Month: September 2024

Another season of shutdown malarkey is upon us – this time with a deadline of October 1st before it’s time to fling poo.

Republicans want to tie a six-month funding stopgap (Continuing Resolution or CR) to the SAVE Act – which would require proof of citizenship when registering to vote. On Wednesday, House Speaker Mike Johnson (R-LA) yanked a funding bill off the House floor hours before an expected vote after a growing number of Republicans vowed to tank the measure which includes the SAVE Act.

Democrats want a “clean” funding bill that would keep the government open until December, right after the elections, without (of course) the SAVE Act.

Donald Trump wants Johnson and the Republicans to grow a pair of balls and let the government shut down if they can’t preserve the SAVE Act.

On Tuesday, before he yanked the funding bill off the floor, Johnson told reporters “We are going to put the SAVE Act and the CR together, and we’re going to move that through the process. And I am resolved to that; we’re not looking at any other alternative. … I think almost 90% of the American people believe in that principle and that’s why we’re going to stand and fight,” adding “You know how I operate: You do the right thing and you let the chips fall where they may.” Hilarious.

After he pulled the bill, Johnson said: “We’re in the consensus-building business here in Congress with small majorities,” adding “We’re having thoughtful conversations, family conversations, within the Republican conference, and I believe we’ll get there.”

Of course, going head-to-head with Democrats (and some Republicans) over the SAVE Act means litigating claims of election fraud, which Republicans folded like a wet napkin over after the 2020 US election instead of circling the wagons around Trump.

Meanwhile, at least seven Republicans have said they would vote against a CR, period, as it only kicks the can down the road.

Johnson is dealing with a tough math problem. Because of their minuscule majority, House Republicans can only afford four GOP defections if all lawmakers vote. Rep. Joe Wilson, R-S.C., was hospitalized Tuesday night after collapsing at an event. And at least seven other Republicans have publicly stated they will vote against a stopgap measure, known as a continuing resolution or “CR.” Many others said they could join them.

Two sources told NBC News that leadership was anticipating as many as 15 GOP no votes if the vote had been held Wednesday. -NBC

Republicans opposing a CR include Reps. Cory Mills of Florida, Jim Banks of Indiana, Matt Rosendale of Montana, Andy Biggs of Arizona and Tim Burchett of Tennessee.

“I’ve continuously voted against CRs. I think it is terrible legislating,” said Burchett. “And the No. 1 threat to this country is fiscal irresponsibility. We are going off a fiscal cliff, and I think that every time we do this, we just kick that can further down the road.”

According to Mills, a military veteran and fiscal conservative who serves on the Armed Services and Foreign Affairs Committee, “This CR would weaken our defense capabilities and the readiness of our military, just as global threats are rapidly evolving. It would prevent us from responding effectively to adversarial nations like China, hinder innovation, and delay modernization,” adding “Six months is a long time in politics, but it’s an eternity in geopolitics, where quick responses are critical to countering foreign adversaries threatening to harm U.S. interests.

Mills is a ‘yes’ on the SAVE Act, saying: “I’m a firm NO on bankrupting the nation and a YES on election integrity.”

Rep. Thomas Massie (R-KY) explains the charade we’re about to see unfold over the next two weeks:

I refuse to be a thespian in the Speaker’s failure theater.

The 6 month continuing resolution with the SAVE Act attached is an insult to Americans’ intelligence.

The CR doesn’t cut spending, and the shiny object attached to it will be dropped like a hot potato before passage. pic.twitter.com/0FdHRYTm1q

— Thomas Massie (@RepThomasMassie) September 9, 2024

Authored by Richard Porter via RealClearPolitics,

The Harris-Walz campaign has been vibe-a-licious and content-free; its positions on domestic and foreign policy have (with apologies to Hollywood) essentially consisted of open defiance of any presidential campaign norms: “Policy? We ain’t got no policy. We don’t need no policy. We don’t have to show you any stinkin’ policy.”

But the campaign’s policy on policy changed, sort of, the day before the debate, when it went ahead and posted some stinkin’ policy anyway.

In a word, Harris’ policy dump should be seen for what it is: Kamaflage. She uses words that score well with Republicans and moderates, but inverts the meaning of those words, creating an unintelligible stinkin’ mess.

“Kamala Harris will create an Opportunity Economy where everyone has a chance to compete and a chance to succeed – whether they live in a rural area, small town, or big city.” Really? How is she going to do that?

The campaign also promises that Harris would “make it a top priority to bring down costs and increase economic security for all Americans.” It added, “As President, she will fight to cut taxes for more than 100 million working and middle class Americans while lowering the costs of every day needs like health care, housing and groceries.”

How would Harris cut taxes? Not by actually reducing anyone’s taxes, but by increasing spending: “restoring” (i.e. increasing) the amount paid out under two tax credits that provide cash payments to lower income families, most of whom already do not pay federal income taxes. But, as we learned from the ironically named Inflation Reduction Act, pumping more money into the system without increasing the supply of goods and services just devalues the dollar and creates inflation for everyone.

Harris’ campaign calls for both “making our tax system fairer and prioritizing investment and innovation,” while also calling for higher taxes on corporate earnings, quadrupling the tax on corporate distributions through stock buybacks, and increasing the capital gains rate by 40%. With a flourish that would make George Orwell blush, she blithely asserts that tax increases bolster the economy too: “When the government encourages investment, it leads to broad-based economic growth and creates jobs, which makes our economy stronger.” In what alternate reality does raising taxes on investments encourage investments?

A lifelong government employee who never worked in the private sector, Harris apparently envisions herself a preternaturally talented real estate developer. Her campaign’s policy paper claims she has a “comprehensive plan” to build three million more rental units and affordable homes “to end the national housing supply crisis in her first term.” What’s the big plan? She’ll “cut red tape” to build housing faster, while also penalizing companies that “hoard available homes to drive up prices,” and “outlaw new forms of price fixing by corporate landlords.”

Did you follow that? She will cut red tape and build more housing by imposing new red tape in the form of federal rent regulations so that landlords make less money. This is merely contradictory nonsense with poll-tested verbiage. 

She would also give $25,000 to first-time home buyers, “with even more generous support for first-generation homeowners.” Obviously, giving people more money to buy houses means houses will cost more, not less. Note, too, that not all first-time home buyers would be treated equally. Some, such as immigrants (whether here legally or illegally), would get even more than young Americans who are descended from (gasp!) previous homeowners.

Harris also wants you to know that “neighborhood shops, high-tech startups, small manufacturers, and more – are the engines of our economy.”

“Kamala Harris will always support small businesses and invest in entrepreneurs as president,” the campaign vows in employing good Republican words! How will she do this? By expanding set-asides for minority-owned small businesses. She has set a goal of 25 million new business applications (apparently you’ll have to apply to start a small business under Kamala Harris) and would expand the start-up expense deduction, while driving venture capital to the talent that exists all across our country, including in rural areas. Does this portend new geographic investment regulations for venture capital? Note too, that she asserts she will drive this investment at the same time as increasing the tax on investments.

She also calls for the first-ever price regulations for grocery and food businesses, claiming that price gouging is rampant in an industry where the profit margins are usually around 1.5%. She also calls for extending price regulations with respect to health care and prescription drugs. Of course, it’s axiomatic that price regulations reduce supply – so what would happen in the real world is that there would be less food, drugs, and healthcare services, and what’s still produced will cost more too.

The Orwellian theme of using Republican words to Kamaflage socialist policies while asserting that down is up continues throughout the entire package of policies: Secure the borders by hiring more agents to process more immigrants! Reduce crime by making lawful gun ownership harder! Stand up for Israel’s right to defend itself, except with respect to Palestinian terrorists! Protect voting by blocking states from taking steps to secure the vote, like imposing ID requirements!

You get the gist. Her policy dump is an incoherent mess put out under the thin guise of poll-tested verbiage in the hope of Kamaflaging the reality that a Harris administration would double down on the dumbest ideas of Sen. Bernie Sanders and the socialist “squad” in the House. The only thing clear from her policy proposals is that Kamala Harris has not changed. She’s only hiding her hard-left values behind verbiage she’s expropriating from her opponents.

Richard Porter is a lawyer in Chicago and a former policy advisor to President George H.W. Bush and Vice President Dan Quayle.

Authored by Mike Maharrey via Money Metals,

ING Bank has revised its short and midterm gold price forecast higher, saying the gold rally is “just getting started.”

The Dutch financial group cites the prospect of a Federal Reserve rate-cutting cycle, geopolitical risks, and uncertainty going into the presidential election as potential catalysts to drive gold to new record highs. The report also noted several bullish trends supporting the gold price.

ING now projects gold to average $2,700 an ounce in 2025.

According to ING, the “most anticipated” Federal Reserve rate cut in decades is by far the biggest factor driving the current gold market. 

During his recent Jackson Hole speech, Federal Reserve Chairman Jerome Powell gave the clearest indication yet that rate cuts are on the horizon saying, “The time has come for policy to adjust. The direction of travel is clear.”

The ING report says the only question remaining is the pace of cuts. 

ING analysts note that gold is a non-yielding asset and tends to benefit from a low interest rate environment. 

The Quiet Part

What the ING analysts don’t say out loud is this so-called victory over price inflation sets the stage for a return to inflationary policies.

Lowering interest rates and ending balance sheet reduction will increase the money supply, and the expansion of the money supply is, by definition, inflation.

The Fed has tightened things up just enough to slow rising prices, but it hasn’t come close to wringing the pandemic-era inflation out of the economy. The central bank pumped nearly $5 trillion into the economy through quantitative easing alone. That was on top of the credit expansion incentivized by artificially low interest rates. It has only shrunk the balance sheet by about $1.8 trillion.  

In fact, the Fed never substantively shrank the balance sheet after the 2008 financial crisis despite Ben Bernanke saying, “Ultimately, at the right time, the Federal Reserve will normalize its balance sheet,” in February of 2011. 

Apparently, that time has yet to come.

Meanwhile, interest rates are higher than they were, but from a historical perspective, the current rate environment is close to normal.  

Today, most of the inflation created during the pandemic and the Great Recession is still sloshing around in the economy.

And now, by slowing balance sheet reduction and signaling interest rate cuts, the Fed is telling you it plans to ramp up the inflation machine.

ING doesn’t mention any of this, and yet it still projects a bullish future for gold!

Bullish Indicators

ING analysts do note some other factors supporting gold, including election uncertainty in the U.S. and geopolitics. They anticipate further safe-haven demand due to the ongoing war in Ukraine and tensions in the Middle East. 

Meanwhile, there are several strong and getting stronger demand sources in the gold market.

The ING report notes central bank gold buying ramped up in July.

Globally, central banks added a net 37 tons of gold to their holdings in July, according to the latest data compiled by the World Gold Council (WGC). It was a 206 percent month-on-month increase and the highest level of central bank gold purchases since January.

This came on the heels of record central bank gold purchases through the first half of the year.

The report also pointed out that gold has started flowing into gold-backed ETFs. Funds in every region reported an increase in gold holdings in August with Western-based ETFs leading the way. It was the fourth straight month of global net inflows. According to ING, “Investor holdings in gold ETFs generally rise when gold prices gain, and vice versa. However, gold ETF holdings have been in decline for much of 2024, while spot gold prices have hit new highs. ETF flows finally turned positive in May.”

COMEX total net longs have also continued to rise, charting a 17 percent month-on-month increase as of the end of August. It was the highest month-end level since February 2020.

Given all of these bullish factors, ING projects gold to average $2,580 in the fourth quarter. That would boost the 2024 average to $2,388, with that average rising by more than 13 percent next year.

ING Bank photo from Wikimedia Commons and used under a Creative Commons License.

As expected, The ECB cut rates by 25bps today to 3.50%.

In its statement (below), the central bank confirmed it will continue to follow data dependent path, cut its PEPP by €7.5 bn a month…hiked inflation expectations and cut growth expectations…

The ECB staff increased its inflation expectations:

• ECB Sees 2024 Inflation Ex-Food/Energy at 2.9% vs 2.8%

• ECB Sees 2025 Inflation Ex-Food/Energy at 2.3% vs 2.2%

• ECB Sees 2026 Inflation Ex-Food/Energy at 2% vs 2%

• ECB Sees 2026 Inflation at 1.9%; Prior Forecast 1.9%

And cuts its growth expectations:

• GDP 2024 0.8%, previous 0.9%

• GDP 2025 1.3%, previous 1.4%

• GDP 2026 1.5%, previous 1.6%

This is a slight downward revision compared with the June projections, mainly owing to a weaker contribution from domestic demand over the next few quarters.

So more stagflationary!

But forward guidance remains absolutely unchanged:

“The Governing Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner. It will keep policy rates sufficiently restrictive for as long as necessary to achieve this aim. The Governing Council will continue to follow a data-dependent and meeting-by-meeting approach…  The Governing Council is not pre-committing to a particular rate path.”

However, some market participants sense some reluctance to be too dovish as inflation is not tamed,…

‘inflation data have come in broadly as expected’

…

‘Domestic inflation remains high as wages are still rising at an elevated pace.

The euro is basically unchanged after the statement.

Watch Lagarde explain her decision here (due to start at 0845T):

Read the full ECB Statement below:

The Governing Council today decided to lower the deposit facility rate – the rate through which it steers the monetary policy stance – by 25 basis points. Based on the Governing Council’s updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission, it is now appropriate to take another step in moderating the degree of monetary policy restriction.

Recent inflation data have come in broadly as expected, and the latest ECB staff projections confirm the previous inflation outlook. Staff see headline inflation averaging 2.5% in 2024, 2.2% in 2025 and 1.9% in 2026, as in the June projections. Inflation is expected to rise again in the latter part of this year, partly because previous sharp falls in energy prices will drop out of the annual rates. Inflation should then decline towards our target over the second half of next year. For core inflation, the projections for 2024 and 2025 have been revised up slightly, as services inflation has been higher than expected. At the same time, staff continue to expect a rapid decline in core inflation, from 2.9% this year to 2.3% in 2025 and 2.0% in 2026.

Domestic inflation remains high as wages are still rising at an elevated pace. However, labour cost pressures are moderating, and profits are partially buffering the impact of higher wages on inflation. Financing conditions remain restrictive, and economic activity is still subdued, reflecting weak private consumption and investment. Staff project that the economy will grow by 0.8% in 2024, rising to 1.3% in 2025 and 1.5% in 2026. This is a slight downward revision compared with the June projections, mainly owing to a weaker contribution from domestic demand over the next few quarters.

The Governing Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner. It will keep policy rates sufficiently restrictive for as long as necessary to achieve this aim. The Governing Council will continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction. In particular, its interest rate decisions will be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. The Governing Council is not pre-committing to a particular rate path.

As announced on 13 March 2024, some changes to the operational framework for implementing monetary policy will take effect from 18 September. In particular, the spread between the interest rate on the main refinancing operations and the deposit facility rate will be set at 15 basis points. The spread between the rate on the marginal lending facility and the rate on the main refinancing operations will remain unchanged at 25 basis points.

Key ECB interest rates

The Governing Council decided to lower the deposit facility rate by 25 basis points. The deposit facility rate is the rate through which the Governing Council steers the monetary policy stance. In addition, as announced on 13 March 2024 following the operational framework review, the spread between the interest rate on the main refinancing operations and the deposit facility rate will be set at 15 basis points. The spread between the rate on the marginal lending facility and the rate on the main refinancing operations will remain unchanged at 25 basis points. Accordingly, the deposit facility rate will be decreased to 3.50%. The interest rates on the main refinancing operations and the marginal lending facility will be decreased to 3.65% and 3.90% respectively. The changes will take effect from 18 September 2024.

Asset purchase programme (APP) and pandemic emergency purchase programme (PEPP)

The APP portfolio is declining at a measured and predictable pace, as the Eurosystem no longer reinvests the principal payments from maturing securities.

The Eurosystem no longer reinvests all of the principal payments from maturing securities purchased under the PEPP, reducing the PEPP portfolio by €7.5 billion per month on average. The Governing Council intends to discontinue reinvestments under the PEPP at the end of 2024.

The Governing Council will continue applying flexibility in reinvesting redemptions coming due in the PEPP portfolio, with a view to countering risks to the monetary policy transmission mechanism related to the pandemic.

Refinancing operations

As banks are repaying the amounts borrowed under the targeted longer-term refinancing operations, the Governing Council will regularly assess how targeted lending operations and their ongoing repayment are contributing to its monetary policy stance.

***

The Governing Council stands ready to adjust all of its instruments within its mandate to ensure that inflation returns to its 2% target over the medium term and to preserve the smooth functioning of monetary policy transmission. Moreover, the Transmission Protection Instrument is available to counter unwarranted, disorderly market dynamics that pose a serious threat to the transmission of monetary policy across all euro area countries, thus allowing the Governing Council to more effectively deliver on its price stability mandate.

Futures are trading higher ahead of today’s PPI report, extending on yesterday’s post-NVDA rebound momentum, as a rally that started in the US spread to stock markets in Asia and Europe Thursday as the Goldman Communacopia tech conference enters its final day. As of 8:00am, S&P and Nasdaq 100 futures are up 0.1%, with NVDA, GOOG, and META the top performers among MegaCap Tech. European stocks zoomed 1% higher led by Dutch chip-equipment maker ASML as traders braced for another rate cut by the European Central Bank. Asian stocks are also broadly higher with the exception of Chinese equities, which fell to the lowest since early 2019. Bond yields are higher, with the 10Y trading at 3.67% and the 2s10s curve is almost inverted again; the USD is flat. Commodities are mixed with Oil and Base Metals higher, while Precious Metals are lower. Today, the key focus will be PPI and Jobless claims: consensus est are for PPI to print 0.1% MoM vs. 0.1% prior and Core PPI to print 0.2% MoM vs. 0.0% prior. On earnings, keep an eye on consumer read-through from KR (before market-open) and AI/Tech sentiment from ADBE.

In premarket trading Moderna plunged 8% after the company plans to slash its R&D budget by about 20% over the next three years as the biotech tries to find a path to profitability. Here are some other notable premarket movers:

• Alaska Air rises 5% after the company increased its profit forecast for the current quarter, citing an improved revenue and fuel cost outlook.
• Caleres drops 15% after the footwear retailer reported 2Q sales and adjusted EPS that missed expectations and reduced its annual forecasts.
• Fulcrum Therapeutics sinks 69% after its phase 3 REACH trial failed to achieve its primary endpoint.
• Netgear surges 22% after the company raised its 3Q revenue guidance following a settlement agreement with TP-Link Systems over patents.
• Oxford Industries slides 10% after the apparel company cut its annual adjusted earnings per share guidance to a level below the average analyst estimate.
• Signet rises 9% after the company posted 2Q profit that topped estimates.

In corporate news, OpenAI is in talks to raise $6.5 billion from investors at a valuation of $150 billion, according to people familiar with the situation. Nvidia CEO Jensen Huang said the limited supply of their products has frustrated some customers and raised tensions. Alimentation Couche-Tard Inc. is discussing improving its takeover proposal for Seven & i Holdings Co. with the goal of convincing the Japanese convenience store operator to start engaging in discussions, people with knowledge of the matter said.

The ECB is poised for another move lower that would bring its key interest rate down a quarter-point to 3.5%. Still, policymakers are taking a cautious approach with inflation not fully vanquished. “We still expect the ECB to remain gradual in its approach, weighing the risk of growth and inflation,” said Camille de Courcel, head of European rates strategy at BNP Paribas SA.

The CPI report on Wednesday reinforced the view that the Fed will cut 25bps amid continued sticky shelter inflation.. Swap traders have fully priced in a quarter-point reduction at the Fed’s policy announcement next week, ditching bets on a half-point rate cut.

European stocks gain 1%, as traders’ attention turns to the European Central Bank’s interest rates decision today. Miners lead gains, boosted by rising metals prices, while semiconductor firms drive tech stocks’ outperformance. Health care and food and beverage stocks are the only sectors in the red. Among single stocks, Roche shares slid after its closely-watched experimental obesity pill was tied to side effects. Here are the most notable European movers:

• Europe’s mining sub-index jumps as much as 2.6%, the most in two months, boosted by rising metals prices. Glencore, Rio Tinto, Anglo American, KGHM Polska, Boliden and Antofagasta are among gainers.
• Spirit makers climb, led by Diageo following an upgrade at BofA Global Research, after analysts said they are turning selectively more constructive on the sector.
• DSV shares gain as much as 9.7% after Bloomberg News reported it’s finalizing the terms of an agreement to buy Deutsche Bahn’s logistics unit Schenker in a deal valued at around €14 billion.
• Alten shares climb as much as 6.6% after the technology consulting company was raised to outperform by BNP Paribas Exane analysts.
• IG Group shares rise as much as 2.2% after the trading platform’s first-quarter trading update showed a 15% rise in revenue from the year before thanks to increased volatility in the markets.
• Valeo shares rise as much as 6.7% and is the leading gainer on the Stoxx 600 autos index on Thursday following an upgrade to buy at BofA.
• Trainline shares jump as much as 12%, the most in six months, after the e-ticketing platform said annual adjusted Ebitda this year will exceed its guidance.
• NCC Group shares jump as much as 11%, the most in two years, after the cybersecurity company said it performed better than anticipated during the four months to the end of September.
• Roche shares drop as much as 5% in Zurich after its closely watched experimental obesity pill was tied to side effects, including nausea and vomiting, in a small study.
• Fevertree shares drop as much as 6.1% after the tonic maker reported first-half earnings that missed consensus estimates. Analysts flagged the impact of poor weather in Europe and the UK.
• Europe’s airline stocks fall after Reuters reported that Ryanair expects average fares 5% to 10% lower for the remainder of the year, citing the airline’s CEO Michael O’Leary.
• Edenred and Pluxee shares lose ground as analysts at Oddo BHF noted smaller peer Swile turned profitable for the first time ever during the first half of 2024.

Earlier in the session, Asian equities surged, snapping a three-day run of losses, boosted by gains in technology stocks. However, Chinese shares slumped to their lowest level since early 2019. The MSCI Asia Pacific Index advanced as much as 1.7%, the most in nearly a month. TSMC, Toyota Motor and Samsung were among the biggest contributors to the gauge’s gain. Japan’s Nikkei 225 Average halted a seven-day slump as the yen weakened, while benchmarks in South Korea, Taiwan, Hong Kong and Australia also closed higher. A regional gauge of tech companies jumped over 3% after Nvidia gained 8.2% following comments by the company’s CEO that it’s struggling to meet strong demand for its AI-related products. That spurred a broad intraday rebound in US stocks after an early dip as faster-than-anticipated inflation damped expectations for a half-point rate cut from the Federal Reserve next week.

In FX, the Bloomberg Dollar Spot Index was little changed as traders pared bets on the extent of Federal Reserve interest-rate cuts after the inflation data, almost pricing out the prospect of a 50 basis-point cut. EUR/USD climbs 0.1% to 1.1022; the central bank is forecast to cut for a second time this cycle as the region’s economy struggles to maintain growth momentum. USD/JPY rose 0.4% to 142.90 as the Nikkei 225 Stock Average rallied 3.5%. The pair fell as much as 0.1% earlier after Bank of Japan board member Naoki Tamura said policymakers will need to raise the benchmark interest rate to at least 1%

In rates, yields are cheaper by around 2bp across the curve amid similar weakness in bunds ahead of European Central Bank decision, with markets priced for a 25bp rate cut. 10-year TSYs are around 3.67%, with bunds and gilts in the sector also about 2bp cheaper on the day; curve spreads are within 1bp of Wednesday’s closing levels. Treasury’s three-auction cycle concludes with $22b 30-year reopening at 1pm New York time after two previous sales — $39b 10-year and $58b 3-year — drew strong demand; WI 30-year yield near 3.985% is 1.5bp richer than last month’s auction, which tailed by 3.1bp, a poor result

In commodities, oil extended gains from Wednesday as Hurricane Francine ripped through key oil-producing zones in the Gulf of Mexico, prompting traders to cover bearish bets. WTI drifted 1.4% higher above $68. Spot gold rises roughly $5 to trade near $2,517/oz. Most base metals trade in the green.

The US economic data calendar includes August PPI and jobless claims (8:30am), 2Q household change in net worth (12pm) and August monthly budget statement (2pm) Fed speakers are in self-imposed quiet period until the Sept. 18 policy decision

Market Snapshot

• S&P 500 futures little changed at 5,564.50
• STOXX Europe 600 up 0.9% to 512.67
• MXAP up 1.6% to 181.86
• MXAPJ up 1.5% to 564.62
• Nikkei up 3.4% to 36,833.27
• Topix up 2.4% to 2,592.50
• Hang Seng Index up 0.8% to 17,240.39
• Shanghai Composite down 0.2% to 2,717.12
• Sensex up 0.6% to 82,047.83
• Australia S&P/ASX 200 up 1.1% to 8,075.73
• Kospi up 2.3% to 2,572.09
• German 10Y yield little changed at 2.13%
• Euro little changed at $1.1018
• Brent Futures up 1.3% to $71.55/bbl
• Gold spot up 0.3% to $2,518.40
• US Dollar Index little changed at 101.74

Top Overnight News

• Japan’s PPI undershoots the Street in Aug, coming in at +2.5% Y/Y (down 50bp from +3% in Jul and falling short of the Street’s +2.8% forecast). BBG
• Western firms dramatically dial back on China investment plans due to a more inhospitable operating environment and slowing domestic growth. WSJ  
• China could cut rates on >$5T worth of mortgages as soon as this month as the gov’t looks to bolster the economy. BBG  
• Oil demand growth continues to “rapidly decline”, due primarily to weaker consumption in China (consumption in China contracted Y/Y for the fourth straight month in Jul), while supply on the rise. IEA
• China has detained at least three top investment bankers since August and firms have asked many more to hand in their passports, people familiar said. Regulators are said to be scrutinizing capital-raising activities, and some staffers were told they need approval if they wish to resign. BBG
• Brussels examines ways to refinance/roll over ~EU350B worth of joint debt issued during COVID to avoid a budget crunch going forward. FT  
• US and UK are discussing whether to ease restrictions placed on Ukraine’s ability to launch strikes deeper into Russian territory. WSJ
• UniCredit CEO Andrea Orcel said all options are open for Commerzbank, including a possible takeover. His firm’s move should be no surprise as there’s room for consolidation in the German market, he said. BBG
• The ECB is set to cut rates again today, but will probably remain tight-lipped on the pace and extent of further action. The deposit rate will be decreased by 25 bps to 3.5%, with two other rates also be adjusted as part of a policy revamp unveiled in March. BBG
• Fed’s Office of Inspector General released a report on Atlanta Fed President Bostic’s (2024 Voter) financial disclosures in which it stated that Bostic violated Fed rules on trading and created an appearance of acting on confidential information, as well as created the appearance of a conflict of interest. However, it didn’t find evidence that Bostic traded on confidential information.
• Goldman Sachs CEO Solomon said he sees 2 or maybe 3 Fed rate cuts, while he added that they could see the possibility of a 50bps cut but his base case is for a cut of 25bps: CNBC

A more detailed look at global markets courtesy of Newsquawk

APAC stocks gained as the region took impetus from the post-CPI tech-led rebound stateside. ASX 200 advanced with strength in the tech and the energy sectors making up for the slack in mining stocks. Nikkei 225 outperformed on the back of recent currency weakness and softer Japanese PPI data. Hang Seng and Shanghai Comp were mixed as the former benefitted from the broad risk-on mood and with tech stocks inspired by their global peers, while the mainland lagged behind regional counterparts in the absence of any major pertinent drivers and amid protectionist policies with China said to have asked its carmakers to keep key EV technology at home.

Top Asian News

• BoJ’s Tamura said Japan’s neutral rate is likely to be around 1% at the minimum and the path toward ending easy policy is still very long, while he added they will carefully scrutinise the balance of pros and cons in exiting easy policy and must push up short-term rates at least to around 1% by the latter half of their long-term forecast period through fiscal 2026, to stably achieve the 2% inflation target. Furthermore, Tamura said the pace at which markets expect the BoJ to hike rates is very slow and hiking at such a pace could further heighten upward inflation risk, as well as noted that the likelihood of Japan sustainably achieving the BoJ’s price target is heightening further.
• China asked its carmakers to keep key EV technology at home, according to Bloomberg.
• South Korean aims to end short-selling ban on all stocks in March, according to Bloomberg.
• China’s CSI 300 index closes at the lowest level since early 2019.
• Chinese Commerce Ministry will visit Europe next week to discuss EV tariffs; Chinese Commerce Minister to meet with EU Commission Vice President on September 19th for talks, according to the Chinese Commerce Ministry.
• China is to reportedly cut rates on USD 5tln mortgages as soon as September to boost consumption; China to cut rates by up to 50bps, according to Bloomberg sources

European bourses, Stoxx 600 (+1%) are firmer across the board as the region catches up to the late gains on Wall Street which saw a surge in the tech sector, with NVIDIA closing higher by 8.2% on Wednesday, with the impact reverberating across APAC and now in Europe. European sectors are mostly firmer; Basic Resources is the clear outperformer amid the positive action in the base metals complex, overtaking the Tech sector which opened as the best performer following the strong performance on on Wall Street. Healthcare is dragged down by Roche (-4.2%) after its obesity-related updates. US Equity Futures (ES +0.1%, NQ +0.1%, RTY +0.4%) are modestly firmer and holding onto the significant gains made in the prior session.

Top European News

• UK Treasury refused to disclose key details of the GBP 22bln fiscal black hole that Chancellor Reeves claimed to have discovered, following a freedom of information request by the FT.
• Brussels explores Draghi option of extending up to EUR 350bln in EU debt as officials examine ways to roll over hundreds of billions of Covid-era bonds to avoid the common budget from being underwhelmed by repayment costs, according to FT.
• BoE has made “substantial amendments to our proposals in response to consultation feedback and evidence”. “In terms of the capital impact, the BoE said there will only be a very small impact on requirements, on average, across UK firms.”. “In some cases, changes were designed following “too much conservatism” in the original proposals, or where reforms were too difficult or costly to implement in practice.”
• Norges Bank Regional Network Report: expects activity to increase somewhat in H2 2024

FX

• DXY is steady after Wednesday’s trading session which saw a scaling back of bets for a 50bps Fed rate cut next week (currently priced at just 13%). Inflation will remain front of mind today with PPI metrics due on the docket.
• EUR steady vs. USD in the run-up to today’s ECB press conference which is widely expected to deliver a 25bps cut to the deposit rate. Focus will also fall on any guidance over future easing plans. EUR/USD is currently sat within Wednesday’s 1.1001-54 range.
• GBP flat vs. the USD with the pair contained within Wednesday’s 1.3001-1.3111 trading range. Fresh UK drivers remain light during today’s session and therefore it may be the case that the USD leg of the equation provides the greater source of traction for the pair with PPI and IJC due on deck later.
• JPY is the laggard across the majors despite hawkishly-perceived comments from BoJ’s Tamura overnight who followed suit from other policymakers this week alluding to the upward policy path at the bank. USD/JPY briefly traded on a 143 handle vs. Wednesday’s 140.70 trough.
• Antipodeans are both steady vs. the USD. AUD/USD attempted to extend on Wednesday’s bounce after the pair printed an MTD low at 0.6622. Currently, AUD/USD is back above its 100 and 50DMAs at 0.6649 and 0.6667 respectively.

Fixed Income

• USTs are a touch lower in an extension of Wednesday’s downside post-CPI which saw the curve flatten. Today’s docket holds US PPI (F) and the weekly jobless claims. The 10yr yield currently sits towards the top-end of Wednesday’s 3.605-689% range.
• Bunds are lower in the run-up to today’s ECB policy announcement which is widely expected to deliver a 25bps cut to the deposit rate and 60bps reductions in the main refi and marginal lending rates. Focus will also fall on any guidance over future easing plans; the German 10yr yield sits around the mid-point of Wednesday’s 2.086-2.157% range.
• Gilts are currently tracking losses in global peers with not much in the way of fresh UK drivers for today’s session. Focus for the UK will begin to turn towards next week’s UK CPI print which is followed up the next day by the latest BoE rate decision. UK 10yr yield is currently tucked within Wednesday’s 3.745-3.809% band.
• UK DMO sells GBP 2bln 0.125% 2026 Gilt via tender; b/c 4.17x, average yield 3.559%, yield tail 0.9bps
• Italy sells EUR 6.5bln vs exp. EUR 5.5-6.5bln 3.45% 2027 & 3.45% 2031 BTP

Commodities

• Crude is firmer and benefits from the broader risk-on mood across markets, whilst some desks also flag potential short covering after the market moved into “oversold” territory. Within IEA’s Oil Market Report, it cut its 2024 world oil demand growth forecast to 900k BPD (prev. 970k BPD). Brent Nov printed a USD 70.59/bbl trough before rising to a USD 71.87/bbl session high.
• Precious metals are firmer across the board but to varying degrees. Spot palladium briefly outperformed in the European morning whilst spot gold posts shallower gains ahead of the ECB decision. Spot gold trades in a narrow USD 2,511.09-2,522.36/oz range.
• Base metals are firmer across the board amid the continued revival across industrial commodities, with prices also helped by the broader risk-on mood.
• NHC announced that Francine became a category 2 hurricane as the eye approaches the Louisiana coast, with a life-threatening storm surge and hurricane conditions spreading onto the Louisiana coast.
• 39% of oil production and 49% of natgas production in the US Gulf of Mexico is shut, due to Hurricane Francine.
• Chile’s Codelco reached an early contract agreement with El Teniente union.
• Indian oil secretary wants OPEC+ to raise oil output; Indian Cos to maximise crude purchases from cheapest suppliers including Russia. Oil cos to consider fuel price cut if crude oil stays low for long.
• Russia attacked energy infrastructure in six regions in the past 24 hours, Ukraine’s energy ministry said.
• IEA OMR: cuts 2024 world oil demand growth forecast to 900k BPD (prev. 970k BPD), sees 2025 demand growth at 950k BPD; said “The rapid decline in global oil demand growth in recent months, led by China, has fuelled a sharp sell-off in oil markets”. “Outside of China, oil demand growth is tepid at best”. China is leading rapid decline.
• UBS said Hurricane Francine likely disrupted about 1.5mln barrels of US oil production; due to the hurricane, September production in the Gulf of Mexico will be reduced by some 50k BPD.

Geopolitics: Middle East

• Hamas said its negotiation team met Qatar’s PM and Egypt’s intelligence chief in Doha on Wednesday to discuss the latest Gaza developments. Furthermore, it reiterated its readiness to implement an ‘immediate’ ceasefire based on the US’s previous proposal without accepting new conditions from any party.
• Palestinian draft resolution at the United Nations demands that Israel end its illegal presence in the occupied territories and called for the establishment of a mechanism to compensate for the damage committed by Israel in the occupied territory, while the draft resolution is expected to be voted on on September 18th during the 10th session of the General Assembly, according to Al Jazeera.

Geopolitics: Other

• White House is finalising plans to expand where Ukraine can strike inside of Russia, according to POLITICO.
• North Korea fired a suspected ballistic missile which fell shortly after outside of Japan’s Exclusive Economic Zone, while the South Korean military later announced that North Korea fired multiple short-range ballistic missiles.
• Top Chinese general is to visit the US Indo-Pacific Command in Hawaii next week as the two militaries step up engagement, according to FT.

US event calendar

• 08:30: Aug. PPI Final Demand MoM, est. 0.1%, prior 0.1%
  • Aug. PPI Final Demand YoY, est. 1.7%, prior 2.2%
  • Aug. PPI Ex Food and Energy MoM, est. 0.2%, prior 0%
  • Aug. PPI Ex Food and Energy YoY, est. 2.4%, prior 2.4%
• 08:30: Sept. Initial Jobless Claims, est. 227,000, prior 227,000
  • Aug. Continuing Claims, est. 1.85m, prior 1.84m
• 12:00: 2Q US Household Change in Net Wor, prior $5.12t
• 14:00: Aug. Monthly Budget Statement, est. -$292.5b, prior -$243.7b

DB’s JIm Reid concludes the overnight wrap

Morning from Frankfurt and I’ve woken up to news that my daughter Maisie has been made U9 B-team netball captain at school for their first ever series of matches today. It’s her birthday on Monday and I’d bought her a netball hoop and ball. So I was slightly surprised to learn on text this morning as I woke up that my wife had let her open it early to practise given her elevated status in the B-team! In the unlikely event that the match isn’t being televised live in Frankfurt, I’ll await to see if it made a difference later!
After a few weeks of the ball running around the edge of the hoop before deciding whether to go in or not, yesterday’s US CPI report finally seems to have settled the 25 vs 50bps debate for the Fed in favour of 25. The main reason is that core CPI was at the upper end of expectations, coming in at +0.3% for the month (vs. +0.2% consensus). So when coupled with payrolls still running at +146k in August, the thinking is that the Fed won’t want to be too aggressive given that inflation is still (slightly) above target, and the current activity data simply isn’t pointing towards a recession whatever the risks might be.

That’s been reflected in market pricing, as immediately before the CPI print came out, futures were still pricing in a 31% chance that the Fed would deliver a larger 50bps cut next week. But by the close yesterday, that had come down to just 17%, which is the lowest since July 31, before the recent market turmoil had really kicked off. So investors aren’t completely dismissing the chance, but it would be a decent surprise from where things stand right now. Moreover, futures adjusted the profile of Fed rate cuts over the months ahead, and they now only see 106bps of cuts by Christmas, down from 115bps the previous day. This is the largest reversal in Fed pricing in four weeks but the market is still pricing nearly 150bps of cuts over the four meetings after September, which would be a historically aggressive easing cycle outside of recessions.

In terms of the details of the CPI print, headline CPI came in at +0.19% on the month, which took the year-on-year rate down to +2.5% as expected. That’s the lowest annual inflation rate since February 2021, before the inflation spike really got going, so that’s a significant milestone. But markets were more focused on the upside surprise for core inflation, which was running at a monthly pace of +0.28%. In large part, that was down to a rise in Owners’ Equivalent Rent, which came in at a 7-month high of +0.50% for the month. That OER component makes up just over a quarter of the overall CPI number, and around a third of the core CPI number, so it plays a big role. Today all eyes will be on the PPI reading for September, as several categories in that feed into the core PCE number that the Fed focuses on.

Given the shift in market pricing, it’s making it increasingly hard for the Fed to cut by 50bps without triggering a significant market surprise. After all, one thing that’s been evident throughout this cycle is that the Fed have consistently delivered the rate decision that markets were expecting on the day. Sometimes those shifted not long before the day, such as in June 2022 when they moved by 75bps rather than 50bps, and market pricing moved over the previous week. But even in that case, market expectations had adjusted by the time the decision was made. So if markets were expecting a 25bp cut on the day and the Fed then delivered 50bps, that would be a shock decision of the sort we haven’t seen at all in recent years.

US equities initially fell back sharply in response to the CPI print, with the S&P 500 trading -1.6% lower early on, but with a strong tech-driven rebound the index posted a +1.07% gain by the close. This marked the first time since October 2022 that the S&P 500 erased an intra-day loss of over 1.5%. The NASDAQ (+2.17%) and the Magnificent 7 (+2.62%) outperformed, with Nvidia (+8.15%) seeing its strongest day since July. However, the equity mood was more downbeat outside of tech, with more than half of the S&P 500 constituents down on the day, led by energy (-0.93%) and consumer staples (-0.88%) sectors. Another interesting theme was that the “Trump trades” generally didn’t do so well after the previous night’s debate. For instance, Trump Media & Technology Group fell -10.47%. By contrast, solar energy firms outperformed, including First Solar (+15.19%) and SolarEdge Technologies (+8.46%). European equities were little changed, with the STOXX 600 up by +0.01%.

For US Treasuries, the prospect of more gradual rate cuts helped to lift front-end yields, and the 2yr yield ended the day up +4.7bps at 3.64%. The 10yr yield saw a more modest increase of +1.0bps, only rising to 3.65%, but that still marked an end to 6 consecutive daily declines, having closed at 3.90% before the Labor Day holiday. By contrast, Europe saw an ongoing bond rally ahead of today’s ECB meeting, with yields on 10yr bunds (-1.8bps) falling for the seventh day in a row and to their lowest level since January at 2.11%.

In terms of that ECB decision today, it’s widely expected that they’ll deliver another 25bp rate cut, which would take the deposit rate down to 3.50%. So the bigger question will be what they signal about the subsequent steps in this easing cycle, and how fast they might cut rates from here. Our European economists’ baseline has a quarterly pace of cuts continuing in December and into 2025. But they see the risks as tilted dovishly over the next six months, as there is value in the ECB retaining optionality to ease faster if downside risks to inflation materialise. See their full preview here for more details.

This morning Asian equity markets are rallying for the first time this week and being fuelled by a tech rally. The Nikkei (+2.77%) is leading gains and halting a seven-day losing streak as the yen’s strengthening has paused for now while the KOSPI (+1.57%), the Hang Seng (+1.07%) and the S&P/ASX 200 (+0.60%) are also trading higher. Elsewhere, Chinese stocks have reversed initial gains with the CSI (-0.14%) and the Shanghai Composite (-0.05%) both seeing small losses. S&P 500 (+0.08%) and NASDAQ 100 (+0.12%) futures are edging higher.

Early morning data showed that Japan’s PPI rose +2.5% y/y in August, less than the expected +2.8% and down from the +3% gain reported the previous month. Meanwhile, the Japanese yen (-0.18%) is losing ground against the dollar, trading at 142.62, even with BOJ board member Naoki Tamura commenting that the bank needs to raise interest rates to at least 1% to avoid inflationary risks. Looking ahead, the BOJ is set to meet next week, with the consensus mostly expecting the bank to remain on hold for now.

Finally, looking at yesterday’s other data, UK monthly GDP was unchanged in July (vs. +0.2% expected). As a result, investors dialled up their expectations for BoE rate cuts over the months ahead, and gilts outperformed with the 10yr yield down -5.8bps.
To the day ahead now, and the main highlight will be the ECB’s policy decision, along with President Lagarde’s subsequent press conference. Other data releases include the US PPI reading for August, and the weekly initial jobless claims.

Goldman analysts Trina Chen and Joy Zhang explained in a client note Thursday that reports of Chinese battery giant Contemporary Amperex Technology (CATL) cutting lithium production at a major mine in Jiangxi province could produce a “near-term” price floor amid a multi-year bear market, temporarily alleviating oversupply concerns for the critical battery metal. However, they emphasized that the overall outlook for the lithium cycle remains deeply “negative.” 

“While there is lack of clarity on the quantification of production cut, we estimate the potential impact on global supply would be 3.9% for 2024E, and 5.2% for 2025E, if assuming a full production cut,” the analysts said, referring to a Reuters headline specifying CATL plans to adjust its lithium production. 

They said, “In the meantime, we expect the global supply surplus in the integrated lithium carbonate market to reach 26% for 2024E and 57% for 2025E. Thus, we do not view the production cut, along with a few other recently announced ones, would reverse the negative outlook of the global S/D balance.” 

“Our work (on the global cost curve suggests the marginal cost of integrated lithium carbonate remains at US$9.0k-10.0k/t-LCE, and potentially lower driven by continued cost-cutting effort by Chinese producers, based on feedback over 1H24. While the production cut can provide support to the floor of the pricing in the near term, we remain more focused on cuts in development projects that are required to drive fundamental changes in S/D outlook. And the current spot price of US$9,174/t-LCE may still not be deep enough to trigger meaningful responses,” the analysts noted. 

The end of the note included a chart pack showing that oversupplied conditions have depressed prices.

While Goldman isn’t too convinced lithium prices will bounce from here on CATL news, UBS analyst Sky Han told clients Wednesday that the latest development from CATL may suggest an 11%—23% upside in the Chinese lithium price for the rest of the year. 

The key question is whether the development at CATL is enough supply coming out of the market to reverse prices. Another question: When will EV demand rebound? 

Authored by Mike Maharrey via Money Metals,

The Federal Reserve boasts of its data dependence. But what if it’s relying on bad data?

Even worse, what if it’s plugging that bad data into a faulty model?

In July, the Bureau of Labor Statistics (BLS) made massive downward revisions to the job numbers. Poof – the agency simply erased 111,000 jobs from existence.

This has been an ongoing pattern. The BLS releases a report. The media trumpets the greatness of the labor market. And then the BLS quietly revises the numbers down a month or two later and you hardly hear a peep.

The BLS struck again last week when it released revisions to its June Job Openings and Labor Turnover Survey (JOLTS) report. It initially reported 8.18 million job openings. The media reported this as great news — better than expected. The revised number came in at 7.910 million job openings.

That was a miss. 

But as a post on X by ZeroHedge put it, “Of course, nobody cares one month later. This is how the Kamala/Biden Department of Labor has operated for the past 4 years.”

You might be tempted to laugh this off as “politics as usual,” but when you consider that the central bankers at the Federal Reserve use this data to make monetary policy decisions, it’s not funny.

Federal Reserve Chairman Jerome Powell and his fellow central bankers constantly talk about their “data dependence.” Kansas City Fed president Jeff Schmid recently said he wants to see “more data,” before deciding on a rate cut.

They wear data dependence like a badge of honor. After all, it does sound “sciency.” But given the reliability of the data, maybe they should rethink the approach.

Prior to Jerome Powell’s speech at Jackson Hole, Independent Institute Senior Fellow Judy Shelton appeared on Fox Business to talk about Fed monetary policy. Shelton is an economist and the author of several books, including Good as Gold How to Unleash the Power of Sound Money.

Shelton made a strong case against this data-dependent approach at the Fed. After all, bad data is going to lead to bad decision-making. As Shelton said, “There’s good reason for all of us to be skeptical about that data, especially when it gives us conflicting results,” pointing out that “there have long been discrepancies between the payroll jobs numbers and the household survey.” 

“You end up getting these conflicting numbers that on the one hand said that we had tremendous job growth, and now we’re wondering if that was all a mirage.”

That leads to the logical conclusion.

“The fact that the Fed is so data-dependent should not give us confidence.”

During his Jackson Hole speech, Powell effectively surrendered to inflation, saying that the “balance of risk” has moved away from inflationary pressures to shakiness in the jobs market. But given the revisions to the data, it appears the Fed is behind the curve. The job market has been shakier than advertised for quite a while.

It gets worse.

Not only is the Fed using bad data, it plugging it into a bad model.

Shelton pointed out, “It’s ironic that on its own website, the Fed admits it can’t have much impact on the labor market and that it tends to be driven more by structural variables.”

The Federal Reserve primarily relies on curtailing demand. That’s the whole point of rate hikes. But as Shelton noted, the Fed can only impact demand on the consumer side of the economy. It has little to no impact on government spending, and that’s a big part of the equation. 

“I sometimes wonder – how is the Fed going to explain why inflation came down at all? Is it just because they made the cost of capital so expensive for private business that they couldn’t hire people? They couldn’t expand?”

Meanwhile, government spending has gone on unabated. The Biden administration is blowing through half a trillion dollars every single month and running massive budget shortfalls in the process. But Powell refuses to even talk about it, instead insisting that the central bank just takes the fiscal situation “as given.”

Shelton drove home an important point. The central bank should at least acknowledge the contribution of government debt and spending to the inflation situation.

“It’s not clear that they’re really accomplishing their goal, and yet they stick with that model and claim that they have responsibility for price stability no matter what the government does.”

At least some people at the Federal Reserve know they can’t control inflation alone. A paper co-authored by Leonardo Melosi of the Federal Reserve Bank of Chicago and John Hopkins University economist Francesco Bianchi and published by the Kansas City Federal Reserve argues that central bank monetary policy alone can’t control inflation. U.S. government fiscal policy contributes to inflationary pressure and makes it impossible for the Fed to do its job.

“Trend inflation is fully controlled by the monetary authority only when public debt can be successfully stabilized by credible future fiscal plans. When the fiscal authority is not perceived as fully responsible for covering the existing fiscal imbalances, the private sector expects that inflation will rise to ensure sustainability of national debt. As a result, a large fiscal imbalance combined with a weakening fiscal credibility may lead trend inflation to drift away from the long-run target chosen by the monetary authority.”

If the monetary policy alone can’t control inflation, and the government has no intention of getting its fiscal house in order, why should we have any confidence that the Fed really has beaten inflation?

As Shelton pointed out, this also raises questions about the future.

“What if inflation starts ramping up again because of the government spending? Won’t the Fed have to go back to its model and its only tool to curtail demand is to raise interest rate?”

When you put it all together, it’s clear we shouldn’t have any confidence in the Federal Reserve. It is plugging bad data into a faulty model. This isn’t exactly a recipe for success.

September 6 was National Read a Book Day in the United States.

But, as Statista’s Anna Fleck details below, the promotion appears not to be working as nearly half of all U.S. adults said that they had not read a book in 2023, according to a YouGov survey conducted between December 16-18.

You will find more infographics at Statista

Of the 1,500 polled adults, 46 percent said they had not listened to or read a book in the past year, while 27 percent said that they had read between 1-5 books and nine percent said they had read 6-10.

Eleven percent of Americans are particularly voracious readers, having read 20 books or more in that time frame.

Mystery and crime stories as well as history books were the most read genres in 2023, with 37 percent and 36 percent, respectively, of readers who had consumed at least one book of that genre selecting the option.

Poetry was the least read genre, read by eight percent of readers in 2023.

A slightly higher share of men read poetry (nine percent) than women (six percent) and the genre was more popular among younger age groups (six percent 18-29 year olds, 5 percent 30-44 year olds, three percent 45-64 year olds, three percent 65+).

Submitted by Alastair Crooke

In the Washington Post on Monday, the headlines read: Musk and Durov are facing the revenge of the regulators. Former US Labor Secretary, Robert Reich, in the British Guardian newspaper, published a piece on how to ‘rein-in’ Elon Musk, suggesting that “regulators around the world should threaten Musk with arrest” on lines of that which befell Pavel Durov recently in Paris. 

As should be clear to all now, ‘war’ has broken out. There is no need for further pretence about it. Rather, there is evident glee at the prospect of a crackdown on the ‘Far-Right’ and its internet users: i.e. those who spread ‘disinformation’ or mal-information that ‘threatens’ the broad ‘cognitive infrastructure’ (which is to say, what the people think!).  

Make no mistake, the Ruling Strata are angry; they are angry that their technical expertise and consensus about ‘just about everything’ is being spurned by the ‘deplorables’. There will be prosecutions, convictions and fines for cyber ‘actors’ who disrupt the digital ‘literacy’, the ‘leaders’ warn.

Professor Frank Furedi observes: 

“There is an unholy alliance of western leaders – Prime Minister Keir Starmer, French President Emanuel Macron, German Chancellor Olaf Scholtz – whose hatred of what they call populism is undisguised. In his recent visits to Berlin and Paris, Starmer constantly referred to the threat posed by populism. During his meeting with Scholz in Berlin on 28 August, Starmer spoke about the importance of defeating “the snake oil of populism and nationalism”.

Furedi explained that as far as Starmer was concerned, populism was a threat to the power of the technocratic élites throughout Europe:

“Speaking in Paris, a day later, Starmer pointed to the far Right as a ‘very real threat’ and again used the term ‘snake oil’ of populism. Starmer has never stopped talking about the ‘snake oil of populism’. These days virtually every political problem is blamed on populism … The coupling of the term snake-oil with populism is constantly used in the propaganda of the technocratic political elite. Indeed, tackling and discrediting snake oil populists is its number one priority”.

So, what is the source of the élite’s anti-populist hysteria? The answer is that the latter know that they have become severed from the values and respect of their own people and that it is only a matter of time before they are seriously challenged, in one form or another.

This reality was very much on view in Germany this last weekend, where the ‘non-Establishment (i.e. non Staatsparteien) parties — when added together — secured 60% of the vote in Thüringen and 46% in Saxony. The Staatsparteien (the nominated establishment parties) choose to describe themselves as ‘democratic’, and to label the ‘others’ as ‘populist’ or ‘extremist’. State media even hinted that what counted more were ‘democratic’ votes; and not non-Staatsparteien votes, so the party with the most Staatsparteien votes should form the government in Thüringen. 

These have co-operated to exclude AfD (Alternative für Deutschland) and other non-Establishment parties from parliamentary business as far as legally possible — for instance by keeping them out of key parliamentary committees and the imposition of various forms of social ostracism.

It reminds of the story of the great poet Victor Hugo’s membership rejection — no less than  22 times — by the Académie Française. The first time he applied, he received 2 votes (out of 39) from Lamartine and Chateaubriand, the two greatest men of letters of their time. A witty woman of the time commented: “If we weighed the votes, Monsieur Hugo would be elected; but we’re counting them.” 

Why war?

Because, after the 2016 US election, the US political backroom élites blamed democracy and populism for producing bad election outcomes. Anti-establishment Trump had actually won in the US; Bolsonaro won too, Farage surged, Modi won again, and Brexit etc., etc.  

Elections were soon proclaimed to be out of control, throwing out bizarre ‘winners’. Such unwelcome outcomes threatened the deep-seated structures that both projected and safeguarded long-seated US oligarchic interests around the globe, by subjecting them (oh the horror!) to voter scrutiny. 

By 2023, the New York Times was running essays headlined: “Elections Are Bad for Democracy”.

Rod Blagojevich explained in the WSJ, earlier this year, the gist of what it was that had broken with the system:

“We [he and Obama] both grew up in Chicago politics. We understand how it works—with the bosses over the people. Mr. Obama learned the lessons well. And what he just did to Mr. Biden is what political bosses have been doing in Chicago since the 1871 fire:  Selections masquerading as elections”. 

“While today’s Democratic bosses may look different from the old-time cigar-chomping guy with a pinky ring, they operate the same way: in the shadows of the backroom. Mr. Obama, Nancy Pelosi and the rich donors—the Hollywood and Silicon Valley élites—are the new bosses of today’s Democratic Party. They call the shots. The voters, most of them working people, are there to be lied to, manipulated and controlled”. 

“The Democratic National Convention in Chicago next month will provide the perfect backdrop and place [for appointing a] candidate, not the voters’ candidate. Democracy, no. Chicago ward-boss politics, yes”.  

The problem was that the revealing of Biden’s dementia had pulled the mask from the system. 

The Chicago model is not so very different from how EU democracy works. Millions voted in the recent European parliamentary elections; ‘Non-Staatsparteien’ parties chalked-up major successes. The message sent was clear — yet nothing changed. 

Cultural War

2016 represented the onset of cultural war, as Mike Benz has described in great detail. A complete outsider, Trump had crashed through the System’s guardrails to win the Presidency. Populism and ‘disinformation’ were the cause, it was held. By 2017, NATO was describing ‘disinformation’ as the greatest threat facing western nations.

Movements designated as populist were perceived as not simply hostile to the policies of their opponents, but to élite values too.

To combat this threat, Benz, who until recently was directly involved in the project as a senior State Department official focused on technology issues, explains how the backroom bosses pulled an extraordinary ‘sleight of hand’: ‘Democracy’ they said, was no longer to be defined as a consensus gentium — i.e. a concerted resolve amongst the governed; but rather, was to be defined as the agreed ‘stance’ formed, not by individuals, but by democracy-supporting institutions.

Once re-defined as ‘an alignment of supporting institutions’, the second ‘twist’ to the democracy re-formulation was added. The Establishment had foreseen a risk that were a direct info-war on populism pursued, they themselves would be portrayed as autocratic and imposing top-down censorship. 

The solution to the dilemma of how to pursue the campaign against populism, according to Benz, lay in the genesis of the ‘whole of society’ concept whereby media, influencers, public institutions, NGOs and allied media would be corralled and pressured into joining an apparently organic, bottom-up censorship coalition focussed on the scourge of populism and disinformation. 

This approach — with the government standing at ‘one removed’ from the censorship process — seemed to offer plausible deniability of direct government involvement; of the authorities acting autocratically.

Billions of dollars were spent in raising up this anti-disinformation eco-system in such a way that it appeared to be a spontaneous emanation out of civil society, and not the Potemkin façade that it was.  

Seminars were conducted to train journalists on Homeland Security disinformation best practices and safeguards — to detect, mitigate, dismiss and distract. Research funds were channelled to some 60 universities to found ‘disinformation laboratories’, Benz reveals.

The key point here is that the ‘whole of society’ framework could facilitate a blending back into the policy mainstream of the long timeframe and largely unspoken (and sometimes secret) bedrock structures of foreign policy — on which foundation many key élite financial and political interests are leveraged. 

An outwardly bland ideological alignment focussed on ‘our democracy’ and ‘our values’ would nonetheless allow for the re-integration of these enduring structures to foreign policy (hostility to Russia; support for Israel; and antipathy towards Iran) to be re-formulated as the appropriate rhetorical slap in the face to the Populists.

The war may escalate; It may not end with a disinformation eco-system. The New York Times in July posted an article arguing how The First Amendment is Out of Control and in August another piece entitled, The Constitution is Sacred. Is it Also Dangerous?

The war, for the moment, is targetted at the ‘unaccountable’ billionaires: Pavel Durov, Elon Musk and his ‘X’ platform. The survival or not of Elon Musk will be crucial to the course of this aspect of the war: The EU’s Digital Service Act was always conceived to serve as ‘Brutus’ to Musk’s ‘Caesar’.

Throughout history, self-regarding and self-enriching élites have become dangerously contemptuous of their peoples. Crackdowns have been the usual first response. The cold reality here is that recent elections in France, Germany, Britain and for the Euro-parliament reveal the deep distrust and dislike of the Establishment:

“The alienation is worldwide, against the postmodern West. Europe will either distance itself from it, or become embroiled in the detestation of the “privileged ci-devant”. The end of the dollar is indeed the analogue of the abolition of feudal rights. It is inevitable, but it will also cost Europeans dearly”.  

An eco-system of propaganda does not restore trust. It erodes it.

While on Tuesday VP Harris and former president Trump were squaring off in a debate which only touched on foreign policy a couple of times, and briefly related to Ukraine and Gaza, North Korea’s leader Kim Jong Un issued statements vowing to “exponentially” boost the nation’s nuclear arsenal.

Kim gave a speech marking the 76th founding anniversary of his government at the start of this week. He said that a nuclear overhaul is needed to defend the country from “hostile” forces and that North Korea faces “a grave threat” as a result of the “reckless expansion” the United States-led military bloc in the region.

North Korea will “redouble its measures and efforts to make all the armed forces of the state, including the nuclear force, fully ready for combat,” he sated.

In particular Kim was reacting to a new US-South Korean defense agreement signed in July. The new agreement allows for the integration of US nuclear weapons and South Korean conventional weapons to defend the peninsula from the nuclear-armed north if need be.

Pyongyang has been seen as engaged in heightened nuclear saber-rattling over the last year, especially following the US decision to at times park a nuclear submarine at South Korean port. The north has also frequently condemned joint US-South Korean military drills, which it denounces as “invasion rehearsals”.

Seoul and the West at this point are deeply worried that the north could renew banned nuclear tests. The last known North Korean nuclear test was in 2017.

Regional analysts have pointed out that these warnings of ‘exponential’ increases in nukes began in 2022. Yang Uk, a research fellow at the Asan Institute for Policy Studies, has been cited in international reports as saying, “From the end of the following year, they started to mention ‘exponential increases’,” – he said in reference to the 8th Party Congress held in 2021.

“We believe that by 2027 North Korea can secure enough nuclear material for about 200 warheads and by 2030, this can reach 300,” Yang added.