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Just two days after we said that “China Prepares To Cut Rates As Economy Stalls“, this morning China did just that when the PBOC announced it is cutting the Required Reserve Ratio by 0.5% for most banks, a move that will unleash about 1 trillion yuan ($154BN) of long-term liquidity into the economy and will be effective July 15.

The announcement reduces the amount of cash most banks must hold in reserve in order to boost lending to the economy as growth has sharply waned, and is expected to prop up China’s slowing economy, which as noted earlier this week saw its Caixin Service PMI drop to the lowest level since the covid crisis, badly missing expectations.

The last time the bank cut the main ratios was during the first wave of the pandemic in 2020, when it was trying to boost the economy after the Covid-19 outbreak which started in a Wuhan lab shut down the economy.

The RRR cut was signaled earlier this week, when as we reported on Wednesday, China’s State Council hinted the central bank would make more liquidity available to banks so they could lend to smaller firms hurt by rising costs. But the rushed timing and magnitude of the move, coming a week before second-quarter growth data, suggests mounting concerns about the economy’s outlook, economists said.

“The PBOC came in broader and sooner than expected, highlighting the policy urgency to support the China economy,” said Mizuho FX strategist Ken Cheung. “Such firm easing measures could further fuel concern over China’s growth outlook in the second half as well as the upcoming second-quarter GDP figures in the coming week.”

The rate cut comes at a time when Beijing is again posturing with its noble but futile intentions to delever the economy: China has been wary of overstimulating the economy, and the central bank said in a statement that the cut doesn’t mean there’s been a change to the “prudent monetary policy.” The PBOC will maintain the “stability and effectiveness of monetary policy, keep a normal monetary policy, and won’t flood the economy with stimulus,” it said. Well, define “flood.”

“The magnitude of the RRR cut is more than expected. The RRR reduction paints quite a stark contrast to PBOC’s very cautious stance on its liquidity injections in the first half of the year,” said Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered Plc in Hong Kong. “Even though the central bank said the cut shouldn’t be seen as a sign it’s shifting its policy stance, the market will interpret the move as a tilt toward looser monetary policy in the second half.”

Thanks to liquidity injection, China’s FTSE A50 futuress rose as much as 1.1%, while 10-year government bond yields pared gains of as much as four basis points after the RRR cut, standing little changed at 2.99% as of late Friday.

The response was muted because overall liquidity in the economy will basically be stable, as the extra funds will be used to repay maturing medium-term loans, fill any liquidity gaps due to the tax season from mid to late July, and raise long-term capital, the bank said.

Curiously, the RRR cut announcement came just minutes the release of the latest monthly data showing that credit growth in June was much stronger than expected, with much of that expansion coming from bank loans.

Below we share some hot takes from Wall Street analysts and strategists:

• David Qu, China economist: “The People’s Bank of China’s isn’t taking any chances with the recovery — the surprise 0.5 percentage point cut to the required reserve ratio will inject 1 trillion yuan into the banking system, helping juice growth that’s poised to slow in the second half. The RRR cut and a larger-than-expected jump in June credit mark a decisive turn to an easing stance.”
• Kelvin Wong, an analyst at CMC Markets: “The timing of China’s reduction in the reserve requirement ratio is rather significant given the bloodbath we have seen in China Big Tech this week. Likely to be positive for equity markets as credit impulse indicators in China have been showing more tightening liquidity conditions versus the rest of the world. Should bode well for consumer discretionary shares for now.”
• Liu Xiaodong, fund manager at Shanghai Power Asset Management: “The cut to the required reserve ratio, which comes just two days after signaling from China’s cabinet may not provide a huge boost to stocks. I read this as neutral news for the market as this will dampen earnings outlook for banks, which are heavy enough to drag down the index. This is meant to replenish the liquidity for the real economy and new energy companies, rather than to bolster the market.”
• Sebastien Galy, macro strategist at Nordea Investment Funds: “China’s move to reduce the reserve ratio requirement earlier than expectation “should give a fillip” to its stock market even as some investors might wait for economic-data reports next week to gauge the extent of the economic slowdown. The Move comes ahead of the “release of 2Q GDP data, which might well disappoint amongst lingering weakness in consumption and disruptions in the supply chain as well as the impact of health restriction.”
• Iris Pang, chief economist, Greater China, with ING Bank NV: “The PBOC’s move to cut its reserve ratio raises concern that the nation’s banks may be further exposed to bad loans. This gives me a sense of uneasiness. Are banks under stress of capital? If this is the case, it implies that there could be more bad loans. Increased stress may be coming from China’s deleveraging reform efforts, especially in the real estate and fintech industries.”
• Jian Shi Cortesi, a fund manager at GAM Investment Management: “China reducing the RRR will have “a minor impact” on the nation’s equities as the focus right now is on the regulatory crackdown toward the technology sector and the U.S.’s monetary policy. Investors should note that money supply may remain stable as the RRR cut also partially offsets the liquidity shortage due to tax payments in mid July.”

Via SchiffGold.com,

Even with the CPI rising more than expected every month this year, Federal Reserve Chairman Jerome Powell continues to insist that inflation is “transitory.” But not everybody is buying Powell’s narrative. In a blog post published July 7, International Monetary Fund (IMF) Managing Director Kristalina Georgieva warned of a “sustained” inflation rise in the United States.

But even if she’s right, will the Fed do anything about it?

There is a risk of a more sustained rise in inflation or inflation expectations, which could potentially require an earlier-than-expected tightening of US monetary policy,” Georgieva wrote.

During the June FOMC meeting, the Fed raised its CPI projection to 3.4%. That was a full percentage point higher than the March forecast, but the central bank continued to categorize inflation as “transitory.”

“Our expectation is these high inflation readings now will abate,” Powell said during his post-meeting press conference.

The numbers seem to tell a different story.  The CPI in January was up 0.3%. It was up 0.4% in February. It rose 0.6% in March, 0.8%. in April and 0.6% in May. If you add up the inflation increases through the first five months of 2021, it comes to 2.7%. If you annualized the number through the end of the year, the inflation rate would be around 6.5%.

Peter Schiff has said all along that this rising price trend isn’t “transitory.”

Every month they expect less inflation, and they get more inflation. Yet all of these people, who are so surprised every time we get an inflation number that’s much higher than they thought, they’re still clinging to the false notion that inflation is transitory. Well, the fact that they’re wrong every month — they’re just wrong in total. All the inflation is going to keep beating their expectations, including the fact that it’s transitory. Because the inflation that we’re experiencing is anything but transitory. it is only going to get worse.”

Georgieva worries that more persistent inflation will force the Fed to start raising rates and rolling back its quantitative easing, leading to a “sharp tightening” of financial conditions around the world and “significant capital outflows” from emerging and developing economies.

“It would pose major challenges especially to countries with large external financing needs or elevated debt levels,” she wrote.

But will the Fed actually tighten? Schiff doesn’t think so. He believes the central bank will stick to its “transitory” inflation narrative as long as possible because it can’t tighten without wrecking the economic recovery.

Those who have figured out that inflation isn’t transitory still haven’t figured out that the Fed will do nothing to contain it. If the Fed could actually fight inflation it would already be doing so. It’s because it can’t that it’s pretending sustained inflation is transitory,” Schiff said in a tweet. “The markets are bracing for the wrong outcome. Investors expect the economy to slow as the Fed pumps the breaks to successfully fight off inflation. In reality, the Fed will step harder on the gas even as inflation accelerates to prevent the economy from stalling into recession.”

The fact is the US economy can’t handle the high interest rate environment necessary to tame rising prices. The Federal Reserve bosted interest rates modestly to 2.5% in 2018 and all hell broke loose. The stock market crashed, and the Fed was forced back to loose monetary policy even before the coronavirus pandemic. As Schiff noted in a podcast, if the economy couldn’t handle higher rates in 2018, it certainly can’t handle them today.

The level of debt is so much greater than it was then. And so, the more debt you have, the lower interest rate is required to be able to service that debt. So, if two-and-a-half percent was too much when the national debt was significantly lower than it is today, then that threshold is much lower. I don’t even think we could survive a move to one percent from the Fed.”

And the longer the Fed waits to act, the harder it becomes to act.

The longer the Fed waits to taper its asset purchases, the harder it gets to taper. That’s because the longer the Fed waits the larger its balance sheet grows and the higher the national debt rises. The larger the debt, the more the Treasury depends on the Fed to finance it.”

Apple co-founder Steve Wozniak embraced the “right to repair” movement in a Cameo video. He said Apple itself wouldn’t have existed without an open technology world. 

“We wouldn’t have had an Apple, had I not grown up in a very open technology world,” said Wozniak. “Back then, when you bought electronic thing like TV’s and radios, every bit of the circuits and designs were included on paper. Total open source.”

Nowadays, Apple, Microsoft, and other technology companies have strict repair restrictions on their products. 

“It’s time to recognize the Right to Repair more fully,” Wozniak said in a Wednesday Cameo video requested by repair expert Louis Rossman. Cameo is a site where people pay celebrities for a short video message. 

“I am so busy with so many other things in my life that I haven’t really gotten involved in that area. But I’m always totally supportive and I totally think the people behind it (the Right to Repair) are doing the right thing,” Wozniak continued. 

He said: “Companies inhibit [the right to repair] because it gives the companies power, control, over everything.”

“It’s time to start doing the right things,” Wozniak added. 

Wozniak’s backing of the right-to-repair movement comes as President Biden could soon direct the Federal Trade Commission to draft new rules that prevent manufacturers from limiting consumers’ ability to repair products on their own or at independent shops, a person familiar with the plan recently told Bloomberg. 

White House economic adviser Brian Deese said an executive order could be released in the coming days and is designed to drive “greater competition in the economy, in service of lower prices for American families and higher wages for American workers.” 

This comes after the European Commission announced new right-to-repair rules for laptops, smartphones, and tablets. 

Authored by Jonathan Turley,

We have previously discussed Twitter’s robust censorship program that repeatedly has been denounced for bias in taking sides on scientific, social, and political controversies. The problem is that, when you have an army of censors with their thumbs on buttons to flag or bar comments, the tendency is ever expanding levels of censorship. Indeed, much censorship is not thumbless through automatic systems to remove certain comments. That was evident this week.

Not only did Twitter flag a picture of a veteran wishing the country a Happy Fourth of July (presumably due to his combat scars) but it flagged New Zealand foreign policy expert Anne-Marie Brady who mocked the Chinese government.  The incident is particularly notable after Twitter recently admitted to censoring criticism of India’s government.

Brady is a professor at the University of Canterbury and an authority on the Chinese regime. Like many, Brady mocked the recent Communist Party’s over-the-top celebration of Chinese President Xi Jinping. She soon found that some of her tweets were “unavailable,” Twitter’s version of being “disappeared.”

What happened next is all-too-familiar: nothing. Brady tried to get someone to respond to the censorship and received no answer. Indeed, Twitter makes it extraordinarily difficult to reach anyone on such issues. While professing commitment to transparency, the company is notorious for being unresponsive and closed to criticism, even efforts to learn why actions have been taken on such tweets. It was only after Edward Lucas, a journalist for the Times of Britain, inquired that the company finally responded to him rather than Brady. 

Her account was then restored without an apology or acknowledgement. Brady dryly noted “Seems like @Twitter may have briefly forgotten they don’t work for Xi Jinping.”

The assumption is that this is the work of Chinese agents who submit a torrent of complaints to trigger a flagging. Various groups have used the same technique to cancel opposing views. Twitter does nothing about it. Rather than have a presumption in favor of free speech, it automatically flags material pending proof that it is worthy of publication. That often means that it does not disagree with Twitter’s own view of certain sensitive subjects. Absent media coverage, the Chinese would likely have succeeded in silencing Brady with the help of Twitter.

As discussed earlier, members of Congress are now pushing for public and private censorship on the internet and in other forums. They are being joined by an unprecedented alliance of academics, writers and activists calling for everything from censorship to incarceration to blacklists. For example, an article published in The Atlantic by Harvard law professor Jack Goldsmith and University of Arizona law professor Andrew Keane Woods called for Chinese-style censorship of the internet, stating that “in the great debate of the past two decades about freedom versus control of the network, China was largely right and the United States was largely wrong.”

Much of the effort by politicians and activists has been directed at using Big Tech to censor or bar opposing viewpoints, seeking to achieve indirectly what cannot be achieved directly in curtailing free speech. Congress could never engage in this type of raw content discrimination between news organizations under the First Amendment.

However, it can use its influence on private companies to limit free speech.

The move makes obvious sense if the desire is to shape and control opinion — the essence of state-controlled media. Controlling speech on certain platforms is meaningless if citizens can still hear opposing views from other sources.

You must not only control the narrative but also eliminate alternatives to it.

World food prices fell in June for the first in 12 months, offering some relief for consumers and easing inflationary pressures. 

According to a new Food and Agriculture Organization of the United Nations (FAO) report, the FAO Food Price Index, which measures monthly changes for a basket of cereals, oilseeds, dairy products, meat, and sugar, dropped 2.5% in June, coming off a decade high, but still 33.9% higher than its level in the same month last year. The decline in the index was the first in 12 months. 

Examining the index, vegetable oils and cereal prices fell during the month, offsetting increases in meat and sugar.

The FAO Vegetable Oil Price Index fell by 9.8 percent in the month, marking a four-month low. The sizeable month-on-month drop mainly reflects lower international prices of palm, soy and sunflower oils.

The FAO Cereal Price Index fell by a more moderate 2.6 percent from May, but remained 33.8 percent higher than its value in June 2020. International maize prices dropped by 5.0 percent, led by falling prices in Argentina due to increased supplies from recent harvests as a result of higher-than-earlier expected yields. International wheat prices declined slightly by 0.8 percent in June, with a favourable global outlook supported by improved production prospects in many key producers outweighing most of the upward pressure from dry conditions affecting crops in North America.

The FAO Dairy Price Index fell by 1 percent to 119.9 points in June. International quotations for all dairy products represented in the index fell, with butter registering the highest drop, underpinned by a fast decline in global import demand and a slight increase in inventories, especially in Europe.

The FAO Sugar Price Index moved against the overall food price trend, rising by 0.9 percent month-on-month, marking the third consecutive monthly increase and reaching a new multi-year high. Uncertainties over the impact of unfavourable weather conditions on crop yields in Brazil, the world’s largest sugar exporter, exerted upward pressure on prices.

The FAO Meat Price Index also rose by 2.1 percent over the month to June, continuing the increases for the ninth consecutive month and placing the index 15.6 percent above its value in the corresponding month last year, but still 8.0 percent below its peak reached in August 2014.

In previous reports, Rome-based FAO sounded the alarm on surging food prices as it may induce a “potential crisis” in lower-income countries: “Rising food imports as a share of all imports can be an early warning indicator for potential crises in some areas.” 

June’s FAO Food Price Index is still near a decade high, and rapid food inflation hasn’t meaningfully subsided to offer total relief to consumers worldwide. 

Surging costs of grains to vegetable oils to meats to dairy have primarily been due to surging Chinese imports, weather volatility risks, and central banks and governments unleashing an unprecedented amount of stimulus into the global economy. 

As a reminder to readers, the rapid rise in food costs was first described by SocGen’s market skeptic Albert Edwards in December, where he shared his thoughts about why he started to panic about soaring food prices. And since that was before food prices began to rocket amid broken supply chains, trillions in fiscal stimulus, and exploding commodity costs, we can only imagine the situation is much worse today for emerging market economies. 

More recently, Deutsche Bank’s Jim Reid reminds us that emerging markets are more vulnerable to this trend since their consumers spend a far greater share of their income on food than those in the developed world.

Even though the FAO Food Price Index was slightly lower last month, it’s still near-decade highs, and the Fed officials’ “transitory” narrative is just a bunch of malarkey.