11% after it downgraded its outlook for fiscal year 2022 and missed sales estimate for the second quarter. Elsewhere in Japan headline CPI for October came in at +0.1% year-on-year (+0.2% consensus & +0.2% previous) while core CPI matched expectations at +0.1% year-on-year. The numbers reflect plunging mobile phone fees offsetting a 21% surge in gas prices. If the low mobile phone costs are stripped out, core inflation would be at 1.7% according to a Bloomberg calculation. Prime Minister Fumio Kishida is expected to deliver a bigger than expected stimulus package worth YEN 78.9 trillion ($690 bn) according to Bloomberg. We should know more tomorrow. Moving on futures are pointing to a positive start in US and Europe with S&P 500 (+0.42%) and DAX (+0.39%) futures both up. Turning to commodities, oil prices had been on track to move lower before paring back those losses, with Brent Crude (+1.20%) and WTI (+0.83%) both up by the close and edging up around half this amount again in Asia. That comes amidst continued chatter regarding strategic oil releases, and follows comments from a spokeswoman from China’s National Food and Strategic Reserves Administration, who Reuters reported as saying that they were releasing crude oil reserves. New York Fed President, and Vice Chair of the FOMC, John Williams, upgraded his assessment of inflation in public remarks yesterday. A heretofore stalwart member of team transitory, he noted that they wouldn’t want to see inflation expectations move much higher from here, and that recent price pressures have been broad-based, driving underlying inflation higher. Williams is one of the so-called core members of FOMC leadership, so his view carries some weight and is a useful barometer of momentum within the FOMC. Indeed, Chicago Fed President Evans, one of the most resolutely dovish Fed Presidents, expressed similar sentiment, recognising that rate hikes may need to come as early as 2022 given the circumstances. There wasn’t much in the way of data yesterday, though the weekly initial jobless claims from the US for the week through November 13 came in higher than expected at 268k (vs. 260k expected), and the previous week’s reading was also revised up +2k. That said, the 4-week moving average now stands at a post-pandemic low of 272.75k. Otherwise, the Philadelphia Fed’s manufacturing business outlook survey surprised to the upside at 39.0 in November (vs. 24.0 expected), the highest since April. That had signs of price pressures persisting, with prices paid up to 80.0, the highest since June, and prices received up to 62.9, the highest since June 1974. Finally, the Kansas City Fed’s manufacturing index for November fell to 24 (vs. 28 expected). To the day ahead now, and central bank speakers include ECB President Lagarde, Bundesbank President Weidmann, Fed Vice Chair Clarida, the Fed’s Waller and BoE Chief Economist Pill. Separately, data highlights include UK retail sales and German PPI for October. Tyler Durden Fri, 11/19/2021 - 08:11.....»»

Category: personnelSource: nytNov 19th, 2021

4 things Biden can do to tame COVID and inflation right now, according to former Fed economist

Biden's spending plans will do much good, but Americans need faster results on the virus and inflation problems of today, Claudia Sahm said. President Joe Biden delivers remarks on the passage of the Bipartisan Infrastructure Bill in the State Dining Room of the White House on Saturday, Nov. 6, 2021.(Kent Nishimura / Los Angeles Times via Getty Images Biden's plans are helpful, but they won't bring the fast results the economy needs, says former Fed economist Claudia Sahm. Americans are desperate for the government to address elevated COVID cases and the hottest inflation since 1990. Sahm has four ways the Biden administration can fight the virus and cool rampant price growth. President Joe Biden's spending plans will shape the US over the next decade, but they aren't enough to solve today's crisis, former Federal Reserve economist Claudia Sahm wrote in a Wednesday blog post.Biden signed the $1 trillion bipartisan infrastructure bill on Monday and Democrats aim to pass their $1.75 trillion social-spending plan before Christmas. The dual packages are poised to make historic investments in family care, clean energy, and traditional infrastructure as the US emerges from the COVID recession. But as Democrats plan for the next decade, Americans are growing impatient with the problems of now."Listen to people. They are telling us they are increasingly worried about the future," wrote Sahm, who is now a senior fellow at the Jain Family Institute.Americans' confidence in the economy is the worst it's been since the Great Recession. A big reason for the pessimism: a lack of immediate help. Prices are soaring at the fastest rate since 1990, yet there's a "growing belief" among Americans that "no effective policies" have been used to cool inflation, Richard Curtin, chief economist at the University of Michigan's Surveys of Consumers, said.The Fed is the main authority for keeping inflation in check, but that doesn't mean the White House is powerless. Instead of viewing soured sentiment as purely partisan, policymakers should focus on solutions to the problems still plaguing the economy, Sahm wrote.Here are the four ways the Biden administration can clamp down on COVID and speed up the economic recovery, according to Sahm.1. Get more shots in armsVirus cases are down from September highs, but COVID remains "enemy number one," Sahm said. Since the start of the pandemic, most economists have pegged the path of the recovery to the path of the virus. Data since has confirmed that: When virus cases climb, the rebound hits snags.The administration can speed up the broad recovery by amplifying its push for booster shots and enforcing vaccine requirements, Sahm said. Even if the White House "can't fix the politics around COVID," it can do a better job at fighting the virus, she added."You can get the vaccine to every person who wants it and communicate honestly with people who are on the fence," Sahm said. "Enforce vaccine mandates immediately."2. Unclog the backlogs at portsMuch of the higher inflation seen today is linked to the supply-chain crisis hammering the US. Order backlogs, product shortages, and shipping bottlenecks have led companies to hike prices, and much of the problem lies at ports. A shortage of truck drivers, warehouse workers, and crucial equipment has left companies scrambling to process shipments and balance supply with Americans' colossal demand.The problem is largely a private-sector one, but Biden can lend a hand. The administration should collaborate with port authorities and transportation operators to hasten the processing of the massive order backlog, Sahm said. The sooner more supply hits the market, the sooner inflation is likely to cool.3. Flood the US with cheaper gasolineAmericans are feeling surging energy costs at the pump, with gas prices leaping 6.1% in October alone.Part of the problem lies with the Organization of Petroleum Exporting Countries (OPEC). The coalition rebuffed Biden's call for increased production earlier in November. Since the group controls much of the world's gasoline supply, the decision practically guaranteed gas prices would stay high.Yet the White House has a trick up its sleeve. The Strategic Petroleum Reserve — an underground network of crude oil wells — currently holds more than 600 million barrels of oil. Biden should "open up" the stockpile to lower gas prices and dampen inflation where it's hottest, Sahm said. 4. Cut down on pricey tariffsWhile the aforementioned actions would indirectly affect prices, the White House has a way to directly weaken inflation. The Trump administration levied tariffs on more than $350 billion worth of Chinese goods, and Biden has left the duties in place. Yet the tariffs have largely translated to higher prices as companies pass on the costs to everyday Americans.Though the tariffs were in place long before pandemic-era inflation, removing them would help ease price growth, Sahm said."These solutions are not exhaustive, but it's exhausting that we are two years into this mess and we do not have a real plan," she added. "We are not doomed. People are frustrated with policymakers, but it's been worse."Read the original article on Business Insider.....»»

Category: topSource: businessinsiderNov 18th, 2021

Futures Flat As Yields, Dollar Slide On Speculation Demo-Dove Brainard Will Replace Powell

Futures Flat As Yields, Dollar Slide On Speculation Demo-Dove Brainard Will Replace Powell For the second session in a row, S&P 500 futures reversed earlier losses and traded flat after falling as much as 0.3% earlier in the run-up to today's PPI report - the first of a couple of readings on inflation this week - as investors weighed the Federal Reserve’s warning that stock prices are "vulnerable to significant declines should investor risk sentiment deteriorate, progress on containing the virus disappoint, or the economic recovery stall." US Treasury yields fell and the dollar index slipped for a third consecutive day following a late Monday report that Joe Biden interviewed uber-dove and Hillary Clinton fan Lael Brainard for the central bank’s top job, although prediction markets were not impressed. European stocks advanced for a ninth day, the longest streak since June while Asian shares drifted. Some more stats from DB's Jim Reid There wasn’t an awful lot of newsflow for investors yesterday as they looked forward to tomorrow’s US CPI release, but the astonishing equity advance showed no signs of relenting just yet, with the S&P 500 (+0.09%) up for an 8th consecutive session to another record high. For reference, that’s the longest winning streak since April 2019, and if we get a 9th day in the green today, that would mark the longest run of consecutive gains since November 2004, back when George W. Bush had just beaten John Kerry to win a second term. It's also 17 out of 19 days up, which hasn’t happened since December 1971. At 715am S&P futures were up 1 point or 0.02% to 4,965. If, or rather when, the S&P closes green today, it will be up 9 consecutive sessions, the longest such streak since Nov 2004. Nasdaq futures rose another 33.25 points; If the nasdaq index is up today, it will be 12 days in a row, a feat it last achieved in 2009 and which hasn't been topped since 1992. “U.S. indexes continue flirting with all-time high levels following a surprise NFP read, the approval of Biden’s $550 billion spending bill and the discovery of an oral Covid treatment from Pfizer,” said Ipek Ozkardeskaya, senior analyst at Swissquote. “But inflation worries come to overshadow the Monday optimism.” Sysco and DoorDash are among companies reporting earnings. Rivian Automotive is scheduled to price its initial public offering, seeking to raise as much as $10 billion in a listing that could give the producer of electric trucks a fully diluted valuation of more than $70 billion. “The company is seen as the most serious competitor to Tesla in the EV race,” Ozkardeskaya said. “The company will be worth more than Honda and Ferrari." Paypal Holdings fell 4.5% in U.S. premarket trading with analysts saying the payments firm’s full-year guidance was a disappointment and that the shares are likely to remain under pressure near-term despite announcing a new Venmo deal with Amazon, while General Electric surged 11.6% in premarket after the U.S. conglomerate said it would split itself into three companies focused on aviation, healthcare and power. Tesla Inc shares rose 1.4%, rebounding from a nearly 5% fall on Monday after Chief Executive Elon Musk’s Twitter poll proposing to sell a tenth of his holdings garnered 57.9% vote in favor of the sale. The proposal also raised questions about whether Musk may have violated his settlement with the U.S. securities regulator again. Zynga Inc jumped 6.6% after the “FarmVille” creator beat quarterly net bookings estimates, while Tripadvisor Inc fell 7.4% after reporting downbeat quarterly earnings and announcing the departure of Chief Executive Stephen Kaufer. Here are some of the other notable premarket movers today: TripAdvisor (TRIP US) shares fall as much as 7% in U.S. premarket trading with analysts saying the company’s 3Q results and outlook are a disappointment given the travel recovery being seen across the board. Cryptocurrency-exposed stocks rise in U.S. premarket trading on Tuesday, set to extend Monday’s gains after the global crypto market hit the $3 trillion milestone Roblox (RBLX US) shares jump as much as 27% in U.S. premarket trading after the video-game platform firm’s quarterly bookings topped estimates even after the easing of Covid restrictions Naked Brand (NAKD US) shares rise as much as 45% in U.S. premarket trading, after the company said it will acquire commercial EV technology company Cenntro Automotive in a stock-for-stock deal Robinhood Markets (HOOD US) slides 3% in premarket trading after it said personal information of millions of customers was compromised in a data breach last week and that the culprit demanded a payment. Arrival (ARVL US) plunged 19% in extended trading after the electric-vehicle maker says previous long-term forecasts from the merger with the CIIG special purpose acquisition company should no longer be relied upon SmileDirectClub (SDC US) slumps 21% in U.S. premarket trading after its 3Q revenue and 4Q forecast missed the lowest analyst estimates Aterian (ATER US) shares jumped 24% in postmarket trading on Monday, after third-quarter revenue and gross margin topped analysts’ estimates Five9 (FIVN US) shares rose 8.8% in extended trading on Monday, after the software company reported third-quarter results that beat expectations RealReal (REAL US) shares jumped 5.5% in Monday extended trading, after the online marketplace reported third- quarter revenue that beat expectations Invitae (NVTA US) shares tumbled 14% postmarket after the genetics company cut its full- year revenue forecast 3D Systems (DDD US) fell 8.5% postmarket after reporting third-quarter results. The 3D printing firm narrowed its 2021 adjusted gross margin guidance to 41% to 43% from an earlier range of 40% to 44% Data from the Labor Department due at 8:30 a.m. ET is expected to show that its producer price index for final demand rose 0.6% in October, with accelerating inflation and tighter monetary policy becoming a bigger concern for investors than the COVID-19 pandemic. Global equities hovered near all-time highs as investors weigh strong earnings, easing travel curbs and U.S. infrastructure spending against the risk of persistent inflation that may lead to tighter monetary policy.  A better-than-expected earnings season, positive developments around COVID-19 antiviral pills and the loosening of travel curbs have recently helped the market continue its record run. European equities faded small opening losses in otherwise quiet trade, with Euro Stoxx 50 little changed and other major indexes adding ~0.2%. Retailers traded well, insurance and financial services are under pressure but ranges are relatively narrow. Bayer jumped 3% after the German producer of healthcare and agricultural products raised its earnings forecast. In the latest positive development in uranium, Rolls-Royce surged 4.9% after the British engineering company raised an equivalent $617 million to fund the development of small modular nuclear reactors. Investor sentiment in Germany rose unexpectedly in November on expectations that price pressures will ease at the start of next year and growth will pick up in Europe’s largest economy, a survey showed on Tuesday. The ZEW economic research institute said its economic sentiment index increased to 31.7 from 22.3 points in October. A Reuters poll had forecast a fall to 20.0. “Financial market experts are more optimistic about the coming six months,” ZEW President Achim Wambach said in a statement. “For the first quarter of 2022, they expect growth to pick up again and inflation to fall both in Germany and the euro zone,” Wambach added. A fall in a current conditions index to 12.5 from 21.6 - compared with a consensus forecast for 18.0 - showed investors expected that supply bottlenecks and inflationary pressures would hold back the economy in the current quarter, he said. Supply bottlenecks for raw and preliminary materials have weighed down industrial production here in Germany. Exports fell here for a second consecutive month in September. Asian equities were mixed, struggling to follow a positive lead from Wall Street as traders weighed economic optimism and Covid treatments against virus outbreaks across China. The MSCI Asia Pacific Index was up 0.1% on Tuesday, trimming an earlier 0.4% gain. SoftBank surged 11% after the company said it would buy back as much as 1 trillion yen ($8.8 billion) of its own stock. Wuxi Biologics rebounded from the previous day’s tumble, after the U.K. government said it will add some of China’s shots to approved vaccines for visitors.  Taiwan and the Philippines had the region’s top-performing benchmarks, with those in Japan and Malaysia slipping. While Asian markets attempted to follow increases seen on Wall Street overnight, “paring back of initial gains suggest that several factors including China’s Covid-19 situation and its property sector remain of concern,” said Jun Rong Yeap, market strategist with IG Asia Pte. in Singapore.  Investors are also awaiting news from China on the Communist Party’s meeting this week, its first major convention in more than a year. “The sixth plenum will quite possibly be a manifesto from Xi Jinping as he adopts the mantle of effective leader for life,” said Kyle Rodda, an analyst at IG Markets Ltd. “His agenda and rhetoric will be important, with investors nervous about what comes out about China’s strategic and economic direction.”  Over in Japan, a morning rally in Japanese stocks gave way to profit-taking for a second day, even as SoftBank Group surged on its latest buyback announcement. Electronics and chemical makers were the biggest drags on the Topix, which fell 0.8%, reversing an early 0.7% gain. Fast Retailing was the biggest contributor to a 0.8% decline in the Nikkei 225. The yen was up 0.4% against the dollar, in its forth day of advance. SoftBank jumped more than 10% after it said it will repurchase as much as 1 trillion yen ($8.8 billion) of its stock. Its climb helped drive Japanesestocks higher in early trading, after the S&P 500 rose to a new record high. “Futures were sold after the open as investors moved to book profits with the Nikkei 225 approaching 30,000,” said Hideyuki Ishiguro, a strategist at Nomura Asset Management in Tokyo. “There is a lack of catalysts for further gains, and the stronger yen is also limiting the upside.” Australian stocks edged lower, weighed down by bank. The S&P/ASX 200 index fell 0.2% to close at 7,434.20, with banks contributing the most to its drop. Eight of the benchmark’s 11 subgauges declined, while miners rallied. Inghams tumbled to its lowest price since May 27. Chalice Mining surgend after reporting its maiden Mineral Resource Estimate for the Gonneville Deposit at Julimar. In New Zealand, the S&P/NZX 50 index rose 0.4% to 13,090.58. In rates, USTs bull steepened, returning to Asia’s richest levels after speculation about a dovish change in leadership at the Fed. Treasuries advance across the curve, following wider gains across bunds; a bull-flattening move during Europe session was extended after Netherlands 2038 auction. Gilts long-end also well bid, adding support for Treasuries. Focal points for U.S. session include Fed’s Powell speaking at 9am ET, 10-year note auction at 1pm. Treasury yields were richer by 2bp-3bp across the curve, with curve spreads broadly within 1bp of Monday’s close; bunds outperform by ~1bp in the 10-year sector while long-end gilt yields are ~5bp lower on the day. Long-end Germany outperforms gilts and USTs, richening ~4bps. Peripheral spreads tighten with 10y Bund/BTP near 112bps. In FX, the Bloomberg Dollar Spot Index fell to its lowest level this month and Treasuries rallied following the report that Federal Reserve Governor Lael Brainard was interviewed for the top job at the central bank, with speculation that a Brainard-led Fed would be more dovish than that of current Chair Jerome Powell. The dollar was weaker against most of its Group-of-10 peers while the yen was among the top performers as traders wound back bets on higher global central- bank interest rates; the euro briefly rose above the $1.16 level before erasing gains. JPY tops the leaderboard with USD/JPY remaining sub-113. Cable briefly regains a 1.36-handle. In commodities, Crude futures push higher after a subdued Asia session. WTI adds 0.9% to trade near $82.60, Brent regains a $84-handle. Spot gold is range bound near $1,825/oz. Base metals hold modest gains with LME zinc the marginal outperformer Looking at the day ahead now, and data releases includethe US PPI reading for October, along with that month’s NFIB small business optimism index. Over in Germany, there’s also the ZEW survey for November and the trade balance for September. Central bank speakers include Fed Chair Powell, ECB President Lagarde, BoE Governor Bailey and PBoC Governor Yi Gang, along with the ECB’s Panetta, Rehn, Knot and Schnabel, the Fed’s Bullard, Daly and Kashkari, and BoE Deputy Governor Broadbent. Market Snapshot S&P 500 futures little changed at 4,693.50 STOXX Europe 600 up 0.1% to 484.28 MXAP little changed at 198.97 MXAPJ up 0.3% to 649.50 Nikkei down 0.8% to 29,285.46 Topix down 0.8% to 2,018.77 Hang Seng Index up 0.2% to 24,813.13 Shanghai Composite up 0.2% to 3,507.00 Sensex down 0.3% to 60,381.61 Australia S&P/ASX 200 down 0.2% to 7,434.20 Kospi little changed at 2,962.46 German 10Y yield little changed at -0.26% Euro little changed at $1.1588 Brent Futures up 0.7% to $83.99/bbl Gold spot up 0.0% to $1,824.68 U.S. Dollar Index little changed at 93.96 Top Overnight News from Bloomberg Just weeks ago, Wall Street analysts and central bankers were quick to assure investors that a collapse by China Evergrande Group wouldn’t be a Lehman moment. Regulators in Beijing said that the crisis would be “contained.” Now that a bond selloff has spread to China’s entire real estate sector and beyond, concern is growing about the potential risk to the global financial system The Federal Reserve warned that fragility in China’s commercial real-estate sector could spread to the U.S. if it deteriorates dramatically, as investor focus turns to China Evergrande Group’s next bond payment deadlines Japan ruling Liberal Democratic Party and coalition partner Komeito agree to give 50,000 yen in cash and 50,000 yen in coupons for every child 18 or younger, Kyodo reports, without attribution Boris Johnson is struggling to repress the U.K. backlash over his defense of a ruling party lawmaker who broke lobbying rules, as his government was openly accused of corruption in Parliament and even typically friendly newspapers took aim at his ruling Conservative Party Bitcoin jumped past $68,000 for the first time to a new all-time high, part of a wider recent rally in the cryptocurrency sector. The climb in cryptocurrencies overall has taken their combined value above $3 trillion. Bitcoin hit its October record following the launch of the first Bitcoin-linked exchange-traded fund for U.S. investors A more detailed look at global markets from Newsquawk Asia-Pac stocks traded indecisively as focus centred on earnings and despite the positive handover from Wall St where the S&P 500 notched an 8th consecutive record close amid a lack of catalysts to derail the momentum in stocks. ASX 200 (-0.2%) began marginally higher amid strength in the tech and mining sectors but with upside eventually reversed by losses in the top-weighted financial industry as NAB shares declined despite posting a 77% jump in FY cash earnings and its FY net more than doubled to AUD 6.4bln, although this was still short of some analysts’ forecasts and the Co. also noted that competitive pressures are expected to continue in FY22. Nikkei 225 (-0.7%) was choppy amid a slew of earnings releases with outperformance in SoftBank following its H1 results in which net income declined by more than 80%, but revenue increased and it confirmed a JPY 1tln share buyback. It was also reported that PM Kishida instructed COVID measures to be compiled this week and economic measures by next Friday, while a government panel recommended tax breaks for companies that increase wages, although Tokyo stocks have failed to benefit with early momentum offset by recent flows into the JPY. Hang Seng (-0.1%) and Shanghai Comp. (+0.2%) lacked firm direction amid mixed developer related headlines with Kaisa Group said to be taking several measures to solve liquidity issues and have pleaded for more time and patience from investors, while China Evergrande reportedly scraped together more cash by offloading a 5.7% stake in HengTen Networks for USD 145mln. Furthermore, the PBoC continued with its liquidity efforts but recent source reports noted that chances of a PBoC rate cut looks slim and that the PBoC is expected to be cautious in easing monetary policy amid stagflation concerns. Finally, 10yr JGBs were flat amid the indecisive mood in stocks and was only briefly supported from the improvement across most metrics at the latest 30yr JGB auction. Top Asian News Gold Rally Pauses as Focus Turns to Upcoming Inflation Data Indonesia Bonds Risk Losing Key Support as Outflows Surge Nissan Raises Profit Outlook Despite Supply Disruptions Fed Warns of Woes Spreading as Deadline Looms: Evergrande Update After a soft open, European equities trade in close proximity to the unchanged mark (Eurostoxx 50 +0.1%) with incremental newsflow relatively light thus far with a mixed German ZEW report unable to shift the dial. The handover from the Asia-Pac session was a mixed one with the region unable to benefit from the positive tailwinds on Wall St. Stateside, futures are near-enough unchanged with participants tentative ahead of tomorrow’s US CPI release which is expected to see Y/Y CPI rise to 5.8% from 5.4%. For the Stoxx 600, UBS’ announced today that its end-2022 target is at 520 which would mark around 8% of upside from current levels. In terms of a regional breakdown, UBS upgraded Italy to overweight from underweight whilst holding Germany and the UK as overweight. Sectors in Europe are a mixed bag with Autos outperforming peers as Renault (+4.6%) sits at the top of the CAC in the wake of Nissan earnings, which the Co. says will have a positive impact on its Q3 earnings. Basic Resources, Retail and Media names are also faring well. To the downside, Insurance names are on a softer footing following earnings from Munich Re (-3.4%) with the Co. warning of further COVID-related losses, whilst results have also hampered the performance of Direct Line (-2.6%). Bayer (+2.6%) is one of the better performers in Germany after beating revenue and EBITDA expectations and guiding FY EPS higher. Associated British Foods (+6.5%) is the best performer in the Stoxx 600 after announcing a special dividend alongside results. Finally, other strong stocks in the UK include Rolls Royce (+5.4%) after confirming it has received funding for small modular nuclear reactors, whilst BT (+2.9%) is seen higher after being upgraded to buy from hold at Berenberg. Top European News UniCredit to Take $1.9 Billion Charge From Yapi Kredi Sale Russia’s Gazprom Says Gas Will Flow Into EU Storage This Month European Gas Prices Slide on Some Signs of Higher Russian Flows Polish Key Rate Hikes Past 1.5% May Be Needed, MPC’s Sura Says In FX, the Yen and Dollar are locked around the 113.00 mark after the former extended its mainly technical rally to around 112.73 before running out of steam, and this has given the Greenback in general some breathing space as the index claws back declines from a slightly deeper 93.872 post-NFP low to retest resistance at the psychological 94.000 level. However, Usd/Jpy and Yen crosses are still trending lower following clear breaches of several key chart supports that will now form upside barriers, such as Fibs in the headline pair spanning 113.20-30, while the Buck and DXY retain a bearish tone following their sharp retracement from a new y-t-d high in the case of the former last Friday. Ahead, US PPI data provides a timely inflation gauge for CPI on Wednesday, while there is another array of Fed speakers and more supply to absorb as Usd 39 bn 10 year notes are up for auction. GBP - Sterling continues to regroup in wake of the BoE shock, with Cable cresting 1.3600 and even Eur/Gbp unwinding gains towards 0.8520 amidst ongoing Brexit angst that could reach another critical stage by the end of this week given reports that the EU is formulating a package of short/medium-term retaliatory measures which might be presented by Sefcovic to Frost on Friday, to dissuade the UK from triggering Article 16, according to Eurasia Group's Rahman. Note, however, the cross may be underpinned by decent option expiry interest at the 0.8500 strike (1 bn), if not mere sentimentality. AUD/NZD - Some reasons for the Aussie to reverse recent underperformance vs the Kiwi down under, as NAB business confidence and conditions both improved markedly in October, while consumer sentiment ticked up as a counterweight to an acceleration in NZ electronic card consumption, with Aud/Usd firmly back on the 0.7400 handle, Aud/Nzd rebounding from sub-1.0350 and Nzd/Usd hovering midway between 0.7148-74 parameters. CAD/EUR/CHF - All narrowly divergent vs their US counterpart, as the Loonie gleans traction from a Usd 1/brl rebound in WTI to bounce through 1.2450 and away from 1.1 bn option expiries at 1.2460 in advance of another speech from BoC Governor Macklem, while the Euro is weighing up a mixed ZEW survey against expectations in close proximity to 1.1600 and also ‘comfortably’ above 1.8 bn expiry interest down at 1.1550. Elsewhere, the Franc is keeping its head afloat of 0.9150 and 1.0600 vs the Euro awaiting remarks from the SNB via Maechler and Moser about the changing FX market and implications for the Swiss Central Bank on Thursday. In commodities, WTI and Brent are firmer this morning though the benchmarks have drifted off earlier highs as we approach the entrance of US participants. At best, Brent has surpassed the USD 84.00/bbl mark, a figure which eluded it yesterday, and WTI has been within reach of the USD 83.00/bbl mark. Fresh newsflow explicitly for the complex has been slim but we are, more so than usual, looking to the EIA STEO due at 17:00GMT/12:00EST today. Heightened attention on this stems from US Energy Secretary Granholm commenting earlier in the week that President Biden may make an announcement in relation to crude and the SPR this week; as such, administration officials will be scrutinising the STEO report. For reference, the OPEC+ MOMR and IEA OMR are due on November 11th and 16th respectively. October’s STEO upgraded world 2021 oil demand growth forecasts by 90k but cut the 2022 view by 150k while highlighting that US crude output is to fall 260k vs prev. 200k fall in 2021. As usual, we do have the Private Inventory report due today as well with expectations set for a headline build of 1.9mln. Moving to metals, spot gold and silver are once again lacklustre and remain comfortably within overnight ranges and the upside seen in the metals at the tail-end of last week means we are circa, for spot gold, USD 30/oz from a cluster of DMAs. Elsewhere, base metals are firmer given the support for industrial names on the US infrastructure bill, but the likes of LME copper remain within familiar ranges. US Event Calendar 8:30am: Oct. PPI Ex Food, Energy, Trade MoM, est. 0.3%, prior 0.1% 8:30am: Oct. PPI Ex Food, Energy, Trade YoY, est. 6.2%, prior 5.9% 8:30am: Oct. PPI Ex Food and Energy YoY, est. 6.8%, prior 6.8% 8:30am: Oct. PPI Final Demand YoY, est. 8.6%, prior 8.6% 8:30am: Oct. PPI Ex Food and Energy MoM, est. 0.5%, prior 0.2% 8:30am: Oct. PPI Final Demand MoM, est. 0.6%, prior 0.5% Central Banks 7:50am: Fed’s Bullard Takes Part in Virtual Event 9am: Powell to Speak at Joint Fed, ECB and BoC Diversity Conference 9am: ECB’s Knot, Fed’s Bullard on UBS Panel 11:35am: Fed’s Daly Speaks at NABE Conference 1:30pm: Fed’s Kashkari Takes Part in Moderated Discussion DB's Jim Reid concludes the overnight wrap Thanks for all your well wishes yesterday. It was very kind to have a few hundred take the time to email. If you missed it, see yesterday’s EMR to understand why my responsibilities have mounted this week. The latest is that I’ve now got two perfect night’s sleep while my wife who is sleeping by my daughter’s side at hospital on a camp bed all week got hardly any the first night. Nurses coming in every hour, lots of machines beeping, it being too hot and no privacy. A look at my WhatsApp this morning shows she was last seen at 3.58am, so I’m worried I’m going to hear about a repeat. Although I will want to know who she’s whatsApping at that time of the night! There wasn’t an awful lot of newsflow for investors yesterday as they looked forward to tomorrow’s US CPI release, but the astonishing equity advance showed no signs of relenting just yet, with the S&P 500 (+0.09%) up for an 8th consecutive session to another record high. For reference, that’s the longest winning streak since April 2019, and if we get a 9th day in the green today, that would mark the longest run of consecutive gains since November 2004, back when George W. Bush had just beaten John Kerry to win a second term. It's also 17 out of 19 days up, which hasn’t happened since December 1971. All these records for various equity indices might seem jarring when you consider that there are still strong inflationary pressures in the pipeline, and with them the prospect of a renewed hawkish shift by central banks. However, the prevalent view among economists (which continues to influence investors) remains that those pressures will prove transitory and we’ll see price pressures diminish as we move through next year, hence enabling a steady lift-off in rates from central banks. Obviously it remains to be seen if that proves correct, but that’s still the prevailing view. And even though Covid-19 cases have begun to rise again in many countries, not least in Europe, the positive news from both Merck and Pfizer about a new pill that reduces hospitalisations and deaths offers societies another tool alongside vaccines to help prevent the overwhelming of healthcare systems going forward. And on top of all that, we’ve had a further dose of optimism from the latest payrolls data on Friday, which saw an above-consensus print along with positive revisions to previous months. With that in mind, it was another day of records across the board yesterday, with the NASDAQ (+0.07%), the Dow Jones (+0.29%), and Europe’s STOXX 600 (+0.04%) all ascending to fresh highs of their own. Cyclicals tended to outperform, and the small-cap Russell 2000 (+0.23%) was yet another index that hit an all-time high. Not even Tesla declining -4.84% after Elon Musk’s weekend Twitter poll over whether he should sell 10% of his stake was enough to derail things. Materials led the pack (+1.23%) with energy (+0.88%) close behind thanks to a fresh boost in commodity prices. By the close of trade, Brent Crude was up another +0.83% to $83.43/bbl, so still beneath its peak from a couple of weeks ago, but very much remaining in the range above $80/bbl that we’ve seen since the start of October. For sovereign bonds, however, the rally from late last week reversed, 5yr US Treasuries increased +6.1bps, bringing them back above last Thursday’s close, while yields on 10yr US Treasuries were up +3.8bps to 1.49%. Both were entirely driven by higher inflation breakevens, as 5yr and 10yr breakevens both increased +7.1bps. 10yr real yields sank -3.4bps to -1.13%, putting them less than 10bps away from their intraday low back in August of -1.220%. Over in Europe, it was much the same story of higher nominal yields thanks to rising inflation expectations, with yields on 10yr bunds (+3.7bps), OATs (+3.6bps) and BTPs (+1.7bps) all ending the session higher. Overnight in Asia stocks are trading in the red with the Shanghai Composite (-0.02%), Hang Seng (-0.07%), CSI (-0.30%), KOSPI (-0.29%) and the Nikkei (-0.66%) all down. In Japan, wages grew at +0.2% year-on-year in September (vs +0.6% consensus) and real wages actually fell -0.6% as prices rose faster. The new Prime Minister Kishida is expected to announce a stimulus package to boost Japan's recovery in an effort to shore up wages. Staying in Asia, strains on global supply chains continue with Bangladeshi truckers continuing their strike from Friday over a 23% hike in diesel prices. Protests are intensifying as diesel shortages have already sent prices upwards of 64% this year. Futures are indicating that the winning streak in the US and Europe might be under threat with S&P 500 futures (-0.25%) and DAX futures (-0.28%) both down. With all eyes on when we might get some news about the various Fed positions, another place opened up on the Board yesterday after Randal Quarles said that he would be resigning his position as a Governor at the end of December. Quarles had also been Vice Chair for Supervision, though his four-year term for that post came to an end last month. Quarles’ departure from the Fed Board means that there’s now another position at the Fed for President Biden to fill, with Jay Powell’s term as chair concluding in February, Vice Chair Clarida’s position on the board concluding at the end of January, and an additional vacant post on the Board on top of those. Staying on the Fed, yesterday we had the latest Survey of Consumer Expectations from the new York Fed, which showed that one-year inflation expectations hit a series high of 5.7%, while the 3-year inflation expectations remained at a joint-series high of 4.2%. Separately, we also heard from Vice Chair Clarida, who reiterated his belief that the necessary conditions “for raising the target range for the federal funds rate will have been met by year-end 2022.” The Fed also released its bi-annual Financial Stability Report after the closing bell last night. Timely, considering the record run equities have been on, the report noted that “asset prices remain vulnerable to significant declines should investor risk sentiment deteriorate, progress on containing the virus disappoint, or the economic recovery stall.” Other key risks the report mentions include stablecoins, retail-fuelled volatility, and structural vulnerabilities in money market funds. While on structural vulnerabilities, the Inter-Agency Working Group, five key US regulators, also released a progress report on potential Treasury market reforms. There are a number of reforms being considered; what is ultimately adopted will have a sizable impact on the shape of the Treasury market and demand for Treasury securities. To the day ahead now, and data releases includethe US PPI reading for October, along with that month’s NFIB small business optimism index. Over in Germany, there’s also the ZEW survey for November and the trade balance for September. Central bank speakers include Fed Chair Powell, ECB President Lagarde, BoE Governor Bailey and PBoC Governor Yi Gang, along with the ECB’s Panetta, Rehn, Knot and Schnabel, the Fed’s Bullard, Daly and Kashkari, and BoE Deputy Governor Broadbent. Tyler Durden Tue, 11/09/2021 - 08:08.....»»

Category: personnelSource: nytNov 9th, 2021

Here are 5 leading market experts" views on inflation as prices continue to rise

High inflation is likely to continue at least through next year -if not longer, markets experts said. Malte Mueller/Getty Images Malte Mueller/Getty Images Inflation is high, and five market experts have weighed in on where prices head from here. Paul Tudor Jones, Carl Icahn, Jeff Gundlach, Stanley Druckenmiller, Alan Greenspan . Inflation is "the single biggest threat" to society, Jones said previously. What do a tank of gas, a week's worth of groceries, your new home, a used car, and a back-to-school-outfit have in common?They've all gotten more expensive this year. Consumers are facing the highest prices in about a decade, and it's likely to stick around through at least the middle of next year. Many of the top market experts have begun sounding alarms over the trend.Here's what five of them have to say as inflation continues to increase.Paul Tudor JonesFor billionaire investor Paul Tudor Jones inflation is the number one problem facing society. "It's probably the single biggest threat to, certainly, financial markets, and I think to society just in general." Jones told CNBC in an Oct. 20 interview.Jones, the founder and chief investment officer of Tudor Investment Corporation, said it's clear that inflationary pressures aren't "transitory," considering the economy has overheated in part thanks to unprecedented levels of fiscal and monetary stimulus. He said equities, not fixed income assets like bonds, are much better investments in the "inflationary world."Carl IcahnMeanwhile, the legendary billionaire investor Carl Icahn suggests investors try bitcoin if they are looking to hedge inflation. "If inflation gets rampant, I guess it does have value," he said warily of the cryptocurrency.Icahn said inflation is taking hold - in a bad way."The market is certainly going to hit the wall. I really think there will be a crisis the way we're going, the way we're printing money, the way we're going into inflation," he said in an October CNBC interview.Jeff GundlachFor Jeff Gundlach inflation all comes down to two factors: wages and rent.The billionaire "bond king" and CEO of investment firm DoubleLine told CNBC in an Oct. 22 interview that those two factors are "waiting in the wings to keep things elevated." He said wages for lower salary jobs have risen to "sky high" levels, and soon, that trend will likely push up wages for supervisors as well. As for the cost of shelter, Gundlach said in the last six months, median rent has risen by more than 10%. "We're going to get persistently high inflation thanks to the shelter component," he said, adding that inflation is likely to stay above 4% at least through 2022. Stanley DruckenmillerDruckenmiller, on the other hand, thinks inflation will top 4% for at least the next four years, and the Federal Reserve will be late in raising interest rates to counteract it, Bloomberg reported.Just a year ago the billionaire investor and founder of Duquesne Family Office said inflation could reach as high as 10% with markets in a "raging mania." That party, he told CNBC at the time, will eventually end in a "hangover."Alan GreenspanGreenspan, the former chair of the US Federal Reserve, said "unprecedented amounts of government spending" and "burgeoning federal debt" may lead to higher inflation for a longer period of time. On top of that, Greenspan, who is now a senior economic adviser to Advisors Capital Management, raised alarms over demand-side inflation, where "too many dollars chasing too few goods and services," and supply-side inflation, where shortages in energy, transportation, and raw materials are prevalent. Read the original article on Business Insider.....»»

Category: personnelSource: nytOct 31st, 2021

Three Ways Government Spending Is Ripping Us Off

Three Ways Government Spending Is Ripping Us Off Authored by Cipriano Lemmo via The Mises Institute, For many decades the United States and almost every other country in the world have been haunted by fiscal deficits; however, normal people do not seem to realize how it can affect their lives and their well-being. Many people around the world simply do not care about how the fiscal policy of their respective country is and the governments use that lack of interest to advance their monstrous deficits. The problem seems to be that people do not think that government spending is related to them in any way.  Nonetheless, it is easy to demonstrate how deficits not only affect our lives but also are making us poorer. The first thing to know about government spending is that it’s financed by the taxpayers' dollars, so every time the deficit grows, the state is going to take more and more of our money in order to cover that. There are three ways that the bureaucrats steal from us to finance their populist measures, and those are taxes, debt (which counts as future taxes), and inflation. In the following paragraphs I will detail how each one of these works and show that everyone should be paying attention to what the government is spending. When the government chooses taxes as a way to finance their spending, it is easy to notice how that would have a terrible outcome for the entire economy. The state would take money away from the productive members of society, who are, of course, individuals and companies, translating to less savings, less investments, and less growth. As a consequence of smaller economic growth we get a poorer society and less well-being. The graphic below shows the relation between government spending and taxation since 1900 in the United States. Another option that governments often use and is significantly more popular than taxation is debt. The state borrows money from other countries or from private banks in order to pay the fiscal deficit; however, the debt does not magically disappear. The only difference between deficit and debt is that the second one is going to be paid in the future and it will have interest. Therefore, the debt is only making future administrations and future unborn humans pay for the current indecent spending. This means that future generations of individuals will be taxed by future administrations to pay for past fiscal deficits. Debt is more than just a loan, it is future taxation, it is taxation without representation (because many of those who are going to pay are not born yet) and it is, without a doubt, immoral. Finally, the last resource available for the government to pay for the fiscal deficit and destroy the taxpayers' savings is inflation, which is probably the most secret and destructive of the three options. This last tool used by politicians does not only involve the federal government, but it also involves the Federal Reserve in the United States and the central banks in other countries, because the government can decide to pay the deficit by using newly printed money. Of course, this is more common in countries where the central bank is directly dependent on the federal government. If the state and central bank decide to print money to cover the deficit, it will create the known phenomenon of inflation, whose consequences we all know are higher prices, loss of purchasing power, depreciation of savings, and more. The state destroys our currency to finance its colossal spending, and as if that were not enough, it mandates citizens to keep using the same devalued money. Each of these three ways for the government to pay for the fiscal deficit are already bad separately, but unfortunately, the state does not limit itself to one of these measures at the time but applies all of them at the same time and, as everyone can imagine, we have an economic disaster. Although we can see these kinds of criminal policies being applied almost everywhere, we need to take a special look at the states who practice them at the most extreme level, and a great example is Argentina, which had a deficit of 8.87 percent of gross domestic product (GDP) in 2020 and a debt of 102 percent of the GDP. The results are an inflation rate of 36.10 percent, a 42.00 percent poverty rate, a 10.50 percent rate of extreme poverty, and an unemployment rate of 11.67 percent in 2020. In other words, Argentina is complete and utter chaos, and it should serve as a lesson to every country around the world. Control the government spending or suffer the sad and inevitable consequences of disastrous policies. Argentina: A Case Study The Argentinian government has applied this recipe of high spending and huge debts for almost a century; however, to understand how the country reached the numbers mentioned before we should take a look at the last two decades of economic policy, specifically from 2001 to 2020. In 2001 Argentina had the biggest crisis of its history. The president resigned and a transitional government was put in place until the 2003 election. By the year of the election, the economy was naturally recovering from the crisis on its own, the GDP had grown 8.8 percent after dropping 10.9 percent two years before, Argentina had reached a surplus of 0.5 percent, and inflation was around 3.7 percent. This natural recovery (growth in the GDP, fiscal surplus, and one-digit inflation) kept happening; however, the new elected president, Nestor Kirchner (left-wing), was taking credit for it, and his government started to spend more and increase the size of the state. After Nestor left office in 2007, his wife, Cristina Kirchner, followed her husband’s policies and went even further: she nationalized several companies and expanded social programs. This caused the public spending to increase from 28.7 percent in 2007 to 42.2 percent in 2015. The debt increased (in absolute values) from more than $165 billion to more than $240 billion, and the inflation went from 8.83 percent in 2007 to 10.62 percent in 2013. In 2015 the Kirchner era ended, and the new president, Mauricio Macri, claimed he would solve Argentina’s problems; however, he was more of the same and kept applying the economic policies of the Kirchners. The bad economic policies of the last government therefore continued, and this added to the inability of the new government to implement reforms. As everyone would expect, the results were even worse under Macri’s administration, because although he applied the same Keynesian policies, the country was already broken, in contrast with when the Kirchners took power. In Mauricio Macri’s final year, we had 53.55 percent inflation, a deficit of 36.1 percent and a debt of more than $323 billion dollars (88.8 percent of the GDP). Now Cristina Kirchner has come back to power as vice president and obviously nothing has changed. If Argentina keeps going down the same path, with bigger deficits financed with higher taxes, bigger debt, and higher inflation, the outcome will be more poverty, more unemployment, and less well-being. Argentina is a most extreme case of what huge government deficits can cause, and its case shows why every citizen should hold the state accountable and pay attention to public spending. In the end, the people end up paying for the government’s immense bill with inflation, taxes, and poverty. Tyler Durden Thu, 10/28/2021 - 17:40.....»»

Category: personnelSource: nytOct 28th, 2021

A Tale Of Two Civilizations

A Tale Of Two Civilizations Authored by Alasdair Macleod via GoldMoney.com, In recent years, America’s unsuccessful attempts at containing China as a rival hegemon has only served to promote Chinese antipathy against American capitalism. China is now retreating into the comfort of her long-established moral values, best described as a mixture of Confucianism and Marxism, while despising American individualism, its careless regard for family values, and encouragement of get-rich-quick financial speculation. After America’s defeat in Afghanistan, the geopolitical issue is now Taiwan, where things are hotting up in the wake of the AUKUS agreement. Taiwan is important because it produces two-thirds of the world’s computer chips. Meanwhile, the large US banks are complacent concerning Taiwan, preferring to salivate at the money-making prospects of China’s $45 trillion financial services market. The outcome of the Taiwan issue is likely to be decided by the evolution of economic factors. China is protecting herself against a global credit crisis by restraining its creation, while America is going full MMT. The outcome is likely to be a combined financial market and dollar crisis for America, taking down its Western epigones as well. China has protected herself by cornering the market for physical gold and secretly accumulating as much as 20,000-30,000 tonnes in national reserves. If the dollar fails, which without a radical change in monetary policy it is set to do, with its gold-backing China expects to not only survive but be able to consolidate Taiwan into its territory with little or no opposition. Introduction On the one hand we have America and on the other we have China. As civilisations, America is discarding its moral values and social structures while China is determined to stick with its Confucian and Marxist roots. America is inclined to recognise no other civilisations as being civilised, while China’s leadership has seen America’s version and is rejecting it. Both forms of civilisation are being insular with respect to the other, and their need to peacefully cooperate in a multipolar world is increasingly hampered. Understanding another nation’s point of view is essential for peaceful harmony. This truism has been ignored by not just America, but by the Western alliance under American coercion. The Federal Government and its agencies are pursuing a propaganda effort against China’s exports and technology, while the average American appears less troubled. Perhaps we can put this down to a nation based on immigrants having a more cosmopolitan psyche than its predominantly Anglo-Saxon establishment. In Europe, it sometimes appears to be the other way round, with the politicians more prepared to tolerate China than their US counterparts. But then geography is involved, and the silk roads do not involve America, while rail links between China and Western Europe work efficiently, delivering vital trade between them. Economic interdependency is rarely considered. Nor are the potential consequences of diverging economic and monetary policies. While China has been squeezing domestic credit, the West has been issuing currency and credit like drunken sailors on shore leave. Being starved of extra credit, China’s economy has been deliberately stalled, and there is a real or imagined crisis developing in its property markets. Only now, it has become apparent that the West’s major economies are running into troubles of their own. Economic destabilisation heightens the risk of conflict, and perhaps the timing of the build-up of tensions in the South China Sea and over Taiwan is not accidental. On Wall Street there is an air of complacency, with the US investment community led by the big banks ignoring the developing risks of this dysfunction. In the context of deteriorating relations between China and America and with China’s growing contempt for US political resolve, Taiwan is becoming extremely important geopolitically. China’s plans for Taiwan Taiwan is in the world’s geopolitical crosshairs with President Xi insisting it returns to China. The West, which has failed to protect Taiwan from China’s claims of sovereignty in the past, thereby endorsing them, is only now belatedly coming to its aid with a new Pacific strategy. But the signals already sent to the Chinese are that the Western alliance is too divided, too weak to prevent a Chinese takeover. This surely is the reasoning behind China’s attempts to provoke an attack on its air force by invading Taiwan’s airspace. And all the West can do is indulge in finger-wagging by sailing aircraft carriers through the Taiwan Strait. Taiwan matters, being the source of two-thirds of the world supply of microchips. Faced with a pusillanimous west, this fact hands great power to China — which with Taiwan corners the market. Furthermore, the big Wall Street banks are salivating over the prospects of participating in China’s $45 trillion financial services market and are preparing for it. China has thereby ensured the US banking system has too much invested to support the US administration in any escalation of the Taiwan issue. The actual timing of China’s escalation of the Taiwan issue appears related to the AUKUS nuclear submarine deal. That being so, the posturing between China and the Western Alliance has just begun. There are four possible outcomes: China backs off and the tension subsides, America and the Western Alliance back off and China gets Taiwan, there is a negotiated settlement, or a military war against China ensues. In this context it is important to understand the civilisation issue, which increasingly divides China and America. There is little doubt that the hitherto normal relationship between America and China was disrupted by President Trump becoming nationalistic. His “make America great again” policy was a declaration of a trade war. That was accompanied by a political attack on Hong Kong, which provoked China into taking Hong Kong under direct mainland control. There followed a technology war, leading to the arrest of the daughter of Huawei’s founder in Canada. There appears to be little change in President Biden’s policy against China. Now that his administration has bedded in, China is beginning to test it over Taiwan. To give it context, we should understand the Chinese culture and why the state is so defensive of it, and how the leadership views America and its weaknesses. For that is what is behind its economic divergence from the West. China’s changing political culture Since becoming President, Xi has reformed China’s state machinery. After assuming power in 2012, he needed to clear out the corrupt and vested interests of the previous regime. He instigated Operation Fox Hunt against corrupt officials, who, it was estimated, had salted away the equivalent of over a trillion dollars abroad. By 2015 over 180 people had been returned to China from more than 40 countries. Former security chief Zhou Yongkang and former vice security minister Sun Lijun ended up in prison and Hu Jintao’s powerful Communist Youth League faction was marginalised. By dealing ruthlessly with corrupt officials Xi got rid of the vested interests that would have potentially undermined him. He consolidated both his public support and his iron grip on the Communist Party for the decade ahead. His public approval ratings remain extraordinarily high to this day. On the economic front Xi faced major challenges. Having become the world’s manufacturer, a sharp wealth divide opened between China’s concentrated manufacturing centres and rural China. Some 600 million people are still subsisting on a monthly income of less than 1,000 yuan ($156) a month. A rapidly increasing urban population has been denuding the rural economy of human resources and undermining the family culture. The wealth disparity between city and country has become an important political issue, which is why as well as refocusing resources towards agriculture Xi has clamped down on super-rich entrepreneurs and their record-breaking IPOs. In his Common Prosperity policy, Xi declared that he was not prepared to let the gap between rich and poor widen, and that common prosperity was not just an economic issue but “a major political issue related to the party’s governing foundations”. Following decades of communism under Mao, after China’s initial recovery and development Xi is now clamping down on unfettered capitalism. He and his advisers have observed the disintegration of family values in America and the rise of individualism at the expense of family life; and with popular culture how these trends are being adopted by China’s youth. The state has now shut down western-style social media, and erased celebrity culture. The social impact of cultural change is often overlooked, but it is at the forefront of China’s policy-makers’ consideration. For millennia, a state-controlled Chinese civilisation endured. Despite the Cultural Revolution, the post-war Mao Zedong years failed to erase it. Never sympathetic to free markets, statist thoughts have turned inwardly to Confucius and Marx to escape the obvious failings of American capitalism and its decline from familial values to individualism and rampant speculation. This is what Xi reflects in his presidency. His chief adviser, his éminence grise, is Wang Huning who operates in the political shadows. From all accounts, Wang is extremely clever, speaks French and English, spent a year in America and is a deep thinker who, having examined them, has rejected western values in favour of Chinese tradition. NS Lyons, an analyst and writer living in Washington, DC, has written an interesting article about Wang, published on Palladium Magazine — it is well worth reading. As we saw with the UK’s temporary éminence grise, Dominic Cummings, the power to influence possessed by such a person is considerable, but always in a statist context. The economics of free markets are not involved, except as a source of revenue to fund statist ambitions. The result is an assumption, an ignorance of economic affairs concealed by an automatic acceptance of the status quo. This is Wang’s weak point, and insofar as Xi relies on his advice, it is the President’s as well. Wang appears to be promoting a Confucian/Marxist hybrid civilisation which is intended to unify China’s many ethnic groups in a government-set culture, reverting to a morality of yesteryear. Comparing China’s future with that of American democracy and its moral degradation, the approach is understandable and enjoys popular support. But the consequences are that the state is drifting backwards towards its Marxist roots. The central command over the economy is exemplified in energy policy: power entities have been instructed to keep factories running without power outages, irrespective of coal and natural gas costs. In fact, the management of the economy was never relinquished by the state, which is now redoubling its efforts to retain control over economic outcomes. All one can say is that so far, the Chinese appear to have made considerably less of a mess managing their economy and currency compared with America’s Federal Government and its central bank. The political consequences are also important. By stemming the tide of Western moral decadence in her own territory China is insulating herself from the rest of the American-dominated world. This is being bolstered by steps to shift the emphasis from the export trade towards domestic consumption to improve living standards. In the process China will become more of an economic fortress, mainly interested in Africa and the Americas as sources of raw materials and commodities rather than as export markets to be fostered. China’s internationalism of the last four decades is increasingly redirected and confined to the Eurasian continent over which she exercises greater degrees of political and economic control. Which brings us back to the issues of Taiwan and the South China Sea, which China sees as consolidating her rightful political and cultural borders. However, the increasing autarky of both China and America is making the Taiwan issue more difficult to resolve peacefully. And we must also consider the opposing directions of drift for their two economies, which could decide the outcome. The US’s economic condition and outlook There is a mistaken assumption that the US’s economic troubles relate solely to the consequences of the covid lockdowns. Certainly, the Fed timed its funds rate cut to the zero bound and its current and unprecedented rate of quantitative easing of $120bn every month to March 2020, when lockdowns in Europe and the UK commenced. And it was becoming clear, despite President Trump’s prevarication, that the US would follow. But that ignores developments which preceded covid. Probably due to earlier tapering of QE in 2019, financial markets signalled a developing slump, with the S&P 500 falling 35% in 23 trading sessions to mid-March 2020 — eerily replicating the Wall Street Crash between end-September and late October 1929. It took the reduction of the Fed funds rate to the zero bound, and $120bn of monthly QE feeding into pension funds and insurance companies to turn markets higher. The yield on 10-year US Treasuries fell to 0.5% and equities markets soared on the back of a new basis of relative valuation. After the repo blow-up in September 2019, it became clear that bank balance sheets were too constrained to extend additional bank credit, and conventionally, that might have marked the turn of the bank credit cycle, which was why the comparison with late-1929 was so apt. Furthermore, the banks became less interested in extending credit to Main Street than to Wall Street after financial markets stabilised. The recovery in equities and their move into new high ground is simply asset inflation. Speculators have been quick to add to the Fed’s QE liquidity by drawing on bank and shadow bank credit to play the game. Figure 1 shows how margin loans have nearly doubled as the bull market in equities proceeded from late-March 2020. Never has so much leverage been seen in US securities markets. During covid lockdowns, beyond pure survival few in industry made judgements about the future. It was commonly assumed that when lockdowns ceased business would return to normal. But this made no allowance for the passage of time and the evolution of consumer needs and wants. Eighteen months later, we find that supply chains are still wrongfooted, disrupted by covid shutdowns and not supplying newly needed goods. Consumer demand patterns are not where they left off — they have radically changed. Buoyancy in the US economy is now proving short-lived. The flood of initial spending following lockdowns has receded and different factors are now at play. Supply bottlenecks due to lack of components, transport, and labour are forcing up prices at a pace not reflected in official statistics. In effect, GDP is insufficiently deflated by price rises on the high street to give a reasonable estimate of real GDP. With prices probably rising at over 15% annualised (Shadowstats.com estimated 13.5% three months ago and pressures on rising prices have increased significantly since) the US economy is in a slump which is beginning to replicate that of ninety years ago. The difference is that in 1930-33 the dollar was on a gold coin standard increasing its purchasing power as bank credit was withdrawn, while today it is pure fiat and declining at an increasing pace. Rising prices across the board are another way of saying that the currency’s purchasing power is declining, which given the Fed’s monetary policies of recent years is not surprising. Figure 2 shows the impact of the Fed’s monetary policy on commodity prices, which reflects the dollar’s weakness as a medium of exchange. Given that it takes anything between a few weeks and six months for energy and commodity prices to work through to consumer prices, the recent spurt in commodity prices strongly suggests that consumer prices are going to continue to rise into next year. Yet, only now are the Fed and other central banks beginning to accept that rising prices are not going to be as temporary as they first hoped. This is because it is not prices rising, but the dollar’s purchasing power falling. When they fully realise it, foreign holders of dollars, totalling $33 trillion held in securities, short-term instruments, and bank deposits will require higher interest compensation to persuade them to continue holding dollars. And this is where a conflicting problem arises. A rise in interest rates sufficient to compensate foreign holders of dollars for the currency’s loss of purchasing power will undermine the values of their US stock holdings, totalling $14 trillion, of which $12 trillion is held by private sector foreign investors. Furthermore, a further $12.5 trillion of foreign private sector funds are invested in long-term bonds which will also decline in value. Higher interest rates will certainly trigger private sector selling of these assets across the board. The fate of $6.6 trillion of foreign official holdings of long-term securities will be partly political, demonstrated by the most recent Treasury TIC figures which showed China selling $21bn of US Treasuries, and Japan and the UK buying $39bn between them. This is strongly suggestive of swap lines being drawn down to support the US Treasury bond market, while presumably the US, either through the Treasury, the Exchange Stabilisation Fund, or the Fed itself has bought JGBs and gilts as the quid pro quo. It is worth noting this point because it shows how low bond yields are perpetuated by cooperation between major central banks – along with the attendant monetary inflation. That being the case, private sector holders are misled by price stability while bonds are being wildly overvalued. Another way of looking at it is that if John Williams at Shadowstats is right about inflation statistics, then US Treasuries should be yielding as much as 10% along the whole yield curve. Perhaps the recent rise in the 10-year US Treasury yield in Figure 2 is indicating the start of the process of this discovery for foreign and domestic investors alike. The chart shows that once the 1.75% level is overcome, there is considerable upside in the yield, with a golden cross forming under the spot value. If yields rise from here, it will not be long before equity markets take note and enter a full-blown bear market. The first reaction from the Fed to these events will almost certainly be to claim that falling equities are a leading economic indicator, suggesting the economy faces a post-covid recession. Interest rates cannot be eased further, but QE can be stepped up to cap bond yields and encourage pension funds and insurance corporations to increase their investments. This would be a U-turn from the projected policy of reducing QE due to inflation concerns. But at that point the neo-Keynesian argument can be expected to claim that the developing recession more than negates prospective inflation concerns. Facing the same dynamics, the other leading central banks are certain to fall in line with the Fed’s new policy. But as John Law found in a similar situation in France in 1720, rigging a failing stock market (in his case the Mississippi venture) by currency and credit expansion ultimately fails and undermines the currency. Law destroyed the French economy, contrasting with the British South Sea Bubble, where the Bank of England was not involved and did not deploy its currency to ramp markets. Today, it appears that Law’s experiment is about to be repeated on a grander scale by the issuer of the world’s reserve currency. The other major western central banks will follow suite. The whole fiat money system is at risk of being driven into a similar failure as that which faced the French livre. So, where would that leave China? China’s economic and monetary outlook As noted above, China has followed a different monetary path from that of the Fed for some time — most pointedly since March 2020. Consequently, the yuan has risen against the dollar since then, illustrated in Figure 4. After some initial uncertainty, the yuan began to rise against the dollar and is now about 10% up on the late-March 2020 level. This is not significant yet, because the dollar’s trade-weighted index has fallen by a similar amount. But with China’s monetary policy of clamping down on shadow banking and excessive bank credit creation, compared against the Fed’s more expansionary monetary policies, we can expect the trend for a stronger yuan relative to the dollar to continue. In neo-Keynesian language, China is in a period of deflation, leading to falling prices relative to those measured in dollars. But that misses the point: China has been careful not to encourage speculation in financial assets, reflected in relative stock market performances, shown in Figure 5. While the Fed has been inflating stock prices through interest rate and monetary policies, the Chinese have discouraged speculation. The result is that financial assets in China should be less vulnerable to a general market downturn. It has been a deliberate policy to protect the Chinese economy from 2014 onwards, after the PLA’s chief strategist, Major-General Qiao Liang convinced Beijing that permitting unfettered speculation would leave markets vulnerable to a pump-and-dump attack by America. To the Chinese, excessive financial speculation aided and abetted by the Fed must look like a cover for underlying economic failure. Every thread of their analysis must point to economic disintegration from which China must protect herself. Rates of credit expansion must be restricted, and the yuan be permitted to rise on the foreign exchanges. The change in policy emphasis from export markets towards increasing domestic consumption should be accelerated. In any event, China is the world’s dominant manufacturer, so she has a good degree of control over prices in international trade for consumer goods anyway. The prices of imported commodities and raw materials matter more today and rising dollar prices for commodities and energy can be countered by a higher exchange rate for the yuan. The state’s policy of least risk is to quietly divorce the Chinese economy from the dollar’s influence. In switching some of its trade into the yuan and other currencies, it has been doing this since the Lehman failure, which was another seminal moment in Chinese thinking. The cultural analysis is that America is now destroying its own currency towards a terminal event, an outcome forecast by economics professors in China’s Marxist universities over fifty years ago. The post-Mao ride, piggybacking on American capitalistic methods, is no longer tenable. The golden backstop Like the Marxist professors in the universities, China’s thinkers, such as Wang Huning and President Xi himself, always believed America to be politically and morally rudderless and would destroy itself. Presumably the election of an unpredictable Trump followed by a President Biden who appears to be in a geriatric decline is seen in Beijing as evidence that American society is indeed rudderless and imploding. It was against this likely event that in 1983 far-sighted Chinese strategists began to accumulate gold and to corner the word market for bullion. It would have been obvious to them that one day, dancing with the capitalist devils would become too dangerous and China’s future would have to be secured at the outset long before a capitalist collapse. Accordingly, the Regulations on the Control of Gold and Silver were promulgated on 15 June that year, appointing the People’s Bank (PBOC) with sole responsibility for managing China’s gold and silver while private ownership remained banned. The PBOC then began to acquire gold from foreign markets, a task made easier by the 1980-2002 bear market. Meanwhile, the government threw substantial resources into developing gold mining, and became the largest gold producer in the world by a substantial margin, overtaking South Africa, Russia, and the United States. State owned refineries took in doré from abroad, adding to the accumulation. It was only after the PBOC had accumulated sufficient bullion from imports and domestic production that she set up the Shanghai Gold Exchange in 2002 and permitted Chinese citizens to acquire gold. The government even ran advertising campaigns encouraging the purchase of gold, and since then, over 19,000 tonnes have been delivered into private sector ownership from the SGE’s vaults. Together with the total ban on exports of Chinese refined gold, the pre-2002 ban on private ownership while the state acquired sufficient bullion for its purposes, coupled with the subsequent encouragement to the public to do the same, China clearly regarded gold as her most important strategic asset. It has still not shown its hand, but given the likely amounts involved, to do so would risk destabilising the dollar-centric fiat currency world. Until it happens, we should assume that the 20,000-30,000 tonnes likely to have been accumulated in various state accounts since 1983 is an insurance policy against the failure of American capitalism and the world’s reserve currency. This brings us back to the Taiwan question. For China, the re-absorption of Taiwan may become a simpler matter when the capitalistic Americans are economically at their weakest and the dollar is collapsing. Taiwan itself might face up to this reality. A few steps to push America on its way may be tempting, such as selling down their holdings of US Treasuries (already in process) or disclosing a significantly higher level of gold reserves. The latter may wait until a dollar crisis really develops, which is now surely only a matter of a little time. Tyler Durden Sat, 10/23/2021 - 22:30.....»»

Category: personnelSource: nytOct 24th, 2021