Category: zerohedge

During overnight Israeli airstrikes on Gaza, at least 24 Palestinians including nine children have been killed, Gaza health officials say, while Israel’s military says 15 among the dead are militants. Israel’s air force unleashed strikes on some 130 sites throughout Gaza Strip in an operation that hasn’t let up into Tuesday.

And the Jerusalem Post records that over 300 rockets were fired from Gaza toward Israel since sundown on Monday, injuring at least 31 Israeli civilians, and including some direct hits on residential areas which included an apartment building. Israel has opened up bomb shelters across the south and major cities. Later into the day Tuesday (local time), AFP is reporting that Gaza rocket fire has killed two women in south Israel.

The rocket fire out of the Gaza Strip began after Hamas leaders issued a demand for Israeli police to vacate the Al-Aqsa Mosque complex, and after a night of rioting and fierce clashes at security checkpoints, which included thousands of far-right Israel settler youth swarming the walled old city in a controversial Jerusalem Day parade. Monday’s events in Jerusalem left some 300 Palestinians wounded, and many arrested.

The Israeli airstrikes have now entered their second day, and look to continue. 

“On Tuesday, at about noon, Palestinians said that IDF struck an apartment in an 8-story building in the Rimal neighborhood in Gaza, killing two senior Palestinian Islamic Jihad commanders and fatally wounding the brother of Baha abu Al-Ata who was killed in a targeted IDF operation 2019,” The Jerusalem Post notes.

Things only look to escalate from here, given Tel Aviv has announced the widening of the military campaign.

More footage of Iron Dome interceptions over Ashkelon pic.twitter.com/TQSIfwDHic

— Emanuel (Mannie) Fabian (@manniefabian) May 10, 2021

Defense Minister Benny Gantz has approved the mobilization of 5,000 reserve soldiers to reinforce the Gaza border – and in the past such a deployment has come prior to a ground campaign – however which Israeli leaders often try to avoid given the extreme risk their troops and high death toll.

Additional IDF battalions have also been sent to the West Bank on fears of a wider Palestinian uprising akin to the prior historic intifadas.

Death toll rises to 26 in Gaza after targeting an apartment in Gaza. pic.twitter.com/nzqbZavBjp

— TIMES OF GAZA (@Timesofgaza) May 11, 2021

Meanwhile, Israeli Prime Minister Benjamin Netanyahu – who happens to be battling for his political future after last month he failed to cobble together a governing coalition – stated that fighting will “continue for some time”.

From the car in Ashkelon that was apparently hit by a rocket fired from Gaza pic.twitter.com/4yqS4cw32j

— Emanuel (Mannie) Fabian (@manniefabian) May 11, 2021

Local media videos are showing that many rockets from Gaza are making it past Israel’s Iron Dome anti-air defenses…

#Gaza retaliation to the last Israeli bombing. #AlAqsaUnderAttack #Palestine pic.twitter.com/ARfj5ydAco

— Elijah J. Magnier (@ejmalrai) May 11, 2021

And an Israeli spokesman also affirmed that Israeli strikes are merely “in the early stages”.

* * *

Meanwhile at the State Department on Monday…

Who let journalists into the press pool?? https://t.co/ZGA918cBX2

— Caitlin Johnstone ⏳ (@caitoz) May 10, 2021

By Laura Cooper, Bloomberg reporter and Markets Live commentator

It’s becoming hard to ignore inflationary pressures, whether one is a central banker or not. Tech investors are taking notice with Monday’s Nasdaq 100 slump the largest since mid-March, while China’s producer prices accelerated overnight. VIX futures are higher with broad risk aversion setting up for European equities to catch up to the late downbeat U.S. session.

At least investor jitters that rising inflation could lift bond yields, and sap equities’ appeal could take comfort from real yields. The 10-year U.S. inflation-adjusted benchmark tumbled to three-month lows, keeping nominal yields in check as breakevens jumped to multi-year highs.

Financial conditions reached another record, while evidence of stocks’ rotation remains: S&P 500 energy and financials advanced over the past 5 sessions, value is outperforming growth –- particularly in Europe — and the RTY/NDX is well, steady –- much like 10-year nominal yields around 1.60%.

U.S. labor market frictions look to be adding to inflation fears, with JOLTs data, a leading indicator of hiring, likely to signal workers’ growing pricing power. And the NFIB small business optimism will be watched today for supply side constraints –- last month, job openings that were “hard to fill” reached at least a four-decade high. Of course, labor market dislocations remain and a handful of Fed speakers today will no doubt look to assuage inflation fears and discount near-term tapering risks. Not like Bill Dudley.

Whether the Fed falls too far behind the curve remains up for debate. Markets, on the other hand, aren’t as comfortable looking through transitory inflation as evidence builds and expectations climb — that could become a self-fulfilling prophecy after all.

By Michael Every of Rabobank

Pricing and Poetic Justice

With global cargo routes log-jammed; a key US oil pipeline still shutdown, leading to another backlog of ships idling off-shore; log-jammed cargo ships off the Israeli port of Ashkelon watching missiles being fired overhead; the US navy interdicting a ship full of Iranian-supplied weapons in the Red Sea (as sanctions may be about to be lifted); Aussie iron ore at a price level three times above what was considered toppy until recently; lumber prices higher than the roofs they build; copper the new ‘gold’; semiconductors not available at all; and many agri commodity prices shooting up vertically like green shoots from the ground (though rain may dampen that move for some), today is the latest look at “transitory” inflation.

Chinese data saw CPI rise 0.9% y/y vs. expectations of a 1.0% increase, and up from 0.4% in March. PPI was higher, rising 6.8% y/y vs. a 6.5% consensus and up from 4.4%. So somebody is seeing margins squeezed by an unpleasant amount: but for so many heavily-indebted Chinese firms at least it’s better than PPI being stuck in negative territory when the interest rates they pay are positive. The global impact of that PPI move is somewhat muted by the upward move in CNY – for now.

Tomorrow, it’s the turn of the US. According to the media meme, US tech stocks tanked yesterday on the basis that inflation is now a real concern, despite the fact that US payrolls just said the opposite, and both the Fed and the Treasury emphatically said the same. So are the US tech companies that don’t pay attention to even simple balance sheet matters, like what they sell their services for and what it costs to produce them, really looking at the disconnect between nominal US 10-year yields remaining relatively low while the 5-year breakeven rate headed for 2.77% intra-day, the highest since 2008? (It is back at 2.73% at time of writing, so all is well, techies!) Does it really disrupt their disruptive business model if rates stay too low, which is the lifeblood of much of this tech bubble, and then have to rise years down the line, at a time when each firm involved likes to dream the little dream that it will be the next Bezos/Gates/Musk?

Not that this means we shouldn’t be concerned by inflation. As we wrote early in 2020, the Covid crisis was like fighting a war, fiscally. And when wars are over, there is a deflationary demand collapse, not a boom. Yet that is not the case today because:

• This war is far from over. Only some territory has been partially ‘liberated’. 100 countries have yet to receive a single vaccine shot – and some vaccinated countries are still seeing cases surge. It’s a race against time, as new strains try to work their way round vaccines;
• Global supply chains are going to remain disrupted for a long time;
• We are rolling the war straight into a Cold War, with all of the disruption that entails; and
• We are also getting post-war fiscal rebuilding before the war is even over.

However, none of this means we have avoided the post-war slump that history usually provides us with. Can a key product really triple in price and then nobody pay more for it? Can a swathe of inputs double and nobody pay more? The only question is who pays the price, and where, and how soon.

If it is consumers, then real wages are going to fall, and demand follow. Even if CPI doesn’t record much of an impact, in the real world people will feel it. If it is firms, profits will collapse instead, and then investment. Or perhaps the government and central bank will resolve these issues: during wars we often see price controls, rationing, and/or industrial policy – which combination will it be this time? Indeed, what is the fairest resolution to this mess? How should the imminent price pain be apportioned in a scarred society? By markets? By regulators? If yes, based on what political philosophy? “Social justice”? “One Nation-ism”? “National security”? “I’m Alright Jack”? Rock, paper, scissors? Best out of three? Let justice be served!

In short, if a post-war period usually sees a slump and a pile of debt to fight over, for now we are still at the earlier stage, where we fight over supply chains and the impact of inflation instead. The debt issue can wait a while longer.

Meanwhile, as this all plays out in public view and yet to very little public discussion, firms in China are apparently vulnerable to more than inflation. There is also poetry. Shares in Meituan have slumped after its CEO posted, then deleted, a poem on social media about ancient Chinese emperor Qin Shi Huang burning books. Bloomberg wonders if this is going to be ‘Jack Ma 2.0’ as a result. This may be regarded quizzically by the West. However, how free is the average Western CEO to use Twitter to opine on anything beyond a certain Overton Window without major market ramifications? There is no room for “Roses are red, violets are blue” comments without instant ‘poetic justice’; which has seen its own inflation-like surge in recent years.

As ARK readies itself for what could be another tumultuous day on Tuesday, with the firm’s assets dropping below $20 billion to their lowest level since January, more eyes are turning to how Cathie Wood is steering her firm through the “rough seas”. 

ARK’s flagship fund was down another 5% in pre-market trading on Tuesday — falling below the psychological level of $100 per share — and has fallen for 9 of the past 10 sessions, according to Bloomberg, who noted that the decline “accelerated on Monday in the biggest slide in about seven weeks”.

At this point, the “chicken and the egg” argument between ARKK, shares of its components – notably heavily held (and potentially extremely overvalued) names like Tesla and Palantir – and the indicies where its components reside, becomes meaningful conversation and not just fodder. 

In addition to Tesla selling off sharply Tuesday morning, as we noted, other key ARK holdings like Teladoc and Roku were down about 5% each in the pre-market session. 

To make matters potentially worse, it doesn’t appear as though Cathie Wood wants to simply batten down the hatches. ARK Invest appeared to continue its strategy of selling off risk-adverse tech names on Monday of this week, with the firm collectively selling off 30.4% of the Apple shares it held during Monday’s tech pullback. 

Bloomberg released the figures on Tuesday morning, noting that: “Ark Fintech Innovation ETF, Wood’s only fund that holds stake in Apple, sold 87,560 shares of the iPhone maker and now holds 200,387 shares, according to Ark’s website”.

ARK also collectively sold 464,000 ADRs in Roche, 463,721 ADRs in Baidu  and 260,876 Takeda ADRs. The firm also sold 1.62 million shares of Opendoor and 557,955 shares of Virgin Galactic, Bloomberg noted. 

The sale of Apple is noteworthy because it appears to be proof that ARK’s Cathie Wood is following through on her “strategy” of selling liquid big tech names in order to free up liquidity for smaller, illiquid and speculative names – a strategy we have written about numerous times over the last few months. Wood has also been turning around and “investing” that liquidity into other ARK ETFs. For example, on Monday, Wood bought more of its own 3D printing ETF, PRNT, in its new ARKX Space Exploration ETF.

On Friday of last week, with the NASDAQ volatile, Wood took to CNBC to say she “loved the setup” heading into the new week, where so far her flagship fund is nearing a drawdown of almost 10% for the week. 

“Oh, I love this setup,” she told a bemused Wilfred Frost last week, although her shareholders who are down 30% in a few weeks probably don’t share her “setup” love.

“From our point of view, 5 year time horizon, nothing has changed but the price.” Of course, on Wall Street changing prices is all that matters and everything leads from there, as Bill will probably explain to Cathie after a few more church meetings.

Ark Invest’s Cathie Wood says the pullback in tech stocks is not a cause for concern, and that her long-term bets will continue to move higher. “I love this set up.” https://t.co/EJXjv0CnpF pic.twitter.com/n67p8wpeqn

— CNBC (@CNBC) May 7, 2021

Wood also predicted a 25% to 30% compounded annual growth rate over the next five years. When asked about outflows, she said: “First of all, I don’t have to worry about redemptions. The ETF ecosystem is a beautiful thing for portfolio managers, I highly recommend it. The ETF ecosystem – they are facilitating our flows. And they are doing it many ways with algorithms and derivatives. We have experienced no problems. There has been hardly a disturbance in our spreads.”

Then, in a stunning revelation that had not been made public previously, Wood admitted that Hwang provided the seed capital for ARK: “So yes, he did provide the seed for our first four ETFs and we were very grateful to him.”

.@CathieDWood reveals Archegos Capital’s Bill Hwang provided seed funding for Ark’s first 4 ETFs. pic.twitter.com/L0UMongDRC

— CNBC’s Closing Bell (@CNBCClosingBell) May 7, 2021

And Wood’s risk management – like Hwang’s – might eventually be called into question. In March, we also noted when ARK Funds filed to allow for larger concentrations in names, including overseas ADRs.

Investors have pulled $500 million from ARK’s flagship fund since the beginning of May. Could the rout continue? As we predicted yesterday…

naz will keep sliding until ark is archegoed

— zerohedge (@zerohedge) May 10, 2021

Authored by Lance Roberts via RealInvestmentAdvice.com,

“If everyone sees it, is it still a bubble?” That was a great question I got over the weekend. As a “contrarian” investor, it is usually when “everyone” is talking about an event; it doesn’t happen.

As Mark Hulbert noted recently, “everyone” is worrying about a “bubble” in the stock market. To wit:

“To appreciate how widespread current concern about a bubble is, consider the accompanying chart of data from Google Trends. It plots the relative frequency of Google searches based on the term ‘stock market bubble.’ Notice that this frequency has recently jumped to a far-higher level than at any other point over the last five years.”

What Is A Bubble?

“My confidence is rising quite rapidly that this is, in fact, becoming the fourth ‘real McCoy’ bubble of my investment career. The great bubbles can go on a long time and inflict a lot of pain, but at least I think we know now that we’re in one.” – Jeremy Grantham

What is the definition of a bubble?  According to Investopedia:

“A bubble is a market cycle that is characterized by the rapid escalation of market value, particularly in the price of assets. Typically, what creates a bubble is a surge in asset prices driven by exuberant market behavior. During a bubble, assets typically trade at a price that greatly exceeds the asset’s intrinsic value. Rather, the price does not align with the fundamentals of the asset.“

This definition is suitable for our discussion; there are three components of a “bubble.” The first two, price and valuation, are readily dismissed during the inflation phase. Jeremy Grantham once produced the following chart of 40-years of price bubbles in the markets. During the inflation phase, each was readily dismissed under the guise “this time is different.” 

We are interested in the “third” component of “bubbles,” which is investor psychology.

A Bubble In Psychology

As Howard Marks previously noted:

“It’s the swings of psychology that get people into the biggest trouble. Especially since investors’ emotions invariably swing in the wrong direction at the wrong time. When things are going well people become greedy and enthusiastic. When times are troubled, people become fearful and reticent. That’s just the wrong thing to do. It’s important to control fear and greed.”

Currently, it’s difficult for investors to become any more enthusiastic about market returns. (The RIAPro Fear/Greed Index compiles measures of equity allocation and market sentiment. The index level is not a component of the measure that runs from 0 to 100. The current reading is 99.9, which is a historical record.)

Such is an interesting juxtaposition. On the one hand, there is a rising recognition of a “bubble,” but investors are unwilling to reduce “equity risk” for “fear of missing out or F.O.M.O.” Such was a point noted explicitly by Mark:

“Rather than responding by taking some chips off the table, however, many began freely admitting a bubble formed. They no longer tried to justify higher prices on fundamentals. Rather, they justified it instead in terms of the market’s momentum. Prices should keep going up as FOMO seduces more investors to jump on the bandwagon.”

In other words, investors have fully adopted the “Greater Fool Theory.”

Okay, Boomer!

I know. The discussion of “valuations” is an old-fashioned idea relegated to investors of an older era. Such was evident in the pushback on Charlie Munger’s comments about Bitcoin recently:

“While Munger has never been a bitcoin advocate, his dislike crystalized into something close to hatred. Looking back over the past 52 weeks, the reason for Munger’s anger becomes apparent with Berkshire rising only 50.5% against bitcoin’s more than 500% gain.” – Coindesk

In 1999, when Buffett spoke out against “Dot.com” stocks, he got dismissed with a similar ire of “investing with Warren Buffett is like driving ‘Dad’s old Pontiac.’”

Today, young investors are not interested in the “pearls of wisdom” from experienced investors. Today, they are “out of touch,” with the market’s “new reality.”

“The big benefit of TikTok is it allows users to dole out and obtain information in short, easily digestible video bites, also called TikToks. And that can make unfamiliar, complex topics, such as personal finance and investing, more palatable to a younger audience.

That advice runs the gamut, from general information about home buying or retirement savings to specific stock picks and investment ideas. Rob Shields, a 22-year-old, self-taught options trader who has more than 163,000 followers on TikTok, posts TikToks under the username stock_genius on topics such as popular stocks to watch, how to find good stocks, and basic trading strategies.” – WSJ:

Of course, the problem with information doled out by 22-year olds is they were 10-year olds during the last “bear market.” Given the lack of experience of investing during such a market, as opposed to Warren Buffett who has survived several, is the eventual destruction of capital.

Plenty Of Analogies

“There is no shortage of current analogies, of course. Take Dogecoin, created as a joke with no fundamental value. As a recent Wall Street Journal article outlined, the Dogecoin ‘serves no purpose and, unlike Bitcoin, faces no limit on the number of coins that exist.’

Yet investors flock to it, for no other apparent reason than its sharp rise. Billy Markus, the co-creator of dogecoin, said to the Wall Street Journal, ‘This is absurd. I haven’t seen anything like it. It’s one of those things that once it starts going up, it might keep going up.’” – Mark Hulbert

That exuberance shows up with professionals as well. As of the end of April, the National Association Of Investment Managers asset allocation was 103%. 

As Dana Lyons noted previously:

“Regardless of the investment acumen of any group (we think it is very high among NAAIM members), once the collective investment opinion or posture becomes too one-sided, it can be an indication that some market action may be necessary to correct such consensus.“

Give Me More

Of course, margin debt, which is the epitome of “speculative appetite,” soared in recent months.

As stated, “bubbles are about psychology,” which the annual rate of change of leverage shows.

Another form of leverage that doesn’t show up in margin debt is ETF’s structured to multiply market returns. These funds have seen record inflows in recent months.

With margin debt reaching levels not seen since the peak of the last cyclical bull market cycle, it should raise some concerns about sustainability. It is NOT the level of leverage that is the problem as leverage increases buying power as markets are rising. The unwinding of this leverage is critically dangerous in the market as the acceleration of “margin calls” leads to a vicious downward spiral.

Importantly, this chart does not mean that a massive market correction is imminent. It does suggest that leverage, and speculative risk-taking, are likely much further advanced than currently recognized.

Pushing Extremes

Prices are ultimately affected by physics. Moving averages, trend lines, etc., all exert a gravitational pull on prices in both the short and long term. Like a rubber band, when prices get stretched too far in one direction, they have always eventually “reverted to the mean” in the most brutal of manners. 

The chart below shows the long-term chart of the S&P 500 broken down by several measures: 2 and 3-standard deviations, valuations, relative strength, and deviations from the 3-year moving average. It is worth noting that both standard deviations and distance from the 3-year moving average are at a record. 

During the last 120-years, overvaluation and extreme deviations NEVER got resolved by markets going sideways.

The only missing ingredient for such a correction currently is simply a catalyst to put “fear” into an overly complacent marketplace. Anything from economic disruption, a credit-related crisis, or an unexpected exogenous shock could start the “panic for the exits.”

Conclusion

There is more than adequate evidence a “bubble” exists in markets once again. However, as Mark noted in his commentary:

‘I have no idea whether the stock market is actually forming a bubble that’s about to break. But I do know that many bulls are fooling themselves when they think a bubble can’t happen when there is such widespread concern. In fact, one of the distinguishing characteristics of a bubble is just that.”

However, he concludes with the most important statement:

“It’s important for all of us to be aware of this bubble psychology, but especially if you’re a retiree or a near-retiree. That’s because, in that case, your investment horizon is far shorter than for those who are younger. Therefore, you are less able to recover from the deflation of a market bubble.”

Read that statement again. 

Millennials are quick to dismiss the “Boomers” in the financial markets today for “not getting it.” 

No, we get it. We have just been around long enough to know how these things eventually end.

Yesterday was bad, but not too bad, and we titled our morning market wrap “Futures Flat As Soaring Commodities Depress Tech Stocks.” 24 hours later it’s much worse, as the rout that hammered US tech stocks on surging inflation fears (see “This Is Not Transitory”: Hyperinflation Fears Are Soaring Across America“) has now gone global, with markets in Asia and Europe hammered and S&P futures sliding 0.8%, while Nasdaq futures tumbled by another 1.3% after Monday’s 2.6% rout. Treasuries were steady ahead of today’s 3Y auction while the dollar erased its gains and dropped to session lows.

Here are some of the notable bloodbath highlights: the Hang Seng Tech Index sank as much as 4.5%, extending its tumble from a February high to about 30%. In Europe, the Stoxx 600 Index fell the most since January as tech sector losses drove the gauge lower. One of the biggest winners over the past year, Cathie Wood’s Ark Innovation ETF, was down more than 3% in pre-market trading after plunging 5.2% yesterday.

“It seems to be a combination of inflation fears making a comeback and some market participants moving higher along the value spectrum, cutting their exposure to anything with a stretched valuation,” said Marios Hadjikyriacos, investment analyst at online broker XM in Cyprus.

In a late session reversal on Monday, inflation jitters drove investors away from growth stocks to cyclicals, which benefit the most as the economy reopens, resulting in the S&P 500 logging its worst day in nearly eight weeks. At 700 am ET, Dow e-minis were down 159 points, or 0.46%, S&P 500 e-minis were down 31.5 points, or 0.75%, and Nasdaq 100 e-minis were down 169.25 points, or 1.27%.

Some of the bigger pre-market movers:

• Tesla dropped 7% in U.S. premarket trading after reports that the company halted a plan to buy land in Shanghai and sales in China fell.
• Cathie Wood’s Ark Innovation ETF dropped down more than 3% in pre-market trading after plunging5.2% yesterday.
• Shares of the FAAMG complex dropped between 1% and 2% in premarket trading, while Tesla Inc fell nearly 4%, one day after a rare downgrade of GOOGL and FB by Citi sparked a widespread selloff.
• Simon Property Group Inc fell 3.6% after the U.S. mall operator said it does not expect a return to 2019 occupancy levels until next year or 2023, as it looks to play hardball in rent negotiations with tenants.

“The underlying driver is that there is still a rotation out of duration (higher interest rate) sensitive parts of the market and this is why tech stocks are coming under pressure now,” said Mizuho’s Head of multi-asset strategy Peter Chatwell. “Given the rise in the earnings power of these firms different governments will also seek to raise more tax revenue from them in the coming years.”

Debate rages over whether the expected jump in price pressures will be enduring enough to force the Federal Reserve into tightening policy sooner than current guidance suggests. US inflation expectations as measured by 5Y breakevens reached the highest level since 2006.

“There is a risk the discussion could trigger market volatility,” BlackRock Investment Institute strategist Jean Boivin said. “We believe investors should look through any such bouts of volatility. The Fed will likely be much slower than in the past to raise rates in the face of rising inflation.”

Yet even after the declines, the Nasdaq trades at 26 times the 12-month projected profits, while the gauge of European technology shares enjoys a valuation of 29 times.

And speaking of Europe, its benchmark Stoxx 600 index tumbled 2.1% the most this year, one day after touching a record high on Monday, but its Tuesday restart was a sea of red as London’s FTSE, Frankfurt’s DAX and the CAC 40 in Paris all dropped roughly 2%. Just 18 index members were up while a whopping 582 were down. Europe travel and leisure stocks underperformed the broad market, with the benchmark tracking the sector dropping as much as 4.3%, most since Dec. The Stoxx 600 Travel & Leisure Index was down 4.2% as of 10:11 am CET, worst-performing sector in Europe. Here are some of the biggest European movers today:

• THG shares jump as much as 19%, the most since September 2020, after the U.K. online retailer raised $1b for future M&A, adding Japan’s SoftBank as a cornerstone investor, and agreed to buy U.S. beauty company Bentley Laboratories for $255m.
• Morrisons shares gain as much as 1.3% after the British supermarket chain released 1Q sales that topped analysts’ estimates. Morgan Stanley (equal-weight) says results were positive and it sees scope for potential upside and operating leverage.
• Evolution Gaming shares slide as much as 12%, the most intraday since October 2018, after the company’s founders sold 4.2 million shares in an offering.
• Ceconomy shares plunge as much as 16% after the German consumer-electronics retailer reported a 2Q adjusted Ebit loss of EU146m and named Karsten Wildberger as its new CEO. Consensus estimates look too high, according to Bryan Garnier.
• Jenoptik shares fall as much as 13% in Frankfurt trading, the steepest intraday decline since March 2020, after posting 1Q earnings as Baader Helvea highlights a “mixed picture” for profitability.
• ThyssenKrupp shares fall as much as 6.3% after reporting second-quarter results, with Morgan Stanley (underweight) noting that the guidance raise had “no surprises” and could still be too conservative.

Earlier in the session, Asia’s main regional equity gauges suffered their biggest slide in nearly two months overnight; the MSCI Asia Pacific Index dropped as much as 2.2% at one point as a slump in information-technology stocks weighed on the market with Japan’s Nikkei and Hong Kong’s Hang Seng both closing down 3%. Asian stocks were poised for their lowest finish in six weeks, dragged down by a selloff in the region’s chipmakers amid renewed concerns of rising global inflation. Taiwan Semiconductor Manufacturing, Samsung Electronics and SK Hynix were among the top contributers to the measure’s decline. The Philadelphia semiconductor index, or SOX, tumbled the most in two months on Monday on concerns inflation was likely to surge in coming months. The drop in the tech gauge came ahead of the release of the U.S. CPI report due Wednesday, which is expected to show prices continued to increase in April. Rising inflation could lead the Federal Reserve to reduce easy money policies. “If yields go higher, it’ll be difficult for current valuations to hold,” said Takahiro Kusakari, chief investment officer at Sawakami Asset Management Inc. “In case of higher yields, technology stocks trading with extra risk premiums won’t be able to help it but be sold.”

Taiwan, Japan and Hong Kong were among the biggest losers in the region, while China outperformed. China’s main equities benchmark ended higher Tuesday, after a rebound in consumer staples offset the earlier selloff in commodity firms. With talk of tighter regulation from Beijing, Chinese tech heavyweights Baidu, Alibaba Tencent, collectively dubbed the BATs, all dropped more than 3%. Food delivery major Meituan tumbled as much as 9.8% too, leaving its value $30 billion lower in a week.

“We have been here before with inflation scares and extended valuations in technology fraying investor nerves,” Jeffrey Halley, senior market analyst with Oanda Asia Pacific Pte wrote in a note. “Nevertheless, the technical break of support by the Nasdaq overnight is significant. If it does not recapture that tonight, equities could be in for a torrid week.” The Nasdaq composite lost 2.6% on Monday, closing a touch below its 100-day moving average.

Emerging-market equities fell to the lowest level in almost a month and currencies in Asia weakened as data from China added to inflation worries, while strong commodity prices fueled a rally in the South African and Russian currencies. The worldwide slump in technology stocks sent the MSCI benchmark index to its biggest drop since March 24. Data showing contractions in the Philippine and Malaysian economies added to skepticism about a robust recovery this year amid a resurgence in coronavirus cases. China’s factory-gate prices surged more than expected in April on the back of rapid gains in commodities due to rising global demand and supply shortages. That’s stoking concerns about price increases around the world, with a measure of U.S. inflation expectations reaching the highest level since 2006, though data today showed slowing inflation in Russia and Egypt.

“The turnaround in risk sentiment is largely isolated toward Asian FX this morning, where losses have been driven by inflation concerns and poor performance in domestic equity markets,” said Ima Sammani, an Amsterdam-based currency analyst at Monex Europe Ltd. Brazil and India will also report price figures this week after Citigroup Inc.’s inflation-surprise index for emerging markets spiked last month to the highest since 2008, a sign investors may be underestimating the scale of the resurgence. U.S. Treasury yields rose for a fourth day today and the extra premium demanded for EM debt was unchanged.  “It’s all about rates in the U.S. and how it contaminates risk markets,” said Francesc Balcells, chief investment officer for emerging-market debt at Fim Partners in London. “There’s a fair amount of nervousness on this but reflation is good for EM. The key is that real rates in the U.S. stay in check so as long as the Fed is not falling behind the curve, EM will be OK.”

U.S. breakeven rates, which factor in inflation, have scaled multi-year peaks. Most euro zone bond yields edged back up on Tuesday while a market gauge of long-term inflation expectations was nearing its highest in over two years. A host of Federal Reserve and European Central bank speakers this week will be closely watched by markets to assess how authorities are likely to respond.

A test case on U.S. inflation will come when the Labor Department releases consumer price index report on Wednesday. “Inflation’s shadow looms large and we do think that there is a limit to the Fed’s tolerance of inflation,” DBS Bank said in a note.

In rates, Treasuries were mixed after paring losses; headwinds include start of auction cycle with 3-year note sale and mounting concern about future inflation into April CPI release Wednesday. Another heavy corporate new-issue slate is expected after a handful of borrowers stood down Monday to give a wide berth to Amazon’s jumbo offering. Yields are slightly richer across long-end of the curve while front-end and belly cheapen slightly, flattening 5s30s spread by 1.3bp; 10-year yields around 1.605% with gilts and bunds lagging by around 3bp each, further capping Treasuries rally. Small block sales in Asia also weighed, including 0.9k in Ultra bonds, before two ~1.7k sellers in 10-year notes

In FX markets, Dollar Spot Index traded near session lows amid tight ranges and 10-year Treasury yields rose for a fourth day. Scandinavian currencies lead gains followed by the euro, which pared yesterday’s losses. Bunds extended their slide and underperformance against Treasuries after Germany’s sale of its first 30-year green bond. The pound hovered near the highest level since February, holding onto Monday’s gains following the Scottish election results; sales of five- and 40-year gilts are in focus, as well speeches by the Queen’s and BOE Governor Andrew Bailey. The yen edged lower as concern over rising U.S. inflation puts an upward pressure on Treasury yields and the dollar. The Canadian dollar stabilised near a four-year high, while the New Zealand dollar perched comfortably at February highs.

In commodities, oil prices gave up earlier gains as concerns that rising COVID-19 cases in Asia will dampen demand outweighed expectations that a major U.S. fuel pipeline could restart swiftly. U.S. crude dipped 0.66% to $64.49 a barrel. Brent crude fell to $67.84 per barrel as traders monitored progress on reopening the largest U.S. oil-products pipeline, which was paralyzed by a cyberattack, and is expected to be mostly back online by the weekend. Metal markets saw copper prices start to nudge higher again. They were last at $10,470 a tonne having hit a record high $10,747.50 the previous session. Iron ore had settled too after surging 7% on Monday.

Wednesday’s U.S. inflation report along with a series of U.S. government bond auctions this week are seen as the next factors to deepen or arrest the slide. The latest reading is expected to show an accelerated pace of consumer-price increases, with the year-on-year comparison made starker by the pandemic shock in 2020.

Looking at the day ahead now, and data releases from the US include April’s NFIB small business optimism index and the JOLTS job openings,. Central bank speakers include BoE Governor Bailey, the Fed’s Williams, Brainard, Daly, Bostic, Harker and Kashkari, and the ECB’s Knot and Hernandez de Cos. Otherwise, the Queen’s speech will be taking place in the UK, where the government outlines its legislative programme for the coming session of Parliament.

Market Snapshot

• S&P 500 futures down 0.8% to 4,152.00
• STOXX Europe 600 down 1.9% to 436.89
• MXAP down 2.0% to 204.14
• MXAPJ down 1.7% to 683.64
• Nikkei down 3.1% to 28,608.59
• Topix down 2.4% to 1,905.92
• Hang Seng Index down 2.0% to 28,013.81
• Shanghai Composite up 0.4% to 3,441.85
• Sensex down 0.8% to 49,107.22
• Australia S&P/ASX 200 down 1.1% to 7,096.97
• Kospi down 1.2% to 3,209.43
• Brent Futures down 1.1% to $67.55/bbl
• Gold spot down 0.0% to $1,835.40
• U.S. Dollar Index little changed at 90.27
• German 10Y yield rose 0.43 bps to -0.169%
• Euro up 0.1% to $1.2144

Top Overnight News from Bloomberg

• Investor confidence in Germany’s economic recovery jumped to the highest level in more than 21 years after the country’s vaccine rollout gained speed. The ZEW institute’s gauge of expectations rose to 84.4 in May from 70.7 the previous month. A measure of current conditions improved, as did prospects for the euro zone
• With the ECB widely seen slowing bond buying in July as the economic recovery gains traction — which is already being reflected in higher yields — this bet focuses on the next step being a greater chance of rate hikes. The largest wagers in Euribor options are targeting markets to price in higher rates in late 2024
• England reported no deaths from Covid-19 in its latest daily update, a milestone that highlights the effectiveness of the U.K.’s vaccine program in stopping the spread of the disease
• Palestinian militants in the Hamas-ruled Gaza Strip bombarded southern Israel with dozens of rockets overnight, and Israeli aircraft pounded their facilities in lethal raids, after a showdown over Jerusalem erupted into one of the most intense confrontations between the sides in years
• German inflation could climb above 3% as the economy recovers from the pandemic, but it won’t last and the European Central Bank will look beyond such volatility, Executive Board member Isabel Schnabel said in an interview
• China’s factory-gate prices surged more than expected in April, fueled by rapid gains in commodity prices, adding to global inflation concerns
• Norway is relying on its $1.3 trillion sovereign wealth fund more than ever, as the country ratchets up spending without turning to bond markets to provide economic relief from the pandemic. The government is raising its so-called structural non-oil fiscal deficit for 2021 to 403 billion kroner, or almost $50 billion, compared with 369 billion kroner last year, it said on Tuesday. The withdrawals, as a share of the world’s biggest wealth fund, will reach 3.7%, compared with the central bank’s estimate of 3.3%

Quick look at global markets courtesy of Newsquawk

Asia-Pac bourses traded with firm losses on spillover selling from the tech-led declines on Wall St, where all major indices were dragged into the red amid higher yields and inflationary concerns, although the downside in the DJIA was contained after it briefly breached the 35k level for the first time ever. ASX 200 (-1.1%) was pressured amid underperformance in tech and with the commodity-related sectors subdued by a pullback in copper and iron ore futures from record levels which was not helped by reports of tougher supervision by China’s exchange. Nikkei 225 (-3.1%) was the biggest decliner after Japanese Governors warned that a nationwide state of emergency cannot be ruled out and as participants digested a slew of earnings updates, with better-than-expected Household Spending data doing little to stem the losses in Japan, while the KOSPI (-1.4%) succumbed to the broad risk aversion which overshadowed the strong early trade data for May which showed Exports jumped 81.2% Y/Y during the first 10 days of the month. Hang Seng (-2.0%) and Shanghai Comp. (+0.3%) weakened as the large Chinese tech stocks were impacted by the industry sell-off which resulted to losses of around 4% for the Hang Seng TECH Index, while a pullback for commodity prices and mixed inflation data in which Chinese CPI printed below forecast but PPI rose by its fastest pace since 2017, added to the uninspired mood; though sentiment did recover marginally from lows at the tail-end of the session. In addition, China released its latest Census which showed population growth in 2010-2020 slowed to 5.38% from 5.84% the decade before and the NBS chief noted that China’s population is declining, ageing is deepening and that steps must be taken to ensure a balanced population growth. Finally, 10yr JGBs were marginally higher amid the underperformance of Japanese stocks but with gains capped amid mixed results at the 10yr JGB auction and following the whipsawing in USTs where early gains were wiped out as yields recovered heading into this week’s refunding auctions and heavy corporate supply including a USD 18.5bln offering from Amazon.

Top Asian News

• New Outbreaks Threaten Status of Places That Had Virus Contained
• TSMC Is Stuck in the Middle of a Global Panic Over Chip Supply
• SK IE Technology Pares Gains After Doubling in Trading Debut
• Japan’s Struggling Regional Banks Consider Overdue Mergers

Stocks in Europe see hefty losses across the board (Euro Stoxx -2.0%) as the region plays catch-up to the sell-off seen on Wall Street yesterday and across APAC overnight. Markets are wobbling on inflationary concerns – stoked by the elevated post-NFP yields alongside the recent bull run across some commodities including copper, iron, and lumber to name a handful – with inflation being a key theme across the Q1 earnings. These inflation woes are reflected across US equity futures with the tech-laden NQ (-2.6%) weighed on heavily whilst the YM (-0.1%) remains cushioned ahead of the US CPI figures tomorrow. Back to Europe, major bourses are for the most part experiencing broad-based losses with the AEX (-2.3%) narrowly underperforming amid notable downside in some large-cap names including Shell (-2.8%), ING (-2.6%), and ASML (-2.4%). European sectors are in a sea of red with defensives faring marginally better than cyclicals as a whole. Delving deeper, Telecoms, Food & Beverage, Household Goods, and Healthcare are the “better” performers with Banks also at the top of the table amid the higher yield environment; though still very much negative on the session. Moving to the other end of the spectrum, Tech lags in a continuation of global sectoral underperformance whilst yields are an additional headwind. Travel & Leisure however, is the notable underperformer as tourist hotspots France, Spain, Greece and Italy will not likely be added to the UK travel “green list” anytime soon, whilst Lufthansa (-3.2%) is reportedly preparing for a EUR 3bln rights issue and Evolution Gaming (-8.6%) further pressures the sector following a share offering. Basic Resources kicked the day off as one of the laggards, but the sector has since trimmed losses with base metals remain elevated. Out of the handful of companies in the green across Europe, THG (+12%) tops the chart amid reports that Softbank will take a stake in the Co., Deutsche Bank (-2.3%) meanwhile fails to shrug off reports that the US DoJ has closed their probe into the Co. regarding their role in the 1MDB scandal.

Top European News

• Schaeffler, Timken Said to Weigh Bids for $1.5 Billion ABB Unit
• Renishaw Said to Face Uphill Battle to Sell Over Steep Price
• Life-Insurance Startup Ethos Valued at More Than $2 Billion
• England Reports Zero Covid Deaths for First Time in 14 Months

In FX, global bond yields are rising on renewed inflation vibes and debt and equities show little sign of resuming any real inverse correlation in the traditional manner associated with relatively pronounced bouts of risk aversion, or appetite for that matter, but the Dollar has gleaned some support from safe-haven demand along with technical encouragement after evading deeper losses vs major and EM counterparts. On that note, the index is looking a bit more comfortable on the 90.000 handle within a 90.359-089 range having recovered from a 90.032 low on Monday, albeit with the Buck still mixed against its G10 protagonists awaiting NFIB, JOLTS and another heavy slate of Fed speakers.

• EUR – The Euro has recoiled into a slightly tighter band vs the Greenback from 1.2132 to 1.2170 and could be more inclined towards chart levels while monitoring EGB/UST differentials and some decent option expiry interest either side (1.5 bn at 1.2095-1.2100 and 1.2125 before 1.6 bn between 1.2185-90). However, Eur/Usd may get a belated boost from a much better than expected German ZEW survey, and the headline economic sentiment reading especially.
• AUD/NZD – Some retracement may have been in order anyway after yesterday’s extended gains against their US rival to circa 0.7891 and just over 0.7300 respectively, but consolidation off recent highs in base metals and other commodities allied to a downturn in risk sentiment has ensured that the Aussie and Kiwi have pulled back anyway. Note, very little reaction to the Australian Budget, thus far, as Aud/Usd continues to hover sub-0.7850 and the cross under 1.0800 on mixed revised deficits vs prior forecasts and Westpac expectations.
• GBP/CAD/JPY/CHF – All narrowly divergent vs their US peer, as the Pound unwinds some of its all round appreciation, though keeps its head above 1.4100 and around 0.8600 against the Euro amidst robust UK consumption surveys and confirmation from PM Johnson that the 3rd phase of lifting lockdown restrictions will go ahead next Monday. Elsewhere, the Loonie has stalled into 1.2075 against the backdrop of waning oil prices pre-OPEC MOMR and API weekly inventories, the Yen is hovering just over 109.00 and Franc a similar distance below 0.9000 and under 1.0950 against the Euro.
• SCANDI/EM – The Nok and Sek are both holding up quite well given the potentially bearish mix of retreating bonds and stocks as a mark of souring risk sentiment, with the latter possibly taking on board former 12 month Swedish money market inflation expectations on the eve of official CPI data. Meanwhile, strong Chinese PPI could be propping up the Cnh, but the Try is not getting much respite even though Turkish ip was considerably stronger than anticipated in March.

In commodities, WTI and Brent front month futures are choppy but off worse levels with the former re-eying USD 64.50/bbl (vs low 64.09/bbl) and the latter inches back towards USD 68/bbl (vs low 67.50/bbl). The losses today seem to be stemming from the soured mood across stock coupled with some unwind of the Colonial Pipeline premium as it is expected to be largely online by the end of the week. Desks note that supply tightness to the US East Coast will likely be eased with increased flows of seaborne cargos. That being said, the longer the situation takes to resolve, the greater the likelihood refineries will need to start cutting run rates. Elsewhere in terms of geopolitics, tensions remain high in the Strait of Hormuz chokepoint as the US Navy stated that it had to fire warning shots as IRGC boats – whilst Press TV reports suggested that JCPOA talks hit a deadlock by its the US refusal to moved 500 individuals from its sanctions list. Elsewhere, Saudi and Iran have been sounding more sanguine in their separate negotiations which could see the simmering down of an ongoing spat between the countries on either side of the Persian Gulf. In terms of COVID, eyes remain on India’s escalating situation with reports today suggesting that the Indian Oil Corp has cut operating rates at refineries to 85-88% (late-April 95%) due to high product stock with COVID-19 impacting demand, whilst BPCL cuts crude imports by 5% in May and 10% in June; expects May fuel consumption to decrease by 5% vs April. Onto metals, spot gold, and silver remain within a tight range and are supported by the suppressed Dollar, with the former comfortable north of USD 1,800/oz (1831-38 range) whilst the latter holds its USD 27/oz handle (27.13-47 range). Meanwhile, the base metals complex is back on the rise with LME copper back above USD 10,500/t with traders citing the mounting speculative bets on inflation and EV production, whilst overnight, Chinese stainless steel and iron ore rose near-10% apiece as production curbs also spurred supply woes.

US Event Calendar

• 10am: March JOLTs Job Openings, est. 7.5m, prior 7.37m
• 10:30am: Fed’s Williams speaks at SOFR Symposium
• 12pm: Fed’s Brainard Discusses U.S. Economic Outlook
• 1pm: Fed’s Daly Speaks at Community Bankers Event
• 1:15pm: Fed’s Bostic Speaks to Rotary Club of Alexandria, Louisiana
• 2pm: Fed’s Harker Speaks on Economic Outlook
• 2:30pm: Fed’s Kashkari Discusses Economic Outlook

DB’s Jim Reid concludes the overnight wrap

In the U.K. yesterday we learned that as of next Monday we will be able to use our own judgement as to social distancing with close family and friends. I delightedly showed my wife this but she said that she would like to continue to observe the 2 metre rule that first started when the twins were born.

So as we attempt to get our lives back after the pandemic, the economic repercussions will reverberate for a while with Friday’s payrolls still creating fierce debate in markets. We are doing a 24hr flash payrolls poll as to whether you think the huge downside miss on Friday represented a) Labour supply constraints, b) Lower demand for labour, c) Measurement errors and likely later revised, d) Don’t know. You can click on the answer that you think is most representative. We will print the answers in today’s CoTD later.

So fascinating markets yet again with inflation worries higher now than they were before the horrendous payrolls miss. All this ahead of tomorrow’s all-important CPI release in the US, with various expectation measures rising to new highs as investors are anticipating a jump in the annual CPI to its highest level in years. The jitters sent tech stocks sharply lower, with the NASDAQ (-2.55%) and the FANG+ index (-3.61%) of megacap tech seeing big declines – with the best performing FANG+ index member being Google (-2.56%) while Tesla (-6.4%) was the worst. It was the worst days for the NASDAQ and the FANG+ index since March 3rd and 8th respectively. The S&P 500 fell back -1.04% as the recent cyclical winners such as energy (-0.05%), banks (-0.20%) and materials (-0.41%) were not able to keep the broader index afloat amidst the heavy tech losses. The best performing US industries yesterday were the defensives such as household products (+1.36%) and utilities (+1.02%). Earlier Europe’s STOXX 600 (+0.10%) gained slightly, having closed before the steepest US declines, whilst the Dow Jones (-0.10%) actually traded above the 35,000 mark for the first time intraday before falling back to just worse than unchanged.

Given the inflation concerns, it was no surprise that breakevens roes to fresh multi-year highs in numerous countries yesterday even if they were off their intraday highs at the close. In the US, 10yr breakevens were up +2.6bps to 2.53%, their highest level since 2013, while the 30yr rate was up +3.0bps to 2.35%, the highest since 2014. The 5y5y forward inflation swap (+2.7bps) also closed above 2.5% for the first time since 2018. Similar moves were seen in Europe too, with German 10yr breakevens up to 1.42%, their highest level since 2018, and their Italian counterparts at 1.38%, their highest since 2013. Yields on 10yr Treasuries were up +2.5bps at 1.602%, as inflation expectation overcame a small drop in real yields (-0.1bps), which fell for the 5th time in the last 6 sessions. Meanwhile in Europe, yields on 10yr bunds (+0.3bps) only saw a modest rise as those on OATs (-0.4bps) and BTPs (-3.7bps) fell back.

Asian markets have taken Wall Street’s lead this morning with the Nikkei (-2.98%), Hang Seng (-2.15%) and Kopsi (-1.34%) all trading deep in the red while the Shanghai Comp is down a more limited -0.27%. Futures on the S&P 500 (-0.55%) and the Nasdaq (-0.97%) are also pointing to a weaker open in the US later today. European futures are also pointing to a sharply lower open with Stoxx 50 futures down -1.37% and those on the Dax down -1.24%. Not helping sentiment China’s April PPI came in 0.3 percentage points higher than expectations at +6.8% yoy while, the CPI printed -0.1% weaker than expectations at +0.9% yoy. The rise in PPI was likely driven by the continued rise in commodities with Bloomberg commodity spot index up c. +65% yoy.

Speaking of inflation, my chart of the day yesterday (link here) discussed the debate over whether the big downside miss in payrolls on Friday would mean higher inflation moving forward. I lean towards the inflation side, and pointed out DB’s Francis Yared work highlighting that the quits rate (which reflects voluntary departures and workers’ true bargaining power) shows a much tighter labour market than the unemployment rate, and has seen a better correlation to wages since the pandemic started than the unemployment rate. The quits rate has bounced back to its pre-Covid levels, so adds to increasing signs that workers are recovering power quickly while firms are finding it hard to fill new roles.

Though the prospects of higher inflation was spoiling the market mood, the rally in commodity prices seemed to run out of steam by yesterday afternoon, with Bloomberg’s commodity spot index actually snapping a run of 6 successive gains to close -0.61% lower on the day – only the 2nd daily loss for the index since April 16. Copper prices (-0.68%) had hit an all-time high earlier in the day, while oil prices also pared back their gains into the afternoon as both Brent crude (+0.06%) and WTI (+0.03%) finished just above unchanged. Even corn futures (-3.20%) shifted lower, in spite of having risen for the last six weeks in a row.

In the UK, Prime Minister Johnson announced that restrictions in England would be eased further from May 17, with indoor mixing in groups of up to six people or two households being allowed once again, while indoor venues including pubs, restaurants, museums and cinemas would also be able to reopen. Separately, the UK Covid-19 alert level was moved from level 4 to level 3. No covid deaths were reported yesterday in England for the first time in 14 months. There was additional good news from elsewhere in Europe as Austria announced that their planned reopening would go forward with small groups being allowed to gather and hospitality establishments will reopen. Spanish Prime Minister Sanchez announced that the country is on track to reach herd immunity in about 100 days when 70% of the population will be vaccinated – if current trends continue. In the US, weekly cases rose by the slowest rate (+0.88%) since the pandemic started and the lowest total (+286k) since mid-September. On the flipside, the pandemic is seen to be firming its grip over Asia with the Asahi Newspaper reporting that Japan’s regional governors have called on the central government to consider declaring a national emergency while Malaysia moved to close schools and banned social gatherings. The Apple Daily also reported that Taiwan’s Premier Su Tseng-chang may announce tighter Covid-19 restrictions. Lastly, Bloomberg reported that the WHO will classify a fast-spreading strain of Covid-19 first identified in India as a variant of concern.

Back to the UK, sterling was the strongest performing G10 currency yesterday (+0.96% vs USD) following the results of various local and regional elections over the weekend, hitting its highest level against the dollar since February. The move seemed to be driven in part by relief among some investors that the SNP had fallen just short of a majority in the Scottish Parliament, though given the pro-independence Greens can get them there, the reality is that the lack of majority for the SNP on their own has limited implications for independence. Instead the bigger question for the coming months and years will be what the UK government’s approach is, since they’re the ones with the power to authorise a legal Scottish referendum, as happened in 2014. That said, speculation has in turn been rising that the question of whether the Scottish government could hold a referendum without the UK government’s consent could end up in the courts, so one to watch moving forward potentially.

To the day ahead now, and data releases from the US include April’s NFIB small business optimism index and the JOLTS job openings, while Europe’s include Italian industrial production for March and the German ZEW survey for May. Central bank speakers include BoE Governor Bailey, the Fed’s Williams, Brainard, Daly, Bostic, Harker and Kashkari, and the ECB’s Knot and Hernandez de Cos. Otherwise, the Queen’s speech will be taking place in the UK, where the government outlines its legislative programme for the coming session of Parliament.

Authored by Matthew Piepenburg via GoldSwitzerland.com,

Psychologists, poets and philosophers have written for centuries that many who have eyes refuse to see, and many who can think, refuse to think clearly–all for the simple reason that some truths, like the sun, are just too hard to look straight into.

Or as others have said more bluntly: “Truth is like poetry – everyone [fricking] hates it.”

When it comes to bloated markets, debt orgies and helicopter money, the rising fun of such “stimulus” is embraced, yet the template for its equally market-tanking, social-destroying and currency-debasing consequences are simply ignored.

The same is true when it comes to the “great inflation debate,” which is simply no longer a debate but a neon-screaming reality playing out in real time and growing more pernicious before eyes otherwise blinded by calming Fed-speak and bogus inflation scales.

Each passing day, the evidence of the inflationary cancer beneath the smiling surface of our still rising markets and “recovering/opening” economy increases, and thus, like it or not, the inflation topic just won’t and can’t be over-stated enough.

In short: Here I go again with the inflation thing…

From the Grocer to Buffet: Inflation is Obvious

Extreme US “stimulus,” vaccine rollouts, Europe’s eventual reopening, and rising commodity costs are accelerating the inflationary tailwinds which everyone from grocery store clerks and home builders to Warren Buffet can no longer deny or ignore.

As facts rather than theories confirm, commodity prices have surged from steel to copper, or corn to lumber while precious metals steadily rise against COMEX price fixers, CPI lies and other unsustainable boots to the neck of a coiled gold market positioned for big moves into late 2021 and beyond.

Commodities, of course, represent the cost of goods, and when they soar, retail prices generally aren’t far behind, as seen (and growing) daily in the rise of food, home construction, auto, and other everyday purchases—you know, things that matter.

Meanwhile, as corn, copper, aluminum, and lumber pricing heads north, ESG bets for renewable energy, power grids, and electric vehicles are also booming.

According to Bloomberg NEF (or BNEF, a Bloomberg strategic research provider), the price of copper alone is up more than 90% in the past year and is expected to nearly double by 2050, while demand for other low carbon technologies like electric vehicles (lithium is up 93% YTD) and solar panels are expected to balloon as well. 

Blind Experts Leading Blind Investors

Despite such clear inflationary gusts, openly laughable figures like Powell at the Federal Reserve and other central banks continue to remain calm about inflation, encouraging their economies to run hot, allowing demand to accelerate against shrinking supply chain forces—which just adds more inflationary fuel to the global economic fire.

As we’ve said countless times, the central bankers want to have their cake and eat it too; meaning: They want to inflate (and lie) away their debt yet keep the cost of that debt repressed.

Such manipulative data rigging results in crushing Main Street families/savers with intentionally under-reported (but openly felt) inflation while simultaneously gifting central bankers (and Wall Street’s asset bubbles) with more artificially repressed yields and low debt tailwinds—which means an even bigger debt bubble and an even more dangerous securities market/bubble.

Yet bigger debt bubbles, of course, are also the perfect historical and mathematical set up for an inevitable economic and market catastrophe.

As usual, of course, our financial leadership will not tell you this.

Instead, their job is to roll out the adjectives, policies and poker faces to deny (and extend) this catastrophic inevitably as well as their central role in creating it.

Many investors, sadly, will follow such trusted “accommodation” to new (and coming) needle-peak highs in risk assets like soldiers marching into a line of freshly painted cannons.

Facts Are Stubborn Things

But as we like to say, facts (like cannister shot) are stubborn things, and the facts keep flying in the face of policy fictions by the hour, minute and second.

Consider the following market facts…

The US Treasury Inflation-Indexed Curve (interest rates less inflation), for example, remains negative out to 30-years(!).

Folks, this means you are getting zero return for massive and unprecedented bond-bubble risk.

At the shorter end of the curve, it’s far worse. You are getting negative (rather than just zero) returns for massive bond bubble risk.

The moment you buy a short-term treasury, you are literally paying Uncle Sam to lose you money.

Meanwhile, the Fed is buying those unwanted IOUs from the same Uncle Sam for the simple reason that nobody else wants them.

The U.S. government’s $40 billion sale of four-week Treasury bills last Thursday, for example, went off with a yield of 0%, and that was before subtracting for inflation.

The last time a Treasury auction touched levels this low was in March of 2020, when anxious investors poured cash into money-market funds at the pandemic’s outset.

With inflation rising along with the rising demand for commodities, both unlikely to subside, it seems only a matter of time before these repressed interest rates and yields rise temporarily from the floor of history, at which point the Fed will have no choice but to print more money and repress those same yields.

Why?

Because in order for Uncle Sam to have any chance at all to pay his interest expense on $30T in otherwise unpayable public debt, yields and rates MUST be suppressed.

Policy Fictions Are Expected Things

Meanwhile, of course, the Fed will maintain that they can “control,” “allow,” or “target” inflation like a thermostat in one’s home, which represents the kind of delusion of a surfer who claims to control a wave’s height on the North Shore of Oahu or a polo player claiming to control the speed of a wild mustang without reins or a saddle.

In addition to QE (i.e. printed money) for the banks and markets to the tune of $120B per month, we now have QE for the people to the tune of trillions per year as stock earnings (and markets) once again hit record highs in a tidal wave of new M1 and M2 money supply which the Fed is now seeking to hide from public view.

Politicians, of course, will speak and spend to buy votes with zero regard for economic risk or history as investors give zero regard to market risk.

This double whammy of money for banks and money for the masses (including another $2T in Biden deficit spending) will hit the headlines with fanfare while the “re-open trade” will send markets higher, seducing the un-hedged investor class into a bliss that will end in tears once central bankers lose control of the bond and rate markets.

Meanwhile, consumer prices are skyrocketing on the backs of rising (hand-out money) demand and shrinking supply. Of course, low supply and high demand means one thing: Price inflation.

In our surreal post-COVID new normal, restaurants can’t find waiters, building companies can’t find builders, and car companies can’t find parts—all of which leads to price-driven inflation in things consumers need—food, shelter and transportation.

Meanwhile, the Fed will spin its web of now transparent lies in a CPI-measured inflation scale that has creeped to a “sustainable” 2.64%. 

But what those Fed-heads are neglecting to mention is that while the CPI is at 2.64% today, it’s in fact growing at a rate of 4.3% (compounding average rate based on monthly numbers).

So, there you have it: Rates rigged to the floor and inflation heading for the sky—the ultimate backdrop for precious metals in the months and years ahead.

But for those still rolling their eyes and claiming such inflation figures or projections are just the delusions of a gold-bug, let’s get back to math, data and facts rather than illusions, labels or tired debates.

“Substantial Inflation”

Warren Buffett, for example, is anything but a gold bug, but the key theme and concern of his latest Berkshire Hathaway shareholder meeting is about the arrival of “substantial inflation” due to rising prices.

In case the brief commodity discussion above hasn’t made rising prices crystal clear, let’s just do a deeper dive on a few more pricing facts (and surges) which confirm actual inflationary price pain far more accurately than the comical CPI scale used by the Fed.

Year to date, and despite that “2.6% CPI inflation read” above, prices have risen by the following percentages for the following “real world” goods and assets:

• Gasoline          Up 47%

• Crude oil          Up 31%

• Heating Oil       Up 8%

• Propane           Up 26%

• Natural Gas      Up 15%

• Lumber             Up 70%

• Corn                Up 54%

• Wheat              Up 41%

• Sugar               Up 14%

• Cotton              Up 12%

• Lean Hogs        Up 56%

• Beef                 Up 12%

In short, if every product needed to feed, house, clothe and move consumers is rising by high, double-digits, how can we trust a Fed or CPI scale that tells us consumer pricing is hanging at the “allowed” 2% range?

In short, how can 2+2 = 2?

Fantasies Are Seductive Things

Markets will and can continue to rise on the backs of such government stimulus, lies and inflationary number-crunching.

For those with an appetite for risk and Fed support, we fully get it. Ride the Fed’s risk-asset wave!

But bring a life-jacket, because that wave is a killer.

US stocks have never, not ever, been this expensive, as the current market cap of US stocks to US GDP has never, not ever, been this high—higher even than the dot.com bubble of 2000—when Treasury yields where 6% not 0%.

As for bonds, when your real yield is negative, that just makes credit instruments even more expensive and over-valued than current record-high stock valuations.

Unlike that 2000 dot.com bubble, moreover, investors can no longer go to negative-yielding bonds for “safety” and yield.

In short, good luck with that stock and bond wave when it crashes, as all waves (bubbles) do.

Where to Paddle?

For those looking for a safe place to paddle in this new, surreal “normal,” all conversations, and all market waves, eventually land upon gold.

Always have. Always will.

And yet there are still those hugging equity ETF’s and tech stocks who boldly claim gold is over-priced, despite stocks openly mocking every single metric of sound valuation.

Hmmm.

In fact, when measured against U.S. money supply, gold is extremely undervalued, even when using its 2020 price high.

The following graph shows that gold was as cheap in 2020 as it was in 1970 (when gold was $35) or in 2000 (when gold was $288).

Furthermore, given that inflation is now obvious and rising, and given that rates, even if they naturally rise, will be un-naturally repressed by the Fed seconds later, the perfect setting for gold (which is inflation grossly outpacing bond yields) is as much a foregone conclusion as one can make for the near and distant future.

Thus, those looking to swing at a fat pitch and invest for the long term in an asset that will rise in price while simultaneously hedging against now obvious inflation and equally obvious currency debasement, the gold solution is axiomatic rather than theoretical or speculative.

Stated otherwise: I believe gold will not only surge by the end of year, but that its insurance role for a red-hot market bubble (and already-burning currency) has never been more obvious.

And for you speculators looking for value rather than just Fed-induced trends rising over-debt-jagged rocks, the large cap gold miners are producing gold (at $1000) well under the current spot price ($1780) and are thus poised to sky rocket when gold makes its move well above last August’s highs.

Just saying.

For us, of course, the value appeal of physical gold as a simple solution to simple principles of wealth preservation in the backdrop of securities markets and policy trends that are simply insane is, well….

A simple choice.   

It looks like the hiring (and retention) shortage isn’t just for rank-and-file minimum wage jobs.

UBS has now said that, amidst historic competition and a “retention crisis” in the investment banking world (which we noted weeks ago), it is going to pay a one time $40,000 bonus to its global banking analysts when they are promoted. This is double what some of the bank’s competitors are offering. 

It’s part of a push for lenders “to reward and retain younger employees weighed down by a surge in business and a prolonged work-from-home grind,” according to BNN Bloomberg. 

The bank is planning on paying the bonus to analysts who are promoted to associates, on top of regular salary increases. It marks a bonus that is about 30% of the base pay of a newly promoted associate. 

Recall, last month, junior bankers at Goldman Sachs spoke out about long hours worked during the SPAC boom. Their public outcry catalyzed a trend of other banks and employers rushing to kiss the ass of their respective employees to avoid turnover, and (likely more important) a PR crisis.

Weeks later, we profiled how the world’s top professional service firms and banks were showering their employees with luxury gifts and bonuses to try and prevent them from moving on to other opportunities. Even law firms were feeling the crunch; Financial Times reported last month that Davis Polk & Wardwell and Simpson Thacher & Bartlett, two elite law firms, gave one time bonuses between $12,000 and $64,000 to their employees for their “hard work during the pandemic”. 

Latham & Watkins and Goodwin Procter also followed suit. Goodwin’s employees will be paid in two tranches, one in July and another in October.

Investment bank Jefferies gave its employees a choice of a Peloton, a Mirror or various Apple products. David Polk offered its employees wine packages, gift cards and shopping sprees. Credit Suisse – who has larger, Archegos-sized problems on its hands right now – said it would pay its junior staff $20,000 in bonuses. 

We have also noted at length the ongoing labor shortage that has developed as a result of the government paying the unemployed more to stay home than they would make in the labor force. 

Trillions in Biden stimulus has incentivized workers to not seek gainful employment, but rather to sit back and collect the next stimmy check for doing absolutely nothing in what is becoming the world’s greatest “under the radar” experiment in Universal Basic Income.

Even more amazing: a stunning 91% of small businesses surveyed by the NFIB said they had few or no qualified applicants for job openings in the past three months, tied for the third highest since that question was added to the NFIB survey in 1993.

Authored by Paul Joseph Watson via Summit News,

The government and medical experts are urging Brits to be cautious when hugging other people even after lockdown measures are eased next week.

From May 17th, Brits will be ‘permitted’ by the government to meet with a total of 6 people indoors.

However, despite people being legally allowed to congregate inside for the first time in nearly 6 months, rules on close contact and hugging have remained largely undefined.

Leaks from within government this morning indicate that Brits will be urged to restrict themselves to “cautious cuddling,” reflecting concerns “that the public could go too far.”

Government will urge cautious cuddling when the guidance on physical contact is relaxed later, reflecting concerns in Whitehall that the public could go too far.

— Adam Fleming (@adamfleming) May 10, 2021

God forbid a Grandma who has possibly a year or two to live would be able to hug her own grandchildren for the first time in a year. What a dangerous concept.

The government’s “cautious cuddling” narrative was immediately amplified by arch lockdown advocate Dr Hilary Jones, who appeared on Good Morning Britain to suggest people should refrain from hugging altogether.

“If you are in hugging range and you’re touching somebody, and your face is right next to their’s, you are gonna be breathing the breath that they are exhaling,” he said.

The PM is expected to confirm that family and friends will be able to hug each other from next Monday.

But what’s the increased risk of transmission?@DrHilaryJones explains that it is ‘biologically substantial’ and there’s ‘still time to be cautious’ pic.twitter.com/p97CPz3FvR

— Good Morning Britain (@GMB) May 10, 2021

“Right now it might be a mistake, because we have got these new variants, we’ve still got 2,000 cases that we know about every day, probably a lot more that we’re not testing for, so it is still time to be cautious,” added Jones.

Dr Deepti Gurdasani also appeared on the same show to claim that new variants of the virus should lead to government to “reconsider easing of restrictions,” including hugging.

Is it too soon to start hugging?

Dr Deepti Gurdasani says it is still too risky to hug others.

She responds to the question about whether the govt should reconsider easing restrictions as vaccine efficacy against new variants is not yet known. pic.twitter.com/8GCN4VUxxl

— Good Morning Britain (@GMB) May 10, 2021

COVID deaths have virtually disappeared and cases are at their lowest since last summer, but the medical establishment is loathe to even let Brits think they can consider going back to normal.

Of course, the entire notion that the government should have any say on whether or not you’re allowed to hug your own family members and friends inside your own home is completely ludicrous.

The only thing that’s more insane is that anyone would care or adhere to such stupid rules, but given that the vast majority of the British population has been terrorized by exaggerated COVID propaganda for over a year, most of them slavishly comply.

*  *  *

Brand new merch now available! Get it at https://www.pjwshop.com/

*  *  *

In the age of mass Silicon Valley censorship It is crucial that we stay in touch. I need you to sign up for my free newsletter here. Support my sponsor – Turbo Force – a supercharged boost of clean energy without the comedown. Also, I urgently need your financial support here.

In the latest edition of his substack newsletter “BIG, Matt Stoller tackled the Biden Administration’s decision to back a proposal at the WTO to waive IP protections for COVID-19 vaccines produced by Moderna, BioNTech, Pfizer and others. While the EU and France have signaled their openness to discuss joining the US in backing a waiver, Germany’s Angela Merkel has stood up to defend the status quo. Pfizer, as Stoller reminds us, stands to earn $28 billion in 2021 selling its jabs, along with potentially hundreds of billions more from selling lucrative “booster shots”.

But for Pfizer to tap that market, mutant COVID-19 strains need to see at least some progress in keeping the global pandemic alive. India and South Africa – which both sponsored the WTO proposal to bypass vaccine-related IP protections – insist they could quickly ramp up production of mRNA vaccines like those produced by Pfizer and BioNTech if they only had the technology. Shortly before the announcement of his divorce, Bill Gates doubled down on his defense of the status quo, insisting that there aren’t any regulator-approved factories standing at the ready to produce vaccines. But as Stoller pointed out, that this argument doesn’t hold water, since there are plenty of factories in India (which already has tremendous vaccine production capacity) South Africa and elsewhere that could be retrofitted to produce vaccines within a few months.

As the outbreak in India rages with no end in sight, India and increasingly other developing nations worried about the prospect of another disastrous wave of the virus have increasingly turned to China and Russia to secure more doses of the vaccine. Demand is expected to intensify as the WHO approves more Chinese vaccines (it approved a vaccine made by China’s Sinopharm late last week, and is expected to approve more Chinese vaccines in the coming months).

As Stoller pointed out, China’s reliability as a vaccine supplier is increasing its geopolitical clout, which is probably why Biden took the (calculated) political risk of turning on his big-pharma backers (though Biden did say he would support waiving IP protections during the campaign). The US needs to be seen as sharing its vaccine wealth with the world, or Russia and China will step into the breach.

The Times of India pointed out that China has already shipped a quarter-of-a-billion doses of its coronavirus vaccines, which is more than all other nations combined. It has committed to providing another 500 million doses in the coming months to countries like Indonesia, Senegal and Uruguay, which have no choice but to negotiate with the big global producers.

Meanwhile, Covax, the WHO program to vaccinate the globe, has shipped more than 50M doses to 121 countries and territories, but that’s well short of its goal of billions of doses. It’s only a fraction of the 200M+ doses that have been administered in the US.

With negotiations over the IP waiver still expected to take month, leaders of the European Union over the weekend urged Biden to adopt a hybrid approach: instead of simply relying on the WTO IP waiver, the US must lead a push to export more doses of the vaccines to desperate developing nations. While Biden has already promised to ramp up exports of hundreds of millions of doses, so far at least, there hasn’t been all that much follow-through.

Gathering in Porto, Portugal on Friday and Saturday shortly after the US suggested suspending the IP rights to boost the global supply of shots, German Chancellor Angela Merkel, French President Emmanuel Macron and Italy’s Mario Draghi appealed in unison to Biden to follow the EU example and start shipping significant numbers of vaccines. They argued that while ditching IP restrictions would help increase supply in the long term, the world needs help now. They also tried to shame Biden into ramping up exports by claiming that the EU has done more than any other developed nation to export vaccine supplies.

Here’s more from Bloomberg:

“The European Union is the only continental, democratic region of this world that is exporting on a large scale,” von der Leyen said.

French President Emmanuel Macron reprimanded the US and the UK on Friday for blocking the export of shots and the raw materials needed to make them.

“Today the Anglo-Saxons are blocking many of these ingredients and these vaccines,” Macron said. “Today 100% of the vaccines produced in the US go to the American market.”

Echoing similar comments from Berlin on Thursday, he said sharing intellectual property isn’t the immediate issue. “You can give IP to labs who don’t know how to produce it, and they won’t produce it tomorrow,” Macron said.

Even Biden’s own staff seem to agree with the EU: Jeff Zients, the president’s COVID response coordinator, said Friday that supporting a waiver is “the right thing to do” but that the waiver alone won’t give the world enough vaccines. “That’s why we will continue to ramp up our efforts – working with the private sector and all possible partners – to expand vaccine manufacturing and distribution around the world and increase, as you point out, the important supplies, the raw materials, the equipment needed to make the vaccines,” Zients said in Washington.

A week ago, the White House switched up federal policy for distributing COVID-19 doses, but it still isn’t clear how this will help increase the supply of vaccines in India and other markets that are badly in need. Meanwhile, it’s been clear for weeks that vaccine demand in the US has reached an inflection point; states have been seeing unused jabs pile up for weeks, while the Biden Administration makes emptry promises to give away more jabs abroad.