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US stock prices are at record highs and credit spreads near record lows amid hopes and prayers for the v-shaped recovery which has already sent US macro surprise data soaring.

But, it appears The Fed is not buying the bounce and feels like the “economy” needs help a “little” longer, extended most of its emergency lending programs by three months, through the remainder of 2020.

Full Fed Statement:

The Federal Reserve Board on Tuesday announced an extension through December 31 of its lending facilities that were scheduled to expire on or around September 30. The three-month extension will facilitate planning by potential facility participants and provide certainty that the facilities will continue to be available to help the economy recover from the COVID-19 pandemic.

The Board’s lending facilities have provided a critical backstop, stabilizing and substantially improving market functioning and enhancing the flow of credit to households, businesses, and state and local governments. Each facility was created under section 13(3) of the Federal Reserve Act with the approval of the Treasury Secretary.

The extensions apply to the Primary Dealer Credit Facility, the Money Market Mutual Fund Liquidity Facility, the Primary Market Corporate Credit Facility, the Secondary Market Corporate Credit Facility, the Term Asset-Backed Securities Loan Facility, the Paycheck Protection Program Liquidity Facility, and the Main Street Lending Program. The Municipal Liquidity Facility is already set to expire on December 31, with the Commercial Paper Funding Facility set to expire on March 17, 2021.

Further details on each can be found here.

And since these programs are as permanent as death and taxes, no matter the claims from Powell and the Fed to the contrary, expect many more “3 month extensions” from now until the day the USD loses its reserve status.

By Michael Every of Rabobank

Golden Balls

‘Golden Balls’. That was the name of a not-very-successful UK game show from 2007. It was also what the British used to call David Beckham, arguably the most talented footballer of his generation locally. He bestrode the world football stage like a colossus from Manchester United to Real Madrid to LA Galaxy. Everyone around the world knew him and loved him. And yet, Becks never won anything when playing where it really mattered most – internationally, for England. There were several times when his England team almost nearly kinda could shoulda woulda won something…but never did. All they ever had were flashes of brilliance from Golden Balls and a memory of when they were winners in the distant past

All of which seems appropriate, to me at least, given there is so much obsession with gold at the moment. We are now close to USD2,000 and there seems no stopping it. Will we get to USD3,000, as one major bank with a Beckham-esque name is claiming, or will we go to USD5,000, as a razor-sharp friend suggested to me yesterday? Either is possible given the current trend. And, if you buy gold, technically that is going to make you money.

And yet that money is still going to be priced in US DOLLARS – and that gives the whole game away. Like fans of the England football team, gold fans can dream of the distant past when gold was the centre of the global monetary system; but they can keep dreaming if they think those days are ever going to return. Gold may be an appreciating asset, but all the evidence suggests that it won’t be one that is of any direct relevance to day-to-day life, finance, and business. Your currency won’t be tied to it. You won’t get paid in it. You won’t spend in it or save in it (other than to the switch back to US Dollars). You won’t be doing deals in it or importing in it.

Yes, as the gold bugs rightly point out, there are spooky parallels between today’s trends and those of the 1930s. Uncertainty abounds. We have political polarisation and the collapse of the centre almost everywhere, albeit tapered by the welfare state for now (on which front, the Republicans have apparently agreed on the details of a new US1 trillion stimulus package).

We also have the international environment to match. Yesterday I shared the summary of global defense strategists that within three years US-China conflict is seen as “almost unavoidable”, while it is also “likely” within 12 months. Here’s an even better summary of the reality of the world as it stands today – Philippines’ President Duterte stating of the South China Sea that falls within their own national economic zone, according to international maritime law: “China is claiming it. We are claiming it. China has the arms. We do not have them. So, it’s as simple as that.” Other areas, even including the territory of EU members, are seeing a similar dynamic play out.

That is exactly the kind of zero-sum, might-is-right, mercantilist world that prevailed the last time we had a gold standard, and which is part of its architecture. As David Graeber’s “Debt: The First 5,000 Years” shows, during historical periods of global exogenous money (e.g., gold) we see an increase in inter-state violence to get that gold compared to periods of endogenous money. That said, once the war starts, the fiat money certainly kicks in too, as we all know.

The missing link, for all of the constant muttering about the US going back on gold, or China linking CNY to gold, or Russia doing something mysterious and Russian with gold, is that during the 1930s almost everyone went OFF gold to deal with the ruinous socio-economic problems they faced as a legacy of WW1 debts and then going back ON the gold standard with a consequent need for austerity. (Which, like violence, is part and parcel of a gold standard’s architecture.)

Look around you: does anyone look like they are ready to embrace austerity right now? Quite the opposite. That Beckham-seque US investment bank is now saying that the Federal Reserve’s balance sheet could soar to USD20 trillion ahead, or nearly 100% of GDP: we had said the same thing in our recent report on MMT, as that’s the only way to finance 8-9% fiscal deficits for years ahead; and indeed, we made that prediction years ago when describing the big picture trends now emerging – apart from a virus as the proximate trigger.

Indeed, some central banks are backing vast state spending as their government tries to prevent a depression; some are doing the same with their government talking about national security, rearmament, and bringing home supply chains; the ECB are doing it to save the planet; and the New York Fed, representing the rapacious Wall Street that drove globalisation, caused the global financial crisis, and necessarily cheers asset- and not wage-price inflation, now says on its website it is dedicated to eradicating structural inequality and to working towards a “more equitable economy and society for all”. None of the above are going to work with the strait-jacket of a gold standard; and nobody is about to give up monetary sovereignty to a shiny metal at a time when it is needed more than ever to retain physical sovereignty.

So you can buy gold because others are buying gold. Yet you can’t buy gold with the expectation that it is ever going to be anything other than something heavy you need to schlep.

Moreover, whether gold goes up or down **IN US DOLLARS** is ultimately a product of the real US interest rate. The Fed, who start a two-day meeting today, are obviously going to be at zero and expanding their balance sheet for years to either keep people in work, bring back jobs, build a better army, or a better society, or world. Yet that does not necessarily mean the Fed are going to succeed in hitting the one target they were supposed to be focused on in the market’s mind – inflation. Japan shows even a 100%+ central-bank balance sheet is no guarantee of any inflation at all. If the US were to slip into deflation, meaning positive real rates again unless the Fed goes negative, how will yield-free, no-end-use gold look?

In short, it’s pretty clear where the momentum is right now on gold, and on the USD (although as noted yesterday, not vs. many emerging markets, with Turkey’s TRY the latest to have a sudden wobble). Summer volatility is likely to amplify both. However, once one realises what the underlying global architecture –rotten as it is– looks like and requires, then one sees that talk of a ‘golden future’, for all the fancy footwork, also has the intellectual gravity of David Beckham

In an apparent retaliation over rising rhetoric over the “China Virus” in April, American firms producing medical goods in China were slapped with new export restrictions, stranding much of the supplies in warehouses across the country.

This move highlighted to many just how precarious the US medical supply chain was, and more critically, how dependent on new ‘Enemy #1’ China the American healthcare system was.

As we detailed previously, according to research and US Congressional hearings, something like 80% of present medicines consumed in the United States are produced in China. This includes Chinese companies and foreign drug companies that have outsourced their drug manufacture in joint ventures with Chinese partners. According to Rosemary Gibson of the Hastings Center bioethics research institute, who authored a book in 2018 on the theme, the dependency is more than alarming.

Gibson cites medical newsletters giving the estimate that today some 80% of all pharmaceutical active ingredients in the USA are made in China.

“It’s not just the ingredients. It’s also the chemical precursors, the chemical building blocks used to make the active ingredients. We are dependent on China for the chemical building blocks to make a whole category of antibiotics… known as cephalosporins. They are used in the United States thousands of times every day for people with very serious infections.”

The made in China drugs today include most antibiotics, birth control pills, blood pressure medicines such as valsartan, blood thinners such as heparin, and various cancer drugs. It includes such common medicines as penicillin, ascorbic acid (Vitamin C), and aspirin. The list also includes medications to treat HIV, Alzheimer’s disease, bipolar disorder, schizophrenia, cancer, depression, epilepsy, among others. A recent Department of Commerce study found that 97 percent of all antibiotics in the United States came from China.

And so, the Trump administration has begun to do something about this over-reliance with today’s first of its kind loan “to help expedite domestic production of drugs that can treat a variety of medical conditions and loosen the U.S. reliance on foreign sources.”

Somewhat forgotten film-maker Eastman Kodak received a $765 million U.S. government loan under the Defense Production Act to help produce ingredients for drugs.

“We have a long, long history in chemical and advanced materials — well over 100 years,” Continenza told Dow Jones, adding that they have the infrastructure to begin production quickly.

For the US, the benefit of providing the loan to Kodak is to reduce reliance on other countries, particularly China, for drugs, DFC head Adam Boehler said.

“We don’t ever want to be in a position, because of a pandemic, because of any reason,” that a foreign entity could upend U.S. access to medicines or pharmaceutical products.

And Eastman Kodak shares are a double in the pre-market…

As The WSJ reports, the onetime leader in photography sales is gearing up to produce ingredients for generic drugs, including the antimalarial drug hydroxychloroquine.

He said Kodak will produce “starter materials” and “active pharmaceutical ingredients” used to produce generic medicines, and expects the loan to create around 300 jobs in Rochester, and 30 to 50 jobs in Minnesota.

US home prices had accelerated for nine straight months ahead of today’s Case-Shiller data, and was expected to accelerate further in May (the latest data available).

However, in a notable downside surprise for this slow-moving index, home price growth slowed from a revised lower 3.91% YoY in April to +3.69% YoY in May (well below the +4.00% expected)…

Source: Bloomberg

This was the biggest monthly growth disappointment in years.

Phoenix, Seattle, Tampa reported highest year-over-year gains among 19 cities surveyed (Detroit was excluded from the report due to virus-related reporting delays).

New York and San Francisco saw MoM declines in home prices.

Is the urban exodus accelerating?

The chair of the European Parliament’s delegation for China relations, Reinhard Bütikofer, has slammed Volkswagen for its refusal to confront China over its treatment of Uighur Muslims, according to Politico.

This week, a group of unions and nongovernmental organizations called on major brands like Nike, Adidas and Amazon to stop sourcing goods from Xinjiang.

While the U.S. has already introduced some sanctions over Xinjiang, Bütikofer complained that the European Commission is still resisting pressure to take action. He reserved his strongest criticism, however, for Volkswagen, which has a factory in Xinjiang’s capital of Urumqi. –Politico

“Volkswagen … is a company without a conscience, Bütikofer told Politico, adding that “companies like that are complicit in upholding a totalitarian hell in Xinjiang.”

He also criticized the German carmaker for “denying any knowledge of the oppression of the Uighur people in Xinjiang.”

In a BBC interview, the EU official slammed former VW chief executive, Herbert Deiss, who said he wasn’t aware of China’s infamous detention camps, saying “That’s anything but credible, it just didn’t want to get on the record with taking a stance.“

Bütikofer argued the company had been reluctant to react to a 2020 report by the Australian Strategic Policy Institute revealing mass transfer of Uighurs to work under forced labor conditions in factories across China.

The report listed Volkswagen among “companies directly or indirectly benefiting from the use of Uighur workers outside Xinjiang through potentially abusive labor transfer programs.”

Volkswagen rejected the accusations about the Urumqi plant and its supply chains. –Politico

In an emailed response, Volkswagen told Politico “There are and have been no indications of human rights violations at the Urumqi plant,” adding that there were “no further indications that the forced labour of Uighurs [was] part of the supply chain of the Volkswagen Group China or its units.” In addition, VW says it has instituted a system to somehow ensure that its direct suppliers respect human rights.

Bütikofer is one of the signatories of an open letter sent on Friday by over 70 MEPs from different political groups, urging EU foreign policy chief Josep Borrell to demand the intervention of the United Nations to stop “serious and systematic human rights violations by the Chinese government against Muslim minorities in the Xinjiang region.” On Thursday, MEPs from the Renew Europe also asked Borrell to accelerate the adoption of a sanction system for human rights offenders.

“The Parliament is very active but so far the Commission has not picked that up,” said Bütikofer, who added that the Commission should not “hide behind the excuse” for failing to have a legal mechanism to take action.

“There is always an opportunity of naming and shaming. Infraction on basic human rights is so gross that we should not accept this business as usual approach,” he said.

The EU’s actions come one week after the US Commerce Department has added 11 Chinese companies to an economic blacklist over their involvement in China’s mistreatment of Uighur Muslims in the western region of Xinjiang.

According to Reuters, numerous textile companies and two firms conducting genetic analysis ‘used to further the repression of Uighurs and other Muslim minorities’ have been added to the list – prompting China to accuse the West of slander.

Why the US suddenly cares about China’s treatment of more than 1 million minority slaves living in giant forced-labor cities is anyone’s guess, but the United States, and now the EU, are now keen on holding Xi’s feet to the fire. Prior to the Trump administration, the US government apparently couldn’t care less. Now, there are 37 entities on the blacklist.

“Beijing actively promotes the reprehensible practice of forced labor and abusive DNA collection and analysis schemes to repress its citizens,” said Commerce Secretary Wilbur Ross in a statement.

China, meanwhile, has accused the Trump administration of slander – with foreign ministry spokesman Wang Wenbin warning at a Tuesday press conference that China would take all measures to protect its companies’ rights.

The companies added to the blacklist include Nanchang O-Film Tech, a supplier for Apple’s iPhone that hosted Apple chief executive Tim Cook in December 2017, according to O-Film’s website. It is also a supplier to Amazon.com Inc and Microsoft, according to an April congressional letter.

The list includes two subsidiaries of Beijing Genomics Institute (BGI), a genomics company with ties to the Chinese government, Senator Marco Rubio said. –Reuters

Senator Rubio says the additions to the blacklist will “ensure that U.S. technology does not aid the Chinese Communist Party’s crimes against humanity and egregious human rights abuses against Uighurs and other minorities in Xinjiang, including the forced collection of DNA.”

Another company on the revised list is KTK Group Co, which manufactures over 2,000 items for high-speed trains “ranging from electronics to seats; and Tanyuan Technology Co, which assembles high thermal, conductive graphite reinforced aluminum composites,” according to the report.

The company said in a statement that it has no investments in the US, does not rely on US technology, and that US exports account for less than 0.5% of its 2019 revenue.

Changji Esquel Textile Company, which manufactures clothing for Ralph Lauren, Tommy Hilfiger and Hugo Boss, was also added to the list. The company asked Ross to remove them from the blacklist, with CEO John Cheh stating in a letter “Esquel does not use forced labor, and we never will use forced labor,” adding “We absolutely and categorically oppose forced labor.”

As we noted last week, Uighurs are allegedly being used as unwilling human subjects in genetic research, as Reuters reports:

Among them are numerous textile companies and two firms the government said were conducting genetic analyses used to further the repression of Uighurs and other Muslim minorities.

It was the third group of companies and institutions in China added to the U.S. blacklist, after two rounds in which the Trump administration cited 37 entities it said were involved in China’s repression in Xinjiang.

“Beijing actively promotes the reprehensible practice of forced labor and abusive DNA collection and analysis schemes to repress its citizens,” Commerce Secretary Wilbur Ross said in a statement.

In another ghastly example, one company is said to be mass collecting human hair from Uighur prisoners to use in wig products:

Also on the banned roster is Hetian Haolin Hair Accessories Co. On May 1, U.S. Customs and Border Protection (CBP) said it was halting imports of the company’s hair products, citing evidence of forced labor.

On July 1, CBP seized in Newark a shipment of almost 13 tons of hair products worth over $800,000 with human hair that it said originated in Xinjiang.

The NYT story was released just as newly resurfaced footage allegedly showing bound and blindfolded Chinese Muslims being loaded onto train cars went viral.

#Marr asks Chinese ambassador to the UK Liu Xiaoming to explain footage from China of handcuffed and blindfolded detained peoplehttps://t.co/PkjcTsClEX pic.twitter.com/RSbrSaOAPT

— BBC Politics (@BBCPolitics) July 19, 2020

Summary:

• Bill Gates sits for interview on CNBC
• Sun Belt states see promising pull back
• China reports 1st case in Beijing in 3 weeks
• Head of China’s CDC takes experimental vaccine
• WHO warns COVID-19 isn’t going to be “seasonal” like the flu
• Germany joins list of European countries warning on travel to Spain
• Tokyo suffers another 270 cases
• Vietnam makes mask-wearing mandatory again
• Madrid tightens virus restrictions amid resurgence fears

* * *

Bill Gates on Tuesday morning sat for an interview with the Squawk Box team where he assured all viewers that skepticism about the safety of the coronavirus vaccine candidates had been greatly exaggerated. Once the FDA has slapped its imprimatur on a candidate, Americans and others shouldn’t hesitate to accept the final product.

Gates’s interview follows a slew of vaccine-related news. Taken together, the intended message is clear: With the bilateral relationship unraveling and US economic fundamentals continuing to deteriorate, vaccine-related headlines are the market’s last hope for survival. It follows news from yesterday about Moderna’s vaccine candidate, which is entering its Phase 3 trial.

During his interview on Tuesday, Gates praised the “low-cost” vaccines from AstraZeneca and Moderna…and seemingly dismissed concerns about safety and side-effects out of hand.

“The Johnson & Johnson vaccine is a particulary good, low-cost vaccine. The AstraZeneca and Moderna are two of the first to get out there,” says @BillGates on what companies are winning the race for the #COVID19 vaccine. pic.twitter.com/MFqGCF1Z4d

— Squawk Box (@SquawkCNBC) July 28, 2020

Yesterday, the worst-hit Sun Belt states showed promising signs that infections are slowing. Meanwhile, in China, the number of new cases confirmed daily has continued to creep higher as more cases were confirmed on Tuesday.

Beijing on Tuesday reported one new coronavirus case, its first in 21 days. The new case was confirmed just days after Beijing started reopening more public transit and lifting other restrictions inspired by the outbreak. The case was just 1 of 68 reported Tuesday across the mainland.

With anxieties on the rise, the head of China’s Center for Disease Control and Prevention surprised his audience by revealing that he had been injected with an experimental coronavirus vaccine. The talk, according to the AP, was intended to show the Chinese people that there’s nothing wrong with taking such a vaccine.

“I’m going to reveal something undercover: I am injected with one of the vaccines,” Gao Fu said in a webinar Sunday hosted by Alibaba Health, an arm of the Chinese e-commerce giant, and Cell Press, an American publisher of scientific journals. “I hope it will work.”

Suffering its own “third wave” outbreak, Hong Kong is considering postponing its upcoming legislative elections, according to local press reports, as a resurgence of new cases over the last 2 weeks has rattled Hong Kong society. Authorities reported 98 local infections on Tuesday, a slight ebb after the city found more than 100 local cases for six consecutive days. The city’s contact tracers have had trouble tracing the origins of new infections.

As the outbreak worsens, HK is imposing its most restrictive social distancing measures yet.

Elsewhere in Asia, Vietnam and its provinces are imposing mandatory mask-wearing orders after an unexpected surge in community infections stemming from an outbreak in Danang (reported 11 new cases yesterday). The province has put about 7,000 people in quarantine for 14 days. Over the past three days, the region has reported 15 new cases. Vietnam had all but claimed victory over the virus, having gone almost 100 days without even a single new local patient.

In Tokyo, officials confirmed about 270 new cases of the virus on Tuesday, Nikkei reported, citing an unidentified person. That’s more than twice the 131 cases the Japanese capital found Monday. The city has reported more than 100 new daily cases for weeks as it faces a renewed resurgence.

Finally, moving over to the Asia-Pacific region, Victoria reported another 384 cases and six deaths over the past 24 hours, and said that it will suspend all but the most urgent elective surgeries. As the outbreak in its second-most populous state intensifies, Australia is sending a medical team to help Papua New Guinea confront an alarming surge in cases, according to Canberra’s Acting Foreign Affairs Minister Simon Birmingham. The small Pacific island state had 62 cases as of Tuesday, up from just eight 11 days ago.

All the while, worries about a second wave have intensified across Europe.

Spanish Prime Minister Pedro Sanchez responded angrily to the UK after Britain ratcheted up its travel restrictions to include a popular set of Spanish islands, and mandated quarantines for all travelers visiting the UK from Spain.

“The decision is unbalanced,” Sanchez said about these new restrictions. The Balearic and Canary Islands “have a lower incidence of the virus than is being registered right now” in Britain, Sanchez said.

Speaking to the BBC, Local Government Minister Simon Clarke said “we respectfully disagree with the Spanish government…You do have to make decisions on a country-wide basis. There is going to be internal transfer within Spain.”

Globally, cases have reached 16,409,902, according to data from Johns Hopkins University.

Source: Worldometer

This comes just after the worldwide death toll topped 650k to 652,531.

Source: Worldometer

The WHO has warned against complacency over coronavirus transmissions in the northern hemisphere, saying that the virus does not behave like influenza, which typically follows a set “flu season”.

Adding to the growing number of European countries that have advised their citizens to avoid travel to Spain, Germany on Tuesday urged travelers to avoid Catalonia and Barcelona over fears they might contract the virus.

As was widely expected, the biggest COVID-19 vaccine trial in the world got under way on Monday with the first of 30,000 volunteers for Moderna’s major ‘Stage 3’ trial which is being run in cooperation with the US government.

While Spain denounced the new travel restrictions that will put the final nail in the coffin of the 2020 peak tourism season, the regional government in Madrid has just made the wearing of face masks mandatory in all public areas, while limiting the number of people allowed to gather in a given space to ten.

Finally, Iran has reported 235 new deaths from the novel coronavirus, a record single-day toll for the Islamic Republic, which has the highest death toll in the Middle East.