Month: February 2023

ECB Rate-Hike Odds Soar After French, Spanish Inflation Re-Surges

ECB Rate-Hike Odds Soar After French, Spanish Inflation Re-Surges

The last week or so in the US has seen the disinflationistas get a gut punch from hot CPI, PPI, and PCE prints.

Today was Europe’s turn as consumer prices in France jumped by a euro-era record 7.2% from a year ago in February as food and services costs increased, and Spain saw a stronger-than-expected 6.1% advance.

Source: Bloomberg

  • French flash February HICP inflation was 7.2%yoy in February, 0.2pp higher than the January print and consensus expectations. The press release notes that energy price inflation cooled in February as the increase in regulated electricity prices is offset by a decline in petrol prices. CPI energy inflation cooled from 16.3%yoy in January to 14.0%yoy in February. CPI food inflation increased further to 14.5%yoy in February from 13.3%yoy in January, though the press release notes that sequential food price pressures are easing. Within core, year-on-year CPI goods inflation ticked up a tenth of a percentage point to 4.6%yoy, while services inflation increased 0.3pp to 2.9%yoy. In sequential seasonally adjusted terms, manufactured products inflation in February was unchanged relative to January at 0.50%mom, while sequential services inflation increased sharply to 0.56%mom, up from 0.06%mom in January.

  • Spanish flash HICP inflation also surprised to the upside at 6.1%yoy in January, 0.2pp above the January print and four-tenths of a percentage point above consensus expectations. The press release notes that higher electricity prices pushed up inflation in February, and this was only partially offset by lower petrol prices. Core CPI inflation increased to 7.7%yoy in February, up two-tenths of a percentage point relative to January.

In response to this, Goldman raised their Euro area headline inflation forecast to 8.36%yoy, from 8.31%yoy previously, and marked up their core inflation tracking estimate by 11bp to 5.28%yoy, given today’s news of more sticky core services inflation pressures in France, and further core inflation pressures in Spain.

Bank of France chief Francois Villeroy de Galhau reckons soaring prices are nearing their peak. After next month’s likely 50 basis-point rate increase, there’ll be less “urgency” for the ECB to act, he said this month.

In Spain, Prime Minister Pedro Sanchez’s government will come under more pressure to keep a lid on prices in an election year in which he’s widely expected to seek another term.

But to both of their chagrins, the stronger readings from the euro zone’s second- and fourth-biggest economies will cement the half-point rate move the ECB is planning for March…

Additionally, today’s prints have prompted further repricing of the market’s expectations for the ECB’s terminal rate – now approaching a record 4.00%…

Bloomberg economist Ana Andrade noted:

“The increase in Spain’s headline EU harmonized inflation is another reminder that the path of price growth will be choppy and sticky on its way down, as underlying price pressures remain strong. While base effects will dominate over the next few months, bringing inflation meaningfully down by the summer, we still expect it to end the year at above 5%.”

Wherever it ends up, it may stay there for a while. Chief Economist Philip Lane said in remarks to Reuters published earlier Tuesday that officials may hold borrowing costs at a high level for some time once they hit the peak.

Tyler Durden
Tue, 02/28/2023 – 08:53

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Global Disinformation Index, Inform Thyself


Misinformation

The Global Disinformation Index (GDI)—a British nonprofit that smeared Reason as an unsafe news website using dubious criteria—might want to take a closer look at newly uncovered disinformation being spread by… the website of the Global Disinformation Index.

GDI is partly funded by the U.S. State Department, and seeks to discourage advertisers from working with news outlets like Reason on the theory that we misinform our readers. (NewsGuard, a more transparent advising organization, rates Reason 100 out of 100 “for the highest adherence to journalistic practice.”) It has recently come under considerable criticism from conservative and libertarian news websites following the publication of an expose in The Washington Examiner.

GDI earned itself additional criticism this week, after the U.S. Energy Department endorsed the lab leak theory of COVID-19’s origins. Previous reports by GDI warned advertisers to blacklist news sites that attempted to blame the pandemic on a lab leak, and implied that any website asserting a cover-up on the part of the Chinese government was promoting racist disinformation with the capacity of harming Asian people. GDI’s messaging on the lab leak theory was clear and consistent: News websites that explored this topic should be demonetized. According to The Examiner‘s Gabe Kaminsky:

GDI alleged in a February 2020 report dubbed “Coronavirus: The makings of a disinformation pandemic?” that “adversarial narratives” are emerging as a key “disinformation tactic.” The report called out Sen. Tom Cotton (R-AR) for raising the possibility on Fox News that COVID-19 came from a lab.

“By broadcasting the Senator’s words to a national audience, this debunked conspiracy theory is given authority, validation and amplification,” said GDI in the report.

One month later, in March 2020, GDI released a report titled, “Why is Ad Tech Funding These Ads on Coronavirus Conspiracy Sites?”

The report, which slammed Google and other companies for “providing ad revenue streams to known disinformation sites peddling coronavirus conspiracies,” called out the conservative blog American Thinker for publishing a commentary article titled “The Wuhan Virus Escaped From a Chinese Lab.” GDI also took aim at a company selling N-95 masks for advertising in the article.

Portraying the lab leak notion as a dangerous, racist conspiracy theory never made any sense, and journalists, health officials, and disinformation trackers—like GDI—that enforced this narrative should feel profoundly embarrassed.

But that’s not all GDI has to atone for.

On Monday, I called out several of the journalists who incorrectly smeared lab leak origin proponents as racists—The New York Times’ lead coronavirus reporter, Apoorva Mandavilli, chief among them.

Another journalist who penned an unfortunate tweet about the lab leak theory is The Atlantic‘s Anne Applebaum, who likened Sen. Tom Cotton (R–Ark.) to a “Soviet propagandist” for merely raising the possibility that COVID-19 escaped from a Chinese laboratory.

Tweet from Anne Applebaum
Tweet from Anne Applebaum

Applebaum has previously produced some excellent work. She has authored two books on the horrors of Soviet communism: Gulag: A History, on Soviet prisons, and Red Famine: Stalin’s War on Ukraine, about the Holodomor. But she erred when she described the lab leak theory as akin to Russian disinformation.

Notably, Applebaum was also listed on the GDI’s website as one of its principle journalistic advisors. Given GDI’s misguided approach to the lab leak theory, I wondered if Applebaum was partly responsible—or whether she would now advise GDI to change course. So I emailed her.

Her response was surprising, to say the least.

“Until a few days ago I was not aware that I was listed as an advisor on the GDI website,” writes Applebaum. “I last spoke to them when they were still raising money—probably 2018 or 2019—and have not advised them on anything or had any contact since. I have asked to have my name taken off their website, which they agreed to do.”

GDI misrepresenting Applebaum as a member of its advisory panel is especially hypocritical, given the organization’s stated reasons for placing Reason on its list of “ten riskiest online news outlets.” GDI dinged Reason for not displaying “information regarding authorship attribution, pre-publication fact-checking, or post-publication corrections processes.” It is not clear exactly what the organization meant by this; GDI did not respond to a request for comment.

But GDI’s own website has clearly committed a transgression that sounds remarkably similar: It listed an advisor who actually had nothing to do with the organization, and nowhere on GDI’s website does it currently explain the mistake. There is no statement along the lines of, Anne Applebaum was erroneously listed as an advisor to GDI and we regret the error. It seems like GDI lacks clarity regarding its own authorship attribution and fact-checking processes.

Time and time again, so-called disinformation watchdogs fail their own tests, but this is a particularly galling example. The State Department has no business funding such sanctimony.

The post Global Disinformation Index, Inform Thyself appeared first on Reason.com.

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40 Percent of Liberal Professors Are Afraid They’ll Lose Their Jobs Over a Misunderstanding


A new survey from FIRE reveals rampant illiberalism and self-censorship among young faculty.

As the academy gets younger it grows more authoritarian, according to a new survey of over 1,400 faculty members conducted by the Foundation for Individual Rights and Expression (FIRE). The free speech group’s findings portend a dark future for higher education if this course isn’t reversed—and if faculty minds don’t become more open to dissenting viewpoints.

Over the past decade or so, many academic departments embraced ideological views in their teaching and research, promoting social justice–laden scholarship as a way of correcting the wrongs of the past. Unsurprisingly, many departments developed left-of-center academic monocultures, becoming unfriendly to differing opinions. Young faculty entering the profession are only adding to this academic echo chamber.

As a professor, I’m on the younger side for faculty members. My cohort is much more illiberal than their older colleagues. Two-thirds of faculty over 55 years old said students shouting down a speaker is never acceptable. That number plummets to 37 percent for faculty 35 and under.

Shockingly, younger faculty report more acceptance of violence to combat speech. While 97 percent of older faculty say it’s never acceptable for students to use violence to stop a campus speech, only 79 percent of younger faculty agree. That one in five younger professors show any level of acceptance for violence to stop speech should alarm all of us. 

Mixing age with ideology reveals even more pronounced support for illiberal attitudes. Among liberal faculty 35 and under, only 23 percent indicated that students shouting down a speaker is never acceptable, compared with 88 percent of conservative faculty. Moderate faculty in this age group were also much more likely than their conservative colleagues to endorse the acceptability of these tactics. 

Perhaps most alarming of all, only 64 percent of young and liberal faculty say it’s never acceptable for students to use violence to stop a campus speech.

Illiberalism runs deep among young liberal faculty members, and their views regrettably resemble those of their students rather than their more senior peers. As newer and far less tolerant numbers of professors replace older faculty, colleges and universities may be in a true crisis if the higher education enterprise destroys its core values.

The research also finds that faculty members are self-censoring at higher rates. In 1955, at the end of the second Red Scare after World War II during the age of McCarthy and deep anti-communist fear, 9 percent of social scientists said they toned down their writing for fear of causing controversy. Today, 25 percent say they’re very or extremely likely to self-censor their writing in academic publications. 

More than half of faculty—52 percent—say they’re afraid they’ll lose their job or reputation over a misunderstanding of something they said or did, or because someone posted something from their past online. While almost three-quarters of conservative faculty expressed this year, 40 percent of even liberal faculty agree. That’s staggering: two in five professors who are a part of the prevailing orthodoxy on campus are fearful of losing their jobs over a misunderstanding. 

As the report says, this “speaks volumes about the climate of fear, intimidation, and censorship on campus.”

This cannot be the environment of the future. Our society cannot thrive when opposing voices are met with fists rather than facts. And as a professor, I know that what starts on campus rarely stays there. This fear will continue to grow and infect our neighborhoods, our workplaces, and our communities. 

There is still time to course correct. But students, trustees, donors, alumni, and the public must demand better from the faculty today before these young authoritarians run higher education tomorrow.

The post 40 Percent of Liberal Professors Are Afraid They'll Lose Their Jobs Over a Misunderstanding appeared first on Reason.com.

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Prison Deaths Spiked by Almost 50 Percent During Early Months of COVID-19 Pandemic


man behind prison fence

New data highlights just how deadly U.S. prisons became during the early months of the COVID-19 pandemic. Across the U.S., prison deaths spiked by almost 50 percent in 2020, jumping to 6,182 deaths from 4,240 the year before.

“The U.S. has seen a significant, continual increase in deaths in prisons over the past two decades, but never before have the country’s prisons seen such a steep increase year-to-year,” according to the University of California, Los Angeles Law Behind Bars Data Project.

The project obtained information on 2019 and 2020 prison deaths from 49 states and the federal government. (New Mexico’s Bureau of Prisons did not provide data.) It collected 2021 death data from 28 states.

Forty-three states saw an increase in prison deaths in 2020. And in six states—Alaska, Michigan, Montana, New Jersey, North Dakota, and Rhode Island—the number of prison deaths more than doubled.

In Michigan prisons, there were 131 more deaths in custody in 2020 than in 2019, despite the state’s overall prison population declining by 8 percent. Texas had 253 more prison deaths in 2020 than in 2019, and Florida 190 more prison deaths.

“American prisons are deadly but obscure places,” said Aaron Littman, a UCLA Law professor and acting director of the Behind Bars Data Project. “Our carceral mortality database provides a tragic accounting of the many lives lost in prison in recent years.”

High rates of death in prison also continued into 2021, the project’s data suggests.

The Behind Bars Data Project is an attempt to fill in information that is now lacking from government data:

We release this database as the federal government has failed to reliably and transparently collect data on deaths in custody and effectively ceased its own reporting of these data, abdicating a Congressionally-mandated responsibility of the U.S. Department of Justice (DOJ) since 2000.

Since the beginning of the pandemic, the UCLA Law Behind Bars Data Project has collected data from carceral agencies to document the impact of COVID on incarcerated people. However, COVID case rates and related deaths reported by carceral agencies do not reveal the full impact of the pandemic on incarcerated people. Due to inadequate and opaque testing regimens, a large and uncertain number of infections went unidentified, and at least some deaths were not properly attributed to COVID 1 2 3 4. Moreover, as the project has documented, many state prison systems have become less transparent over the course of the pandemic. Twenty-one state prison agencies no longer post data on the state of COVID in their facilities at all. These agencies were responsible for the health and welfare of over 380,000 incarcerated individuals in 2020. Finally, COVID data do not reflect deaths that were immediately caused by something other than a COVID infection but occurred in prisons where medical and security staff were overwhelmed or depleted by the pandemic.

In 2020, U.S. prisons saw 1,942 more deaths in custody than they did in 2019 (an increase of 46 percent). That amounts to 47 deaths in custody per 10,000 incarcerated people.

The 2020 spike in prison deaths came “even as the country’s prison population declined to about 1.3 million from more than 1.4 million,” noted the The New York Times. It “was more than twice the increase in the United States overall, and even exceeded estimates of the percentage increase at nursing homes, among the hardest-hit sectors nationwide.”

In 2001, there were just 3,170 deaths in a U.S. prison population of more than 1.4 million.

You can find all of the Behind Bars Data Project’s prison death data on GitHub.

FREE MINDS

ACLU urges Congress not to ban TikTok. The American Civil Liberties Union (ACLU) is pushing back against a Congressional proposal to ban the popular video app TikTok. “This vague and overbroad legislation would violate the First Amendment rights of millions of Americans who use TikTok to communicate, gather information, and express themselves daily,” wrote the ACLU in a letter to the House Foreign Affairs Committee. 

The group urged members to vote no on HR 1153, the legislation meant to ban TikTok that could also have much more broad-reaching consequences. “In a purported attempt to protect the data of U.S. persons from Chinese government acquisition, this legislation will instead limit Americans’ political discussion, artistic expression, free exchange of ideas — and even prevent people from posting cute animal videos and memes,” said the ACLU letter:

While the ACLU’s opposition today rests on free speech harms, we note that with more time to review this legislation, we anticipate finding other sweeping implications.

[…] Provisions of this bill are vague and overbroad. For example, Section 201 tasks the President with determining if a foreign entity deals in software that is “subject to the jurisdiction” of China “or otherwise subject to the influence of China,” and that “may be facilitating” a long list of activities by the Chinese government. If the president determines that the entity meets those criteria, the president is required to impose sanctions. Unfortunately, it would be impossible for the average person to know what the term “subject to the influence of China” means, and the term is not defined in the legislation. Would an entity be under the influence of China if the CEO’s sister had
moved there, or married a Chinese person? Would an entity be under the influence of China if the CEO regularly travels there for leisure?

Likewise, Section 102 would result in the Secretary of the Treasury banning U.S. residents from engaging with any entity that “may” transfer sensitive personal data to an entity that is “subject to the jurisdiction” of, or “subject to the influence” of China. The phrase “may” is every bit as subjective as the term “subject to the influence of China.” How likely should a company be to transfer sensitive information in order to meet this criteria? One percent? Sixty percent? It’s worth noting that “sensitive personal information” includes “data relating to the physical, mental, or psychological health condition of an individual.” Thus, sharing a video where a student explains their sadness at being the victim of bullying, or one where someone discusses their battle with an autoimmune disease could well be covered. Ultimately, this legislation is written in such a way that it will stifle speech otherwise protected by the First Amendment.

This legislation would also create an exception to the historic and invaluable Berman Amendment, which — for the past 35 years — has removed the president’s authority to regulate or ban the import or export of “informational materials, including but not limited to, publications, films, posters, phonograph records, photographs … artworks, and news wire feeds” and later electronic media. Congress enacted the Berman Amendment because it was concerned about how the International Emergency Economic Powers Act (IEEPA), which enables the president to impose sanctions on trade with hostile nations, could impact American access to works that would be protected if created in the United States, no matter where that speech originated. This bill’s exemption creates a slippery slope for further carve outs of the Berman Amendment that could erode its protections, and leave U.S. residents without some of their favorite international books, movies, and artwork.

ACLU senior policy counsel Jenna Leventoff summed it up thusly:

Congress must not censor entire platforms and strip Americans of their constitutional right to freedom of speech and expression. Whether we’re discussing the news of the day, live streaming protests, or ​​even watching cat videos, we have a right to use TikTok and other platforms to exchange our thoughts, ideas, and opinions with people around the country and around the world.

FREE MARKETS

A proposal to subsidize semiconductor manufacture is being used as a backdoor way to subsidize childcare, too. New rules expected to come from the Commerce Department today “will effectively force recipients of the new federal semiconductor subsidies” to guarantee childcare for workers, reported Reason‘s Eric Boehm.

One big problem with this plan is that it circumvents normal procedure. “If Congress believes it is in the best interest of the country to increase federal subsidies for child care, it ought to pass a law that does that,” suggested Boehm:

Doing so would allow for a comprehensive debate about the costs involved, the government regulations that inhibit the availability of care, and the best ways to ensure that American families can afford whatever level of child care they might desire.

It should go without saying that the CHIPS and Science Act of 2022 is not that bill. This new rule seems to be an entirely post hoc construction by the Commerce Department, which is responsible for implementing the law and seems vaguely aware that affordable child care is a problem keeping some workers out of the labor force.

That’s a real issue, but Rube Goldberg-ing new mandates into an expensive and misguided industrial policy is no way to make social policy. Well-intentioned or not, the Commerce Department’s repurposing of the CHIPS Act isn’t going to make child care any more affordable or available for the vast majority of workers.

The New York Times first reported on the Commerce Department’s rules, noting that “the Commerce requirement would represent a relatively small step toward Mr. Biden’s much larger, and as-yet unfulfilled, child care ambitions.”

QUICK HITS

• Knoxville police have released video of their encounter with a 60-year-old woman who died while being taken to jail. “Throughout the interaction, the officers frequently yell at Edwards,” notes the Knoxville News Sentinel. “Edwards repeatedly tells officers and staff she can’t breathe or stand, but they respond by telling her she … is fine.” The Knox County District Attorney’s Office said this week that Edwards died of a stroke.

• The Biden administration is making it harder to be prescribed some medications via video appointments. “The proposed change would also make obtaining necessary—even life-saving—drugs more difficult, especially for those living in rural areas,” writes Reason‘s Emma Camp.

• “The Supreme Court seemed poised on Monday to limit the scope of a federal law that adds two years of prison time to sentences for a variety of felonies if the defendant engaged in identity theft in the process,” writes New York Times legal reporter Adam Liptak.

• A picture has surfaced of Tennessee Gov. Bill Lee—who is set to sign an anti-drag bill—dressed in drag in high school.

• Reason Editor-at-Large Nick Gillespie talks to the authors of Superabundance: The Story of Population Growth, Innovation, and Human Flourishing on an Infinitely Bountiful Planet about why population doomsayers were wrong.

The post Prison Deaths Spiked by Almost 50 Percent During Early Months of COVID-19 Pandemic appeared first on Reason.com.

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Today at the Supreme Court: Biden’s Student Loan Cancellation Plan on Trial


Joe Biden US Supreme Court

The U.S. Supreme Court will hear oral arguments today in a pair of cases that ask fundamental questions about the scope of executive power while simultaneously testing the legality of one of President Joe Biden’s signature political acts.

The cases are Biden v. Nebraska and Department of Education v. Brown. Both center on Biden’s 2022 use of executive authority to cancel up to $10,000 in student loan debt for every borrower who earns less than $125,000 a year while canceling up to $20,000 for every borrower who took out a Pell Grant and earns less than $125,000 a year.

The Biden administration argues that it has the power to take such action under the terms of the Higher Education Relief Opportunities for Students (HEROES) Act of 2003, which allows the secretary of education to “waive or modify any statutory or regulatory provision applicable to the student financial assistance programs under title IV of the [Higher Education] Act as the Secretary [of Education] deems necessary in connection with a war or other military operation or national emergency.” According to the Biden administration’s brief to the justices, “the plan falls squarely within the plain text of the HEROES Act; indeed, a central purpose of the statute is to authorize the Secretary to grant student-loan-related relief to at-risk borrowers because of a national emergency—precisely what the Secretary did here.”

To prevail, the parties challenging Biden’s executive action need to clear two distinct legal hurdles. First, they must prove that they have “standing” to sue in the first place. And that is not always such an easy thing to prove. The Supreme Court has repeatedly said that aggrieved taxpayers alone do not, as a general rule, have standing to sue the government over allegedly illegal laws. The Court reaffirmed this in Hein v. Freedom From Religion Foundation (2007), in which a group opposed to government funding of religious activity sued the George W. Bush administration over its creation, via executive order, of the Faith-Based and Community Initiatives program. “Generally, a federal taxpayer’s interest in seeing that Treasury funds are spent in accordance with the Constitution is too attenuated to give rise to the kind of redressable ‘personal injury’ required for Article III standing,” wrote Justice Samuel Alito.

The parties challenging Biden’s plan in Biden v. Nebraska are six states (Nebraska, Missouri, Arkansas, Iowa, Kansas, and South Carolina) who argue that because they participate in various ways in the federal student loan industry, they stand to suffer financial harm if the plan goes into effect. And that harm, they argue, qualifies as a cognizable injury sufficient to trigger Article III standing. The parties in Department of Education v. Brown, meanwhile, are student loan borrowers who are not covered by the terms of Biden’s actions.

Assuming either the states or the private parties (or both) clear the standing hurdle, the case then becomes all about executive power. Contrary to the Biden administration’s position that the HEROES Act speaks clearly in this matter, the states maintain that the administration’s “unprecedented reading of the HEROES Act claims breathtaking and transformative power beyond [the secretary of education’s] institutional role and expertise.” The law “permits the Secretary to keep borrowers from a ‘worse position’ by maintaining the status quo,” the states told the Court. “It does not allow the Secretary to put nearly every borrower in a better position by reducing or eliminating their principal balances.”

One of the difficulties for the legal challengers is that the HEROES Act is a broadly worded statute. Enacted as a post-9/11 measure, its original purpose was to allow the executive branch to ameliorate the student loan situations of service members fighting the war on terror. Yet the law’s text is not limited to wartime; it also authorizes executive action during a “national emergency,” such as the COVID-19 national emergency first declared by President Donald Trump. Will that broad language be enough for Biden to win?

Not necessarily. In West Virginia v. Environmental Protection Agency (EPA) (2022), the Supreme Court said that the judiciary must “hesitate” before assuming that Congress granted certain powers to the executive branch when the executive “‘claim[ed] to discover in a long-extant statute an unheralded power’ representing a ‘transformative expansion in [its] regulatory authority.'” In other words, when the president says that Congress authorized some big-time regulation that the executive branch wants to carry out, West Virginia v. EPA says that the president must produce “clear congressional authorization” or else lose in court.

Perhaps the simplest way of thinking about today’s legal showdown is this: How much deference or leeway is a majority of the current Court willing to extend to this president? Answer that correctly and you may know the outcome in advance.

The post Today at the Supreme Court: Biden's Student Loan Cancellation Plan on Trial appeared first on Reason.com.

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Don’t Be Fooled, US Stocks Are Still Far From Cheap

Don’t Be Fooled, US Stocks Are Still Far From Cheap

Authored by Simon White, Bloomberg macro strategist,

The US stock market continues to be overvalued on several measures, exposing equities to further downside.

Stock pickers love bear markets. Suddenly many companies on their watch lists begin to look attractive. But despite the protracted equity market downturn, valuations – almost no matter how you slice or dice them – continue to look rich.

It’s true the S&P’s P/E ratio has fallen precipitously over the last two years, but that was from nosebleed levels, and it is now only back to its long-term mean. Valuations cannot be said to be unambiguously cheap at an index level. The Nasdaq’s P/E fell sharply too, but it is only just below its long-term average.

Long-term returns are what that matters to most investors, and on that basis disappointment is likely to await anyone buying stocks. The most popular measure of long-term valuation is the cyclically-adjusted P/E (CAPE). Buying the index when this is historically cheap typically leads to well above-average 10-year returns, and vice-versa.

The CAPE has fallen, but still remains in the top 90% of all its readings. This is the same for other measures of long-term value, such as Tobin’s Q (the ratio between a firm’s market cap and the replacement cost of its assets), and the price-to-sales ratio. Buffet’s famed, favorite measure – the market cap of US equities versus GDP – also remains elevated.

Even with the equity market down over 17% from its highs, these measures remain in the top 85-90% of all their readings. This is a market far from screaming “buying opportunity of a lifetime”.

As a stock picker, you are less interested in the index averages, which can be overly influenced by the valuations of a few mega-cap stocks. As long as there are plenty of lower-valued stocks to choose from you should be happy. But that has distinctly failed to transpire so far in this bear market.

If it had, we would have seen a pronounced shift in the distribution of the P/Es of S&P500 stocks. But it is little changed to that seen at the 2022 peak. This stands in stark contrast to the 2009 bottom, when there was an unequivocal and significant shift lower in companies’ valuations, leading to a bonanza for stock pickers.

It’s hard to make the case that the stock market has bottomed until we see a broad-based and noteworthy decline in P/E ratios. And stocks are unlikely to cheapen significantly until they adequately price two major risks: inflation (and therefore rates), and earnings.

We can think about how these relate to equity prices by looking at the “Rule of 20”, which states that over the long term, the P/E ratio and the inflation rate should sum to 20. When that sum is over 20, the market is said to be overvalued, and undervalued when it is below 20.

When inflation is high, as it was in the 1970s, nominal earnings rise, so P/Es should adjust lower to take account of this. Today the Rule of 20 implies an S&P 25% lower than its current price.

That implied value is destined to fall further as inflation begins to rise again, as it looks set to do, and also as earnings fall. It bears repeating that earnings are a lagging indicator, and they will only begin to decline after the recession – which continues to look odds on, even as early as the summer – has begun.

This is not supposed to be a hard forecast for the S&P, but when the gap between the rule-implied and the actual index level is as large as it is today, it gives a strong indication of the market’s direction of travel.

Despite risks from inflation and recession, investors are being offered scant margin to hold stocks, with the equity risk premium near the lows it reached in the aftermath of the GFC.

Still, the value sector has had one its best runs for fifteen years, outperforming the hitherto go-go growth sector for most of the last two-and-a-half years.

It should continue to do well, especially due to the generally low duration of value stocks, a sine qua non in an inflationary world. But until there is a re-rating lower in stocks across the board, it will be tougher to build portfolios of cheap, quality companies that have the potential to post strong, long-term returns. Stock pickers should bide their time for cheaper valuations ahead.

Tyler Durden
Tue, 02/28/2023 – 08:30

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S&P Futures Rise Above 4,000 On Last Day Of Turbulent Month

S&P Futures Rise Above 4,000 On Last Day Of Turbulent Month

US stock futures rebounded on the last day of a turbulent month for stocks which saw much of the January gains wiped out, and even with S&P futures inching above 4000 the S&P 500 was on course to post a monthly decline as investor fears about a hawkish Fed response to sticky inflation prevailed. Contracts on the Nasdaq 100 and the S&P 500 rose 0.4% at 7:45 a.m. ET; the S&P 500 is set for a drop of more than 2% in February, trimming a sharp rally last month. Bonds sank in the wake of reports that showed accelerating inflation in France and Spain. The dollar reversed earlier gains and crypto rose.

Among notable movers in premarket trading, Zoom jumped after the video-conferencing software company issued an outlook for adjusted earnings that was much stronger than expected. Workday Inc. dropped after results, with analysts saying that the payroll software company’s outlook for subscription growth was cautious. Target rose after results beat expectations and Chevron expanded its stock buyback plans. Here are all the notable premarket movers:

  • Chevron shares gain 1.3% as the company increased its annual rate of share buybacks in a show of confidence in its cash-generation goals.
  • Dish Network Corp. shares are down 4.5% after BofA downgraded the satellite television company by two notches.
  • Hims & Hers Health gains 9.1% after the health-care software solutions company posted 4Q results and 2023 guidance that beat estimates.
  • Norwegian Cruise shares tumble about 6% after the company’s adjusted loss per share and adjusted Ebitda loss were worse than analysts expected in the fourth quarter. Peers Royal Caribbean (RCL) and Carnival (CCL) are trading about 1% lower.
  • Olaplex falls 15% after the maker of hair-care products issued weaker-than-expected forecasts for net sales and adjusted Ebitda for the current year, projecting that 2023 will be a “reset year.”
  • Progyny jumps 16% after forecasting 1Q revenue that beat the average of analysts’ estimates.
  • Tesla shares gain 2.2% as the electric carmaker closes in on the market capitalization of Berkshire Hathaway Inc. — the fifth most-valuable company in the S&P 500.
  • Target Corp. rises 1.3% after turning in a strong fourth-quarter performance, but the company offered a cautious financial forecast for this year as the retailer contends with shaky demand for discretionary goods.
  • Workday shares decline 2.4%, with analysts noting the payroll software company’s cautious outlook for subscription growth, defying expectations for a stronger outlook.
  • Zoom Video shares gain nearly 7% after the video-conferencing software company reported fourth-quarter results that beat expectations and gave an outlook for adjusted earnings that was much stronger than expected.

After a strong start to the year, demand for US stocks has tapered in February as data showed inflation remained elevated, raising fears that the Fed would keep interest rates higher for longer. The first quarterly decline in corporate earnings since 2020 has also hit risk sentiment. “The more upbeat sentiment that kicked off the week is ebbing away, with investors refocusing on risks ahead for the global economy,” said Susannah Streeter, head of markets at Hargreaves Lansdown.

Both US and European stocks ended last week with their biggest five-day drop this year on concern that central banks will ramp up their battle on inflation seemingly invulnerable to aggressive policy. Positioning data shows investors becoming more pessimistic as they amass short bets in both US and European equity futures, according to Citigroup strategist Chris Montagu who said investor sentiment toward stocks was starting to become pessimistic as they built short bets on S&P 500 futures last week. Other market strategists including Michael Wilson at Morgan Stanley have also warned that equities could see pressure in March from faltering earnings and higher valuations.

“Equity markets are not appreciating the macro challenges ahead,” said Wei Li, global chief investment strategist at BlackRock Inc. “That is not to say we cannot have shorter term bouts of rally, like what we saw in January, driven by technical factors, driven by FOMO.”

European stocks are in the red but off their worst levels with the Stoxx 600 down 0.1%. Healthcare and construction are the worst performing sectors while banks and insurance rise.  European bond yields climbed as investors digested hotter-than-expected inflation prints in France and Spain, prompting traders to crank up wagers for the ECB deposit rate to hit 4% for the first time, sending the yield on two-year German debt to the highest since 2008. Here are the most notable European movers:

  • Monte Paschi falls as much as 13% after French insurer Axa launched a private placing of about 100 million shares through an accelerated book-building process at a price of €2.33 per share
  • Bayer shares slide 5.2% after the global agriculture and pharmaceutical company’s earnings outlook fell short of estimates due to declining prices for crop products
  • Ocado shares drop as much as 10% after the online grocer reported a full-year pretax loss that was bigger than analysts expected
  • Adecco shares drop as much as 3.6% following the staffing company’s fourth- quarter results, with analysts highlighting the impact of higher costs and potential for downgrades to consensus estimates
  • Travis Perkins shares drop as much as 8.7%, the most intraday since August, after the UK builders’ merchant’s full-year results missed expectations
  • Banco Santander shares gain as much as 3.2% after the Spanish lender unveiled a new 2023-2025 plan as it hosts an investor day in London on Tuesday
  • Man Group Plc shares surge as much as 11%, their biggest jump since March 2020, after the world’s largest publicly traded hedge fund defied the gloom in the industry
  • St James’s Place shares rise as much as 3.8% in early trading after the UK wealth manager’s underlying profit topped expectations
  • Worldline shares rise as much as 3.4% as Morgan Stanley raises the French payments company to overweight from equal-weight, saying it offers an “attractive and defensive growth” outlook
  • Saipem advances as much as 6.2% before paring some gains as the Italian oil-drilling specialist posted above- consensus guidance for 2023 after fourth-quarter Ebitda beat expectations

Asian stocks were headed for their worst month since September as a repricing of the Federal Reserve’s policy and an evaporating China rally weighed on the region. The MSCI Asia Pacific Index fell as much as 0.5% on Tuesday, driven by consumer discretionary and communication shares. Hong Kong stocks declined the most even as the city said it will end its mask mandate. A late afternoon surge helped Chinese shares close in the green.  The regional stock measure has fallen more than 6% in February, erasing a bulk of January’s advance. Catalysts appear stretched amid concerns over global monetary policy, while China investors await a key meeting of the nation’s political leaders starting this weekend for further clues.

Investors have moved to price in a peak Federal Reserve rate of 5.4% amid elevated US inflation, pressuring riskier assets including those in Asian emerging markets.  “It seems a lot of traders are not confident” as the economy still looks too strong for disinflation trends to resume, Edward Moya, a senior market analyst at Oanda, wrote in a note. ​“The Fed has a lot more work to do and that should be a difficult environment for stocks.”

Japanese equities trimmed earlier gains amid cautious sentiment as investors came to terms with further rate hikes by the Federal Reserve.  The Topix was little changed as of market close Tokyo time, paring most of its 0.4% advance. The Nikkei rose less than 0.1% to 27,445.56.  Services were the biggest boost to the Topix among industry groups. Oriental Land contributed the most to the advance, rising 3.5%.  US Business Equipment Orders Increase by the Most in Five Months “While stocks in Japan rose following US peers, the market is still cautious about the outlook,” said Shogo Maekawa, a global market strategist at JP Morgan Asset Management. “If US economic indicators continue to exceed market expectations and interest rates rise, that will create headwinds for both US and Japanese stocks.”

Australian stocks advanced; the S&P/ASX 200 index rose 0.5% to close at 7,258.40, reclaiming some of Monday’s decline as miners and energy stocks climbed. Even with Tuesday’s advance, the benchmark notched a 2.9% monthly loss. Disappointing earnings results and worries over the Fed’s outlook weighed on the gauge in February. In New Zealand, the S&P/NZX 50 index rose 0.9% to 11,894.58

In FX, the Bloomberg Dollar Spot Index was little changed as the greenback traded mixed against its Group-of-10 peers, and Treasury yields inched up; the British pound is the best performer among the G-10’s, rising 0.1% versus the greenback.  One-month risk reversals in the Bloomberg Dollar Spot Index remain under pressure in the past couple of weeks and point to a bearish correction, yet long-term bets suggest this will be short-lived. Here is the full FX scoreboard:

  • The euro swung from a day low of 1.0582 to touch a high of $1.0625 following strong inflation readings from France and Spain. Euro-area bonds slid as traders bet the ECB will raise interest rates to a record high of 4%.
  • The pound led G-10 gains, climbing against both the dollar and the euro for a second day as Prime Minister Rishi Sunak’s post-Brexit deal for Northern Ireland provided support. Gilts fell as traders raised tightening bets as much as 5bps, wagering on a 4.89% terminal rate by November.
  • The Australian dollar erased Monday’s gain as broad greenback strength outweighed strong local economic data. Australian retail sales rebound, rising 7.5% from a year ago in sign of consumer resilience and keeping pressure on RBA. Bonds held opening gains.
  • The yen was among the worst G-10 performers and most Japanese government bonds gained, flattening the yield curve, as concern eased that the BOJ will change its stimulus program any time soon.

In rates, treasuries are slightly cheaper across the curve, following wider losses across core European rates after French and Spanish inflation data surprised to the upside, causing a new wave of hawkish repricing for ECB policy rate. US 10-year yields around 3.95%, cheaper by ~3bp vs Monday’s close, with bunds and gilts underperforming by ~4.5bp and ~1.3bp in the sector; front-end slightly outperforms, steepening 2s10s spread by 1bp on the day. Following France, Spain inflation data, euro-zone front-end repriced for a peak ECB rate of 4% for the first time. Bund futures fell; German 10-year yields are up 6bps on the day while two-year yields climb 8bps.  Focal points of US session include potential for month-end flows and a packed economic data slate.   

In commodities, oil was set for a fourth straight monthly decline as concerns about tighter monetary policy and swelling stockpiles in the US eclipsed optimism about rising demand in China. Crude future advance with WTI rising 1.1% to trade near $76.50; Gold headed for its worst month since the middle of 2021, and on Tuesday fell roughly 0.4% to trade near $1,810.

Looking at today’s calendar, US economic data slate includes January advance goods trade balance and wholesale inventories (8:30am New York time), 4Q house price purchase index and December FHFA house price index and S&P Case- Shiller home prices (9am), February MNI Chicago PMI (9:45am), Richmond Fed manufacturing index, consumer confidence (10am) and Dallas Fed services activity (10:30am). From central banks, we’ll hear from the Fed’s Goolsbee, the ECB’s Vujcic, and the BoE’s Cunliffe, Pill and Mann. Finally, earnings releases include Target.

Market Snapshot

  • S&P 500 futures down 0.2% to 3,978.75
  • STOXX Europe 600 down 0.4% to 460.78
  • MXAP down 0.4% to 157.58
  • MXAPJ down 0.4% to 510.36
  • Nikkei little changed at 27,445.56
  • Topix little changed at 1,993.28
  • Hang Seng Index down 0.8% to 19,785.94
  • Shanghai Composite up 0.7% to 3,279.61
  • Sensex down 0.6% to 58,944.15
  • Australia S&P/ASX 200 up 0.5% to 7,258.40
  • Kospi up 0.4% to 2,412.85
  • German 10Y yield little changed at 2.65%
  • Euro little changed at $1.0616
  • Brent Futures up 0.7% to $83.02/bbl
  • Gold spot down 0.3% to $1,811.43
  • U.S. Dollar Index little changed at 104.66

Top Overnight News from Bloomberg

  • Incoming Bank of Japan (BOJ) Deputy Governor Shinichi Uchida on Tuesday brushed aside the chance of an immediate overhaul of ultra-loose monetary policy, suggesting that any review of its policy framework could take about a year. RTRS
  • Investors and traders continue to ramp up their bullish bets on the yen, with one eye firmly fixed on looming Bank of Japan management changes: BBG
  • Ukraine’s head of military intelligence downplays talk of China supplying arms to Russia, saying he saw “no signs that such things are even being discussed”. SCMP
  • Apple’s suppliers are likely to shift production capacity out of China far faster than many anticipate given deteriorating relations between Washington and Beijing. BBG
  • Euro-area bonds slid and traders bet the ECB will raise interest rates to the highest level on record amid signs inflation in some of the region’s biggest economies is not coming under control. Data showed French and Spanish inflation unexpectedly accelerated to an all-time high in February, spurring money-markets traders to fully price a 4% ECB terminal rate, which would exceed a peak in borrowing costs seen more than two decades ago. That compares to 3.5% expected at the start of the year, with traders now betting the ECB will keep raising rates through February 2024. BBG
  • Euro zone inflation pressures have begun to ease, including for all-important core prices, but the European Central Bank will not end rate hikes until it is confident price growth is heading back towards 2%, ECB Chief Economist Philip Lane said. RTRS
  • The ECB might hold borrowing costs at a high level for some time once they reach their peak, according to Chief Economist Philip Lane: BBG
  • Credit Suisse “seriously breached” risk management obligations in the Greensill affair, the Swiss banking regulator said as it opened enforcement proceedings against four unnamed former managers. Remedial measures include regular executive board-level reviews of key relationships for counterparty risks and recording the responsibilities of its 600 highest-ranking employees. BBG
  • META’s new AI-driven Advantage+ tool, designed to overcome Apple’s privacy restrictions, is “significantly boosting the performance of advertising campaigns”. FT
  • Chevron rose premarket after it raised its annual buyback rate to $17.5 billion beginning in the second quarter, up from a previously planned $15 billion. BBG
  • The Swiss economy unexpectedly failed to grow in the final months of 2022 as manufacturing output contracted and exports weighed on momentum. Separately, Switzerland’s KOF Economic Leading Indicator rose more than economists expected in February, to 100 versus estimate 98.0: BBG
  • The BOJ should take time over any future review if it undertakes one, according to deputy governor nominee Shinichi Uchida, a key engineer of the central bank’s easing program: BBG

A more detailed look at global markets courtesy of Newsquawk

APAC stocks eventually traded mixed heading into month-end and despite the early momentum from the positive close on Wall St where risk sentiment benefitted as yields softened amid mixed data. ASX 200 was led by strength in the mining-related industries and after mostly encouraging data releases including a stronger-than-expected rebound in retail sales. Nikkei 225 initially gained amid the upper house confirmation hearings where the BoJ Deputy nominees reiterated the need to continue monetary easing, although the gains were gradually pared as participants also digested mixed data including the largest monthly decline in industrial production in 8 months. Hang Seng and Shanghai Comp. failed to sustain opening advances despite a substantial liquidity injection and reports the White House is scaling back plans to regulate US investments in China.

Top Asian News

  • PBoC injected CNY 481bln via 7-day reverse repos at 2.00% for a CNY 331bln net injection.
  • White House is scaling back plans to regulate US investments in China with US President Biden expected to forego expansive new restrictions on American investment in China, according to Politico.
  • White House gave federal agencies 30 days to ensure they have TikTok bans on federal devices and systems, while it directed federal agencies to adjust contracts to ensure IT vendors keep US data safe by eliminating the use of TikTok on devices and systems, according to Reuters.
  • BoJ Deputy Governor nominee Uchida reiterated that the BoJ needs to continue monetary easing for the time being to support the economy and shouldn’t review easy monetary policy just because there are side effects. Uchida added the BoJ will conduct policy flexibly and will firmly continue monetary easing to lay the ground for companies to raise wages, while he added that it is too early to seek an exit from monetary stimulus and that widening the yield target band itself would weaken effects of easing.
  • BoJ Deputy Governor nominee Himino said NIRP has negative impacts on financial institutions’ profits and that they must be mindful of the impact to banks from negative rates but the focus now should be on keeping easy policy to support the economy. Himino stated that if conditions fall in place for BoJ to exit easy policy, that would be good for both the public and banks but added that the best approach is to support the economy with easy policy until inflation can achieve the BoJ’s price target excluding the impact of import price increases.

European bourses are mixed/flat, Euro Stoxx 50 +0.1%, as the initial pressure from hot French/Spanish inflation readings has eased through the morning. Sectors, are mixed with Banking/Financial names outperforming as yields lift alongside specific stock updates. Stateside, futures are little changed overall with the morning’s action moving in-tandem with European performance ahead of earnings/Fed speak, ES +0.1% Foxlink, an Apple (AAPL) supplier, will not be able to resume full operations at its India plant for two months following a fire, via Reuters citing sources. Apple could potentially face disruptions in supply chain for iPhones due to Foxlink incident. Chevron (CVX) reaffirms higher returns and lower carbon objectives, lifts share buyback guidance to USD 10-20bln/year; increases targeted annual share buyback rate to USD 17.5bln from Q2. Apple (AAPL) probe by Brussels into the Co.’s restriction of certain apps has been narrowed, according to FT sources. The US is to prevent businesses from using cash for buybacks in the CHIPS Act, according to the Commerce Department; Additionally, cannot make new, high-tech investments in China or other “countries of concern” for at least a decade. A release that is in-fitting with recent press reports.

Top European News

  • ECB’s Lane says positive supply shocks since December and rate hikes have curbed inflationary pressures, forward looking indicators for food, energy and goods suggests inflation slowdown. Rate plateau should be held for some time, rates could be in restrictive territory for a number of quarters; hikes to end when it is clear inflation is heading to target.
  • Northern Ireland DUP leader Donaldson says the Stormont Break in the Northern Ireland deal at first glance does give Stormont the ability to apply the break. Continue to have some concerns with the deal.
  • EIB President proposes a new fund to see off US subsidies, via Der Spiegel; concerned that entire industries will migrate to the US given the subsidies on offer there.

FX

  • The DXY is firmer on the session, though remains closer to its 104.57 trough then the 104.90 high, a low that printed in wake of shortlived EUR upside following February flash CPI metrics from France/Spain.
  • Specifically, the price points lifted EUR/USD to a 1.0625 peak, though this has proved shortlived as the USD remains resilient and given unfavourable EUR/GBP action as the mood-music re. N. Ireland remains positive, on balance.
  • As such, GBP is the G10 outperformer with Cable testing the 1.21 mark vs a 1.2028 base following a favourable face-value take from DUP’s Donaldson; though, sources indicate the parties’ review could potentially take weeks.
  • JPY is the G10 laggard given unfavourable yield action and more dovish remarks from the BoJ deputy nominees; USD/JPY at the top-end of 136.12-84 parameters.
  • PBoC set USD/CNY mid-point at 6.9519 vs exp. 6.9515 (prev. 6.9572)

Fixed Income

  • Debt futures fade after the latest dead cat bounce and curves re-steepen.
  • Bunds hit a fresh 132.51 cycle low, Gilts down to 99.38 and T-note retreats within 111-21+/10 range, solid 2025 German auction, albeit after heavy concession helps Schatz pare some losses between 115.52-114.95 parameters.
  • JGBs outperform after more dovish testimony from BoJ nominees and decent 2 year sale.

Commodities

  • WTI and Brent are firmer on the session and currently reside at the top-end of narrow circa. USD 1/bbl parameters which are just about within Monday’s range, with newsflow limited and the complex seemingly continuing to consolidate.
  • Japan plans to emphasise the importance of investments into natgas, LNG, hydrogen and ammonia during its G7 presidency, according to a METI official.
  • LME announces immediate suspension of warranting, applicable to LME-listed warehouses located in the US of any new primary aluminium, copper, lead, nickel or aluminium alloy (in form of NASAAC). Currently Russian NASAAC on warrant, 400/T, in LME-listed warehouses within the US. Suspending use of such warrants for use in settlement of LME NASAAC futures.
  • Spot gold is a touch softer on the session as initial USD-induced upside has faded as the index moves back into positive territory, albeit only modestly so; more broadly, base metals are mixed given the USD’s resilience and inflation metrics weighing.

Geopolitics

  • Kremlin spokesperson Peskov said Russia will not resume participation in START talks until Washington listens to Moscow’s position, while he added that NATO no longer acts as Russia’s conditional opponent but as an enemy.
  • Russian Defence Ministry said the US is planning provocation in Ukraine using toxic chemicals, according to TASS.
  • Russian domestic flights heading for St Petersburg are reportedly turning around, via Reuters citing a flight radar tracking site; Pulkovo airport has been closed to air traffic, due to an unidentified object with fighter jets responding, via BAZA. Airspace around the airport has subsequently reopened.
  • Russian Defence Ministry says Ukraine attempted to attack two Russian regions with drones overnight, via Ria.

US Event Calendar

  • 08:30: Jan. Wholesale Inventories MoM, est. 0.1%, prior 0.1%
    • Jan. Retail Inventories MoM, est. 0.1%, prior 0.5%
  • 08:30: Jan. Advance Goods Trade Balance, est. -$91b, prior -$90.3b, revised -$89.7b
  • 09:00: Dec. S&P CS Composite-20 YoY, est. 4.75%, prior 6.77%
    • Dec. S&P/CS 20 City MoM SA, est. -0.40%, prior -0.54%
    • Dec. FHFA House Price Index MoM, est. -0.2%, prior -0.1%
  • 09:45: Feb. MNI Chicago PMI, est. 45.5, prior 44.3
  • 10:00: Feb. Richmond Fed Business Conditions, prior -10
    • Feb. Richmond Fed Index, est. -5, prior -11
  • 10:00: Feb. Conf. Board Consumer Confidence, est. 108.5, prior 107.1
    • Feb. Conf. Board Present Situation, prior 150.9
    • Feb. Conf. Board Expectations, prior 77.8

Central Bank Speakers

  • 14:30: Fed’s Goolsbee Speaks at Community College

DB’s Jim Reid concludes the overnight wrap

Regular readers won’t be surprised to learn that I have a new injury. As soon as I was fit to resume normal activities after my recent back operation I went back to weights. I only do this to be better at golf. In my first couple of sessions back 2 weeks ago, I overdid the bench press and to cut a long story short I now have a rhomboid muscle strain or tear. I’ve stupidly tried to continue playing golf with it and have made it worse. I’m now in a lot of pain and probably out from golf for a few weeks. I come away from it wishing that my mid-life crisis was more skewed towards fast cars, tattoos, or a hair transplant rather than golfing ambitions.

After a rough three weeks for equities, bonds and my shoulder, markets have started this one off in a better mood so far as we hit the last day of the month today. That’s a sixth of the year nearly gone! They have edged higher thanks to a positive round of US data, whilst pricing for the Fed’s terminal rate remained stable after a sustained stretch higher over recent days. This in turn gave markets a clearer run to positively respond to the data across bonds and equities.

Things had looked quite different earlier in the day. In fact, at one point the 10yr Treasury yield reached its highest intraday level since November at 3.977%, before moving lower in the US morning, and ultimately closing -2.9bps lower at 3.914%. In the meantime, expectations of the terminal rate had likewise been on track to hit a new closing high and moved as high as 5.43% intraday, before ending the session little changed at 5.404%.

In risk markets, positive US data without a rates repricing helped, with core capital goods orders up by +0.8% in January (vs. unch expected). On top of that, there was further evidence that housing activity might have bottomed, since pending home sales were up +8.1% in January (vs. +1.0% expected), which leaves the index at its highest level since August. However note that mortgage rates have gone back up in February so we’ll see how strong the nascent housing recovery is.

For equities, the S&P 500 (+0.31%) posted a steady advance led by cyclical and growth sectors. The NASDAQ (+0.63%) outperformed, and the FANG+ index (+1.51%) saw an even larger advance thanks to a solid gain from Tesla (+5.46%) which ended the day as the 4th best performer in the entire S&P 500. Defensives lagged, as bond-proxies such as utilities (-0.77%) and food staples (-0.54%) were the worst performing industries. Meanwhile in Europe, the STOXX 600 (+1.07%) posted a decent broad-based recovery. Every sector of the index was higher, but like with the US, defensives lagged their more cyclical peers.

The exception to the pattern of positive data came from the Dallas Fed’s manufacturing index for February, which came in at -13.5 (vs. -9.3 expected). Notably, there were also increases in the prices paid and prices received components, with both hitting a 5-month high. That topic of inflationary pressures in February is likely to stay in the spotlight today, since this morning we’ve got the flash releases from France, Spain and Portugal, ahead of the Euro Area-wide release on Thursday. Remember that our European economists expect Euro Area core inflation to hit a new record of +5.5%, although they see headline inflation coming down a bit further to +8.4%, which would be a 4th decline since the +10.6% peak back in October.

This concern about inflation meant that European markets performed a bit differently to the US yesterday, with sovereign bond yields rising to fresh highs in several countries. For instance, the 10yr bund yield (+4.5bps) closed at its highest level since 2011, ending the day at 2.582%. And in the UK, the 10yr gilt yields was up +14.6bps to 3.805%, marking its highest level since Liz Truss was still PM back in October. Those moves came as investors continued to price in a more hawkish policy path for the ECB, building on the shift over recent weeks. Indeed, overnight index swaps are now pricing in no rate cuts at all in 2023, and by the December meeting they’re now pricing in +137bps of further hikes.

That repricing of the ECB’s rate path was seemingly endorsed by Croatia’s Vujcic yesterday, who said that the repricing reflected the ECB’s moves, and that markets were right to price in 50bps next time as they’d indicated. He also said that as long as core inflation persisted, then the ECB must persevere. Meanwhile at the Fed, the only major speaker was Governor Jefferson (who previously spoke on Friday), but he offered little new information on the policy side. One thing he did say was that raising the Fed’s inflation target could hurt their credibility, and pointed out that the outlook for core services ex housing inflation (which Chair Powell has said they are following) remained uncertain. Yet in spite of his reiteration of the 2% goal, short-term US inflation expectations continued to move higher yesterday, with the 2yr breakeven (+3.4bps) hitting a fresh 6-month high of 3.088%. In a WSJ interview published yesterday, Cleveland Fed President Mester seemed to imply that the threshold to go back to 50bps hikes would be high. She noted that “this is a different situation now. We’ve already reduced it to 25 (basis points). That’s going to be part of the consideration.” However, she noted that the more pertinent discussion for the FOMC in March will be just how much further the policy rate needs to go.

Overnight in Asia, major benchmarks are trying to catch up with yesterday’s price action in the US, with the Kospi (+0.64%) and the Hang Seng (+0.41%) outpacing the Nikkei (+0.13%) and the Shanghai Composite (+0.07%). US futures are also in the green, led by the Nasdaq 100 (+0.18%) while the S&P 500 is flat (+0.01%). The 10y yield is marginally higher (+1.2bps), mirroring the move in the 2y (+1.5bps).

Back here in the UK, sterling strengthened (+1.00%) after the government reached a deal with the EU over the Northern Ireland Protocol, which has been the most contentious part of the original Brexit deal. In essence, the Protocol was designed to avoid a hard border between Northern Ireland and the Republic of Ireland, but in doing so placed checks on goods moving into Northern Ireland from the rest of the UK, whilst Northern Ireland also remained aligned with the EU single market for goods. This has been opposed by unionists in Northern Ireland, who see the Protocol as placing an economic border with the UK, and the DUP (the largest unionist party there) have refused to enter a power-sharing agreement in Northern Ireland because of it.

When it comes to the new agreement, it removes checks on goods that move from Great Britain into Northern Ireland that remain within the UK. It also enables VAT and excise changes to apply on a UK-wide basis in future, including to Northern Ireland. And a new mechanism was introduced that will allow the devolved Northern Ireland Assembly to decide whether or not changes to EU goods rules affecting Northern Ireland should apply. If this brake is pulled, the UK government would have a veto over the application of a new EU rule. Leader of the DUP, Jeffery Donaldson said his party needed to go over the finer points of the agreement over the next few days, but that “in broad terms it is clear that significant progress has been secured across a number of areas.”

To the day ahead now, and data releases include French CPI for February, Canada’s Q4 GDP, and in the US there’s the FHFA house price index for December, the Conference Board’s consumer confidence index for February, the MNI Chicago PMI for February, and the Richmond Fed’s manufacturing index for February. From central banks, we’ll hear from the Fed’s Goolsbee, the ECB’s Vujcic, and the BoE’s Cunliffe, Pill and Mann. Finally, earnings releases include Target.

Tyler Durden
Tue, 02/28/2023 – 08:17

via ZeroHedge News https://ift.tt/zvWFMJb Tyler Durden

What is at Stake in Florida Higher Ed Reform Bill?

Over in Chronicle of Higher Education, I have a new piece examining HB 999 in the Florida legislature and its implications for the future of Republican politics around higher education.

From the piece:

State universities have never been perfectly independent from political pressure. They are ultimately creatures of the state and dependent on the good graces of political leaders. But American universities have long enjoyed a significant degree of freedom from political meddling in academic affairs, and that insulation from politics has allowed public universities to become intellectual powerhouses.

That long-lived arrangement may be nearing an end in many red states. It is hard to know where this newfound willingness to micromanage state universities will lead, but it would be a radical departure from the past. If conservatives are concerned that the intellectual environment at universities has become too stifling, this program of reform may provide a cure that is at least as bad as the disease.

Read the whole thing here.

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Teachers Union: Oppose Bill Mandating Teaching Dangers of Communism Because Many Communist Countries Are Asian

From Fox News (Bradford Betz) last week:

Virginia Democrats last week rejected a bill that would have required schools to teach about the dangers and victims of communism after the state’s largest teachers union argued that it may encourage anti-Asian sentiment.

Emily Yen, a research coordinator for the Virginia Education Association (VEA), said the union opposed HB 1816 because four out of five current communist regimes are in Asian countries.

“We are concerned that this bill would subject Asian-American students to anti-Asian sentiments,” she said.

Today the five remaining communist regimes are China, Laos, North Korea, and Vietnam—all in East Asia—as well as Cuba, which is in the Caribbean.

The proposed bill would have required public schools to “suitably observe[] Nov. 7 as Victims of Communism Day”; would have taken the existing provision that, “The Board of Education shall include in the Standards of Learning for history and social science the study of contributions to society of diverse people” (with “diverse” defined to “include[] consideration of disability, ethnicity, race, and gender”), and added “and the study of the dangers of communism”; and would have required school boards to include that in part of the curriculum that they developed.

That seems reasonable to me: Teaching about the dangers of communism strikes me as comparably important to teaching about the dangers of, say, Nazism—which I presume Virginia schools do in the history of World War II—or specifically about the Holocaust, which I understand Virginia schools are also required to do. “Those who do not remember the past are condemned to repeat it.” Naturally, any such teaching should be done honestly and thoughtfully, as real history rather than propaganda; but it sounds like an important lesson that Virginia students should learn.

But whatever you might think of whether this should be mandated by state educational standards, the Virginia Education Association’s argument quoted above is ridiculous. Of course, any history of the dangers of communism would talk about the atrocities of European (Russian-led) Communism at least as much as of Asian Communism, and would note that the victims of Asian Communism were overwhelmingly themselves Asian (as the victims of European Communism were overwhelmingly themselves European).

But beyond that, history is history, and needs to be taught regardless of whether some fools do racist things because of it. Are we going to stop learning about World War II or 9/11 because those might lead to attacks on Japanese-Americans or American Muslims? No, wait, let’s not give anyone any ideas ….

In any event, I decided to check to make sure that the VEA spokeswoman’s statements were quoted correctly. Here’s the answer from her:

There are several peer-reviewed research studies suggesting that Asian American students have faced an increased amount of racial discrimination since the start of the pandemic. Since China, Laos, Vietnam, North Korea, and Cuba are the only countries that currently have communist regimes, there is a strong association between communism and Asians. One of the reasons the Virginia Education Association opposed HB 1816 was out of concern that students of Asian descent would be subjected to additional anti-Asian sentiment.

For more examples of this, see the China Kinda Sus incident (Emerson College) and the Univ. of San Diego Law School Investigating Professor for Post Critical of China incident. Thanks to Prof. Glenn Reynolds (InstaPundit) for the pointer.

The post Teachers Union: Oppose Bill Mandating Teaching Dangers of Communism Because Many Communist Countries Are Asian appeared first on Reason.com.

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