Month: July 2024

Authored by Lance Roberts via RealInvestmentAdvice.com,

With both economic and inflation data continuing to weaken, expectations of Fed rate cuts are rising. Notably, following the latest consumer price index (CPI) report, which was weaker than expected, the odds of Fed rate cuts by September rose sharply. According to the CME, the odds of a 0.25% cut to the Fed rate are now 90%.

Since January 2022, the market has repeatedly rallied on hopes of Fed cuts and a return to increased monetary accommodation. Yet, so far, each rally eventually failed as economic data kept the Federal Reserve on hold.

However, as noted, the latest economic and inflation data show clear signs of weakness, which has bolstered Jerome Powell’s comments that we are nearing the point where Fed rate cuts are warranted. To wit:

“Major indexes rose as Federal Reserve Chair Jerome Powell spoke to a House committee after his first day of congressional testimony on Tuesday inched the Fed closer to lowering interest rates. In his testimony this week, Powell pointed to a cooling labor market and suggested that further softening might be unwelcome.”

Following those comments, the financial markets cruised to new highs. This is unsurprising since the last decade taught investors that stocks rally when the Fed “eases” financial conditions. Since 2008, stocks are up more than 500% from the lows. The only exceptions to that rally were corrections when the Fed was hiking rates.

Given recent history, why should investors not expect a continued rally in the stock market when Fed rate cuts begin?

Fed Rate Cuts And Market Outcomes

One constant from Wall Street is that “buy stocks” is the answer no matter what the question. Such is the case again as Fed rate cuts loom. The belief, as noted, is that rate cuts will boost the demand for equities as yields on short-term cash assets fall. However, as Michael Lebowitz pointed out previously in “Federal Reserve Pivots Are Not Bullish:”

“Since 1970, there have been nine instances in which the Fed significantly cut the Fed Funds rate. The average maximum drawdown from the start of each rate reduction period to the market trough was 27.25%.

The three most recent episodes saw larger-than-average drawdowns. Of the six other experiences, only one, 1974-1977, saw a drawdown worse than the average.”

Given that historical perspective, it certainly seems apparent that investors should NOT anticipate a Fed rate-cutting cycle. There are several reasons why:

1. Rate cuts generally coincide with the Fed working to counter a deflationary economic cycle or financial event.

2. As deflationary or financial events unfold, consumer activity contracts, which impairs corporate earnings.

3. As corporate earnings decline, markets must reprice current valuations for lower earnings.

The chart below shows corporate earnings’ deviation from long-term exponential growth trends. You will note that the earnings deviation reverts when the Fed cuts rates. Therefore, while analysts are optimistic about earnings growth going into 2025, a Fed rate-cutting cycle will likely disappoint those expectations.

More interestingly, the worse the economic data is, the more bullish investors have become in their search for that policy reversal. Of course, as noted, weaker economic growth and lower inflation, which would coincide with a rate-cutting cycle, do not support currently optimistic earnings estimates or valuations that remain well deviated above long-term trends.

Of course, that valuation deviation directly resulted from more than $43 Trillion in monetary interventions since 2008. The consistent support of any market decline trained investors to ignore the fundamental factors in the short term. However, as the Fed cuts rates to stave off a disinflationary or recessionary environment, the collision of economic realities with optimistic expectations has tended to turn out poorly.

Time To Buy Bonds?

One asset class stands out as an opportunity for investors to shelter during a Fed rate-cutting cycle: Treasury bonds. Notably, we are discussing U.S. Government Treasury bonds and not corporate bonds. As shown, during disinflationary events, economic recessions, and credit-related events, Treasury bonds benefit from the flight to safety, while corporate bonds are liquidated to offset default risks.

As stock prices fall during the valuation reversion proceeds, investors tend to look for a “safe harbor” to shelter capital from declining values. Historically, the 10-year Treasury bond yield (the inverse of bond prices) shows a very high correlation to Federal Reserve rate changes. That is because while the Fed controls the short end of the yield curve, the economy controls the long end. Therefore, longer-term yields respond to economic realities as the Fed cuts rates in response to a disinflationary event.

Could this time be different? Sure, but you are betting on a lot of historical evidence to the contrary.

While the hope is that the Fed will start dropping interest rates again, the risk skews toward stocks. As noted, the only reason for Fed rate cuts is to offset the risk of an economic recession or a financially related event. The “flight to safety” will cause a rate decline in such an event. The previous rise in rates equated to a 50% reduction in bond prices. Therefore, a similar rate reversion could increase bond prices by as much as 70% from current yields.

In other words, the most hated asset class of the last two years may perform much better than stocks when the Fed cuts rates.

Therefore, as we approach the first Fed rate cut in September, it may be time to consider reducing equity risk and increasing exposure to Treasury bonds.

 

Hugo Boss tumbled as much as 10% to its lowest levels since 2021 on Tuesday after the luxury German clothing manufacturer slashed its full-year outlook. The company cited sliding demand for luxury goods due to “persistent macroeconomic and geopolitical challenges” and mounting “headwinds” across two key markets, the UK and China. 

The German premium-fashion company warned that its financial outlook for 2024 faces “persistent macroeconomic and geopolitical challenges that are dampening global consumer demand.” 

“These headwinds contributed to a further slowdown of industry growth, affecting the top- and bottom-line performance of HUGO BOSS in the second quarter,” the company said, adding, “The overall market environment remained particularly challenging in key markets such as the UK and China.” 

According to Hugo Boss’s preliminary second-quarter results and full-year outlook statement, it now expects full-year sales of up to 4.35 billion euros, down from a previous forecast of up to 4.45 billion euros. 

Here are the key developments in the second quarter:

• Group sales decrease 1% currency-adjusted to EUR 1,015 million as challenging macroeconomic and geopolitical conditions weigh on global consumer demand

• Gross margin increases 50 basis points to 62.9% as HUGO BOSS realizes further efficiency gains in its global sourcing activities

• EBIT amounts to EUR 70 million (-42%), reflecting softer sales trends and strategic investments into the business

• Inventories improve by -7% amid ongoing tight inventory management, supporting strong free cash flow generation in Q2 of EUR 143 million (+137%) 

“We are operating in a period of significant global macro uncertainty, which also affected our performance in the second quarter,” CEO Daniel Grieder wrote in the statement. 

Grieder continued, “Although the timing of any macro recovery remains uncertain, our strategy of consistently investing in our strong brands, BOSS and HUGO, gives us confidence in our ability to continue driving above-trend growth and capturing further market share.” 

Shares of Hugo Boss plunged as much as 10% in Germany on Tuesday. That’s the lowest intraday level since April 2021. 

Here’s additional color on the preliminary results from Goldman’s Louise Singlehurst:

2Q24 Preliminary results – Sales -3% below, EBIT -36% light versus consensus expectations. Hugo Boss has pre-released preliminary 2Q24 results, reporting cFX sales declines of -1% (€1,015mn reported), below Visible Alpha Consensus Data (+2%) and GSe (+3%). EBIT in 2Q24 amounted to €70mn, significantly below cons/GSe of €110mn/€108mn, driven partly by the top-line miss and partly by higher than expected opex (marketing +21% YoY, brick and mortar costs +12%) with GP margins inline with expectations. By Channel: The overall composition of the result is soft, with the miss driven by online (-1000bps) and retail deterioration (-100bps), with wholesale broadly inline (-50bps). By Geography: All regions saw a deceleration in trends and drove the miss (-200-300bps lower).

FY24 EBIT guidance is -14% lower vs. prior midpoint: Given greater than expected macro uncertainty, the company has revised lower its reported sales growth guidance to +1-4% (+3-6% prior, cons. +4%, GSe +5%) with EBIT now expected to be between €350-430mn (prior €430-475mn, cons. €439mn, GSe €461mn). We note the updated midpoint is -14% below the prior midpoint or -11% below current FY24 consensus, with a wider range expected (€80mn vs. €45mn prior).

Balance Sheet / CF: BOSS has finished the period with a solid inventory position as a % of sales (-340bps YoY to 24.9%, vs. -330bps in 1Q24) supporting strong Working Capital benefits, and FCF generation (€143mn).

GS View: We expect market expectations were relatively low coming into the print on broader concerns around the premium consumer, with BOSS having underperformed in the last 1m (-8% vs. STOXX 600 +1%). However given BOSS revised expectations lower in March, followed by further market downgrades in May and now incrementally negative updates here, we see risk that normalising brand momentum and relatively thin margins continues to skew earnings risk to the downside. One positive remains the company’s ability to manage working capital, which gives greater FCF support in FY24 as the company moves towards medium term targets inventory to sales of <20% by 2025. 

Singlehurst remains “Neutral” on Hugo Boss.

Other Wall Street analysts offered their views on the preliminary results (courtesy of Bloomberg):

Citi (neutral)

• Analyst Thomas Chauvet says quarterly sales growth was the weakest since Daniel Grieder became CEO of Hugo Boss in June 2021, and it is first time the company has cut FY guidance during his tenure

• Would expect consensus for FY24 sales and Ebit to drop by 2% and 10% respectively, toward mid-point of revised guidance

• There had been “three years of nearly flawless execution and delivery,” but the premium casual-wear demand environment is now more subdued

Morgan Stanley (equal-weight)

• Consensus is likely to move down to at least the mid-point of the new wide range, according to Grace Smalley

• This would mean about 10% downgrade to FY24 Ebit consensus expectations, with FY25 numbers also likely to “move down meaningfully”

RBC (outperform)

• Analyst Manjari Dhar says new Ebit guidance is about 14% below prior guidance at the midpoint, seemingly in line with RBC’s bear case scenario

• Still views Hugo Boss as a good player in the premium apparel space, but notes tougher backdrop in key markets

Deutsche Bank (buy)

• While sales missed consensus by only 2% in 2Q, Ebit was “massive” miss, analyst Michael Kuhn writes

• Miss essentially due to higher than expected operating expenditure

• Likely no earnings growth for the company now in 2024

Oddo BHF (neutral vs outperform)

• 2Q Ebit significantly below expectations, writes analyst Andreas Riemann, who downgrades rating to neutral

• Brick-and mortar retail and digital both had “difficult” performance

• Growth continues in Americas, but declines in EMEA and APAC

The disappointing update comes as shares of Swiss watchmaker Swatch crashed the most in four years on Monday after the company reported a profit decline amid a slowdown in China. Also on Monday, trench coat maker Burberry suspended its dividend and replaced its CEO on a failed turnaround. 

Meanwhile, in the luxury space, all eyes are on LVMH Moet Hennessy Louis Vuitton, who will report next week. That will be a key signal on the overall health of the luxury industry.

In the US, a consumer slowdown continues to gain momentum. We have covered this extensively in the last several months via multiple Goldman notes.

Authored by Joseph Lord and Jackson Richman via The Epoch Times,

On July 15, former President Donald Trump announced that Sen. J.D. Vance (R-Ohio) was his vice presidential pick, ending months of speculation.

“After lengthy deliberation and thought, and considering the tremendous talents of many others, I have decided that the person best suited to assume the position of Vice President of the United States is Senator J.D. Vance,” former President Trump said in a Truth Social post.

Based on Mr. Vance’s published works and interviews, here are 39 things to know about the Ohio Republican who is set to share a ticket with the former president.

1. He’s 39 Years Old

Mr. Vance was born on Aug. 2, 1984. Turning 40 in August, he’s the first millennial on a major party ticket and one of the youngest vice presidential candidates in history.

2. He’s a Catholic

Mr. Vance was raised Protestant, but later converted to Catholicism, officially becoming Catholic in August 2019.

3. He’s Married to Usha Chilukuri Vance

Mr. Vance is married to Usha Chilukuri Vance, whom he met at Yale Law School. They married in 2014.

Ms. Vance currently works as a corporate litigator. She has clerked for Supreme Court Chief Justice John. Roberts and then-appellate Judge Brett Kavanaugh.

She would be the first Hindu spouse of a vice president.

4. The Couple Has 3 Children

Mr. Vance has three children: Ewan, 6, Vivek, 4, and Mirabel, 2.

5. He’s Considered a Populist Conservative

Mr. Vance is commonly considered to be a populist conservative.

His political ideology is often placed alongside the ranks of former President Trump, Sen. Josh Hawley (R-Mo.), and pro-Trump swaths of the House Freedom Caucus.

In a December 2023 interview, he described his hope to “push the Republican Party in a more pro-worker direction” and capitalize on the working-class gains made by the likes of former President Trump.

6. He Grew Up in a Lower-Class Family

Mr. Vance famously grew up in a lower-class family in Middletown, Ohio, and often experienced financial and familial hardships growing up.

7. He’s a Best-Selling Author

Mr. Vance first became well-known for his best-selling memoir, “Hillbilly Elegy,” published in 2016, which details his time growing up in poverty-stricken areas of the Rust Belt.

The book traces the drug abuse issues and financial hardships experienced by many in the white working class, and was seen by many as a primer on the population that propelled former President Trump to victory in 2016.

8. There’s a Movie Adaptation of His Book

Mr. Vance’s book was adapted into a namesake Netflix film in 2020.

9. He Experienced the Decline of the Rust Belt

In both his memoir and the movie adaptation, Mr. Vance explains his experience of the decline of the Rust Belt, and the impacts it had on those living there.

Speaking about his native Middletown, Mr. Vance wrote in Hillbilly Elegy, “There is a lack of agency here— a feeling that you have little control over your life and a willingness to blame everyone but yourself.”

He’s made clear that this experience has continued to shape his political life and decisions.

10. He Grew Up in Ohio but Considered Eastern Kentucky ‘Home’

Despite growing up in Ohio, Mr. Vance has said he considered his great-grandmother’s house in rural Kentucky as “home.”

“I always distinguished ‘my address’ from ‘my home,’” Mr. Vance wrote in Hillbilly Elegy.

“My address was where I spent most of my time with my mother and sister, wherever that might be. But my home never changed: my great-grandmother’s house, in the holler, in Jackson, Kentucky.”

11. His Parents Divorced When He was a Toddler

Mr. Vance’s parents, Donald Bowman and Bev Vance, divorced when he was very young, leaving Mr. Vance to be raised by his mother.

In “Hillbilly Elegy,” Mr. Bowman is described as having been largely absent from Mr. Vance’s life, though the two reconnected later in life.

Mr. Vance says both of his parents struggled to maintain stability in their employment, both largely worked a series of odd jobs over the years.

12. His Original Surname Was Bowman

At birth, Mr. Vance was named James Donald Bowman.

Later, Mr. Vance temporarily took on his stepfather’s surname, Hamel.

Eventually, he settled on Vance, which belonged to his mother and grandparents.

13. His Mother Suffered From Substance Abuse Issues

Mr. Vance in his book recounts in detail his mother’s struggles with opioid addiction, including heroin.

Mr. Vance notes that this is a familiar tale in Appalachia and the Rust Belt more broadly, with widespread pervasive hopelessness having become the norm for many.

His mother’s struggles with addiction shaped his childhood, contributing to an often-fractious home life.

14. He Lived With His Grandmother

The struggles of home life, compounded by his mother’s struggles with drug addiction, eventually led to Mr. Vance living with his grandmother.

His grandparents, James “Papaw” Vance and Bonnie “Mamaw” Vance, moved to Kentucky, unmarried and with child, in the 1940s, but ultimately divorced. They remained on good terms.

In his memoir, Mr. Vance credits his time living with his grandmother while he was in high school with helping him to commit to his studies and, ultimately, escape the poverty he grew up in.

15. His Grandparents Were Democrats

Like many in the Rust Belt of the late 20th century, Mr. Vance’s grandparents were pro-union Democrats.

Mr. Vance describes their attitude toward politics in “Hillbilly Elegy,” writing, “All politicians might be crooks, but if there were any exceptions, they were undoubtedly members of Franklin Delano Roosevelt’s New Deal coalition.”

Mr. Vance said the exception was 1984, when his grandfather voted for President Ronald Reagan.

16. He’s a Marine Corps. Iraq Combat vet

Mr. Vance served in Iraq as a Marine combat correspondent during the mid-2000s.

17. He Has a Dual Undergrad Degree From Ohio State University

Mr. Vance has a dual undergraduate degree in political science and philosophy from Ohio State University. He graduated summa cum laude in 2009.

18. He Earned a J.D. From Yale Law School

Mr. Vance earned a juris doctorate from Yale Law School in 2013. While there, he met law professor Amy Chua, who persuaded him to write his memoir. Ms. Chua is known for her own best-selling memoir “Battle Hymn of the Tiger Mother.”

19. He Was an Editor of the Yale Law Journal

While studying law, Mr. Vance served on the editorial staff of the Yale Law Journal.

20. He’s Close With Peter Thiel

After graduating from Yale Law School, Mr. Vance worked at the law firm Sidley Austin LLP before joining billionaire Peter Thiel’s Mithril Capital in San Francisco.

Mr. Thiel later spent more than $10 million in support of Mr. Vance during his 2022 Senate run.

21. He Was a Venture Capitalist

Mr. Vance started Narya, based in Ohio, an “early-stage venture capital firm focused on using technology and science to solve for the future,” according to its website.

22. He’s Sponsored Programs to Combat Drug Addiction

In 2016, Mr. Vance left California and returned to Ohio, where he helped launch an effort to combat opioid abuse in the state.

Called “Our Ohio Renewal,” the project was short-lived, and the online domain for the website is no longer accessible.

23. He Was a CNN Contributor

Mr. Vance was a contributor for CNN back in 2017.

“This will be the first ever CNN commentator ever put on a presidential ticket,” CNN anchor Jake Tapper said on the air following the announcement of the pick.

24. He Wasn’t Always Pro-Trump

Years before being a staunch ally of former President Trump, Mr. Vance wrote an op-ed in the New York Times in which he called the former president “unfit for our nation’s highest office.”

25. His Views Evolved After Trump Took Office

Since 2016, Mr. Vance said his views on the former president have changed, and he’s recanted his statements from 2016.

The reason for this, he said, was seeing how former President Trump handled the job.

In a May interview with CNN, he told anchor Dana Bash, “I didn’t think he was going to be a good president, Dana, and I was very, very proud to be proven wrong. It’s one of the reasons why I’m working so hard to get him elected.”

26. He Voted for Trump in 2020

Given how his views had changed in the four years since 2016, Mr. Vance voted for President Trump in 2020.

27. He Won a Tough Primary in a Crowded Field

Mr. Vance won the 2022 GOP Senate primary amid a crowded field in Ohio to succeed retiring Sen. Rob Portman (R-Ohio).

Boosted by former President Trump’s endorsement, he defeated former Ohio Treasurer Josh Mandel and Ohio state Sen. Matt Dolan.

28. He Was Donald Trump Jr.’s Pick

Mr. Vance developed a relationship with former President Trump’s oldest son during his 2022 Senate campaign, when the younger Trump campaigned for him.

Since then, Mr. Trump has signaled that he favored Mr. Vance in the “veepstakes.”

In a recent podcast episode, Mr. Trump said, “everyone knows, I’ve sort of been for J.D. Vance.”

29 He’s Been in the Senate Since January 2023

Mr. Vance has been in politics just over a year and a half, joining the Senate—his first political office—in January 2023.

30. He Has a Conservative Voting Record

Since joining the Senate, Mr. Vance has regularly voted with the most conservative wing of the Senate Republican conference on an array of key issues, from foreign aid to government finance.

The political arm of the conservative think tank the Heritage Foundation rates Mr. Vance as voting with conservative positions 93 percent of the time.

31. He Has Worked Across the Aisle on Legislation

Mr. Vance has shown a willingness to work with Democrats on some major pieces of legislation.

He and Sen. Sherrod Brown (D-Ohio) co-sponsored a rail safety bill following the derailment in East Palestine, Ohio. He also worked with Sen. Elizabeth Warren (D-Mass.) on a bill to claw-back executive pay from large failed banks.

Neither of the bills has advanced to a vote on the Senate floor.

32. He Serves on 3 Senate Panels

In the Senate he serves on the Banking, Housing, and Urban Affairs Committee; the Commerce, Science, and Transportation Committee; and the Special Committee on Aging.

33. He Has a Hold on All DOJ Appointments

In June 2023, Mr. Vance announced that he would use his power as a senator to place holds on all future nominees to the Department of Justice.

He cited the department’s prosecutions against the former president as the reason for the hold.

34. He Wants Abortion Left to the States

Mr. Vance has indicated he supports leaving abortion to the states.

He said that former President Trump’s “leave it to the states approach” is “pragmatic,” and endorsed the Supreme Court decision allowing mifepristone to continue being shipped.

In 2022, Mr. Vance expressed support for Sen. Lindsey Graham’s (R-S.C.) 15-week abortion ban.

In an interview that same year, Mr. Vance said, “I’d like it to be primarily a state issue.”

35. He Spoke in Support of the 2023 United Auto Workers Strike

Mr. Vance has spoken supportively of the 2023 United Auto Workers strike.

Elsewhere, he’s said he supports collective bargaining “as an abstract matter.”

36. He’s Critical of the Iraq War

Though he served in the Iraq War, Mr. Vance has since been critical of the conflict, saying he made a “mistake” in initially supporting it.

“I served my country honorably, and I saw when I went to Iraq that I had been lied to, that the promises of the foreign policy establishment of this country were a complete joke,” he said on the Senate floor in April.

37. Critical of Ukraine Aid

Mr. Vance has been critical of continued U.S. support for the war in Ukraine.

Since taking office, he’s voted against every Ukraine aid package that’s come to the floor. He’s called for Europe to bear the brunt of financing the war.

Mr. Vance wrote in an April op-ed for The New York Times that the current trajectory of the war is unsustainable for either the U.S. or Ukraine. He said that the notion that Ukraine will reclaim all its land lost to Russia is “fantastical.”

38. Supports Israel Aid

Mr. Vance supports aid to Israel.

In a May 2024 speech at the Quincy Institute, Mr. Vance gave a contrast between supporting Israel and Ukraine.

With Ukraine, he said, there’s “no strategic end in sight” and that the Europeans are not doing their fair share. But Israel, he said, is “doing the most important work to give us missile-defense parity.”

He also opposed the 2015 Iran nuclear deal and applauded President Trump for withdrawing from it in 2018.

39. He Says US Focus Should Be on China

Mr. Vance has also taken a tough stance on China, encouraging the United States to focus its efforts there.

Between war in Ukraine, Israel, and Taiwan, Mr. Vance said, America has “to pick and choose” where it invests its resources.

“We should be focused on our own problems, and that’s mostly China,” Mr. Vance said in April.

“My argument is the Chinese are focused on real power. They’re not focused on how tough people talk on TV or how strong our alleged resolve is. They’re focused on how strong we actually are, and to be strong enough to push back against the Chinese, we’ve got to focus there, and right now, we’re stretched too thin.”

BofA’s omnipotent analysts track record on retail sales looks to be tested once again with a worse than consensus forecast (for an already downbeat expected print) in June…

BUT… for once they were wrong with retail sales far better than expected – though notably the headline print was unchanged Mom (-0.3% exp). but May was also revised higher from +0.,1% to +0.3% MoM. The YoY retail sales growth slowed to just 2.3% – the slowest since February…

Source: Bloomberg

For context, May 2024’s upward revision was the largest since May 2023…

Source: Bloomberg

Core (Ex-Autos) retail sales soared 0.4% MoM (well above the 0.0% exp) and May was also revised higher.

The Control Group – used in the calculation of GDP – exploded 0.9% MoM higher – smashing the +0.2% expectations()

Non-store retailers (online) were the biggest driver of the gains in June while motor vehicles and parts dealers saw sales plunge…

 

Source: Bloomberg

On a non-seasonally adjusted basis, retail sales were +0.2% YoY with Motor Vehicle Sales the largest contributor to the downside….

Source: Bloomberg

Finally on a non-seasonally-adjusted basis, real retail sales (roughly ‘adjusted’ for CPI) tumbled YoY in June…

Source: Bloomberg

As seasonals saved the day…

Source: Bloomberg

…aaah, Bidenomics!

US equity futures are modestly higher, rebounding from session lows, and led by Russell futures as the rotation looks poised to continue as bond yields are lower with the curve bull flattening. As of 7:45am, S&P futures are 0.1% higher with Nasdaq futures rising 0.2%. Premarket, Mag7 is mixed with TSLA +1.7% the standout with Semis flattish. European stocks were red across the board, as China also traded lower after Trump’s selection of JD Vance – who said China represents the biggest threat to the US – as his VP, triggered further trade and geopolitical concerns in the region. FTSE -20bp/DAX -35bps/CAC -70bps/Shanghai +8bps/Hang Seng -1.6%/Nikkei +20bps/Kospi +18bps. Treasuries rose, pushing yields to their lowest since March, as expectations for a September rate cut rose: 10-year rates fell to as low as 4.17% while 2Y yields was at 4.41%. At the same time, the US Dollar is seeing some support, but the story is the BOJ and potential JPY intervention, though JPY is weaker. Commodities are weaker across all 3 complex with precious metals, natgas, and softs providing some support. Today’s macro data focus is on Retail Sales where the headline number likely is negative based upon lower gasoline prices but the Control Group is likely higher as the consumer spent on everything else.

In premarket trading, Bank of America rose more than 2% after the lender said it sees fourth-quarter net interest income on a fully taxable-equivalent basis of about $14.5 billion, ahead of analyst estimates for $14.33 billion. Morgan Stanley initially rose after reporting Q2 earnings but then slumped after the market focused on the bank’s Wealth Management revenue miss. Here are some other notable premarket movers:

• Chegg gains 7% as Morgan Stanley raises the stock to equal-weight, with analysts saying that the educational platform provider’s shares are pricing in a “challenged” path ahead.
• Match Group jumps 9% after Starboard Value built a stake in the dating-app company.
• Trump Media falls 9.6% after the owner of Truth Social registered 38 million shares that could be sold as part of a pact with Yorkville Advisors.
• Verizon Communications ticks 0.3% higher as the carrier explores selling thousands of mobile-phone towers across the country, according to people familiar with the matter.
• Palantir dropped -1.7% after it was cut to underperform at Mizuho Securities with a PT $22

Overnight news was quiet outside of headlines from the RNC (JD Vance said Trump would negotiate with Russia & Ukraine so American can focus on the real issue, which is China) and another weak consumer print out of Europe (Hugo Boss). German Zew Survey declined for the first time in a year.

Meanwhile, the great rotation continues: The small-cap Russell index is now +1% for four straight sessions (up ~7.8% in that time window) vs NDX -30bps over same 4 days. Reminder S&P 500 has set 37 record highs this year while RTY remains ~10.5% below ATH from Nov ’21. Traders now await US retail sales data later for fresh insights on whether inflation and growth have cooled enough to satisfy policymakers who are deliberating when it’s safe to begin bringing down interest rates. Fed Chair Jerome Powell said Monday that inflation is heading toward the central bank’s 2% goal on the basis of second-quarter economic data.

“While he was not saying, ‘right we have high confidence that inflation is under control,’ which would fire the starting gun, it’s enough to support market expectations of a couple of cuts for this year and then for more of the same into next year,” said Sunil Krishnan, head of multi asset funds at Aviva Investors.

As traders start to embrace the idea of three interest-rate cuts this year, starting in September, Treasuries have wiped out their 2024 losses. Strategists at UniCredit SpA have pencilled in that many rate cuts and recommend positioning for the yield curve to steepen. Steepener trades favor buying short dated notes and selling long bonds, and are getting a boost from speculation that fiscal expansion will drive up long-dated yields.

European stocks and US equity futures pared earlier gains as disappointing earnings weighed on risk sentiment. Estoxx 50 trades lower by 0.7% on the day with consumer discretionary and energy sectors underperforming; Miners, insurance and autos were the worst performing sectors in Europe.

• Ocado shares jump as much as 20% after the online grocer reported first-half results that analysts said should provide reassurance following a rough year for the stock. The rally followed a 10% drop on Monday after a double-downgrade from Bernstein.
• SEB shares rise as much as 4.3% to a record high after reporting results that Jefferies said showed “positive trends” and included a bigger-than-expected buyback. Citi said net interest income beat estimates and consensus estimates should rise.
• Fineco shares rose as much as 3.4% in Milan after Italian newspaper Il Sole 24 Ore mentioned it among target companies managing Italians’ savings that could have been studied by investment firms such as Bain, CVC and Advent.
• Richemont shares rise as much as 2.3%, recouping an initial slide, as its first-quarter sales met expectations, contrasting with disappointing results this week from luxury peers Swatch, Burberry and Hugo Boss. The resilience of Richemont’s jewelry division impressed analysts.
• Rio Tinto shares fell as much as 2.8% after the  global miner warned that full-year copper output would be at the lower end of its guidance range.
• Salzgitter falls as much as 7.2% while SSAB drops 3.9% after JPMorgan puts both stocks on negative catalyst watch ahead of their upcoming second quarter results.
• DKSH shares rise as much as 9.1% after the company, which helps others with their expansion plans, delivered earnings above expectations in the first half.
• Wise shares rise as much as 5.2% after the UK financial-software developer reported volumes for the first quarter that beat the average analyst estimate.
• Hugo Boss shares slump as much as 11% after the German clothing producer lowered its full-year outlook, citing the impact on demand from “persistent macroeconomic and geopolitical challenges.”
• Scor drops as much as 30%, the most since 2002, after the French insurer issued a profit warning related to its life and health (L&H) insurance service result, while accelerating its annual reserving review.
• Swedbank shares slip as much as 1.9% after the Swedish lender missed expectations on the key net-interest-income (NII) metric, offsetting better-than-expected income from fees and trading, analysts say.
• Trustpilot shares drop as much as 9% after a holder sold shares in the online review platform at a discounted price of 220p.
• Shares in UK utilities fell, led by Severn Trent and United Utilities, after Ofwat’s announcement that it is opening enforcement cases into four more water and wastewater companies.

Earlier in the session, China traded lower as Trump’s selection of JD Vance as his running mate triggered further trade and geopolitical concerns in the region. New tariffs of 60% on all Chinese exports to the US would more than halve China’s annual growth rate, according to UBS Group AG, underscoring the risks for Beijing if Trump returns to the White House. Vance told Fox News that China is the biggest threat to the US.

Asian stocks declined for a third consecutive day, as Hong Kong shares extended losses amid weak economics cues and growing geopolitical worries. The MSCI Asia Pacific Index fell 0.3%, with Tencent and AIA Group among the biggest drags. Hong Kong-listed stocks slid for a second day after Chinese economic growth data came in below expectations. Prospects for a victory by Donald Trump in the US presidential election are seen having negative implications for Chinese stocks. That comes on top of the already shaky economic outlook amid a continued crisis in the Asian nation’s property market. Sectors to watch:

• Shares of South Korean construction firms including HDC Hyundai Development rise, extending their recent rally on interest rate cut bets, a recovery in Seoul real estate prices and expectations for overseas nuclear deals.
• Chinese robotaxi-linked stocks extend a rally as investors bet on brighter prospects for this sector on continuous policy support.
• Taiyo Yuden, Murata Manufacturing and TDK shares climb after Jefferies raised its price target on Japan’s electronics components makers on view they will benefit from AI-related demand.
• Shares of Apple suppliers advance in Asia as the tech giant surged to another record high after Morgan Stanley named the stock as its top pick.
• Shares of LG Energy Solution and other EV battery-related stocks extend losses in Asia after Donald Trump announced JD Vance as his running mate.
• Chinese environment equipment-related stocks rise as authorities plan to increase financial support for projects to reduce emissions at coal power plants.

In FX, Bloomberg dollar spot index was flat, erasing an earlier gain driven by speculation that Donald Trump is virtually assured to win the US presidential election. EUR and DKK were the strongest performers in G-10 FX, AUD and JPY lagged. The yen weakened against the dollar as local markets reopened, following a three-day weekend, with traders focusing on the monetary policy divergence between Japan and the US.

“The Trump trade that sees rising stocks, bond yields and dollar could continue in the short term as Trump’s chances of election win increase,” said Daisaku Ueno, chief foreign-exchange strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo. “I’d expect Japan intervention to take place” when yen weakness accelerates due to Trump trade, he said. Traders added to bets the Federal Reserve will cut interest rates three times this year after Goldman Sachs Group Inc. said conditions were ripe for easing.

In rates, global bonds rallied as traders increased the odds of more cuts from the BOE and Fed by the end of 2024. Treasuries advanced with the curve flatter as Monday’s aggressive steepening move is slightly unwound. Similar gains seen across European rates as traders price in two quarter-point rate Bank of England cuts this year, following UK grocery price inflation data. US session focus includes retail sales data.  Treasury yields richer on the day by up to 5bp across long-end of the curve with 2s10s spread flattening by 1bp; 10-year yields around 4.18% with bunds and gilts both lagging by around 1.5bp in the sector. Odds of three 25bps of Fed cuts by December were at 90%, while traders fully priced in the likelihood of two BOE 25bps cuts this year, swaps tied to meeting dates showed.

In commodities, WTI drifted 0.8% lower to near $81.25. Spot gold rose roughly $16 to ~$2,439/oz. Bitcoin fell to around $63,000.

Today’s US economic data slate includes July New York Fed services business index and June retail sales and import/export prices (8:30am), May business inventories and July NAHB housing market index (10am). Fed members scheduled to speak include Kugler at 2:45pm

Market Snapshot

• S&P 500 futures little changed at 5,678.25
• STOXX Europe 600 down 0.5% to 516.01
• MXAP down 0.3% to 187.02
• MXAPJ down 0.4% to 582.92
• Nikkei up 0.2% to 41,275.08
• Topix up 0.3% to 2,904.50
• Hang Seng Index down 1.6% to 17,727.98
• Shanghai Composite little changed at 2,976.30
• Sensex little changed at 80,717.27
• Australia S&P/ASX 200 down 0.2% to 7,999.32
• Kospi up 0.2% to 2,866.09
• German 10Y yield -3.5bps at 2.44%
• Euro little changed at $1.0900
• Brent Futures down 0.8% to $84.16/bbl
• Gold spot up 0.6% to $2,437.84
• US Dollar Index little changed at 104.28

Top Overnight News

• Fed’s Daly (voter) said confidence is growing that they are getting nearer to a sustainable pace of getting inflation to 2%, while she sees a policy adjustment over the coming term and said some normalisation of policy is a likely outcome. Furthermore, she said the US economy is slowing and inflation is lower but they are not there yet although they are nearer to the time of achieving their goals.
• US President Biden is reportedly on the brink of failing to win a key labour endorsement as leaders of the 1.3mln member Teamsters union consider backing no candidate at all in the presidential race, according to Reuters citing sources. It was later reported that Teamsters union president O’Brien said they are not beholden to any party.
• US Special Counsel spokesperson said the dismissal of the Trump documents case deviates from the uniform conclusion of all previous courts to have considered the issue that the Attorney General is statutorily authorised to appoint a Special Counsel, while the Justice Department authorised the Special Counsel to appeal the court’s order.
• BofA Fund Manager Survey: investors remain bullish, driven by expectations of Fed cuts and a soft landing. Global growth expectations: -27% (prev. -6%), largest drop since March 2022. Soft landing expected by 68%, 18% see no landing. 67% see no recession in the next 12-months. Long ‘Magnificent 7’ the most crowded trade by a ‘country mile’. 39% believe that monetary policy is too restrictive. Geopols has replaced higher inflation as the main tail risk.
• Former President Trump is reportedly ready to hold talks with Russian President Putin on resolving the Russia-Ukraine conflict without any intermediary, according to Tass
• Federal Reserve Chair Jerome Powell said second-quarter economic data has provided policymakers greater confidence that inflation is heading down to the central bank’s 2% goal, possibly paving the way for near-term interest-rate cuts.
• Major Silicon Valley investors hailed Donald Trump’s choice of Ohio senator and former venture capitalist JD Vance as his running mate, a move that puts the technology industry closer to center stage in Washington if the former president takes the White House in November.
• For months, as copper spiked to record levels and then fell back down again, one key question has bubbled up across the metals industry: What is China’s state grid operator up to?
• China’s twin-track economy is generating doom-and-gloom headlines about domestic woes one moment and growing fears around the world about the dominance of its manufacturers the next.
• New tariffs of 60% on all Chinese exports to the US would more than halve China’s annual growth rate, according to new research from UBS Group AG, underscoring the risks for Beijing if former President Donald Trump returns to the White House.
• French President Emmanuel Macron is about to set in motion the appointment of a caretaker government until negotiations to find a new prime minister bear fruit.

A more detailed look at global markets courtesy of Newsquawk

APAC stocks were mixed amid a quiet calendar and after the choppy but positive performance stateside following the latest comments from Fed Chair Powell. ASX 200 traded marginally lower with weakness in mining stocks following Rio Tinto’s production update. Nikkei 225 gained on return from the holiday weekend with the upside helped by a weaker currency. Hang Seng and Shanghai Comp. were subdued with underperformance in the Hong Kong benchmark after it gapped beneath the psychologically key 18,000 level, while sentiment in the mainland was clouded amid the lingering risks of higher tariffs but with downside stemmed after the PBoC upped its liquidity efforts with a CNY 676bln injection through 7-day reverse repos.

Top Asian News

• BoJ accounts point to intervention of about JPY 2.1tln on July 12th, via Bloomberg.

European bourses, Stoxx 600 (-0.4%) are entirely in the red, having opened on the backfoot and continued to extend on losses as the morning progressed. Since then, indices have found support and traverse across worst levels. European sectors hold a strong negative bias; Basic Resources is the clear underperformer, dragged down by losses in the underlying metals complex as well as a poor production update from Rio Tinto (-2.2%). US Equity Futures (ES +0.1%, NQ U/C, RTY U/C) are flat/mixed, with the ES and NQ trading on either side of the unchanged mark, whilst the RTY outperforms. BlackRock Investment raises UK equities to Overweight from Neutral

Top European News

• ECB Bank Lending Survey Credit standards were broadly unchanged at tight levels in the second quarter of 2024. Banks reported a small net tightening of corporate credit standards and a moderate easing for mortgages. Loan demand continued to decline for firms, while recording the first increase for households since 2022. Credit standards for firms displayed some heterogeneity across economic sectors, tightening strongly in commercial real estate

FX

• Mixed performance for the USD vs. peers, performing best vs. JPY, AUD, NZD. Today’s focus will be on US retail sales, whereby a dovish release could prompt DXY to move onto a 103 handle vs current 104.28.
• EUR is steady vs. the USD after a brief incursion above the 1.09 mark to a 1.0902 high. German ZEW was mixed and failed to move the dial for the Single-currency.
• GBP is steady vs. the USD with 1.30 seemingly currently too tough a nut to crack for Cable. The pair got as high as 1.2995 yesterday before running out of steam.
• USD attempting to claw back some lost ground vs. the JPY after last week’s US CPI, dovish Powell and Japanese intervention sent the pair markedly lower. 158.78 is the high watermark for today’s session but is still a far cry from the July multi-decade high at 161.95
• Antipodeans are both suffering at the hands of the USD with commodity currencies seeing a soft start to the week post-Chinese data over the weekend.

Fixed Income

• USTs are firmer and holding near highs of 111-10+, as Powell’s inflation language serves to weigh on short-term yields, alongside an ongoing pullback in crude; action which is also being seen at the long end of the curve which is currently underperforming and the curve as a whole is flattening.
• Bunds are firmer in-fitting with USTs, eclipsing last week’s 132.08 best to a 132.31 peak which now looks to a cluster between 132.56-80 from the 20th-26th June. The latest ECB Bank Lending Survey passed without reaction while the mixed ZEW pushed Bunds away from best levels.
• Gilts remains focussed on upcoming events which commence with CPI and the King’s Speech on Wednesday. DMO outing was robust and spurred an incremental fresh high of 98.62.
• OAT-Bund 10yr yield spread remains steady at 64bps ahead of today’s political risk event whereby President Macron should accept and allow PM Attal to resign, but it remains to be seen exactly who will be appointed as a caretaker.
• UK sells GBP 2.25bln 4.75% 2043 Gilt: b/c 3.29x (prev. 3.67x), average yield 4.519% (prev. 4.580%) & 0.1bps (prev. 0.4bps)
• Germany sells EUR 3.261bln vs exp. EUR 4bln 2.50% 2029 Bobl: b/c 2.0x, average yield 2.39%, retention 18.48%

Commodities

• A subdued session for the crude complex thus far despite the lack of fresh fundamentals, but as the Dollar remains firm and amid the ongoing woes surrounding Chinese demand following several downbeat data releases. Brent September resides near the trough of a USD 84.15-84.86/bbl parameter.
• Mixed trade across the precious metals despite quiet newsflow in the European morning, with spot gold the outperformer amid increased momentum as the yellow metal approaches ATHs. Spot gold probes yesterday’s peak (USD 2,439.59/oz) as it eyes its current ATH at USD 2,449.89/oz.
• Base metals are mostly lower with the complex dampened by the prognosis of the Chinese economy following the recent string of disappointing data, whilst some also flag rising inventory as warehouses.
• Freeport LNG expects to restart the first LNG train this week after damage from Hurricane Beryl and plans to restart the remaining two LNG trains shortly after the first one.
• Bolivia’s President announced the discovery of a 1.7tln cubic feet natural gas reserve in the north of the department of La Paz.
• Some Japaense aluminium purchasers have agreed on a July-September premium of USD 172/T, +16-19% Q/Q, via Reuters citing sources

Geopolitics

• North Korea warned that South Korea will face devastating consequences over anti-North Korea leaflets, according to KCNA.

US Event Calendar

• 08:30: June Retail Sales Advance MoM, est. -0.3%, prior 0.1%
  • June Retail Sales Ex Auto MoM, est. 0.1%, prior -0.1%
  • June Retail Sales Control Group, est. 0.2%, prior 0.4%
• 08:30: June Import Price Index MoM, est. -0.2%, prior -0.4%
  • June Import Price Index YoY, est. 1.0%, prior 1.1%
  • June Export Price Index MoM, est. -0.1%, prior -0.6%
  • June Export Price Index YoY, est. 1.0%, prior 0.6%
• 10:00: May Business Inventories, est. 0.5%, prior 0.3%
• 10:00: July NAHB Housing Market Index, est. 43, prior 43

DB’s Jim Reid concludes the overnight wrap

I spent a day at a Theme Park yesterday in the driving rain. The good news was that there was hardly any queues for any of the rides given the weather. The bad news was…… …. there wasn’t any queues for any of the rides.

While I was loop the looping, politics dominated most of the session yesterday with markets trying to price potential Trump presidential trades after the weekend developments with a steeper Treasury curve the key theme in the rates space. Equities saw a clear rotation into stocks that stand to benefit from Trump’s policies and closed (+0.28%) less than a tenth of a percent below last week’s record high, whilst the small-cap Russell 2000 (+1.80%) surged to a two-and-a-half year high as well.

The other major story of the day was Fed Chair Powell’s interview at the Economic Club of Washington DC. Powell’s initial comments noted that “ the three readings in the second quarter… do add somewhat to confidence” that inflation is returning to the 2% target, and that the inflation and labour market mandates are now “in much better balance”. However, he did not get drawn on the timing of rate cuts and commented that policy is “restrictive but not severely restrictive”. The pricing of Fed cuts for rest of the year rose by +3.7bps on the day to 67bps, the highest since early April, but the move came largely outside of Powell’s comments.

In terms of Treasuries, the 2yr yield was marginally (+0.7bps) higher on the day at 4.46%, having traded as low as 4.42% during Powell’s initial comments. By contrast, the 10yr yield (+4.6bps to 4.23%), and the 30yr yield (+6.1bps to 4.46%) saw sizeable increases. At one point intraday, we even saw the 2s30s yield curve un-invert for the first time since January, although it was just about negative at -0.2bps by the close. Similarly, the 2s10s curve steepened by +4.1bps to -23.0bps, which is the least inverted it’s been since January. This morning in Asia, 10yr UST yields (-1.9bps) have moved back down, trading at 4.21% as we go to print with a similar move at the front end. Next stop an important US retail sales print today.

A Trump-driven shift in market pricing was also apparent for equities. For instance, Trump’s own media company, Trump Media & Technology Group, surged by +31.37%. Another beneficiary were private prison groups, with GEO Group (+9.35%) and CoreCivic (+8.02%) both experiencing their strongest daily performances for over a year. With Trump seen as a more pro-crypto candidate, Bitcoin (+5.57%) moved back up to $63,469, and Coinbase (+11.39%) had its best performance since March. In the meantime, the best-performing sectors in the S&P 500 were energy stocks (+1.56%) followed by financials (+1.42%).

But whilst many assets benefited from the prospect of a Trump presidency, there were also clear points of weakness. For instance, solar energy firms lost ground given the view they’d fare better under a Democratic administration, including decent losses for Sunrun (-8.95%), SolarEdge Technologies (-15.36%) and SunPower (-7.06%). The broader utilities sector (-2.39%) was the main underperformer within the S&P 500. Elsewhere, there was a significant underperformance for Mexican assets, with the Mexican Peso down by -0.96% against the US Dollar, making it one of the worst-performing global currencies yesterday. Moreover, Mexico’s equity index, the S&P/BMV IPC (-1.11%) fell back, with the decline being even larger in USD terms.

In terms of the politics itself, yesterday saw Trump confirm that his running mate on the ticket would be J.D. Vance, the Senator from Ohio. At 39, Vance is the second youngest member of the current Senate and the pick is seen as embracing the Trump campaign’s populist leanings. Vance’s notable policy comments this year have included criticism of the Biden administration on border control and on military aid to Ukraine . We’ll have to wait for some polls to get a better sense of how public opinion has shifted after recent events, but from betting and prediction markets, there’s no doubt that a Trump victory is now viewed as more likely. For instance, the average betting odds from RealClearPolitics now give Trump a 66% chance of victory, up from around 55% on Friday. One thing to bear in mind is that it’s fairly common for the party with a convention to experience a “convention bounce” in the polls as it becomes the focus of media attention. But this time, it could be more difficult to disentangle the effect of the convention if public opinion has also shifted as a result of the assassination attempt.

Over in Europe, markets followed a completely different pattern to the US, with equities sliding alongside a rally in sovereign bonds. That meant the STOXX 600 (-1.02%) posted its worst daily performance in the last month, although the backdrop was already a tough one given the weaker-than-expected Chinese GDP data before the open. Those declines were echoed across the continent, and the CAC 40 (-1.19%) underperformed given the implications for luxury stocks. Meanwhile for bonds, there was a clear risk-off move, which left yields on 10yr bunds (-2.3bps), OATs (-4.0bps) and BTPs (-4.6bps) all lower on the day.

In Asia, China risk continues to be mixed to weaker but the rest of the region is largely higher. The Nikkei (+0.23%) is up as it has resumed trading after a public holiday with the CSI (+0.19%) and the KOSPI (+0.25%) also edging higher. Meanwhile, the Hang Seng (-1.38%) is sharply lower with the Shanghai Composite (-0.21%) also trading down. S&P 500 (+0.19%) and NASDAQ 100 (+0.30%) futures are higher.

In FX, the J apanese yen (-0.36%) is extending its losses for the second consecutive day trading at 158.64 against the dollar despite last week’s suspected intervention by Japanese authorities.

There was very little other data yesterday, although Euro Area industrial production was down -0.6% in May (vs. -0.7% expected). Elsewhere, the New York Fed’s Empire State manufacturing survey fell to -6.6 (vs. -7.6 expected).

To the day ahead now, and data releases include the German ZEW survey for July, US retail sales for June, the NAHB’s housing market index for July, and Canada’s CPI for June. From central banks, we’ll hear from the ECB’s Villeroy and the Fed’s Kugler, and also get the Euro Area Bank Lending Survey from the ECB. Finally, earnings releases include Morgan Stanley and Bank of America.

Authored by David Stockman via Contra Corner blog,

If you don’t think the Fed has become an abject handmaid of the Wall Street gamblers, take a gander at the chart below. Owing to the slight down-tick in this week’s monthly CPI report, the outcry for rate cuts is reaching a deafening roar down in the trading pits. And judging by Powell’s presser on Wednesday, the Fed is fixing to bend over soon, bar of soap in outstretched hand.

And yet and yet. On everything that makes a difference to the main street cost of living, prices are up by 32% to 36% during the period of UniParty rule since January 2017.

That’s right. Among the five biggies – services, food, energy, transportation and shelter – that comprise an overwhelming share of main street family budgets, the rate of price increase during the last seven-and-one-half years is close to 4.0% per annum! And for want of doubt, that rate of gain means that prices would double every 18 years.

Moreover, despite drastically different short-term paths since January 2017 to get to the present index levels, the cumulative gains over this 7+ year period for these five essentials are bunched quite tightly at the 4.0% per annum mark. Among other things, this reminds that what counts is the cumulative inflation over a reasonable period of time, and that monthly movements of even major CPI components are definitely not a reliable guide to the longer-term path of the general price level.

CPI Component Increases Per Annum Since January 2017:

• Services less energy services: +3.8%.

• Food: +3.9%.

• Transportation:+3.9%.

• Energy: +4.2%.

• Shelter: +4.3%.

Index Of Major CPI Components Since January 2017

Back in the day, of course, the core mission of central bankers was price stability over time, not statistical game-playing based on the annualized rate of inflation for short, arbitrarily chosen periods. And the focus was also on a stable general price level, not the present preoccupation with all manner of sub-components of the CPI or PCE deflator and tortured sawed-off variations of the overall indexes.

For instance, awhile back all the rage was the so-called SuperCore CPI, which covers services minus shelter services. Of course, that meant that over 60% of the weight in the CPI market basket was being deleted from the figure, but, hey, Wall Street economists claimed this particular sawed-off inflation ruler stood at the top of Powell’s data dashboard.

Moreover, two years ago the SuperCore index was running well below the 9% level recorded in the headline CPI index and also under the so-called core CPI less food and energy. So it occasioned a lot of hopeful Wall Street chatter to the effect that inflation was over-stated, and that the Fed was closer to the nirvana of another rate cutting cycle than might otherwise have been apparent.

Not so much during Thursday’s inflation-victory celebrations, however. As shown below, the SuperCore is still posting at damn near +5% on a Y/Y basis. So, as far as we can tell the SuperCore didn’t get even an honorable mention from hallelujah chorus of Wall Street economists. As usual, it fell upon Zero Hedge to publish the inconvenient truth.

Source: Bloomberg

In any event, when you recast the first chart above on a Y/Y change basis, the true inflation trend gets completely obfuscated by the short-term fluctuations and noise in the data. Instead of bunching around the true 4% inflation trend of the past seven years, the rates of change for the LTM period ending in June 2024 are all over the lot. Among the same five biggie components of the CPI, services are still up 5% while energy whipsawed from +42% Y/Y in June 2022 to just +0.9% during the June 2024 LTM period.

In short, the first chart above is the signal. The LTM figures shown below are the noise. Indeed, picking and choosing inflation snapshots on a monthly or even quarterly basis from among inflation components and sub-indexes that are always on the move – and rarely in lockstep – is a mug’s game. It tells you nothing about the underlying inflation trend, nor the cumulative impact on purchasing power of the endless inflationary ratchet that is the explicit “goal” of Fed policy. That is, 2.00% inflation year after year until the cows come home.

Y/Y Change For June 2024 LTM:

• Services less energy services: +5.0%.

• Food: +2.2%.

• Energy: +0.9%.

• Shelter: +5.1%.

• Transportation: +1.2%.

Y/Y Change In Five CPI Components, January 2017 to June 2024

The chart below, which depicts the trend of Y/Y change in the 16% trimmed mean CPI, tells you all you need to know about the true inflation story at present. For the last 75 months running, the most stable measure of inflation available has posted Y/Y inflation well above 2.00%. On a cumulative basis, in fact, the gains have averaged 3.7% per annum.

To be sure, the 2.00% annual inflation “goal” itself is nonsense. Yet when you overshoot even that arbitrary pro-inflation target by nearly 100%, why in the world is the Fed claiming that victory over inflation is at hand, and that the next round of rate-cutting and monetary stimulus is fixing to commence?

If nothing else, you’d think that the paint-by-the-numbers monetary central planners at the Fed would at least deign to give America’s battered savers and wage earners an extended breather from inflation risk for several more quarters or even years. That is, by keeping its foot on the monetary brakes the Fed could preclude another burst of inflation—even as the most recent outbreak was being absorbed by savers, wage earners and entrepreneurs.

Indeed, after six years of elevated inflation, the case for diluting the inflation trend with a period of low or no inflation is overwhelming. For instance, if the trimmed mean CPI were to run at exactly 2.00% per annum for the next three years, the index rise since March 2018 would still average +3.25% per annum; and even at 1.0% annually for another three years, the cumulative gain since March 2018 would be +2.81% per annum.

What’s so splendid about either of those figures?

And why shouldn’t the Fed be obliged to average-down for an extended interval, given the inflation surge that it enabled during recent years?

Y/Y Change In 16% Trimmed Mean CPI, March 2018 to June 2024

Needless to say, this gets us to the fatal flaw of Keynesian central banking.

The Fed wants 2.00% inflation at a minimum. And it is willing to risk a resurgence of inflation rates higher than that because its real objective is not common sense price stability and stable purchasing power of the dollar.

Instead, its policy model amounts to plenary macro-economic management premised on the erroneous view that there is a Phillips Curve, which embodies a trade-off between macroeconomic growth and inflation. And that to get optimum growth, job generation and “full employment” a modest level of inflation is necessary; and that when the macroeconomy threatens to falter or tumble into recession, a fair amount of inflation risk is not just tolerable, but actually warranted and essential.

That is to say, the Fed’s maniacal focus on the short-run annualized rate of change in the shortest inflation ruler it can find (i.e. the PCE deflator) has absolutely nothing to do with sound money or any traditional notion of central banking. To the contrary, its an excise in monetary central planning that recurrently pleasures Wall Street with excuses for a new round of rate cutting as often and as early as possible.

Indeed, the Fed goes so far in its Wall Street obeisance as to pick the very shortest inflation ruler published by the US government. As shown below, just since March 2018, the Fed’s preferred PCE deflator less food and energy (purple line) has risen materially more slowly than almost any other available measure including the headline CPI (red line), the 16% trimmed mean CPI (black line) and the CPI for all services (orange line).

Worse still, the PCE deflator is not even a fixed basket of items functioning as a proxy for the general price level from point to point over time. It is continuously reweighed monthly, meaning that when hard pressed consumers substitute chicken for steak the PCE deflator reports lower inflation than would otherwise be the case. Needless to say, that technique may make statistical sense when attempting to measure the constant dollar level of output in the total economy. But it does not measure “inflation” of the general price level as embedded in a fixed basket of goods and services.

Indexes of Inflation, March 2018 to May 2024

Needless to say, when this short-ruler bias is extended over longer periods of time, it do make an even greater difference. For instance, since January 2000, the PCE deflator less food and energy is up by just 64% compared to 83% for the 16% trimmed mean CPI, 85% for the headline CPI and 109% for the CPI for all services.

Indexes of Inflation, January 2000 to May 2024

In any event, Wall Street loves the Fed’s pro-inflation policies and incessant efforts to pretend that the huge cumulative gains in the price level shown in the chart above are all in a days work and occur pursuant to the laws of economics. Gary Cohn, a typical revolving door operative between Wall Street and Washington, essentially let the cat out of the bag in a comment about the June CPI report.

“Chair Powell does not want to be late to cutting rates,” former Goldman Sachs and Trump official Gary Cohn told CNBC after the release.

“Especially after we all accused him of being late to raise rates.”

For crying out loud, the very idea of “early” and “late”in the arbitrary game of fiddling with the interest rate dials is absurd. The slop in the steering gear between the rate of interest on what amounts to Wall Street gambling chips (i.e. overnight funds) and the national and global macro-economy is so great as to render short run inflation snap-shots tantamount to the aforementioned noise.

As it has happened, the US economy was so provisioned with excess cash owing to the massive stimmies and printing press bacchanalia during the pandemic period that the Fed’s rate increases have barely made a dent in the pace of short-term spending and activity. And by the same token, the US economy is now so waterlogged with debt—$99 trillion on private and public balance sheets combined—-that 100 or even 240 basis points of cuts are not going to stimulate much incremental borrowing, spending, GDP and jobs.

For want of doubt, consider the graph below.

US Economy Leverage Ratio, 1960 to 2024

During the heyday of Keynesian theory in the 1960s and 1970s, total public and private debt outstanding in the US averaged about 150% of GDP – a figure that had been largely constant during the prior 100-years of massive industrial growth and steadily rising living standards in the US.

Even though it never made sense that raising the economy’s leverage ratio could generate incremental GDP, jobs and wealth over the long-run, in the short-run cheap interest rates did tend to spur extra borrowing by households and businesses, thereby temporarily adding to GDP, albeit in a manner that actually amounted to stealing from the future.

But today all bets are off. Since the Great Financial Crisis, the debt ratio has been stranded in the macroeconomic stratosphere at 350% of GDP.

Those two extra turns of debt relative to national income mean that total debt outstanding currently stands at $99 trillion versus what would have been $42 trillion at the old 150% national leverage ratio.

Needless to say, it has apparently not occurred to the wanna be monetary central planners at the Fed that artificially goosing the economy’s leverage ratio via another round of rate cuts back toward the zero bound has lost its zip. We’d dare so that in a debtentombed economy like that depicted below – where the productive sectors are lugging an extra $57 trillion of debt – it is likely that interest rate-cutting has almost no macroeconomic potency at all.

So the essence of the matter is plain as day. The Fed’s 2.00% inflation goal is nonsensical and unattainable via the clumsy mechanism of tweaking the overnight funding rate, while still another round of rate cutting will do nothing for full employment, even as it risks yet another upward ratchet in the Fed’s cumulative assault on savers and wage earners.

As we have outlined elsewhere, the time is long overdue for abolishing the FOMC and getting the Fed out of discretionary buying and selling in Wall Street financial asset markets entirely.

The latter accomplishes nothing other than to further impoverish main street, even as the gamblers and 1% are pleasured with still another cycle of ill-gotten wealth from financial asset inflation.

What are the biggest challenges for the United States today?

As Statista’s Katharina Buchholz details below, Consumer Insights show that the answer partially depends on respondents’ political orientation.

However, Americans on the left and the right could agree on one thing when the last survey was carried out between early 2023 and early 2024. Rising prices, inflation and the cost of living crisis were the most frequently picked option among all political groups.

You will find more infographics at Statista

Those describing themselves as part of the political center agreed most often at 61 percent of respondents identifying rising prices and inflation as a major issue in the country. 51 percent on the left and 45 percent on the right also did so. While left-leaning Americans also frequently named issues of health/social security, climate change, poverty and housing as being important, center and right-leaning Americans both said that crime and the economy were the other major problems in the U.S. In general, Americans on the right didn’t identify issues with as high a frequency as other political camps.

Authored by Flora Zhao via The Epoch Times (emphasis ours),

The long list of unfamiliar names on ingredient labels of processed foods is already a cause for concern. However, many people are unaware of another category of additives never listed on these labels. These “invisible” additives are known as processing aids.

Processing aids serve various roles in food production. They can soak and wash ingredients, filter beverages like wine or juice to make them clearer, or improve the texture of bread to make it softer and more elastic. During the production process, these aids are consumed, transformed, or removed, rendering them virtually undetectable in the final product.

Take fruit juice as an example. Using enzymes for juice extraction is a common production method, which can result in juice yields exceeding 90 percent of the fruit’s weight. By treating the raw fruit materials with several enzymes at a specific temperature for a few hours, the fruit “liquefies.” Specifically, cellulase breaks down the cell walls of the fruit, releasing more juice and sugars, while pectinase and amylase break down polysaccharides such as pectin. These enzymes improve the flow of the juice in processing containers and enhance its sweetness. They are consumed and transformed during processing, ultimately not appearing on the ingredient label.

Another example is regular milk supplemented with lactase, which becomes low-lactose milk, whereas adding rennet turns it into cheese. Additionally, applying palm wax to baking molds aids in easy cake release. Bottled sauces often have nitrogen added during bottling to displace oxygen, preventing oxidation and product spoilage.

Processing aids include a variety of substances used in food production, including clarifying agents, clouding agents, catalysts, flocculants, filter aids, and crystallization inhibitors. These aids perform essential functions such as improving texture, enhancing clarity, and preventing spoilage.

Some people might worry, as these substances are not stated on the label, Martin Bucknavage, a senior food safety specialist at Penn State University’s Department of Food Science, told The Epoch Times. However, he said that there is no need for excessive concern.

“There [are] risks in all processes; there [are] definitely potential side effects and negative aspects that need to be looked into,” Tim Bowser, the food process engineer at the Robert M. Kerr Food and Agricultural Products Center at Oklahoma State University, told The Epoch Times. Yet unlike additives, the nature of processing aids determines that “they do not have that ability to cheat” and are less likely to be used for deception and adulteration.

In real-life scenarios, “the residuals would be too low to detect,” Mr. Bowser said.

However, he noted that with the continuous development of detection technologies, some companies are now capable of detecting substances at levels as low as parts per billion or even trillion. Furthermore, the safety of processing aids is constantly being evaluated, and as people’s understanding grows, regulations governing their use may be adjusted, or “something could be removed from the generally regarded as safe list.”

Alcohol, Juice, and Heavy Metals

Despite Germany’s stringent centuries-old laws governing beer production methods, routine analyses have uncovered a gradual increase in arsenic content in German beer, with diatomaceous earth being considered a potential source.

Diatomaceous earth is commonly used to filter alcohol and beverages to increase their yield.

To test this hypothesis, researchers mixed diatomaceous earth with beer and analyzed the filtrate for trace metals, finding elevated levels of arsenic and aluminum.

Diatomaceous earth is a fossilized sedimentary deposit formed from the cell walls of ancient diatoms that settled on the ocean floor. After extraction, it is ground into a powder and primarily composed of silicon dioxide.

Another often-used beverage filter during the manufacturing process is bentonite, a clay with adsorption capabilities, which the FDA classifies as “generally recognized as safe.”

Since diatomaceous earth and bentonite are derived from mined materials, “they can contain a large array of elements, including heavy metals,” wrote Benjamin W. Redan, a U.S. Food and Drug Administration (FDA) scientist, in a 2020 study published in the Journal of Agricultural and Food Chemistry.

A study conducted by the FDA and the University of Maryland researchers indicated that diatomaceous earth can increase arsenic levels in apple juice by more than five times, while arsenic levels in grape juice increased by 67 percent.

Additionally, researchers have discovered that adding bentonite can increase vanadium levels in apple juice from around 3 μg/kg to up to 200 μg/kg. While this does not reach toxic levels, the increase is notable.

The quality of different processing aids varies. In January 2023, Hungarian researchers published a study in the journal Foods. They added 21 types of commercial bentonite products to white wine and found that while some showed no significant change in lead content, others increased considerably. For instance, one type of bentonite increased the lead content from 2.27 µg/L to 9.46 µg/L, marking a rise of over 300 percent.

“The use of certain processing aids can increase levels of contaminants in beverages,” the FDA spokesperson told The Epoch Times. “The FDA has issued draft guidance that notes that changing or treating filter aids may reduce contaminants released during filtration,” he added.

Hidden Concerns of Decaffeinated Coffee

A processing aid called methylene chloride is employed to remove caffeine from coffee beans, producing decaffeinated coffee.

Methylene chloride is a highly efficient solvent but is often considered hazardous. In the liver, it metabolizes to produce significant amounts of carbon monoxide and formaldehyde, the latter being a known carcinogen. In animal models, methylene chloride has shown hepatotoxicity, neurotoxicity, and potential carcinogenic effects.

The FDA regulations specify that the residue level of methylene chloride in food must not exceed 10 parts per million (ppm), which is equivalent to 10 mg/kg or 10,000 μg/kg.

While methylene chloride’s high volatility generally facilitates the removal of its residues, they can still persist, and residues in some products may be relatively high.

Considering that decaffeinated coffee is a preferred choice for sensitive groups such as pregnant women, people with cardiovascular diseases, and those with neurological conditions, some people have raised concerns about the use of methylene chloride in its production.

The nonprofit organization Clean Label Project, which has long focused on the coffee industry’s use of methylene chloride in producing decaffeinated coffee, commissioned a professional analytical company in 2022 to conduct a double-blind test on 17 decaffeinated products. The results showed that although all products had methylene chloride levels below the FDA’s set standards, one product contained 8,931 μg/kg, close to the upper limit, while two other products had residue levels between 3,500 and 4,000 μg/kg.

“Anything that’s used like that, that is known to be [a problem] should be continuously looked at,” Mr. Bowser said when discussing the use of methylene chloride in the production of decaffeinated coffee. He emphasized that if a substance is deemed hazardous, it remains dangerous, regardless of the residual amount.

Mr. Bowser also underscored the importance of ongoing scrutiny and openness to diverse perspectives regarding certain widely used substances currently considered safe, such as hexane used in soybean oil extraction.

Hexane and Vegetable Oil

Traditional mechanical pressing methods for extracting vegetable oil typically achieve extraction rates ranging from 60 to 80 percent for oilseed crops. In contrast, chemical solvent extraction, which is now predominantly used, can achieve rates close to 100 percent.

Hexane, a commonly used solvent in this process, is a hydrocarbon extracted from crude oil. It remains liquid at room temperature but is highly volatile.

In the extraction of vegetable oils such as canola, sunflower, and cottonseed, the oilseeds undergo cleaning, crushing, steaming, and drying before being immersed in hexane. Following the principle of “like dissolves like,” lipids from the seeds are released, while hexane is subsequently evaporated using hot steam. The extracted oil then undergoes further refining processes, while hexane is collected and reused.

Hexane is also employed in the extraction of flavors, color additives, and other bioactive ingredients in addition to vegetable oils.

Numerous studies have identified hexane as neurotoxic to humans. According to the U.S. Environmental Protection Agency (EPA), short-term exposure to hexane can cause irritation, headaches, and dizziness, while prolonged exposure can lead to nerve damage.

The EPA has set a reference dose (RfD) for hexane exposure based on animal toxicity studies, establishing a daily limit of 0.06 mg/kg/day for humans. For a person weighing 70 kilograms, this provisional reference dose equates to a maximum of 4.2 milligrams per day. The European Medicines Agency classifies hexane as a Class 2 solvent, meaning it should be limited, and has established a “Permitted Daily Exposure” similar to that of the EPA.

Different countries have varying regulations regarding hexane residues in edible oils. For example, the European Union’s standard is 1 mg/kg. Some vegetable oils in developing countries have been found to exceed the EU’s hexane residue limit. From an environmental perspective, although most hexane is recovered during the production process, some is still released into the air and can enter the food chain. Recent estimates indicate that an additional one million tons of hexane are needed globally each year to compensate for losses during the extraction process.

The FDA currently has no regulations regarding hexane residue levels in edible oil products. “To ensure that vegetable oil is sufficiently purified to minimize levels of contaminants like hexane, manufacturers may set a limit that only allows for trace amounts of hexane in the final product.” The FDA spokesperson told The Epoch Times, “The FDA does not typically sample vegetable oils for residual hexane … based on the information that we have, any residual levels would be very low, if detectable if added to food.”

Driven by concerns about hexane as an extraction solvent, some processors are shifting towards healthier extraction methods. These methods include aqueous-assisted enzyme extraction, natural solvent extraction (such as from citrus peel and tree oils), and more advanced mechanical pressing methods with higher oil yields.

Enzymes in Bread: A Seemingly Harmless Aid

There is another major category of processing aids: enzymes, widely utilized in baking products such as bread.

Xylanases have been employed in baking for several decades. They degrade polysaccharides in flour, resulting in fluffier bread. Proteases break down large protein molecules in the dough into smaller ones, making the dough softer and more malleable. They also expedite dough fermentation, enhancing the texture and flavor of bread. Additionally, by breaking down more proteins into amino acids, proteases enrich the nutritional value of bread and facilitate absorption. Alpha-amylase (α-amylase) breaks down starch in the dough into sugars, improving the softness, elasticity, and sweetness of the bread. Additionally, it reduces moisture content in bread and regulates microbial growth, thereby extending its shelf life.

Read more here…

Russia’s state-run Rossiya 1 TV channel ran a segment on Sunday evening which appeared to be in direct reaction to the US recently announcing it plans to place long-range missiles in Germany. 

The segment included the Russian pundits ominously warning that Russian missiles can strike European capitals. “Almost all European capitals will be under threat if our missiles are stationed in Kaliningrad: Berlin, Warsaw, all the Baltic states, Paris, Bucharest, Prague, and of course, the American bases in Germany,” TV host and State Duma lawmaker Yevgeny Popov said. Watch the Russian-language segment below:

«Достаточно трех ракет, и эта цивилизация рухнет»: на «России 1» пригрозили ракетными ударами по европейским столицам

В эфире телеканала «Россия 1» прозвучали угрозы в адрес европейских столиц в случае размещения в Европе американского дальнобойных ракет.

Детали. Угрозы… pic.twitter.com/DDHz5TDDgC

— Новости «Агентства» (@agents_media) July 15, 2024

“Special attention to Britain, our traditional enemy…Britain is in the most vulnerable position — basically, three missiles are enough and this civilization will collapse,” Popov added.

At the same time, the show presented a map of Europe, showing potential target areas. UK and Europe-based news outlets picked up on the threat and featured commentary on the segment.

The US had announced last Wednesday in relation to the NATO summit in Washington that week: “The United States will begin episodic deployments of the long-range fires capabilities of its Multi-Domain Task Force in Germany in 2026, as part of planning for enduring stationing of these capabilities in the future.”

“When fully developed, these conventional long-range fires units will include SM-6, Tomahawk, and developmental hypersonic weapons, which have significantly longer range than current land-based fires in Europe,” the statement posted to the White House website added.

The major development had prompted Kremlin spokesman Dmitry Peskov to respond: “Europe is a target for our missiles, our country is a target for U.S. missiles in Europe.” He explained further, “We have enough capacity to contain these missiles but the potential victims are the capitals of these countries.” 

“Europe is coming apart. Europe is not living its best moment. In a different configuration, a repeat of history is inevitable,” he said while looking back to the Cold War.

If Donald Trump takes the White House after November, it will be interesting to see whether he sticks by Washington’s proposed ultra-provocative missile expansion plans, or if he halts it while desiring to deescalate tensions over arms placement with an aim of of finding Ukraine peace.

Authored by Dénes Albert via ReMix News,

Sebastian Hotz, an employee of German state television ZDF who regularly appears on Jan Böhmermann’s “ZDF-Magazin Royale” under the name “El Hotzo,” has expressed regret that Donald Trump did not die in the assassination attempt.

On X, where the 28-year-old has 694,000 followers, he wrote: “I think it’s absolutely fantastic when fascists die.”

Sebastian Hotz (Gagschreiber von Jan Böhmermann und ausgezeichnet mit dem BR Kabarettpreis) zum Anschlag auf Donald Trump. #ReformOerr #OerrBlog pic.twitter.com/8Gs2hI7b6M

— ÖRR Blog. (@OERRBlog) July 14, 2024

High-profile media lawyer Joachim Steinhöfel shared the post and wrote:

“This is the ugly, fascist grimace of Böhmermann’s accomplices. The people that ZDF has allowed to act without restraint for far too long. Celebrating an assassination attempt, regretting that it was unsuccessful. When does that have what consequences?” (‘Culling Nazis’)” he asked.

Bundestag Vice President Wolfgang Kubicki (FDP) was appalled by the article and described it as “public approval of serious crimes.”

He assumed that the public prosecutor’s office would deal with the matter.

ZDF has remained silent

ZDF has not yet commented on the hate speech.

For years, the broadcaster, which is financed via compulsory fees, has repeatedly backed Böhmermann, even when he recently compared political opponents to infected pigs and called on them to “cull Nazis.”

Sebastian Hotz was awarded the Bavarian Cabaret Prize last year. This is awarded by Bayerischer Rundfunk, among others. Following numerous protests, “El Hotzo” has since deleted his post on X about the assassination attempt on the Republican presidential candidate.

Read more here…