Month: September 2024

Authored by Frank Shostak via The Mises Institute,

Many economists incorrectly assume a growing economy also requires a growing money stock, assuming that economic growth gives rise to a greater demand for money. It is held that failing to increase money to facilitate increased trade will lead to a decline in prices of goods and services, destabilizing the economy and leading to an economic downturn.

Some commentators believe that the lack of a flexible mechanism coordinating demand versus the money supply is the major reason why the gold standard leads to instability. The idea is that, relative to the growing demand for money because of growing economies, the supply of gold does not grow fast enough. Thus, to prevent economic shocks from imbalances between the demand and the supply of money, the Fed must make sure that supply and demand are synchronized. Consequently, whenever an increase in the demand for money occurs, the Fed must allegedly accommodate with fresh money in order to maintain economic stability.

Since the growth in money supply is of such an importance, it is not surprising that economists are continuously searching for the “optimum” growth rate in the money supply. For instance, the head of the Monetarist school of thought, Milton Friedman, held that the central bank should target the money supply growth rate to a fixed percentage. According to this theory, if a fixed percentage of inflation (e.g., 3% per year) is maintained over a prolonged period, it will usher in an era of economic stability.

The whole idea that money must grow in order to sustain economic growth gives the impression that money sustains the economy. According to Rothbard,

Money, per se, cannot be consumed and cannot be used directly as a producers’ good in the productive process. Money per se is therefore unproductive; it is dead stock and produces nothing.

Money neither sustains nor funds economic activity. The means of sustenance are savings, capital investment, and increased production of consumer goods. By fulfilling the role of the medium of exchange, money simply facilitates the flow of goods and services.

Individuals Want More Purchasing Power, Not More Money 

Individuals do not want a greater amount of money in their pockets, rather they want greater purchasing power. In a free market, similar to other goods, the price of money is determined by supply and demand. All other things being equal, a decline in the supply of money causes an increase in the purchasing power of money (PPM). Conversely, purchasing power falls with an increase in the supply of money. Within a free market, there is no such thing as “too little” or “too much” money. As long as the market is allowed to clear, no “shortage of money” can emerge. According to Mises:

As the operation of the market tends to determine the final state of money’s purchasing power at a height at which the supply of and the demand for money coincide, there can never be an excess or deficiency of money. Each individual and all individuals together always enjoy fully the advantages which they can derive from indirect exchange and the use of money, no matter whether the total quantity of money is great, or small…. the services which money renders can be neither improved nor repaired by changing the supply of money…. The quantity of money available in the whole economy is always sufficient to secure for everybody all that money does and can do.

Once the market has chosen a particular commodity as money, the given stock of this commodity is going to be sufficient to secure the services that money provides. Hence, in a free market, the whole idea of the optimum growth rate of money is absurd.

How Paper Certificates Displaced Gold as Money

Originally, paper money was not regarded as money, but merely as a representative of gold (i.e., money-substitute). Various paper certificates were claims on gold which was stored with the banks. Holders of paper certificates could convert them into gold whenever they deemed necessary. Because people found it more convenient to use paper certificates to exchange for goods and services, these certificates came to be regarded as money.

While convenient, paper certificates that are accepted as the medium of exchange open the scope for fraudulent practice. Banks could be tempted to boost their profits by lending certificates that were not covered by gold. In a free market economy, a bank that over-issues certificates would quickly find out that the exchange value of its certificates, in terms of goods and services, will decline.

To protect their purchasing power, holders of the bank’s unbacked certificates are likely to attempt to convert them back to gold. Were all of them to demand gold back at the same time, this would bankrupt the bank. In a free market, then, the threat of bankruptcy would restrain banks from issuing paper certificates unbacked by gold. This means that in a free-market economy, paper money cannot assume a “life of its own” and become independent of commodity money. 

The government, however, can bypass the free-market discipline. It can issue a decree that makes it legal for banks not to redeem certificates into gold (i.e., suspend specie payments). Once banks are not obliged to redeem certificates, opportunities for large profits are generated with fewer consequences. This incentivizes banks to pursue an unrestrained expansion of the supply of fiat certificates. The unrestrained expansion of certificates raises the likelihood of the setting off a galloping rise in the prices of goods and services that can lead to the breakdown of the market economy. To prevent such a breakdown, the supply of certificates must be managed. This can be achieved by establishing a monopoly bank (i.e., a central bank that manages the expansion of certificates).

To assert its authority, the central bank introduces its fiat certificate, which replaces the certificates of various banks. The central bank certificate is fully backed by bank certificates, which have the historical link to gold (hence, the continued purchasing power after gold is removed). The central bank certificate, labeled as “money” (i.e., legal tender) also serves as a reserve asset for banks. This enables the central bank to set a limit on the credit expansion by the banking system. (The purchasing power of the central bank’s “money” is established because of the fact that various certificates, which have purchasing power, are exchanged for the central bank certificate at a fixed rate).

It would appear that the central bank could manage and stabilize the monetary system. The truth, however, is the exact opposite. To manage the system, the central bank must constantly generate money “out of thin air” (i.e., inflation) to prevent banks from bankrupting each other during the clearance of their checks. This leads to the persistent declines in the money’s purchasing power, and distorts the price structure and the structure of production, which destabilizes the entire monetary system.

No matter what scheme the central bank adopts (i.e., pumping money in line with economic growth or pumping money at a constant growth); regardless of the mode of monetary injections, the boom-bust cycles are likely to become more ferocious as time passes.

Milton Friedman’s scheme to fix the money growth rate at a given percentage does not solve the problem. After all, a fixed percentage growth is still money growth, which leads to the exchange of nothing for something (i.e., economic impoverishment and the boom-bust cycle). It is not surprising that the central bank must always resort to large monetary injections when there is a threat to the economy from various shocks. Such monetary pumping is the key cause that depletes savings and the potential for capital investment through the exchange of nothing for something.

How long the central bank can keep the present system going is dependent upon the state of savings and capital accumulation. As long as these are still expanding, the central bank is likely to appear successful in keeping the economy flourishing. Once the economy falls into an economic slump because of a decline in the capital stock, any government or central bank attempts to revive the economy are going to fail. Not only will these attempts fail to revive the economy, they will further deplete and inhibit saving and capital investment, thereby prolonging the economic slump. On this, Mises wrote, 

An essential point in the social philosophy of interventionism is the existence of an inexhaustible fund, which can be squeezed forever. The whole system of interventionism collapses when this fountain is drained off: The Santa Claus principle liquidates itself.

Conclusion

Since the present monetary system is fundamentally unstable, there cannot be a “correct” money supply growth rate. Whether the central bank injects money in accordance with economic activity or fixes the growth rate, it further destabilizes the system. The only way to make the system truly stable is to permit the free market to take over.

In a defiant speech, Hezbollah’s #2 who survived Friday’s Israeli decapitation strikes of the group’s leadership which killed Hassan Nasrallah, vowed that the Iran-backed group is ‘ready’ to take on any potential Israeli ground offensive into Lebanon.

Deputy chief Sheikh Naim Qassem on Monday insisted Hezbollah will continue to fight despite the huge series of blows which began with the pager explosions. “We are quite ready, if the Israelis want a ground incursion, the resistance forces are ready for that,” Qassem declared.

He told the Lebanese people to be “reassured, victory is our ally, we need a bit of patience” and claimed that “Israel was not able to affect our (military) capabilities.”

“Israel is committing massacres in all areas of Lebanon until there is no house left without traces of Israeli aggression in it,” he continued. “Israel attacks civilians, ambulances, children and the elderly. It does not fight fighters, but rather commits massacres.”

At one point in the speech he called out the United States for shipping billions in weaponry to Israel, and for providing intelligence and other support. He called Washington “a partner with Israel, through unlimited military support – culturally, politically, financially.” The Biden administration had quickly tried to say it had no prior awareness that Israel was about to assassinate Secretary-General Nasrallah and his top leadership on Friday.

Qassem stressed, “We will win, just as we won in our confrontation with Israel in 2006.” But he indirectly acknowledged the group’s mounting losses, saying, “There are deputy commanders and there are replacements in case a commander is wounded in any post.”

He also hinted at something high on everyone’s mind, including Israel’s: the question of a successor to Nasrallah. As related by Al Jazeera: 

He added that Hezbollah will install a new leadership soon via “internal mechanisms”. The choice of new leadership is clear, Qassem continued, without offering further details.

He said a new chief will be chosen “at the earliest opportunity.” Nasrallah had long been an easily recognized figure even on an international front, gaining the respect of both the Arab world and across the religious divide. At times, even Christians and Sunnis and secular leaders in the region would praise his ‘resistance’ to Israel and ability to command tens of thousands of effective fighters. 

Who might be next?

Does this mark the moment of the baton of command of the Lebanese resistance movement #Hizbullah passing to its new leader Sayyed Hashem Safiuddin? pic.twitter.com/bb0uhFLQcS

— tim anderson (@timand2037) September 29, 2024

Much media speculation has focused on Hashem Safieddine, a cousin of Nasrallah and one who even resembles him in appearance. However, he’s said to be even more hardline. According to one profile of the potential successor: 

Hashem Safieddine, a potential successor to his slain cousin Hassan Nasrallah, is one of Hezbollah’s most prominent figures and has deep religious and family ties to the Shiite Muslim movement’s patron Iran.

Safieddine bears a striking resemblance to his charismatic maternal cousin Nasrallah but is several years his junior, aged in his late 50s or early 60s.

A source close to Hezbollah, requesting anonymity as they were not authorised to speak to the media, said the grey-bearded, bespectacled Safieddine was the “most likely” candidate for party’s top job.

The United States has had him on its list of “designated terrorists” since 2017, given his leadership within Hezbollah via the group’s decision-making Shura Council, as well as close ties to the Islamic Republic of Iran.

While Hezbollah sources are currently denying that he’s yet been chosen, Reuters and others have been digging into his background. “Safieddine’s family ties and a physical resemblance to Nasrallah, as well as his religious status as a descendant of Mohammed, would all count in his favor,” Reuters wrote.

A number of Israeli media sources have labeled him as more extreme than Nasrallah.

Yedioth Ahronoth quoting a senior Israeli military official:

“Hashem Safieddine is more extreme than Nasrallah and apparently has already begun to control the party” pic.twitter.com/nw2cK4LwmF

— SilencedSirs◼️ (@SilentlySirs) September 30, 2024

According to more from his background and closeness to Nasrallah:

Nasrallah’s younger cousin was born in the southern Lebanese village of Deir Qanoun En Nahr near Tyre in 1960. The young men studied theology together at two Shia institutions – one in Najaf, Iraq and the other in Qom, Iran.

They are seen from their supporters to be from a well-respected Shia family that has produced both religious scholars and Lebanese politicians.

Safieddine’s brother is Hezbollah’s representative to Iran, while his son is married to the daughter of Qassem Soleimani – the Iranian general killed in a US drone strike during Donald Trump’s presidency in 2020.

Back in 2017, he stated of the Trump administration: “This mentally impeded, crazy US administration headed by [Donald] Trump will not be able to harm the resistance.”

Authored by Daniel Lacalle,

Global liquidity is expanding. In the past three months, the global money supply has soared by $4.7 trillion. This rapid increase started when the Federal Reserve panicked the first time and delayed the normalization of the balance sheet in June.

Since then, we have seen a chain of fresh stimulus policies implemented by developed economies, adding to the large fiscal packages already in place. Multi-trillion-dollar investment packages like the EU Next Generation Fund now include massive deficit spending plans. However, money velocity is not rising. All these programs only lead to secular stagnation. Government projects and current expenditures are consuming money at an unprecedented rate.

Developed economies cannot live without new and larger spending plans. The result is more debt, weaker productivity growth, and declining real wages.

In a recent report, Bank of America showed that the rise of unproductive debt has created a significant problem for the United States economy. For every dollar of new government debt, the gross domestic product impact has slumped to less than fifty cents. The United States is drowning in unproductive debt. However, at least the United States has some productivity growth. If we look at the euro area, the negative multiplier effect of new government debt is extremely evident. Despite enormous stimulus plans and negative nominal rates, the euro area has been stagnating for years.

Many of you may believe that bad policies and careless government spending are to blame, but I think this is intentional. It is a slow process of nationalizing the economy. Slowly depleting the middle class’s savings due to consistently declining real wages, the government expands its influence in the economy, garnering support from a substantial portion of the populace.

Market participants love this. A new stimulus plan means more money printing, which will bring more liquidity to markets and fuel multiple expansions regardless of weak economic figures. However, my esteemed colleagues should be wiser when hailing the next stage of financial repression. Discontent is rising among citizens, and one way or another, this will end badly.

Debt crises may not appear the same way as they used to. It is not a cataclysmic event but a slow boiling that leads to the same impoverishment.

Neo-Keynesians look at the past four years of the United States economy and claim victory. However, for many in the United States middle class, their impoverishment over the past four years has been like that of Greek citizens in 2009.

When central banks think of a soft landing, they are looking at a gradual erosion of the purchasing power of salaries and deposits. This is precisely what we are experiencing, compounded by the additional burden of higher taxes. There is no such thing as a soft landing. Only government bureaucrats and those who can conceal their wealth from money destruction can benefit from a soft landing.

This new increase in money supply may not bring a fresh burst of inflation because money velocity is not rising as well. However, that means lower investment, lower growth, and lower productivity. Market prices, multiple expansions, and bubbles may appear again, while families and small businesses find themselves in a tougher spot.

The back-to-back chain of stimulus plans shows the failure of Keynesian policies. We used to witness the introduction of a new spending and rate-cutting program a few years after the previous one. Now, governments simply add new programs on top of each other and claim that the economy is about to turn the corner.

Government spending consumes the majority of newly created money, leaving the productive economy with decreasing access to credit, declining currency purchasing power, and wealth confiscation through taxes and currency printing.

According to the most recent OECD report, inflation will be 3.5% with a global growth rate of 3.3% in 2025.

The introduction of massive new spending and financial repression programs has resulted in 80% of OECD countries experiencing annual inflation that exceeds their central banks’ target. There is a global policy of absorbing productive and private sector wealth.

A few years ago, someone dared to say, “You will not have anything, but you will be happy,” and most people understood the dangers of that promise. Nowadays, no one says it anymore. They’re just implementing it slowly. You will be poorer. Protect yourself from inflation and financial repression, or you will be a dependent subclass.

Volkswagen, Mercedes, and BMW have all slashed their forecasts this month, with Aston Martin and Stellantis following suit on Monday morning. The broader picture reveals that the European auto industry has stalled. 

Aston Martin wrote in a statement Monday that it expects annual adjusted earnings before interest, taxes, depreciation and amortization margin in the high teens percentage, compared with a previous outlook of around 20s percentage. 

The British luxury sports car maker anticipates wholesale volumes will decline for the full year versus its prior growth expectation. The good news is the level of hemorrhaging cash in the first half will be lower in the second half. Management previously expected positive free cash flow in the second half.

The revision was blamed on “instability” across its supply chain and a slowdown in Chinese vehicle demand. 

“What is different now over the past six-to-nine months is the blue-chip suppliers have had fires, floods or administrators appointed to an extent and a scale that I personally haven’t seen in my career,” Chief Executive Officer Adrian Hallmark told analysts during a call. 

Here’s Goldman analyst George Galliers’ take on Aston’s guidance cut:

Supply chain and China lead to guidance cut – This morning (30 September) Aston Martin cut its financial guidance for FY24 as a result of c.1k unit lower wholesale expectations. The company now expects wholesales to decline by a high single digit percentage YoY (FY2023 6,620 units) vs. high single digit growth previously. As a result, adj. EBITDA is also expected to be slightly below FY23 (£306mn) with a margin in the high teens %age, prior low 20s%. The company no longer expects to be FCF positive in 2H24. AML cited disruption in the supply chain, as suppliers have struggled to keep-up with the ramp on new models, and weakness in China as drivers of the downgrade. The company also mentioned a desire to smooth out wholesales, as it pursues its demand-led approach, which should result in less seasonal emphasis in 4Q, in our view.

Also, on Monday, Stellantis NV reduced its margin forecast for the full year, indicating that production will be reduced and that more promotional incentives will be available to customers in an increasingly competitive auto market. 

Stellantis wrote in a statement that the adjusted operating income margin will slide to 5.5% to 7% this year, down from a previous forecast for a double-digit percentage. It now projects an industrial free cash flow range of negative 5 billion euros ($5.6 billion) to negative 10 billion euros, versus prior guidance of positive cash generation. 

In markets, Aston shares in Europe plunged as much as 28%, while Stellantis dropped 8% in Paris to the lowest intraday level since December 2022.

According to a note from Goldman’s Eric Mihelc and Scott Feiler, the slump in European automakers has now spread to US automakers.

Autos trading lower with F -3%, GM -3% in pre after rival car maker Stellantis revised down its 2024 financial guidance, citing deteriorating industry dynamics and Chinese competition. Stellantis, the European maker of Chrysler and Jeep, cut its guidance for the current year. It now sees its full-year adjusted operating income margin between 5.5% and 7.0%, down from prior “double digit,” it said in a press release Monday morning, largely due to efforts to normalize inventory levels in North America. It said it accelerated its plan to reduce US inventory levels to no more than 330,000 by the end of this year to remedy the high inventory levels. British luxury car maker Aston Martin also cut its outlook Monday, citing weakness in China while Volkswagen gave their second profit warning in three months on Friday (Source: Barron’s, Bloomberg).

Aston Martin and Stellantis now join several other European automakers, including BMW, Mercedes-Benz, and Volvo, in lowering their profit outlook this month as supply chain woes bite and China’s slowdown dominates. 

Authored by Kimberly Hayek via The Epoch Times,

California Gov. Gavin Newsom vetoed on Sunday a heavily debated bill to regulate artificial intelligence (AI) approved by the Legislature in August.

Senate Bill 1047, the Safe and Secure Innovation for Frontier Artificial Intelligence Models Act, raised the stakes in the debate over AI regulations.

If Newsom had signed the bill into law, it would have required testing of AI models to ensure they don’t lead to mass death, attacks on public infrastructure, or cyberattacks.

The legislation would have also created whistleblower protections, as well as a public cloud for the development of AI for the public good.

SB 1047 would have also created the Board of Frontier Models, a California state entity, to monitor the development of AI models.

Newsom thoroughly scrutinized the bill in his veto, noting that it risks “curtailing the very innovation that fuels advancement in favor of public good.”

He also said the bill regulates AI in a blanket fashion and lacks empirical analysis of the real threats posed by AI.

“A California-only approach may well be warranted—especially absent federal action by Congress—but it must be based on empirical evidence and science,” he wrote.

Newsom also took issue with the fact that the bill applies mainly to expensive AI models—those that cost more than $100 million to develop or require more than a certain quantity of computing power to train. In the governor’s view, inexpensive AI models could pose just as much of a threat to the public good or critical infrastructure.

“Smaller, specialized models may emerge as equally or even more dangerous than the models targeted by SB 1047,” Newsom wrote.

The governor said the legislation could slow down advancements in the interest of the public good. For that reason, Newsom believes SB 1047 could give the public “a false sense of security” when it comes to AI.

Additionally, Newsom said SB 1047 fails to consider whether an AI model is deployed in high risk environments or uses sensitive information.

“Instead, the bill applies stringent standards to even the most basic functions—so long as a large system deploys it,” Newsom wrote. “I do not believe this is the best approach to protecting  the public from real threats posed by the technology.”

Newsom said that he believes California must pass a law to regulate AI, and that he remains “committed to working with the Legislature, federal partners,” and others in the state and nation to “find the appropriate path forward, including legislation and regulation.”

San Francisco Democratic Sen. Scott Wiener, the bill’s author, said the veto was “a missed opportunity for California to once again lead on innovative tech regulation” and “a setback for everyone who believes in oversight of massive corporations that are making critical decisions” in regards to the use of AI.

Supporters of the bill include Elon Musk, AI startup Anthropic, the Center for AI Safety, tech equity nonprofit Encode Justice, the National Organization for Women, as well as whistleblowers from AI company OpenAI, among others.

Elon Musk’s record of criticism for California lawmakers made his endorsement of SB 1047 a surprise.

“This is a tough call and will make some people upset, but, all things considered, I think California should probably pass the SB 1047 AI safety bill,” he posted on X, the social media platform he owns.

“For over 20 years, I have been an advocate for AI regulation, just as we regulate any product/technology that is a potential risk to the public.”

Other supporters include Service Employees International Union, the Latino Community Foundation, and SAG-AFTRA.

An online poll conducted by the Artificial Intelligence Policy Institute from Aug. 4 to Aug. 5 shows that 65 percent of the 1,000 California voters who responded support SB 1047. The survey has a margin of error of 4.9 percentage points.

Opponents of the bill included tech behemoths such as Google, Meta, and OpenAI, who said the bill would undermine the California economy and the AI industry.

Several members of the California congressional delegation asked Newsom to veto the bill before the California Legislature passed it last month in a landslide vote.

The California Chamber of Commerce celebrated Newsom’s veto.

“We are grateful to Governor Newsom for the veto of SB 1047. Regulatory efforts to promote #AI safety are critical, but SB 1047 missed the mark in key ways,” wrote Chamber President & CEO Jennifer Barrera.

“As a consequence, the bill would have stifled AI innovation, putting California’s place as the global hub of innovation at tremendous risk.”

In September, Newsom signed approximately a dozen bills on various AI regulations. One such bill, Assembly Bill 2655, protects voters from deep fakes and people the use of their likeness by others without consent.

Other bills require businesses to share information about how they use data to train generative AI models, as well as to supply tools so consumers can see whether or not a certain piece of media is made by humans or AI.

The SB 1047 veto derails the California Legislature’s efforts to align the state’s AI regulation with the European Union’s AI Act.

In September 2023, Newsom issued an executive order instructing California agencies to perform risk assessments of the threats and vulnerabilities AI poses to California’s critical infrastructure.

The U.S. A.I Safety Institute, under the National Institute of Science Technology, is creating guidance on security risks. Newsom said the federal agency’s approach entails “evidence-based approaches” to safeguarding the public.

US equity futures reversed earlier gains and are now down at session lows, tracking European market weakness as we close the quarter even as Chinese stocks have their best day since Sept 19, 2008. As of 8:00am, S&P futures are down 0.2% after last week’s record highs on Wall Street, while both Nasdaq (-0.4%) and Russell (-0.6%) underperform pre-market with Mag7 names lower ex-AAPL and TSLA, and semis weaker with NVDA -1.8% as traders look forward to Friday’s jobs data and its impact on Federal Reserve interest-rate cuts. Treasury yields climbed 2-4bps, led by the policy-sensitive two-year note, the USD is weaker though. Commodities are mixed with base metals the standout, moving higher on the China trade while oil tumbles as the usual (record) shorters emerge in force despite epic chaos in the Middle East. This heavy data week kicks off with regional indicators and 2x Fed speakers. As JPM notes, economic strength with a Fed tailwind pushed markets to shrug off both negative seasonality and JPY carry unwind. But given the reflationary China growth reboot, can positive US data push this trend into Oct/Nov, or do we see Election uncertainty/vol spike create another downdraft before rallying into year-end as concerns emerge about the Fed’s easing cycle when overlaid on China’s historic stimulus bazooka? This week’s data may help answer those questions, but the medium-term trend appears to be higher.

In premarket trading, US-listed Chinese stocks rallied – again – after the latest steps by authorities to boost the economy which included step by three of the country’s largest cities easing rules for homebuyers. The moves come after China’s policymakers unveiled aggressive home stimulus to prop up the beleaguered real estate sector. Alibaba (BABA) +4%, Nio (NIO) +13%, Bilibili +8%. Here are some other premarket movers:

• AT&T gains less than 1% after agreeing to sell its majority stake in DirecTV to private equity firm TPG Inc. for $7.6 billion in cash.
• CVS Health Corp. rises 2% as the Wall Street Journal reported that Glenview Capital Management plans to meet Monday with CVS management to propose ways for the health-care company to improve its operations.
• Gogo gains 2% after the in-flight broadband company agreed to buy Satcom Direct.
• EchoStar, which owns Dish, rises 3%% after DirecTV and Dish agreed to combine in a deal that will create the biggest pay-TV provider in the US.
• Stellantis drops 13% after slashing its forecasts for the year, citing plans to lower production and spend more on promotional incentives in a slowing and more competitive auto market.

Last week, US data bolstered bets for further interest-rate cuts by the Fed and investors will be tuning in for remarks by Fed Chair Jerome Powell on Monday when he takes the stage at a National Association for Business Economics conference. Further out, the US jobs print on Friday could decide whether last week’s risk—on rally can extend. A strong reading might lead to a rotation toward stocks with weaker earnings, according to Goldman strategists.

A positive report may prompt some investors to “price lower odds of substantial labor market weakening,” leading them to “rotate out of expensive ‘quality’ stocks into less-loved lower quality firms,” the team led by David Kostin wrote.

As they prepare for the US data to gauge the outlook for Fed rate cuts, investors must also ponder a cocktail of risks, including rising tensions in the Middle East. The record-setting rally in stocks will also be tested by third-quarter corporate results set to kick off in mid-October.

Political developments in Europe provide an additional layer of complexity. Austria’s traditional political powers are pledging to block the far-right Freedom Party from forming a government following Sunday’s national elections that resulted in its historic victory.

“Right now, we see an improvement in sentiment, which is driven by more stringent action that we see in China — that is good news for the European equity markets,” Marcus Poppe, co-head of European equities at DWS Investment, said in an interview with Bloomberg TV. “But I would caution against expecting that we will see in three-four weeks companies saying: ‘China is picking up.’”

It wasn’t good enough on Monday, however, and unlike the boiling euphoria in China, Europe started the week on the back foot with the Euro Stoxx 50 down 0.9% after a series of profit warnings from major automakers. VW and Porsche warned on Friday after the close, followed by Stellantis and Aston Martin on Monday; the Stoxx autos index is down 3.9%. Auto names had benefited from the rotation into cyclical over the past two weeks, but the warnings highlight the risk of blindly jumping into pockets of consumer-exposed names when trends show no signs of improvement.  IBEX is flat but outperforms peers, CAC 40 lags, dropping 1.4%. Autos, construction and real estate are the worst-performing sectors. China proxies are seeing support after Hong Kong closed 2.5% higher and CSI300 was up 8.5%, the biggest one day gains since Sept 19, 2008! Iron ore is up 10% supporting mining stocks. France is still weak as the government weighs taxes on corporates earning and higher taxes on share buybacks. Meanwhile concerns of stagflation in Germany, the euro area’s largest economy, and inflation accelerating on a monthly basis in its states prompt traders to trim bets on an ECB interest-rate cut in October. Here are the biggest European movers:

• Stellantis shares fall as much as 14% in Milan to their lowest since October 2022 after the carmaker slashed its profit margin forecast for the year, citing US costs and a slowing and more competitive auto market.
• Aston Martin shares fall as much as 28%, the biggest drop in more than four years, after the luxury carmaker reduced its outlook, warning annual adjusted Ebitda will be lower than last year and scrapping its aim to deliver positive free cashflow in the second half.
• Volkswagen shares fall as much as 3.1% after the German carmaker posted its second profit warning in three months, citing weakening demand for its cars.
• Rightmove falls as much as 5.3%, the most since Sept. 3, after the property listings website said it has rejected a fourth bid from REA and now urges the Rupert Murdoch-owned group  to submit “a best and final proposal” ahead of Monday’s deadline at 5 p.m. UK time.
• Smiths slides as much as 2.7% after being downgraded by analysts at Barclays, who believe the engineering company boasts less attractive fundamentals over its UK peers.
• Ocado shares rise as much as 4.1% after BofA Global Research reinstated coverage of the online grocer with a buy rating given the growth potential of the company’s retail and tech solutions businesses.
• Hensoldt shares rise as much as 4.7% after analysts at both Kepler Cheuvreux and Deutsche Bank upgraded the company, which makes sensors and other equipment for the defense industry.

UBS’ European trading desk writes that it is 60/40 better to sell with hedge funds balanced and long-only accounts 60/40 sellers. They are busiest in miners and markedly better to buy after the rally in China. There are sellers of industrial and consumer discretionary on the back of the autos profit warnings. Clients are active in food and beverages ahead of a few pre-close calls. There are balanced flows in financials and slightly better buyers in consumer staples.

Europe’s downbeat start was in contrast to the mood in China, where the CSI 300 Index jumped as much as 9.1%, the most since 2008, fueled by the stimulus package. The policy steps also buoyed European mining and luxury stocks.

In retrospect, our Sept 21 call that it was “time for China to turn on the printing press” was well-timed.

Taking a broader look at the region, Asian stocks fell amid a selloff in Japan as investors fretted over a surprise outcome in the ruling party’s leadership race, offsetting the optimism in Chinese markets. The MSCI Asia Pacific Index dropped as much as 1.3%, with TSMC and Toyota Motor among the biggest drags. Benchmarks in Japan slumped more than 3% in delayed reaction to the surge in the  yen following the LDP election outcome last Friday, while those in Taiwan and Korea fell more than 2% after declines in US tech shares on Friday.

The losses in Japan came after Shigeru Ishiba’s victory wrongfooted investors, forcing them to pare positions that had been built on speculation that Sanae Takaichi would become the nation’s new prime minister and encourage the Bank of Japan to keep interest rates low.

As noted above, shares in China bucked the region’s trend ahead of a weeklong holiday. The CSI 300 Index soared the most since 2008 and entered a bull market, as sentiment got another boost from further government stimulus. Three of the nation’s largest cities relaxed rules for homebuyers, while the central bank also moved to lower mortgage rates. The Hang Seng China Enterprises Index rose for the 12th session.

“Regional allocations may be adjusted to favor China, particularly as Japanese equities face pressure due to rising yen strength following Ishiba’s victory in the LDP election,” said Derek Tay, head of investments at Kamet Capital Partners.

In rates, treasuries bear-flattened, with front-end yields cheaper by around 4bp on the day, following similar front-end-led selloff in bunds after September German regional CPIs. US long-end yields cheaper by only about 0.5bp, with 10-year around 3.77%, cheaper by about 1.5bp; gilts in the sector lag by 0.5bp while bunds outperform slightly. Front-end-led losses flatten 2s10s, 5s30s spreads by 2bp-3bp on the day. Focal points of US session include comments from Fed Chair Powell in the afternoon, while month-end flow has potential to support long-end of the curve. Month-end Treasury index rebalancing at 4pm New York time will extend its duration by an estimated 0.06 year

Meanwhile concerns of stagflation in Germany, the euro area’s largest economy, and inflation accelerating on a monthly basis in its states prompt traders to trim bets on an ECB interest-rate cut in October.

 

Yields rise across the curve, with the front-end up about 4bps each in bunds, gilts and Treasuries. The Bloomberg Dollar Spot Index is steady. CHF and JPY are the weakest performers in G-10 FX, AUD and DKK outperform. Crude erases gains, with WTI drifting lower to around $68. Spot gold falls roughly $8 to trade near $2,650/oz. Most base metals trade in the green. Bitcoin drops.

 

Looking at today’s calendar, US economic data calendar includes September MNI Chicago PMI (9:45am, several minutes earlier to subscribers) and September Dallas Fed manufacturing activity (10:30am). Fed speakers scheduled include Governor Bowman (8:50am) as well as Powell’s address at the National Association for Business Economics conference in Nashville (1:55pm, text and Q&A expected).

Market Snapshot

• S&P 500 futures little changed at 5,786.50
• STOXX Europe 600 down 0.7% to 524.30
• MXAP down 1.0% to 195.26
• MXAPJ up 0.1% to 620.73
• Nikkei down 4.8% to 37,919.55
• Topix down 3.5% to 2,645.94
• Hang Seng Index up 2.4% to 21,133.68
• Shanghai Composite up 8.1% to 3,336.50
• Sensex down 1.3% to 84,474.63
• Australia S&P/ASX 200 up 0.7% to 8,269.83
• Kospi down 2.1% to 2,593.27
• German 10Y yield little changed at 2.17%
• Euro up 0.3% to $1.1192
• Brent Futures up 0.7% to $72.49/bbl
• Gold spot down 0.1% to $2,654.93
• US Dollar Index little changed at 100.28

Top Overnight News

 

 

A more detailed look at global markets courtesy of Newsquawk

APAC stocks were mixed heading into month-end amid the backdrop of recent geopolitical escalation and as participants digested a slew of data releases, as well as China’s latest support efforts and Japan’s leadership transition. ASX 200 was led by outperformance in the commodity-related sectors as oil and metal prices benefitted from geopolitics and China’s policy announcements. Nikkei 225 suffered heavy losses amid a firmer JPY following Ishiba’s victory against Abe protege Takaichi in the LDP leadership race, while the data releases from Japan were mixed with a steeper-than-expected drop in Industrial Production but Retail Sales topped forecasts. Hang Seng and Shanghai Comp rallied ahead of National Day Golden Week holiday closures despite mixed PMI data from China with advances led by strength in property developers after the PBoC instructed banks to lower interest rates on existing mortgages and lower downpayments, while some Chinese cities also eased home purchase restrictions. Furthermore, the mainland index is on course for its largest gain since 2015 and is set for a bull market after China’s latest policy announcements and the PBoC’s Monetary Policy Committee quarterly meeting where it pledged several supportive efforts

Top Asian News

• PBoC’s Monetary Policy Committee held its third-quarter meeting and stated that China’s economy still faces challenges such as insufficient demand and weak social expectations, while it added that it must accurately and effectively implement prudent monetary policy, as well as pay more attention to counter-cyclical adjustments. PBoC said it must focus on expanding domestic demand, boosting confidence and promoting a sustained recovery in the economy. Furthermore, it is to maintain a reasonable abundance in liquidity, guide reasonable credit growth, support banks to supplement capital, support the reduction of interest rates on existing mortgages and promote the stable and healthy development of the real estate market, according to Reuters,
• PBoC said all commercial banks must in batches lower interest rates on all existing mortgages by October 31st to no less than 30bps below the PBoC’s Loan Prime Rate, while it said the adjusted mortgage rates in some Chinese cities including Beijing, Shanghai and Shenzhen must not be less than the floor of their existing rates. Furthermore, Guangzhou city announced to lift all restrictions on home purchases, while Shanghai and Shenzhen announced to ease restrictions on home purchases by non-local buyers and cut the minimum downpayment ratio to no less than 15%, according to Reuters.
• PBoC injected CNY 182bln via 7-day reverse repos on Sunday with the rate lowered to 1.50% (prev. 1.70%) and injected CNY 212.1bln via 7-day reverse repos on Monday with the rate kept at 1.50%.
• China’s MOFCOM said it will further improve policy targetedness and effectiveness, as well as improve the consumption structure and focus on fostering new consumption business, while it will promote the steady growth of foreign trade business.
• China’s Finance Ministry said state-owned firms’ August YTD profits fell 2.1% Y/Y.
• Japan’s Finance Minister post is likely to go to former Chief Cabinet Secretary Kato and the Foreign Minister position is likely to go to former Defence Minister Iwaya, while the Defence Minister post in the new cabinet is likely to go to former Defence Minister General Nakatani, according to Japanese press. It was also reported that newly elected ruling LDP leader Ishiba is considering a plan to conduct a Lower House election on October 27th.
• Japanese ruling LDP executive said incoming PM Ishiba proposed lower house election to be held on October 27th and to dissolve parliament October 9th

European bourses, Stoxx 600 (-0.7%) are modestly lower across the board and to varying degrees, with sentiment in the region failing to piggy-back off China’s performance but instead focusing on escalating geopolitics, profit warnings, and upcoming risk events such as Friday’s NFP. European sectors are mostly negative; Basic Resources remain aflaot, given the strength in metals prices. Autos is by far the  clear laggard after a myriad of guidance cuts today; Stellantis (-12.9%), Aston Martin (-27.5%) and Volkswagen (-2.7%) all slip. As a reminder, Mercedes-Benz (-1.7%) and BMW (-1.9%) both lowered forecasts already earlier in the month. US Equity Futures (ES U/C, NQ -0.1%, RTY -0.3%) are flat/subdued on month end, with traders keeping an eye on this week’s risk events including Fed Chair Powell today, US ISMs throughout the week, and US NFPs on Friday. Bytedance, the owner of TikTok, reportedly plans a new AI model built with Huawei’s Ascend 910B chips, according to sources; Bytedance is NVIDIA’s (NVDA) largest customer for H20 AI chips tailored for the Chinese market.

Top European News

• Germany is reportedly poised to abandon forecasts for economic growth this year, according to Bloomberg sources; Germany forecasts economic stagnation this year at most
• Former UK PM Sunak urged for the Tories to unite behind who succeeds him as party leader and warned that the party risks marginalisation if divisions persist, according to FT.
• Far-right Freedom Party of Austria was projected to be first in the Austrian parliamentary election with 29.3%, while the ruling conservatives are seen at 25.3% and social democrats at 20%. Furthermore, Austria’s Chancellor and conservative leader Nehammer conceded that his party failed to catch up with the far-right freedom party in the election and said talks between the parties are important once the final election result is in, while the far-right party leader Kickl said they are ready to lead a government.
• ECB’s Stournaras said that based on the most recent data for inflation and the real economy, he finds it reasonable to proceed with a 25bps cut in October, or risk inflation falling below target, according to an FT interview.
• EU is to continue China EV talks even after final vote on its proposal to impose final import tariffs on Chinese EVs, via Reuters citing sources.

FX

• USD is softer vs. cyclically-exposed peers and firmer vs. havens. Incremental US developments have been lacking since Friday’s PCE report with markets instead looking ahead to a slew of upcoming data releases, including the key NFP report. DXY is in a 100.17-48 range and within Friday’s 100.15-88 parameters.
• EUR is marginally firmer vs. the USD but unable to reclaim 1.12 status which was lost late last week on account of soft inflation prints from Spain and France. Today’s German Regional CPI figures have thus far painted a picture of cooling Y/Y inflation, but had little impact on the Single-Currency. EUR/USD is tucked within Friday’s 1.1124-1.1203 range.
• GBP is firmer vs. the USD with Cable just about making its way back onto a 1.34 handle after venturing as high as 1.3433 last week. Downward revisions to Q2 GDP metrics had little follow-through into the market. BoE’s Greene is due after-hours.
• JPY is a touch softer vs. the USD in the wake of mixed data from Japan overnight. Broader focus for the JPY is on the fallout from Friday’s LDP leadership race, with the victory of Ishiba viewed as a hawkish outcome. USD/JPY is currently trading towards the bottom end of today’s 141.66-142.95 range.
• Antipodes are top of the leaderboard as the positivity surrounding China continues to reverberate around the market. As such, AUD/USD has printed another YTD peak at 0.6941

Fixed Income

• USTs are currently scaling back some of the post-PCE upside seen on Friday with not a great deal of fresh US drivers over the weekend. NFP will likely be the highlight for the week given the Fed’s increased focus on the employment side of its mandate. As it stands, markets currently see the November meeting as a near-enough coinflip between a 25 or 50bps reduction. Dec’24 USTs are currently contained within Friday’s 114.08-25 range.
• Bunds showing similar price action to other global peers by scaling back some of the ground made on Friday, which was driven in part by soft regional inflation metrics from Spain and France ahead of the German release today and EZ-wide metric tomorrow. Regional CPIs for Germany have thus far painted a picture of cooling Y/Y inflation. Dec’24 Bunds have returned to a 135 handle but are contained within Friday’s 134.31-135.19 range.
• Gilts are also on the backfoot with not much in the way of notable UK newsflow with downward revisions to Q2 GDP metrics having little follow-through into the market. BoE’s Greene (voted for a hold in August and September) is due to speak afterhours.

Commodities

• Crude oil was initially on a firmer footing, but has since slipped since the European cash open and slowly drifted into negative territory. Price action today is focused on continued industrial commodities tailwinds from Chinese stimulus coupled with escalating geopolitics after Israel’s assassination of Hassan Nasrallah; on which, Bloomberg suggested Iran will try to transfer thousands of fighters to the border areas between Lebanon and Syria. Brent Dec trades in 71.24-72.79/bbl confines.
• Subdued trade in the precious metals complex despite the escalating geopolitical tensions, but still within contained parameters thus far in the run-up to risk events this week including Fed Chair Powell, ISM PMIs, and the US jobs reports. XAU resides within an USD 2,647.33-2,666.05/oz range.
• Base metals are firmer but off best levels as the optimism from Chinese stimulus is somewhat hampered by a broader cautious tone across markets.
• Russian Deputy PM Novak said Middle East geopolitical risks are already priced in, and global oil prices will not fluctuate significantly, via Ria
• BSEE estimated about 3% (prev. 12%) of oil production and 1% (prev. 6%) of natural gas production in the Gulf of Mexico was shut-in on Sunday. It was also reported that the death toll from Helene reached 89 and North Carolina’s Governor said that almost 464k customers in the state remain without power.

Geopolitics: Middle East

• “Israeli Walla website: The Israeli army completes its preparations for the ground incursion into south Lebanon”, according to Sky News Arabia.
• “Iran will try to transfer thousands of fighters to the border areas between Lebanon and Syria”, via Al Jazeera citing Bloomberg.
• “Iranian Foreign Ministry said we will not send forces to help Hezbollah”, via Al Arabiya.
• “Reports of explosions in the Syrian capital, Damascus”, via Sky News Arabia
• Hezbollah Deputy chief said will confront any possibility and are ready if Israel decides to enter by land; Hezbollah forces are ready for a ground incursion; confident Israel will not achieve its aims
• “Israeli special forces have been carrying out small, targeted raids into southern Lebanon, gathering intelligence and probing ahead of a possible ground incursion that could come as soon as this week,” according to WSJ sources
• Israel conducted strikes on Lebanon’s capital of Beirut on Friday and targeted the headquarters of Hezbollah which killed Hezbollah leader Nasrallah.
• Israeli military said it struck dozens of Hezbollah terror targets in Lebanon including launchers that were aimed at Israeli territory, while it also announced that it killed senior Hezbollah figure Nabil Kaouk and the commander of Hezbollah’s southern front Ali Karaki.
• Israeli Walla website reports that Israeli forces are concentrated on the northern front and preparing for a ground invasion of Lebanon.
• Israeli military said sirens sounded in an area of Jerusalem following a launch from Lebanon towards Israeli territory on Saturday and reports noted that Hezbollah launched a new rocket attack on Israel after announcing the death of its leader and said the group is to continue its battle against Israel.
• Israeli military announced sirens sounded after a missile was fired from Yemen which was intercepted and Yemen’s Houthis said they fired a ballistic missile at Israel’s Ben Gurion Airport upon Israeli PM Netanyahu’s arrival, while it was also reported that the Israeli military conducted strikes on Houthi targets in Yemen on Sunday including a power plant and sea import used to import oil.
• Israeli army said it bombed dozens of rocket launchers and Hezbollah weapons storage buildings in eastern Bekaa, while the Popular Front for the Liberation of Palestine said three of its leaders were killed in an Israeli strike on Beirut.
• Israeli PM Netanyahu said on Saturday that Hezbollah’s Nasrallah was the main engine of Iran’s axis of evil and Nasrallah’s elimination was a necessary step towards changing the balance of power in the Middle East, while he added that their work is not done and there are challenging days ahead.
• Israel’s Defence Minister was reported to be holding talks on the expansion of IDF activities in the northern arena.
• Israel warned Lebanese air control that it would use force if an Iranian plane landed at Beirut Airport, while the Lebanese Transport Ministry asked the Iranian plane to stay away from Lebanese airspace and the plane obliged.
• Lebanon’s caretaker PM said that they have no option but the diplomatic option, while the Lebanese Information Minister said following a cabinet meeting that diplomatic efforts for a ceasefire are continuing. It was also reported that the head of the Lebanese government crisis cell said around 1mln Lebanese people have been displaced by Israel attacks.
• Lebanon’s top Christian cleric said Lebanon’s patriarch calls for diplomacy because war means all sides lose, while the top Christian cleric added that Nasrallah’s killing opened a wound in the hearts of the Lebanese and that the international community must work to stop the cycle of war, killing and destruction.
• Iran’s Supreme Leader Khamenei announced five days of mourning over the death of Hezbollah leader Nasrallah and said that Nasrallah’s blood will not go unavenged.
• Iran’s President Pezeshkian said Lebanese fighters should not be left alone so that Israel does not attack countries of the axis of resistance one after the other.
• Iran’s Foreign Minister Araqchi said the killing of the IRGC deputy commander Nilforoushan in Lebanon will not go unanswered, according to a statement.
• Iran called for a UN Security Council meeting on Israel’s actions in Lebanon and across the region, while it warned against any attack on its diplomatic premises and representatives. Furthermore, it was stated that Iran will not hesitate to exercise its inherent rights under international law to take every measure in the defence of its vital national and security interests, according to Iran’s UN mission.
• Iran’s parliament speaker Qalibaf said the resistance will continue confronting Israel with the help of Iran, according to state media.
• US President Biden said it is time for a ceasefire now and replied that they are responding when asked if the US would respond to missile attacks on US warships in the Red Sea. It was also reported that President Biden is reviewing the status of the US military force posture in the region and directed continued diplomatic efforts to coordinate with allies and partners and de-escalate the ongoing conflicts.
• US Defense Secretary Austin spoke with Israeli Defence Minister Gallant and expressed support for Israel’s right to defend itself against Iranian-backed terrorist groups, while Austin stressed the US is determined to prevent Iran and Iranian-backed partners and proxies from exploiting the situation or expanding conflict.
• US is to reinforce defensive air support capabilities in the coming days in the Middle East and Defense Secretary Austin has put other US forces on a heightened readiness to deploy. US also ordered the departure of certain US Embassy direct hire employees and their eligible family members from Lebanon.
• US Central Command said it conducted targeted strikes in Syria which killed 37 terrorist operatives including senior leaders of ISIS and Hurras Al-Din.
• China’s Foreign Ministry said China opposes any violation of Lebanon’s sovereignty and urges the parties concerned, especially Israel, to immediately cool the situation.

Geopolitics: Other

• UAE condemned a ‘heinous attack’ on UAE’s mission in Sudan’s Khartoum and said the attack was carried out by a Sudanese military aircraft.
• Russian forces took control over the settlement of Makiivka in eastern Ukraine’s Luhansk region, according to IFX.
• Russia’s Kremlin said amendments to Russia’s nuclear doctrine have been prepared and will now be formalised, according to RIA.
• Russian PM Mishustin will visit Iran on Monday and will meet with the Iranian President.
• China’s Foreign Minister Wang told the UN General Assembly that China is not throwing oil on fire or exploiting the situation for selfish gain by promoting Ukraine peace talks, while he also stated that the complete reunification of China will be achieved and that Taiwan will eventually return to the embrace of the motherland.
• North Korea said the US’s USD 8bln military aid to Ukraine is an incredible mistake, while it added that Ukrainian President Zelensky who called Pyongyang an accomplice in the Ukraine war is waging reckless political provocation, according to KCNA.
• South Korea’s Foreign Minister Cho said Russia is engaging in illegal arms trade with North Korea.

Economic Data

• 09:45: Sept. MNI Chicago PMI, est. 46.0, prior 46.1
• 10:30: Sept. Dallas Fed Manf. Activity, est. -10.3, prior -9.7

Central Banks

• 08:50: Fed’s Bowman Speaks on Economic Outlook, Policy
• 13:55: Fed’s Powell Speaks at NABE

Government:

• 10:30 a.m.: Joe Biden delivers remarks on response efforts to Hurricane Helene

DB’s Jim Reid concludes the overnight wrap

Welcome to the last day of the month and it’s a busy week ahead bookended with a Powell speech today and payrolls on Friday. Also key will be the flash CPIs from Germany and Italy (today), and the Eurozone (tomorrow), especially after weak numbers from France and Spain on Friday. This could tip the balance for an October ECB cut. Elsewhere the global reaction to the China stimulus blitz last week will stay ever present even if their golden week holiday starts tomorrow and we won’t see domestic markets open over the period. As you’ll see below investors are again scrambling to put on China risk this morning ahead of the holiday.

Let’s now go into detail on the main events ahead before summarising the rest of the week’s highlights. For payrolls, DB expect headline (150k forecast vs. 142k previously) and private (125k vs. 118k) payrolls to be slightly ahead of their 3-month averages of 116k and 96k, respectively. This is broadly in-line with consensus. DB expect the unemployment rate to round up to 4.3% on the back of a slight pick-up in participation (to 62.72%), but the risk is that it could remain at last month’s 4.2% reading which is in-line with consensus. There are plenty of other employment signals this week with the ISM surveys, ADP, claims and JOLTS tomorrow. The JOLTS report has historically had one of the most reliable longer-term correlations to the prevailing employment trends but is always lagging by a month. Last month the private sector hiring rate continued near 2014 lows (outside the pandemic) but lay-offs were also lower than any period prior to the pandemic. The private sector quits rate (2.3%), which my colleague Francis Yared places great significance on, is also back close to 2018 levels and he believes more consistent with an unemployment rate of 4.5% using historical correlations as your guide. In short the US labour market can be characterised by currently having relatively low hirings and very low firings. So this is why there is no current drama but why it’s wise to be on high alert. One small shock could move things very quickly. Equally a recovery in hiring could increase the gap between the two quite sharply. Interestingly the following month’s payrolls figures could be influenced by the Boeing strike in mid-September that we don’t think will influence Friday’s figures, and a potential dockworkers’ one from tomorrow.

The risk of lay-offs increasing and tipping the balance in the current labour market is why the FOMC recently opened up their account with a 50bps cut. Powell’s speech today will likely stick to his FOMC script but it’s fair to say that Fedspeak since the meeting has been more amenable to additional 50bps cuts than we’d thought they would be. We have another round of Fedspeak this week as you’ll see in the day-by-day calendar at the end so plenty of opportunity for that debate to move along even if the payrolls at the end of the week could have a bigger impact.

In Europe, today’s German and Italian CPI will take on added significance given how weak Friday’s French (1.5% YoY vs. 1.9% expected) and Spanish (1.7% YoY vs. 1.9% expected) numbers were. The Eurozone numbers come tomorrow. If these misses are repeated it probably forces the ECB to either lean towards 25bps next month or 50bps in December instead of 25bps. So important releases.

In terms of the rest of the week across the globe, the main highlights outside those already discussed are the Chicago PMI and Lagarde speech today, various global manufacturing PMIs and US ISM alongside the US Vice President debate and the Japanese tankan survey tomorrow, US ADP and Eurozone unemployment on Wednesday, and various global services PMIs and ISM and Eurozone PPI on Thursday. Outside of data a policy speech by French PM Barnier tomorrow will give clues to how the budget will materialise.

This morning, Asian equity markets have seen some big early moves. The Nikkei has dropped by -4.64% following Friday’s surprise selection of Shigeru Ishiba as the next prime minister, who has previously criticised the Bank of Japan’s loose policies. In contrast, stocks in mainland China are notching up a ninth day of gains ahead of a week long holiday tomorrow. The CSI is up by +5.84%, initially surging as much as +6.5%, the largest jump since 2015. The Shanghai Composite is also up by +5.28% with the Hang Seng +2.91% in early trading. Elsewhere the KOSPI is down by 0.88% and US futures are pretty flat.

Coming back to China, official factory activity slightly improved in September but stayed below 50 for a fifth consecutive month in September. This will be seen as backward looking now but for completeness, the manufacturing PMI came in at 49.8 in September (v/s 49.4 expected), up from 49.1 in August with the services PMI at 50.0 (v/s 50.4 expected), down from a level of 50.3 in the previous month. However, China’s Caixin PMI was 49.3 in September (v/s 50.5 expected), experiencing its sharpest contraction in 14 months. It followed a reading of 50.4 in August. The services Caixin PMI at 50.3 in September, was down from 51.6 in August.

Elsewhere, Japan’s industrial output in August fell -3.3% m/m, as significant miss compared to market expectations of a -0.5% decline and against an increase of +3.1% in July. On a brighter note, retail sales increased by +2.8% y/y in August, surpassing market forecasts of +2.6% y/y following an upwardly revised gain of +2.7% in July.

Turning to politics, Austria’s far-right Freedom Party achieved a landmark victory in the parliamentary election on Sunday, strengthening pro-Russian and anti-establishment movements in Central Europe. This marks the first far-right national parliamentary election victory in Austria since World War II. Preliminary official results showed that the Freedom party secured first place with 29.2% of the vote, while Chancellor Karl Nehammer’s Austrian People’s Party came in second with 26.5%. The center-left Social Democrats finished third with 21%. The outgoing government, a coalition between Nehammer’s party and the environmentalist Greens, lost its majority in the lower house of parliament. Despite the Freedom Party’s success, it seems unlikely that their leader, Herbert Kickl, will become the new leader, as he would need a coalition partner to achieve a parliamentary majority. Rivals have stated they will not collaborate with Kickl in government.

Looking back at last week now, risk assets surged as China’s stimulus announcements and positive US data led to renewed optimism about the global outlook. In fact, it was the strongest week for the Hang Seng since 1998, with a +13.00% advance over the week (+3.55% Friday). And for the CSI 300, it was its best week since 2008, with a +15.70% advance (+4.47% Friday). China-exposed stocks in the US and Europe did very well in response too.

In terms of those broader gains, the stimulus announcement meant the CAC 40 had its best weekly performance since March 2023 with a +3.89% gain (+0.64% Friday), aided by the luxury goods companies in the index. Copper was another beneficiary, posting its biggest weekly gain since May with a +7.43% advance (+0.40% Friday). And the major indices more broadly had a very strong week, as the STOXX 600 hit another all-time high thanks to a +2.69% gain last week (+0.47% Friday). The gains were more modest in the US, with the S&P 500 advancing by +0.62% (-0.13% Friday).

Sovereign bonds had a decent end to the week thanks to softer-than-expected inflation data on both sides of the Atlantic. As already discussed, the preliminary reading for French CPI fell to +1.5% in September on the EU-harmonised measure (vs. +1.9% expected), and the Spanish reading was down to +1.7% (vs. +1.9% expected). So that led to growing expectations that the ECB might deliver another cut at their October meeting, particularly after the weak flash PMIs at the start of the week. Over the course of the week, that saw investors dial up the chance of an October cut from 26% to 82%, so a significant move. And in turn, that led 10yr bund yields to fall -7.4bps last week (-4.9bps Friday). However, there were still several concerns about the fiscal situation in France, and the Franco-German 10yr spread widened +2.9bps last week to 79bps.

Over in the US, on Friday we got the August numbers for PCE inflation, which is the measure that the Fed officially targets. This came in slightly below expectations, with headline PCE inflation down to +2.2% year-on-year (vs. +2.3% expected), which is only just above the Fed’s 2% target, and the lowest reading since February 2021. Annual core PCE was in line with expectations at +2.7%, but with the monthly reading a touch lower at +0.1% (+0.13% unrounded vs. +0.2% expected). That helped the 10yr Treasury yield to fall back on Friday, although over the week as a whole it was still up +1.0bps (-4.5bps Friday). The other report of note on Friday was the University of Michigan’s final consumer sentiment index for September, which came in at a 5-month high of 70.1.

Intelligence Quotient (IQ) scores are a measure used to assess human intelligence through standardized tests. These scores compare a person’s cognitive abilities to the average population, with the average score typically falling around 100.

To see how IQ varies across the United States, Visual Capitalist’s Marcus Lu visualized data from a 2022 report published in the National Library of Medicine (Journal of Intelligence) by Bryan J. Pesta titled Updated IQ and Well-Being Scores for the 50 U.S. States.

This data can also be easily accessed via Data Pandas or through the scientific research paper itself.

Data and Methodology

IQ estimates are based on an analysis of exam scores from the Program for the International Assessment of Adult Competency (PIAAC) for adults, and the National Assessment of Educational Progress (NAEP) for fourth and eighth grade children.

The PIAAC is a large-scale international study of key cognitive and workplace skills of adults, while the NAEP is the largest nationally representative assessment of student capabilities in public and private schools in the U.S.

Note that IQ scores have their limitations, and do not capture all aspects of intelligence such as creativity or emotional intelligence. The numbers we used to create this graphic are listed in the table below.

Rank	State	Average IQ
1	Alabama	95.7
2	Alaska	99.0
3	Arizona	97.4
4	Arkansas	97.5
5	California	95.5
6	Colorado	101.6
7	Connecticut	103.1
8	Delaware	100.4
9	Florida	98.4
10	Georgia	98.0
11	Hawaii	95.6
12	Idaho	101.4
13	Illinois	99.9
14	Indiana	101.7
15	Iowa	103.2
16	Kansas	102.8
17	Kentucky	99.4
18	Louisiana	95.3
19	Maine	103.4
20	Maryland	99.7
21	Massachusetts	104.3
22	Michigan	100.5
23	Minnesota	103.7
24	Mississippi	94.2
25	Missouri	101.0
26	Montana	103.4
27	Nebraska	102.3
28	Nevada	96.5
29	New Hampshire	104.2
30	New Jersey	102.8
31	New Mexico	95.7
32	New York	100.7
33	North Carolina	100.2
34	North Dakota	103.8
35	Ohio	101.8
36	Oklahoma	99.3
37	Oregon	101.2
38	Pennsylvania	101.5
39	Rhode Island	99.5
40	South Carolina	98.4
41	South Dakota	102.8
42	Tennessee	97.7
43	Texas	100.0
44	Utah	101.1
45	Vermont	103.8
46	Virginia	101.9
47	Washington	101.9
48	West Virginia	98.7
49	Wisconsin	102.9
50	Wyoming	102.4

From this dataset, we can see that the average IQ score by state ranges between 94.2 and 104.3. These scores are all considered “average intelligence” by the Wechsler Adult Intelligence Scale.

The top three states are Massachusetts (104.3), New Hampshire (104.2), and North Dakota (103.8).

Massachusetts’ higher score average could be due to several factors. For starters, the state is home to prestigious universities like Harvard and MIT, which may contribute to a more academically focused culture. It also has a relatively high median household income, meaning families could have greater access to educational tools.

If you enjoyed this graphic, check out this ranking of U.S. universities by their number of startup founders on Voronoi, the new app from Visual Capitalist.

Authored by Liz Heflin via Remix news,

In Sweden, the consequences of the policy of opening up to mass migration from Africa and the Middle East cannot be hidden, with the current government taking moderate steps to improve the situation.

This is part of an agreement with the Sweden Democrats, a party opposed to destructive migration policies, writes Do Rzeczy.

Over the past 20 years, the number of people born abroad has doubled from 1 million to 2 million, and the country’s population has grown to over 10 million. In 2015, Sweden accepted a record number of so-called asylum applications, 162,000, mainly from culturally foreign countries, such as Afghanistan and Syria. In time, the government decided to reinstate border controls, and is wondering how to “regulate migration.”

The scale of the influx of immigrants to Sweden was limited during the term of office of Malmer Stenergard from the Moderate Party coalition of Prime Minister Ulf Kristersson, who served as migration minister from 2022 to 2024. Since 2024, she has headed the Ministry of Foreign Affairs.

In an interview for the newspaper “Dagens Nyheter,” Stenergard admitted that as a result of mass immigration and poor integration in the country, the phenomena of welfare dependency, radicalization, and organized crime have appeared.

The head of Swedish diplomacy did not hide the fact that “there is a difference in terms of which countries immigrants come from.” When large groups of workers from neighboring Finland arrived in the peaceful Scandinavian country in the 1970s, it brought good results. The Finns quickly filled the job market and did not pose a threat to security. “They are similar to us and quickly blend into society, and it is similar now in the case of Ukrainians,” she said, adding that it is completely different “accepting such people versus immigrants from other regions,” the minister said.

Stenergard spoke, without any regard for being politically correct, about those migrant groups causing trouble. She admitted that in the case of immigrants from the Middle East and Africa, “we are dealing with lower education and a completely different cultural background.”

“Many of these countries have a different society and different ways of resolving conflicts,” she said, adding that “migration must be regulated in order to maintain mobility.”

In Sweden – at least so far – they are looking for subtle ways, aside from strict border controls. The government has proposed in the draft budget for next year a relocation subsidy of up to 350,000 kronor (€30,000) for each migrant who agrees to return to their country voluntarily.

Stockholm hopes that this will tempt more foreigners to leave the country, especially those who have not assimilated into Swedish society and who generate all sorts of problems. Unfortunately, polling shows very few would accept.

While many migrants may not like Swedes, most have no interest in ever leaving Sweden. Over half say they would never leave for any amount of money. https://t.co/eM7SrRTKrS

— Remix News & Views (@RMXnews) September 20, 2024

The political scene is determined to improve security in the country, and authorities in Stockholm do not hide the fact that if voluntary incentives to return prove ineffective, forced deportations are envisaged.

Currently, immigrants who agree to return to their country of origin can count on a grant from Swedish taxpayers of up to 10,000 kronor (around €800) per adult. This amount usually covers travel costs for people with a residence permit in Sweden but who are not citizens of Sweden. Applicants must prove that they have the means to travel and that their return has been accepted by the country of destination.

Read more here…

Authored by Andrew Korybko via substack.com,

The latest Israeli-Lebanese War and the Ukrainian Conflict are so different from one another as to be practically incomparable, but Russia can still learn some general lessons from Israel if it has the will.

The first is that prioritizing military goals increases the chances of achieving political ones. Russia’s special operation continues to be characterized by self-restraint, which is influenced by Putin’s magnum opus “On the historical unity of Russians and Ukrainians”, unlike Israel’s conduct in its war with Lebanon.

The expectation was that the lightning-fast on-the-ground advances during the opening stage of the conflict would coerce Zelensky into agreeing to the military demands that were made of him. The only miniscule collateral damage that would have occurred could have then facilitated the process of Russian-Ukrainian reconciliation. This plan was predicated on Zelensky’s capitulation, which didn’t happen. Instead, he was convinced by former British Prime Minister Boris Johnson to keep fighting.

Israel never thought that a lasting deal is possible with Hezbollah, unlike what Russia thought and arguably still thinks is possible with Ukraine’s post-“Maidan” authorities, which is why Tel Aviv would never take a page from Moscow’s playbook by carrying out “goodwill gestures” in pursuit of that. From Israel’s perspective, political goals can only be achieved after a military victory, not the inverse like Russia believes with regard to the notion that a political victory can lead to the attainment of military goals.

The second lesson is the importance of superior intelligence. Russia was reportedly under the impression cultivated by its Ukrainian assets in the run-up to the special operation that the locals would greet its troops with flowers and then Zelensky’s government would collapse. Intelligence collection focused mostly on the socio-political situation in Ukraine, which turned out to be incredibly inaccurate, and not on military details. That’s why Russian troops were surprised by Ukraine’s Javelin and Stinger arsenals.

It also seems to be the case in retrospect that Russia’s Ukrainian assets told their handlers what they thought they wanted to hear, whether to deceive them or because they thought that telling tough truths could risk them being taken off the payroll. Russia either didn’t verify the socio-political intelligence that it received or the other sources that it relied on were driven by the same motives. In any case, an alternative reality was created, which reinforced the prioritization of political goals over military ones.

Israel is no doubt interested in Lebanon’s socio-political situation, but it cares much more about tangible military intelligence that can be verified with images than intangible impressions of public opinion that could be shaded by their source’s biases and aren’t as easy to verify. These different intelligence collection priorities are the natural result of the different conflicts that they planned to wage as explained in the preceding lesson that Russia can learn from Israel.  

The third is that Russia remains sensitive to global public opinion, which is another outcome of prioritizing political goals over military ones, while Israel is impervious to public opinion at home, in Lebanon, and across the world. Russia will therefore put its troops in harm’s way capturing locations block-by-block as opposed to practicing “shock and awe” like Israel is doing in Lebanon. Even though Russia’s approach led to a lot fewer civilian deaths, it’s still criticized much as Israel is, if not more.

Israel believes that fear inspires respect, while Russia doesn’t want to be feared since it thinks that this impression would assist the West’s efforts to isolate it in the Global South. Respect, Russia believes, comes from restraining itself in order to protect civilians even at the cost of its own troops. Russia has also criticized the US for the way in which it waged the Afghan, Iraqi, and Libyan Wars, et al., and thus doesn’t want to appear hypocritical by prioritizing military goals even at the expense of civilians’ lives.

Israel lacks the natural resources that Russia has so its opponents should have had a much easier time isolating it by at least getting others to impose symbolic sanctions, yet nobody has sanctioned Israel even though it’s responsible for many more civilian deaths than Russia. Even Russia itself won’t sanction Israel despite criticizing it. To be fair, the Global South hasn’t sanctioned Russia either, but it needs Russian resources so it likely wouldn’t sanction it even if it becomes responsible for many more civilian deaths.

Moreover, the Global South’s partnership with Russia accelerates multipolar processes to their collective benefit, while the EU’s anti-Russian sanctions were meant to decelerate them. It should therefore have been predictable that the first wouldn’t submit to American pressure while the second would. Neither’s calculations have anything to do with Russia’s responsibility for civilian deaths and everything to do with their own grand strategy. Russia’s sensitivity to global public opinion might thus be misplaced.

The fourth lesson is that Israel’s permanent military, intelligence, and diplomatic bureaucracies (“deep state”) are more convinced of their conflict’s existential nature than Russia’s appear to be. That’s not to say that say that the Ukrainian Conflict isn’t existential to Russia, which was explained here and here, but just that Russia would have prioritized military goals over political ones by now if its “deep state” fully shared this assessment. Israel’s certainly does regardless of whether one agrees with their conclusion.

Russia is still restraining itself by continuing to fight an improvised “war of attrition” with the West in Ukraine after it couldn’t successfully coerce Zelensky into agreeing to the military demands that were made of him during the special operation’s initial stage instead of escalating to “shock and awe”. It still won’t destroy any bridges across the Dnieper due to its prioritization of political goals over military ones and sensitivity to global public opinion and has even let several red lines be crossed already.

To be sure, the West won’t cross Russia’s ultimate red lines of directly attacking it or Belarus or relying on Ukraine to launch large-scale strikes against them by proxy since it doesn’t want World War III, but some hawks are now talking about the latter scenario, hence why Russia just updated its nuclear doctrine. By contrast, Hamas’ sneak attack on 7 October 2023 crossed one of Israel’s red lines but didn’t ipso facto represent an existential threat since it was beaten back, yet Israel’s “deep state” still saw it differently.

Although some differences of vision exist between various members thereof, this group as a whole is still convinced of the existential nature of the conflict that followed, ergo the prioritization of military goals over political ones that’s the opposite of Russia’s approach. To this day, despite compelling arguments from Russian officials about the existential nature of their country’s conflict, its “deep state” as a whole still doesn’t seem to be as convinced of this as their Israeli counterparts are of their own conflict.

A change in perceptions would lead to a change in how this conflict is fought, but that hasn’t yet happened despite drone attacks against the Kremlin, strategic airbases, and even early warning systems, among many other provocations including Ukraine’s invasion of Kursk Region. Time and again, despite reminding everyone about how existential this conflict is, Russia continues exercising self-restraint. Political goals are still prioritized over military ones and Russia is still sensitive to global public opinion.

That could change if it learns the last lesson from Israel about “radical decisiveness”. Philosopher Alexander Dugin wrote that “Those who act with decisiveness and boldness win. We, on the other hand, are cautious and constantly hesitate. By the way, Iran is also following this path, which leads nowhere. Gaza is gone. Hamas’ leadership is gone. Now Hezbollah’s leadership is gone. And President Raisi of Iran is gone. Even his pager is gone. Yet Zelensky is still here. And Kiev stands as if nothing has happened.

He ended on the ominous note that “We must either join the game for real or… The second option is something I don’t even want to consider. But in modern warfare, timing, speed, and ‘dromocracy’ decide everything. The Zionists act swiftly, proactively. Boldly. And they win. We should follow their example.” Dugin was the first to foresee the latent existential threat to Russia posed by 2014’s “EuroMaidan” and has thus been pressing since the start of the special operation for it to stop exercising self-restraint.

“Goodwill gestures” and self-restraint aren’t appreciated by Ukraine, which perceives them as proof of weakness that have only served to embolden it to cross more of Russia’s red lines. For as much as these policies have reduced civilian deaths, they haven’t yet advanced their envisaged political goals over two and a half years since the latest phase of this already decade-old conflict began. It might therefore be time to finally change them in light of how different the conflict has since become.

Putin’s noble plan of a grand Russian-Ukrainian reconciliation after the special operation ends appears to be more distant than ever, yet he still believes that it’s supposedly viable enough to justify staying the course by continuing to prioritize political goals over military ones. He’s the Supreme Commander-in-Chief with more information available to him than anyone else so he has solid reasons for this, but maybe Israel’s example in Lebanon will inspire him to see things differently and act accordingly.