Category: zerohedge

After weeks of a vertical rampage, commodity prices hit a sudden air pocket late last week as everything from lumber to iron ore stumbled for their first weekly drop in months amid efforts by China to clamp down on surging prices. But on Monday, commodities resumed their upward trek, with iron ore futures bouncing above $200 per ton on increasing steel production in China and robust global demand as there are limited signs of the industry cooling despite Beijing’s attempt to subdue output and prices. 

Bloomberg reports Chinese steel output in April increased to 97.8 tons, hitting monthly and daily run-rate records. The surge in production has increased year-to-date output to 375 million tons, or about a 16% jump compared to the same period last year. This comes as demand for Chinese steel continues to soar, resulting in lower iron ore stockpiles at ports for the third week in a row and inversely pushing prices higher. 

“As China’s steel production still continues to expand, its steel margins remain elevated and seaborne iron ore supply remains constrained, we think that the iron ore price can stay around the current level through 2Q, but is likely to remain highly volatile,” Morgan Stanley said in a commodity note. 

Iron ore futures have had a wild ride over the several sessions. Tumbling 11% over the previous two trading days and now up 2% to $205 per ton on Monday. 

Beijing’s official narrative is that it says it’s committed to climate change by placing new output restrictions on steel mills. What’s concerning is China’s credit impulse is rolling over and may suggest that steel demand will subside sometime in the second half. Last week, data showing new bank loans in China fell more than expected in April, and money supply growth slowed to a 21-month low, pointing to slower growth in the world’s biggest metals consumer.

Even worse, the Chinese government also warned that it would monitor and effectively ‘manage’ a rapid increase in commodity prices, without specifying how.

Keep an eye on China’s credit impulse as it may suggest weakness in commodities are ahead. But on a broader view, Deutsche Bank credit strategist Jim Reid believes commodities will outperform equities in the years ahead. 

US equity futures and European stocks dipped in a quiet overnight session to start the week amid renewed concerns about rising inflation and a spike in Covid-19 cases in parts of the world. Gold briefly reached a three-month high, while oil and the dollar were little changed; 10Y TSY yields rose after dropping earlier in the session.

At 715am ET, Dow e-minis were down 125 points, or 0.36%, S&P 500 e-minis were down 17 points, or 0.39%, and Nasdaq 100 e-minis were down 46 points, or 0.34%, reversing much of Friday’s rebound.

Wall Street’s main indexes rebounded on Thursday and Friday as investors picked up beaten-down stocks following a pullback earlier in the week on concerns around inflation and a possible tightening by the U.S. Federal Reserve. However, the mood reversed on Monday with travel, oil & gas and industrials the weakest sectors, while telecoms and autos were strong. Shares of Discovery jumped 12.5% in premarket trading after AT&T neared a deal to combine its media assets, including CNN and HBO, with the company. AT&T shares gained 3.1%.

The MSCI World Index was flat in European trade, albeit less than 2% from a recent record high. That followed its best day since February on Friday after an early week inflation-driven selloff. “What markets are doing is hoping for the best and preparing for the worst,” said Fahad Kamal, chief investment officer at Kleinwort Hambros, although adding he felt the inflationary pressures would dissipate.

Europe’s Stoxx 600 Index fell 0.4% and stocks in Asia were mixed, with shares in Taiwan dropping as the country raced to contain its worst outbreak of the coronavirus. U.K. resumed international leisure travel Monday, but Portugal is only major destination on the “green list” with other destinations either prohibited or requiring travelers to quarantine on return. Most European airline stocks slid Monday, including EasyJet (-1.6%), Wizz Air (-1.4%), British Airways owner IAG (-1.4%) and Lufthansa (-1%). Ryanair gained 0.3% following an earnings update. Here are some of the biggest European movers today:

• Danone shares climb as much as 1.3% amid expectations Antoine de Saint-Affrique will become the French yogurt maker’s new CEO after a report saying an announcement is imminent.
• Diploma shares gain as much as 8.9%. Jefferies says FY consensus EPS estimates are expected to increase by double digits after the company reported 1H results.
• Ryanair gains as much as 2.6% in Dublin; Davy notes the low-cost carrier’s FY loss was helped by cost savings and ancillaries and FY22 guidance of “close to breakeven” is maintained.
• Bayer shares drop as much as 3.2% after the company lost its second appeal of three jury verdicts finding that the Roundup weed killer causes cancer. “Losing another appeal isn’t supportive,” says Commerzbank (hold).
• RCS MediaGroup shares fell as much as 13% in Milan (trades ex dividend); Banca Akros notes a Milan court rejected all claims advanced by RCS against Blackstone related to the sale of RCS’s headquarters in Milan in 2013, and cuts to neutral from accumulate.

Asian stocks were little changed on Monday following last week’s selloff on weak sentiment as worries over global inflation and the region’s ongoing struggle to contain the coronavirus continued to linger. The MSCI Asia Pacific Index fell as much as 0.4% before erasing its losses. The measure lost 3.2% last week in its worst weekly performance since February. Technology stocks continued to weigh the most heavily on the Asian benchmark, dragged lower by declines in chipmaking giants Taiwan Semiconductor Manufacturing and Samsung Electronics. Gains in consumer discretionary stocks like Meituan, however, cushioned the market’s drop. Taiwan’s benchmark was the region’s worst performer, extending its biggest weekly rout in more than a year after the government tightened restrictions on people and businesses to control its coronavirus outbreak. It closed down 3%.

Japan’s small caps and Indonesian stocks also posted notable declines. “Inflation concerns continue to weigh, with the University of Michigan consumers’ inflation expectations showing a jump to amulti-year high,” Yeap Jun Rong, a market strategist at IG Asia wrote in a note. “Concerns on virus resurgences may continue to linger in the region, which have caused renewed restrictions in several countries, fueling concerns on the pushing back of the timeline on reopening and economic recovery.” U.S. consumer sentiment deteriorated unexpectedly in early May as Americans grew increasingly concerned about rising prices. The University of Michigan’s preliminary sentiment index fell to a three-month low of 82.8 in May. Consumers said they expect a 4.6% increase in inflation over the next year, in the highest reading in a decade. Chinese shares outperformed. The CSI 300 Index rose more than 1% despite a notable miss in retail sales growth, which slowed to 17.7% in April, below the projected 25% rise. Analysts saw the data as boosting hopes that Beijing will maintain policy support for an economic recovery that’s losing steam.

China stocks rose strongly even after retail sales data for April missed, gaining 17.7% y/y vs. est. 25%. Industrial Production of 20.3% Y/Y also missed expectations of 21.1% as China’s economic data is clearly slowing down.

The Shanghai Composite climbed 1% and the Chinext jumped 3%; the Hang Seng, India’s Sensex and Australia’s S&P/ASX 200 advanced. Index futures declined 0.3% for the S&P 500 and the Nasdaq 100; the Topix, Kospi and Thailand’s SET Index also retreated. Bitcoin slid under $43,000, down more than 10% since Friday after Elon Musk dueled over the weekend on Twitter with critics of his decision to suspend payments using the crypto currency. The Aussie dollar fell 0.3% and the New Zealand currency slid 0.5%. Treasuries were steady after rallying on Friday, with the 10-year yield sitting at 1.62%. WTI rose 0.1% to above $65 per barrel, gold advanced 0.5%.

Japanese stocks fell for the fourth day in five, extending losses after last week’s rout as concerns over rising inflation and China’s mixed economic data damped investor demand for equities while April wholesale prices in Japan, the world’s third-largest economy, rose at their fastest pace in six and a half years, as rising energy and commodities costs ate into corporate margins, although consumer price inflation remains subdued. Information companies and electronics makers were the heaviest drags on the Topix, which erased an earlier gain of as much as 0.8%. Tokyo Electron Ltd. and Fast Retailing Co. weighed down the Nikkei 225, which slid 4.3% last week in the gauge’s worst rout in almost 10 months. Sumitomo Mitsui Financial Group Inc. fell 1.1% after the bank forecast Friday that its profit will miss analyst estimates as provisions for soured loans remain elevated. Honda Motor Co. dropped 2.7% after the automaker issued a profit outlook that was short of analysts’ estimates. “Markets are still anxious about inflationary risks,” said Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank Ltd. in Tokyo. “Japanese stocks will fluctuate along with sways in U.S. rates.”

In rates, After reaching a six-week peak just above 1.70% last week, 10-year Treasury yields edged lower and were last around 1.63%, with corresponding U.K. and German yields higher by around 2bp each; across long-end of the curve 20-year sector continues to lag, cheaper by 1.3bp on the 10s20s30s fly. Volumes during the Asia session were heavy as yields declined, pointing to stop-driven action. Also during the Asia session there was heavy buying in Sep21 eurodollar futures after Morgan Stanley and JPMorgan strategists called for a continued drop in Libor; incidentally 3M dollar Libor dropped -0.55bp to 0.14963%, a new record low. Italy’s 10-year bond yield rose to its highest level in over eight months, rising above 1.10% as unease over the future of Italian economic reforms as well as a slowing down of central bank bond buying triggered fresh selling.

In FX, the Bloomberg Dollar Spot Index fluctuated in a tight range between losses and gains even as the greenback was higher against most of its Group-of-10 peers as risk-sensitive Antipodean and Scandinavian currencies lead declines; most of the other crosses traded in tight ranges. The euro was steady against the dollar while bunds were flat, underperforming Treasuries, which inched higher. The pound was steady after swinging between small gains and losses as most of the U.K. relaxes coronavirus restrictions further; Prime Minister Boris Johnson said the next step out of lockdown must be taken “with a heavy dose of caution” amid concern over the highly transmissible virus strain that originated in India. Japan’s new inflation- linked bonds were were met with stellar demand, helped by the global reflationary theme; the yen inched up versus the dollar while the Bloomberg Correlation-Weighted Currency Index, which measures relative strength in the yen against other G-10 currencies, touched the lowest level since February 2018 before rebounding. The Hungarian forint neared the strongest level this year against the dollar after central bank Deputy Governor Barnabas Virag said the nation will respond to surging inflation by tightening monetary policy as soon as next month following the release of new economic forecasts.

Bitcoin fell 8.5% to its lowest since February after tweets from Elon Musk hinted that Tesla may have sold, or will sell, its holdings, the drop reversed around 2am when Musk tweeted that Tesla had not in fact sold its Tesla holdings.

In commodities, the dip in U.S. yields combined with inflation concerns helped gold to a three-month peak of $1,855 an ounce before pulling back to trade up 0.4% at $1,849 an ounce. Oil traded around flat, with Brent and U.S. crude last down 0.1% at $68.62 a barrel and $65.29 a barrel, respectively.

With the earnings season nearing its end, overall earnings for S&P 500 companies are expected to have climbed 50.6% from a year ago, the strongest pace of growth in 11 years. Walmart, Home Depot and department store operator Macy’s are set to report on Tuesday, with Target, Ralph Lauren and TJX Cos on tap later in the week.

Amid a light U.S. data calendar this week, all eyes will be on Wednesday’s minutes of the Federal Reserve’s last policy meeting for clues about any tightening in monetary policy. So far, the Fed has argued the inflation spike is transitory, yet last week’s University of Michigan consumer survey showed the highest long-term inflation in the past decade

“We believe inflation has reached an important inflection point, and we expect it to be structurally higher than during the last cycle, but not so high as to create major disruptions in markets,” said Joseph Amato, chief investment officer for equities at Neuberger Berman. “This drives our positive view on risk assets and equities.”

U.S. economic data slate includes May Empire manufacturing (8:30am), NAHB housing market index (10am) and March TIC flows (4pm); building permits/housing starts, FOMC meeting minutes and Markit manufacturing PMI are ahead this week.

Market Snapshot

• S&P 500 futures down 0.4% to 4,149.75
• MXAP little changed at 200.80
• MXAPJ little changed at 672.66
• Nikkei down 0.9% to 27,824.83
• Topix down 0.2% to 1,878.86
• Hang Seng Index up 0.6% to 28,194.09
• Shanghai Composite up 0.8% to 3,517.62
• Sensex up 1.4% to 49,404.91
• Australia S&P/ASX 200 up 0.1% to 7,023.56
• Kospi down 0.6% to 3,134.52
• STOXX Europe 600 down 0.23% to 442.3
• German 10Y yield up 0.2 bps at -0.127%
• Euro little changed at $1.2140
• Brent Futures little changed at $68.72/bbl
• Gold spot up 0.5% to $1,853.07
• U.S. Dollar Index little changed at 90.35

Top Overnight News from Bloomberg

• China’s recovery remained unbalanced in April, with industrial output and investment buoyed by strong exports and a hot property market, while retail sales missed forecasts. Industrial output rose 9.8% in April from a year earlier versus the median estimate for a 10% increase. Retail sales expanded 17.7% in the period, far slower than a projected 25% rise
• President Joe Biden’s prospects for passing a major infrastructure bill through Congress with bipartisan support — seen unlikely in the wake of his Democrat-only pandemic-relief package in March — are now rising, though disagreements over funding could still scupper a deal
• Interbank borrowing rates are already at record lows and set to remain under pressure, prompting strategists to ask how low dollar Libor may go
• Iran is preparing to ramp up global oil sales as talks to lift U.S. sanctions show signs of progress. But even if a deal is struck, the flow of additional crude into the market may be gradual. State-controlled National Iranian Oil Co. has been priming oil fields — and customer relationships — so it can increase exports if an accord is clinched, officials said

Quick look at global markets courtesy of Newsquawk

Asian equities traded somewhat mixed and only partially benefitted from last Friday’s rebound on Wall St. where the major indices gained as weaker than expected US Industrial Production and Retail Sales data supported the narrative for prolonged Fed accommodation, although further pandemic-related concerns and fresh restrictions have left some regional markets in the lurch. ASX 200 (+0.1%) was kept afloat by outperformance in gold miners after the recent advances in the precious metal and with energy also underpinned following the government announcement of a AUD 2.3bln support package to keep Australia’s two remaining refineries open which are being run separately by Ampol and Viva Energy. Nikkei 225 (-0.9%) failed to hold on to opening gains with sentiment subdued by the recent widening of the state of emergency to three additional prefectures lasting through to month-end and with some of the biggest movers driven by earnings releases, while the TAIEX (-3.0%) slumped 3% at the open due to a record increase of domestic cases and tightened COVID-19 measures. Hang Seng (+0.6%) and Shanghai Comp. (+0.8%) were positive after the PBoC injected funds through a CNY 100bln MLF operation but with gains capped as participants digested mixed Chinese activity data in which Industrial Production printed inline with estimates and Retail Sales disappointed but still showed respectable growth. Finally, 10yr JGBs were supported by the weakness in Japanese stocks and following similar upside in T-notes, while the results of the 10yr inflation-indexed auction from Japan were inconclusive with a higher b/c than previous but lower accepted prices.

Top Asian News

• Hong Kong, Singapore Delay Anticipated Air Travel Bubble Again
• MUFG Sees Profit Topping Estimates on Lower Bad-Loan Costs
• Vaccine Costs to Strain India’s Already Frail State Budgets
• Shimao Dollar Bonds Slide in Latest Developer to See Price Drop

Major European bourses kick the week off relatively contained and with little conviction (Euro Stoxx 50 -0.2%), following on from a mixed APAC handover with news-flow also on the lighter side once again. US equity futures are similarly caged but with a mild downside bias following Friday’s rally, with no significant outliers in terms of performance as participants await this week’s risk events, including the FOMC minutes and flash PMIs. Back to Europe, the FTSE 100 (-0.3%) narrowly underperforms as the GBP remains elevated while base metal miners unwind some recent gains, oil & gas names also remain pressured. Sectors see a mixed picture after a primarily positive open with defensives now faring better than cyclicals. The Telecoms sector outpaces peers, led by Telefonica (+3.3%), BT (+2.4%) and Deutsche Telekom (+2.5%) – with the latter also underpinned by a broker upgrade at Barclays. Travel & Leisure has made its way to the bottom of the pile despite the UK kick-starting travel to designated countries, with COVID developments in Asia potentially providing some sectorial headwinds as the Hong Kong-Singapore travel bubble has been deferred again. However, Ryanair (+1.2%) bucks the overall trend in the sector after earnings topped forecasts whilst providing a rosy outlook contingent on vaccination efforts. In terms of commentary, analysts at JPM have revisited their equity strategy for the Euro Stoxx 50. They maintained their overall bullish view and reaffirmed the medium-term positive growth-policy trade-off. The bank reiterated their tactical call favouring defensives vs manufacturing cyclicals during this current consolidative phase which is expected to last 1-3 months before the next run higher, according to the analysts. “We think that better tactical showing of lower beta will ultimately end up a good staging post for the renewed Value and Cyclicals rally in 2H.” Contrary to a widespread view, JPM disagrees that UK will be the most profitable exposure this year and suggests that overweight EZ vs the UK makes more sense and is backed by current performance.

Top European News

• IPhone Maker Foxconn Finalizes Auto Partnership With Stellantis
• Merkel Rejects Calls to Bring Coal Exit Forward: FAZ
• Bayer Falls on Appeal; Decision ‘Isn’t Supportive’: Commerzbank
• Hungary Central Bank Readies June Rate Hike After Inflation Jump

In FX, the Dollar is somewhat mixed against G10 counterparts, but lagging vs precious and base metals, like Gold and Copper, albeit the latter partly due to heightened prospects of strike action at BHP’s Spence and Escondida mines in Chile following the rejection of a contract offer. Conversely, spot bullion has taken advantage of softer US Treasury yields and a flatter curve that are keeping the Greenback capped in wake of last Friday’s disappointing retail sales data to breach a key technical level that was protecting Usd 1850/oz (200 DMA at Usd 1845.98), with bulls (or bugs) now eyeing another upside objective in the form of a declining trend-line that crosses the y axis around Usd 1858.40. Back to the Buck, 90.500 in the index has not been reclaimed and 90.153 may offer some support ahead of 90.000 on any further pull-back through the prior session low (90.278) as this represents the midweek base outside of the 90.429-220 range thus far. Ahead, NY Fed manufacturing, NAHB and 3 Fed speakers including hawk and current FOMC voter Bostic twice.

• JPY/GBP – Both holding up better than other majors, though only marginally firmer against the Dollar as the Yen meanders between 109.15-50 in the absence of anything Japanese specific ahead of Q1 GDP tomorrow, while the Pound is pivoting 1.4100 in the run up to several BoE speeches and a packed UK data agenda this week, also kicking off from Tuesday. However, Sterling is losing a bit more traction vs the Euro below 0.8600 amidst the ongoing post-Brexit rift over NI Protocol and some concerns that Britain may want to rewrite the agreement that PM Johnson’s advisor Frost has already said is dead in the water.
• EUR/CHF/CAD – The Euro is sitting comfortably enough above 1.2100, but could struggle to clear 1.2150 convincingly ahead of the NY cut given the fact that 1.9 bn option expiries reside at the half round number, while the Franc is rangebound just under 0.9000 and straddling 1.0950 vs the single currency following firmer Swiss producer and import prices compared to previously and a decline in weekly domestic bank sight deposits and the Loonie is also hovering shy of a big figure at 1.2100 amidst flattish crude prices before Canadian housing starts.
• NZD/AUD – Having run into offers bang on 0.7250 against its US rival, the Kiwi has waned to test bids ahead of 0.7200 and derived little lasting traction via a rise in NZ’s services PMI, but the Aussie is showing more resilience around 0.7750 after mixed Chinese ip and retail sales releases and a foray above 1.4 bn option expiry interest from 0.7755-60 that may yet tether Aud/Usd in advance of RBA minutes.

In commodities, WTI and Brent front-month futures remain within tight ranges in early European trade, in-fitting with the indecisive mood across the markets and as participants weigh the global recovery with the worsening COVID situation in Asia – which has seen a considerable slower inoculation drive vs the UK, US and now the EZ. COVID remains the overarching theme, but geopolitics has also been increasingly in vogue amid the tensions between Israel/Gaza, prompting the US, EU, Russia and China to take opposing sides, with these developments worth keeping on the radar against the backdrop of JCPOA talks and a potential US-Sino meeting by month-end. Further on Iran, reports over the weekend suggested that state-controlled National Oil Co. has begun priming oil fields and customers in a bid to swiftly increase exports if a JCPOA deal is clinched, according to officials – with the most optimistic scenario pointing to pre-sanction production levels of almost 4mln BPD in as little as three months. COVID and geopolitics aside, the Colonial Pipeline has restarted operations after last week’s ransomware attack. Still, last week’s shuttering is expected to be reflected in this week’s EIA release, which is seen printing a significant draw in PADD1 (East Coast) product stocks alongside builds in crude and products from PADD3 (US Gulf Coast) alongside a decline in refining activity. WTI Jun meanders around USD 65.50/bbl (vs USD 65.12-74/bbl range) while Brent July trades just under USD 69/bbl (vs USD 68.34-69.07/bbl range). Russian Deputy PM Novak meanwhile suggested that prices around USD 62-66/bbl reflects the current market conditions. Elsewhere, spot gold and silver trade firmer in tandem with the softer Buck and yields, with the yellow metal hovering around USD 1,850/oz (vs low 1,822/oz) and the latter marginally above USD 27.50/oz (vs low USD 27.35/oz). In terms of base metals, LME copper prices have been edging higher amid Chilean strike action at two BHP mines after contract offers were rejected. Iron ore futures overnight nursed some of Friday’s losses after Chinese steel producers were warned about price manipulation. However, the recent surge in prices has not convinced Vale’s CEO of a supercycle as he expects demand to flatten out after a couple of years of tightness.

US Event Calendar

• 8:30am: May Empire Manufacturing, est. 24.0, prior 26.3
• 10am: May NAHB Housing Market Index, est. 83, prior 83
• 4pm: March Net Foreign Security Purchases, prior $4.2b
• 4pm: March Total Net TIC Flows, prior $72.6b

DB’s Jim Reid concludes the overnight wrap

I didn’t have the greatest weekend. I found out late on Friday that I need another knee operation and six weeks on crutches with no weight bearing at some point this year, I got soaked most of Saturday running the kids around, and then finished a poor 75th out of 110th in a golf tournament on Sunday and got soaked again on the way round for good measure. However it was salvaged by a sensational (and absolutely crucial) Liverpool winner after injury time was up via a flying header from a corner from our goalkeeper. I have never seen anything like it. I ran round the TV room shouting and scaring all my family. One of the twins said “Daddy, why you do funny dance?” More on the knee later in the week as there is a very cautionary tale about how I injured it. Hopefully my celebrations didn’t make it worse.

The inflationists were the ones celebrating last week and you would have had to have just got back from an uninhabited desert island without Wi-fi to not know that inflation is the number one theme at the moment. However the market reactions wouldn’t have been that easy to predict had you known the US CPI data in advance last week. The S&P closed the week above it’s pre CPI levels and 10yr US yields ended up within a basis point of where they were prior to the release.

Although CPI stole the show, perhaps Friday’s UoM survey that showed 5-10 year consumer expectations for inflation had climbed to 3.1% (a 10 year high) will ultimately prove more important. The 1-yr view at 4.6% was also at the highest since 2011. Note that neither index slumped during the pandemic so this is not a bounce back or a make up for undershooting. The DB rates view in 2021 is that there’s a decent chance we go back into the 1998-2014 inflation expectations regime after 6-7yrs of very low expectations that never recovered after the oil slump of 2014. If correct we could say ultimately say goodbye to a 1% handle on 10yr treasuries for an extended period of time. We would probably need a few more readings to confirm this but it’s looking increasingly likely.

Overnight we have just seen China’s April economic data dump which included a large retail sales miss with a print of +17.7% yoy (vs. +25% yoy expected). There were also marginal misses for industrial output (at +9.8% yoy vs. +10% yoy expected) and YtD fixed investment (+19.9% yoy vs. +20% yoy expected). The surveyed jobless rate printed at 5.1% (vs. 5.2% expected). Asian markets are mixed this morning with the Shanghai Comp (+1.02%) and Hang Seng (+0.39%) up while the Nikkei (-1.47%) and Kospi (-0.91%) are down. The Nikkei seems to be weighed down by the planned extension of the state of emergency to three more regions over the weekend while the Shanghai Comp seems to be gaining as the weaker retail sales print might lead to a slower wind down of stimulus by the authorities. Futures on the S&P 500 are -0.23%. Elsewhere, Bitcoin is down around -11.5% from Friday’s close to c.$43,500 as Elon Musk implied in a tweet that Tesla might sell its holdings of the cryptocurrency or may have already sold. It is now down more than $20,000 from its peak in April. Other cryptocurrencies such as Ether and Dogecoin are also under pressure.

Turning to the latest on the pandemic, the global 7-day average growth in new cases has continued to decline and is now at the lowest level since March this year. Nonetheless, many countries in Asia are moving ahead with imposing fresh restrictions. Taiwan’s Taipei City has decided to close high schools, elementary schools and kindergartens for two weeks until May 28. Meanwhile, Singapore’s ministry of education said yesterday that all primary, secondary, junior college and Millennia Institute students will shift to full home-based learning from May 19 until the end of the school term on May 28. However, pre-schools and student care centers will remain open to support parents who have to work.

Looking forward to this week, the flash PMIs for May (Friday) will likely be the data highlight but it’s tough to know what they’ll tell us that we don’t already know. Having said that, our equity strategist Binky Chadha has previously said that they’ll likely be an equity correction once the ISM rolls over from its current lofty peaks even as growth stays strong. The ISM has fallen for one month from its peak so it’ll be interesting to see what the flash PMI shows as a guide. April’s composite number was the highest on record at 63.5. The Euro Area composite PMI was at 53.8, the highest since July.

Otherwise, there’ll be some further April data from the US, including on housing starts, building permits (both tomorrow) and existing home sales (Thursday), while the weekly initial jobless claims will also be in focus, after they fell to a post-pandemic low last week of 473k. In the all important inflation watch, keep an eye out for U.K. inflation on Wednesday. Everything I seem to be buying is going up in price here!!

It’s a fairly quiet week ahead on the central bank front, with the next big round of meetings not taking place until mid-June. However, there’ll be a lot of focus on Federal Reserve speakers in particular as they react to the much stronger-than expected CPI reading for April, which as we know came in at +4.2% year-on-year, the highest since 2008 last week. So far Fed speakers have largely kept to their dovish “transitory” script so it feels unlikely that anyone will go rogue. We’ll also get the minutes from the FOMC’s last meeting (Wednesday), which will be a little out of date but will be examined for tapering clues amongst other things.

Earnings season will continue to wind down over the week ahead, with more than 90% of the companies in the S&P 500 having now reported. There are still a few companies left however next week, including 20 from the S&P 500 and a further 27 from the STOXX 600.

Now to quickly recap last week. In the end a Thursday/Friday rally helped limit the S&P 500’s losses to -1.39% on the week and from their record highs at the end of the previous week. The loss was the largest weekly decline since since late February, despite a strong rally on Thursday (+1.22%) and Friday (+1.49%). It was also just the second weekly loss for the index in the last 8 weeks. Inflation worries weighed on technology shares in particular as the NASDAQ fell -2.34% (+2.32% Friday) while the FANG+ index was down a greater -3.98%, and the latter is now just above flat (+0.37%) on an YTD basis. Cyclicals sectors outperformed their growth counterparts as banks (+1.07%) gained with the uptick in yields. The VIX volatility index rose +2.1pts to 18.8, which is largest weekly rise in the implied volatility index since the end of February. It peaked at 28.86 intra-day early on Thursday morning European time and at its highest level in 2 months. European stocks reached a record high last Monday before the STOXX 600 finished the week down -0.54% over the week, with the FTSE MIB (+0.63%) and IBEX (+0.95%) outperforming other bourses.

US 10yr yields finished the week +5.1bps higher (-2.9bps Friday) at 1.628% – just the second weekly rise in the last six weeks. However we were at 1.620% just before CPI was released so not much follow through. The week’s move was driven by the rise in inflation expectations (+3.3bps) which came in addition to the smaller rise in real yields (+1.2ps). The US 10yr breakeven rate is now at 8 year highs and US 5yr breakevens are at their highest since 2008. European rates rose further with 10yr bund yields gaining +8.6bps last week and UK gilt yields gained a similar +8.2bps, while yields on OATs rose +9.2bps. The rise in commodities took a breather this week, with the Bloomberg commodity spot index falling back -1.82% – the biggest pullback for the index since late January. The index is still up +19.1% on an YTD basis and up +62.5% over the last year.

In terms of economic data from Friday, US retail sales were the main highlight and came in weaker than expected, though there was some expectations of a softer print after last month’s stimulus-fueled increase, which was actually revised up 0.9pp to +10.7% MoM. In the end retail sales in April were flat (+0.0%), with the median survey response expecting a +1.0% increase. US industrial production came in under expectations as well, increasing just +0.7% last month (+0.9% expected) after the +2.4% rise in March. The initial May reading of the University of Michigan survey fell to 82.8 from 88.3, the biggest drop since last July as year-ahead inflation expectations rose to 4.6% – the highest since 2011. As discussed at the top, and more importantly, 5-10 year expectations hit 3.1% – the highest since 2011.

After news of the impending deal leaked over the weekend, AT&T has confirmed its deal to spin off its media assets and combine them with Discovery’s suite of reality-TV-focused entertainment properties to create a new streaming rival with the heft to compete with Disney and Netflix.

As several media outlets including CNBC and the FT pointed out, the $43 billion spinoff/tie-up is the latest step by AT&T CEO John Stankey (who took over as chief executive last year) to unwind his predecessor’s expansionist legacy (even at a loss), and instead refocusing the company on its core business.

Discovery shares soared 19% in the premarket trade, while AT&T shares climbed more than 4%, a sign that the market approves of the deal to create yet another streaming competitor in a market that has seen a flurry of new entrants over the past year.

AT&T’s vast WarnerMedia holdings, which include CNN and HBO, will combine with Discovery’s assets – including Discovery Channel and Animal Planet – to create what management hopes will be a formidable competitor to Netflix and Disney. AT&T would get $43 billion in the deal, roughly half of the princely sum of $85 billion that AT&T spent on the assets less than three years ago (not to mention all the money in legal fees the company spent fending off anti-trust concerns). WarnerMedia division includes the TBS, TNT and HGTV cable channels, and other names in their media portfolio such as HBO, and would constitute one of Hollywood’s most valuable catalogues.

FT reports that David Zaslav, Discovery’s long-serving chief executive, will lead the combined newly publicly trade company, which will be 71% owned by AT&T shareholders. Jason Kilar, the executive brought in last year to accelerate WarnerMedia’s shift to streaming with HBO Max, was not mentioned in the merger filing, and it’s not clear whether he will have a role in the new company.

As the FT points out, the deal “represents a humbling retreat for AT&T, which ran up one of corporate America’s biggest debt piles in a gamble to become the world’s biggest vertically integrated content and distribution company. “This should put an end to the debate about synergies between content and distribution,” said Jonathan Chaplin, analyst at New Street Research, who called the deal “complete capitulation”.

AT&T’s board of directors met Sunday to approve the deal, which is expected to be announced in the coming days.

The combination would merge one of Hollywood’s most valuable catalogues — spanning the Warner Bros film and television studios, the HBO network and a portfolio of cable channels including CNN — with Discovery, which has had success with a new streaming service aimed at unscripted cooking and home renovation shows.

After years of watching Netflix dominate the streaming landscape, the world’s largest media and tech companies have sought to fight back with their own services. In the past year and a half, Disney, Apple, WarnerMedia, Comcast, Discovery and others have launched streaming platforms as they battle for a piece of the future of entertainment.

Two years ago, AT&T CEO John Stankey and Discovery head David Zaslav discussed combining their programming into an $8/month streaming service which would exclude HBO, however Disney’s announcement that it would drop its Star Wars, Pixar, Marvel and Disney Classics catalogue into a $7/month streaming service caused Stankey and Zaslav to scrap the plan. Instead, Stankey created HBO Max, combining HBO with the rest of WarnerMedia’s programming.

Analysts noted that, now that AT&T has committed to a deal, a rival bid for Discovery from one of AT&T’s media rivals might emerge. Writing before the announcement of the deal, Citi analyst Jason Bazinet said he could imagine “several other potential suitors entering the fray” for Discovery or to propose a competing merger with WarnerMedia. “We would not rule out Comcast, Disney or ViacomCBS getting involved,” he wrote. To be sure, the two companies included termination fees under the deal that would see AT&T pay $720M (and Discovery $1.8 billion) if the deal falls through.

Though it wasn’t his administration’s first priority (given the modest popularity President Trump’s trade policies have enjoyed among the American public) President Biden and his team have agreed to roll back his predecessor’s metals tariffs on the EU just before the levies were set to double next month, according to anonymous sources quoted by Bloomberg.

The final resolution could be announced as early as Monday.

President Donald Trump in March 2018 imposed a 25 percent tariff on steel and a 10 percent tariff on aluminum imports. Some countries were temporarily exempted from the tariffs. Currently, South Korea, Argentina, Australia, and Brazil are permanently exempted. The tariffs on Canada and Mexico were lifted with the signing of the U.S. Mexico and Canada Agreement.

During the same month in 2018, Trump fired the first salvo in the trade war with China, imposing tariffs on $50 billion of Chinese goods. Both Europe and China responded with retaliatory tariffs. Iconic American products affected by EU counter-tariffs include Harley-Davidson Inc motorcycles and Levi Strauss & Co jeans.

Under the deal that’s being discussed, Washington and Brussels will scrap all planned tariff increases on metals, while engaging in a dialogue on steel overcapacity.

The EU previously proposed that both sides suspend all duties for six months while negotiations on a long-term solution continue.

“We can only reiterate that the EU remains committed to finding a solution with the US to the unduly justified tariffs on steel and aluminium and to working with the US in tackling the root cause of the problem, which is the global steel overcapacity,” a spokesperson for the European Commission said yesterday.

A spokesperson for Biden’s Office of the US Trade Representative and Commerce Department didn’t respond to Bloomberg’s requests for comment, though Bloomberg added (citing its anonymous sources) that neither side is currently ready to immediately reduce all tariffs.

Which makes sense – at least when it comes to the US. Since as we have previously pointed out, even Biden’s Commerce Secretary, former Rhode Island Governor Gina Raimondo, has acknowledged that the metals tariffs have saved jobs. “With respect to tariffs, there is a place for tariffs. The 232 tariffs on steel and aluminum have in fact helped save American jobs in the steel and aluminum industries,” Raimondo said, marking a rare point of agreement with the policies of the prior administration.

“So what do we do with tariffs? We have to level the playing field. No one can out-compete the American worker if the playing field is level,” Raimondo continued.

“And the fact is, China’s actions are uncompetitive, coercive, underhanded. They’ve proven they’ll do whatever it takes. And so I plan to use all the tools in my toolbox as aggressively as possible to protect American workers and businesses from unfair Chinese practices.”

More recently, in a Senate Finance Committee hearing Wednesday, US Trade Representative Katherine Tai defended the tariffs as well, saying they “have really roiled our economy, but were necessary to address a global overcapacity problem driven largely but not solely by China.”

Though it’s not yet official, rumors about Biden finally taking steps to dial back Trump’s trade war policies have been circulating in recent weeks. There have been reports that Biden officials are starting up talks with the Chinese, as well as the Europeans.

Authored by Sven Henrich via NorthmanTrader.com,

The secret is out. It can no longer be denied and it’s up to each and everyone of us to help bring the secret to the forefront of public awareness.

For the mainstream financial media won’t do it, indeed they allow the guardians of the secret to continue to deny its existence.

For years those of us who have been critical as to the negative consequences of easy money policies, QE in particular, were dismissed and mocked as “QE conspiracists” and even as “swashbuckling pirates of free market capitalism” by central bankers directly including yours truly:

1 thing I’ve learned abt twitter is the louder the critic, generally the thinner the skin. I confess finding amusement in needling critics calling them conspiracists or goldbugs. Its fun to watch swashbuckling pirates of free market capitalism get easily upset. I mean no offense. https://t.co/dMgSsk2pBR

— Neel Kashkari (@neelkashkari) January 17, 2020

It’s easier to mock and ignore with a Tweet and then go into hiding versus engaging in substantive debate.

But the lid just got blown off the false narratives that have been propagated by central bankers from Powell on down with his now infamous claim that “Fed policies absolutely don’t add to inequality“.

Of course QE adds to inequality. Even the Bank of Canada just sheepishly admitted it:

WHAT HAVE I BEEN SAYING?

“Bank of Canada says QE can (edit: does) widen wealth inequality”

Seriously, when is the Fed held to account for the consequences of their policies instead of getting away with lying to the public year after year?https://t.co/TzdP3AM593

h/t @mlk1784

— Sven Henrich (@NorthmanTrader) May 14, 2021

But the real hammer just dropped by one of the most successful investors ever, billionaire Stan Druckenmiller. Not only does QE add to inequality it is the main driver:

“I don’t think there has been a greater engine of inequality than the Federal Reserve Bank of the United States”.

Watch this clip for it lays bare not only the brutal reality of how the Fed has reshaped the country for the benefit of the rich, but also who will pay for the consequences:

You know where I stand on the Fed & Powell & their denials on exacerbating wealth inequality & the danger of the insane asset bubble they have created.

Well, here’s Druckenmiller dropping truth bombs on Powell & the Fed on the very same subjects. pic.twitter.com/3PThE2I5B2

— Sven Henrich (@NorthmanTrader) May 15, 2021

The data Druckenmiller is referring to is as obvious as the light of day:

Trillions in wealth:

Since 1995 the bottom 50% have added $1.5T to their combined wealth while the top 1% have added $30T to their combined wealth.

That’s $30T going to 3.2M people versus $1.5T going to 165.5M people.

The wealth gap has never been wider.
Let’s keep printing. pic.twitter.com/gSHWYNJKk7

— Sven Henrich (@NorthmanTrader) April 23, 2021

And yet central bankers including former central banker and now Treasury Secretary Janet Yellen, a long defender and enabler of these very policies, keep virtual signaling about the plight of inequality, ignoring any plea to confront the obvious:

Will there be a discussion on how 13 years of central bank balance sheet expansions have greatly contributed to widening inequality by making the top 1% (who benefit the most from liquidity driven asset price inflation) filthy rich and leaving the bottom 50% totally behind? pic.twitter.com/SogCFr3hpw

— Sven Henrich (@NorthmanTrader) May 14, 2021

The financial media? Silent. Central bankers never get confronted by the glaring disconnect of the data versus the public denials of Fed officials.

Sorry media, but you are all doing a disservice to the public treating all these central bankers with kid gloves and permanent submissive reverence as opposed to being real investigative journalists and asking the hard questions and digging into the data and consequences with follow up. “Independence” does not equate immunity from scrutiny. But that’s how the Fed is being treated by Congress and the media. Unchecked, unbalanced, unquestioned, with absolute power. The very antithesis of a constitutional democracy.

The implications are profound.  While publicly glorified by the media as “heroes” and “saviors” of the economy, the true impact of Fed policy is much more sinister. Inflation, as Druckenmiller rightly points out hurts the poor the most as living expenses take up most if not all of their monthly budgets. That’s of course not the type of inflation the Fed uses as its official guide as CPI as been whittled down to a core basket. And yet Fed officials almost gleefully push for more inflation in their daily speeches. What is this? Open war on the poor who increasingly have issues with accelerating housing and food prices. Increased wages sounds like a welcome reprieve until you realize inflation can easily outpace wage increases and stimulus checks come to an end this year. Then all you got left is higher prices and enormous debt loads. And who will pay for the next bust? The poor of course as Druckenmiller points out.

Glaring and expanding wealth inequality is destructive to society. While there will always be inequality and successful capitalism should rightfully reward those that work hard and come up with great business concepts the artificial exponential enrichment of the few by a “government created agency” (Jay Powell) is not in the purview of the Fed’s mandate. Neither is buying corporate bonds of Verizon and AAPL and other corporate giants as they have done last summer. Some of the very same companies who are still laughing and are back to engaging in record buybacks:

And neither is it a mandate of the Fed to overtly lie to the public as they continue to do. Stretching wealth inequality and the Gini coefficient to ever more extremes the Fed itself is fueling political populism, extremism and a complete lack of trust in the governing institutions of America as discontentment spreads, people looks for blame and find themselves increasingly susceptible to misinformation, a dangerous cocktail for any democracy.

Americans should increasingly question the role of the Fed and its impact on society. It’s not normal, nor should it be, that the economy keeps running from bust to bust to bust and requires ever more debt and intervention to “save it” from the fall out of the asset bubbles the Fed has propagated time and time again. And markets are again, as Druckenmiller has pointed out, in a massive asset bubble as the Fed arrogantly and fanatically insists on continuing the run the biggest QE program in history, despite buybacks at record highs, despite inflations concerns skyrocketing, despite historic valuations, despite the fastest GDP growth in 50 years and despite corporate earnings having fully recovered. If not now, then when? When things slow down? When things suddenly become uncertain again? That’s when the Fed will taper and end QE? Don’t believe a word of it.

Why? Because they don’t stop even when a crisis is long over:

The Housing Crisis was in 2009.
The Fed’s acting like we’re still in the middle of one when we’re not.
There is zero economic justification or even a reason compatible with the Fed’s mandate to keep buying MBS.

Yet they do, again contributing to a housing bubble.#reckless pic.twitter.com/KO7brQvISn

— Sven Henrich (@NorthmanTrader) May 11, 2021

The Fed runs a big operation in obfuscation and denial with the demonstrated track record of enriching the top 1% and many cases the pockets of its own officials, and that is the Ugly Truth:

We know who benefits:

Come on.

It’s way past time that the American public wakes up to this fact.

When will the media confront the daily barrage of Fed speakers or Powell directly about this glaring disconnect? Between what Fed officials deny and what even now billionaires and some central banks openly admit?

I’m not holding my breath, but the best way to shine the light on this most important yet so ignored issue is for us all to speak out and share the secret that is now out in the open. But it must be shared with as many as possible as to build public pressure for accountability and truth, for this Fed currently is subject to neither, and the media keeps giving them a pass. Why?

*  *  *

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With shareholders constantly pushing Jack Dorsey to do better to monetize Twitter, it was just a matter of time before the social media network offered a paid subscription model. Now, it looks as though the service has a name: Twitter Blue.

On Saturday Gizmodo reported that the service would cost $2.99 per month and would allow “users to undo their tweets and create bookmark collections, among other features.”

The social media network could also be getting into a tiered subscription model, which could unlock additional paid features and offer a more clutter free environment for users who are willing to pay higher prices. 

App researcher Jane Manchun Wong Tweeted out the details over the weekend.

Twitter is calling their upcoming Subscription Service “Twitter Blue”, priced at $2.99/month for now, including paid features like:

Undo Tweets: https://t.co/CrqnzIPcOH

Collections: https://t.co/qfFfAXHp1o pic.twitter.com/yyMStpCkpr

— Jane Manchun Wong (@wongmjane) May 15, 2021

Recall, as part of their effort to monetize, Twitter was also said this month to be experimenting with adding a feature called “tip jar” that would let users send and receive money to one another. Dorsey has been tight-lipped on the subscription model, stating last summer that it was in the “very, very early phases. 

Twitter’s acquisition of Scroll last week has made it clear that “there’s plenty of work going on behind the scenes” at the social media company, Gizmodo writes.

Offering a paid subscription model would just be the latest in a series of new changes to the platform that it has been testing. A date for a soft-launch or release has yet to be determined.

Authored by Daniel Lacalle,

The University of Michigan consumer confidence index fell to 82.8 in May, from 88.3 in April. More importantly, the current conditions index slumped to 90.8, from 97.2 and the expectations index declined to 77.6, from 82.7.

Hard data also questions the strength of the recovery. April retail sales were flat, with clothing down 5.1%, general merchandise store sales fell 4.9%, leisure & sporting goods down 3.6% with food & drink services up just by 3%.

United States industrial production was also almost flat in April, rising just 0.4% month-on-month in April pushed by a 4% slump in motor vehicle production. You may think this is not that bad until you see that industrial capacity utilization came at 74.7% in April, significantly below the pre-pandemic levels.

Employment also questions the “strong recovery” thesis. Non-farm employment is still down 8.2 million, or 5.4 percent, from pre-pandemic level yet gross domestic product is likely to how a full recovery in the second quarter.

These figures are important because they come after trillions of dollars of so-called stimulus and the entire thesis of the V-shaped recovery comes from a view that consumption is going to soar. Reality shows otherwise. In fact, reality shows that retail sales showed an artificial bump due to the wrongly called stimulus checks only to return to stagnation.

The rise in inflation further questions the idea of a consumption boom, certainly for the middle class. Why? If we look at the 4.2% rise in consumer price index in April includes a 25% increase in energy, a 12% increase in utility prices, a 5.6% increase in transportation services, a 2.2% in medical services etc. As consumers perceive a higher rise in prices, especially in those essential goods and services that we purchase every day, consumption decisions become more prudent and propensity to save rises. This is something that we have seen in numerous countries. In Japan, years of “official” messages about the risk of deflation clashed with citizens’ perception of cost of living, and tendency to save increased, rightly so. Citizens are not stupid, and you can tell them that there is no inflation or that it is transitory, but they feel the rise in cost of living and react accordingly.

Two things should concern us. First, the weakness of the recovery in the middle of the largest fiscal and monetary stimulus seen in decades, and second, the short and diminishing effect of these programs. A two trillion stimulus package creates a very short-term impact that lasts less than five months.

I recently had a discussion with Judy Shelton, and she stated that the recovery would be stronger without stimulus. She is probably right.

Neo-Keynesians will likely say that if the above figures persist, the solution is more stimulus, but it is not. More money to government programs means slower growth and weaker recoveries.

The American consumer is not happy. They do not see the official optimism about the job market or the macro figures, and the current sugar-high is likely to lead to an abrupt sugar-low.

The issue of weighing passengers before flights have been a challenging one. It may not be known to travelers but calculating the weight of an aircraft is critical to flight safety that informs pilots of much fuel the aircraft needs, hence why check-in baggage is weighed. But now, “U.S. airlines may need to start weighing passengers to comply with FAA rules,” according to travel website View From The Wing.

“For safety reasons, carriers need to calculate an aircraft’s weight and balance, and it has to be within allowable limits for the plane. However, the assumptions they’ve been using for passengers are outdated,” said Gary Leff, a world travel expert who penned the piece on View From The Wing. 

Leff said Americans are becoming more obese, and that’s become a significant problem for the aviation industry and the federal government who want to find out how much passengers weigh for smaller aircraft. 

He said the FAA realizes passenger weight can fluctuate by route, and airlines want to document this difference for safety reasons and fuel calculation, adding that “standard weights may not be appropriate for smaller planes, with smaller sample size and greater likelihood of variance from average.”

An analysis from aviation research firm AirInsight Group LLC. says the pending FAA weight and balance rule “is going to make American air travelers very unhappy. VERY UNHAPPY.” 

The group said airlines would update “standard average passenger weights,” and these weights increase regularly. Airlines are being told they need to weigh crew, bags, and passengers. 

The language in the FAA document has guidance on examining travelers weight:

“Regardless of the sampling method used, an operator has the option of surveying each passenger and bag aboard the aircraft and should give a passenger the right to decline to participate in any passenger or bag weight survey. If a passenger declines to participate, the operator should select the next passenger based on the operator’s random selection method rather than select the next passenger in a line. If a passenger declines to participate, an operator should not attempt to estimate data for inclusion in the survey.”

The document continued: 

“An operator that chooses to weigh passengers as part of a survey should take care to protect the privacy of passengers. The scale readout should remain hidden from public view. An operator should ensure that any passenger weight data collected remains confidential.”

There was no mention of when the new pending FAA weight and balance rule goes into effect, but it will undoubtedly irritate some travelers who can barely stand wearing a mask. 

Authored by Birsen Filip via The Mises Institute,

Vaccine passports have been implemented, or are being developed, in a number of countries around the world. In February 2021, Israel introduced its “Green Pass,” which becomes “effective the week after receiving the second dose” of the vaccine and expires after six months. It was followed by China, which launched its digital “International Travel Health Certificate” in March. Subsequently, in April, Denmark implemented its “Coronapas” and Estonia introduced its “VaccineGuard.” Although the United States government recently dismissed the idea of a national vaccine passport, the state of New York has already launched its own “Excelsior Pass,” and several other states are developing similar programs, whereas South Dakota, Montana, Idaho, Utah, Florida, Texas and Arizona have banned the use of COVID-19 immunity passports within their borders. Other countries have also announced their intentions to launch vaccine passports in the near future, including: the United Kingdom, which will be using an NHS (National Health Service) phone app as its COVID-19 vaccine passport starting on May 17th; and, the European Union, which is planning to “facilitate free movement inside the EU” with its “Digital Green Certificate” as of June.

In addition to prohibiting unvaccinated people from travelling (e.g., boarding airplanes, staying at hotels, etc.), these electronic documents are already being used to prevent them from attending social and cultural events at stadiums, theaters, and museums. Unvaccinated citizens are also not being permitted to enter a variety of other venues and businesses like gyms, dance clubs and studios, swimming pools, hair salons, wedding halls, tattoo parlours, restaurants, and coffee shops, among others. Essentially, the implementation of vaccine passports has led to a situation where governments protect the rights and freedoms of vaccinated citizens, while infringing upon those of their unvaccinated counterparts.

The ultimate goal of vaccine passports, which are based on the notion of “health paternalism,” is to coerce people into accepting injections of the experimental vaccines that have been incessantly promoted by politicians, mainstream news, and unelected medical experts for many months. However, those individuals that are not persuaded to submit themselves to unwanted medical procedures by sophisticated propaganda techniques will be forced to live a “life worse than death” through the suspension of their freedom, as well as the reasonable enjoyment of their lives within their private spheres. James M. Buchanan warned about coercive government measures that abolished liberty, as he argued that state regulations designed to protect individuals based on “scientific grounds” were “highly deceiving,” because the state is essentially using scientific authority to impose a single moral value on society. Similarly, Robert D. Tollison and Richard E. Wagner argued that allowing the state to impose regulations on the premise of protecting the health of its citizens presented “an open invitation to tomorrow’s arguments about the social cost of sugar, sunbathing, saturated fat, recreational injuries, obesity, and on and on. Down this road lies not a free society but a totally regulated society with only one acceptable lifestyle as prescribed by the health paternalists.” Milton Friedman was also opposed to “the health paternalists,” as he argued that if the government was given the responsibility to protect our health, “the logic surely calls” for protecting “us from using dangerous bicycles and cap guns, the logic calls for prohibiting still more dangerous activities such as hang-gliding, motorcycling, and skiing.” In his own opposition to “health paternalism,” Mises asked:

why limit the government’s benevolent providence to the protection of the individual’s body only? Is not the harm a man can inflict on his mind and soul even more disastrous than any bodily evils? Why not prevent him from reading bad books and seeing bad plays, from looking at bad paintings and statues and from hearing bad music?

Vaccination passports support the idea that people can and should be coerced into making healthy choices, which would be condemned as “a form of health fascism” by Hayek, Buchanan, Friedman, Mises, and many other contributors to liberal theory across history. In fact, they would likely argue that vaccine passports eliminate freedom, because they allow an external authority to deliberately interfere in the lives of unvaccinated people in ways that prevent them from attaining their goals, and pursuing their personal interests. For instance, Hayek, Buchanan, Friedman, and Mises defined freedom as “the absence of coercion of a man by his fellow men.” With that in mind, they warned that the primary danger to freedom was any form of strong central power that intervenes in the private spheres of individuals and implements policies aimed at achieving a predetermined end based on expert scientific opinion. 

Freedom from coercion, known as the negative concept of freedom (“freedom from”), was highly valued by Locke, Constant, Tocqueville, Hobbes, Bentham, Hayek, Mises, Friedman, and Buchanan, in addition to many other liberals. All of these prominent thinkers were preoccupied with answering one question: “How much am I to be governed?” In doing so, they were largely reacting against despotic and tyrannical rulers and governments. Proponents of the concept of negative freedom believed that ‘there should be always a frontier between public and private spheres, and that individuals should always be free to do as they please and live as they like when they are in their private spheres,’ where no one would be permitted to intervene. However, the implementation of vaccine passports would essentially mean that protected individual private spheres do not exist for governments and their so-called health experts. This is something that Hayek warned about when he argued that coercion would “be much more common” if there were no protected private spheres.

Based on the concept of freedom advocated by Hayek, Buchanan, Friedman, and Mises, vaccine passports also violate economic freedom, which basically refers to the freedom to consume, produce, exchange, and cooperate spontaneously and voluntarily. They believed that “if one abolishes man’s freedom to determine his own consumption, one takes all freedoms away.” In other words, if coercive state actions violated or abolished economic freedom, then general freedom would essentially be taken away from individuals, including freedom of speech, freedom of expression, freedom of religion, freedom of assembly, freedom of the press, and intellectual freedom.

The concept of freedom defended by Hayek, Buchanan, Mises, and Friedman aimed to safeguard “the maximum degree of freedom for each individual separately that is compatible with one man’s freedom not interfering with other men’s freedom.” For them, a wider the area of non-interference and a broader the range of choices available to individuals corresponded to a greater degree of freedom. On countless occasions, these prominent liberals warned that in order to have freedom, the coercive power of any entity had to be limited, especially that of the government. They had faith that the legal system would be enough to avoid heading down “the road to serfdom” (road to unfreedom) by preventing state authorities from possessing unlimited powers that they could use to coerce as they please. However, since the onset of the pandemic, legal systems in country after country have failed to safeguard the private spheres of individuals from interference or coercion on the part of the state.

During this pandemic, much of the world has been subjected to the sudden and rapid implementation of poorly thought-out rules and policies, based on the incompetent and inexperienced central planning and design of the state. These decisions were often made by consulting only a handful of medical advisors who are not trained in areas like political science, economics, sociology, finance, history, demographics, psychology, philosophy, ethics, anthropology, and law, all of which offer important considerations for decisions that affect the whole society and the common good. In essence, politicians, in cooperation with their unelected health advisors, have managed to gain control over entire societies and reshape them in a failed effort to achieve the common good, while disregarding centuries of progress made by prominent liberal thinkers when it comes to protecting the rights and freedoms of individuals. Now, these same politicians are determined to impose vaccine passports, which will vastly expand oppressive state powers, while marginalizing unvaccinated people by suppressing their rights and freedoms, and robbing them of their ability to achieve happiness and self-development. Moreover, these oppressive governments and leaders that are pushing for vaccine passports will not forewarn those people who do not want to be injected with experimental substances about what awaits them:

You will think like me or die; he says: You are free not to think as I do; your life, your goods, everything remains with you; but from this day on you are a stranger among us. You will keep your privileges as a citizen, but they will become useless to you. If you aspire to be the choice of your fellow citizens, they will not choose you, and if you ask only for their esteem, they will still pretend to refuse it to you. You will remain among men, but you will lose your rights to humanity. When you approach your fellows, they will flee from you like an impure being. And those who believe in your innocence, even they will abandon you, for people would flee from them in turn. Go in peace; I spare your life, but I leave you a life worse than death.

Russia’s Defense Ministry on Sunday said that its Black Sea Fleet is now closely monitoring a British Royal Navy patrol vessel which just entered the Black Sea. 

“The forces and means of the Black Sea Fleet have started tracking the activities of the Trent patrol vessel of the British Navy, which entered the Black Sea waters on May 16,” a statement from Russia’s defense ministry said of its Black Sea Fleet operations.

The HMS Trent passed through the Bosporus Strait on Sunday, after a month ago the UK said its navy was planning to send patrols to the region in response to Ukraine tensions and the prior Russian troop buildup in Crimea and along the border. The Kremlin confirmed it’s since withdrawn the additional forces, which numbered in the many tens of thousands. 

Regardless it appears to the UK is seeking to send a “message” against another potential near future Russian troop build-ups or large scale drills in the region. 

📸 🇬🇧 Royal Navy River-class Batch 2 offshore patrol vessel HMS TRENT P224 transited Istanbul strait this morning towards the Black Sea. pic.twitter.com/D6bSf3LPLO

— Cavit Ege Tulça (@egetulca) May 16, 2021

Further according to TASS the Russian fleet is monitoring a French military vessel as well, since it entered the waters about five days ago.

“On May 11, the report said the Black Sea Fleet started keeping a close eye on the French Navy’s patrol ship Commandant Birot, which had entered the Black Sea,” the report said.