Month: September 2024

After the disaster that was the Manufacturing surveys earlier in the week, the Services surveys are the ‘soft landing’-narrative-believers last great hope ahead of tomorrow’s all-important payrolls print to save the day.

• S&P Global’s Services PMI jumped from its flash print of 55.2 to a final August print of 55.7 (up from the 55.0 in July) – that is the highest since March 2022.

• ISM Services rose from 51.4 to 51.5 (barely beating the 51.4 expectations)

And all that ‘soft’ data improving as ‘hard’ data languishes…

Source: Bloomberg

ISM’s survey saw new orders improve, employment worsen and prices paid rise…

Commenting on the S&P Gloabl data, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said:

“An improvement in the headline services PMI to its highest for nearly two-and-a-half years provides further encouraging evidence that the US economy is enjoying robust economic growth in the third quarter, adding to signs of a ‘soft landing’.

So everything’s awesome!? Why cut rates?

“The faster service sector expansion means the PMI surveys are signalling GDP growth of 2-2.5% in the third quarter.

At the same time, the August survey data signaled a further cooling of selling price inflation, notably in the service sector, which has now eased close to the average seen prior to the pandemic and a level consistent with the Fed’s 2% inflation target.

But – it;s a big circular joke…

“Services growth has been buoyed in particular by the prospect of lower interest rates, but there are several headwinds which could dampen growth in the months ahead. Business optimism and investment is being subdued by uncertainty regarding the outcome of the Presidential Election. Hiring is meanwhile being constrained by labor shortages, which also continue to put upward pressure on wages.

So wait – the survey is soaring because people expect rate cuts… which wont happen if the surveys are too strong? Reflexivity, anyone?

“However, perhaps more worryingly, the recent downturn in manufacturing activity is showing some signs of spilling over to the broader economy, notably via stalled orders for industrial services.

“It will therefore be important to monitor whether the service sector succumbs to the recent weakening of factory activity or whether looser monetary policy creates a rising tide to lift all boats.”

As always, baffle ’em with bullshit is back America! What elese would you expect in an election year.

A suspected terror attack was attempted near the Israeli Consulate in Munich on Thursday, which resulted in the attacker being fatally wounded by police amid a huge security response.

A shootout erupted shortly after 9am after a young man was witnessed carrying a “long-barreled gun” with a bayonet attached to it in the Karolinenplatz area, near downtown Munich. Five officers were at the scene at the time and responded with gunfire. The 18-year-old shooter later identified as being a Muslim from Austria died at the scene. 

German Police said they immediately deployed 500 officers to the area on fears there could be more attackers. Authorities believe that the Israeli consulate was the target given it happened on the anniversary of the Palestinian terror attack on the 1972 Munich Olympics which killed eleven Israeli athletes. But investigators say they are still looking at the motive.

German authorities in a follow-up press briefing confirmed they are treating a shooting as a “possible attack on an Israeli institution,” according to the words State Interior Minister Joachim Herrmann. The weapon used was also revealed to be a vintage rifle.

Dr. Josef Schuster, the head of the Central Council of Jews in Germany, said that while the background and motive for the attack is still not fully known, “What we do know takes our breath away.” He added: There could have been a catastrophe in Munich today. I thank the police for their quick intervention.”

German police shot dead an armed assailant near the Israeli consulate in Munich, saying the incident was a “possible attack on an Israeli institution.”

Police confirmed the attacker was an 18-year-old Austrian national known to security authorities as an Islamist. pic.twitter.com/ljJXcC9f8m

— DW News (@dwnews) September 5, 2024

Spiegel news outlet reported that the gunman was already known to security authorities as an Islamist who lived in Austria’s Salzburg area near the border with Bavaria. Below is Times of Israel citing German and European media:

The suspect in a shooting near the Israeli consulate in Munich was a teenage Austrian national who was known to security authorities as an Islamist, the Standard newspaper and Spiegel news outlet report.

The suspect lived in Austria’s Salzburg area near the border with Bavaria and had recently traveled to Germany, the reports say.

“We have to assume that an attack on the Israeli Consulate possibly was planned early today,” Bavaria’s top security official, state Interior Minister Joachim Herrmann, told reporters at the scene. “It’s obvious that, if someone parks here within sight of the Israeli Consulate… then starts shooting, it most probably isn’t a coincidence.”

It turns out the consulate was closed at the time of the shooting, with diplomatic staff at the time planning to attend a memorial memorial ceremony for the 1972 attack. No Israeli personnel were hurt in Thursday’s incident.

#BREAKING Israel President says the shooting at the consulate in Munich was a terror attack after a phone call with his German counterpart pic.twitter.com/MFiwIEyxVs

— Guy Elster (@guyelster) September 5, 2024

The fact that the young Islamist was already known to German authorities raises a lot of questions about not only his ease of entry into the country from Austria, but how he wasn’t apprehended and questioned earlier. There’s also the question of how he was able to walk around central Munich for so long in broad daylight (long enough to be filmed by nearby bystanders) brandishing a large vintage gun with a bayonet.

Authored by Brett Wilkins via Common Dreams,

Palestine supporters hopeful that the United Kingdom’s announcement of a partial suspension of arms export licenses to Israel were left disappointed on Tuesday after a U.S. State Department official said the Biden administration was not considering any similar move.

Asked by CBS News national security reporter Olivia Gazis during a daily press conference if the U.K.’s decision “changed the U.S.’ position on whether international humanitarian rights have been violated” by Israel or if the U.S. is “rethinking any of its arms exports,” Miller said “no.”

“This is a decision that the United Kingdom made based on its assessments under its own laws,” he said. “We have our assessments that are ongoing when it comes to looking at possible violations of international humanitarian law, and those continue to be ongoing.”

Miller—who has admitted that the Gaza death toll could be even higher than the figure claimed by Palestinian authorities—added that there are “a number of incidents” committed by Israeli forces that “remain under review.”

Pressed by Reuters foreign policy correspondent Hümeyra Pamuk how “two countries with pretty similar values” are “looking at the same battlefield and coming with very different conclusions,” Miller said that “we have not reached conclusions.”

“We have reviews that are ongoing, and we haven’t made any final determinations or any final conclusions yet,” he continued. Miller said that the U.K. makes “their determinations based on the standard that is written in U.K. law. We will make our determinations based on the standard based in U.S. law, which I don’t think is that hard to understand.”

“We’ve said that it’s reasonable to assess that there have been violations of international humanitarian law committed,” Miller acknowledged. “What we are doing is going and looking at specific incidents to make specific judgments on those specific incidents to find if they have been remediated… what are the actions that Israel took, if any.”

“You have to answer those two questions before you can make those determinations under United States law,” he added. “That’s what we’re doing.” Asked when those assessments will be completed, Miller said, “As soon as possible.”

In addition to providing Israel with tens of billions of dollars in armed aid, the Biden administration also shields the far-right government of Israeli Prime Minister Benjamin Netanyahu at the United Nations by vetoing Security Council cease-fire resolutions. Experts argue this makes the United States complicit in what many jurists and scholars say is genocide. Israel is currently on trial for the crime of genocide at the International Court of Justice. Last week, Palestinians, Palestinian Americans, and rights groups asked the 9th U.S. Circuit Court of Appeals in San Francisco to revisit a lawsuit accusing senior Biden administration officials of complicity in genocide.

Meanwhile, International Criminal Court Prosecutor Karim Khan has applied for arrest warrants targeting Netanyahu and Israeli Defense Minister Yoav Gallant for alleged “crimes of causing extermination, causing starvation as a method of war, including the denial of humanitarian relief supplies, [and] deliberately targeting civilians in conflict.”

Khan also wants to arrest Hamas leaders Yahya Sinwar, Ismail Haniyeh, and Mohammed Deif for alleged “extermination, murder, taking of hostages, rape, and sexual assault in detention.” Haniyeh was assassinated in Tehran in July. Israel also claims to have killed Deif.

Biden and members of his administration have decried Khan’s bid to arrest Israeli leaders and members of U.S. Congress from both major parties support legislation to sanction ICC officials over its prosecutor’s pursuit of warrants.

.@Olivia_Gazis asked StateSpox if the US is rethinking any arms exports to Israel after UK decision to halt some weapons

Miller: No…we have our own assessments

Gazis: Last we heard of those was in April, there’s been no updates since April

Miller: No… pic.twitter.com/SjYoaxkH7R

— Assal Rad (@AssalRad) September 3, 2024

On Tuesday, the Department of Justice charged six senior leaders of Hamas—a U.S.-designated foreign terrorist organization—with terrorism, murder conspiracy, and sanctions evasion.

The Gaza Health Ministry said Tuesday that Israel’s 333-day assault on Gaza has left more than 145,000 Palestinians dead, maimed, or missing. The Israeli onslaught has displaced nearly all of Gaza’s 2.3 million people and pushed much of Gaza into famine.

Instead of pursuing a different policy toward Israel amid its increasing international isolation over the Gaza war, U.S. Vice President Kamala Harris—who became 2024 Democratic presidential nominee after Biden bowed out of the race in July—has flatly said she will not block any arms transfers to Israel. Former President Donald Trump, the Republican nominee, is expected to be even more supportive of Israel if he wins a second term.

There has been much talk of the calamitous possibility that Kamala Harris will implement an unrealized gains tax if she is elected, effectively short-circuiting one of the core precepts of capitalism: the impetus for enterpreneurs to create value out of nothing, and to cash out on their own terms. Well, spoiler alert: an unrealized gains tax has a zero chance of ever happening, and would require not just Democrats but their progressive communist wing to sweep Congress to ram such a revolutionary overhaul to the US tax system, one which would almost single-handedly blow up the US economy and capital markets.

But the truth is that one doesn’t even need something as unorthodox as unrealized gains tax to crush trillions in value: merely hiking the capital gains tax would be perfectly sufficient to spark a chaotic firesale, as the UK is gradually learning.

As the FT reports, fears that the socialist UK government will raise capital gains tax in its October Budget are driving a “frenzy” of activity by business owners, property investors and shareholders, according to wealth managers and tax experts.

Last week the country’s new PM Keir Starmer, gave the strongest signal yet that the Labour administration will raise taxes to close a £22bn “black hole” in the public finances at the October 30 budget.

“There’s a Budget coming in October and it’s going to be painful,” Starmer said in a speech last Tuesday, and like any good socialist, added that “those with the broadest shoulders should bear the heavier burden.”

In kneejerk response, several advisers told the FT that their asset-owning clients were “worried about potential increases in capital gains tax — particularly as Labour ruled out raising national insurance, income tax or VAT in the run-up to July’s general election.”

“It is a frenzy”, said Tim Stovold, partner at Moore Kingston Smith, an accountancy firm, who reported inquiries about selling assets, due to worries about tax rises, had rocketed since the election.

Capital gains on assets including businesses, second homes and shares are currently taxed at between 10 and 28% — lower than the 20 to 45% levied on income.

Miles Dean, partner and head of international tax at Andersen, said his clients with real estate, company shares and crypto assets had been pushing to sell them and pay tax at the existing rates for at least 18 months “ever since it became clear that Labour were going to get into power.”

The scramble to sell became a liquidation avalanche once the new cabinet made it clear what its tax plans were: Nimesh Shah, chief executive at advisory firm Blick Rothenberg, said the prime minister’s statement had prompted a “significant number of queries in the last 24 hours”.

Several clients who own businesses were pushing “through business sale transactions way in advance of when they would have, with an urgency to complete”, added Ian Cook, financial planner at Quilter Cheviot. Cook said he knew of a number of property investors who were in the “throes of liquidating property portfolios”. Most of them had started selling down their assets as soon as the new government was confirmed. Investment properties owners who had not yet started selling would find it difficult to complete before the October Budget, Cook warned.

“For both property owners and entrepreneurs, there’s a lead time. You don’t put it on eBay and then it’s gone in a week,” he said erroneously: anything will sell on eBay in a week, or even a day, if the seller is motivated enough, i.e., if the price is low enough.

Stovold agreed that some people were “losing their common sense” and looking at accelerating sales of assets that they had intended to hold for at least the next 10 years. He added that there would be tax raising benefits for the government of letting the CGT “rumours run rife”.

Overall the uncertainty was unhelpful for businesses and their owners, said Mike Hodges, partner at accountancy firm Saffery.

“Causing people to act in haste doesn’t feel like the best way to create the confidence and stability around the tax system that will encourage people to invest,” he said. “With two months still to go until the Budget, we don’t want to encourage a fire sale mentality.”

We bring that up because with exactly two months until the election, we finally got some more details on one of Kamala Harris’ primary economic policies, and it pretty much assures that the selling panic seen now in the UK will very soon jump the Atlantic.

Speaking at an event in Portsmouth, New Hampshire, Kamala Harris – still silent on the idea of a taxing unrealized gains – called for a 28% capital gains tax rate on people earning $1 million or more, touting it as a measure that would ensure the wealthy paid their fair share as she sought to detail her economic agenda and draw a contrast with Donald Trump.

“While we ensure that the wealthy and big corporations pay their fair share, we will tax capital gains at a rate that rewards investment in America’s innovators, founders and small businesses,” Harris said Wednesday at an event in Portsmouth, New Hampshire.

To this date, nobody – not even the socialists – have defined what “fair” means, besides of course, some random number they believe is… well… fair.

The Democratic presidential nominee’s proposal falls short of the 39.6% rate that President Joe Biden has embraced, marking her efforts to chart an economic vision separate from the sitting president in an election in which voters’ skepticism of the administration’s handling of the economy threatens to weigh down her ticket. The current capital gains tax rate is 20%.

Harris in recent weeks has sought to roll out her agenda, seeking to convince voters to trust her on the economy and to assure them that she will work to curb the high prices that have hit US households hard under the current administration.

Her proposals have included calls for expanded tax credits for parents and $25,000 down-payment assistance for first-time home buyers. Harris plans to pay for those tax cuts by increasing the corporate tax rate to 28% from 21%, imposing a minimum income tax on billionaires and quadrupling a levy on stock buybacks, according to a campaign official who spoke on condition of anonymity to detail policy discussions.

Harris has vowed to pay for all of her spending plans – of which there are plenty – with higher taxes on businesses and wealthy households.

Harris also detailed plans to expand small business tax relief for entrepreneurs. Her blueprint calls for increasing the small business tax deduction for startup costs tenfold to $50,000 from $5,000. And the vice president is setting a goal of 25 million new small business applications in the first term of a potential Harris administration, a tally that would surpass the record 19 million so far under Biden, of which the vast majority are fraudulent and meant to facilitate PPP fraud as we have explained previously on multiple occasions.

Fraudulent small business creation over the past 4 years (to illegally benefit from PPP loans) is why the US labor market is such a mess (near record downward job revisions) with the Birth/Death indicator the most inaccurate it has ever been https://t.co/PT817HXmXt

— zerohedge (@zerohedge) September 4, 2024

“As president one of my highest priorities will be to strengthen America’s small businesses,” Harris said, stealing even more policy promises from Donald Trump.

Harris’ policy rollout comes a little over a month after she entered the presidential race and with about two months until Election Day. The vice president has seen a surge in momentum in the polls and fundraising but is still seeking to counter Trump on the economy, an issue on which polls show voters trust the former president more.

On the campaign trail, Harris’ surrogates have sought to pitch her as a pro-business candidate to donors to assuage concerns over the Biden administration’s policies.

“Her vision is pro-capitalism, pro-innovation, pro-growth, you know, lots of employment, lots of housing. It’s just forward looking,” her husband Doug Emhoff lied to donors at an event last month, because while Kamala may lie through her teeth now, the reality remains that she was and is the kamala liberal Democrat, left even of Bernie Sanders.

Meanwhile, Trump has called for a series of tax cuts on corporations, individuals and retirees.

In any case, whoever wins the White House in November will contend with a major tax bill next year with parts of Trump’s 2017 tax cuts on households and small businesses set to expire at the end of 2025. But even before then it will get messy: the US is currently adding about $100 billion in new debt every month, which is why US debt, which just hit a record high, will surpass $36 trillion by year end.

US debt up $64 billion in 1 day to start the month of September, to a record high of $35.3 trillion.

Will be up another $1 trillion by year end. https://t.co/BSMbhUmTL6 pic.twitter.com/6ykmdbRXCG

— zerohedge (@zerohedge) September 5, 2024

And then there is the problem with interest expense: it was $1 billion daily before covid, $2 billion during, and $3 billion in interest on the US debt every day today. Something tells us this number will never really go down, because even if interest rates drop materially, the US will just borrow that much more…

Initial jobless claims continues to ignore the ‘other crappy data’, printing 227k (in line with 230k exp) and basically unchanged at two-month lows…

Source: Bloomberg

On a non-seasonally-adjusted basis, initial claims are at their lowest in 10 months!! Of course! Why not.

Continuing claims also dropped (to three month lows)…

Source: Bloomberg

So, everything is awesome!

Your government-supplied data tells you so!

Ahead of tomorrow’s “most important data point in history” payrolls print, this morning we get the ADP employment report and jobless claims (and ISM Services) as an aperitif to tease the day traders and test the reaction functions of the algos.

Against expectations of adding 145k jobs (a slight improvement over July’s 122k), ADP’s Employment report printed a dismal +99k for August – the weakest print since January 2021 (and July’s +122k was revised down to +111k)…

Source: Bloomberg

That is also the fifth straight monthly decline in the ADP employment report’s jobs additions.

The highest-paying jobs segments including Manufacturing and Professional Services saw the largest job declines…

This was the weakest Services job growth since March 2023 as Manufacturing job growth also slowed…

“The job market’s downward drift brought us to slower-than-normal hiring after two years of outsized growth,” said Nela Richardson, chief economist, ADP.

“The next indicator to watch is wage growth, which is stabilizing after a dramatic post-pandemic slowdown.”

Source: Bloomberg

Finally, as a reminder, ADP has underestimated the official BLS data for 10 of the last 12 months…

Source: Bloomberg

So jobs growth weak (great news for the doves) but wage growth has stopped is disinflatinary trend (not a great picture).

Stagflation anyone?

After several days of rollercoaster volatility and uniform pain across global equity markets for bulls, US equity futures are flat as the global sell-off stabilizes into the most important macro data releases. As of 8:00am ET S&P futures are up 0.1% and Nasdaq futs are flat, with NVDA +40bps premarket, TSLA rising 2.3% while the balance of Mag7 is weaker and Semis under pressure, too. Europe’s Stoxx 600 index dropped 0.3%, with China-facing luxury stocks such as LVMH again among the biggest losers. Asian equities erased most gains after declines in Hong Kong and Japan. Bond yields are 1bps higher, but the USD is weaker as the yen gained overnight following unexpectedly strong – if transitory – Japanese wage data. Commodities are stronger led by Energy and precious metals while iron ore slumped to its lowest level since 2022 and traded near $90 a ton as China’s main steel industry group advised mills to be cautious in boosting output too quickly to avoid snuffing out a post-summer recovery.  Looking at the coming FOMC decision, 50bps bets are increasing, rising as high as 50% after yesterday’s dismal JOLTS report, as the growth component of the Goldilocks narrative is challenged. ISM-Services today and NFP tomorrow are key facets of the narrative and we should leave for the weekend with a stronger sense of 25bps or 50bps.

In premarket trading, Frontier Communications fell 9.9% after agreeing to be purchased in a take under by Verizon Communications. Tesla gained 3% on plans to launch the advanced driver assistance system that it calls Full Self Driving technology in China and Europe in the first quarter of next year, pending regulatory approvals. Meanwhile, the company with the luckiest ticker,C3.ai (better known for its AI ticker) was not so lucky, and tumbled 19% to a new 2024 low after the software company reported 1Q subscription revenue that’s weaker than expected. Here are some other premarket movers:

• ChargePoint (CHPT) falls 7.7% as the operator of the largest electric vehicle charging network in the US plans to cut 15% of its workforce after missing revenue forecasts.
• Copart (CPRT) slips 5.7% after posting 4Q operating income that missed estimates.
• Frontier Communications (FYBR) falls 9.9% after agreeing to be purchased by Verizon Communications.
• Fortive (FTV) rises 4% after confirming plans to pursue a spinoff of its Precision Technologies segment.
• JetBlue (JBLU) rises 5% after boosting its revenue forecast for the third quarter.
• PagSeguro (PAGS) and StoneCo (STNE) fall after Morgan Stanley downgraded the Brazilian digital payments companies, saying the market has likely reached saturation. PagSeguro declines 8.5% and StoneCo drops 8.3%.
• Hewlett Packard Enterprise (HPE) slips 3% after the computer hardware and storage company reported weaker-than-expected margins.
• NIO ADRs (NIO) gain 3.5% after the automaker reported 2Q gross margin that came ahead of estimates.
• Verint (VRNT) tumbles 11% after the customer-service software firm reported second-quarter profit and revenue that fell short of estimates.

After yesterday’s catastrophic JOLTS report, traders will look to weekly jobless claims data due later today and Friday’s nonfarm payrolls reports to assess whether the US economy is heading for a soft-landing as the Fed prepares to start easing policy. Global stocks suffered their worst losses earlier this week since the Aug. 5 meltdown, with VIX remaining elevated at 20. Swap traders have ramped up bets on the pace of rate cuts after a Wednesday reading on US job openings trailed estimates and the Fed’s Beige Book survey showed flat or declining economic activity. Rates pricing foresees at least 100 basis points of easing this year, including one jumbo cut of 50 basis points.

“We think that the US soft landing scenario is intact but acknowledge that the next two-three months could be a tricky period,” Eddy Loh, chief investment officer at Maybank Group Wealth Management, said on Bloomberg Television. “If the Fed were to cut 50 basis points, the market could perceive it as a negative because that means the Fed is seeing something in the economy.”

The yield on 2-year Treasuries rose 2bps after tumbling Wednesday on the data showing a slowdown in the US labor market and leading to the first 2s10s yield curve disinversion in 27  months. This morning the 2s10s flirted with the unchanged level, and was last 0.4bps.

US interest rates will settle in a range of between 3% and 4%, according to Oaktree Capital Management LP’s Howard Marks.

“The Fed will back off from the emergency rate of five and a quarter, five and a half and get down into the threes,” Marks, the co-chairman and co-founder of Oaktree said at a conference in Melbourne Thursday. “But my point to you, my belief is that we’re going to stay there in the threes and we’re not going back to zero or a half or one.”

European stocks fell to their lowest in around two weeks as global growth concerns continue to dampen investor sentiment ahead of the US jobs report on Friday. The Stoxx 600 was down 0.2%, led by losses in luxury stocks such as LVMH; consumer product, industrial and technology names also slumped. Here are the biggest movers Thursday:

• Asos shares jump as much as 19%, the most intraday since January 2023, after agreeing to sell control of its Topshop and Topman brands to a company controlled by Denmark’s Holch Povlsen family. The online fashion retailer also announced refinancing moves
• BioMerieux gains as much as 5.5% after the French medical technology firm slightly boosted its guidance
• Lanxess shares rise as much as 4.4% as the German specialty chemicals firm was double-upgraded by Morgan Stanley, which cited investment de-gearing and lower gas prices
• Ashmore rises as much as 4.6%, reversing an earlier decline, as analysts note a more positive outlook for the emerging-markets specialist fund house
• Vistry Group shares rise as much as 7.1%, the most since March 14, after the UK housebuilder reported 1H revenue and profit growth following a shift in strategy
• Jet2 shares rise as much as 2.1%, reversing losses in earlier trading, as analysts are positive about the trajectory of bookings of the package holiday provider
• European luxury stocks slide after Bloomberg reported that LVMH’s Tiffany brand is planning to downsize a flagship store in Shanghai, fueling broader conserns about a slowdown in luxury demand in China. LVMH, Hermes and Kering fell
• Grifols Class B shares slumped after a report that Brookfield will seek to pay less for that series of stock in its planned takeover offer for the Spanish blood-plasma company
• AB Foods drops as much as 5.8%, the most since April 2023, after the company warned sales growth at Primark was negatively impacted by poor weather conditions
• Tomra falls as much as 10%, the most since October 2023, after the Norwegian recycling technology firm published new financial targets
• Genus drops as much as 5.1% after the livestock breeding specialist releases its full-year results, with the company only cautiously guiding for improving markets

Earlier in the session, Asian equities erased most gains after declines in Hong Kong and Japan even as key chipmaker shares rebounded from a Wednesday selloff sparked by concerns the artificial intelligence rally is overheating. The MSCI Asia Pacific Index rose 0.1%, with Nvidia suppliers TSMC and SK Hynix among the biggest boosts. It had added as much as 0.8% earlier in the session before erasing the advance. Taiwan’s Taiex index added 0.5% while Japanese stocks slumped as the yen strengthened. Asian stocks are “seeing flows out of Japan into other markets as hot wage data increases the likelihood of further tightening by the Bank of Japan,” said Matthew Haupt, a portfolio manager at Wilson Asset Management. A bigger divergence between the Fed and BOJ may spark “some more volatility,” he added.

In FX, the Bloomberg Dollar Spot Index falls 0.1%. The Norwegian krone tops the G-10 FX leader board, rising 0.3%. The Japanese yen is not far behind, with a 0.2% gain.

In rates, treasuries dip, paring some of Wednesday’s post-JOLTS rally with US 10-year yields rising 1 basis point to 3.76%; the US lags little-changed bunds and gilts during European morning. Yields are higher by 1bp-2bp across the curve with front-end and belly underperforming slightly, leaving 2s10s spread around -0.5bp after disinverting Wednesday for only the second time since 2022. Focal points of US session include weekly jobless claims, August ADP employment change and August ISM services gauge.   

In commodities, brent crude futures were heading for the first day of gains in five, with OPEC+ getting closer to an agreement on delaying an increase in oil production.  WTI rose 1% to $69.90 while Brent was trading just above $73. Iron ore slumped to its lowest level since 2022 and traded near $90 a ton as China’s main steel industry group advised mills to be cautious in boosting output too quickly to avoid snuffing out a post-summer recovery. Spot gold rises $20 to around $2,516/oz.

Looking at the calendar, US economic data calendar includes August Challenger job cuts (7:30am), ADP employment change (8:15am), 2Q final nonfarm productivity and weekly jobless claims (8:30am), August final S&P Global US services PMI (9:45am) and ISM services index (10am). No Fed speakers are scheduled; Williams and Waller are slated to speak Friday

Market Snapshot

• S&P 500 futures little changed at 5,534.75
• STOXX Europe 600 down 0.1% to 514.22
• MXAP up 0.1% to 181.97
• MXAPJ up 0.4% to 563.99
• Nikkei down 1.1% to 36,657.09
• Topix down 0.5% to 2,620.76
• Hang Seng Index little changed at 17,444.30
• Shanghai Composite up 0.1% to 2,788.31
• Sensex down 0.1% to 82,245.54
• Australia S&P/ASX 200 up 0.4% to 7,982.38
• Kospi down 0.2% to 2,575.50
• German 10Y yield unchanged at 2.22%
• Euro up 0.1% to $1.1094
• Brent Futures up 0.7% to $73.23/bbl
• Brent Futures up 0.7% to $73.21/bbl
• Gold spot up 0.7% to $2,513.92
• US Dollar Index down 0.16% to 101.20

Top Overnight News

• President in absentia Joe Biden is due to speak on economic policy on Thursday 5th September at 16:00 ET
• Japan-US business council says they are very alarmed by any attempts to politicise the committee on foreign investments in the US review process, regarding US Steel and Nippon
  Verizon to acquire Frontier Communications; deal valued at USD 20bln, all-cash
• Japan’s wage numbers for July cool vs. June, but come in ahead of expectations (the real wage figure came in at +0.4% for Jul, down from +1.1% in June but above the Street’s -0.6% forecast). RTRS
• BOJ official says the central bank must be mindful of avoiding undue market volatility as it proceeds with its tightening agenda. RTRS  
• China still sees some room to lower the amount of cash banks must hold as reserves, a central bank official said on Thursday, adding that the lender will continue to implement policies to support the economic recovery. RTRS
• AstraZeneca staff were detained in China over potential illegal activities involving data collection and drug imports. BBG
• Russia has been forced to start storing gas from Vladimir Putin’s flagship Arctic project, in a sign that western sanctions are deterring buyers. According to ship-tracking data and satellite images, three vessels have shipped liquefied natural gas from the Arctic LNG 2, which is under US sanctions, since it started loading operations last month. FT
• Hostage killings and irreconcilable demands complicate Gaza cease-fire talks. Frustrated mediators are now putting together what they have described as a “final offer,” but significant concessions on both sides are needed for agreement, said a U.S. official. WaPo
• US crude stockpiles slumped by 7.4 million barrels last week, API data is said to show, pushing oil prices higher. That would bring holdings to the lowest in 11 months, if confirmed by the EIA. Crude may benefit further if OPEC+ delays its plan to to boost output. BBG
• Rate options traders stepped up wagers that the Fed will start its easing cycle with a 50-bp cut. Oaktree’s Howard Marks said rates will settle in a 3-4% range, but won’t go lower. Rate reductions are needed to keep the labor market healthy, according to the Fed’s Mary Daly. BBG
• Auto sales in the US cooled in Aug vs. Jul due to difficult comparisons (Jul was boosted from a recovery from an industry-wide cyberattack) and elevated interest rates. Marketwatch

A more detailed look at global markets courtesy of Newsquawk

APAC stocks eventually traded mixed following the earlier mild regional gains, with the overall market tone tentative ahead of a slew of US data ahead of NFP on Friday. ASX 200 was kept afloat by its Tech and Real Estate sectors whilst Energy resided at the bottom. Nikkei 225 was choppy on either side of 37k as it saw initial pressure amid the stronger JPY, with the index later entirely trimming losses, only to falter once again. Hang Seng and Shanghai Comp were mixed for most of the session, Hang Seng initially saw modest gains with Banks and Real Estate initially supported following reports China mulls cutting mortgage rates in two steps to shield banks, via Bloomberg sources. That being said, the mood later waned despite a lack of catalysts, although pre-market reports suggested JPMorgan cut China stocks to Neutral from Overweight.

Top Asian news

• PBoC official says there is still some room for cutting the RRR. Face some constraints in further cutting deposit/lending rates. Will reasonably set the strength and pace of policy adjustments based on the economic recovery.
• JPMorgan cut China stocks to Neutral from Overweight.
• PBoC injected CNY 63.3bln via 7-day Reverse Repo at maintained rate of 1.70%
• BoJ Board Member Takata said Japan’s economy is recovering moderately, though some weak signs are evident; notes significant volatility in stock and FX markets but maintains that achieving the inflation target remains within reach, and BoJ must be vigilant to the chance of renewed wave of price hikes, while taking into account impact of yen rise in early August, according to Reuters. He noted it is hard to debate at this stage to what degree BoJ can shrink its balance sheet, and hard to pin down the precise level of Japan’s natural rate of interest. He said Japan’s current real interest rate is below the estimated natural rate of interest, which means monetary conditions remain accommodative and the fallout from market turbulence in early August remains, “so we must scrutinize the impact for the time being”. He noted the BoJ must adjust monetary conditions by ‘another gear’ if we can confirm that firms will continue to increase capex, wages and prices, and won’t hike policy rates with a pre-set level of neutral interest rate in mind. BoJ’s decision to reduce bond buying won’t hugely affect the impact of monetary easing, but marks a big turning point from when the central bank had YCC in place, and markets stabilizing after some turbulence, but must watch market developments with a very strong sense of urgency.
• BoJ to hold meeting on market operations on October 16th from 17:30 local time, according to Reuters.
• RBA Governor Bullock repeated that it is premature to be thinking about rate cuts; as of now, the board does not expect to be in a position to cut rates in the near term. She noted the RBA’s highest priority has been and remains to bring inflation down, and the Board remains vigilant to upside risks to inflation, whilst the RBA’s full employment goal is not served by letting inflation stay above target indefinitely. She noted substantial uncertainty around the central outlook, with risks on both sides and if circumstances change, the board will respond accordingly. Bullock said the labour market remains relatively tight, expected to ease gradually, and labour cost growth is strong reflecting wage increases, and weak productivity. She warned key drivers of elevated inflation are housing costs, market services, and CPI rents inflation is likely to be high for some time. Bullock said need to see results on inflation before lowering rates; board is not going to focus on one inflation number, and slightly elevated AUD is positive for inflation fight.

European bourses, Stoxx 600 (U/C) began the session entirely in the red, but sentiment improved soon after the cash open, with indices now displaying more of a mixed picture. European sectors are mixed, having opened with a negative bias. Utilities takes the top spot, alongside Real Estate whilst Consumer Products lags. US Equity Futures (ES U/C, NQ -0.1%, RTY -0.1%) are mixed, but with sentiment seemingly stabilising after this week’s glum price action. Today’s docket is packed with key US data; jobs (Challenger Layoffs, ADP, IJC), activity (PMIs, ISM Services).

Top European news

• ASML (ASML NA) CEO repeated 2024 and 2025 guidance and said the chip market recovery is uneven.
• BoE Monthly Decision Maker Panel data August 2024; inflation expectations 1-yr 2.7% (prev. 2.7%); 3-yr 2.7% (prev. 2.7%)

FX

• DXY is slightly lower and trading within a narrow 101.14-35 range and towards the bottom end of the prior day’s confines. A busy US data slate ahead; US Challenger Layoffs kicks things off, ahead of ADP Employment, IJC, PMI (F) and the key ISM Services data
• EUR is incrementally firmer and trading towards the upper end of today’s 1.1076-1.11 range. Today’s much stronger-than-expected Industrials Orders sparked modest strength in the Single-Currency, whilst EZ Construction PMIs passed through without having an impact.
• GBP is trading on a slightly firmer footing and near today’s high at 1.3172; UK-specific newsflow light.
• JPY is slightly firmer, having pared most of its early morning strength, largely a factor of a more improved risk-tone vs the prior 2 sessions. Overnight strength was also a factor of a higher-than-expected Labour Cash Earnings print.
• Antipodeans are flat/firmer, in what has been a lacklustre session for the pair thus far.
• PBoC set USD/CNY mid-point at 7.0989 vs exp. 7.1010 (prev. 7.1148); strongest level since Apr 15th
• Reuters Poll, FX: bullish bets have increased for most Asian FX.

Fixed Income

• USTs are flat ahead of a packed and potentially pivotal afternoon agenda. From which, the labour market data points will take centre stage and be scrutinised in the context of Friday’s Payrolls. USTs are just off Wednesday’s JOLTS-driven highs at 114-18.
• Bunds ultimately trade lower, but with price action choppy. Modest two-way action was seen on the latest German Industrial Orders, which came in significantly above forecasts. Bunds are yet to make much headway above the 134.00 mark, current high at 134.26.
• Gilts are slightly firmer, but ultimately rangebound ahead of the busy data docket. A strong UK auction had little impact on the benchmark. Gilts are holding just above Wednesday’s 99.53 high.
• OATs were weighed on by a hefty supply docket from both France and Spain; both passed without any real reaction.
• Spain sells EUR 6bln vs exp. EUR 5-6bln 2.50% 2027, 3.50% 2029, 3.45% 2034 Bono & EUR vs exp. EUR 0.25-0.75bln 1.00% 2030 I/L:
• UK sells GBP 4bln 4.125% 2029 Gilt: b/c 3.29x (prev. 2.87x), average yield 3.811% (prev. 3.854%) & tail 0.9bps (prev. 0.9bps)
• France sells EUR 11.99bln vs exp. 10-12bln 3.0% 2034, 1.25% 2036, 0.5% 2040 and 3.25% 2055 OATs:

Commodities

• Crude is firmer, having found a bit of a floor from the marked declines WTD. A slight recovery was assisted by the private inventory report last night. Brent’Nov as high as USD 73.46/bbl.
• Spot gold is back above USD 2500/oz, benefitting from pressure in the USD and the relatively contained yield environment/risk tone in western markets; notable, further support stemming from China where yields are pressured by RRR talk from the PBoC.
• Base metals are benefitting from the steady risk tone and softer USD. Though, as with precious peers, it remains to be seen what the macro backdrop will be following the afternoon’s US data deluge.
• US Private Inventory (bbls): Crude -7.4mln (exp. -1.0mln), Distillate -0.4mln (exp. +0.5mln), Gasoline -0.3mln (exp. -0.7mln), Cushing -0.8mln (prev. -0.49mln).
• Russian President Putin on expiration of deal on Russian gas to Europe via Ukraine after Dec 31 2024, “we do reject this transit, seek to maintain gas supply contracts, if Ukraine ditches this transit we cannot force it to keep it”
• UAE’s ADNOC sets the October Murban OSP at USD 77.94/bbl.

Geopolitics

• White House reportedly scrambling to put forward a new Israel-Hamas proposal; draft accord could come next week or sooner; there is a strong perception that a ceasefire is slipping away, according to Reuters sources.

US Event Calendar

• 07:30: Aug. Challenger Job Cuts YoY 1.0%, prior 9.2%
• 08:15: Aug. ADP Employment Change, est. 145,000, prior 122,000
• 08:30: 2Q Unit Labor Costs, est. 0.8%, prior 0.9%
  • 2Q Nonfarm Productivity, est. 2.5%, prior 2.3%
• 08:30: Aug. Initial Jobless Claims, est. 230,000, prior 231,000
  • Aug. Continuing Claims, est. 1.87m, prior 1.87m
• 09:45: Aug. S&P Global US Services PMI, est. 55.1, prior 55.2
• 09:45: Aug. S&P Global US Composite PMI, est. 54.0, prior 54.1
• 10:00: Aug. ISM Services New Orders, est. 51.9, prior 52.4

DB’s Jim Reid concludes the overnight wrap

A cloud has lifted over our house as the kids were all back to school yesterday after a long and feral summer. To be fair Maisie is a wonderful girl and the twins are good boys individually. However together at home the twins are never more than 20 minutes away from a fight, bruises, scratches, and manic tears. 2 minutes later it’s high pitched laughter and co-scheming. Repeat to fade. It is draining. At school they all behave impeccably so I’m lobbying for it to become a boarding school asap.

Clouds continue over markets though with global bond yields continuing to tumble yesterday, as another batch of weak US data fuelled expectations that the Fed might cut rates by 50bps in just under two weeks. That led to some very significant market moves, with the 2s10s curve ending the day around the zero level for the first time in the last 2 years. We briefly traded in positive territory yesterday but haven’t closed above zero since July 2022. This is the longest ever inversion for the 2s10s curve in available data stretching back well over 60 years. Given that inversions have historically been a leading indicator of recessions, the re-steepening has previously led to suggestions that removing such an environment means a recession would now be less likely to happen. But sadly, the historic precedent isn’t particularly favourable on this front, as in previous cycles the final stage before the recession was actually a re-steepening of the curve back into positive territory. So we have to be cautious in being too optimistic about waving bye to an inversion. Henry wrote about this pattern last year, with a few charts on how this played out in previous cycles (link here).

The trigger for yesterday’s moves was the latest US JOLTS report of job openings, which showed that the labour market was weakening faster than previously thought. For instance, the number of job openings fell to a three-and-a-half year low of 7.673m in July (vs. 8.1m expected). And if you look at the ratio of job openings per unemployed individuals, that also fell back to 1.07, which is now beneath its pre-Covid levels in 2019. So there’s growing evidence that the labour market is still weakening, backing up Chair Powell’s point at Jackson Hole that “labor market conditions are now less tight than just before the pandemic in 2019”.

To be fair, it wasn’t all bad news from the report. The hires rate ticked back up to 3.5% in July, and the quits rate of those voluntarily leaving their jobs also rose to 2.1%. Moreover, we should bear in mind that this is still covering July, the same month as with the underwhelming jobs report a month ago, rather than a new period since then. So all eyes will remain on tomorrow’s jobs report for August to see if that deterioration continues, or whether the weaker July numbers look like more of a blip. Ahead of that today’s services ISM will take on added significance given the nerves around at the moment.

After the JOLTS report, investors dialled up the chance that the Fed would cut by 50bps in September, and futures were giving that a 44% chance by the close (up +7pps). That’s the highest probability on 50bps since August 13 and is now back close to a 50-50 call. Investors also moved to price in a more dovish rates path over the months ahead as well. For example, there are now 111bps of cuts priced in by the December meeting, up from 102bps the previous day.

With more rapid cuts being priced in, US Treasury yields fell across the curve, and the 2yr yield (-10.9bps) fell to 3.76%, which is its lowest closing level since September 2022. The 10yr yield (-7.6ps) also fell to 3.76% also, which is its lowest close since July 2023 and marks the first time since July 2022 that the 2s10s slope has uninverted. Breakevens led the decline in yields with the 10yr (-5.2bps) ending the day at 2.06%, less than 1bp above its early August lows and otherwise its lowest level since January 2021. Over in Europe it was much the same story as well, with yields on 10yr bunds (-5.3bps), OATs (-6.7bps) and BTPs (-8.8bps) all falling back.

Alongside the JOLTS report, a few other factors supported that move to price in faster rate cuts. The first was the continued fall in oil prices, which is taking away one source of inflationary pressure. Indeed, yesterday saw Brent crude oil prices (-1.42%) fall for the fourth day in a row to $72.70/bbl, which is their lowest level since June 2023. This decline came even as Reuters reported that OPEC+ was close to agreeing a delay to the increase in oil production planned for October. The second came from the Bank of Canada, who cut rates by 25bps for a third consecutive meeting, in line with expectations. Significantly, Governor Macklem also said that “if we need to take a bigger step, we will take a bigger step.” So there was an explicit acknowledgement that such an outcome was possible. Last but not least, the Fed’s Beige Book review of regional economic conditions added to the dovish mood, as 9 of the 12 regional Fed districts “reported flat or declining activity”.

Against this backdrop, US equities held up relatively well, with the S&P 500 posting a modest -0.16% decline. In part, that was driven by the hope that the Fed would now deliver a larger 50bp cut. But unlike the original jobs report, the news from the JOLTS report didn’t lead to a sudden reassessment on how the economy was doing, given it was covering July anyway, where we’ve already got plenty of data for. Indeed, with the other data releases yesterday, the Atlanta Fed’s GDPNow estimate actually ticked up slightly to an annualised +2.1% rate for Q3. So with those various releases in hand, US equities held broadly steady. Energy (-1.42%) and information technology (-0.48%) stocks led the decline for the S&P 500, but its downside was limited by gains for defensive and rate sensitive sectors, notably utilities (+0.85%) and consumer staples (+0.52%). The Magnificent 7 were flat on the day (-0.00%), even as Nvidia (-1.66%) again declined after seeing the largest market cap fall of any global stock in history the previous day.

Over in Europe, the picture was quite a bit more negative, but that mostly reflected a catchup to the slump later in the US session the previous day. That was evident by the STOXX 600 immediately falling lower after the open, but basically staying around that range for the rest of the day, closing -0.97% lower. Even so, that’s still a third consecutive decline for the STOXX 600, so that’s another index where September is living up to its reputation as a poor one for equities. Sentiment wasn’t exactly helped by the final August PMIs either, as the final composite PMI for the Euro Area was revised down two-tenths from the flash reading to 51.0.

Asian equity markets are maintaining the risk-off start to the month with the Nikkei (-1.22%), Hang Seng (-0.45%) and KOSPI (-0.36%) also lower. Elsewhere, mainland Chinese stocks have held on to their minor gains with the CSI (+0.10%) and the Shanghai Composite (+0.04%) both trading in the green. S&P (-0.16%) and NASDAQ 100 (-0.28%) futures are both slipping.

Early morning data showed that Japan’s real wages in July unexpectedly rose +0.4% y/y (v/s -0.6% expected), advancing for the second consecutive month, boosted by pay hikes and summer bonuses. It followed a +1.1% gain in June, the first gain in 27 months. Nominal wages grew by +3.6% y/y in July, a deceleration from June’s +4.5% but surpassing market expectations of +2.9% gain. This strong performance is adding to speculation that the BOJ may look to hike again before the end of 2024 and perhaps helps explain the weak performance of Japanese equities overnight.

To the day ahead now, and data releases from the US include the ISM services index for August, the ADP’s report of private payrolls for August, and the weekly initial jobless claims. Meanwhile in Europe, there’s German factory orders for July, Euro Area retail sales for July, and the August construction PMIs from Germany and the UK. From central banks, we’ll hear from the ECB’s Holzmann.

Verizon Communications announced a $20 billion deal to acquire rival telecommunications operator Frontier Communications Parent Inc., the US’s largest pure-play fiber internet provider. The announcement follows a Wednesday report from The Wall Street Journal suggesting that Verizon was nearing a deal, sparking a 38% surge in Frontier’s shares in New York. 

Verizon said Frontier investors will receive $38.50 per share in cash, representing a 43.7% premium to Frontier’s 90-day volume-weighted average share price on Tuesday, the last pure trading day before media reports leaked a potential acquisition of Frontier. 

The Verizon and Frontier Boards of Directors have unanimously approved the transaction. Subject to approval by Frontier shareholders and regulatory approvals, the deal is expected to close in about 18 months.

“This strategic acquisition of the largest pure-play fiber internet provider in the US will significantly expand Verizon’s fiber footprint across the nation, accelerating the company’s delivery of premium mobility and broadband services to current and new customers. It will also expand Verizon’s intelligent edge network for digital innovations like AI and IoT,” Verizon wrote in a press release. 

Frontier’s 2.2 million fiber subscribers across 25 states will join Verizon’s 7.4 million Fios connections in 9 states and Washington, DC. In addition to Frontier’s 7.2 million fiber locations, the company is rapidly expanding its fiber footprint with an additional 2.8 million fiber locations by the end of 2026. 

On Wednesday afternoon, WSJ initially broke the story about Verizon and Frontier. Shares of Frontier jumped as much as 38% to the mid-point of the $38 handle. This AM, shares are down 9% to the low $35 handle. 

WSJ noted, “Faced with slowing wireless revenue growth and an expensive dividend, Verizon has invested in expanding its home-internet footprint. But new fiber-optic construction is expensive and time-consuming, making existing broadband providers attractive takeover targets.” 

What a rollercoaster ride for Frontier investors—from Chapter 11 bankruptcy in April 2020 to today’s Verizon deal. What appears evident here is that fiber network infrastructure will be critical to powering the artificial intelligence boom and proliferation of data centers. 

Authored by Mike Shedlock via MishTalk.com,

The unions and government leaders are howling but what must be done will be done.

Big Outcry Over Closures

DW reports VW’s Warning on Plant Closures in Germany Causes Outcry.

Volkswagen’s announcement on Monday (September 2) that it is considering closing factories in Germany is unprecedented in the German automaker’s 87-year history. Such plant closures were considered off the table for the Wolfsburg-based company.

To make matters even worse for the 680,000 VW employees worldwide, the management also feels forced to end its job security program which has been in place since 1994 and prevents job cuts until 2029.

The regional state of Lower Saxony still holds one-fifth of the company’s shares and a permanent seat on the supervisory board, meaning securing jobs and factories has always been seen as matters of state interest.

Last year, Volkswagen launched a cost-cutting program aimed at saving €10 billion ($11.06 billion) by 2026. However, the mass-market carmaker would need to cut an additional €4 billion, according to a report by German business daily Handelsblatt.

In a letter to employees on Monday, VW brand chief Thomas Schäfer described the situation as “extremely tense” and beyond the scope of “simple cost-cutting measures.” VW Group CEO Oliver Blume added that the European automotive market is in a “highly challenging and serious situation,” and that Germany has fallen behind in terms of competitiveness.

As a result, the 10 car brands within the VW Group must be comprehensively restructured, and “plant closures are no longer excluded,” Blume said, adding that layoffs through early retirement and severance packages are also no longer sufficient. Therefore, VW feels “compelled to terminate the employment protection agreement that has been in place since 1994.”

The Emden mayor has the backing of labor union leaders like Thorsten Gröger, who described the VW plant closures “irresponsible plan.”

The VW works council, meanwhile, is particularly enraged by VW’s reluctance to clarify who might be affected and how. “This puts all German sites in the crosshairs — regardless of whether they are VW locations or subsidiaries, in western or eastern Germany,” said Daniela Cavallo, head of the general works council. She announced “fierce resistance.”

CAR founder and director Ferdinand Dudenhöffer sees an “age-old VW problem” because the carmaker is “more like a state enterprise than a market-driven company.” The problem will persist, he told DW, as long as VW’s company structure remains “flawed.” Along with its 20% stake and a seat on the VW board, the state of Lower Saxony was also granted a blocking minority on key decisions.

Lower Saxon State Premier Stephan Weil has already criticized VW’s management, saying “the question of plant closures will not arise due to the successful use of alternatives.”

Easy to Spot Problems

• The state has no business owning shares. Letting government dictate business decisions is more than a bit problematic.

• Unions are obviously a problem.

• And for the situation to get this out of hand suggests VW management put off needed decisions too long.

No Realistic Choice

Saxony’s Prime Minister, Stephan Weil, says “the question of plant closures will not arise due to the successful use of alternatives.”

OK Mr. Weil, are you going to force VW to keep making cars nobody wants to buy?

There is no choice here. So look for a scapegoat: China.

Time to Blame Foreigners

The core problem of Germany and the EU is they are both stuck in the past. Eurointelliligence mentioned this yesterday.

It’s difficult to deny that the EU has a China problem. The union’s most important outside trading partner has turned into an existential problem for some of the key industries of the future, like cars or renewable energy infrastructure.

But it would be an equally serious mistake to see this as all about China, as opposed to economic and industrial policy decisions the EU has made too. We noted, for instance, a recent interview in Het Financieele Dagblad with Wopke Hoekstra, where the China issue was a major theme.

In the interview, Hoekstra acknowledged what he regarded as internal failings of the EU: labyrinthine bureaucracy, and the lack of a single, functional capital market. We would agree these are both problems. But if dealing with these internal problems is the expressed preference, the revealed preference is more to go after China. Progress on the capital markets union has been crawling along. Tariffs on Chinese electric cars have been swift by comparison.

The real core problem is that we have fallen behind, and done so because our economic and industrial system is stuck in the past. The Chinese electric car, battery, and solar companies that now dominate these markets are relatively new, and there are a lot of them. The US’s tech giants are more consolidated, but have also sprung up quite recently.

If you look at the largest European firms, in contrast, it really is the old continent. Most either date back more than 50 years themselves, or were derived from other firms that do. The trifecta of corporations, unions, and governments we have built does not easily allow for new entrants. This is not sustainable when you need them to gain a foothold in new technologies.

That was prophetic. Here’s an amazing rant blaming China.

Sorry State of Affairs in the EU

Innovation in the EU is in dead industries: Analog phones and diesel (by cheating).

The EU still strives to protect the small French farm. The EU lags the US and China on AI, EVs, phones, space exploration, and satellite launching.

Since the EU has zero participation in AI, it hope to regulate AI to death.

The only innovation we have seen in Germany is in diesel cheating.

Sorry Germany, Diesel is Dead

Flashback April 28, 2018: Bosch Announces Better Diesel Engine: Sorry Germany, Diesel is Dead

Sorry Bosh, diesel is dead. Upgrading diesel technology is mostly a waste of time and money even if Bosh is telling the truth this time.

The future is electric. Germany still wants to look backward.

Yes the future is electric.

My problem is not with the future, it has always been the path to get there on absurd schedules forced by the government with an infrastructure that still isn’t in place.

Biden mandated full electric instead of letting manufacturers develop hybrids. Losses have been immense.

Here’s a snip from Eurointelligence in my 2018 post.

This story reminds us of the German company that developed the last generation of analogue telephone exchanges in the 1990s, hoping to fight off the relentless advance of the digital technology. It was mature and stable. And probably with some technical advantages over the then still-not-fully-developed digital technologies. But it came too late.

We find it hard to believe that this technology can be introduced early enough and in sufficient quantities to prevent diesel bans in German and other European cities. And the latter is the reason for the acute sales crisis of diesel cars, which has turned into a self-fulfilling prophecy. At a time when the US and China are developing electrical smart cars, the fate of the ultimate diesel engine looks to be the same as that of the world’s best analogue telephone exchange.

Germany and the EU are still focused on the past and hoping to prevent an AI future. But good news, a scapegoat has been successfully identified.

Apple, Google, Microsoft, Tesla, and Nvdia could not exist in the EU because the regulators would have broken them up in the name of competition before they ever got big enough to be meaningful.

For Volkswagen, the Bumpy Road to Electric Vehicles Starts to Hit Home

The Wall Street Journal reports For Volkswagen, the Bumpy Road to Electric Vehicles Starts to Hit Home

EV sales in Germany have plummeted this year, with Tesla’s registrations in the country down 41% for the year through July, compared with the same period of 2023.

“There are plants dedicated to EVs that aren’t producing at the levels expected and costs are out of whack,” said Bernstein analyst Stephen Reitman.

Daniela Cavallo, the union leader who heads Volkswagen’s works council, vowed Monday to fight the move, which is a prerequisite for any potential plant closure in Germany.

Volkswagen can’t easily dial back its profit-sapping EV investments or production because its cars need to meet much stricter European emissions standards starting next year. Its fleet carbon emissions last year were 24.2% higher than they will need to be in 2025, according to data collated by Bernstein, compared with 19.6% for Mercedes-Benz and 9.7% for BMW.

Labor costs in Germany are the highest in Europe, according to an analysis by the German Association of the Automotive Industry. A German auto worker cost roughly €62 an hour last year—equivalent to roughly $68.50—compared with €23 for a Czech worker and €29 for a Spanish one. In Hungary, where BYD is building a factory to avoid European Union tariffs, auto workers are paid only €16 an hour.

Meanwhile, back in the US …

Ford Loses $132,000 on Each EV Produced

On April 26, I reported Ford Loses $132,000 on Each EV Produced, Good News, EV Sales Down 20 Percent

Ford (F) reports a huge loss on every EV. Sales are down 20 percent holding the losses to $1.3 billion.

Ford Cancels Plans for Electric SUV, Expects a $1.9 Billion Loss

On August 21, I noted Ford Cancels Plans for Electric SUV, Expects a $1.9 Billion Loss

Say goodbye to a vehicle that never should have been conceived in the first place. Customers don’t want it.

Lesson of the Day

Government setting outrageous goals, then telling business how they must deliver them never works very well.

Despite huge subsidies, Ford still cannot make ends meet on EVs.

Yet, due to government coercion, Ford is forced to try, try, and try again. If and when Ford succeeds, it will have more production capacity than it needs because EVs have less parts and are easier to build.

The dumpster fire at Intel under the direction of CEO Pat Gelsinger, who is doing his best to replace Marissa Mayer as most overpaid and useless ‘turnaround’ CEO in tech history, looks like it could finally wind up being put out as a result of the company assessing strategic alternatives.

But the damage has surely been done. Intel stock has fallen about -56% this year so far while competitor Nvidia has soared more than 141% over the same period. Over a 5 year period, it gets even uglier: Intel has plunged -53.4% while Nvidia is up an astounding 2,750%. 

However, past performance is not indicative of future results, and CEO Gelsinger is looking to finally try and claw some value back into Intel shares by proposing a number of strategic transactions to the board later this month, Reuters reported last week. 

Gelsinger and top executives plan to propose a strategy to the board later this month to cut non-essential businesses and reduce capital spending, aiming to revitalize the chipmaker, the report says, mimicking a lot of ‘turn around’ talk we’ve heard from Intel during Gelsinger’s tenure over the last 3 years. 

The plan includes cost-cutting measures like selling businesses, such as the programmable chip unit Altera, which Intel can no longer support from its dwindling profits, according to a source.

Gelsinger and senior executives are set to present a plan to the board in mid-September to cut costs and streamline operations, the report says.

This plan does not propose splitting Intel or selling its foundry business to a company like Taiwan Semiconductor Manufacturing Co. However, the details are still being finalized and could change before the meeting.

As Reuters notes, Intel has already separated its foundry and design businesses and reports their financials separately to protect client confidentiality. The company is struggling as it lags behind competitors like Nvidia in the AI chip market.

Intel’s market cap has fallen below $100 billion after a poor second-quarter earnings report, while Nvidia’s exceeds $3 trillion.

The new proposal is likely to suggest further cuts in capital spending, possibly halting the $32 billion factory project in Germany, which has faced delays. In August, Intel announced plans to reduce capital spending to $21.5 billion by 2025, down 17% from this year, and issued a weaker-than-expected third-quarter forecast.