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Experts Address Inflation Fears During RISMedia Panel

An ongoing and historic rise in inflation has shaken not just the real estate industry, but has affected nearly every business and consumer across the country. With December’s Consumer Price Index (CPI) topping 7% year-over-year—the largest increase since 1982—real estate professionals are asking just how profound the impacts will be on their clients and markets. […] The post Experts Address Inflation Fears During RISMedia Panel appeared first on RISMedia. An ongoing and historic rise in inflation has shaken not just the real estate industry, but has affected nearly every business and consumer across the country. With December’s Consumer Price Index (CPI) topping 7% year-over-year—the largest increase since 1982—real estate professionals are asking just how profound the impacts will be on their clients and markets. At RISMedia’s Real Estate Rocking in the New Year virtual event earlier this month, some of the industry’s most respected and influential minds came together to break down the potential for disruption, likely future trends, and actionable steps to take for real estate brokers in the face of these alarming numbers. “I think in 2022 we’re still going to see a really robust market once again. I’m very optimistic about it,” said Joan Docktor, president of Berkshire Hathaway HomeServices Fox & Roach. Even with mortgage rates already ticking up and likely to increase further this year, Docktor and the other expert panelists broadly agreed that demand for homes would not be significantly hampered and home prices would continue to appreciate. On the other hand, Scott MacDonald, broker/owner of RE/MAX Gateway said that inflation has pushed the cost of new home construction to dizzying heights, with building materials still seeing costs climb 500% and that could push some out of the market. “You’re going to see all these costs passed over to consumers as a result of that,” he warned. “People are going to get more concerned about how they’re spending money, and it’s going to be a challenging time for consumers and for purchasers of new homes.” But for anyone who can afford a home should not be discouraged, he added, as home price appreciation has always been a good hedge against long-term inflation. Sarah Richardson, CEO & founder of TruRealty, pointed out that rising rents are going to push more people to buy despite continued low inventory and inflationary pressures. “Consumer confidence is very strong, I think it’s going to remain very strong, but we could probably use a little bit more inventory to help some of those buyers fulfill their dreams in becoming a homeowner,” she said. That lack of inventory is affecting everyone, the panelists said, and there is no quick solution to that. But Docktor posited that prices might “taper off” once inventory opens up as more normalcy returns to life and people have babies, get married and change jobs, resulting in more existing home sales. Panel moderator Dan Kruse, CEO/president of Century 21 Affiliated said he has heard concerns that the number of home sales overall would drop in 2022 in response to inflation and continued low inventory—a question that has seen disagreement from experts so far. As the “sticker shock” of inflation wears off, though, Richardson said she looks at the macroeconomic fundamentals continuing to indicate continued strength in the real estate market. “I still think people are making more money, there are jobs out there. The economy is really, really strong, so 2022 is still going to remain strong. I think we’re still going to remain a seller’s market,” she predicted. As far as what real estate business owners need to do in the face of these still-unprecedented times, MacDonald said that educating agents will be the most important step to take as both consumers and real estate professionals encounter confusing and often conflicting information about inflation and markets. That includes the kind of national expert commentary and predictions provided by the panel, as well as hyperlocal market info about open house traffic, offers and home sales. “Being ahead of the game and being up to date with the trends is something we need to have our agents know, so they can take that information that we provide them, to share with the clients,” MacDonald said. “Getting that information and relaying it out to your agents is critical.” For business owners trying to save money this year, Docktor said that having agents in the office less—something that was already a trend in real estate before the pandemic—gives business owners an opportunity to find efficiencies with hybrid work models, balancing culture with flexibility. Consolidating smaller offices is even an option, she added, which can also create new synergies for back-office operations and infrastructure. “You really need to study the market, study what your agents want, make sure you are able to give that to them,” she said. “Make sure that you have the space that they need, but you don’t have that overflow of space that you don’t need because space and employees are your most expensive costs.” An overall positive outlook on 2022’s possibilities in the face of inflation, however, should have real estate business owners pushing forward rather than pulling back, according to Kruse, as short term worries and uncertainty are very likely to morph into another big year for real estate. “We’re all looking at the industry and saying there’s a positive time ahead of us and what 2022 has in store,” Kruse said. Missed the event? Replays including every panel and expert interview are available here. Jesse Williams is RISMedia’s associate online editor. Email him your real estate news ideas to jwilliams@rismedia.com. The post Experts Address Inflation Fears During RISMedia Panel appeared first on RISMedia......»»

Category: realestateSource: rismediaJan 14th, 2022

NAR 2022 Forecast Focuses on Inventory, Affordability and Equity

With one spectacularly unique year coming to a close and the start of a particularly uncertain year looming, the National Association of REALTORS® (NAR) held a virtual Forecast Summit bringing together a swath of experts to hopefully provide both perspective on the wild ride of 2021 while shining a light on the opportunities and challenges […] The post NAR 2022 Forecast Focuses on Inventory, Affordability and Equity appeared first on RISMedia. With one spectacularly unique year coming to a close and the start of a particularly uncertain year looming, the National Association of REALTORS® (NAR) held a virtual Forecast Summit bringing together a swath of experts to hopefully provide both perspective on the wild ride of 2021 while shining a light on the opportunities and challenges of 2022. Featuring insights from dozens of economists and industry insiders, NAR Chief Economist Dr. Lawrence Yun and Vice President of Demographics and Behavioral Insights, Dr. Jessica Lautz, led discussions and presentations looking at data, projections and insights on everything from long-term demographic-driven trends to current federal legislation to racial gaps in equity and homeownership. “2021 has certainly been a year unlike any other—what will 2022 bring?” asked new NAR President Leslie Rouda-Smith. “We are here today to look into the future. We don’t have a crystal ball, but much of the success REALTORS® had in 2021 was due to insight.” In the shadow of rocketing inflation and a housing market that was severely restricted by supply-side limitations, the speakers quickly highlighted the top-line concerns that real estate professionals should be looking at next year. “One thing we already know about next year is our country’s inventory shortage and the resulting affordability crisis will still be acute,” Rouda-Smith said. According to Todd Richardson, who heads up the research division of the federal office of the United States Department of Housing and Urban Development (HUD), the country is between 5 to 6.8 million housing units short going into 2022, many of them concentrated in the affordable housing sector. “The pandemic has made that problem worse,” Richardson said. “To solve that requires innovation and out-of the-box thinking. It also requires knowing what is going on.” Other high-level predictions from Yun and other economists surveyed included home prices rising around 5% and mortgage rates climbing to around 3.7% by the end of the 2022, along with unemployment falling only slightly from the rate of 4.2% it sits at now. For this last metric, though, Yun warned that many states still are well below the number of jobs they had pre-pandemic as people have dropped out of the workforce, meaning some of the optimism coming out of those broad unemployment numbers could be misleading. Richardson and others spent some time speaking about programs in the currently proposed Build Back Better bill, which remains jammed up in the Senate. Billions of dollars for first-time homebuyer support, the Low Income Housing Tax Credit, zoning reform and rental housing vouchers could all help alleviate these pressures, according to Richardson and several of the other experts. “There’s a lot of regulatory changes and movement happening and I would encourage REALTORS® to be a part of that,” said Andre Perry, a fellow at the Brookings Institute. Discussion of the Build Back Better housing programs—which NAR and numerous other housing advocacy organizations have zealously lobbied for—sparked a lively political discussion in the virtual chat, which was locked early on in the panel. Ken Johnson, a former real estate broker and professor at Florida Atlantic University, was less optimistic about price growth. “I do think some markets are significantly overpriced at this time, but most are not as overpriced as they were 15 years ago. So we’re going to get a mixed bag result,” he said. The effect around the country will not be uniform.” Johnson highlighted Miami, Florida, as a metro with relatively accurate price growth by underlying measures, while calling out Detroit, Michigan, as an area that was likely overvalued in the medium- to long-term. As far as regions, Yun also highlighted ten “hidden gems” where he expected a hot market in 2022, with nearly every single one of these areas in the South. These towns were centered on Fayetteville, Arkansas; Knoxville, Tennessee; Spartanburg, South Carolina; Dallas-Ft. Worth, Texas; Huntsville, Alabama; Daphne, Alabama; San Antonio, Texas; Tucson, Arizona; Pensacola, Florida; and Palm Bay, Florida. The Big Challenges A number of panelists, ranging from government officials to academics, emphasized that without significant regulatory shifts, as far as zoning and funding, there is no realistic way to overcome an inventory and affordability crisis that has been accelerated by the pandemic. “For those REALTORS® who live in expensive coastal cities, we are on an unsustainable track as far as housing price appreciation,” said Issi Romem, a fellow at the UC Berkeley Terner Center for Housing Innovation. “Densify, do not revert to sprawling…that needs to be allowed to happen. You gotta remind people.” The kind of restrictive zoning that swallows up big tracts of land and prevents any kind of dense building, which is most prevalent in coastal markets, will have to be modified to keep a healthy housing market according to economists and other panelists who spoke. Romen urged REALTORS® to “sympathize” with the ongoing movement to diversify zoning, “even if you don’t like seeing your neighbors get a second story window that can look into your backyard.” “It’s for the greater good,” he said. Because a large portion of jobs will still require or encourage people to live physically close to an office or other location (Romem said most metros will have around 30% remote offerings for their labor force), even cities like San Francisco will have to expand housing offerings or end up with “Manhattanization,” where only the ultra-rich can afford to buy anything. Racial equity was another big topic, with Perry citing a study he had led in 2018 that showed homes of similar qualities in Black neighborhoods are valued 23% less than other neighborhoods, costing Black homeowners $156 billion cumulatively. Despite this, federal legislation and other trends during the pandemic have given opportunities to address this, according to Perry. “We saw a spike among Black millennials, particularly Black women, purchasing homes,” he said. “People were able to save more, people were not using their discretionary income for bars and clothing and such.” A pause on student loan payments was also helpful, he added, but a lack of intergenerational wealth continues to hamper prospective Black homebuyers. Other large term demographic trends that will affect real estate include a huge drop in the birth rate and marriage rate, according to Lautz. In 2021, 31% of households had a child in the home, compared to 58% today. This so-called “baby bust” could have extremely broad implications for the real estate market, with families less likely to move, upsize, downsize or renovate based on the life stage of their children. “All those factors are removed,” she said. At the same time, prospective buyers still are very much interested in having a real estate agent “who they trust, is honest and will help them navigate” the home-buying process, according to Lautz, with a survey showing 87% of potential buyers would prefer to have an agent of their own rather than work with a seller directly or a builder. iBuyers were “a statistical 0” as far as that data, according to Lautz. Jesse Williams is RISMedia’s associate online editor. Email him your real estate news ideas to jwilliams@rismedia.com. The post NAR 2022 Forecast Focuses on Inventory, Affordability and Equity appeared first on RISMedia......»»

Category: realestateSource: rismediaDec 17th, 2021

Year-End Outlook: Climbing Mortgage Rates Strain Buying Power in 2022

Editor’s Note: RISMedia’s Year-End Outlook series provides an in-depth analysis of the housing market’s leading indicators for economic health, and showcases expert insights on what’s to come in 2022.  Homeowners will likely look at the past year of mortgage rate performance with fondness or even regret as the days of historic lows fade. Based on […] The post Year-End Outlook: Climbing Mortgage Rates Strain Buying Power in 2022 appeared first on RISMedia. Editor’s Note: RISMedia’s Year-End Outlook series provides an in-depth analysis of the housing market’s leading indicators for economic health, and showcases expert insights on what’s to come in 2022.  Homeowners will likely look at the past year of mortgage rate performance with fondness or even regret as the days of historic lows fade. Based on recent Freddie Mac reports, 30-year fixed-rate mortgages (FRM) at 3.14%, are breaking from months of sub-3% lows that captured headlines throughout 2021. Economists and real estate experts agree that recent upticks in rates mark an inevitable trend that is likely to last well into the next year as the housing market heads toward its post-pandemic equilibrium. “We expect a somewhat gradual increase throughout the rest of this year and going into 2022,” says Joel Kan, chief economist at the Mortgage Bankers Association (MBA), which expects rates to climb gradually to nearly 4% by the end of next year. While that serves as the highest prediction compared to other reports, that isn’t far off from the consensus that rates will fall somewhere between the mid-to high-three percentile by the close of next year. Kan attributes that forecast mainly to the relatively strong economic recovery that the nation has experienced since the outbreak of COVID-19 in March 2020. Another factor contributing to the upward pressure on mortgage rates comes from the Fed, and their plans to address higher inflation by tapering asset purchases, according to experts from the National Association of REALTORS® (NAR). “The Federal Reserve is getting nervous about rising and persistently high inflation rates,” says Lawrence Yun, NAR chief economist. “Therefore, the Fed will be tapering the purchases of mortgage-backed securities later this year and raising short-term interest rates in 2022.” Market Implications The impacts of higher mortgage rates have been discussed at length among real estate pundits and stakeholders that have raised concerns that higher rates would pause market activity. Yun admits that higher rates will shave home sales modestly, but he doesn’t think it will be drastic. His colleagues echoed similar sentiments, but also note that higher rates will play a larger part in persisting affordability challenges. “Typically, we say that an increase in rates, at least if it’s not too severe, doesn’t tend to impact demand quite as much because if someone is looking to buy a home, interest rates and mortgage rates are one part of the equation,” Kan says, pointing to record-level home price appreciation as another factor straining buyers. As mortgage rates ascend, Kan also indicates that refinancing activity will likely take a substantial hit, dropping by more than 60% in 2022. “We’ve been in this lower rate environment for the last year and a half, and we’ve seen a lot of refinances,” he says, noting that 2020 was a banner year for mortgage originations and refinancing under record low rates that lasted well into 2021. Matthew Gardner, the chief economist at Seattle-based Windermere Real Estate, says higher rates could also discourage some would-be buyers that have grown accustomed to the “artificially low mortgage rates” of the past year and a half. “One of the biggest things regarding the increase in rates is that they certainly will act as a headwind to home-price growth,” says Gardner. He explains that for every 1% point increase in rates, that buying power for consumers declines by roughly 10%. However, despite the increase in rates, Gardner doesn’t see a cause for concern in the market, which he suggests will remain competitive with a persisting supply-demand gap as mortgage rates are still relatively low, when compared to previous years. Historically, Gardner says the long-term average for mortgage rates since the 30-year FRM was established has been around 7.5%, with the last peak of 4.87% occurring in November 2018. “It is still remarkably low when you consider it in the bigger picture,” Gardner says. Buyer Behavior  Considering the prognosis for mortgage rate increases in 2022, real estate brokers and leaders have mixed feelings about how buyers are likely to react in the cooling market with additional strain affordability. In Austin, Texas, Buddy Shilling, president of the Austin Divisions of JBGoodwin REALTORS®, says an increase in rates isn’t likely to harm his activity in the coveted area, which has seen an increase in significant employers migrating into the Texas city. “If the rate climbs, Austin is in a good position because many of the new jobs being created in the city are higher-paying ones,” Shilling says, adding that an abundance of developable land and affordable home options will continue to make the Texas city a desirable destination for buyers. “Even if the interest rate goes up, less expensive, affordable homes will be available just a few minutes away,” Shilling adds. Lynn Chute, vice president of HomeSmart Realty’s office in Denver, Colorado, expects rising rates to create some buyer hesitation in her market. However, she says the pause in buying will be short-lived, with still relatively low rates up for grabs. “Buyers will need to make some adjustments, but the ultimate goal of homeownership is still well within reach,” Chute says. “With the drastic increase in rental rates, the benefits of homeownership still outweigh the cost of renting, even with a small rate increase. Buying a home continues to be one of the best long-term investments you can make.” A similar point was raised in a recent interview and panel virtual panel discussion conducted by CNN that featured real estate leaders offering their market predictions. The interview featured Barbara Corcoran, founder of Corcoran Real Estate. The subsequent panelists were Glenn Kelman, CEO of Redfin; David Doctorow, CEO of realtor.com®; and Ryan Williams, founder and CEO of Cadre. Corcoran noted during her interview that rising mortgage rates would add to affordability issues that are already straining the market and squeezing buyers out. “When you do the math on what you pay for your monthly expenses on a house with a 1% increase in mortgage rates, it’s substantial,” she said, noting that aspiring buyers waiting to enter the market may be at risk of being left behind as overall living expenses increase. When asked if she thought rising rates would dissuade people who have gotten used to low rates, Corcoran said, “I don’t think there is cause for panic.” “I don’t think any financial expert is predicting that rates are going to spike,” she said while also opining on the Fed’s plan to incrementally increase interest rates and the potential implications to mortgage rates. “It’s in everyone’s interest to keep the housing market going, so I think that you’re going to find that the bureaucrats are going to be extremely cautious on raising rates, but they will raise rates, but I don’t think the climb will be fast and furious,” Corcoran said. Doctorow agreed with Corcoran’s sentiments, stating, “As consumers think about affordability, it’s really important to understand the two factors—the price of the home and the mortgage rates—together and ultimately try to put themselves in a position to get the most home that they can knowing that interest rates may edge up over time,” Doctorow added. Jordan Grice is RISMedia’s associate online editor. Email him your real estate news to jgrice@rismedia.com. The post Year-End Outlook: Climbing Mortgage Rates Strain Buying Power in 2022 appeared first on RISMedia......»»

Category: realestateSource: rismediaNov 3rd, 2021

Americans" inflation expectations declined sharply in July, New York Fed says

A New York Federal Reserve survey out on Monday showed that consumers expect inflation to decline sharply over the next year as the central bank raises interest rates. Consumer expectations for where inflation will be one year from now fell sharply in July, according to a key Federal Reserve Bank of New York survey published Monday, a potentially reassuring sign for the U.S. central bank as it tries to cool surging prices.  The median expectation is that the inflation rate will be up 6.2% one year from now, a major decline from the 11-year high of 6.8% recorded in June, according to the New York Federal Reserve's Survey of Consumer Expectations. Three years from now, consumers see inflation cooling off slightly to 3.2% – down from the 3.6% recorded last month.  Consumers anticipate that prices will drop even further over the next five years, projecting that the inflation rate will hover around 2.3% in 2027. "Median inflation uncertainty—or the uncertainty expressed regarding future inflation outcomes—declined slightly at both the one- and three-year-ahead horizons," the report said. "Uncertainty at the five-year-ahead horizon decreased more substantially." JULY JOBS REPORT 'SCORCHER' RAISES ODDS OF ANOTHER SUPER-SIZED FED RATE HIKE The report is based on a rotating panel of 1,300 households. The survey plays a critical role in determining how Fed policymakers respond to the inflation crisis. That is because actual inflation depends, at least in part, on what consumers think it will be. It is sort of a self-fulfilling prophecy – if everyone expects prices to rise by 3% in the year, that signals to businesses that they can increase prices by at least 3%. Workers, in turn, will want a 3% pay raise to offset the rising costs.  A steeper-than-expected increase in inflation expectations in May actually prompted Fed officials to approve the first 75 basis point interest rate hike since 1994 on fears that higher prices were becoming entrenched.  In explaining the Fed's decision during a post-meeting press conference, Chairman Jerome Powell said policymakers were looking for evidence that monthly inflation was flattening or starting to fall. With consumer prices repeatedly surprising to the upside and inflation expectations unexpectedly climbing higher, officials determined that "strong action was warranted," he said. US ECONOMY ADDS 528,000 JOBS IN JULY, BLOWING PAST EXPECTATIONS "One of the factors in our deciding to move ahead with 75 basis points today was what we saw in inflation expectations," Powell told reporters during a press conference after the meeting. "We're absolutely determined to keep them anchored at 2%. That was one of the reasons – the other was just the CPI reading." Policymakers approved another 75 basis point hike in July and suggested that another increase of that magnitude is on the table in September, hinging on the forthcoming economic data. The hotter-than-expected July jobs report – which showed the economy unexpectedly added 528,000 jobs last month – already has many market experts pricing in another three-quarter percentage point jump when the Fed meets in September.  GET FOX BUSINESS ON THE GO BY CLICKING HERE The new inflation expectation projections come just a few days before the release of new consumer price index data, which is expected to be another doozy: Economists surveyed by Refinitiv expect that inflation surged 8.7% in July on an annual basis; while that's down from June's high of 9.1%, it remains well above pre-pandemic levels. .....»»

Category: topSource: foxnewsAug 8th, 2022

The Challenges Ahead For Britain"s New Prime Minister

The Challenges Ahead For Britain's New Prime Minister Authored by Alasdair Macleod via GoldMoney.com, Britain’s next Prime Minister must address two overriding problems: London is at the centre of an evolving financial and currency crisis brought forward by a change in interest rate trends; and the reality of emerging Asian superpowers must be accommodated instead of attacked. This article starts by examining the economic challenges the next Prime Minister faces domestically. Are the two candidates equipped with a strategy to improve the nation’s economic prospects, and why can we expect them to succeed where others have failed? It is unlikely that either candidate is aware that there has been a fundamental shift in the direction of interest rates, the consequences of which are undermining debt mountains everywhere. The problem is particularly acute for the euro system. As well as for other major currencies, London operates as the clearing centre for transactions between the Eurozone’s commercial banks. If the euro system fails, London’s survival as a financial centre could be jeopardised. The other major challenge is geopolitical. Being tied into America’s five-eyes intelligence network, coupled with policies to remove fossil fuels as sources of energy Britain is condemned to falling behind the Asian superpowers, and sacrificing trading relationships with which her true interests must surely lie. And then there were two… The selection process for a new Conservative Prime Minister has whittled it down to two — Rishi Sunak and Liz Truss. The former is a wealthy meritocrat, former Goldman Sachs employee and hedge fund manager, the latter a self-made woman. Sunak was Chancellor (finance minister). Among several other high-office roles, Truss has been First Secretary to the Treasury. Both, in theory at least, should understand government finances. Both studied PPE at Oxford, so are certain to have been immersed in the Keynesian version of economics, which also informs Treasury thinking. Despite their common Treasury experience and being on that same page, Sunak’s and Truss’s pitches on economic affairs have been very different. Sunak aims to maintain a balanced budget, reducing taxes afterwards as economic growth increases tax revenues. This is Treasury orthodoxy. Truss is claiming she will cut taxes more immediately in an emergency budget to stimulate growth. She is emulating the Thatcher/Reagan supply-side playbook. The politics are straightforward. The electorate is comprised of about 160,000 paid up Conservative Party members, mostly leaning towards less government, free markets, and lower taxes. As a subset of over 40,000,000 voters nationwide, they may be reasonably representative of a silent majority in the middle classes which believe in conservative societal values. The one issue that matters above all for Conservative Party members is taxes. Given their different stances on tax, Truss has emerged as the early favourite. Furthermore, to the disadvantage of Sunak very few Chancellors make it to Prime Minister for a reason: like Sunak, they nearly always push the Treasury line on maintaining balanced budgets over the cycle, which means that they are for ever trying to pluck the goose for more tax with the minimum of hissing. Don’t expect geese to willingly vote for yet more exfoliation. The issue of less government in the total economy is not properly addressed by either candidate or is restricted to vague promises to do something about unnecessary bureaucracy. In arguing for free markets, Truss is stronger in this respect than Sunak who appears to be more captured by the permanent establishment. With the exception of Treasury ministers, all politicians in office are naturally inclined to seek increased departmental budgets, which is a problem for all tax cutters. But to understand the practical difficulties of reducing government spending, we must make a distinction between departmental expenditure limits and annually managed expenditure. The former is budgeted for by the Treasury in its allocation of financial resources. The latter can be regarded as including additional costs arising from public demand for departmental services. This explains why total departmental expenditure for fiscal 2020-21 was £566.2bn, representing about half of total government spending of £1,112bn.  With government spending split 50/50 overall on departmental expenditure limits and public demands for services, both issues must be addressed when reducing costs meaningfully. Failing to do so means only departmental expenditure limits are tackled, resulting in less resources to deliver mandated public services. That would be seen by the opposition and the public to be a government failing. Therefore, it is not sufficient to merely say to ministers that they must cut departmental expenditure, but laws and regulations must also be changed to reduce public service obligations as well. That takes time. Imagine tackling this problem with respect to the National Health Service. The NHS takes 34% of total departmental expenditure limits, yet it clearly fails to efficiently provide the public with the services required of it. Health ministers always argue that it needs more financial resources. This is followed by education (13% of total departmental expenditure). What do you do: sack teachers? And Scotland at 8% is another no-go area, where cuts would likely encourage the nationalist movement. And that is followed to a similar extent by defence spending at a time of a proxy war against Russia… One could go on about other ministry spending and the costly provision of their services, but it should be apparent that any realistic cuts in public services are likely to be minor and overwhelmed by rising and unbudgeted departmental input costs which are indirectly the consequence of the Bank of England’s monetary policies. It is therefore hardly surprising that neither Sunak nor Truss is seriously engaged with the subject of reducing state spending, merely fluffing around the topic. But total state spending is going to be an overriding problem for the future PM. Figure 1 shows the long-term trend of total managed expenditure relative to GDP, admittedly exacerbated by covid. Since then, there has been a recovery in GDP to £2,239bn in the four quarters to Q1 2022, and covid related disbursements have materially declined, so that in the last fiscal year, total government spending is estimated to have dropped to 46.5% of GDP from the high point of 51.9%. However, rising interest rates globally are set to drive the UK economy into recession. Even if the recession is mild, while GDP falls this will increase public spending on day-to-day public services back up to over 50% of GDP. The philosophical problem for the new PM can be summed up thus: with half the economy being unproductive and the productive economy shouldering the burden, how can economic resources be restored to producers in a deteriorating economic outlook? Inflation is not going away Orthodox neo-Keynesians in the government and its (supposedly) independent Office for Budget Responsibility do not recognise that the root of the inflation problem is the debasement of currency and credit. Furthermore, by thinking it is a short-term supply chain problem, or a temporary energy price spike due to sanctions against Russia, the OBR, in common with the Bank of England takes the view that consumer price rises will return to the targeted 2% level. Only, it might take a little longer than originally thought. Figure 2 shows the OBR’s latest forecasts (in March) for inflation (panel 1) and real GDP (panel 2). Note how the October forecast failed to reflect an annual CPI rising to more than 4%. In March that was raised to 8%, which is already outdated. Price inflation rising to over 10% is on the cards, and it should be noted that the retail price index, abandoned by government because of the cost of using it for indexation, already shows annual consumer inflation to be rising at 11.8%. The OBR’s response to these unwelcome developments is simply to push out an expected return to the 2% inflation target a little more into the future. Similarly, it expects the trajectory of GDP growth will be maintained, having just slipped a little. On this evidence, the OBR’s advice to a future prime minister and his chancellor will be badly flawed. Instead of going down the macroeconomic approach of modelling the economy, instead we need to apply sound, unbiased economic and monetary theories.  We know that the Bank of England’s monetary policies have debased the currency, reflected inevitably in a falling purchasing power for the pound. That is what drives the increase in the general level of prices. The primary cause is not, as government and central bank officials have stated, supply chain disruptions and the consequences of the war in Ukraine. That has only made things worse, in the sense that higher energy and commodity prices along with supply bottlenecks have encouraged the average citizen to adjust the ratio of personal liquidity to purchases of goods and services, bringing forward purchases and driving prices even higher. The debasement of fiat currencies everywhere is encouraging their users to dump them in what appears to be a slowly evolving crack-up boom encouraged by a background of product shortages. The common view that consumer price inflation is a temporary phenomenon is little more than wishful thinking, as is the latest argument developing, that rising interest rates will deflate economic demand. The official line is that lower demand will lead to lower prices. Realistically, less demand is the product of less supply, so it does not lead to lower prices. And here we must turn to the second panel in Figure 2, of the OBR’s modelling of real GDP. With the annual increase in the RPI already at 11.8% and that of the CPI at 9.1%, a bank rate of 1.25% fails to recognise the changed environment. Interest rates, bond yields and therefore the cost of government funding are all set to rise substantially. The consequences for financial assets will be to drive their market values lower. And unprofitable businesses relying on finance for their existence risk being wiped out, either because they will lose hope of ever being economic, or bank credit will be withdrawn from them. All empirical evidence is that currency debasement accompanies the destitution of an economy. Therefore, it is a mistake to think that a slump in business activity will neutralise the inflation problem. To deal with the inflation problem, the new prime minister will have to resist intervening and let all failing businesses go to the wall. But whoever becomes PM, there is no mandate to simply let events take their course. Instead, the burden of sustaining a failing economy will certainly lead to a soaring fiscal deficit — financed, of course, by yet more monetary debasement. Without quantitative easing, the appetite of commercial banks for financing the fiscal deficit at a time of rising bond yields is uncertain. It is a different environment from a long-term trend of declining interest rates, underwriting bond prices. A trend of rising interest rates is likely to lead to funding dislocations, as we saw in the 1970s. Furthermore, commercial banks have more urgent problems to deal with, which is our next topic. Banks will be in self-preservation mode GDP is no more than a measure of currency and credit in qualifying transactions. Growth in nominal GDP is a direct consequence of an increase in currency and bank credit, particularly the latter. An old rule of thumb was credit was larger than currency in the ratio of perhaps ten to one. The evolution of banking, the war on cash, and the advent of debit cards have changed that, and since covid, the ratio has increased to 37:1. This means that changes in nominal GDP are almost entirely dependent on the supply of bank credit for the production of goods and services. The availability of customer deposits to draw down for spending reflect the commercial banking network’s willingness to maintain the asset side of their balance sheets, comprised of lending and financial investment. Customer deposits, which are a bank’s liabilities, will contract if bank lending, recorded as a bank’s assets, contract. This is already evident in the slowing down of broad measures of money supply growth. Given that bank balance sheets are highly leveraged, and that the economic outlook is deteriorating, bank lending is almost certainly beginning to contract. This vital point appears to be completely absent in the OBR’s modelling of the economic outlook. By the usual metrics, commercial banks are extremely over-leveraged after thirteen years of the current bank credit cycle, in other words since the Lehman failure. Table 1 below summarises the position of the three British G-SIBs (designated global systemically important banks). They can be regarded as a banking proxy for exposure to global systemic risks. Important points to note are that balance sheet leverage, the relationship of assets to total equity, are as much as double multiples of between eight and twelve times at the top of a normal bank credit cycle. Balance sheet equity includes accumulated undistributed profits as well as the common equity entitled to them.[i] All three banks’ common shares trade at substantial discounts to their book value.  Their share prices tell us that markets have assessed that there is a high level of systemic risk in these banks’ shares. It would be extraordinary if the directors of these banks are blind to this message. Before covid when economic dangers were less apparent, it would have been understandable though not necessarily excusable for them to use this leverage to maximise profits, particularly since all banks were following similar lending policies.  Covid came, and all banks had no option but to extend loan facilities to businesses affected, for fear of triggering substantial loan losses on a scale to take down the banks themselves. Furthermore, the government put in loan guarantee schemes. Post-covid, bankers face the withdrawal of government loan guarantees, rising interest rates and the consequences for their risk exposure to higher interest rates, as well as declining values for mark-to-market financial assets — the latter affecting both bank investments and collateral against loans. Clearly, the cycle of bank credit is on the turn and will contract. The dynamics behind this phase of the cycle indicate that to take leverage back down to more conservative levels the contraction will have to be severe. But an excessive restriction of credit both causes and produces a run for cash notes and gold. And thus, without intervention banks and businesses all collapse in a universal crash.  With very little of GDP recorded in pound notes and coin, as a statistic it is driven overwhelmingly by the quantity of bank credit outstanding. In a credit contraction the GDP statistic will collapse — unless the Bank of England takes upon itself the replacement of credit in a massive economic support programme.  The consequences are sure to undermine government finances badly. Sunak’s hope that a balanced budget can be maintained, let alone permit him to oversee tax cuts when government finances permit, becomes a fairy tale when tax revenues slump and spending commitments increase. So, too, is Truss’s belief that immediate tax cuts will benefit economic growth and restore tax revenues. The reality of office is likely to decree fiscal policies very different being those being touted by both candidates. The impending collapse of the euro system I wrote recently for Goldmoney about the inevitable crisis developing in the euro system, here. Since that article was published, the European Central Bank has raised its deposit rate to zero and instituted a rescue package for the highly indebted PIGS in its awkwardly named Transmission Protection Instrument. In plain language, the ECB will continue to buy PIGS government debt to ensure their yields do not rise much further relative to benchmark German bunds. It is increasingly clear that the euro system is in deep trouble, caught out by the surge in consumer price inflation. Rising interest rates, which have only just started, will undermine Eurozone commercial bank balance sheets because they obtain much of their liquidity by borrowing through the repo market.[ii] TARGET2 imbalances threaten to collapse the system from within as the interest rate environment changes. The ECB and its shareholding network of national central banks all face escalating losses on their bonds, which earlier this month I calculated to be in the region of €750bn, nearly seven times the combined euro system balance sheet equity. Not only does the whole euro system require to be refinanced, but this is at a time when the Eurozone’s G-SIBs are even more highly leveraged than the three British ones. Table 2 updates the one in my article referred to above. With the average Eurozone G-SIB asset to equity ratios of over 20 times, the euro’s G-SIBs are one of the two most highly leveraged networks in global banking, the other being Japan’s. The common factor is negative interest rates imposed by their central banks. The consequence has been to squeeze credit margins to the extent that the only way in which banks can sustain profit levels is to increase operational gearing. Furthermore, an average balance sheet leverage of over 20 times does not properly identify systemic risks. Bank problems come from extremes, and we can see that at 27 times, Group Credit Agricole should concern us most in this list. And we don’t see all the other Eurozone banks trading internationally that don’t make the G-SIB list, some of which are likely to be similarly exposed. The problem for Britain is twofold. Including its banks, Britain’s financial system is more exposed to Eurozone risks than any other, and a Euro system failure would be a catastrophe for it. Furthermore, Eurozone banks and fund managers use UK clearing houses for commercial euro settlements. Counterparty failures will contaminate systemically all participants, not only dealing in euros but all the other major currencies settled in London as well. The damage is sure to extend to forex and credit markets, including all OTC derivatives which are an integral part of bank clearing facilities. At the last turn of the bank lending cycle, it was the securitisation of liar loans in the US which led to what is commonly referred to as the Great Financial Crisis. This is a term I have rarely used, preferring to call it the Lehman Crisis because I knew, along with many others, that the non-resolution of the excesses at the time would store up for an even greater crisis in the future. We can now begin see how it will be manifested. And this time, it looks like being centred on London as a financial centre rather than New York. We must hope that a collapse of the euro system will not happen, but there is mounting evidence that it will indeed occur. The falling row of dominoes is pointing at London, and it could even happen before the Conservative Party membership have voted for either Truss or Sunak in early-September. Dealing with a banking crisis fall out On the advice of the Bank for International Settlements, following the Lehman crisis the G20 member states agreed to make bail-ins mandatory, replacing bailouts. This was a politically motivated move, fuelled by the emotive belief that bailing out banks are at the taxpayers’ expense. In fact, bank bailouts are financed by central banks, both directly and indirectly. The only taxpayer involvement is marginally through their aggregated savings in pension funds and insurance companies. But these funds have been over-compensated with extra cash through quantitative easing. The audit trail leads to the expansion of currency and credit every time, and not to taxes as the phrase “taxpayer liabilities” implies. All the G20 nations have passed legislation enabling bail-in procedures. In the Bank of England’s case, it retains discretion to what extent bail-in as opposed to other rescue methods might be used. As to specifics for the other G20 members it is unclear to what extent they have retained this flexibility and understand bail-in ramifications. And it could be an additional confusion likely to complicate a global banking rescue, compared with the previously accepted bail-out procedures. In theory, a bail-in reallocates a bank’s liabilities from deposits and loans into shareholders’ capital — excepting, perhaps, smaller depositors covered by deposit guarantee schemes. But even that is at the authorities’ discretion.  The objective can only make sense for single bank, as opposed to systemic failures. But if it were to be applied to an individual banking failure in the current unstable situation, it would almost certainly undermine other banks, as bank loans and other non-equity interests would be generally liquidated, and deposits flee to banks deemed to be safer as panic sets in. The risk is that bail-in procedures could set off a system-wide failure, particularly of the banks rated by the market with substantial discounts to book value — including all the UK’s G-SIBs (see Table 1 above). Even assuming the Bank’s bail-in procedures are ruled out in dealing with a systemic banking crisis, to keep banks operating will require a massive expansion of credit from the Bank of England. In effect, the central bank will end up taking on the entire banking system’s obligations. With London at the centre of a global banking crisis, all other major central banks whose banking and currency networks are exposed to it must be prepared to take on all their commercial banking obligations as well. Britain’s place in the world must be secured The problems attendant on currencies afflict all the majors, with the UK at the centre of the storm because of its pre-eminent role in international markets. There is no evidence that the leadership at the Bank of England is equipped to understand and deal with an increasingly inevitable economic and monetary crisis which will take sterling down. Nor has there been any attempt by the Treasury to rebuild the nation’s depleted gold reserves to protect the currency, which is a gross dereliction of public duty. But we must now turn our attention to geopolitical matters, where there is currently no pragmatism in Britain’s foreign policies. Since President Trump’s aggressive stance against the challenge to America from Chinese technology, the UK as America’s most important partner in the five-eyes intelligence sharing agreement has sided very firmly with America against both Chinese and Russian interests. The recent history of the five-eyes partnership is one of political blindness — ironic given its title. Wars against terrorism, more correctly US intelligence operations which destabilise Muslim nations before the military go in to sort the mess out have been a staple since the overthrow of Saddam Hussein. A series of wars in the Middle East and Afghanistan have yielded America and her NATO allies only pyrrhic victories at best, created business for the US armaments industry, and resulted in floods of refugees attempting to enter Europe. Meanwhile, these actions have only served to cement the partnership between Russia, China, and all the Asian members of the Shanghai Cooperation Organisation amounting to over 40% of the world population. They have a common mission to escape from the dollar’s hegemony. America’s abandonment of Afghanistan was pivotal. As America’s closest intelligence partner, Britain following Brexit is no longer a direct influence in Europe’s domestic politics. Together, these factors have surely encouraged Putin to adopt more aggressive tactics with the objective of undermining the NATO partnership, always seen as the principal threat to Russia’s borders. This is the true objective behind his proxy war against Ukraine. Supported by Britain, the US response has been to fuel the Ukrainian proxy war by supplying military hardware. But the biggest mistake made by the NATO partnership has been to impose sanctions on Russian trade. The consequences for energy and other vital commodity prices do not bear unnecessary repetition. The knock-on effects for global food prices and the shortages emerging ahead of the winter months are still evolving. Sanctions have become NATO’s suicide note — it is beginning to look like a modern version of Custer’s last stand.  It is surely to the private horror of Western strategists that the sense behind Putin’s strategy is emerging: it is to further the economic consolidation of Asia with the unfettered advantages of fossil fuels traded at significant discounts to world prices. At their own behest, America and its NATO allies are shut out of it entirely. Global fears of climate change and the war against fossil fuels are essentially a Western concept, not shared by the great Asian powers and the Middle East. The hysteria over fossil fuel consumption has led European nations to eliminate their own production in favour of renewables. Consequently, to make up energy shortfalls they have become dependent on imported oil and gas from Russia. And that is what will split Europe away from US hegemony. Unrestricted energy supply is crucial for positive economic outcomes. The result of US-led sanctions is that energy starvation faces all her allies, including Britain and the members of the European Union. As an oil-producing nation herself, America is less affected, her allies suffering the brunt of sanctions against Russian energy supplies.  By committing to policies to lessen climate change without fossil fuel sources of energy, the economic prospects for Europe and the UK are of economic decline.  Only last weekend agreements have been signed between Russia, Iran, and Turkey, with Iran due to become a full member of the Shanghai Cooperation Organisation later this year. Other than Turkey’s wider economic interest, it is essentially about oil. In addition to these developments, Russia’s Foreign Secretary Sergei Lavrov went on to address the Arab League in Cairo. It is clear that Russia is building its relationship with oil producers in the Middle East as well, whose members are faced with declining Western markets and growing Asian demand. Therefore, British policy tied into US hegemony with a self-imposed starvation of energy is untenable. It is worse than being on the losing side. It guarantees economic decline relative to the emerging Asian powers. A future Prime Minister needs to pursue a more pragmatic course than the bellicose stance against Russia and China, currently espoused by Liz Truss. As Britain’s current Foreign Secretary, she is briefed by the UK’s intelligence services, which are closely aligned with their American colleagues. There is groupthink going on, which must be overcome. The interest rate trend and the looming threat of the mother of all financial crises on London’s doorstep requires a leadership strong enough to take on the civil service, always complacent, and guide the wider electorate through some troubling times. Following the financial and currency crisis, mindsets must be radically changed, steered away from perpetual socialisation of economic resources back towards free markets. Which of these two candidates for the premiership see us through? Probably neither, though being less a child of the establishment Liz Truss might offer a slim chance. The task is not impossible. Currencies have completely collapsed before, and nations survived. Instead of being restricted to one or a group of nations, the looming crisis threatens to take out what we used to call the advanced economies in their entirety, so it will be a bigger deal. Fortunately for Britain, her citizens are less likely to riot than their continental cousins. But as a warm-up for the main event, our new leader will have to navigate through growing discontent brought on by rising prices, labour strikes and all the other forms of economic pestilence which bought Margaret Thatcher to power. Tyler Durden Mon, 08/01/2022 - 05:00.....»»

Category: personnelSource: nytAug 1st, 2022

How Joe Manchin was finally convinced the new climate, tax, and healthcare deal would ease inflation and pay down the national deficit

A senator, a former Treasury Secretary, and Wharton business school were key in getting Manchin to come around to Biden's economic agenda. Sen. Joe Manchin, D-W.Va., attends a panel discussion during the World Economic Forum in Davos, Switzerland, Monday, May 23, 2022Markus Schreiber/AP Photo Sen. Manchin and Democratic Majority Leader Chuck Schumer came to a compromise on Biden's Build Back Better agenda. Several senators and former Treasury Secretary Larry Summers were instrumental in changing Manchin's mind. They eventually convinced Manchin that the agenda would ease inflation, rather than increasing it. With Senator Joe Manchin's announcement that he reached an agreement on President Joe Biden's proposal on climate, healthcare, and tax programs, it seems like Democrats might finally pass some of the White House's economic agenda. After killing Build Back Better in January, it seems that the centrist Democratic West Virginia senator had a few crucial conversations that convinced him that his biggest fears — raising the national debt and worsening inflation — would actually be assuaged by some version of the economic agenda he once torpedoed. "Rather than risking more inflation with trillions in new spending, this bill will cut the inflation taxes Americans are paying, lower the cost of health insurance and prescription drugs, and ensure our country invests in the energy security and climate change solutions we need to remain a global superpower through innovation rather than elimination," the Senate's most conservative Democrat said in a statement on Thursday. Conversations with other senators and former Treasury Secretary Larry Summers eventually calmed Manchin's inflation fears and convinced him to back a slimmer version of the bill, CNN's Kevin Liptak, Manu Raju, Ella Nilsen and Alex Rogers reported. The new version of the bill will extend financial assistance for people to purchase health insurance through the Affordable Care Act for three years and enable Medicare to begin negotiating cheaper prescription drug prices. It also includes $370 billion for climate and energy programs and $300 billion to reduce the federal deficit.It's a much leaner version of the proposal Manchin vetoed — being the threshold-clearing vote in the Senate under the procedural scheme Democrats are trying to use to bypass a Republican filibuster in the evenly divided chamber — which also included provisions for affordable childcare, universal pre-K, and the return of a monthly check program for parents. 'This bill is fighting inflation and it's got a whole set of collateral benefits as well'Summers has been vocal about inflation increasing the likelihood of a recession for a year now, and he also reached out to Manchin about his concerns, according to CNN. He told Manchin that the deal would help cool rising prices, rather than increasing inflation problems. He declined to comment to CNN on his conversations with Manchin, but offered more reassurance about the bill's potential to combat inflation. "This bill is fighting inflation and it's got a whole set of collateral benefits as well," he said. Several members of the Senate were also key in making Manchin agreeable to a new bill, including Senator John Hickenlooper. Hickenlooper told reporters that his team requested an analysis of the tax and climate deal from economists at the Wharton School of Business at the University of Pennsylvania in order to confirm the deflationary benefits for Manchin. Manchin "trusted Wharton, that he'd used that for modeling before," Hickenlooper said. "So, we asked them to model this. We did that and got back modeling that said this is not inflationary in any way, and we sent that to Joe." Senators Tina Smith, Brian Schatz, and Chris Coons made similar arguments to Manchin, according to Hickenlooper. "I was listening to every single thing that Joe said he had a problem with, and I was trying to address it," Hickenlooper said. "When he's told me the problem's inflation, and the rest of it he could get to, I took him at his word." Read the original article on Business Insider.....»»

Category: topSource: businessinsiderJul 30th, 2022

Here"s why the Federal Reserve could snuff out a market rebound

The biggest story in markets today is how the Fed could snuff out a market rebound. Plus, expert stock picks from Goldman Sachs. Goooood morning, Opening Bell crew. I'm Phil Rosen, and I'm extra chipper this morning — not because it's no longer Monday, but because Amazon Prime Day kicks off today. If soaring inflation has put you on the hunt for deals, you can scope out Insider's live updates here.Now for the real reason we're all here — below, I break down how the world's biggest money manager isn't banking on an economic rebound, and why the Fed is to blame.Plus, the dollar and euro hit parity for the first time in 20 years. When the pair was less than a penny away from a one-to-one equivalence, I stopped by the The Refresh from Insider to explain how the currencies reached this level. Ready to rumble?Sign up here to get 10 Things Before the Opening Bell in your inbox.Federal Reserve Chair Jerome Powell testifies before a Senate Banking Committee hearingKent Nishimura / Los Angeles Times via Getty Images1. BlackRock says the Fed is probably going to snuff out an economic rebound. And that means market volatility is only going to continue, the firm warned Monday. Policymakers are tackling inflation the wrong way by using rate hikes to address snags from production constraints, analysts wrote in their mid-year report, and more turmoil awaits."The Federal Reserve, for one, is likely to choke off the restart of economic activity — and only change course when the damage emerges," the report said. "The macro backdrop is no longer conducive for a sustained bull market in both stocks and bonds, we believe."Instead of a period of steady growth and inflation, the analysts said the US is entering a brave new world of risk and uncertainty. Goldman Sachs, too, doesn't seem keen on a stock rebound. Investors have weathered a big chunk of the bear market already, but indexes still have room to fall. The bank's chief global equity strategist, Peter Oppenheimer, maintained that stocks haven't yet reached the full 30% decline that these types of bear markets typically bestow. Tech stocks in particular still haven't found a bottom, Oppenheimer added, since their current valuations remain above their long-run averages. In other news:Russian President Vladimir Putin.Mikhail Svetlov/Getty Images2. US stock futures fell early Tuesday, as price pressures, COVID outbreaks in China, and slowing economies around the globe stoke recession fears. Meanwhile, oil extended losses and bitcoin fell back below $20,000. Here are the latest market moves.3. On the docket: PepsiCo Inc., HCL Technologies, and Burberry plc, all reporting. 4. Goldman Sachs analysts named a batch of stocks they like for their strong dividend growth and yields. Stocks are in a bear market right now and recession risks are on the rise. See the bank's 50 companies that show promise even as the market sees its worst start to a year in five decades. 5. Russia launched new chartered ships to trade commodities with China and India. Wartime sanctions imposed by the West have snagged typical supply chains, so Moscow's new cargo paths are intended to smooth things out for the countries to move commodities. Since war in Ukraine began, neither China nor India has condemned the invasion.  6. Charlie Munger personally backed an investor seeking to build the Berkshire Hathaway of Australia. And Warren Buffett's longtime business partner did so even though he rarely trusts anyone except the Oracle of Omaha with managing his money. Munger praised the investor's focus on fundamentals, rational mind, and high ethical standards. 7. Twitter's lawyers say Elon Musk's attempt to abandon his $44 billion takeover is "invalid and wrongful." In a letter to Musk's attorneys, Twitter's lawyers said backing out of the deal "constitutes a repudiation of their obligations under the agreement." Following Musk's efforts to pull out of the deal, Twitter shares fell 11.3% Monday, their biggest one-day drop in more than two months. 8. Two economists explained why these cities look significantly overvalued with house prices holding steady across the US. Both of the Florida-based experts said the market is going to calm down eventually, but warned that home costs are still too high in many places. They broke down their list of 13 cities.9. These 13 stocks have the most dramatic upside right now. As equities are slowly recovering from their bear market plunge, certain names stand out, according to Goldman Sachs. Here's what analysts are eyeing — including eight stocks that could more than double in value over the next year. Andy Kiersz/Insider10. The economy is showing signs that inflation may have peaked, but that doesn't mean things are going to get cheaper right away. The trend, known as disinflation, means prices will still broadly rise, just at a slower pace. Take a dive into the numbers. Keep up with the latest markets news throughout your day by checking out The Refresh from Insider, a dynamic audio news brief from the Insider newsroom. Listen here.Curated by Phil Rosen in New York. (Feedback or tips? Email prosen@insider.com or tweet @philrosenn).Edited by Max Adams (@maxradams) in New York and Hallam Bullock (@hallam_bullock) in London. Read the original article on Business Insider.....»»

Category: topSource: businessinsiderJul 12th, 2022

Here"s why the Federal Reserve could snuff out a market rebound.

The biggest story in markets today is how the Fed could snuff out a market rebound. Plus, expert stock picks from Goldman Sachs. Goooood morning, Opening Bell crew. I'm Phil Rosen, and I'm extra chipper this morning — not because it's no longer Monday, but because Amazon Prime Day kicks off today. If soaring inflation has put you on the hunt for deals, you can scope out Insider's live updates here.Now for the real reason we're all here — below, I break down how the world's biggest money manager isn't banking on an economic rebound, and why the Fed is to blame.Plus, the dollar and euro hit parity for the first time in 20 years. When the pair was less than a penny away from a one-to-one equivalence, I stopped by the The Refresh from Insider to explain how the currencies reached this level. Ready to rumble?If this was forwarded to you, sign up here. Download Insider's app here.Federal Reserve Chair Jerome Powell testifies before a Senate Banking Committee hearingKent Nishimura / Los Angeles Times via Getty Images1. BlackRock says the Fed is probably going to snuff out an economic rebound. And that means market volatility is only going to continue, the firm warned Monday. Policymakers are tackling inflation the wrong way by using rate hikes to address snags from production constraints, analysts wrote in their mid-year report, and more turmoil awaits."The Federal Reserve, for one, is likely to choke off the restart of economic activity — and only change course when the damage emerges," the report said. "The macro backdrop is no longer conducive for a sustained bull market in both stocks and bonds, we believe."Instead of a period of steady growth and inflation, the analysts said the US is entering a brave new world of risk and uncertainty. Goldman Sachs, too, doesn't seem keen on a stock rebound. Investors have weathered a big chunk of the bear market already, but indexes still have room to fall. The bank's chief global equity strategist, Peter Oppenheimer, maintained that stocks haven't yet reached the full 30% decline that these types of bear markets typically bestow. Tech stocks in particular still haven't found a bottom, Oppenheimer added, since their current valuations remain above their long-run averages. In other news:Russian President Vladimir Putin.Mikhail Svetlov/Getty Images2. US stock futures fell early Tuesday, as price pressures, COVID outbreaks in China, and slowing economies around the globe stoke recession fears. Meanwhile, oil extended losses and bitcoin fell back below $20,000. Here are the latest market moves.3. On the docket: PepsiCo Inc., HCL Technologies, and Burberry plc, all reporting. 4. Goldman Sachs analysts named a batch of stocks they like for their strong dividend growth and yields. Stocks are in a bear market right now and recession risks are on the rise. See the bank's 50 companies that show promise even as the market sees its worst start to a year in five decades. 5. Russia launched new chartered ships to trade commodities with China and India. Wartime sanctions imposed by the West have snagged typical supply chains, so Moscow's new cargo paths are intended to smooth things out for the countries to move commodities. Since war in Ukraine began, neither China nor India has condemned the invasion.  6. Charlie Munger personally backed an investor seeking to build the Berkshire Hathaway of Australia. And Warren Buffett's longtime business partner did so even though he rarely trusts anyone except the Oracle of Omaha with managing his money. Munger praised the investor's focus on fundamentals, rational mind, and high ethical standards. 7. Twitter's lawyers say Elon Musk's attempt to abandon his $44 billion takeover is "invalid and wrongful." In a letter to Musk's attorneys, Twitter's lawyers said backing out of the deal "constitutes a repudiation of their obligations under the agreement." Following Musk's efforts to pull out of the deal, Twitter shares fell 11.3% Monday, their biggest one-day drop in more than two months. 8. Two economists explained why these cities look significantly overvalued with house prices holding steady across the US. Both of the Florida-based experts said the market is going to calm down eventually, but warned that home costs are still too high in many places. They broke down their list of 13 cities.9. These 13 stocks have the most dramatic upside right now. As equities are slowly recovering from their bear market plunge, certain names stand out, according to Goldman Sachs. Here's what analysts are eyeing — including eight stocks that could more than double in value over the next year. Andy Kiersz/Insider10. The economy is showing signs that inflation may have peaked, but that doesn't mean things are going to get cheaper right away. The trend, known as disinflation, means prices will still broadly rise, just at a slower pace. Take a dive into the numbers. Keep up with the latest markets news throughout your day by checking out The Refresh from Insider, a dynamic audio news brief from the Insider newsroom. Listen here.Curated by Phil Rosen in New York. (Feedback or tips? Email prosen@insider.com or tweet @philrosenn).Edited by Max Adams (@maxradams) in New York and Hallam Bullock (@hallam_bullock) in London. Read the original article on Business Insider.....»»

Category: topSource: businessinsiderJul 12th, 2022

Black Monday: All Hell Breaks Loose As Stocks Plunge Into Bear Market, Curve Inverts, Cryptos Crater

Black Monday: All Hell Breaks Loose As Stocks Plunge Into Bear Market, Curve Inverts, Cryptos Crater For all those claiming that stocks had priced in 3 (or more) 50bps (or more) rate hikes, we have some bad news. All hell is breaking loose on Monday, with futures tumbling (again) into bear market territory, sliding below the 20% technical cutoff from January's all time high of 3,856 and tumbling as low as 3,798.25 - taking out the May 10 intraday low of 3,810 - before reversing some modest gains. S&P 500 futures sank 2.5% and Nasdaq 100 contracts slid 3.1%, in a session that has seen virtually everything crash. Dow futures were down 567 points at of 730am ET. The global selloff - which has dragged Asian and European markets to multi-month lows and which was sparked by a hotter than expected US CPI print which heaped pressure on the Federal Reserve to step up monetary tightening - accelerated on Monday as panicking traders now bet the Fed will raise rates by 175 bps by its September decision, implying two 50-bp moves and one hike of 75 bps, with Barclays and now Jefferies predicting such a move may even come this week. If that comes to pass it would be the first time since 1994 the Fed resorted to such a draconian measure. The selling in stocks was matched only by the puke in Treasuries, as yields on 10-year US Treasuries reached 3.24%, the highest since October 2018, yet where 2Y yields sold off more, sending the 2s10s curve to invert again... ... for the second time ahead of the coming recession, an unprecedented event. The US yield curve appears destined to invert again in coming weeks after Wednesday’s CPI data: BBG We'll get two concurrent recessions — zerohedge (@zerohedge) May 12, 2022 Meanwhile, the selloff in European government bonds also gathered pace, with the yield on German’s two-year government debt rising above 1% for the first time in more than a decade and Italian yields exploding and nearing 4%, ensuring that another European sovereign debt crisis is just a matter of time (recall that all Italian net bond issuance in the past decade has been monetized by the ECB... well that is ending as the ECB pivots away from QE and NIRP). The exodus from stocks and bonds is gaining momentum on fears that central banks’ battle against inflation will end up killing economic growth. Inversions along the Treasury yield curve point to fears that the Fed won’t be able to stave off a hard landing. “The Fed will not be able to pause tightening let alone start easing,” said James Athey, investment director at abrdn. “If all global central banks deliver what’s priced there are going to be some significant negative shocks to economies.” Going back to the US market, big tech stocks slumped in US premarket trading as bets that the Federal Reserve hikes rates more aggressively sent bond yields higher, and Nasdaq futures dropped. Cryptocurrency-exposed stocks cratered as Bitcoin continued its recent decline to hit an 18- month low, precipitated by news that crypto lender Celsius had halted withdrawals... ... which sent Ethereum to the most oversold level in 4 years. Here are some of the biggest U.S. movers today: Apple shares (AAPL US) -3.1%, Amazon (AMZN US) -3.4%, Microsoft (MSFT US) -2.8%, Alphabet (GOOGL US) -3.7%, Netflix -3.8% (NFLX US), Nvidia (NVDA US) -4.5% Tesla (TSLA US) shares dropped as much as 3.1% in US premarket trading amid losses across big tech stocks, while the electric-vehicle maker also filed to split shares 3-for-1 late Friday. MicroStrategy (MSTR US) -18.4%, Riot Blockchain (RIOT US) -15%, Marathon Digital (MARA US) -14%, Coinbase (COIN US) -12.5%, Bit Digital (BTBT US) -10%, Silvergate Capital (SI US) -11%, Ebang (EBON US) -4% Bluebird Bio (BLUE US) shares surge as much as 86% in US premarket trading and are set to trim year-to- date losses after the biotech firm’s two gene therapies won backing from an FDA advisory panel. Chinese education stocks New Oriental Education (EDU US) and Gaotu Techedu (GOTU US) jump 8.3% and 3.4% respectively in US premarket trading after peer Koolearn’s endeavors into livestreaming e-commerce went viral and sent its shares up 95% in two sessions. Astra Space (ASTR US) shares slump as much as 25% in US premarket trading, after the spacetech firm’s TROPICS-1 mission saw a disappointing launch at the weekend. Invesco (IVZ US) and T. Rowe (TROW US) shares may be in focus today as BMO downgrades its rating on the two companies in a note saying it favors alternative asset managers over traditional players as a way to hedge beta risk against the current macro backdrop. In Europe, the Stoxx 600 also extended declines to a three-month low, plunging mover than 2%, with over 90% of members declining, as meeting-dated OIS rates price in 125bps of tightening, one 25bps move and two 50bps hikes by October.  Tech leads the declines as bond yields rise, with cyclical sectors such as autos and consumer products also lagging as recession risks rise.  The Stoxx 600 Tech Index falls as much as 4.3% to its lowest since November 2020. Chip stocks bear the brunt of the selloff: ASML -3%, Infineon -4.2%, STMicro -3.6%, ASM International -2.9%, BE Semi -2.8%, AMS -5.3% as of 9:36am CET. As if inflation fears weren't enough, French banks tumbled after a first round of legislative elections showed that President Emmanuel Macron could lose his outright majority in parliament. Here is a look at the biggest movers: Atos shares decline as much as 12%; Oddo says the company’s reported decision to retain and restructure its legacy IT services business in a separate legal entity is bad news for the company. Getinge falls as much as 7.6% after Kepler Cheuvreux cut its recommendation to hold from buy, cautioning that headwinds and supply chain challenges may intensify as Covid-related tailwinds abate. Elior plunges as much as 15% amid renewed worries over inflation and rising interest rates impacting a caterer that’s still looking for a new CEO following the unexpected departure of the previous one. Valneva falls as much as 27% in Paris after saying its effort to salvage an agreement to sell Covid-19 shots to the European Union looks likely to fail. Subsea 7 drops as much as 13% after the offshore technology company lowered its 2022 guidance, with analysts noting execution challenges on some of its offshore wind projects. French banks decline after a first round of legislative elections showed that President Emmanuel Macron could lose his outright majority in parliament. Societe Generale shares fall as much as 4.5%, BNP Paribas -4.2% Euromoney rises as much as 4.4% after UBS raises the stock to buy from neutral, saying the financial publishing and events firm’s “ambitious” growth targets for 2025 are broadly achievable. Earlier in the session, Asian stocks also declined across the board following the hot US CPI data and amid fresh COVID concerns in China. Nikkei 225 fell below the 27k level with sentiment not helped by a deterioration in BSI All Industry data. Hang Seng and Shanghai Comp. conformed to the downbeat mood with heavy losses among tech stocks owing to the higher yield environment and with mainland bourses constrained after the latest COVID outbreak and containment measures. The Emerging-market stocks index dropped about 3%, falling for a third day in the steepest intraday drop since March, as a fresh high in US inflation sparked concerns that the Fed may need to be more aggressive with rate hikes. In FX, the Bloomberg dollar rose a fourth day as the dollar outperformed all its Group of 10 peers apart from the yen, which earlier weakened to a 24-year low with NOK and AUD the worst G-10 performers. In EMs, currencies were led lower by the South Korean won and the South African rand as the index fell for a fifth day, the longest streak since April.  The onshore yuan dropped to a two-week low as a jump in US inflation boosted the dollar and China moved to re-impose Covid restrictions in key cities. India’s rupee dropped to a new record low amid a selloff in equities spurred by continuous exodus of foreign investors. The euro fell for a third day, touching an almost one-month low of 1.0456. Sterling fell after weaker-than-expected UK GDP highlighted the risks to the economy, with a global risk-off mood adding pressure on the currency, UK GDP fell 0.3% from March. The yen erased earlier losses after earlier falling to a 24-year low while Japanese bonds tumbled, prompting a warning from the Bank of Japan as its easy monetary policy increasingly feels the strain of rising interest rates globally. Bank of Japan Governor Haruhiko Kuroda said a recent abrupt weakening of the yen is bad for the economy and pledged to closely work with the government hours after the yen hit the lowest level since 1998. Bitcoin is hampered amid broad-based losses in the crypto space with the likes of Celsius pausing withdrawals/transfers due to the "extreme market conditions". Currently, Bitcoin is at the bottom-end of a USD 23.7-27.9 range for the session. In rates, the US two-year yield exceeded the 10-year for the first time since early April, an unprecedented re-inversion. The 2-year Treasury yield touched the highest level since 2007 and the 10-year yield the highest since 2018. Treasuries continued to sell off in Asia and early European sessions, leaving 2-year yields cheaper by 15bp on the day into the US day as investors continue to digest Friday’s inflation data. Into the weakness a flurry of block trades in futures added to soaring yields. Three-month dollar Libor jumps 8.4bps. US yields remain close to cheapest levels of the day into early US session, higher by 13bp to 6bp across the curve: 2s10s, 5s30s spreads flatter by 5bp and 5.5bp on the day -- 5s30s dropped as low as -16.6bp (flattest since 2000) while 2s10s bottomed at -2bp. US 10-year yields around 3.235%, remain cheaper by 8bp on the day and lagging bunds, gilts by 2.5bp and 5bp in the sector. Fed-dated OIS now pricing in one 75bp move over the next three policy meetings with 175bp combined hikes priced by September, while 55bp -- or 20% chance of a 75bp move is priced into Wednesday’s meeting. A selloff of European government bonds gathered pace as traders priced in a more aggressive pace of tightening from the ECB, with traders now wagering on two half-point hikes by October. The Bank of Japan announced it would conduct an additional bond-buying operation, offering to purchase 500b yen in 5- to 10-year government bonds Tuesday after 10-year yields rose above the upper limit of its policy band. In commodities, oil and iron ore paced declines among growth-sensitive commodities; crude futures traded off worst levels. WTI remains ~1% lower near 119.30. Spot gold gives back half of Friday’s gains to trade near $1,855/oz. Base metals are in the red with LME tin lagging While it's a busy week ahead, with the FOMC meeting on deck where the Fed is set to hike 50bps, or maybe 75bps and even 100bps, there is nothing on Monday's calendar. Fed Vice Chair Lael Brainard will discuss the Community Reinvestment Act in a pre-recorded video and an audience Q&A; she is not expected to discuss monetary policy given the FOMC blackout period. Market Snapshot S&P 500 futures down 2.4% to 3,803.50 STOXX Europe 600 down 2.0% to 414.12 MXAP down 2.7% to 161.61 MXAPJ down 2.8% to 534.45 Nikkei down 3.0% to 26,987.44 Topix down 2.2% to 1,901.06 Hang Seng Index down 3.4% to 21,067.58 Shanghai Composite down 0.9% to 3,255.55 Sensex down 3.2% to 52,585.17 Australia S&P/ASX 200 down 1.3% to 6,931.98 Kospi down 3.5% to 2,504.51 Brent Futures down 1.9% to $119.71/bbl Gold spot down 0.8% to $1,857.56 U.S. Dollar Index up 0.39% to 104.55 German 10Y yield little changed at 1.54% Euro down 0.3% to $1.0484 Brent Futures down 1.9% to $119.69/bbl Top Overnight News “Sell everything but the dollar” is resounding across trading desks as investors reprice the risk that the Federal Reserve hikes rates more aggressively than previously thought Investors rushed to price in more aggressive Federal Reserve rate hikes Monday as the US inflation shock continued to reverberate, sending two-year Treasury yields to a 15-year high and strengthening the dollar UK Prime Minister Boris Johnson risks reopening divisions that tore his Conservative Party apart in 2019, with his government set to propose a law that would let UK ministers override parts of the Brexit deal he signed with the European Union Crypto lender Celsius Network Ltd. paused withdrawals, swaps and transfers on its platform, fueling a broad cryptocurrency selloff and prompting a competitor to announce a potential bid for its assets French President Emmanuel Macron has a week to convince voters to give him an outright majority in parliament to ease the way for the controversial social and economic reforms he promised. Shares in France fell on the results A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks declined across the board following the hot US CPI data which rose to a 40-year high and amid fresh COVID concerns in China. Nikkei 225 fell below the 27k level with sentiment not helped by a deterioration in BSI All Industry data. Hang Seng and Shanghai Comp. conformed to the downbeat mood with heavy losses among tech stocks owing to the higher yield environment and with mainland bourses constrained after the latest COVID outbreak and containment measures. Top Asian News Beijing government said the scale of Beijing’s latest outbreak linked to bars is ferocious and explosive in nature after the city reported 166 cases in a bar cluster and with 6,158 people determined as close contacts linked to the bar cluster, while Beijing announced to halt offline sports events from today and the district of Chaoyang is to launch mass COVID testing on June 13th-15th, according to Reuters. Shanghai re-imposed a ban on dine-in restaurant services in most districts and punished officials for a management lapse at a quarantine hotel, according to Business Times. At least three Chinese cities of Beijing, Nanjing and Wuhan are trialling a shorter quarantine period of 7+7 days for international arrivals at entry points, according to Global Times. Beijing government spokesperson says that the Beijing COVID-19 bar outbreak still presents risks to the community; Beijing City reports 45 new local cases of 3pm, according to a health official, via Reuters, adding that the COVID-19 bar outbreak is still developing and epidemic control is at a critical juncture. Chinese Defence Minister Wei said China firmly rejects accusations and threats by the US against China, while he added the US Indo-Pacific strategy will create confrontation and that Taiwan is first and foremost China’s Taiwan. Wei also said those that pursue Taiwan's independence will come to no good end and that China will fight to the end if anyone attempts to secede Taiwan from China, according to Reuters. Furthermore, Wei reiterated that Beijing views the annexation of Taiwan as a historic mission that must be achieved which its military would be willing to fight for but added that peaceful unification remained the biggest hope of the Chinese people and they are willing to make the biggest effort to achieve it, according to FT. China urges local governments to raise revenue and sell assets to resolve debt risks, via Reuters. Urges local govt's to lower the debt burden; adding, they will crackdown on illegal debt raising. Japanese Defence Minister Kishi met with his Chinese counterpart in Singapore and said Japan and China agreed to promote defence dialogue and exchanges, while Japan warned China against attempting to alter the status quo in the South and East China sea, according to Reuters. Australian and Chinese defence ministers met in Singapore on Sunday for the first time in three years at the sidelines of the Shangri-La Dialogue summit with the talks described as an important first step following a period of strained ties, according to AFP News Agency. European bourses are hampered across the board, Euro Stoxx 50 -2.5%, in a continuation of the fallout from Friday's US CPI and amid fresh COVID concerns in China. US futures are in-fitting with this price action, ES -2.4% (sub-3800 at worst), ahead of the FOMC where the likes of Barclays now look for a 75bp hike after the May inflation release. Sectors in Europe are all in the red and feature Travel & Leisure as the underperformer given further cancellations going into the summer period. Top European News UK Northern Ireland Secretary Lewis said the government will publish legislation on the Northern Ireland Protocol on Monday and that the bill will rectify the issues in the protocol, according to Reuters. Reports suggest that the new law could see European judges blocked from having the final say on Northern Ireland-related disputes, according to the Telegraph. UK Tory MPs accused PM Johnson of ‘damaging the UK and everything the Conservatives stand for’ as he plans to release legislation on Monday to tear up the Northern Ireland protocol, according to FT. UK government ministers are drawing up plans to cut the link between gas and electricity to help reduce household bills for millions of families, according to The Times. UK Foreign Minister Truss says she has spoken to EU VP Sefcovic about the Nothern Ireland protocol and the preference is for a negotiated solution; adding, the EU needs to be willing to change the protocol. French President Macron’s majority in parliament is at risk as an IFOP initial estimate showed that Macron’s centrist camp is seen qualified for winning 275-310 out of 577 seats after the first round of the French lower house elections, while the IPSOS initial estimate shows the centrist camp is qualified for winning 255-295 seats, according to Reuters. Note, 289 seats are required for a majority FX Greenback extends US inflation data gains as near term Fed hike expectations crank up; DXY hits 104.750 to eclipse May 16 high and expose 105.010 YTD peak. Pound undermined by negative UK GDP and output prints plus NI protocol jitters, Cable perilously close to 1.2200 and EUR/GBP tops 0.8575. Aussie hit by heightened Chinese Covid concerns and demand implication for commodities, Kiwi feeling contagion and Loonie lurching as oil prices retreat; AUD/USD sub-0.7000, NZD/USD near 0.6300 and USD/CAD just shy of 1.2850. Euro and Franc make way for outperforming Buck, but Yen claws back losses on risk dynamics allied to technical retracement; EUR/USD under 1.0500, USD/CHF above 0.9900 and USD/JPY below 134.50 vs 135.20 apex overnight. Yuan falls as Beijing suffers ferocious and explosive virus outbreak and Shanghai reimposes restrictions in most districts, USD/CNH pivots 6.7500 and USD/CNY straddles 6.7350. Commodities WTI & Brent are hampered amid the broader market pressure; though, did experience a fleeting move off lows during a break in the newsflow. Currently, the benchmarks are lower by circa. USD 2.00/bbl given Friday's CPI, China COVID, geopolitics around US-China-Taiwan and Iran-IAEA developments (or lack of) following last week's camera removal. Iraq set July Basrah medium crude OSP to Asia at a premium of USD 3.30/bbl vs Oman/Dubai average and set OSP to Europe at a discount of USD 7.60/bbl vs dated Brent, while it set OSP to North and South America at a discount of USD 1.70/bbl vs ASCI, according to Reuters citing Iraq’s SOMO. Libya’s Minister of Oil and Gas Aoun said Libya is currently losing more than 1.1mln bpd of oil production and that most oil fields are closed except for the Hamada field and the Mellitah complex, while the Al-Wafa field continues operations from time to time, according to The Libya Observer. QatarEnegy signed an agreement with TotalEnergies (TTE FP) for the North Field East expansion project, while it will announce subsequent signings with partners in the gas field expansion in the near future and possibly at the end of next week, according to Reuters. Norwegian Oil and Gas Association reached an agreement in principle with three unions of offshore workers to avert a strike although two of the unions will ask members before signing a deal, according to Reuters. Spot gold is pressured by circa. USD 15/oz amid a stronger USD and pronounced yield action; however, the yellow metal is yet to drop below USD 1850/oz and the 10-, 21- & 200-DMAs at USD 1852, 1847 & 1842 respectively. Fixed Income Bond bears still in control and pushing futures down to fresh troughs, at 145.85 for Bunds, 112.33 for Gilts and 115-30+ for 10 year T-note. Cash yields test or breach psychological levels, like 1.50%, 2.5% and 3.25%, while 2-10 year US spread inverts briefly on rising recession risk. Monday agenda very light, but big week ahead including top tier data and multiple Central Bank policy meetings. Central Banks BoJ announces new offer for bond buying programme in which it is to purchase JPY 500bln in 5yr-10yr JGBs tomorrow and will increase amount of offers for its bond buying as needed. BoJ fixed-rate bond purchases exceed JPY 1tln, at their highest since 2018, via Bloomberg; Further reported that the BoJ accepts JPY 1.5tln of bids for the daily offers to purchase 10yr bonds. BoJ Governor Kuroda says they must support the economy with monetary easing to achieve higher wages; adding, the domestic economy is still in the midst of a COVID recovery. Increasing raw material costs are increasing downward pressure, recent sharp JPY dalls are undesirable. Additionally, Japan's Finance Minister says a weak JPY has both merits and demerits. BoJ buys JPY 70.1bln in ETF, according to a disclosure. DB's Jim Reid concludes the overnight wrap This week is squarely and firmly all about the FOMC meeting on Wednesday. We go into it with the 2yr US note up +25bps on Friday and another c.+10bps this morning in Asia. The 2s10s curve has flattened around 20bps since Friday morning to c.2bps as we type. So some dramatic moves. The problem as we enter the next couple of Fed and ECB meetings is that the central banks haven't quite been able to let go of forward guidance and are a little trapped. To recap, forward guidance has prevented the Fed and the ECB from hiking as early as they needed to, largely because both saw the need to gradually wind down asset purchases over several months first as promised. However this hasn't deterred them, and they have continued to try to flag their intentions to the market in advance with the Fed having previously all but signalled a 50bps this Wednesday, as well as in July, with the ECB now signalling 25bps in July and a strong possibility of 50bps in September. Providing clarity is admirable but in the wake of another shocking US CPI print on Friday, should a 75bps hike not be a serious consideration? It seems strange that most think policy needs to be restrictive but that it's going to take several meetings to get there from a still highly accommodative position. Without the recent Fed guidance, 75bps would be firmly on the table for Wednesday. This is highly unlikely this week, but our economists think they could break cover from their own guidance and leave the door open for 75bps in July. DB Research has long been at the hawkish end on inflation and the Fed, and on Friday our US economists further raised their hiking expectations. In addition to 50bps at the next two meetings they have now added 50bps in September and November, before a return to 25bps in December (to 3.125%). They now see the peak at 4.125% in mid-2023. This is closer to the 5% view in the "Why the upcoming recession will be worse than expected" (link here) that David Folkerts-Landau, Peter Hooper and myself published back in April. If we do have a terminal Fed rate approaching a 5-handle it does raise the question as to where 10yr yields top out. My guess would be a slightly inverted curve but it would likely mean the 4.5-5% range discussed in the note from April, mentioned above, is within reason. We'll recap details of the big US CPI print in last week's recap in the second half of this piece, but it wasn't just this that was the problem on Friday, as the University of Michigan long-term inflation expectations series hit 3.3% (3.0% last month) which was the highest since 2008. This series first hit 3% last May so has actually been range trading for a year, which has been a hope for the doves. However it now risks breaking out to the upside. It's not just the Fed this week as the BoE (Thursday) and the BoJ (Friday) will also meet. For the UK, a preview from our UK economists can be found here. The team expects a +25bps hike this week and have updated their terminal rate forecast from 1.75% to 2.5%. Staying in the UK, labour market data releases will be out tomorrow with retail sales on Friday. The week will conclude with a decision from the BoJ and how they address pressures from the yen hovering around a 20-year low, as well as the growing monetary policy divergence between Japan and other G7 economies. Our chief Japan economist previews the meeting here. He expects a shortening or even the abandonment of yield curve control in H2 2023. In data terms we go back to the US for the main highlights, with PPI (tomorrow) and retail sales (Friday) the main events. China's key May indicators on Wednesday will also have global implications as we await industrial production, retail sales and property investment numbers. Elsewhere in the US, we have June's Philadelphia Fed business outlook (Wednesday), and May industrial production and capacity utilisation (Friday) numbers. April business inventories will be out on Wednesday and provide markets with a check on corporate stockpiling after Target's renewed warning last week. Finally, a slew of housing market data is due. This includes the June NAHB housing market index (Wednesday) and May building permits and housing starts (Thursday). The impact of rising mortgage rates will be in focus. In Europe, Germany's ZEW survey for June (tomorrow) is among the key data highlights. We will also see April industrial production and trade balance data for the Eurozone on Wednesday and Eurozone construction output and April trade balance data for Italy on Friday. ECB speakers will also be on the radar for investors as they tend to start to break the party line on the Monday after the ECB meeting. A lengthy line up includes ECB President Lagarde on Wednesday and six other speakers. Asian stock markets have started the week on a weaker footing with all the major indices trading deep in the red after a rough week on Wall Street. The Hang Seng (-2.81%) is leading losses across the region in early trade amid a tech sell-off whilst the Shanghai Composite (-1.20%) and CSI (-1.07%) are both sliding as a resurgence of Covid cases in China is threating global growth. Elsewhere, the Nikkei (-2.64%) is also sharply down this morning, with the Kospi declining as much as -2.50%, hitting its lowest level since November 2020. As discussed at the top, 10yr USTs (+2.81 bps) have moved higher to 3.18% while the 2yr yield (+9.8 bps) has exploded higher to 3.16%. Will we see a fresh inversion in the hours and days ahead? Oil prices are lower with Brent futures -1.36% to $120.35/bbl and WTI futures -1.48%, falling below the $120/bbl mark. On the FX side, there is no respite for the Japanese yen from rising Treasury yields as the currency hit a fresh 24yr low, declining -0.50% to 135.08 versus the dollar. DMs equity futures point to further losses with contracts on the S&P 500 (-1.33%), NASDAQ 100 (-1.87%) and DAX (-1.37%) all trading in negative territory. Moving on to the French legislative elections. In the first round, exit polls indicate that President Emmanuel Macron is at risk of losing his outright majority after a strong showing by the left-wing alliance in the first round of the country’s parliamentary election. According to the official results, Jean-Luc Mélenchon's left-wing NUPES alliance (+25.61%) finished neck and neck with Mr Macron's Ensemble (+25.71%), in terms of votes cast in Sunday's first round. An average of 5 pollsters expect Macron to win 262-301 seats, with 289 needed to keep his majority. So a nervy wait ahead of the second round. Turning back to review last week now. The business end of the week had two huge macro events that sent markets into some degree of upheaval. On Thursday, the ECB met, confirming the end of net APP purchases this month, paving the way for liftoff in July. Beyond July they opened the door for 50 basis point hikes if inflation persists or deteriorates. Judging by their upgraded forecasts, they are now in the ‘persists’ camp. President Lagarde in the press conference took great pains to commit to fighting inflation in a hawkish tone shift. The bigger market reaction was on the apparent lack of progress on any implementation tool designed to avoid fragmentation. President Lagarde tried to downplay the lack of new tool, leaning on PEPP reinvestment flexibility, but the market wasn’t comfortable that this would be enough. All told, 2yr bunds increased +30.9bps (+13.6bps Friday) on the tighter expected policy path, with the end-2022 policy rate implied by OIS markets ending the week at 0.99%, a new high and in line with our Euro economists updated call (their full review and new call here). The lack of an immediate anti-fragmentation tool saw peripheral spreads underperform, moving to new post-Covid wides, as 10yr BTPs increased +35.9bps (+16.0bps Friday) with 10yr Spanish bonds increasing +34.0bps (+15.6bps Friday), versus a 10yr bund increase of +24.3bps (+8.6bps Friday). The Friday moves above were given a further boost by yet another above consensus US CPI report, with YoY inflation gaining +8.6% in May versus expectations it would stay consistent with the prior month’s +8.3% reading. FOMC officials have consistently cited deceleration in MoM readings as necessary to find clear and convincing evidence that inflation was stabilising and returning to target, evidence which they surely didn’t get on Friday, as MoM inflation increased +1.0% from +0.3% in April, beating lofty expectations of +0.7%. The dramatic beats drove the expected path of Fed tightening sharply higher, with 2yr Treasury yields increasing +40.9bps on the week after a +25.0bp gain Friday, it’s largest one-day move since June 2009. The expected fed funds rate by the end of the year reached a new high of 3.22%. The curve aggressively bear flattened, as the reality that the Fed will have to induce slower growth to tame inflation set in; 10yr yields gained +22.0bps on the week and +11.2bps on Friday, with almost all of the increase coming in real yields. That brings 2s10s to 8.8bps, its flattest since its early-April rebound after its brief inversion. The sharp global policy repricing weighed on equity indices. All major transatlantic indices fell, including the STOXX 600 (-3.95% week, -2.69% Friday), DAX (-4.83%, -3.08%), CAC (-4.60%, -2.69%), S&P 500 (-5.05%, -2.91%), NASDAQ (-5.60%, -3.52%), FANG+ (-2.87%, -3.37%), and Russell 200 (-4.26%, -2.60%). That brings the STOXX 600 -14.49% below its YTD highs reached in the first days of the year, with the S&P 500 -18.40% below the same corresponding metric. Both indices ended the week hovering just above YTD lows. US CDX HY and Euro Crossover were +58bps and +47bps on the week and around +30bps and +25bps wider on Friday. Both are now at their post covid wides. Tyler Durden Mon, 06/13/2022 - 07:57.....»»

Category: blogSource: zerohedgeJun 13th, 2022

Janet Yellen responds to Cardi B: "There"s nothing to suggest that a recession is in the works"

Yellen argued recession fears are overblown since consumer and investment spending remain strong, even during a painful stretch of inflation. Treasury Secretary Janet Yellen testifies before the House Ways and Means Committee during a hearing on proposed fiscal year 2023 budget on Capitol Hill in Washington, Wednesday , June 8, 2022. ; Cardi B poses for photos after the ceremonial red carpet roll out at the 2021 American Music Awards on Friday, Nov. 19, 2021, in Los Angeles.Jose Luis Magana/AP Photo ; Richard Shotwell/Invision/AP Photo Yellen responded to Cardi B's tweet asking about a potential recession announcement. "Consumer spending is very strong, investment spending is solid," she said. Some economists and business leaders have sounded the alarm on an impending downturn recently. Treasury Secretary Janet Yellen took some time on Thursday afternoon to address the recession fears of one of hip-hop's biggest stars.At the New York Times Dealbook conference in Washington DC, Yellen responded to Cardi B's tweet last weekend that asked: "When y'all think they going to announce that we going into a recession?"When asked about her familiarity with Cardi B, Yellen initially responded in jest: "I don't have that much time for her, but I am alive."—DealBook (@dealbook) June 9, 2022 The treasury secretary listed various factors that reflect the US economy's relative strength during a stretch of record inflation. "Consumer spending is very strong, investment spending is solid," she said."We have a very strong economy," Yellen said. "I know people are very upset and rightly so about inflation, but there's nothing to suggest that a recession is in the works."Cardi's worries aren't unique. A growing number of economists and business leaders have sounded the alarm on an impending downturn in recent months. Their argument goes like this: Inflation is so high that the Federal Reserve will have to aggressively raise interest rates, making it more expensive for consumers and businesses to borrow. That effort will cool off demand, slow the economy to a halt, and, according to bearish experts, spark a recession.Data out Friday morning further stoked their concerns. Inflation unexpectedly accelerated in May to a year-over-year pace of 8.6%, the fastest rate since 1981. That surpassed economists' forecasts and signaled the price-growth problem may be harder to solve than initially expected.If the US does slide into a recession, it likely won't happen soon. The economy continued to add jobs at an extraordinary rate through May, and low jobless claims hint companies are still firmly focused on hiring and retaining workers. The unemployment rate remains historically low. Household finances are generally healthy.The economy has its fair share of challenges, but the recovery is still running too strong for the US to currently be in a recession. "Americans are rightly angry about inflation. A strong labor market is not enough reason to celebrate. But, we are coming out of, not going into the hurricane," Claudia Sahm, a former Fed economist, said in a Tuesday blog post.Read the original article on Business Insider.....»»

Category: topSource: businessinsiderJun 10th, 2022

Is It Too Late To Buy Oil Stocks?

Is It Too Late To Buy Oil Stocks? Submitted by Kailash Concepts We get asked this question. A lot. Investors, scorched by multiple expansion in speculative stocks, are understandably concerned about the movement of prices in oil and gas.  We believe the reason to invest in oil stocks stems from a fundamental backdrop for the sector, unlike anything we have seen in our careers. We are going to generalize. No offense intended.  We see three primary groups of equity investors today: Index Fund Investors: since we first wrote up energy over 18 months ago, the sector’s weight in the S&P 500 has doubled to 4.8%, so this group has “decided” to put less than a nickel of every dollar into some of the cheapest, most well-run and disciplined group of capital allocators in the market (we thank them for making what we believe is a catastrophic error) Active Managers: hewing to explicit or implicit environmental mandates that have deemed the producers of energy to be “bad” – this is a very large group of a shrinking pool of active managers who are willfully omitting energy and embracing “Clean Tech” stocks that often lack fundamental merit Active Managers who deviate from what we believe are flawed index funds and seek out firms with robust fundamentals that are often shunned by the crowds. These investors favor assets that provide a significant margin of safety based on a view that “risk” is defined as the permanent impairment of capital. Fortunately, that third group has never been smaller from what we can tell.   The capital discipline, commitment to healthy balance sheets, and exploding free cash flow that characterizes oil and gas stocks seem to count for little.  This indexing age has created market inefficiencies so large and so slow to resolve themselves that it is almost hard to believe. Figure 1 suggests this is the early innings for energy. Oversimplified? Yes. Compelling? Yes. Complicated? No. When to Buy Oil Stocks Nobody at KCR relishes the pain high energy prices are inflicting on the world. And we certainly do not write this piece with any illusions that things cannot go wrong for oil and energy stocks. Here are some examples: An outbreak of a nasty new Covid strain Persistent inflation Sudden deflation A central banker induced recession Something we have yet to contemplate [our money is on this one if something should go wrong] We think many oil stocks’ valuations already factor in lower commodity prices despite structural supply shortages. Considering the hostile financial (ESG), regulatory and political backdrop (discussed below) do you believe any material supply is coming online? Possibly of more importance: if any of the above scenarios hit energy prices, won’t bloated growth stocks trading at 50x earnings and speculative loss-making stocks get hit much harder? Our team believes the disparity between the change in the commodity prices vs. the stocks is a compelling sign of just how little credit investors are giving the energy sector. The chart below does the following: Takes the 3-year change in natural gas prices minus the 3-year change in the price of energy stocks[i] When the line is above zero, it tells us that natural gas has gone up much faster than energy stocks When the line is below zero, it tells us that the stock prices have gone up much faster than the gas prices Over the last three years, natural gas prices are up 232%, while the Energy Sector’s stock prices have only risen 52%. Said differently, natural gas prices have risen 180% more than energy stocks since April 2019. The last time the commodity ran this far ahead of the stocks was in November of 2000. That date would prove to be the start of a seven-year bull market for energy stocks, which would destroy the S&P500. In the dot.com bubble, investors went crazy for novel tech stocks. Energy stocks, which make the basic input for modern life, were deemed obsolete. That lack of investment led to a serious supply shortage. The cycle repeats today. Fig. 2: Percent Change in Natural Gas - Percent Change in Energy Stocks Today’s situation “rhymes” but strikes us as significantly more constructive for the energy sector. We do not recall AOL, Akamai, Cisco, or other internet darlings talking about how oil was obsolete. The sector was just forgotten and left behind during the dot.com mania. In this cycle, we had promotional shills proclaiming the end of energy. The novel story stocks were, and are, often companies that suggest they solve the energy crisis despite considerable evidence to the contrary. We believe the divergence between narrative and truth has rarely been wider than it is today. The chart below shows how investors did in prior periods when natural gas outperformed the energy sector by 100% or more (light blue line in Fig. 2). Intuitively, when the stocks do not follow the commodity, that means investors doubt the durability of physical market prices for energy. Rarely has that doubt been more pronounced than it is today. Figure 3 shows that in 3-year periods when natural gas rises 100% more than Energy stocks: Energy stocks outperform the index 75% of the time by an average of 19% over the following year Energy stocks underperform the index 25% of the time by an average of -9% over the following year Conclusion: History suggests this is a fantastic time to buy Energy Stocks Fig. 3: When Nat Gas Prices Rise 100% More Than Energy Stocks Over the Trailing 3 Years, Energy Typically Goes on to Trounce the Index The table below shows the fundamentals of the S&P500 vs. the KCR top 5 ranked U.S. and Canadian energy stocks today. We think the data speaks for itself. We provide the lists for the two KCR energy groups in the exhibit at the end of this piece. Below, we take a moment to address some fears around energy prices and energy stocks. Buy Oil Stocks When Others Won’t People fret about the “sustainability” of the commodity rally. The oil market’s recent surge is deemed, by many, as being too high. Today people blame the invasion of Ukraine as the cause of what many view to be a transitory problem. We agree that current oil prices may be transitory. Yet we believe the data suggests prices may be too low. There is no doubt the tragedy in Ukraine has sent oil and natural gas higher. But the IEA did a remarkable job outlining the bull case for oil in early 2021, long before the war. We summarized the IEA’s bullish findings on oil shortly after its publication. To summarize our summary: they explained that halting the growth in energy use would require the wholesale change of human behavior globally. We saw no sign of any such changes. Starstruck by celebrity CEOs and Fund Managers shilling impossible narratives, people chased story-stocks to obscene levels. Published in May of 2021, our piece on Oil Producing Assets noted that Tesla’s market cap was equivalent to all the stocks in the energy sector combined. Faced with the choice of making difficult changes in lifestyle or getting a government subsidy to buy an electric sports car, the sports car won out. Unfortunately, investors and consumers seemed almost willfully blind to the unforgiving data around EVs. Goehring & Rozencwajg’s research was quick to highlight the brutal shortfalls, and still no one listened. Lucas White of GMO recently penned a clear and quick summary of the problems with the EV narrative. While BEVs of dubious environmental merit were drowning in capital, the energy sector starved. Our lead-in chart in Crude Investing: Energy Stocks & ESG highlighted that capital expenditures in the energy sector hit lows last seen at the peak of the dot.com bubble. When we make an industry a pariah, starve them of capital, choose to believe storytellers over fact, and then see spending on production collapse, we should expect higher commodity prices. Let’s use recent history to put current prices in context. The shaded area shows the range of observed natural gas prices between 2006 – 2010 by month. Revisit our chart on energy sector capital expenditures. The US was spending nearly 4x as much on energy capex as we are today. The line you see is natural gas prices so far in 2022. Does it still look expensive? Fig. 4: Natural Gas Price Range 2006 - 2010 vs 2022 Natural Gas Prices For further perspective, we ask you to consider the following. Current energy prices are where they are despite coordinated releases of oil from the US and other countries’ strategic reserves working to hold prices down. The US SPR is now below 538ml barrels. The lowest level since 1987. We think that adds a built-in “bid” to energy. If governments stop selling, prices may rise. Also, it is worth noting that the US economy is five times larger today than in 1987 and experiencing a reshoring boom. Seems unwise to have our strategic reserves back to 1987 levels. At some point, we will need to rebuild our strategic reserve. Exploration and Production: An Unfortunate Tailwind There is a lot of noise about the conduct of the energy companies. They are accused of profiteering from the war. People clamor for windfall profit taxes. We believe the vast majority of people in America have much more in common than the media would have us believe. With that said - the media has never been more powerful in polarizing us. In the interest of encouraging a middle ground, let us take a quick tour of energy companies’ recent experiences. In the Covid crash, oil prices went negative. British Petroleum’s 2020 Energy Outlook and many other major energy experts came out and declared peak demand had arrived. In one piece, we cited this article about brand new rigs with 30 year operating lives being scrapped. Famous people were calling for $12 oil based on EVs. Even today, stories come out suggesting “Peak Oil is Coming” warning about stranded oil assets. So, which is it? Are these companies profiteering? Or are they at risk of ending up stranding investors’ assets? Energy investing is a capital-intensive business that requires long-term thinking. In 2016, 142 oil and gas companies went bankrupt. Another 100 followed them into insolvency in 2020. So, they’ve had a good year and a half and now we want both more production at lower costs but are going to increase their costs via punitive taxes? This is sheer madness. Energy and fertilizer shortages will grow worse. Soaring incidence of famine will merely get worse. Egged on by the most promotional CEOs and money managers we have ever seen, the world has and continues to shower capital on speculative clean tech stocks of dubious to negative value. Regardless of your opinion, the chart below doesn’t lie. That’s the EIA’s most comprehensive measure of US natural gas production. This is an industry that shattered production records in 2021. Not bad, considering the catastrophic 2020 Covid year and the calls by many pontificators for their inevitable decline. To each their own. Fig. 5: U.S. Natural Gas Gross Withdrawals Tyler Durden Sat, 06/04/2022 - 10:30.....»»

Category: dealsSource: nytJun 4th, 2022

A recession could throw cold water on the housing market — but that doesn"t mean it"s going to get any easier to buy a home

The US could see an economic slowdown in 2023, but a cooling housing market won't necessarily make it's easier to buy a house. With rates generally on the rise and inflation putting pressure on everyday costs, Americans are likely to have a harder time affording housing — let alone a new home purchase in 2023.Getty Images Experts forecast a possible recession in 2023. A downturn in the economy would hit a housing market that's been running hot for years.  But there's still a shortage of available housing and prices are not widely expected to drop.  The US economy is in a strange place– and that means the housing market is too. As rising interest rates do their job to tamp down demand, fears of a coming recession are on the rise. Prospective buyers may be wondering what it all means for their dreams of owning a home.In short, price growth will likely slow down as demand falls, and mortgage rates have begun to edge lower after soaring earlier this year. But with a persistent lack of available homes for sale, an economic slowdown won't bring a new era of affordability to the US housing market.A recession could hit in 2023 — but it will likely be mildThough there are plenty of jobs to go around, wages are rising, and spending is booming, some Americans are having a tough time.Inflation has climbed to a forty-year high while consumer sentiment has fallen to a decade low. Rising interest rates have also made all forms of borrowing from car loans to mortgage payments more expensive than they were just a few months ago.As the economy falls further out of whack, fear of a possible recession is spreading. And while experts believe it's unlikely to happen in 2022, signs do point to an economic downturn in 2023."Financial conditions have tightened significantly, and the economy is slowing faster than previously expected as markets adjust to the Federal Reserve's tightening guidance," Doug Duncan, senior vice president and chief economist at Fannie Mae, said in a statement referring to the Fed's interest rate hikes that began in March in an attempt to cool sky-high demand throughout the economy.Home prices will likely continue to grow in most markets, but at a slower paceIf a recession is on the horizon for 2023, it could mean the housing market is bracing for a cool down after years of hot demand driving prices higher — but that doesn't mean homeownership will become more affordable for prospective buyers. "If the economy were to weaken or a recession were to hit, that would further weaken demand," Len Kiefer, the chief economist at Freddie Mac, told Insider, adding that it could lead to a deceleration in price growth. Although home prices have actually declined in some markets, they're still rising in other parts of the country —  but at a much slower rate. While price growth is expected to slow further, Kiefer says that doesn't mean prices will go down. "We expect house price growth to moderate over the summer," Kiefer said. "However, we still expect house price growth to remain positive. That means that coupled with higher mortgage rates homebuyer affordability will be stretched even further." The rock-bottom mortgage rates of the pandemic era are gonePandemic-era mortgage deals are over and it's making homeownership more costly. Although mortgage rates fell slightly in May, they are much higher than they were in 2021. According to Freddie Mac, the average U.S. fixed rate for a 30-year mortgage fell to 5.10% last week, from a pandemic high of 5.30% — but that's significantly up from a pandemic low of 2.68% in December 2020.As mortgage rates put additional pressure on housing costs, buyers of a median-priced home are looking at monthly mortgage payments that are more than $400 higher than a year ago. There still aren't enough houses on the market to meet demandWith rates generally on the rise and inflation putting pressure on everyday costs, Americans are likely to have a harder time affording housing — let alone a new home purchase in 2023. "Not only is the worsening affordability of homes a problem for potential entry-level homebuyers, but current homeowners are less likely to trade in their existing lower-rate mortgages and list their homes for sale, both of which will likely weigh on sales," Duncan said.To boost housing market equilibrium, home prices will need to fall — and that means more homes will need to be built in 2023. "Cooling of the market is necessary to bring supply and demand back into balance," Kefer said. "The rate of house price growth over the past two years is not sustainable over the long run."Even with more new listings hitting the market, the number of homes for sale are still at historic lows.To address home price growth and the nation's lack of housing affordability, the Biden Administration has launched an initiative that proposes using federal dollars to boost the affordable housing supply. But there's a catch — the plan will take course over the next five years. That means Americans are unlikely to see a surplus of new inventory introduced to the real estate market next year. With a possible recession looming and mortgage rates trending near a thirteen-year high, the nation's lack of housing inventory will continue to dampen affordability for buyers in 2023.Read the original article on Business Insider.....»»

Category: personnelSource: nytJun 2nd, 2022

Futures Jump After Biden Says Trump"s China Tariffs Under Consideration

Futures Jump After Biden Says Trump's China Tariffs Under Consideration US stock futures advanced for a second day after staging a furious rally late on Friday having slumped into a bear market just hours earlier, after President Joe Biden said China tariffs imposed by the Trump administration were under consideration, although concerns about hawkish central banks and record Covid cases in Beijing continued to weigh on the sentiment.  Contracts on the S&P 500 were up 1% by 7:15 a.m. in New York, trimming earlier gains of as much as 1.4% following remarks from Christine Lagarde that the European Central Bank is likely to start raising interest rates in July and exit sub-zero territory by the end of September which sent the euro sharply higher and hit the USD. Meanwhile, Beijing and Tianjin continue to ramp up Covid restrictions as cases climbed. Nasdaq futures also jumped, rising 1.1%. Europe rose 0.6% while Asian stocks closed mostly in the green, with Nikkei +1% and Hang Seng -1.2%. The dollar and Treasuries retreated, while bitcoin jumped to $30,500 as the crypto rout appears over. Traders interpreted Biden’s comments that he’ll discuss the US tariffs on Chinese imports with Treasury Secretary Janet Yellen when he returns from his Asia trip as a signal there could be a reversal of some Trump-imposed measures, sparking a risk-on rally.  “Today’s appetite for risk has been sparked by the US President’s announcement that trade tariffs imposed on China by the previous Trump administration will be discussed,” said Pierre Veyret, a technical analyst at ActivTrades. “Investors see this as a possible de-escalation of the trade war between the two economic superpowers, and this has revived trading optimism towards riskier assets.” Among the notable movers in premarket trading, VMware surged 19% after Bloomberg News reported that Broadcom is in talks to acquire cloud-computing company; Broadcom fell 3.5% in premarket trading. Here are some other notable premarket movers: Software stocks, such as Oracle (ORCL US), Splunk (SPLK US), ServiceNow (NOW US), Check Point Software Technologies (CHKP US), are in focus after the report on Broadcom and VMware setting up for a blockbuster tech deal. Antiviral and vaccine stocks rise in US premarket trading amid spreading cases of the monkeypox virus. SIGA Technologies (SIGA US) jumps 39%; Emergent BioSolutions (EBS US) rises 15%, Chimerix (CMRX US) gains 15%, Inovio Pharmaceuticals (INO US) +13% Dow (DOW US) shares fall as much as 1.3% premarket after Piper Sandler downgraded the chemicals maker to neutral from overweight, along with peer LyondellBasell (LYB US), amid industry concerns. TG Therapeutics (TGTX US) shares are down 3.3% premarket after falling 11% on Friday, when BofA started coverage on the biotech company with an underperform rating and $5 price target. Upwork (UPWK US) could be in focus as RBC Capital Markets analyst Brad Erickson initiates coverage of the stock with a sector perform recommendation, saying some near-term negatives for the online recruitment services firm are well discounted. US stocks have been roiled in the past two months by concerns the Fed's tightening will push the economy into a recession. A late-session rebound lifted the market from the session’s lows on Friday, though the S&P 500 still capped a seventh straight week of losses - the longest since 2001 - and briefly dipped into bear market territory, while the Dow dropped for 8 consecutive weeks, the longest stretch since 1923! “As we have seen time and time again recently, any attempted rallies appear to be short-lived with the backdrop of macroeconomic uncertainty, and any bullish breakouts have failed to endure with overall market sentiment biased toward the bears,” said Victoria Scholar, head of investment at Interactive Investor. The string of weekly losses has seen the S&P 500’s forward price-to-earnings ratio drop to 16.4, near the lowest since April 2020. This is below the average level of 17.04 times seen over the past decade, making the case for bargain hunters to step in. Separately, Biden said the US military would intervene to defend Taiwan in any attack from China, comments that appeared to break from the longstanding US policy of “strategic ambiguity” before they were walked back by White House officials. Meanwhile, his administration announced that a dozen Indo-Pacific countries will join the US in a sweeping economic initiative designed to counter China’s influence in the region. Minutes of the most recent Fed rate-setting meeting will give markets insight this week into the central bank’s tightening path. St. Louis Fed President James Bullard said the Fed should front-load an aggressive series of rate hikes to push rates to 3.5% at year’s end, which if successful would push down inflation and could lead to easing in 2023 or 2024 In Europe, the Stoxx 50 rose 0.3%. The FTSE 100 outperformed, adding 0.9%, FTSE MIB lags, dropping 1.1%. Energy, miners and travel are the strongest performing sectors. European energy shares vie with the basic resources sector to be the best-performing group in the Stoxx Europe 600 benchmark on Monday as oil stocks rise with crude prices, while Siemens Gamesa rallies after Siemens Energy made a takeover offer. Shell rises 1.7%, BP +2.4%, TotalEnergies +2.1%. Elsewgere, the Stoxx Europe Basic Resources sub-index rallies to the highest level since May 5 to lead gains in the wider regional benchmark on Monday as metals rise amid better demand outlook. Aluminum, copper and iron ore extended rebound after China cut borrowing rates last week, dollar weakened and as investors weighed outlook for lockdown relief in Shanghai. The euro rose to its highest level in four weeks and most of the region’s bonds fell after European Central Bank President Christine Lagarde said the ECB is likely to start raising interest rates in July and exit sub-zero territory by the end of September. Here are the most notable European movers: Siemens Gamesa shares gain as much as 6.7% after Siemens Energy made an offer to acquire the shares in the wind-turbine maker it does not own. Kingfisher shares advance as much as 4.9% after the B&Q owner reported 1Q sales that beat estimates and announced plans for a further GBP300m share buyback. Deutsche EuroShop shares jump as much as 44% after Oaktree and CURA offered to acquire the German retail property company in a deal valuing it at around EU1.39b. Moonpig Group gains as much as 14% as Jefferies analysts say its plan to buy Smartbox Group UK is a good use of the online greeting card company’s strong cash generation. Kainos Group shares jump as much as 25%, as Canaccord Genuity raises the stock’s rating to buy from hold following FY results, saying cost-inflation headwinds are priced in. Intertek shares fall as much as 5.3%, with Stifel cutting its rating on the company to hold from buy, saying none of the key elements of its positive thesis are still intact. Leoni shares drop as much as 7.3% after the wiring systems manufacturer said it was in advanced talks on further financing. Earlier in the session, Asian stocks were mixed as traders assessed Chinese authorities’ efforts to support the economy amid ongoing concerns over its Covid situation. The MSCI Asia Pacific Index was up 0.4%, supported by healthcare and industrials, after paring an early gain of as much as 0.7%. Japanese stocks outperformed and US index futures advanced.  Chinese shares slid after Beijing reported a record number of coronavirus cases, reviving concerns about lockdowns. Covid concerns offset any positive impact from last Friday’s greater-than-expected reduction in a key interest rate for long-term loans in an effort to counter weak demand. Investors may be turning more upbeat on Asian stocks, with the regional benchmark beating global peers last week by the most in more the two years, snapping a streak of six weekly losses. Still, the region faces the same worries about inflation and rising US interest rates that have been rattling markets around the world this year. “The energy crisis in the EU and policy tightening in the US, combined with China’s economic soft patch” are potential headwinds for Asian equities and may lead to “weak external demand for more export-oriented economies like Taiwan and Korea,” Soo Hai Lim, head of Asia ex-China equities at Barings, wrote in a note. Japanese equities climbed as US President Joe Biden’s comments during his visit to the country lifted market sentiment. Biden said a recession in the US isn’t inevitable, and reaffirmed close ties between the two countries. He also said China tariffs imposed by the Trump administration were under consideration, helping to lift regional stocks.  The Topix Index rose 0.9% to 1,894.57 as of market close, while the Nikkei advanced 1% to 27,001.52. Tokio Marine Holdings contributed the most to the Topix Index, increasing 7.6%. Out of 2,171 shares in the index, 1,681 rose and 415 fell, while 75 were unchanged. Defense stocks also got a boost after Prime Minister Fumio Kishida said President Biden supports Japan’s plan for an increase in its defense budget Stocks in India mostly declined after the central bank chief said the Reserve Bank is taking coordinated action with the country’s government to tackle inflation and a few interest rate hikes will be in store in coming months. His comments came soon after the government unveiled measures that will cost the exchequer $26 billion and will probably force the government to issue more debt to bridge the yawning budget deficit. The S&P BSE Sensex ended flat at 54,288.61 in Mumbai after giving up an advance of as much as 1.1%. The NSE Nifty 50 Index dropped 0.3%, its third decline in four sessions. Gauges of mid-sized and small stocks also plunged 0.3% and 0.6%, respectively. Out of the 30 stocks in the Sensex index, 20 advanced while 10 ended lower, with Tata Steel being the biggest drag. Eleven of 19 sector sub-indexes compiled by BSE Ltd. declined, led by metal stocks. Steel stocks plunged after the new rules imposed tariffs on export of some products. Auto and capital stocks were the best performers.  Investors remain wary of the policy decisions the central bank could take in the near-term to tackle in rising inflation, according to Arafat Saiyed, an analyst with Reliance Securities. “Changes in oil prices and amendments to import and export duties might play a role in assessing the market’s trajectory.” In rates, Treasuries dropped as investors debate the Federal Reserve’s tightening path amid mounting worries about an economic slowdown. US bonds were cheaper by 3bp-5bp across the curve with belly leading declines, underperforming vs front- and long-end, following weakness in bunds. 10-year yield around 2.83%, higher by ~5bp on day, and keeping pace with most European bond markets; belly-led losses cheapen 2s5s30s fly by ~1.5bp on the day. US IG credit issuance slate empty so far; $20b-$25b is expected this week, concentrated on Monday and Tuesday. European fixed income faded an initial push higher after Lagarde’s comments while money markets up rate-hike bets. Bund futures briefly trade above 154 before reversing, cash curve bear-flattens with the belly cheapening ~6bps. Peripheral spreads tighten to Germany, 10y Bund/BTP spreads holds above 200bps. In FX, the Bloomberg Dollar Spot Index fell as the greenback traded weaker against all of its Group-of-10 peers. The euro jumped to a session high of $1.0635 and bunds reversed an advance after ECB President Christine Lagarde said the central bank is likely to start raising interest rates in July and exit sub-zero territory by the end of September. The EUR was also bolstered by Germany IFO business confidence index rising to 93.0 in May vs estimate 91.4. The Aussie and kiwi were among the pest G-10 performers as they benefitted from Biden’s comments about the tariffs on China. Aussie was also supported after the Labor Party won the weekend election and is increasingly hopeful of gaining enough seats to form a majority government.  The pound advanced against the dollar, touching the highest level since May 5, amid broad-based greenback weakness. While asking prices rose to a new record for the fourth-straight month, there are signs the housing market is slowing, according to Rightmove. Yen steadied after gains last week as traders sought clues on the global economy. Japanese government bonds were mostly higher. The purchasing power of the yen fell to a fresh half-century low last month. In commodities, WTI rose 1.1% to trade just below $112. Most base metals are in the green; LME aluminum rises 1.4%, outperforming peers. LME nickel lags, dropping 4.2%. Spot gold climbs roughly $18 to trade around $1,865/oz Looking at today's calendar, at 830am we get the April Chicago Fed Nat Activity Index (est. 0.50, prior 0.44). CB speakers include the Fed's Bostic, ECB's Holzmann, Nagel and Villeroy and BoE's Bailey. Market Snapshot S&P 500 futures up 0.6% to 3,922.50 STOXX Europe 600 up 0.6% to 433.69 MXAP up 0.4% to 165.23 MXAPJ little changed at 539.33 Nikkei up 1.0% to 27,001.52 Topix up 0.9% to 1,894.57 Hang Seng Index down 1.2% to 20,470.06 Shanghai Composite little changed at 3,146.86 Sensex up 0.4% to 54,556.08 Australia S&P/ASX 200 little changed at 7,148.89 Kospi up 0.3% to 2,647.38 German 10Y yield little changed at 0.97% Euro up 0.5% to $1.0622 Brent Futures up 0.9% to $113.61/bbl Gold spot up 0.7% to $1,859.91 U.S. Dollar Index down 0.63% to 102.50 Top Overnight News from Bloomberg President Joe Biden said the US military would intervene to defend Taiwan in any attack from China, some of his strongest language yet seeking to deter Beijing from an invasion The Biden administration announced that a dozen Indo-Pacific countries will join the US in a sweeping economic initiative designed to counter China’s influence in the region, even as questions remain about its effectiveness The US Treasury Department is expected to tighten sanctions this week on Russia, threatening about $1 billion owed to bondholders for the rest of this year and putting the country once again on the edge of default The ECB is poised to get the power to oversee so-called transition plans by 2025, in which lenders map out their path to a carbon-neutral future. Yet several national officials who sit on the ECB’s supervisory board are skeptical that climate risks merit new rules to address them, and some are wary that the initiative exceeds the central bank’s mandate Russia is considering a plan to ease a key control on capital flows which has helped drive the ruble to the highest levels in four years as the rally is now threatening to hurt budget revenues and exporters Natural gas prices in Europe fell as much as 5.6% to the lowest level since the start of the war in Ukraine, as storage levels across the continent rise to near-normal levels As the biggest selloff in decades shook the world’s bond markets this year, some extraordinarily long-dated debt went into free fall, tumbling even more than Wall Street’s usual models predicted. To Jessica James, a managing director with Commerzbank AG in London, it wasn’t a surprise. In fact, it was validation A more detailed look at global markets courtesy of Newsquawk APAC stocks were mixed as momentum waned due to China's COVID woes and record Beijing infections. ASX 200 was just about kept afloat before ebbing lower after initial strength in mining names and the smooth change of government in Australia. Nikkei 225 advanced at the open with Tokyo said to be planning to revive its travel subsidy plan for residents. Hang Seng and Shanghai Comp were pressured by ongoing COVID concerns after Beijing extended its halt of dining in services and in-person classes for the whole city, as well as reporting a fresh record of daily COVID infections, while Shanghai restored its cross-district public transport on Sunday but ordered supermarkets and shops in the central Jingan district to shut and for residents to stay home until at least Tuesday Top Asian News Beijing reported 83 new symptomatic cases and 16 new asymptomatic cases for May 22nd with the city's total new cases at a new record, according to Bloomberg. It was also reported that thousands of Beijing residents were relocated to quarantine hotels due to a handful of infections, according to the BBC. Beijing is mulling easing its hotel quarantine requirement to one week in a hotel and one week at home from a previous hotel requirement of ten days and one week at home for international travellers, according to SCMP. Shanghai reported 570 new asymptomatic cases, 52 asymptomatic cases, 3 new COVID-related deaths and zero cases outside of quarantine, according to Reuters. Shanghai’s central district of Jingan will require all supermarkets and shops to close, while residents will be required to stay at home and conduct mass testing from May 22nd-24th, according to Reuters. China NHC Official says the COVID situation, overall, is showing a steady declining trend. Japanese PM Kishida said it is very disappointing that China is unilaterally developing areas in the East China Sea when borders are not yet set which Japan cannot accept, while it has lodged a complaint against China through diplomatic channels, according to Reuters. Japanese PM Kishida told US President Biden that they must achieve a free and open Indo-Pacific together, while President Biden said the US is fully committed to Japan's defence and that the IPEF will increase cooperation with other nations and deliver benefits to people in the region, according to Reuters. US-South Korea joint statement noted they agreed to discuss widening the scope and scale of joint military exercises and the US reiterated its commitment to defending South Korea with nuclear, conventional and missile defence, as well as reaffirmed its commitment to deploy strategic military assets in a timely and coordinated manner as necessary. The sides also condemned North Korea’s missile tests as a grave threat and agreed to relaunch a high-level extended deterrence strategy and consultation group at the earliest date, while they noted the path to dialogue with North Korea remains open and called for a resumption of negotiations, according to Reuters. US President Biden said the US-South Korea alliance has never been stronger and more vibrant. President Biden added they are ready to strengthen the joint defence posture to counter North Korea and are ready to work toward the complete denuclearisation of North Korea, while he offered vaccines to North Korea and said he would meet with North Korean leader Kim if he is serious, according to Reuters. South Korean President Yoon said North Korea is advancing nuclear capabilities and that US President Biden shares grave concerns regarding North Korea’s nuclear capabilities, while Yoon said they discussed the timing of possible deployment of fighter jets and bombers, according to Reuters. European bourses are mixed/modestly-firmer, Euro Stoxx 50 +0.3%, as the initial upside momentum waned amid fresh China COVID updates and hawkish ECB commentary. Note, the FTSE MIB is the noted underperformer this morning, -1.0%, amid multiple large-cap names trading ex-divided. Stateside, futures are firmer but similarly off best levels, ES +0.5%, with recent/familiar themes very much in focus ahead of a thin US-specific docket. XPeng (XPEV) Q1 2022 (USD): EPS -0.32 (exp. -0.30), Revenue 1.176bln (exp. 1.16bln); Vehicle Deliveries 34.56k, +159% YY. -2.8% in pre-market JPMorgan (JPM) has reaffirmed its adjusted expenses guidance; credit outlook remains positive; sees FY22 NII USD 56bln (prev. USD 53bln) Top European News EU’s infectious-disease agency is to recommend member states prepare strategies for possible vaccination programmes to counter increasing monkeypox cases, according to FT. It was also reported that Austria confirmed its first case of monkeypox and that Switzerland also confirmed its first case of monkeypox in the canton of Bern, according to Reuters. EU policymakers are reportedly renewing efforts to push for real-time databases of stock and bond trading information as they believe that a 'consolidated tape' will make EU exchanges more attractive for investors, according to FT. EU Commission has proposed maintaining EU borrowing limits suspension next year amid the war in Ukraine; expects to reinstate limits in 2024; Germany supports the suspension. Fixed Income Bunds and Eurozone peers underperform as ECB President Lagarde signals end of negative rates by September. 10 year German bond nearer 153.00 having topped 154.00, Gilts around 1/4 point below par after trading flat at best and T-note shy of 120-00 within 120-03+/119-21+ range. EU NG issuance covered 1.38 times and Austria announces leads for 2049 Green syndication. In FX Euro joins Kiwi at the top of G10 ranks as President Lagarde chimes with end of NIRP by Q3 guidance, EUR/USD sets fresh May peak near 1.0690. Bulk of NZIER shadow board believe RBNZ will deliver another 50bp hike on Wednesday, NZD/USD hovers comfortably above 0.6450 in the run up to NZ Q1 retail sales. DXY in danger of losing 102.000+ status as Euro revival boosts other index components. Aussie up with price of iron ore and extended Yuan recovery gains with change of PM and Government regime taken in stride; AUD/USD probes 0.7100, USD/CNH not far from Fib support sub-6.6500, USD/CNY a tad lower. Sterling eyes 1.2600 awaiting BoE Governor Bailey at a PM panel discussion, Loonie and Nokkie glean traction via firm WTI and Brent, USD/CAD under 1.2800, EUR/NOK beneath 10.3000. Lira languishing after CBRT survey showing higher end 2022 forecasts for Turkish CPI, current account deficit and USD/TRY circa 17.5690 vs just shy of 16.0000 at present. Commodities WTI and Brent are firmer and in-proximity to session highs amid USD action offsetting the earlier drift with risk sentiment/China's mixed COVID stance. Currently, the benchmarks are just off highs of USD 111.96/bbl and USD 114.34/bbl respectively, vs lows of 109.50 and 111.97 respectively. Saudi Arabia signalled it will stand by Russia as a member of OPEC+ amid mounting pressure from sanctions, according to FT. Iraq’s government aims to set up a new oil company in the Kurdistan region and expects to enter service contracts with local oil firms, according to Reuters. Iran’s Oil Minister agreed to revive the pipeline laying project to pump Iranian gas to Oman which was stalled for nearly two decades, according to IRNA. Qatari Foreign Minister Sheikh Mohammed bin Abdulrahman Al Thani said Iran’s leadership has matters under review regarding “the Iranian nuclear file” and said that pumping additional quantities of Iranian oil to the market will help stabilise crude prices and lower inflation, according to Al Jazeera TV. India cut its excise duty on petrol by INR 8/litre and diesel by INR 6/litre which will result in a revenue loss of about INR 1tln for the government, while Indian Finance Minister Sitharaman announced subsidies on cooking gas cylinders, as well as cuts to custom duties on raw materials and intermediaries for plastic products, according to Reuters. Indian oil minister says oil remaining at USD 110/bbl could lead to bigger threats than inflation, via CNBC TV18. Central Banks ECB's Lagarde says based on the current outlook, we are likely to be in a position to exit negative interest rates by the end of the third quarter; against the backdrop of the evidence I presented above, I expect net purchases under the APP to end very early in the third quarter. This would allow us a rate lift-off at our meeting in July, in line with our forward guidance. The next stage of normalisation would need to be guided by the evolution of the medium-term inflation outlook. If we see inflation stabilising at 2% over the medium term, a progressive further normalisation of interest rates towards the neutral rate will be appropriate. ECB President Lagarde indicated that July is likely for a rate increase as she noted that they will follow the path of stopping net asset purchases and then hike interest rates sometime after that which could be a few weeks, according to Bloomberg. Bundesbank Monthly Report: German GDP is likely to increase modestly in Q2 from current standpoint. Click here for more detail. RBI Governor Das says, broadly, they want to increase rates in the next few meetings, at least at the next one; cannot give a number on inflation at present, the next MPC may be the time to do so. CBRT Survey (May), end-2022 Forecasts: CPI 57.92% (prev. 46.44%), GDP Growth 3.3% (prev. 3.2%), USD/TRY 17.5682 (prev. 16.8481), Current Account Balance USD -34.34bln (prev. USD -27.5bln). US Event Calendar 08:30: April Chicago Fed Nat Activity Index, est. 0.50, prior 0.44 12:00: Fed’s Bostic Discusses the Economic Outlook 19:30: Fed’s George Gives Speech at Agricultural Symposium DB's Jim Reid concludes the overnight wrap After a stressful couple of hours in front of the football yesterday afternoon, there's not too much the market can throw at me this week to raise the heart rate any higher than it was for the brief moments that I thought Liverpool were going to win the Premier League from a very unlikely set of final day circumstances. However it is the hope that kills you and at least we have the Champions League final on Saturday to look forward to now. There will be a lot of market water to flow under the bridge before that. This all follows a fascinating end to last week with the S&P 500 in bear market territory as Europe went home for the weekend after the index had fallen -20.6% from its peak going into the last couple of hours of another brutal week. However a sharp late rally sent the index from c.-2.3% on the day to close +0.01%. There was no catalyst but traders clearly didn’t want to go home for the weekend as lightly positioned as they were. Regardless, this was the first time we’ve seen seven successive weekly declines in the index since the fallout from the dotcom bubble bursting in 2001. Watch out for my CoTD on this later. If you’re not on my daily CoTD and want to be, please send an email to jim-reid.thematicresearch@db.com to get added. For what it's worth the Dow saw the first successive 8 weekly decline since 1923 which really brings home the state of the current sell-off. After having a high conviction recession call all year for 2023, I can't say I have high conviction in the near-term. I don't expect that we will fall into recession imminently in the US or Europe and if that's the case then markets are likely to eventually stabilise and rally back. However if we do see a H2 2022 recession then this sell-off will likely end up at the more severe end of the historical recessionary sell-offs given the very high starting valuations (see Binky Chadha's excellent strategy piece here for more on this). However if I'm right that a 2023 recession is unavoidable then however much we rally back this year we'll be below current levels for equities in 12-18 months' time in my view. Given that my H2 2023 HY credit spread forecast is +850bp then that backs this point up. Longer-term if we do get a recession and inflation proves sticky over that period then equities are going to have a long period of mean reversion of valuations and it will be a difficult few years ahead. So the path of equities in my opinion depends on the recession timing and what inflation does when we hit that recession. Moving from pontificating about the next few years to now looking at what's coming up this week. The global preliminary PMIs for May tomorrow will be front and centre for investors following the growth concerns that have roiled markets of late. Central banks will also remain in focus as we will get the latest FOMC meeting minutes (Wednesday) and the US April PCE, the Fed's preferred inflation proxy, on Friday. An array of global industrial activity data will be another theme to watch. Consumer sentiment will be in focus too, with a number of confidence measures from Europe and personal income and spending data from the US (Friday). Corporates reporting results will include spending bellwethers Macy's and Costco. After last week’s retail earnings bloodbath (e.g. Walmart and Target) these will get added attention. On the Fed, the minutes may be a bit stale now but it’ll still be interesting to see the insight around the biases of 50bps vs 25/75bps hikes after the next couple of meetings. Thoughts on QT will also be devoured. Staying with the US, for the personal income and spending numbers on Friday, our US economists expect the two indicators to slow to +0.2% and +0.6% in April, respectively. The Fed’s preferred inflation gauge, the PCE, will be another important metric released the same day and DB’s economics team expects the April core reading to stay at +0.3%. Other US data will include April new home sales tomorrow and April durable goods orders on Wednesday. A number of manufacturing and business activity indicators are in store, too. Regional Fed indicators throughout the week will include an April gauge of national activity from the Chicago Fed (today) and May manufacturing indices from the Richmond Fed (tomorrow) and the Kansas City Fed (Thursday). In Europe, the May IFO business climate indicator for Germany will be out today, followed by a manufacturing confidence gauge for France (tomorrow) and Italy (Thursday). China's industrial profits are due on Friday. This week will also feature a number of important summits. Among them will be the World Economic Forum’s annual meeting in Davos that has now started and will run until next Thursday. It'll be the first in-person meeting since the pandemic began and geopolitics will likely be in focus. Meanwhile, President Biden will travel to Asia for the first time as US president and attend a Quad summit in Tokyo tomorrow. Details on the Indo-Pacific Economic Framework are expected. Finally, NATO Parliamentary Assembly’s 2022 Spring Session will be held in Vilnius from next Friday to May 30th. In corporate earnings, investors will be closely watching Macy's, Costco and Dollar General after this week's slump in Walmart and Target. Amid the carnage in tech, several companies that were propelled by the pandemic will be in focus too, with reporters including NVIDIA, Snowflake (Wednesday) and Zoom (today). Other notable corporates releasing earnings will be Lenovo, Alibaba, Baidu (Thursday) and XPeng (Monday). Overnight in Asia, equity markets are weak but US futures continue to bounce back. The Hang Seng (-1.75%) is the largest underperformer amid a fresh sell-off in Chinese listed tech stocks. Additionally, stocks in mainland China are also weak with the Shanghai Composite (-0.47%) and CSI (-0.99%) lower as Beijing reported record number of fresh Covid-19 cases, renewing concerns about a lockdown. Elsewhere, the Nikkei (+0.50%) is up in early trade while the Kospi (+0.02%) is flat. S&P 500 (+0.80%), NASDAQ 100 (+1.03%) and DAX (+0.96%) futures are all edging higher though and 10yr USTs are around +3.5bps higher. A quick review of last week’s markets now. Growth fears gripped markets while global central bankers retrenched their expectations for a strong dose of monetary tightening this year to combat inflation. The headline was the S&P 500 fell for the seventh straight week for the first time since after the tech bubble burst in 2001, tumbling -3.05% (+0.01% Friday), after back-and-forth price action which included an ignominious -4% decline on Wednesday, the worst daily performance in nearly two years. The index is now -18.68% from its YTD highs, narrowly avoiding a -20% bear market after a late rally to end the week, after dipping into intraday on Friday. Without one discreet driver, an amalgamation of worse-than-expected domestic data, fears about global growth prospects, and poor earnings from domestic retail giants that called into question the vitality of the American consumer soured sentiment. Indeed, on the latter point, consumer staples (-8.63%) and discretionary (-7.44%) were by far the largest underperformers on the week. European stocks managed to fare better, with the STOXX 600 falling -0.55% (+0.73% Friday) and the DAX losing just -0.33% (+0.72% Friday). The growth fears drove longer-dated sovereign bond yields over the week, with 10yr Treasuries falling -13.7bps (-5.6bps Friday). Meanwhile, the front end of the curve was relatively anchored, with 2yr yields basically unchanged over the week (-2.7bps Friday), and the amount of Fed hikes priced in through 2022 edging +3bps higher over the week to 2.75%, bringing 2s10s back below 20bps for the first time since early May. Chair Powell reiterated his commitment to bring inflation back to target, suggesting that getting policy rates to neutral did not constitute a stopping point if the Fed did not have “clear and convincing” evidence that inflation was falling. In Europe the front end was also weaker than the back end as Dutch central bank Governor Knot became the first General Council member to countenance +50bp hikes. 10yr yields didn't rally as much as in the US, closing the week at -0.4bps (-0.5bps Friday). The spectre of faster ECB tightening and slowing global growth drove 10yr BTPs to underperform, widening +15.2bps (+10.2bps Friday) to 205bps against bund equivalents. Gilts underperformed other sovereign bonds, with 10yr benchmarks selling off +14.9bps (+2.8bps Friday) and 2yr yields increasing +25.8bps (+1.6bps Friday). This came as UK CPI hit a 40yr high of 9.0% in April even if it slightly missed forecasts for the first time in seven months. Oil proved resilient to the growth fears rumbling through markets, with both brent crude (+0.90%, +0.46% Friday) and WTI futures (+2.48%, +0.91% Friday) posting modest gains over the week. Tyler Durden Mon, 05/23/2022 - 07:49.....»»

Category: blogSource: zerohedgeMay 23rd, 2022

Futures Jump On Relief From Tesla"s Blowout Earnings

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

Category: blogSource: zerohedgeApr 21st, 2022

Experts Address Inflation Fears During RISMedia Panel

An ongoing and historic rise in inflation has shaken not just the real estate industry, but has affected nearly every business and consumer across the country. With December’s Consumer Price Index (CPI) topping 7% year-over-year—the largest increase since 1982—real estate professionals are asking just how profound the impacts will be on their clients and markets. […] The post Experts Address Inflation Fears During RISMedia Panel appeared first on RISMedia. An ongoing and historic rise in inflation has shaken not just the real estate industry, but has affected nearly every business and consumer across the country. With December’s Consumer Price Index (CPI) topping 7% year-over-year—the largest increase since 1982—real estate professionals are asking just how profound the impacts will be on their clients and markets. At RISMedia’s Real Estate Rocking in the New Year virtual event earlier this month, some of the industry’s most respected and influential minds came together to break down the potential for disruption, likely future trends, and actionable steps to take for real estate brokers in the face of these alarming numbers. “I think in 2022 we’re still going to see a really robust market once again. I’m very optimistic about it,” said Joan Docktor, president of Berkshire Hathaway HomeServices Fox & Roach. Even with mortgage rates already ticking up and likely to increase further this year, Docktor and the other expert panelists broadly agreed that demand for homes would not be significantly hampered and home prices would continue to appreciate. On the other hand, Scott MacDonald, broker/owner of RE/MAX Gateway said that inflation has pushed the cost of new home construction to dizzying heights, with building materials still seeing costs climb 500% and that could push some out of the market. “You’re going to see all these costs passed over to consumers as a result of that,” he warned. “People are going to get more concerned about how they’re spending money, and it’s going to be a challenging time for consumers and for purchasers of new homes.” But for anyone who can afford a home should not be discouraged, he added, as home price appreciation has always been a good hedge against long-term inflation. Sarah Richardson, CEO & founder of TruRealty, pointed out that rising rents are going to push more people to buy despite continued low inventory and inflationary pressures. “Consumer confidence is very strong, I think it’s going to remain very strong, but we could probably use a little bit more inventory to help some of those buyers fulfill their dreams in becoming a homeowner,” she said. That lack of inventory is affecting everyone, the panelists said, and there is no quick solution to that. But Docktor posited that prices might “taper off” once inventory opens up as more normalcy returns to life and people have babies, get married and change jobs, resulting in more existing home sales. Panel moderator Dan Kruse, CEO/president of Century 21 Affiliated said he has heard concerns that the number of home sales overall would drop in 2022 in response to inflation and continued low inventory—a question that has seen disagreement from experts so far. As the “sticker shock” of inflation wears off, though, Richardson said she looks at the macroeconomic fundamentals continuing to indicate continued strength in the real estate market. “I still think people are making more money, there are jobs out there. The economy is really, really strong, so 2022 is still going to remain strong. I think we’re still going to remain a seller’s market,” she predicted. As far as what real estate business owners need to do in the face of these still-unprecedented times, MacDonald said that educating agents will be the most important step to take as both consumers and real estate professionals encounter confusing and often conflicting information about inflation and markets. That includes the kind of national expert commentary and predictions provided by the panel, as well as hyperlocal market info about open house traffic, offers and home sales. “Being ahead of the game and being up to date with the trends is something we need to have our agents know, so they can take that information that we provide them, to share with the clients,” MacDonald said. “Getting that information and relaying it out to your agents is critical.” For business owners trying to save money this year, Docktor said that having agents in the office less—something that was already a trend in real estate before the pandemic—gives business owners an opportunity to find efficiencies with hybrid work models, balancing culture with flexibility. Consolidating smaller offices is even an option, she added, which can also create new synergies for back-office operations and infrastructure. “You really need to study the market, study what your agents want, make sure you are able to give that to them,” she said. “Make sure that you have the space that they need, but you don’t have that overflow of space that you don’t need because space and employees are your most expensive costs.” An overall positive outlook on 2022’s possibilities in the face of inflation, however, should have real estate business owners pushing forward rather than pulling back, according to Kruse, as short term worries and uncertainty are very likely to morph into another big year for real estate. “We’re all looking at the industry and saying there’s a positive time ahead of us and what 2022 has in store,” Kruse said. Missed the event? Replays including every panel and expert interview are available here. Jesse Williams is RISMedia’s associate online editor. Email him your real estate news ideas to jwilliams@rismedia.com. The post Experts Address Inflation Fears During RISMedia Panel appeared first on RISMedia......»»

Category: realestateSource: rismediaJan 14th, 2022

Inflation Continues to Soar in November, Up 6.8% This Year

The consumer price index (CPI) jumped 0.8% in November, according to a new report from the federal Bureau of Labor Statistics, pushing overall inflation to a nearly 40-year high at 6.8% as supply chain struggles and surging demand has sent the price of consumer goods spiraling upward. So-called core inflation, which does not include more […] The post Inflation Continues to Soar in November, Up 6.8% This Year appeared first on RISMedia. The consumer price index (CPI) jumped 0.8% in November, according to a new report from the federal Bureau of Labor Statistics, pushing overall inflation to a nearly 40-year high at 6.8% as supply chain struggles and surging demand has sent the price of consumer goods spiraling upward. So-called core inflation, which does not include more volatile food and energy prices, was up 0.5% in November, reaching 4.9% over the last 12 months. Much of the core inflation increase was driven by vehicle prices, with the cost of new vehicles rising 1.1% and used vehicles jumping 2.5% last month. Energy costs overall rose 3.5%, less than the 4.8% increase seen in October but still pushing that sector to 33% higher over the last year. Gasoline moved up 6.1% in November—the same as the previous month and up nearly 60% from this time last year. Food prices were up 0.7% in November after rising 0.9% in October, now 6.1% up annually. Yesterday, Director of the National Economic Council Brian Deese said at a press conference that there has been some positive movement on inflation that is not reflected in these numbers. Most economists have continued to predict inflation will peak over the next few months before tapering off, though the Federal Reserve has indicated that it is more worried about the metric now than it was a few months ago. According to Deese, gasoline prices actually fell about nine cents over the last couple weeks, and natural gas prices dropped 25% in November. Deese also claimed that used cars, pork and wheat have all come down recently, with those decreases not reflected in the most recent CPI report. “Consensus estimates of outside experts continue to forecast and project that price increases will moderate going into 2022,” he said, adding that the Biden administration would “redouble our efforts” to address short and medium-term inflation. Deese did not directly answer a question regarding whether “the wave is cresting” for inflation, instead pointing to a positive job market and the broader economic recovery. National Association of REALTORS® Chief Economist Lawrence Yun said in a statement this morning that real estate remains a good investment during periods of high inflation while also acknowledging higher heating bills and the potential for mortgage rate increases. “Even when interest rates soared in the 1980s and thereby crushed home sales, home prices still held up to consumer price inflation: 5.5% versus 5.6%,” Yun pointed out. “Other decades also show similar patterns. Therefore, for those concerned about the loss in purchasing power of money and savings, be assured that real estate has proven to be a good hedge against inflation.” Inflation has remained a significant concern both among policymakers and the public at large, as people have seen significant cost increases at the gas pump, in the grocery store and in their energy bills. President Joe Biden has emphasized that the issue is a global problem but called it a “top priority” for his administration in a statement last month. Fed chair Jerome Powell has said recently that several factors, including this high level of inflation and plummeting unemployment has pushed the central bank to consider accelerating its tapering of bond purchases, which were meant to prop up the broader economy during the pandemic. Powell has also left open the possibility of raising interest rates, predicating that decision both on inflation and so-called “maximum employment,” though that metric can be difficult to define especially due to unprecedented shifts in the labor market. Powell recently told the Senate Banking Committee at a hearing that inflation numbers would likely reach the bank’s metrics to precipitate an interest rate hike “in the coming months.” He has also indicated that the Fed will stop using the term “transitory” to refer to inflation, but claiming that decision is more based on disparate interpretations of the word rather than a shift in policy. Jesse Williams is RISMedia’s associate online editor. Email him your real estate news ideas to jwilliams@rismedia.com. The post Inflation Continues to Soar in November, Up 6.8% This Year appeared first on RISMedia......»»

Category: realestateSource: rismediaDec 10th, 2021

The Fed Admits It Has Lost Control

The Fed Admits It Has Lost Control Submitted by QTR's Fringe Finance Like any junkie with an addiction, the first step is admitting that you have a problem. It was no sooner than Paul Krugman came out less than two months ago declaring a win for what he called “Team Transitory” that Jerome Powell sat in front of a Senate panel and was forced to admit he had a problem. Powell seemed to come to terms yesterday that he was stuck between a rock (brutal, unrelenting consumer inflation) and a hard place (the inability to raise rates or taper without fuck-tangling the entire economy and capital markets). The Fed Chair admitted in front of a Senate panel yesterday that “it’s probably a good time to retire” the word “transitory” to describe inflation. He continued: “At this point, the economy is very strong and inflationary pressures are higher, and it is therefore appropriate in my view to consider wrapping up the taper of our asset purchases, which we actually announced at the November meeting, perhaps a few months sooner,” according to CNBC. Of course, to those of us without our heads up our asses over the last 18 months, like Jerome Powell, this admission doesn’t come as that much of a surprise. I have been covering, writing and ranting [here, here, here and here] about why I believed it was obvious that the inflation we’re experiencing is not transitory, for months now. In fact, I would argue that the extent of the coming inflation problem has been pretty obvious to just about anybody. This makes it extra hilarious that the Fed has been hiding behind this vaudeville act of pretending they just noticed that inflation has barely nudged above their 2% target. The reality is that price hikes for the everyday American are 10%, 20%, sometimes up to 50% on products and services they need for their day-to-day lives. In addition to what we can experience with our very own eyes and wallets, every single major consumer products manufacturer and industrial company has commented that their cost of raw materials has gone up. The American public has been so aware of inflation, it has even become a part of the mainstream media narrative on both the left and the right. Photo: The Counter SignalInflation has been out of control for years now: you know it, and now nobody can say that the Fed doesn’t know it. In addition to relinquishing the “transitory” term yesterday, Powell even indicated to the Senate panel that accelerating their taper and considering rate hikes were on the table. This is especially bold language in the face of the newly-discovered omicron variant, which I predicted days ago would give the Fed a perfect excuse if they wanted to to continue quantitative easing. While I happen to think this will be the Delta variant part 2 (in that it drums up a lot of hysteria and then everyone eventually ignores it), that doesn’t mean the government and markets won’t overreact to the news. Remember, scary sounding words like “mutation”, “spike protein” and “variant” are a prompt to act like hysterical hyenas and usurp power unilaterally for those on the left side of the aisle (read: our entire government right now). But based on Powell’s testimony yesterday, it looks like the problem of high prices is going to take precedence over using omicron as another crutch to push a socialist modern monetary theory agenda - at least for the time being. And while uncertainty surrounding omicron is part of the discussion, markets plunged on Tuesday of this week mainly because of the verbiage Powell used when describing the taper and potential rate hikes, in my opinion. The only question now is whether Powell has the stones to stand by his hawkishness. If the Fed does look to accelerate the taper and toss around the idea of rate hikes in order to try and rope inflation in, as indicated, I think we can expect further downside in equity markets in December, as I predicted about a week ago. In fact, Powell doesn’t even have to re-acknowledge what he said yesterday, he simply has to say nothing until the Fed’s next official nod to the markets. That isn’t to say that his taper/rate hike plan is or isn’t going to work. It’s only to say that it will introduce a significant amount of volatility to markets that hasn’t been there over the last year and a half. In other words, if your strategy is like that Target manager that made a million dollars shorting the VIX 2018, it might be a great time to take a month off. In a volatile situation, I would expect small caps and technology to get hit the hardest, with some rotation into blue chips, staples and Dow Industrials, although these three areas of respite may eventually wind up lower as well. From there, it’s going to be a question of how inflation responds and how much leeway the market gives the Fed before fear of an impending credit catastrophe starts to spread. Photo: NY TimesOf course, the newfound hawkishness also leaves Powell room to backtrack - something that the Fed loves to do and are experts in - by slowing the taper or pushing rate hikes back further. At least for now, however, the market appears to have started to take its medicine due to Powell’s change of stance. As of today, the omicron variant doesn’t look like it’s going to have a material effect on the Covid universe. That is, except for the effect our overreaching government wants to cause themselves. While most indications over the last 72 hours have been that omicron isn’t more deadly than other variants, the government doesn’t seem to care and has already sought out new restrictions that will once again throw a wrench in the gears of business, industry and people’s daily lives. Creating a problem where there isn’t one: it’s the Keynesian Government’s way. Precious metals were higher on the day yesterday before Powell’s testimony, when they shifted drastically lower on expectations of hawkish policy. An interesting setup for gold here is that it may actually transition from being an inflationary hedge to just a hedge for market volatility and systemic risk. If we start to try and redline a taper or rate hikes and the economy or credit markets start to get really volatile, gold may be still seen as a safe haven, despite the fact that the clear and present worry wouldn’t necessarily be inflation at the time. I think this is why my friend Rosemont Seneca wants to own it heading into 2022. But of course there’s also many of the school that believe inflation is coming no matter what the outcome over the next several months is. Many believe that the Fed won’t be able to raise rates because they won’t be able to service the national debt or do so without creating a credit crisis. Ergo, the only option is then to try to print their way out of the corner they have painted themselves in. I think both of these scenarios act as a tailwind for gold. I also think commodities may still be in play as demand fears from omicron will eventually fade away, in my opinion. Omicron will, in my opinion, go the way of the Delta variant, in that it’ll be a great new scary sounding headline for people in the liberal media to push, but the everyday person isn’t going to give a shit about it. What is important here is that it truly looks like the Fed is trying to shift gears. It looks like we’re heading into a new era as we move into December and into 2022. I had a feeling this type of volatility would be on its way heading into the end of the year because the Fed has painted itself into a very difficult corner to get out of. While I don’t think they have done anything productive in terms of bringing new solutions to the inflation problem to the table, they have at least acknowledged the fact that they have lost control. Yesterday may only be the beginning of the every day investor realizing not just that there’s an inflation problem, but more importantly that we may not have the solution for it. *  *  * Zerohedge readers always get 10% off a subscription to my blog for life by using this link. DISCLAIMER:  It should be assumed I have positions in any security or commodity mentioned in this article and could benefit from my analysis proving correct. None of this is a solicitation to buy or sell securities. None of this is financial advice. Positions can always change immediately as soon as I publish, with or without notice. You are on your own. Do not make decisions based on my blog. I exist on the fringe. The publisher does not guarantee the accuracy or completeness of the information provided in this page. These are not the opinions of any of my employers, partners, or associates. I get shit wrong a lot.  Tyler Durden Thu, 12/02/2021 - 11:40.....»»

Category: smallbizSource: nytDec 2nd, 2021

Risk Cracks After Moderna CEO Comments Spark Global Stock Rout

Risk Cracks After Moderna CEO Comments Spark Global Stock Rout Ask a drug dealer if methadone helps cure a cocaine addition and - shockingly - you will hear that the answer is "hell no", after all an affirmative response would mean the fixer needs to get a real job. Just as shocking was the "admission" of Moderna CEO, Stéphane Bancel, who in the latest stop on his media whirlwind tour of the past 48 hours gave the FT an interview in which he predicted that existing vaccines will be much less effective at tackling Omicron than earlier strains of coronavirus and warned it would take months before pharmaceutical companies could manufacture new variant-specific jabs at scale. “There is no world, I think, where [the effectiveness] is the same level . . . we had with [the] Delta [variant],” Bancel told the Financial Times, claiming that the high number of Omicron mutations on the spike protein, which the virus uses to infect human cells, and the rapid spread of the variant in South Africa suggested that the current crop of vaccines may need to be modified next year. Here, the self-serving CEO whose sell-mode was fully engaged - after all what else would the maker of a vaccine for covid say than "yes, the world will need more of my product" - completely ignored the earlier comments from Barry Schoub, chairman of South Afruca's Ministerial Advisory Committee on Vaccines, who over the weekend said that the large number of mutations found in the omicron variant appears to destabilize the virus, which might make it less “fit” than the dominant delta strain. As such, it would be a far less virulent strain... but of course that would also reduce the need for Moderna's mRNA therapy and so Bancel failed to mention it. What is grotesque is that the Moderna CEO’s comments on existing vaccines’ effectiveness against the omicron variant is “old news so should be a fade,” says Prashant Newnaha, a senior Asia-Pacific rates strategist at TD Securities in Singapore. Indeed as Bloomberg notes, Bancel reiterated comments made by Moderna’s Chief Medical Officer Paul Burton during the weekend. Alas, the last thing algos care about is nuance and/or reading between the lines, and so moments after Bancel's interview hit, markets hit risk off mode on Tuesday, and yesterday’s bounce in markets immediately reversed amid fresh worries about the efficacy of currently available vaccines with U.S. equity futures dropping along with stocks in Europe. Bonds gained as investors sought havens. After dropping as much as 1.2%, S&P futures pared losses to -0.7%, down 37 points just above 4,600. Dow Eminis were down 339 points or 1% and Nasdaq was down -0.8%. Adding to concerns is Fed Chair Jerome Powell who today will speak, alongside Janet Yellen, at the Senate Banking Committee in congressional oversight hearings related to pandemic stimulus. Last night Powell made a dovish pivot saying the new variant poses downside risks to employment and growth while adding to uncertainty about inflation. Powell's comments dragged yields lower and hit bank stocks overnight. “The market’s reaction to reports such as Moderna’s suggest the ball is still very much in the court of proving that this will not escalate,” said Patrick Bennett, head of macro strategy for Asia at Canadian Imperial Bank of Commerce in Hong Kong. “Until that time, mode is to sell recoveries in risk and not to try and pick the extent of the selloff” U.S. airline and cruiseliner stocks dropped in premarket trading Tuesday, after vaccine maker Moderna’s top executives reiterated that the omicron variant of the coronavirus may require new vaccines. Most U.S. airline stocks were down: Alaska Air -5%, United -3.2%, American -3%, Spirit -2.7%, Delta -2.6%, JetBlue -2.6%, Southwest -1.7%. Here are some other notable movers today: U.S. banks decline in premarket trading following comments from Federal Reserve Chair Jerome Powell that may push back bets on when the central bank will raise rates. Citigroup (C US) -2.4%, JPMorgan (JPM US) -2.2%, Morgan Stanley (MS US) -2.6% Vaccine manufacturers mixed in U.S. premarket trading after rallying in recent days and following further comments from Moderna about treating the new omicron Covid-19 variant. Pfizer (PFE US) +1.6%, Novavax  (NVAS US) +1.3%, Moderna (MRNA US) -3.8% U.S. airline and cruiseliner stocks dropped in premarket trading Tuesday, after vaccine maker Moderna’s top executives reiterated that the omicron variant of the coronavirus may require new vaccines. Alaska Air (ALK US) -5%, United (UAL US) -3.2%, American (AAL US) -3% Krystal Biotech (KRYS US) jumped 4.3% in postmarket trading on Monday, extending gains after a 122% jump during the regular session. The company is offering $200m of shares via Goldman Sachs, BofA, Cowen, William Blair, according to a postmarket statement MEI Pharma (MEIP US) gained 8% postmarket after the cancer-treatment company said it will hold a webcast Tuesday to report on data from the ongoing Phase 2 Tidal study evaluating zandelisib in patients with relapsed or refractory follicular lymphoma Intuit (INTU US) declined 3.4% postmarket after holder Dan Kurzius, co-founder of Mailchimp, offered the stake via Goldman Sachs In Europe, the Stoxx 600 index fell to almost a seven-week low. Cyclical sectors including retail, travel and carmakers were among the biggest decliners, while energy stocks tumbled as crude oil headed for the worst monthly loss this year; every industry sector fell led by travel stocks. Earlier in the session, the Asia Pacific Index dropped 0.6% while the Hang Seng China Enterprises Index lost 1.5% to finish at its weakest level since May 2016. Asian stocks erased early gains to head for a third day of losses on fresh concerns that existing Covid-19 vaccines will be less effective at tackling the omicron variant. The MSCI Asia Pacific Index extended its fall to nearly 1% after having risen as much as 0.8% earlier on Tuesday. The current crop of vaccines may need to be modified next year, Moderna Chief Executive Officer Stephane Bancel said in an interview with the Financial Times, adding that it may take months before pharmaceutical firms can manufacture new variant-specific jabs at scale. U.S. futures also reversed gains. Property and consumer staples were the worst-performing sectors on the regional benchmark. Key gauges in Hong Kong and South Korea were the biggest losers in Asia, with the Kospi index erasing all of its gains for this year. The Hang Seng China Enterprises Index lost 1.5% to finish at its weakest level since May 2016. The fresh bout of selling offset early optimism spurred by data showing China’s factory sentiment improved in November. “With the slower vaccination rate and more limited health-care capacity in the region, uncertainty from the new omicron variant may seem to bring about higher economic risks for the region at a time where it is shifting towards further reopening,” said Jun Rong Yeap, a market strategist at IG Asia Pte. Asia’s stock benchmark is now down 3.5% for the month, set for its worst performance since July, as nervousness remains over the U.S. Federal Reserve’s tapering schedule and the potential economic impact of the omicron variant. “Moderna is one of the primary mRNA vaccines out there, so the risk-off sentiment is justified,” said Kelvin Wong, an analyst at CMC Markets (Singapore) Pte. Liquidity is thinner going into the end of the year, so investors are “thinking it’s wise to take some money off the table,” he added Japanese equities fell, reversing an earlier gain to cap their third-straight daily loss, after a report cast doubt on hopes for a quick answer to the omicron variant of the coronavirus. Telecoms and electronics makers were the biggest drags on the Topix, which dropped 1%, erasing an earlier gain of as much as 1.5%. Fast Retailing and SoftBank Group were the largest contributors to a 1.6% loss in the Nikkei 225. The yen strengthened about 0.4% against the dollar, reversing an earlier loss. Japanese stocks advanced earlier in the day, following U.S. peers higher as a relative sense of calm returned to global markets. Tokyo share gains reversed quickly in late afternoon trading after a Financial Times report that Moderna’s Chief Executive Officer Stephane Bancel said a new vaccine may be needed to fight omicron. “The report of Moderna CEO’s remarks has bolstered an overall movement toward taking off risk,” said SMBC Trust Bank analyst Masahiro Yamaguchi. “Market participants will probably be analyzing information on vaccines and the new virus variant for the next couple of weeks, so shares will likely continue to fluctuate on these headlines.” In FX, the dollar dropped alongside commodity-linked currencies while the yen and gold climbed and bitcoin surged as safe havens were bid. The yen swung to a gain after Moderna Inc.’s chief executive Stephane Bancel was quoted by the Financial Times saying existing vaccines may not be effective enough to tackle the omicron variant. Commodity-linked currencies including the Aussie, kiwi and Norwegian krone all declined, underperforming the dollar In rates, treasuries held gains after flight-to-quality rally extended during Asia session and European morning, when bunds and gilts also benefited from haven flows. Stocks fell after Moderna CEO predicted waning vaccine efficacy. Intermediates lead gains, with yields richer by nearly 6bp across 7-year sector; 10-year Treasuries are richer by 5.6bp at 1.443%, vs 2.5bp for German 10-year, 4.7bp for U.K. Long-end may draw support from potential for month-end buying; Bloomberg Treasury index rebalancing was projected to extend duration by 0.11yr as of Nov. 22. Expectations of month-end flows may support the market, and Fed Chair Powell is slated to testify to a Senate panel.       In commodities, crude futures are off their late-Asia lows but remain in the red. WTI trades close to $68.30, stalling near Friday’s lows; Brent is off over 2.5% near $71.50. Spot gold rises ~$11 near $1,796/oz. Base metals are mixed: LME zinc outperforms, rising as much as 1.6%.  To the day ahead now, and the main central bank highlight will be Fed Chair Powell’s appearance before the Senate Banking Committee, alongside Treasury Secretary Yellen. In addition, we’ll hear from Fed Vice Chair Clarida, the Fed’s Williams, the ECB’s Villeroy and de Cos, and the BoE’s Mann. On the data side, we’ll get the flash November CPI reading for the Euro Area today, as well as the readings from France and Italy. In addition, there’s data on German unemployment for November, Canadian GDP for Q3, whilst in the US there’s the Conference Board’s consumer confidence measure for November, the FHFA house price index for September, and the MNI Chicago PMI for November. Market Snapshot S&P 500 futures down 1.2% to 4,595.00 STOXX Europe 600 down 1.4% to 460.47 MXAP down 0.5% to 190.51 MXAPJ down 0.6% to 620.60 Nikkei down 1.6% to 27,821.76 Topix down 1.0% to 1,928.35 Hang Seng Index down 1.6% to 23,475.26 Shanghai Composite little changed at 3,563.89 Sensex down 0.2% to 57,122.74 Australia S&P/ASX 200 up 0.2% to 7,255.97 Kospi down 2.4% to 2,839.01 German 10Y yield little changed at -0.36% Euro up 0.6% to $1.1362 Brent Futures down 3.0% to $71.26/bbl Brent Futures down 3.0% to $71.26/bbl Gold spot up 0.7% to $1,796.41 U.S. Dollar Index down 0.65% to 95.72 Top Overnight News from Bloomberg Euro-area inflation surged to a record for the era of the single currency and exceeded all forecasts, adding to the European Central Bank’s challenge before a crucial meeting next month on the future of monetary stimulus. If the drop in government bond yields on Friday signaled how skittish markets were, fresh declines are leaving them looking no less nervous. One of Germany’s most prominent economists is urging the European Central Bank to be more transparent in outlining its exit from unprecedented monetary stimulus and argues that ruling out an end to negative interest rates next year may be a mistake. The Hong Kong dollar fell into the weak half of its trading band for the first time since December 2019 as the emergence of a new coronavirus variant hurt appetite for risk assets. A more detailed look at global markets courtesy of Newsquawk Asian equities traded mixed with early momentum seen following the rebound on Wall Street where risk assets recovered from Friday’s heavy selling pressure as liquidity conditions normalized post-Thanksgiving and after some of the Omicron fears abated given the mild nature in cases so far, while participants also digested a slew of data releases including better than expected Chinese Manufacturing PMI. However, markets were later spooked following comments from Moderna's CEO that existing vaccines will be much less effective against the Omicron variant. ASX 200 (+0.2%) was underpinned by early strength across its sectors aside from utilities and with gold miners also hampered by the recent lacklustre mood in the precious metal which failed to reclaim the USD 1800/oz level but remained in proximity for another attempt. In addition, disappointing Building Approvals and inline Net Exports Contribution data had little impact on sentiment ahead of tomorrow’s Q3 GDP release, although the index then faded most its gains after the comments from Moderna's CEO, while Nikkei 225 (-1.6%) was initially lifted by the recent rebound in USD/JPY but then slumped amid the broad risk aversion late in the session. Hang Seng (-1.6%) and Shanghai Comp. (Unch) were varied in which the mainland was kept afloat for most the session after a surprise expansion in Chinese Manufacturing PMI and a mild liquidity injection by the PBoC, with a central bank-backed publication also suggesting that recent open market operations demonstrates an ample liquidity goal, although Hong Kong underperformed on tech and property losses and with casino names pressured again as shares in junket operator Suncity slumped 37% on reopen from a trading halt in its first opportunity to react to the arrest of its Chairman. Finally, 10yr JGBs were initially contained following early momentum in stocks and somewhat inconclusive 2yr JGB auction which showed better results from the prior, albeit at just a marginal improvement, but then was underpinned on a haven bid after fears of the Omicron variant later resurfaced. Top Asian News China’s Biggest Crypto Exchange Picks Singapore as Asia Base SoftBank-Backed Snapdeal Targets $250 Million IPO in 2022 Omicron Reaches Nations From U.K. to Japan in Widening Spread Slump in China Gas Shows Spreading Impact of Property Slowdown Major European bourses are on the backfoot (Euro Stoxx 50 -1.5%; Stoxx 600 -1.5%) as COVID fears again take the spotlight on month-end. APAC markets were firmer for a large part of the overnight session, but thereafter the risk-off trigger was attributed to comments from Moderna's CEO suggesting that existing vaccines will be much less effective against the Omicron COVID strain. On this, some caveats worth keeping in mind - the commentary on the potential need for a vaccine does come from a vaccine maker, who could benefit from further global inoculation, whilst data on the new variant remains sparse. Meanwhile, WSJ reported Regeneron's and Eli Lilly's COVID antiviral cocktails had lost efficacy vs the Omicron variant - however, the extent to which will need to be subject to further testing. Furthermore, producers appear to be confident that they will be able to adjust their products to accommodate the new variant, albeit the timeline for mass production will not be immediate. Nonetheless, the sullied sentiment has persisted throughout the European morning and has also seeped into US equity futures: the cyclically bias RTY (-1.7%) lags the ES (-1.0%) and YM (-1.3%), whilst the tech-laden NQ (-0.5%) is cushioned by the slump in yields. Back to Europe, broad-based losses are seen across the majors. Sectors tilt defensive but to a lesser extent than seen at the European cash open. Travel & Leisure, Oil & Gas, and Retail all sit at the bottom of the bunch amid the potential implications of the new COVID variant. Tech benefits from the yield play, which subsequently weighs on the Banking sector. The retail sector is also weighed on by Spanish giant Inditex (-4.3%) following a CEO reshuffle. In terms of other movers, Glencore (-0.9%) is softer after Activist investor Bluebell Capital Partners called on the Co. to spin off its coal business and divest non-core assets. In a letter seen by the FT, Glencore was also asked to improve corporate governance. In terms of equity commentary, analysts at JPM suggest investors should take a more nuanced view on reopening as the bank expects post-COVID normalisation to gradually asset itself over the course of 2022. The bank highlights hawkish central bank policy shifts as the main risk to their outlook. Thus, the analysts see European equities outperforming the US, whilst China is seen outpacing EMs. JPM targets S&P 500 at 5,050 (closed at 4,655.27 yesterday) by the end of 2022 with EPS at USD 240 – marking a 14% increase in annual EPS. Top European News Omicron Reaches Nations From U.K. to Japan in Widening Spread ECB Bosses Lack Full Diplomatic Immunity, EU’s Top Court Says Adler Keeps Investors Waiting for Answers on Fraud Claims European Gas Prices Surge Above 100 Euros With Eyes on Russia In FX, the Greenback may well have been grounded amidst rebalancing flows on the final trading day of November, as bank models are flagging a net sell signal, albeit relatively weak aside from vs the Yen per Cit’s index, but renewed Omicron concerns stoked by Moderna’s CEO casting considerable doubt about the efficacy of current vaccines against the new SA strain have pushed the Buck back down in any case. Indeed, the index has now retreated further from its 2021 apex set less than a week ago and through 96.000 to 95.662, with only the Loonie and Swedish Krona underperforming within the basket, and the Antipodean Dollars plus Norwegian Crown in wider G10 circles. Looking at individual pairings, Usd/Jpy has reversed from the high 113.00 area and breached a Fib just below the round number on the way down to circa 112.68 for a marginal new m-t-d low, while Eur/Usd is back above 1.1350 having scaled a Fib at 1.1290 and both have left decent option expiries some distance behind in the process (1.6 bn at 113.80 and 1.3 bn between 1.1250-55 respectively). Elsewhere, Usd/Chf is eyeing 0.9175 irrespective of a slightly weaker than forecast Swiss KoF indicator and Cable has bounced firmly from the low 1.3300 zone towards 1.3375 awaiting commentary from BoE’s Mann. NZD/AUD/CAD - As noted above, the tables have turned for the Kiwi, Aussie and Loonie along with risk sentiment in general, and Nzd/Usd is now pivoting 0.6800 with little help from a deterioration in NBNZ business confidence or a decline in the activity outlook. Similarly, Aud/Usd has been undermined by much weaker than forecast building approvals and a smaller than anticipated current account surplus, but mostly keeping hold of the 0.7100 handle ahead of Q3 GDP and Usd/Cad has shot up from around 1.2730 to top 1.2800 at one stage in advance of Canadian growth data for the prior quarter and month of September as oil recoils (WTI to an even deeper trough only cents off Usd 67/brl). Back down under, 1 bn option expiry interest at 1.0470 in Aud/Nzd could well come into play given that the cross is currently hovering near the base of a 1.0483-39 range. SCANDI/EM - The aforementioned downturn in risk appetite after Monday’s brief revival has hit the Sek and Nok hard, but the latter is also bearing the brunt of Brent’s latest collapse to the brink of Usd 70/brl at worst, while also taking on board that the Norges Bank plans to refrain from foreign currency selling through December having stopped midway through this month. The Rub is also feeling the adverse effect of weaker crude prices and ongoing geopolitical angst to the extent that hawkish CBR rhetoric alluding to aggressive tightening next month is hardly keeping it propped, but the Cnh and Cny continue to defy the odds or gravity in wake of a surprise pop back above 50.0 in China’s official manufacturing PMI. Conversely, the Zar is struggling to contain losses sub-16.0000 vs the Usd on SA virus-related factors even though Gold is approaching Usd 1800/oz again, while the Try is striving to stay within sight of 13.0000 following a slender miss in Turkish Q3 y/y GDP. In commodities, WTI and Brent front month futures are once again under pressure amid the aforementioned COVID jitters threatening the demand side of the equation, albeit the market remains in a state of uncertainty given how little is known about the new variant ahead of the OPEC+ confab. It is still unclear at this point in time which route OPEC+ members will opt for, but seemingly the feasible options on the table are 1) a pause in output hikes, 2) a smaller output hike, 3) maintaining current output hikes. Energy journalists have suggested the group will likely be influenced by oil price action, but nonetheless, the findings of the JTC and JMMC will be closely watched for the group's updated forecasts against the backdrop of COVID and the recently coordinated SPR releases from net oil consumers – a move which the US pledged to repeat if needed. Elsewhere, Iranian nuclear talks were reportedly somewhat constructive – according to the Russian delegate – with working groups set to meet today and tomorrow regarding the sanctions on Iran. This sentiment, however, was not reciprocated by Western sources (cited by WSJ), which suggested there was no clarity yet on whether the teams were ready for serious negotiations and serious concessions. WTI Jan resides around session lows near USD 67.50/bbl (vs high USD 71.22/bbl), while Brent Feb dipped under USD 71/bbl (vs high USD 84.56/bb). Over to metals, spot gold remains underpinned in European trade by the cluster of DMA's under USD 1,800/oz – including the 100 (USD 1,792/oz), 200 (USD 1,791/oz) and 50 (1,790/oz). Turning to base metals, LME copper is modestly softer around the USD 9,500/t mark, whilst Dalian iron ore futures meanwhile rose over 6% overnight, with traders citing increasing Chinese demand. US Event Calendar 9am: 3Q House Price Purchase Index QoQ, prior 4.9% 9am: Sept. FHFA House Price Index MoM, est. 1.2%, prior 1.0% 9am: Sept. Case Shiller Composite-20 YoY, est. 19.30%, prior 19.66%; S&P/CS 20 City MoM SA, est. 1.20%, prior 1.17% 9:45am: Nov. MNI Chicago PMI, est. 67.0, prior 68.4 10am: Nov. Conf. Board Consumer Confidenc, est. 111.0, prior 113.8 10am: Nov. Conf. Board Present Situation, prior 147.4 10am: Nov. Conf. Board Expectations, prior 91.3 Central Banks 10am: Powell, Yellen Testify Before Senate Panel on CARES Act Relief 10:30am: Fed’s Williams gives remarks at NY Fed food- insecurity event 1pm: Fed’s Clarida Discusses Fed Independence DB's Jim Reid concludes the overnight wrap Just as we go to print markets are reacting negatively to an interview with the Moderna CEO in the FT that has just landed where he said that with regards to Omicron, “There is no world, I think, where (the effectiveness) is the same level... we had with Delta…… I think it’s going to be a material drop (efficacy). I just don’t know how much because we need to wait for the data. But all the scientists I’ve talked to . . . are like ‘this is not going to be good’.”” This is not really new news relative to the last 3-4 days given what we know about the new mutation but the market is picking up on the explicit comments. In response S&P futures have gone from slightly up to down just over -0.5% and Treasury yields immediately dipped -4bps to 1.46%. The Nikkei has erased gains and is down around -1% and the Hang Seng is c.-1.8%. This is breaking news so check your screens after you read this. In China the official November PMI data came in stronger than expected with the Manufacturing PMI at 50.1 (49.7 consensus vs 49.2 previous) and the non-manufacturing PMI at 52.3 (51.5 consensus vs 52.4 previous). The negative headlines above as we go to print followed a market recovery yesterday as investors hoped that the Omicron variant wouldn’t prove as bad as initially feared. In reality, the evidence is still incredibly limited on this question, and nothing from the Moderna CEO overnight changes that. However the more positive sentiment was also evident from the results of our flash poll in yesterday’s EMR where we had 1569 responses so very many thanks. The poll showed that just 10% thought it would still be the biggest topic in financial markets by the end of the year, with 30% instead thinking it’ll largely be forgotten about. The other 60% thought it would still be an issue but only of moderate importance. So if that’s correct and our respondents are a fair reflection of broader market sentiment, then it points to some big downside risks ahead if we get notable bad news on the variant. For the record I would have been with the majority with tendencies towards the largely forgotten about answer. So I will be as off-side as much as most of you on the variant downside risk scenario. When I did a similar poll on Evergrande 2 and a half months ago, only 8% thought it would be significantly impacting markets a month later with 78% in aggregate thinking limited mention/impact, and 15% thinking it would have no impact. So broadly similar responses and back then the 15% were most correct although the next 78% weren’t far off. In terms of the latest developments yesterday, we’re still waiting to find out some of the key pieces of information about this new strain, including how effective vaccines still are, and about the extent of any increased risk of transmission, hospitalisation and death. Nevertheless, countries around the world are continuing to ramp up their own responses as they await this information. President Biden laid out the US strategy for tackling Omicron in a public address yesterday, underscoring the variant was a cause for concern rather than panic. He noted travel bans from certain jurisdictions would remain in place to buy authorities time to evaluate the variant, but did not anticipate that further travel bans or domestic lockdowns would be implemented, instead urging citizens to get vaccinated or a booster shot. Over in Europe, Bloomberg reported that EU leaders were discussing whether to have a virtual summit on Friday about the issue, and Poland moved to toughen up their own domestic restrictions, with a 50% capacity limit on restaurants, hotels, gyms and cinemas. In Germany, Chancellor Merkel and Vice Chancellor Scholz will be meeting with state premiers today, whilst the UK government’s vaccination committee recommended that every adult be eligible for a booster shot, rather than just the over-40s at present. Boosters have done a tremendous job in dramatically reducing cases in the elder cohort in the UK in recent weeks so one by product of Omicron is that it may accelerate protection in a wider age group everywhere. Assuming vaccines have some impact on Omicron this could be a positive development, especially if symptoms are less bad. Markets recovered somewhat yesterday, with the S&P 500 gaining +1.32% to recover a large portion of Friday’s loss. The index was driven by mega-cap tech names, with the Nasdaq up +1.88% and small cap stocks underperforming, with the Russell 2000 down -0.18%, so the market wasn’t completely pricing out omicron risks by any means. Nevertheless, Covid-specific names performed how you would expect given the improved sentiment; stay-at-home trades that outperformed Friday fell, including Zoom (-0.56%), Peloton (-4.35%), and HelloFresh (-0.8%), while Moderna (+11.80%) was the biggest winner following the weekend news that a reformulated vaccine could be available in early 2022. Elsewhere, Twitter (-2.74%) initially gained after it was announced CEO and co-founder Jack Dorsey would be stepping down, but trended lower throughout the rest of the day. The broader moves put the index back in positive territory for the month as we hit November’s last trading day today. Europe saw its own bounceback too, with the STOXX 600 up +0.69%. Over in rates, the partial unwind of Friday’s moves was even smaller, with yields on 10yr Treasuries moving up +2.6bps to 1.50%, driven predominantly by real rates, as inflation breakevens were a touch narrower across the curve. One part of the curve that didn’t retrace Friday’s move was the short end, where markets continued to push Fed rate hikes back ever so slightly, with the first full hike now being priced for September (though contracts as early as May still price some meaningful probability of Fed hikes). We may see some further movements today as well, with Fed Chair Powell set to appear before the Senate Banking Committee at 15:00 London time, where he may well be asked about whether the Fed plans to accelerate the tapering of their asset purchases although it’s hard to believe he’ll go too far with any guidance with the Omicron uncertainty. The Chair’s brief planned testimony was published on the Fed’s website last night. It struck a slightly more hawkish tone on inflation, noting that the Fed’s forecast was for elevated inflation to persist well into next year and recognition that high inflation imposes burdens on those least able to handle them. On omicron, the testimony predictably stated it posed risks that could slow the economy’s progress, but tellingly on the inflation front, it could intensify supply chain disruptions. The real fireworks will almost certainly come in the question and answer portion of the testimony. The bond moves were more muted in Europe though, with yields on 10yr bunds (+2.0bps), OATs (+1.0bps) and BTPs (+0.4bps) only seeing a modest increase. Crude oil prices also didn’t bounce back with as much rigor as equities. Brent gained +0.99% while WTI futures increased +2.64%. They are back down -1 to -1.5% this morning. Elsewhere in DC, Senator Joe Manchin noted that Democrats could raise the debt ceiling on their own through the reconciliation process, but indicated a preference for the increase not to be included in the build back better bill, for which his support still seems lukewarm. We’re approaching crucial deadlines on the debt ceiling and financing the federal government, so these headlines should become more commonplace over the coming days. There were some further developments on the inflation front yesterday as Germany reported that inflation had risen to +6.0% in November (vs. +5.5% expected) on the EU-harmonised measure, and up from +4.6% in October. The German national measure also rose to +5.2% (vs. +5.0% expected), which was the highest since 1992. Speaking of Germany, Bloomberg reported that the shortlist for the Bundesbank presidency had been narrowed down to 4 candidates, which included Isabel Schnabel of the ECB’s Executive Board, and Joachim Nagel, who’s currently the Deputy Head of the Banking Department at the Bank for International Settlements. Today we’ll likely get some further headlines on inflation as the flash estimate for the entire Euro Area comes out, as well as the numbers for France and Italy. There wasn’t much in the way of other data yesterday, though UK mortgage approvals fell to 67.2k in October (vs. 70.0k expected), which is their lowest level since June 2020. Separately, US pending home sales were up +7.5% in October (vs. +1.0% expected), whilst the Dallas Fed’s manufacturing activity index for November unexpectedly fell to 11.8 (vs. 15.0 expected). Finally, the European Commission’s economic sentiment indicator for the Euro Area dipped to 117.5 in November as expected, its weakest level in 6 months. To the day ahead now, and the main central bank highlight will be Fed Chair Powell’s appearance before the Senate Banking Committee, alongside Treasury Secretary Yellen. In addition, we’ll hear from Fed Vice Chair Clarida, the Fed’s Williams, the ECB’s Villeroy and de Cos, and the BoE’s Mann. On the data side, we’ll get the flash November CPI reading for the Euro Area today, as well as the readings from France and Italy. In addition, there’s data on German unemployment for November, Canadian GDP for Q3, whilst in the US there’s the Conference Board’s consumer confidence measure for November, the FHFA house price index for September, and the MNI Chicago PMI for November. Tyler Durden Tue, 11/30/2021 - 07:50.....»»

Category: blogSource: zerohedgeNov 30th, 2021

BTFDers Unleashed: Futures, Yields, Oil Jump As Omicron Panic Eases

BTFDers Unleashed: Futures, Yields, Oil Jump As Omicron Panic Eases As expected over the weekend, and as we first noted shortly after electronic markets reopened for trading on Sunday, S&P futures have maintained their overnight gains and have rebounded 0.7% while Nasdaq contracts jumped as much as 1.3% after risk sentiment stabilized following Friday’s carnage and as investors settled in for a few weeks of uncertainty on whether the Omicron variant would derail economic recoveries and the tightening plans of some central banks. Japan led declines in the Asian equity session (which was catching down to Friday's US losses) after the government shut borders to visitors. The region’s reopening stocks such as restaurants, department stores, train operators and travel shares also suffered some losses.  Oil prices bounced $3 a barrel to recoup some of Friday's rout, while the safe haven yen, Swiss franc and 10Y Treasury took a breather after its run higher. Moderna shares jumped as much as 12% in pre-market trading after Chief Medical Officer Paul Burton said he suspects the new omicron coronavirus variant may elude current vaccines, and if so, a reformulated shot could be available early in the new year. Which he would obviously say as his company makes money from making vaccines, even if they are not very efficient. Here are some of the other notable premarket movers today: BioNTech (BNTX US) advanced 5% after it said it’s starting with the first steps of developing a new adapted vaccine, according to statement sent by text. Merck & Co. (MRK US) declined 1.6% after it was downgraded to neutral from buy at Citi, which also opens a negative catalyst watch, with “high probability” the drugmaker will abandon development of its HIV treatment. A selection of small biotechs rise again in U.S. premarket trading amid discussion of the companies in StockTwits and after these names outperformed during Friday’s market rout. Palatin Tech (PTN US) +37%, Biofrontera (BFRI US) +22%, 180 Life Sciences (ATNF US) +19%. Bonds gave back some of their gains, with Treasury futures were down 11 ticks. Like other safe havens, the market had rallied sharply as investors priced in the risk of a slower start to rate hikes from the U.S. Federal Reserve, and less tightening by some other central banks. Needless to say, Omicron is all anyone can talk about: on one hand, authorities have already orchestrated a lot of global panic: Britain called an urgent meeting of G7 health ministers on Monday to discuss developments on the virus, even though the South African doctor who discovered the strain and treated cases said symptoms of Omicron were so far mild. The new variant of concern was found as far afield as Canada and Australia as more countries such as Japan imposed travel restriction to try to seal themselves off. Summarizing the fearmongering dynamic observed, overnight South African health experts - including those who discovered the Omicron variant, said it appears to cause mild symptoms, while the Chinese lapdog organization, WHO, said the variant’s risk is “extremely high”. Investors are trying to work out if the omicron flareup will a relatively brief scare that markets rebound from, or a bigger blow to the global economic recovery. Much remains unanswered about the new strain: South African scientists suggested it’s presenting with mild symptoms so far, though it appears to be more transmissible, but the World Health Organization warned it could fuel future surges of Covid-19 with severe consequences. "There is a lot we don't know about Omicron, but markets have been forced to reassess the global growth outlook until we know more," said Rodrigo Catril, a market strategist at NAB. "Pfizer expects to know within two weeks if Omicron is resistant to its current vaccine, others suggest it may take several weeks. Until then markets are likely to remain jittery." "Despite the irresistible pull of buying-the-dip on tenuous early information on omicron, we are just one negative omicron headline away from going back to where we started,” Jeffrey Halley, a senior market analyst at Oanda, wrote in a note. “Expect plenty of headline-driven whipsaw price action this week.” The emergence of the omicron strain is also complicating monetary policy. Traders have already pushed back the expected timing of a first 25-basis-point rate hike by the Federal Reserve to July from June. Fed Bank of Atlanta President Raphael Bostic played down economic risks from a new variant, saying he’s open to a quicker paring of asset purchases to curb inflation. Fed Chair Jerome Powell and Treasury Secretary Janet Yellen speak before Congress on Tuesday and Wednesday. “We know that central banks can quickly switch to dovish if they need to,” Mahjabeen Zaman, Citigroup senior investment specialist, said on Bloomberg Television. “The liquidity playbook that we have in play right now will continue to support the market.” European stocks rallied their worst drop in more than a year on Friday, with travel and energy stocks leading the advance. The Stoxx 600 rose 0.9% while FTSE 100 futures gain more than 1%, aided by a report that Reliance may bid for BT Group which jumped as much as 9.5% following a report that India’s Reliance Industries may offer to buy U.K. phone company, though it pared the gain after Reliance denied it’s considering a bid. European Central Bank President Christine Lagarde put a brave face on the latest virus scare, saying the euro zone was better equipped to face the economic impact of a new wave of COVID-19 infections or the Omicron variant Japanese shares lead Asian indexes lower after Premier Kishida announces entry ban of all new foreign visitors. Hong Kong’s benchmark Hang Seng Index closed down 0.9% at the lowest level since October 2020, led by Galaxy Entertainment and Meituan. The index followed regional peers lower amid worries about the new Covid variant Omicron. Amid the big movers, Galaxy Entertainment was down 5.4% after police arrested Macau’s junket king, while Meituan falls 7.1% after reporting earnings. In FX, currency markets are stabilizing as the week kicks off yet investors are betting on the possibility of further volatility. The South African rand climbed against the greenback though most emerging-market peers declined along with developing-nation stocks. Turkey’s lira slumped more than 2% after a report at the weekend that President Recep Tayyip Erdogan ordered a probe into foreign currency trades. The Swiss franc, euro and yen retreat while loonie and Aussie top G-10 leaderboard after WTI crude futures rally more than 4%. The Bloomberg Dollar Spot Index hovered after Friday’s drop, and the greenback traded mixed against its Group-of-10 peers; commodity currencies led gains. The euro slipped back below $1.13 and Bunds sold off, yet outperformed Treasuries. The pound was steady against the dollar and rallied against the euro. Australian sovereign bonds pared an opening jump as Treasuries trimmed Friday’s spike amid continuing uncertainty over the fallout from the omicron variant. The Aussie rallied with oil and iron ore. The yen erased an earlier decline as a government announcement on planned border closures starting Tuesday spurred a drop in local equities. The rand strengthens as South African health experts call omicron variant “mild.” In rates, Treasuries were cheaper by 4bp-7bp across the curve in belly-led losses, reversing a portion of Friday’s sharp safe-haven rally as potential economic impact of omicron coronavirus strain continues to be assessed. The Treasury curve bear- steepened and the benchmark 10-year Treasury yield jumped as much as 7 basis points to 1.54%; that unwound some of Friday’s 16 basis-point plunge -- the steepest since March 2020.  Focal points include month-end on Tuesday, November jobs report Friday, and Fed Chair Powell is scheduled to speak Monday afternoon. Treasuries broadly steady since yields gapped higher when Asia session began, leaving 10-year around 1.54%, cheaper by almost 7bp on the day; front-end outperformance steepens 2s10s by ~3bp. Long-end may draw support from potential for month-end buying; Bloomberg Treasury index rebalancing was projected to extend duration by 0.11yr as of Nov. 22 In commodities, oil prices bounced after suffering their largest one-day drop since April 2020 on Friday. "The move all but guarantees the OPEC+ alliance will suspend its scheduled increase for January at its meeting on 2 December," wrote analyst at ANZ in a note. "Such headwinds are the reason it's been only gradually raising output in recent months, despite demand rebounding strongly." Brent rebounded 3.9% to $75.57 a barrel, while U.S. crude rose 4.5% to $71.24. Gold has so far found little in the way of safe haven demand, leaving it stuck at $1,791 an ounce . SGX iron ore rises almost 8% to recoup Friday’s losses. Bitcoin rallied after falling below $54,000 on Friday. Looking at today's calendar, we get October pending home sales, and November Dallas Fed manufacturing activity. We also get a bunch of Fed speakers including Williams, Powell making remarks at the New York Fed innovation event, Fed’s Hassan moderating a panel and Fed’s Bowman discussing central bank and indigenous economies. Market Snapshot S&P 500 futures up 0.6% to 4,625.00 MXAP down 0.9% to 191.79 MXAPJ down 0.4% to 625.06 Nikkei down 1.6% to 28,283.92 Topix down 1.8% to 1,948.48 Hang Seng Index down 0.9% to 23,852.24 Shanghai Composite little changed at 3,562.70 Sensex up 0.4% to 57,307.46 Australia S&P/ASX 200 down 0.5% to 7,239.82 Kospi down 0.9% to 2,909.32 STOXX Europe 600 up 0.7% to 467.47 German 10Y yield little changed at -0.31% Euro down 0.3% to $1.1283 Brent Futures up 3.8% to $75.49/bbl Gold spot up 0.3% to $1,797.11 U.S. Dollar Index up 0.13% to 96.22 Top Overnight News from Bloomberg The omicron variant of Covid-19, first identified in South Africa, has been detected in locations from Australia to the U.K. and Canada, showing the difficulties of curtailing new strains While health experts in South Africa, where omicron was first detected, said it appeared to cause only mild symptoms, the Geneva-based WHO assessed the variant’s risk as “extremely high” and called on member states to test widely. Understanding the new strain will take several days or weeks, the agency said All travelers arriving in the U.K. starting at 4 a.m. on Nov. 30 must take a PCR coronavirus test on or before the second day of their stay and isolate until they receive a negative result. Face coverings will again be mandatory in shops and other indoor settings and on public transport. Booster shots may also be approved for more age groups within days, according to Health Secretary Sajid Javid The economic effects of the successive waves of the Covid pandemic have been less and less damaging, Bank of France Governor Francois Villeroy de Galhau says Italian bonds advance for a third day, as investors shrug off new coronavirus developments over the weekend and stock futures advance, while bunds are little changed ahead of German inflation numbers and a raft of ECB speakers including President Christine Lagarde A European Commission sentiment index fell to 117.5 in November from 118.6 the previous month, data released Monday showed Spanish inflation accelerated to the fastest in nearly three decades in November on rising food prices, underscoring the lingering consequences of supply-chain bottlenecks across Europe. Consumer prices jumped 5.6% Energy prices in Europe surged on Monday after weather forecasts showed colder temperatures for the next two weeks that will lift demand for heating ECB Executive Board member Isabel Schnabel took to the airwaves to reassure her fellow Germans that inflation will slow again, hours before data set to show the fastest pace of price increases since the early 1990s Russia’s ambassador to Washington said more than 50 diplomats and their family members will have to leave the U.S. by mid-2022, in the latest sign of tensions between the former Cold War enemies China sent the biggest sortie of warplanes toward Taiwan in more than seven weeks after a U.S. lawmaker defied a Chinese demand that she abandon a trip to the island A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks traded cautiously and US equity futures rebounded from Friday’s hefty selling (S&P 500 -2.3%) as all focus remained on the Omicron variant after several countries announced restrictions and their first cases of the new variant, although markets took solace from reports that all cases so far from South Africa have been mild. Furthermore, NIH Director Collins was optimistic that current vaccines are likely to protect against the Omicron variant but also noted it was too early to know the answers, while Goldman Sachs doesn’t think the new variant is a sufficient reason to adjust its portfolio citing comments from South Africa’s NICD that the mutation is unlikely to be more malicious and existing vaccines will most likely remain effective at preventing hospitalizations and deaths. ASX 200 (-0.5%) is subdued after Australia registered its first cases of the Omicron variant which involved two people that arrived in Sydney from southern Africa and with the government reviewing its border reopening plans. Nikkei 225 (-1.6%) whipsawed whereby it initially slumped at the open due to the virus fears and currency-related headwinds but then recouped its losses and briefly returned flat as the mood gradually improved, before succumbing to a bout of late selling, and with mixed Retail Sales data adding to the indecision. Hang Seng (-1.0%) and Shanghai Comp. (Unch) weakened with Meituan the worst performer in Hong Kong after posting a quarterly loss and with casino names pressured by a crackdown in which police detained Suncity Group CEO and others after admitting to accusations including illegal cross border gambling. However, the losses in the mainland were cushioned after firm Industrial Profits data over the weekend and with local press noting expectations for China to adopt a more proactive macro policy next year. Finally, 10yr JGBs shrugged off the pullback seen in T-note and Bund futures, with price action kept afloat amid the cautious mood in stocks and the BoJ’s presence in the market for over JPY 900bln of JGBs mostly concentrated in 3yr-10yr maturities. Top Asian News Hong Kong Stocks Slide to 13-Month Low on Fresh Virus Woes Li Auto Loss Narrows as EV Maker Rides Out Supply-Chain Snarls Singapore Adds to Its Gold Pile for the First Time in Decades China Growth Stocks Look Like Havens as Markets Confront Omicron Bourses in Europe are experiencing a mild broad-based rebound (Euro Stoxx 50 +1.0%; Stoxx 600 +0.9%) following Friday's hefty COVID-induced losses. Desks over the weekend have been framing Friday's losses as somewhat overstretched in holiday-thinned liquidity, given how little is known about the Omicron variant itself. The strain will likely remain the market theme as scientists and policymakers factor in this new variant, whilst data from this point forth – including Friday's US labour market report - will likely be passed off as somewhat stale, and headline risk will likely be abundant. Thus far, symptoms from Omicron are seemingly milder than some of its predecessors, although governments and central banks will likely continue to express caution in this period of uncertainty. Back to price action, the momentum of the rebound has lost steam; US equity futures have also been drifting lower since the European cash open – with the RTY (+0.9%) was the laggard in early European trade vs the ES (+0.8%), NQ (+1.0%) and YM (+0.7%). European cash bourses have also been waning off best levels but remain in positive territory. Sectors are mostly in the green, but the breadth of the market has narrowed since the cash open. Travel & Leisure retains the top spot in what seems to be more a reversal of Friday's exaggerated underperformance as opposed to a fundamentally driven rebound – with more nations announcing travel restrictions to stem the spread of the variant. Oil & Gas has also trimmed some of Friday's losses as oil prices see a modest rebound relative to Friday's slump. On the other end of the spectrum, Healthcare sees mild losses as COVID-related names take a mild breather, although Moderna (+9.1% pre-market) gains ahead of the US open after its Chief Medical Officer suggested a new vaccine for the variant could be ready early next year. Meanwhile, Autos & Parts reside as the current laggard amid several bearish updates, including a Y/Y drop in German car exports - due to the chip shortage and supply bottlenecks – factors which the Daimler Truck CEO suggested will lead to billions of Euros in losses. Furthermore, auto supbt.aplier provider Faurecia (-5.9%) trades at the foot of the Stoxx 600 after slashing guidance – again a function of the chip shortage. In terms of Monday M&A, BT (+4.7%) shares opened higher by almost 10% following source reports in Indian press suggesting Reliance Industries is gearing up for a takeover approach of BT – reports that were subsequently rebuffed. Top European News U.K. Mortgage Approvals Fall to 67,199 in Oct. Vs. Est. 70,000 Johnson Matthey Rises on Report of Battery Talks With Tata Gazprom Reports Record Third-Quarter Profit Amid Gas Surge Omicron’s Spread Fuels Search for Answers as WHO Sounds Warning In FX, the Buck has bounced from Friday’s pullback lows on a mixture of short covering, consolidation and a somewhat more hopeful prognosis of SA’s new coronavirus strand compared to very early perceptions prompted by reports that the latest mutation would be even worse than the Delta variant. In DXY terms, a base above 96.000 is forming within a 93.366-144 band amidst a rebound in US Treasury yields and re-steepening along the curve following comments from Fed’s Bostic indicating a willingness to back faster QE tapering. Ahead, pending home sales and Dallas Fed business manufacturing along with more Fed rhetoric from Williams and chair Powell on the eve of month end. AUD/CAD/NZD - No surprise to see the high beta and risk sensitive currencies take advantage of the somewhat calmer conditions plus a recovery in crude and other commodities that were decimated by the prospect of depressed demand due to the aforementioned Omicron outbreak. The Aussie is back over 0.7150 vs its US counterpart, the Loonie has pared back losses from sub-1.2750 with assistance from WTI’s recovery to top Usd 72/brl vs a Usd 67.40 trough on November 26 and the Kiwi is hovering above 0.6800 even though RBNZ chief economist Ha has warned that a pause in OCR tightening could occur if the fresh COVID-19 wave proves to be a ‘game-changer’. JPY/EUR - The major laggards as sentiment stabilses, with the Yen midway between 112.99-113.88 parameters and hardly helped by mixed Japanese retail sales data, while the Euro has retreated below 1.1300 where 1.7 bn option expiry interest resides and a key Fib level just under the round number irrespective of strong German state inflation reports and encouraging pan Eurozone sentiment indicators, as more nations batten down the hatches to stem the spread of SA’s virus that has shown up in parts of the bloc. GBP/CHF - Both narrowly divergent vs the Dollar, as Cable retains 1.3300+ status against the backdrop of retreating Gilt and Short Sterling futures even though UK consumer credit, mortgage lending and approvals are rather conflicting, while the Franc pivots 0.9250 and meanders from 1.0426 to 1.0453 against the Euro after the latest weekly update on Swiss bank sight deposits showing no sign of official intervention. However, Usd/Chf may veer towards 1.1 bn option expiries at the 0.9275 strike if risk appetite continues to improve ahead of KoF on Tuesday and monthly reserves data. SCANDI/EM - Although Brent has bounced to the benefit of the Nok, Sek outperformance has ensued in wake of an upgrade to final Swedish Q3 GDP, while the Cnh and Cny are deriving support via a rise in Chinese industrial profits on a y/y basis and the Zar is breathing a sigh of relief on the aforementioned ‘better’ virus updates/assessments from SA on balance. Conversely, the Try is back under pressure post-a deterioration in Turkish economic sentiment vs smaller trade deficit as investors look forward to CPI at the end of the week. Meanwhile, Turkish President Erdogan provides no reprieve for the Lira as he once again defending his unorthodox view that higher interest rates lead to higher inflation. In commodities, WTI and Brent front-month futures consolidate following an overnight rebound – with WTI Jan back on a USD 71/bbl handle and Brent Feb just under USD 75/bbl – albeit still some way off from Friday's best levels which saw the former's high above USD 78/bbl and the latter's best north of USD 81/bbl. The week is packed with risks to the oil complex, including the resumption of Iranian nuclear talks (slated at 13:00GMT/08:00EST today) and the OPEC+ monthly confab. In terms of the former, little is expected in terms of progress unless the US agrees to adhere to Tehran's demand – which at this point seems unlikely. Tehran continues to seek the removal of US sanctions alongside assurances that the US will not withdraw from the deal. "The assertion that the US must 'change its approach if it wants progress' sets a challenging tone", Citi's analysts said, and the bank also expects parties to demand full access to Iranian nuclear facilities for verification of compliance. Further, the IAEA Chief met with Iranian officials last week; although concrete progress was sparse, the overall tone of the meeting was one of progress. "We remain of the opinion that additional Iranian supplies are unlikely to reach the market before the second half of 2022 at the earliest," Citi said. Meanwhile, reports suggested the US and allies have been debating a "Plan B" if talks were to collapse. NBC News – citing European diplomats, former US officials and experts – suggested that options included: 1) a skinny nuclear deal, 2) ramp up sanctions, 3) Launching operations to sabotage Iranian nuclear advances, 4) Military strikes, 5) persuading China to halt Iranian oil imports, albeit Iran and China recently signed a 25yr deal. Over to OPEC+, a rescheduling (in light of the Omicron variant) sees the OPEC and JTC meeting now on the 1st December, followed by the JMMC and OPEC+ on the 2nd. Sources on Friday suggested that members are leaning towards a pause in the planned monthly output, although Russian Deputy PM Novak hit the wires today and suggested there is no need for urgent measures in the oil market. Markets will likely be tested, and expectations massaged with several sources heading into the meeting later this week. Elsewhere, spot gold trades sideways just under the USD 1,800/oz and above a cluster of DMAs, including the 50 (1,790.60/oz), 200 (1,791.30/oz) and 100 (1,792.80/oz) awaiting the next catalyst. Over to base metals, LME copper recoups some of Friday's lost ground, with traders also citing the underlying demand emanating from the EV revolution. US Event Calendar 10am: Oct. Pending Home Sales YoY, prior -7.2% 10am: Oct. Pending Home Sales (MoM), est. 0.8%, prior -2.3% 10:30am: Nov. Dallas Fed Manf. Activity, est. 17.0, prior 14.6 Central Bank speakers: 3pm: Fed’s Williams gives opening remarks at NY Innovation Center 3:05pm: Powell Makes Opening Remarks at New York Fed Innovation Event 3:15pm: Fed’s Hassan moderates panel introducing NY Innovation Center 5:05pm: Fed’s Bowman Discusses Central bank and Indigenous Economies DB's Jim Reid concludes the overnight wrap Last night Henry in my team put out a Q&A looking at what we know about Omicron (link here) as many risk assets put in their worst performance of the year on Friday after it exploded into view. The main reason for the widespread concern is the incredibly high number of mutations, with 32 on the spike protein specifically, which is the part of the virus that allows it to enter human cells. That’s much more than we’ve seen for previous variants, and raises the prospect it could be a more transmissible version of the virus, although scientists are still assessing this. South Africa is clearly where it has been discovered (not necessarily originated from) and where it has been spreading most. The fact that’s it’s become the dominant strain there in just two weeks hints at its higher level of contagiousness. However the read through to elsewhere is tough as the country has only fully vaccinated 24% of its population, relative to at least 68% in most of the larger developed countries bar the US which languishes at 58%. It could still prove less deadly (as virus variants over time mostly are) but if it is more contagious that could offset this and it could still cause similar healthcare issues, especially if vaccines are less protective. On the other hand the South African doctor who first alerted authorities to the unusual symptoms that have now been found to have been caused by Omicron, was on numerous media platforms over the weekend suggesting that the patients she has seen with it were exhausted but generally had mild symptoms. However she also said her patients were from a healthy cohort so we can’t relax too much on this. However as South African cases rise we will get a lot of clues from hospitalisation data even if only 6% of the country is over 65s. My personal view is that we’ll get a lot of information quite quickly around how bad this variant is. The reports over the weekend that numerous cases of Omicron have already been discovered around the world, suggests it’s probably more widespread than people think already. So we will likely soon learn whether these patients present with more severe illness and we’ll also learn of their vaccination status before any official study is out. The only caveat would be that until elderly patients have been exposed in enough scale we won’t be able to rule out the more negative scenarios. Before all that the level of restrictions have been significantly ramped up over the weekend in many countries. Henry discusses this in his note but one very significant one is that ALL travellers coming into (or back to) the UK will have to self isolate until they get a negative PCR test. This sort of thing will dramatically reduce travel, especially short business trips. Overnight Japan have effectively banned ALL foreign visitors. I appreciate its dangerous to be positive on covid at the moment but you only have to look at the UK for signs that boosters are doing a great job. Cases in the elderly population continue to collapse as the roll out progresses well and overall deaths have dropped nearly 20% over the last week to 121 (7-day average) - a tenth of where they were at the peak even though cases have recently been 80-90% of their peak levels. If Europe are just lagging the UK on boosters rather than anything more structural, most countries should be able to control the current wave all things being equal. However Omicron could make things less equal but it would be a huge surprise if vaccines made no impact. Stocks in Asia are trading cautiously but remember that the US and Europe sold off more aggressively after Asia closed on Friday. So the lack of major damage is insightful. The Nikkei (-0.02%), Shanghai Composite (-0.14%), CSI (-0.22%), KOSPI (-0.47%) and Hang Seng (-0.68%) are only slightly lower. Treasury yields, oil, and equity futures are all rising in Asia. US treasury yields are up 4-6bps across the curve, Oil is c.+4.5% higher, while the ZAR is +1.31%. Equity futures are trading higher with the S&P 500 (+0.71%) and DAX (+0.84%) futures in the green. In terms of looking ahead, we may be heading into December this week but there’s still an incredibly eventful period ahead on the market calendar even outside of Omicron. We have payrolls on Friday which could still have a big impact on what the Fed do at their important December 15 FOMC and especially on whether they accelerate the taper. Wednesday (Manufacturing) and Friday (Services) see the latest global PMIs which will as ever be closely watched even if people will suggest that the latest virus surge and now Omicron variant may make it backward looking. Elsewhere in the Euro Area, we’ll get the flash CPI estimate for November tomorrow (France and Italy on the same day with Germany today), and we’ll hear from Fed Chair Powell as he testifies (with Mrs Yellen) before congressional committees tomorrow and Wednesday. There’s lots of other Fed speakers this week (ahead of their blackout from this coming weekend) and last week there was a definite shift towards a faster taper bias, even amongst the doves on the committee with Daly being the most important potential convert. Fed speakers this week might though have to balance the emergence of the new variant with the obvious point that without it the Fed is a fair bit behind the curve. Importantly but lurking in the background, Friday is also the US funding deadline before another government shutdown. History would suggest a tense last minute deal but it’s tough to predict. Recapping last week now and the emergence of the new variant reshaped the whole week even if ahead of this, continued case growth across Europe prompted renewed lockdown measures and travel bans across the continent. Risk sentiment clearly plummeted on Friday. The S&P 500 fell -2.27%, the biggest drop since October 2020, while the Stoxx 600 fell -3.67%, the biggest one-day decline since the original Covid-induced risk off in March 2020. The S&P 500 was -2.20% lower last week, while the Stoxx 600 was down -4.53% on the week. 10yr treasury, bund, and gilt yields declined -16.1bps, -8.7bps, and -14.5bps, undoing the inflation and policy response-driven selloff from earlier in the week. The drop in 10yr treasury and gilt yields were the biggest one-day declines since the original Covid-driven rally in March 2020, while the drop in bund yields was the largest since April 2020. 10yr treasury, bund, and gilt yields ended the week -7.3bps lower, +0.7bps higher, and -5.4bps lower, respectively. Measures of inflation compensation declined due to the anticipated hit to global demand, with 10yr breakevens in the US and Germany -6.8bps and -8.8bps lower Friday, along with Brent and WTI futures declining -11.55% and -13.06%, respectively. Investors pushed back the anticipated timing of rate hikes. As it stands, the first full Fed hike is just about priced for July, and 2 hikes are priced for 2022. This follows a hawkish tone from even the most dovish FOMC members and the November FOMC minutes last week. The prevailing sentiment was the FOMC was preparing to accelerate their asset purchase taper at the December meeting to enable inflation-fighting rate hikes earlier in 2022. Understanding the impact of the new variant will be crucial for interpreting the Fed’s reaction function, though. The impact may not be so obvious; while a new variant would certainly hurt global demand and portend more policy accommodation, it will also likely prompt more virus-avoiding behaviour in the labour market, preventing workers from returning to pre-Covid levels. Whether the Fed decides to accommodate these sidelined workers for longer, or to re-think what constitutes full employment in a Covid world should inform your view on whether they accelerate tapering in December. It feels like a lifetime ago but last week also saw President Biden nominate Chair Powell to head the Fed for another term, and for Governor Brainard to serve as Vice Chair. The announcement led to a selloff in rates as the more dovish Brainard did not land the head job. In Germany, the center-left SPD, Greens, and liberal FDP agreed to a full coalition deal. The traffic-light coalition agreed to restore the debt break in 2023, after being suspended during the pandemic, and to raise the minimum wage to €12 per hour. The SPD’s Olaf Scholz will assume the Chancellorship. The US, China, India, Japan, South Korea, and UK announced releases of strategic petroleum reserves. Oil prices were higher following the announcement, in part because releases were smaller than anticipated but, as mentioned, prices dropped precipitously on Friday on the global demand impact of the new Covid variant. The ECB released the minutes of the October Governing Council meeting, where officials stressed the need to maintain optionality in their policy setting. They acknowledged growing upside risks to inflation but stressed the importance of not overreacting in setting policy as they see how inflation scenarios might unfold. Tyler Durden Mon, 11/29/2021 - 08:01.....»»

Category: dealsSource: nytNov 29th, 2021

Year-End Outlook: Labor Could Spark ‘Transformational’ Changes

Editor’s Note: RISMedia’s Year-End Outlook series provides an in-depth analysis of the housing market’s leading indicators for economic health, and showcases expert insights on what’s to come in 2022. Dolly Parton might still be plugging away at a nine to five, and BTO might still catch the 8:15 train into the city, but for most […] The post Year-End Outlook: Labor Could Spark ‘Transformational’ Changes appeared first on RISMedia. Editor’s Note: RISMedia’s Year-End Outlook series provides an in-depth analysis of the housing market’s leading indicators for economic health, and showcases expert insights on what’s to come in 2022. Dolly Parton might still be plugging away at a nine to five, and BTO might still catch the 8:15 train into the city, but for most of the country, the traditional machinations of labor have changed. Besides the well-documented shifts to remote in many industries, rising wages and a rapidly evolving outlook on what work fundamentally should look like appears to be altering the entire labor economy as people quit their jobs in droves and companies scramble to accommodate new priorities and philosophies. Many pundits have sought to quickly or succinctly sum up all these changes, or attribute new attitudes to a single event or ideology, but the reality is that the future of labor—both short- and long-term—remains deeply uncertain, and the causes and effects of a shifting labor economy have not been parsed out. Despite the lack of answers to these fundamental questions, economists and experts that spoke to RISMedia say that there is still plenty that stakeholders—especially in the real estate industry—need to keep an eye on. Jake Vigdor, an employment and education economist currently working for the University of Washington, says shifts caused by the new labor market are likely to manifest both in philosophical as well as geographic shifts. “There was this period of time last year when people were saying, ‘San Francisco is going to die,’ or ‘New York City is going to die,’’’ he says. “I don’t think that’s really the case. If you’re thinking about where the transactions are going to be growing over the next year or so, that’s going to be hard to forecast.” Work-from-home trends and labor shifts have indicated a broad geographic diffusal of population, specifically high-earning and younger families, Vigdor adds. Though it is far too early to say for certain exactly how and to what extent these changes will take hold, likely they will affect more immediate and lasting change than other more widely watched metrics. In October, unemployment overall fell from 4.8% to 4.6%, and the economy has steadily added more jobs through the last few months. But this progress belies some deeper issues that are not going away anytime soon. Greg Reed is a labor economist specializing in real estate and urban land at the University of Wisconsin in Madison. He says the big job numbers often touted by media outlets and the federal government are less important than many other underlying factors. Barriers that are preventing people from re-entering the workforce—unaffordable or unavailable child care, wages, health care and discrimination—threaten both short-term recovery and the overall stability of the economy. “I’m honestly more concerned down the road for those people who are really looking for jobs and really wanted to work and had to work, but because of COVID or for whatever reason—ageism, sexism, you just add what ‘ism’ to it—weren’t able to find jobs during COVID,” Reed says. And they may still need to find something. What’s going to happen to them longer term?” “There’s some disruption here that’s going to have some structural impact,” he adds. The sector that most immediately affects real estate, at least right now, is the home construction industry. A new report from the Home Builders Institute (HBI) estimated that the country needs to add 2.2 million more jobs between now and 2024 to keep up with demand, and currently is looking at a deficit of 300,000 to 400,000 laborers. Ed Brady is the CEO of HBI, and he warns that this worker shortage both preceded and will likely persist past the broader labor crunch. “I think it‘s been at kind of a crisis level for a while, pre-pandemic and post-pandemic, and even during the pandemic—as you know we remained essential, and so building and developing were still moving forward,” he says. “We’re losing a lot more than we’re bringing in.” The Next 12 Months Policy changes are certain to have broad and disparate impacts on the job market. Many companies have yet to set long-term or permanent work-from-home rules, while the federal government has the chance to impact jobs through immigration policy, vaccine mandates or through a stalled federal bill that could begin addressing child care shortages and adding infrastructure- or climate-focused jobs. Regardless of the progress on these things in Washington, Vigdor says he still sees relative strength in the labor market’s recovery, with expectations that there is no immediate danger of a collapse or recession. “Our risk of heading into some sort of recession with mass unemployment is pretty low right now,” he says. But the most optimistic projections, looking at a return to pre-pandemic levels and modes, is much less realistic according to Vigdor, as American workers have indicated they are not willing to accept the old ways of doing things and recovery efforts still have a long way to go. “The economy over the next year or so—it will be kind of like cleaning up your house after a big party,” he says. “The place is a giant mess, and you look at it and you say, ‘Oh man.’” “Eventually you’ll get it all cleaned up, but…it could take a year or more,” he adds. “All of this stuff will eventually get worked out, but it’s not going to be quick.” There are also more fundamental issues, many of which preceded the pandemic, which will hamper a return to goals set by the Fed or other metrics of a healthy economy. These include everything from a lack of child care to health care costs to immigration restrictions. “We still have a lot of parents who are having trouble getting child care,” Vigdor says. “And another one is immigration…just talking about people who have visas, legal immigrants to the United States—that’s hundreds of thousands of new workers every year in an ordinary year— and that has basically ground to a halt.” A lack of incoming refugees, who are essential workers in many sectors, Vigdor says, is also styming economic growth and contributing to labor issues. Immigration affects every job sector, he adds, from the highest paying tech jobs all the way down to farm work. Many problems have also disproportionately affected people of color and women, with unemployment for Black and Hispanic workers staying stagnant in the most recent job report, even as overall unemployment fell. According to Reed, these issues will specifically dampen the real estate market in ways that go beyond finding construction workers to build houses. Commercial projects will stall if companies cannot find people to clean or maintain the property, appliances for new homes will sit in warehouses with no one to deliver them and apartment complexes will halt expansions if they don’t have staff to serve tenants or provide other on-site services. “It just seems like it’s permeating a lot, a lot of components of life,” Reed reflects. “It throws the sequencing off on so many different levels. And it just increases the uncertainty, and no one likes uncertainty.” Vigdor also worries that this labor shortage is unique in that it has affected nearly every region and sector equally—something that is rare historically in the U.S. He also points out that removing supplemental unemployment benefits and returning students to school full time did almost nothing to alleviate the labor shortage, indicating that the shortage is more than just a blip that will resolve itself as the virus fades, and will instead require more investment from companies and policymakers. Wages, Geography and Education To address a lack of carpenters, contractors, foremen, plumbers and electricians who build and rehab the homes necessary to keep the real estate industry growing, the answer must start with education, according to Brady. “Investing in schools, investing in pre-apprenticeship education…is one step. The country has to invest in that,” he says. “We can immediately change the dialogue in the secondary schools that you’re not ‘alternative’ if you’re going into the trades. It’s a first path, it’s not an alternative path, and we need to change that perception.” Trade jobs are especially hard to fill quickly, Brady argues, because experience is so important. A carpenter fresh out of school might take twice or three times as long to put up a house as one with 15 years of experience. Even if the country begins bringing in enough materials at cheap enough prices to begin alleviating the pressure of housing shortages, Brady claims the market will still be bottlenecked without enough skilled labor. “Productivity, I contend, as long as we’re not investing in younger people…I think it’s going to get worse before it gets better. That’s why we have to invest in it now for the future,” he says. The recent HBI report found that about half of construction workers in the trades make more than the median annual income in the country. But likely the industry will need to continue raising wages to attract more workers, according to Vigdor, as workers have more choices and negotiating power in their jobs than any time in recent memory. “Finding the carpentry crews and the masonry crews…if you’re having a tougher time finding that workforce, it’s going to lead to a slow down in new inventory,” he says. Reed says that every industry right now needs to understand that businesses will have to invest more in paying their workers if they want to compete—or even stay open. “There needs to be a wake-up call that in order to not only attract, but also retain that talent, they’re going to have to pay more,” he says. On the positive side for real estate, an increase in wages for lower-paying jobs could elevate some number of families, from renters just scraping by to prospective homebuyers. Federal programs offering down payment assistance and increasing affordability in housing could bolster that trend, according to Vigdor. “Some of these traditionally lower-incomes households, they’re getting bigger and steadier paychecks. That could lead to a situation where your markets for things like starter homes…there could be some renewed interest there,” he says. This scenario depends on how inflation continues—if wages and incomes can keep up with that metric—and also if the current levels of growth will continue long term (Reed says he believes they will). “I think the marketplace is speaking loud and clear, and I don’t see wages flipping notably from the higher levels they are now meeting,” Reed contends. “I can’t tell you the number of people who have said, ‘Why would I take a job at $10 an hour?’” A trend like this could create a relative explosion of buyers in the starter home price range, especially in marginal markets, Vigdor predicts. While coastal and expensive suburban areas would not see much change, various semi-rural areas outside bigger metros, and smaller cities spread across the Midwest and South, could quickly heat up in terms of real estate. At the same time, an entirely separate trend could also vastly alter the geography of work—and real estate. Big tech companies are currently diffusing their physical presence broadly across the country to match workers’ preferences, Vigdor says, which was something that started well before the pandemic. Distributing your workforce and offices as a tech company actually makes more sense than having huge central space-age complexes, he posits, and many companies had already begun spreading out before the pandemic. If Amazon, Facebook or Google end up bringing most workers back in person, Vigdor says the likely path will not be a return to the original offices but rather an expansion of satellite locations to dozens of places beyond large headquarters in Silicon Valley, New York or Austin, allowing people to live in disparate locations while still having a physical office somewhat accessible if need be. “It’s not going to be the thing that brings Gary, Indiana back or anything like that,” he cautions. “These relocations are people moving from really expensive places, to other somewhat cheaper but still desirable locations. So that’s going to affect the real estate markets.” These cities could be places in the Midwest or Sun Belt that have already seen tremendous growth during the pandemic, or they could affect areas that have yet to see that kind of attention, Vigdor says. This “decentralizing” is specifically unpredictable and will depend on the kind of amenities workers value, and where companies can find favorable conditions as far as taxes and other preferences. Other factors, like cities that have universities focused on specific cutting-edge research like robotics or AI will also draw some of these companies, Vigdor says. “The stuff is happening, and it’s been happening for quite some time. That will be an interesting thing to see,” he says. Again, what exactly the ramifications of these individual trends might be remains hard to predict. All of them have the potential to snowball and cause a domino effect that begins to alter behaviors in various other silos or sectors. But as labor appears to be evolving on a fundamental level post-pandemic, there is a distinct likelihood that the next several months will see some transformational changes in work. “Wall Street loves to see regular, consistent numbers on jobs reports,” Reed says. “I’m a little more concerned about those longer-term implications.” Jesse Williams is RISMedia’s associate online editor. Email him your real estate news ideas to jwilliams@rismedia.com. The post Year-End Outlook: Labor Could Spark ‘Transformational’ Changes appeared first on RISMedia......»»

Category: realestateSource: rismediaNov 10th, 2021

10 Things in Politics: Hunter Biden"s art raises ethical questions

And Republicans are bracing for an awkward Trump speech at a big donor event. Welcome back to 10 Things in Politics. Sign up here to receive this newsletter. Plus, download Insider's app for news on the go - click here for iOS and here for Android. Send tips to bgriffiths@insider.com.Here's what we're talking about:Hunter Biden isn't Trump, but what he's up to deserves your attention - even if you hate Fox NewsRepublicans are bracing for an awkward Trump speech at a big donor eventDemocrats are already floating another massive spending billWith Phil Rosen. Teresa Kroeger/Getty Images for World Food Program USA; Chip Somodevilla/Getty Images; Samantha Lee/Insider 1. INSIDE BIDENWORLD: President Joe Biden's "absolute wall" between him and his family's business interests sounds formidable. But in practice, it fails at the presidential level, my colleague Mattathias Schwartz writes.Here's a look at why ethics experts are fuming:Hunter Biden's art illustrates why Biden's wall doesn't work: Earlier this month, Biden's son hobnobbed with wealthy art patrons while hoping to sell his work for as much as $500,000 a pop. Under an arrangement approved by the White House, the younger Biden is free to meet with prospective buyers at such events, so long as only his gallerist knows the identity of those who place bids on his paintings. But the gallery won't say how it's vetting buyers and where it's drawing the line.This uneasy relationship is nothing new: It's still a stark contrast from Donald Trump's approach, in which, for instance, corporate lobbyists, foreign governments, and his own Secret Service detail spent millions to stay at his hotels and golf resorts during his presidency.But one expert says the US would cry foul if another nation allowed this: "If we were monitoring some developing country and learned that the president's son was about to make millions from the sale of his art, and hadn't sold any art before, we'd be talking to that country's leadership about the need for ethical reform," Walter Shaub, a former director of the US Office of Government Ethics, told my colleague.Read more about how the actions of some of President Joe Biden's family members hark back to a particular theme in Washington.2. Republicans are bracing for an awkward Trump speech: The former president is set to speak at a major GOP donor event in Palm Beach, Florida. Trump is publicly calling for Mitch McConnell's ouster as the top Senate Republican, which is why some donors are surprised that Sen. Rick Scott invited Trump to speak. "It's always interesting with Trump. Whoever wants to be there can be there," said one person involved with planning the event. Read what else Republicans are saying from the $1,300-a-night resort where they await Trump.That's one way to make an entrance: Trump, in a statement, said Republicans wouldn't vote in the midterms if his widely debunked claims about the 2020 election weren't "solved." US climate envoy John Kerry in Paris in March. MARTIN BUREAU/AFP via Getty Images 3. Kerry tempers expectations for major climate summit: The US climate envoy John Kerry says climate talks next month in Glasgow will most likely end without major nations setting the necessary goals needed to get a grip on the climate crisis before it's too late, the Associated Press reports. Kerry told the AP, though, that he was not lowering expectations for a summit he and other top leaders once billed as "the last, best chance" on climate action. Here's where things stand just weeks away from the major climate talks.Key quote: "It would be like President Trump pulling out of the Paris agreement, again," Kerry told the AP of what would happen if Congress failed to pass significant climate legislation.4. Biden is trying to save Christmas: Biden announced plans for the Port of Los Angeles to move to 24/7 operations, joining one of the nation's other busiest ports as leaders try to address a cargo bottleneck that has already led to shortages and price increases, NBC News reports. Major retailers like Walmart and shipping companies like UPS and FedEx will also step up their efforts to address supply-chain issues. The White House's push comes amid fears that shortages could wreak havoc on holiday shopping.5. Democrats are already floating another massive spending bill: If they can't cram all of Biden's social-spending promises into the reconciliation bill this year, Democrats may try again next year. Rep. John Yarmuth of Kentucky, the chair of the powerful House Budget Committee, mapped out a scenario in which provisions that might be dropped, like a Medicare expansion, be repackaged in a new bill right before the midterms. More on what top lawmakers are considering as they continue to debate cuts to their $3.5 trillion plan. Apple; Disney+; Netflix; Hulu; Amazon; HBO; Insider 6. Inside Hollywood's battle for the hottest TV shows: The launch of new streaming services has shaken up the hierarchy of Hollywood's top TV buyers. But HBO is the most popular place to sell a scripted TV show, according to interviews with 18 industry insiders. Read more about how Netflix is changing, Apple's search for its breakout drama, and Amazon's struggle to define its identity.7. Johnson & Johnson wants to dole out 2nd doses of its COVID-19 vaccine, but the FDA isn't so sure: Food and Drug Administration scientists say a booster of J&J's COVID-19 shot could bolster the immune response in theory, but the data isn't there yet. The agency pointed to the lack of robust clinical-trial results supporting a second shot six months after the first dose. An expert panel is expected to vote Friday on whether the agency should OK the booster shots.8. Capitol riot panel readies for subpoena fight: Lawmakers on the House select committee investigating the January 6 insurrection say they're planning to increase their efforts to force top Trump administration officials to cooperate with their investigation, The Washington Post reports. Former officials like Steve Bannon have said they won't cooperate because of Trump's decision to invoke executive privilege. Bannon was supposed to sit for an interview with lawmakers today. The panel also issued a subpoena for Jeffrey Clark, a former Justice Department official who was closely involved in Trump's efforts to press his voter-fraud claims. Here's where the investigation stands.9. Katie Couric says she edited RBG's comments on kneeling during the anthem: Couric edited out comments Supreme Court Justice Ruth Bader Ginsburg made in a 2016 interview, seeking to "protect" the octogenarian justice, the TV journalist says in her new book. Per Couric, Ginsburg said athletes who knelt during the national anthem before sporting events were showing "contempt for a government that has made it possible for their parents and grandparents to live a decent life." Couric did report that Ginsburg called kneeling "dumb and disrespectful," but she did not include the full remarks. More on what Couric says was her behind-the-scenes struggle to figure out what to do with Ginsburg's comments. Jeff Bezos pinned astronaut wings on William Shatner after the "Star Trek" star's spaceflight on Wednesday. Blue Origin 10. William Shatner cried telling Jeff Bezos about his flight to space: The "Star Trek" star said staring into the blackness of space was like looking at death. "I hope I never recover," he said after his flight Wednesday. Emotions overcame Shatner as he recounted his time aboard Blue Origin's New Shepard rocket. At 90, Shatner is the oldest person to fly in space. See his full comments.Today's trivia question: Speaking of presidential families, who was responsible for Billy Beer? Email your answer and a suggested question to me at bgriffiths@insider.com.Yesterday's answer: In 1909, William Howard Taft became the first president to begin working in the Oval Office.Read the original article on Business Insider.....»»

Category: smallbizSource: nytOct 14th, 2021