“Slain, after all man’s devices had failed, by the humblest things that God, in his wisdom, has put upon the Earth… “
If you were choosing a week for the culmination of the most critical election in global history (ahem… confabulated exaggeration time), you would not have chosen this one. Even as Americans hurl spite and vitriol at each other over electoral choices, the Real World and Markets are increasingly dominated by The Coronavirus.
Looking at charts of the Dow, FTSE, and Europe, you can’t but help think it’s deja-vu all over again…
Winter Lockdowns, fears about second and now third waves of infections, and tumbling stocks on the back of prospects for a crumbling economic recovery across Europe have put markets into full tumble mode. It might be the last couple of days of the month, but this feels like it could develop into a classic October crash – which are historically characterised by the sound of popping bubbles and euphoric giddiness being swept away on a tide of brutal, bleak reality.
This time it’s different.
It’s even worse.
The financial history of this young century will show how badly our reliance on bailing out markets with free money, bank-rescues and “stimulus packages” worked out. For every action there are consequences… the long-term negatives of overly low interest rates, the dark and sordid truths that underlay QE Infinity, the unheeded warnings of burgeoning corporate and sovereign debt, and the reality that bailing out banks had simply allowed them shift their risks to pension savers.. But in the early days of the 21stCentury we believed these were all short-term accommodations and ultimately fixable.
But them someone changed the rules. You can fool the markets with massive bailouts to step a catastrophic crash, but no amount of QE can stop a tiny virus a billion times smaller than a computer screen pixel doing its stuff.
It’s not just confidence in markets that’s gone awry. This time it’s more fundamental – we face a long cold miserable winter and an implacable microscopic enemy we struggle to fight. Of course.. we shall win… the question is when?
Yesterday I was writing about the opportunities a pandemic driven correction may present. I stick with that analysis: we will overcome this pandemic and that means fundamental stocks are on!
But, the deepening lockdown and the Economic Fabianism required to fight the virus means there may be more market pain to come. The outlook for economic resurgence is looking worse as the threats of longer lockdowns and collapsing consumer confidence in the wake of job losses and the ending of generous support regimes hits sentiment.
Let’s not waste time debating whether the Pandemic is real or not. The simple reality of the Coronavirus is nothing to do with the low death rates, or the probabilities anyone under 65 will suffer little more than a bad flu. It’s all about the hospitals and health services – although we can now treat and cure patients that won’t happen if hospitals are overwhelmed. Politically it would be unacceptable. Hence lockdowns, distancing and the rest will continue and even deepen as the winter deepens.
That means picking your moment to re-enter markets… carefully.
Meanwhile, I’m in the process of working out my post US election strategy – and I’m frankly wondering if it’s worth the time and energy.
Are we going to get a Blue Wave (Biden Win and Blue Senate), a Blue Tide (Biden Win and Red Senate), a Red Line (Trump wins except house) or even a Trump Steal (Trump wins everthing)? The Polls are fascinating and all over the place – yesterday’s crop of polls ranged from +1 for Trump to +12 for Biden. Who knows. Everyone and no-one.
What is the right investment strategy to follow?
Should I focus my energies on trying to work out the likely election result scenarios and which stocks will benefit from an Infrastructure Splurge or suffer from a Tech Clampdown? Should I worry much about the future slope of the yield curve on high, very high or outrageously high spending plans? Should I buy or sell oil on the basis Biden says go green and Trump is trying to persuade voters that’ll be the of America? (Should I buy oil on the basis that US politicians usually get it wrong?)
Should I wonder too much about how rising social and equality issues are likely to continue impacting consumer and business confidence across the States, and therefore the whole Western economy? Or should I figure out just how broken the broken political systems of the West have become, and how much more fraxious they will become?
If Biden wins the right will spend the next four years in furious denial, wasting yet more legislative time and focusing on all the wrong stuff – just like the Democrats have being doing since Trump took office. If Trump wins the left will be equally implacable in their response. None of it looks a recipe for success. Democracy is not perfect. Don’t forget how the original Athenian democracy resolved conflict – banishment and worse. (And please America…if Trump does lose, please don’t send him to Scotland. We don’t deserve that.. we already been punished enough! (look who our neighbours are…))
Or should I ponder what will happen to the US if divides between Democrat cities and a Trump Washington widen, further alienating entreprenuers from creating city-based jobs? America could become a land of a thousand Detroits as a comfortable middle class of home-workers shrinks as AI takes over. That’s got serious implications for consumption.
Or maybe I should focus on the economy: which is likely to remain low growth, beholden to continued stimulus and bailout from Washington, where the key rule of capitalism – the importance of failing companies being allowed to fail and be replaced – is undone by artificially low rates? Zombie companies are not going to drive US growth – that requires CapEx investment… but most US companies blew their profits and leveraged up in the bond markets to spend money on stock buybacks.
Or should I just admit the attractions of further investment directed at the US now look…. Questionable?
Maybe I should be investing elsewhere?
Europe and the UK are cheap, but for very good reasons. Europe is hamstrung by EU Bruxeaucracy, multiple untrusting tribes, and imperfect monetary union without fiscal union. The UK’s political system is suffering whatever the political equivalent of vascular dementia is – and is run by bureaucrats. Whatever the history books say about our inventiveness and ability to innovate, there isn’t a single UK company you can point to an say… “World Leading.”
The reality, of course, that no matter how bleak the news and outlook.. there are always alternatives. And even in the detritus of ruined Washington and London there will be diamonds in the dirt. But this morning I shall be filling in the self-dealing compliance forms to shunt a part of my PA investment portfolio into Asia.
Compare and contrast. The occidental part of the global economy has been floored by the pandemic, while Asia is back up and running…
via ZeroHedge News https://ift.tt/3kKUqjq Tyler Durden
This is my fourth guest-post (of five) about my forthcoming article Originalism and Birthright Citizenship. My previous post concluded that the original meaning of the Fourteenth Amendment’s citizenship clause, which requires birth “subject to the jurisdiction” of the United States, included people born in U.S. territory other than children of diplomats, foreign armies and (at the time) tribal Native Americans. This has implications for two modern controversies.
First, U.S-born children of aliens lawfully in the U.S. are birthright citizens under the original meaning. The Supreme Court so held in United States v. Wong Kim Ark (1898) as to children of lawful permanent residents, using an original meaning analysis similar to mine. Wong Kim Ark, limited to its facts, doesn’t decide the status of children of lawful temporary visitors. But alien permanent residents and temporary visitors stand in the same position as to the relevant language: they are “subject to the jurisdiction” of the United States (that is, governed by U.S. law) to the same extent. As noted, Chief Justice Marshall specifically described U.S. jurisdiction over temporary visitors in the Schooner Exchange case, and the citizenship of the children of temporary visitors was confirmed in the 1844 New York state case Lynch v. Clarke. If the drafters had sought to exclude children of temporary visitors, they would have used different and more explicit language.
Children of aliens not lawfully present in the U.S. may seem a more difficult issue. There were essentially no such people in 1866-1868 (because there were no federal immigration laws), and there’s no evidence the enactors considered the matter. How can we say the clause covers them if the enactors didn’t know about them?
This objection misunderstands original meaning analysis. The inquiry isn’t what the enactors thought (or would have thought) about a particular modern issue. The inquiry is (a) what rule does the enactment’s original meaning establish, and (b) how does that rule resolve modern questions.
I’ve argued that the original meaning establishes a rule of citizenship by birth in U.S. territory, excluding people not governed by U.S. law. Applied to the question of U.S.-born children of undocumented migrants, that rule is clear. They are governed by U.S. law while in the U.S., in the same manner as other non-diplomat aliens; put another way, unlike people in diplomatic households, they have no immunity from U.S. territorial jurisdiction. That’s all we need to know to apply the original meaning.
Now I’ll turn to some counterarguments, starting with Peter Schuck and Rogers Smith’s well-argued book Citizenship without Consent. Invoking natural law writers such as John Locke and Jean-Jacques Burlamaqui, Schuck and Smith argued that citizenship, constituting membership in a national community, arises from mutual consent of the individual and the sovereign (representing the community). And if citizenship depends on consent, only those whom the sovereign admitted to the political polity could be citizens.
While this argument may or may not be attractive as a policy matter (or as a matter of living constitutionalism), it is not an original meaning argument. It posits that children of undocumented migrants are different in their relationship to the national polity in various ways, but not that they are born outside U.S. jurisdiction, in the original meaning of that word.
A better original meaning counterargument is that the Supreme Court, four years after ratification, disagreed with me. In the Slaughter House Cases, Justice Miller wrote for the Court that “[t]he phrase, ‘subject to its jurisdiction’ was intended to exclude from [the clause’s] operation children of ministers, consuls, and citizens or subjects of foreign States born within the United States.” Ordinarily a near-contemporaneous post-ratification interpretation would carry considerable weight.
But I don’t find it persuasive here. The case had nothing to do with the citizenship clause. Miller didn’t explain how he reached his conclusion, and in particular he didn’t explain how the clause’s text allowed it. Nor did he consider the drafting history, which as discussed seems to show the contrary. When the issue actually reached the Court in Wong Kim Ark, the Justices dismissed Miller’s comment as dicta that hadn’t been adequately supported. Miller wasn’t the only person in the post-ratification era to take a narrow view of the clause, but other commentaries had a similar defect of not explaining how the text compelled their preferred outcome. Post-ratification commentary can be persuasive in original meaning analysis, but only when it provides an explanation of the meaning, not when it simply claims a result.
Modern scholars such as John Eastman and Michael Anton have attempted an explanation of the original meaning based on an idea of partial versus complete or exclusive jurisdiction. In a recent essay, Eastman argues that the clause “meant subject to the complete jurisdiction, not merely a partial jurisdiction such as that which applies to anyone temporarily in the United States.” His earlier writing connects this distinction to the idea of allegiance: jurisdiction arose from allegiance, and aliens owe their principal allegiance to their home countries, not the U.S. Similarly, Anton argues that the clause requires a person to be subject to exclusive U.S. jurisdiction (which U.S.-born children of aliens typically are not).
I think these arguments fail on at least two grounds. First, they add words to the clause or invent distinctions that aren’t supported in pre-enactment usage. Anton is right that aliens aren’t subject to exclusive U.S. jurisdiction, but the clause doesn’t require exclusive jurisdiction. Aliens in the U.S. (other than diplomats and armies) are subject to concurrent jurisdiction of the U.S. and their home countries. Eastman is right that jurisdiction could arise either permanently from membership in a nation or temporarily from presence in sovereign territory. But the clause doesn’t distinguish between the two sources of jurisdiction. Eastman and Anton want to rewrite the clause to capture a distinction it doesn’t contain.
The Eastman/Anton argument is problematic for another reason. Though focused on temporary visitors and undocumented migrants, it would (as I think they concede) also exclude U.S.-born children of alien permanent residents. But before the Fourteenth Amendment, these children were U.S. citizens under common law. The clause’s drafters repeatedly claimed their proposal constitutionalized existing law, and it’s hard to understand why they would have endorsed such a sharp departure. Moreover, as I’ve discussed, this issue came up in the drafting debates in the exchange between Senators Conness and Cowan, who both declared that the clause covered U.S.-born children of Chinese immigrants (see here, pp. 2890-91). No Senator disputed that reading.
Anton and Eastman offer some general statements from the drafting history in support. (I discuss them in detail in Part II.B of the article). At best, they are subject to varying interpretations, and in any event don’t overcome the central propositions that (a) the clause’s text says “jurisdiction” without limits to type of jurisdiction and (b) the drafters understood the language to include U.S.-born children of immigrants. These points confirm the original meaning I’ve outlined: that everyone born in U.S. territory is “subject to the jurisdiction” of the U.S. in the clause’s meaning, except those who had immunity from U.S. law.
All this does, though, is to establish the original meaning. It does not say we should follow the original meaning. In my next post, I’ll take up that question in the context of the citizenship clause. Specifically, if the clause’s enactors didn’t realize that the clause would guarantee citizenship to children of undocumented migrants (or to children born in overseas territories), why should we (even if we are originalists) feel bound to that result today?
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Pelosi Accuses Mnuchin Of Dragging Feet On Stimulus Compromise Tyler Durden
Thu, 10/29/2020 – 07:56
As US futures sink into the red on Thursday, Politico brings us the latest in the tedious back-and-forth that has become the stimulus talks, something that all Americans, by now, understand won’t be resolved until the winner of the election has been decided.
In the letter, first published by Politico, Pelosi lists all the areas that remain unresolved, and accused the administration of failing to respondwith promised “compromise” language regarding a “science-based strategy for testing, tracing, and treatment that is needed to crush the virus, as well as language on vaccines, the provider fund and ACA coverage for unemployed workers.
“…as the coronavirus surges and the stock market plummets, we are still awaiting the Trump Administration’s promised responses on multiple items of critical importance.”
Other areas of conflict include: State and local, safe schools, child care, tax credits for working families, unemployment insurance, OSHA and liability-related issues. Pelosi added that Trump’s promise of striking a deal after the election only matters if he can get Mitch McConnell to take his hand off the “pause” button.
Stocks Struggle To Stabilize After Worst Rout Since June Tyler Durden
Thu, 10/29/2020 – 07:43
US equity futures, European stocks and commodity markets rebounded after Wednesday’s rout which send the S&P lower by 3.5%, the biggest one day drop since June 11, but they struggled to stabilize after a return to national lockdowns in Europe’s biggest economies.
“What I think has changed in the last few days is the significant spikes in the virus in Europe and the U.S, especially the U.S.” said Kempen Capital Management’s Chief Investment Officer Nikesh Patel. As a result, “the W-shaped scenario for the economy has now become consensus in the market” rather than one where economies broadly stabilize.
Global stock markets lost nearly $2 trillion yesterday, with volumes on the New York Stock Exchange up almost 40% to their highest level since September. In addition to 2nd and 3rd covid wave fears, investors are also increasingly wary of a contested U.S. election result that could unleash a wave of risk-asset selling. The VIX surged on Wednesday to its highest level since June and implied currency volatility indicates that a wild ride is expected. Marvell declines after it’s said to near a deal to acquire Inphi for about $10 billion.
“Market sentiment is turning, with investors buffeted by U.S. election uncertainty and now economic worries from rising Covid-19 cases across Europe,” said Kerry Craig, global market strategist at JPMorgan Asset Management. “These short-term forces are well beyond the control of individual investors, underscoring the need to maintain balance through the immediate uncertainty.”
Ahead of today’s ECB meeting, European stocks got an earlier boost after earnings for telecoms firm BT Group, oil producer Royal Dutch Shell Plc and drinks giant Anheuser-Busch InBev all beat expectations, pushing their shares higher while Credit Suisse slipped after profit missed analyst estimates. Hopes that the ECB will signal it has more support to offer helped stemmed the rout that had wiped nearly 5% off European stocks on Wednesday, but the Stoxx 600 remained jittery and faded all early gains, trading unchanged at last check. Frankfurt’s DAX was up 0.5% in early trading, it was firmly on course for an 8% weekly drop which will be the steepest since the initial COVID panic of March.
Earlier in the session, Asian stocks were moderately lower, with the MSCI Asia Pacific Index down 0.3%. MSCI’s index of Asia-Pacific shares ex-Japan fell 0.6%, led by Australia, down 1.6%, and South Korea, down 1%. Japan’s Nikkei fell just 0.3%, while Chinese blue chips rose 0.5% and the yuan led a gentle bounce in Asian currencies against the greenback. Overnight, the Bank of Japan had made no changes to monetary policy settings as expected overnight, though it trimmed its growth forecasts to reflect sluggish services spending during summer.
“Asia is not really partaking in this second or third wave story because it’s got its COVID largely under control,” said Rob Carnell, chief economist in Asia at Dutch bank ING. “As a result, domestic economies look reasonable.”
As if to illustrate, Taiwan, which boasts Asia’s best-performing currency, marked its 200th straight day without local transmission on Thursday, while France and Germany prepared for lockdowns and as the virus sweeps across the U.S. Midwest.
In FX, the U.S. dollar edged up slightly and riskier currencies remained subdued. The Bloomberg Dollar Spot Index rebounded after droppping in the Asia session; the greenback traded mixed against its Group-of-10 peers as sentiment remained fragile, while the euro slipped for a fourth day. The pound strengthened versus the euro as European Union and U.K. negotiators made progress toward resolving some of the biggest disagreements, raising hopes that a Brexit deal could be reached by early November.
Elsewhere, the Aussie held up, despite paring an earlier gain, as local companies continued to buy the currency against the greenback to top up month-end hedging needs. The Norwegian krone swung from a gain to a loss as oil prices resumed their slump. The yen followed the dollar higher in early European trading. The Bank of Japan stood pat though Governor Haruhiko Kuroda said he stands ready to act if needed amid heightened uncertainty over a resurgence in the pandemic, though he still doesn’t see a pressing need to extend or change existing virus-response measures.
The euro hit a 10-day low on the dollar and a hundred-day low on the yen on Wednesday, before recovering slightly. It last traded at 1.1710 against the euro. Investors expect the ECB to similarly hold off on new measures, but to instead hint at action in December, which is likely to keep a lid on the euro.
“Given what is happening in France and Germany I think the ECB will talk about more stimulus even if they don’t deliver it today,” added Kempen’s Patel, referring to new COVID-19 restrictions announced this week.
In rates, benchmark U.S. 10-year yields had ticked up overnight to 0.7760, fading earlier losses as month-end extension flows may begin to support Treasuries. Treasury yields cheaper by up to 1bp across long-end of the curve, steepening 2s10s, 5s30s by 1.4bp and 0.3bp with front-end trading slightly rich. Treasury auctions conclude with $53b 7-year sale Thursday, after solid results from 2- and 5-year auctions so far this week. German government bonds were still in strong demand, with yields near seven-month lows.
In commodities, the rout continued, as WTI crude extended its decline to the lowest since the middle of June. Futures in New York slid as much as 3.4% to $36.11, the lowest intraday level since June 15. Brent also declined, falling as much as 3.3% to $37.82, also lowest since June. Gold was hammered as the dollar surged continued.
Economic data, including what is expected to be a blockbuster GDP report, and the ECB meeting are the main focus, with gathering uncertainty about Tuesday’s U.S. election also keeping investors on edge. Investors face a busy earnings day, with more than 70 S&P 500 members reporting, including Tech giants Apple, Amazon.com, Facebook and which are all scheduled to post results after the close.
Market Snapshot
S&P 500 futures up 0.9% to 3,291.50
STOXX Europe 600 up 0.3% to 343.01
MXAP down 0.3% to 174.52
MXAPJ down 0.5% to 577.78
Nikkei down 0.4% to 23,331.94
Topix down 0.1% to 1,610.93
Hang Seng Index down 0.5% to 24,586.60
Shanghai Composite up 0.1% to 3,272.73
Sensex down 0.7% to 39,656.97
Australia S&P/ASX 200 down 1.6% to 5,960.34
Kospi down 0.8% to 2,326.67
Brent Futures down 0.7% to $38.85/bbl
Gold spot up 0.1% to $1,879.06
U.S. Dollar Index up 0.1% to 93.50
German 10Y yield rose 0.4 bps to -0.621%
Euro down 0.1% to $1.1731
Brent Futures down 0.7% to $38.85/bbl
Italian 10Y yield rose 6.4 bps to 0.562%
Spanish 10Y yield rose 2.3 bps to 0.201%
Top Overnight News from Bloomberg
European Central Bank officials must decide on Thursday whether the renewed wave of coronavirus infections and lockdowns on the continent require an immediate dose of extra monetary support
Germany and France will clamp down on movement for at least a month — coming close to last spring’s stringent lockdowns — with Germany’s daily caseload surpassing 20,000 for the first time amid a resurgence of Covid-19 across Europe
Chancellor Angela Merkel defended her decision to once again severely limit movement in Germany, saying the country is in a “dramatic situation” as the rapid spread of the coronavirus stretches health-care services to their limit
Coronavirus measures in England are failing to control the spread of the disease, scientists warned, adding pressure on U.K. Prime Minister Boris Johnson to introduce another national lockdown
Italy sold benchmark bonds at the lowest average rate on record as support from the euro zone’s institutions and newfound political stability fueled demand for the securities
Central banks became gold sellers for the first time since 2010 as some producing nations exploited near-record prices to soften the blow from the coronavirus pandemic
For fragile oil markets, the outcome of next week’s U.S. election poses yet another risk: the prospect that major producer Iran may regain its role in international trade
A quick look across global markets courtesy of NewsSquawk
Asian equity markets traded mostly lower amid jitters following the bloodbath on Wall St where all major indices declined more than 3% and the DJIA fell over 900 points as risk appetite was decimated by concerns regarding lockdowns in France and Germany, whilst heavy losses were also observed in the tech sector. In addition, pre-election caution and comments from NIH’s Fauci that a vaccine won’t be available until January at the earliest added to the downbeat tone, although US stock index futures nursed some losses overnight after encouraging updates from both Regeneron and Eli Lilly regarding their COVID-19 treatment trials and with the US said to provide Huawei a lifeline by allowing more companies to supply the Chinese tech giant with components as long as it is unrelated to 5G. Nonetheless, Asian bourses weakened with tech and commodity-related sectors the underperformers in the ASX 200 (-1.6%) and financials were also pressured after ANZ Bank reported a 42% decline in full-year profit and Westpac reached an agreement to settle a BBSW class action in US. Nikkei 225 (-0.4%) was subdued following weak retail sales data and as participants awaited the BoJ policy announcement, which proved to be a damp squib as the central bank maintained policy settings as expected and continued to signal a lack of urgency for immediate support, although some of the losses have been pared amid mild currency outflows and as earnings supported the likes of Sony and Hitachi, while the KOSPI (-0.8%) suffered after Samsung Electronics failed to benefit from its final Q3 results which despite printing an increase from the prior year, it also flagged a decline in chip and mobile profitability for Q4. Hang Seng (-0.5%) and Shanghai Comp. (+0.1%) were cautious ahead of several blue-chip earnings including the first of the big 4 banks and with participants looking out for details of the 5-year plan when the 4-day plenum concludes today. Finally, 10yr JGBs failed to benefit from the broad risk-aversion and instead tracked the recent declines in T-notes with demand constrained amid the BoJ policy announcement in which the central bank provided a somewhat balanced tone that suggested it was likely to remain on the fence on future measures.
Top Asian News
BOJ Stands Pat But Paints Gloomier Picture of Economy This FY
India to Prioritize Covid Vaccine for Front Line Health Workers
China’s Busiest Earnings Day to Shed Light on Economy
Takeda to Supply Japan With 50m Doses of Moderna Vaccine
European equities (Eurostoxx 50 flat) have been relatively choppy thus far with regional indices unable to stage any meaningful recovery from yesterday’s heavy losses. Ahead of the cash open, futures at one stage suggested that European equities would look to claw back some of the declines seen yesterday, however, this has failed to materialise thus far as market participants fret over the economic impact of recent nationwide lockdown measures taken by France and Germany. It has been an exceptionally busy morning of earnings in Europe with divergences between different industries mostly a by-product of large-cap corporate updates. Tech has been one of the top performers thus far in the wake of yesterday’s tech-heavy losses on Wall St, with sentiment for the sector also aided by earnings from ASM International (+4.1%) who subsequently raised Q4 guidance amid strong demand. Capping gains for the tech sector is Nokia (-16.6%) after Q3 results fell short of analyst estimates and the Co. cut its FY profit outlook amid declining market shares in certain regions. Despite losses in the crude complex, oil & gas names have seen support throughout the session amid Q3 earnings from Shell (+2.1%) which saw the Co. exceed estimates for adjusted earnings and lift its dividend. Banking names are lower on the session amid losses in Credit Suisse (-6.0%) after Q3 profits missed analyst expectations, overshadowing the Co.’s decision to increase its dividend by 5% for 2020 and schedule CHF 1.5bln of share buybacks for next year. Lloyds (+3.7%) have provided some reprieve for the sector after the Co. beat on Q3 profits and noted a surge in the demand for mortgages. Volkswagen (+3.1%) are higher on the session after Q3 profits were bolstered by increasing auto demand from China, offsetting losses elsewhere. Of note for telecom names, (asides from Nokia who are also in the Stoxx 600 tech index), BT (+5.4%) and Orange (+4.6%) are firmer post-earnings, whilst Telefonica (-4.5%) are a laggard in the sector after Q3 results underwhelmed. Finally, AB Inbev (+2.9%) have acted as a source of support for the food & beverage sector after Q3 revenues beat estimates and the Co. stated that H2 performance will be better than H1.
Top European News
Janus Henderson Sees Investor Withdrawals Slow in Third Quarter
Germany, France Impose Month-Long Curbs to Rein in Virus
BT Lifts Profit on Pandemic, Sheds Jobs to Cut Costs
German Pig Backlog May Cram 1.2 Million Extra Hogs on Farms
In FX, far from all change in terms of the general market tone that remains suppressed and highly contingent on daily coronavirus developments, but a comparative air of calm has returned following Wednesday’s FTQ. As such, the so called cyclical, activity or high beta currencies are on a more even keel, albeit still precarious and prone to any headline bearing bad news on the COVID-19 front that could have adverse economic implications on top of the obvious social and human cost. Aud/Usd is modestly firmer and straddling 0.7050, Nzd/Usd is pivoting 0.6650 with some independent traction via improvements in NBNZ business confidence and especially the outlook for activity, while Usd/Cad has pared back from post-BoC highs to rotate around 1.3300 even though crude prices remain depressed. Next up for the Loonie, Canadian average weekly earnings and building permits, while the Aussie might be mindful of a decent 1 bn expiry option in the Aud/Jpy cross at 73.20.
JPY/GBP/CHF/EUR – All narrowly mixed against the Dollar, as the Yen continues to fend off pressure below 104.50 that coincides with a key Fib level and has capped the pair for the last 2 trading sessions. However, 104.00 remains elusive and Usd/Jpy may remain supported into the round number given expiry interest at the strike in 1.8 bn. For the record, nothing new from the BoJ overnight, but top tier Japanese data looms in the form of CPI, jobs and IP. Elsewhere, Sterling continues to encircle 1.3000 on hopes of a key Brexit breakthrough and the Pound is outperforming vs the Euro just shy of 0.9000 compared to 0.9050 at the other extreme even though latest reports on UK-EU trade talks appear less positive than yesterday. Perhaps the proximity of 1.1 bn expiries between 0.9050-60 are impacting, or the fact that Eur/Usd is treading cautiously into the ECB within a 1.1758-26 range and flanked by expiry interest (1.3 bn from 1.1750-55 and 1.5 bn from 1.1725-15). Meanwhile, the Franc is largely tracking Buck moves on the 0.9100 axis as the DXY meanders from 93.560 to 93.237 in the run up to advance US Q3 GDP, weekly IJC tallies, pending home sales and more heavyweight corp earnings.
SCANDI/EM – The aforementioned recoil in oil has hit the Nok back below 11.0000 vs the Eur and beyond recent lows, while in contrast the Cnh and Cny are both paring losses after another weaker PBoC midpoint fix and reports of Chinese bank selling of the onshore Yuan against the Greenback in spot and forward terms. However, the Try is struggling again just off sub-8.3200 record lows vs the Dollar and Brl looks set for catch-up declines after the BCB held rates last night, as expected, but acknowledged strong upside inflation pressure in the short term that requires close attention.
In commodities, WTI and Brent front month futures have come under pronounced pressure this morning as the complex was unable to partake in the European-earnings fuelled bounce in the equity futures around the cash equity open on the back of a number of well-received European earnings. As such, throughout the European morning the crude benchmarks have continued to deteriorate moving below the psychological USD 37/bbl & 36/bbl and USD 39/bbl for WTI and Brent respectively; and most recently in proximity to the USD 36/bbl & USD 38/bbl marks. Updates throughout the session explicitly for the crude complex have been sparse after the BSEE report showed further oil outage within the Gulf of Mexico but Storm Zeta is now forecast to continue weakening throughout the day and as such, assuming no damage occurred, platforms should begin returning to service in the near-term. Elsewhere, on the OPEC+ front Energy Intel reports indicate the cartel are considering extending oil output cuts at their current levels through to the end of March; reports which will likely garnering more focus as we approach the next JMMC and full OPEC+ gathering next month. Moving to metals, spot gold is essentially flat on the day perhaps as it struggles to garner clear direction from sentiment this morning which is choppy and diverging somewhat amongst asset classes thus far. Price-wise, the precious metal is little differed on the session around the USD 1875/oz mark.
Top Overnight News from Bloomberg
8:30am: Initial Jobless Claims, est. 770,000, prior 787,000; Continuing Claims, est. 7.78m, prior 8.37m
8:30am: GDP Annualized QoQ, est. 32.0%, prior -31.4%
8:30am: Personal Consumption, est. 38.9%, prior -33.2%
8:30am: GDP Price Index, est. 2.9%, prior -1.8%
8:30am: Core PCE QoQ, est. 4.0%, prior -0.8%
9:45am: Bloomberg Consumer Comfort, prior 46.6
10am: Pending Home Sales MoM, est. 3.0%, prior 8.8%; Pending Home Sales NSA YoY, est. 23.0%, prior 20.5%
DB’s Jim Reid concludes the overnight wrap
Its been a pretty sobering week so far for life as we knew it and for markets even if futures are a little more buoyant this morning. Risk assets buckled yesterday under the weight off fresh restrictions, especially those in the two largest European economies.
As we previewed 24 hours ago German Chancellor Merkel has reached a deal with leaders of the country’s 16 states over a one-month partial lockdown. Starting on Monday, and through to the end of November at least, restaurants, bars and nightclubs will be closed. Leisure facilities such as gyms, event venues, cinemas and amusement parks will also be closed. Residents will only be allowed out with those in their own household and one other, while gatherings will be limited to 10 people. Private travel and visits to relatives are discouraged. However unlike last Spring, schools and day cares shall remain open as well as hairdressers. As we also previewed yesterday French President Macron also announced tougher restrictions including the shuttering of bars and restaurants, banning domestic travel and public gatherings, closing non-essential retailers and encouraging work-from-home if possible. As in Germany, schools will remain in session. The measures are currently in place until at least 1 December which will gives some hope for the Xmas holiday season.
In Germany these restrictions are probably less severe than they could have been and probably sound more extreme than they are but the direction of travel is going to wrong way with perhaps 5 months of the peak flu/cold/virus season still ahead of us unlike the first wave when we only had a month or so of the normal peak period left when it struck. Our German economists expect that the lockdown measures should result in a Q4 GDP decline of at least -0.5% qoq. The hospitality industry and cultural institutions will suffer most again under the new restrictions. That contraction would still be consistent with a -5.6% FY20 GDP drop predicted by our economists, assuming that the upside risks to their Q3 call (+6%) materialises. See here for more of their thoughts and here for the immediate thoughts of our French economist.
There’s an inevitability that other countries will go down the same path soon. A new study from Imperial College London and Ipsos Mori has indicated that the infections in England are doubling every nine days and an estimated 960,000 people are carrying the virus on any one day. In better news, the Guardian has reported overnight that the UK government has asked local health officials to deploy 30-minute saliva kits for coronavirus testing to accelerate the mass screening plan. The test plan is to cover as many of 10% of England’s population for coronavirus every week. Also overnight, Regeneron Pharmaceuticals said that data from a late stage trial indicated that its antibody cocktail therapy significantly reduces virus levels and the need for further medical care. Lastly, European Union leaders are planning to discuss adopting a singular approach to the practice of rapid antigen tests, which are faster than the PCR counterpart and could therefore allow for a more open economy. For more on how the virus is spreading see the table below.
Given the negative direction of restriction travel, US equities had their worst day since 11 June, with the S&P 500 down -3.53% and the VIX up +6.9pts to over 40 for the first time since the same day. That was when there was the original outbreak of covid-19 cases throughout the US Sunbelt. While the VIX is still considerably lower than we saw during the worst of the pandemic-induced selloff in March of this year, you have to go back to 2015 to see the equity volatility index at this level outside of the pandemic. The selloff was very broad with 97% of the S&P lower and the decline was led by Transportation (-4.86%) Software (-4.47%), Tech hardware (-4.45%) and Energy (-4.22%). The tech losses saw the NASDAQ fall -3.73%, the most since early September. It’s a big day for FANG earnings today with Facebook, Amazon, Apple and Alphabet all reporting.
Asian markets are seeing some respite this morning. The Nikkei (-0.33%), Hang Seng (-0.77%), Shanghai Comp (-0.12%) and Kospi (-1.05%) are mildly lower but with futures on the S&P 500 up +1.11% and those on the Stoxx 50 up +0.58%. Yields on 10y USTs are back up +1.2bps. Elsewhere, the BoJ kept it monetary policy unchanged at today’s meeting even as it further trimmed the growth forecast for the year ending in March to -5.5% yoy (from -4.7% yoy previously). In terms of overnight data, Japan’s September retail sales came in at -8.7% yoy (vs. -7.6% yoy expected).
In other overnight news, the FT has reported that the US is allowing a growing number of chip companies to supply Huawei with components as long as these are not used for its 5G business. If true, this will likely offer respite to Huawei’s smart phone arm. Separately, the FT has also reported that Tiffany’s board has approved the sale to LVMH at a lower price. Elsewhere, Standard Chartered beat earnings estimates overnight as loan losses eased. The bank also said that it has ample room to fund growth and pay dividends next year, pending approval from regulators. Boeing has said that it will eliminate an additional 7,000 jobs bringing the expected losses from layoffs, retirements and attrition to 30,000 people (19% of the pre-pandemic workforce) by the end of 2021.
Before all this, European equities fell to their lowest level in just over five months yesterday, with the STOXX 600 retreating -2.95% as 97% of the index also trading lower. Here it was led by cyclicals such as Autos (-4.81%), Chemicals (-3.71%) and Banks (-3.56%). The DAX (-4.17%) and CAC 40 (-3.37%) fell further on their shutdown lite news.
Sovereign yields in Europe declined for a third straight day after much of the focus last week was on their recent sharp rise. However the rally was relatively minimal given the large risk off. Gilts were down -1.9bps to 0.21% and 10yr bunds were down -1.0bps to -0.625%, steadily approaching 7 month lows. Whereas US Treasuries yields were actually up +0.3bps to 0.771% as there may have been some deleveraging of positions. Meanwhile the US dollar rallied +0.50%, the most in over a month. This partly led to gold (-1.61%) having its worst day in 2 weeks.
On the US Election, much of the focus remains on the Presidency, where former Vice President Biden remains an 88% to 11% favourite over President Trump in the fivethirtyeight model. The Democrats also remain favourite to gain control of the Senate (75% chance), though the number of seats is more uncertain. Republicans currently control the upper chamber 53-47 and considering that Democrats are very likely to lose a seat in Alabama, Democrats will need to win 4 seats and the Presidency to win control (the Vice President is the tie breaker). Using a mix of polls and past voting behaviour of the states Colorado (84% chance of Democrats winning according to fivethirtyeight) and Arizona (79%) are the Democrats best bets to turn blue. After that it is Maine (61%) and North Carolina (63%), which have tightened in recent days but in Maine the Democratic challenger has not lost a poll in weeks. In NC the challenger has only lost one in the last 3 weeks. After that the attention should be on Iowa (57%) and Georgia (33% and 64%), where the latter has a pair of Senate elections this year, in one of which the Democratic candidate is slightly favoured.
One interesting wrinkle this year is clearly the large number of early and mail-in votes. In states like Florida they have already seen 70% of the number of voters from 2016, Texas is at 91% (with little mail-in), North Carolina at 76.1% and Georgia at 76.8%. If current polling holds or the polling error happens to go in the Democrat’s favour – as happened in 2012 – it could be a quick night with North Carolina and Florida announcing fairly quickly, on the other hand a Trump win in those states and we could be waiting a week to hear the outcome out of the Midwest, namely Pennsylvania, Wisconsin and Michigan.
Given the historically divergent views on economic policy between the two candidates, our chief US economist Matt Luzzetti, considers the implications of the various election outcomes on the economic outlook in a new podcast which you can listen to here. He and his team have also refreshed their 2020 Election chartbook (found here) which contains sections on updated polling, projections, battleground states, and Congressional races.
Today we will hear from the ECB and our European economists (preview here ) expect the policy stance to be left unchanged, but that the ECB will also warn of growing downside risks amid an already weak outlook for inflation. This is likely to open the door to a further easing of policy in December. By then, there’ll be far more information on the status of the pandemic, the effect of the recent spate of shutdowns and the ECB staff will have updated their macroeconomic projections. These include the publication of the first estimates for growth and inflation for 2023.
Outside the ECB, today’s highlight’s include German October unemployment and CPI, along with Italian and Euro Area consumer confidence. In the US there is weekly initial jobless claims, Q3 GDP, personal consumption core PCE, and pending home sales. Lastly we will have Japan’s jobless rate and industrial production. In earnings we have the big ones with Apple, Amazon, Alphabet and Facebook along with Comcast, Sanofi, AB InBev, American Airlines.
via ZeroHedge News https://ift.tt/3kFzUAB Tyler Durden
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America’s meat supply has been hammered by COVID-19 outbreaks at many of the nation’s largest meat processing plants, and consumer meat prices have spiked as a result. The nation’s small- and mid-sized farms and ranches could help address these issues if ranchers and farmers had better access to small-scale slaughtering and processing facilities and to local and regional markets. But to get those things, they first need Congress to get off its rump and vote.
Three very different meat processing reform bills are now before Congress. One is great. One is good. And one is suspect. Just what does each bill propose to do?
The New Markets for State-Inspected Meat and Poultry Act—the good bill—would foster regional food systems by lifting a senseless ban on the interstate sale of state-inspected meat. Under current federal law, meat produced and inspected by authorities in 20 states cannot be sold elsewhere solely because those states use their own inspectors, rather than U.S. Department of Agriculture (USDA) employees, to enforce food-safety regulations. That approach makes so little sense that even the USDA has said it embraces the aims of the bill.
What the New Markets Act doesn’t address, though, is the overall capacity or supply shortfalls that have caused the present meat crisis. That’s where the great bill—the PRIME Act—shines. That bill would create and strengthen local food systems by allowing the intrastate sale of uninspected meat and meat products.
Under current law, cuts of meat from a ranch that uses what’s known as a “custom” facility—subject to a host of federal and state regulations but without an on-site government inspector—cannot be sold to the public at all. The PRIME Act would allow such ranchers to sell that meat within their home states directly to consumers and through local grocers, butchers, and restaurants. By allowing the local sale of meat from these operations, the PRIME Act would encourage the proliferation of small-scale processors, adding diversity, resilience, and badly needed additional capacity to our national processing system. (The bill would also allow states to adapt or adopt their own inspection requirements for custom facilities.)
Now the more dubious option: The RAMP-UP Act would authorize the USDA to provide five- and six-figure grants to existing small- and mid-sized processing facilities, which owners could use to pursue USDA facility inspection. The process for obtaining USDA meat inspection—which can take years and is deeply flawed—would remain unchanged under the bill.
What’s more, if the RAMP-UP Act were to succeed at its stated goal—to bring still more facilities under USDA inspection—it would require the agency to hire many more Food Safety and Inspection Service (FSIS) inspectors. That’s a fool’s errand, given that FSIS has long suffered from inspector staffing shortages.
Many supporters of the RAMP-UP Act (including many of the large processors that have had thousands of workers sickened by COVID-19) are also steadfast opponents of the PRIME Act. They cite concerns about allowing uninspected meat on the intrastate market, but that’s fearmongering. A USDA exemption already allows many poultry farmers to slaughter thousands of their own chickens on their farms without continuous federal or state inspection and to sell those chickens to grocers. Zero cases of foodborne illness have been tied to this uninspected poultry. That’s in sharp contrast to the nation’s largest processors, which have faced numerous meat recalls and foodborne illness cases.
The PRIME Act is solid legislation, and the New Markets Act is an eminently sensible bill. But the RAMP-UP Act won’t change the rules of the game for farmers and ranchers and would have little or no immediate impact on the meat supply. It may, in fact, be little more than a stalking horse for large agricultural firms and other special interests that’s intended to suppress competition and supplant actual reform.
The COVID-19 pandemic has proven that significant changes are required to ensure the nation’s meat supply is safe, affordable, diversified, and available. We shouldn’t wait another day to rebuild and strengthen our local food systems.
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Had a little email exchange with Dave Collum this week. We go way back, more than two weeks even. It’s been a while though, Twitter cut me off from Dave’s tweets ages ago for some reason, and that’s just one person I know they did that with; how many others, no clue. My Twitter followers, @AutomaticEarth, have been just below the same certain number for years.
Regularly a few hundred are shaved off, and then they slowly revert back to just below that number. I don’t even care anymore. No more than I care about Facebook shutting down our account without any explanation. Let them be. We should not depend on these people, that’s just a bad idea.
Anyway, so Dave was reacting to a mail I sent him of the October 26 Debt Rattle -he’s always remained on one of my mailing lists- and that’s how we started talking again. Dave:
I have never spent a year so completely baffled by the world as this year. Nothing makes sense to me without invoking some seriously bizarre thinking (which I am not averse to doing.)
My reaction:
The game hasn’t even started yet. We’re still just warming up. Still, baseball is not the right analogy, that’s a civilized sport, this will feel much more like gladiators in the Forum fighting to the death. Biden has neither the energy not the -killer- instinct for that.
Yes, Dave, like Jim Kunstler, and like me, and many other people, have changed our views and positions on American politics quite a bit over the past 4-5 years. Mostly independently of each other. We just recognize the same patterns.
I think it’s fair to say that we all realize that there may be a million things wrong with Donald Trump, but there’s a lot more wrong with collusion to unseat a fairly elected president.
And that is what we all have faced. The FBI, and Robert Mueller, opening a years-long investigation based on a report that they already knew was fake, paid for by the DNC and Hillary campaign, relentlessly edged on by the -former- “media” sympathetic to that same campaign, and ending in absolute crickets, trying to save face by accusing Julian Assange and 13 Russians.
We have reached whole new depths with Robert Mueller and Andrew Weissmann. So, yes, sure, we all feel a bit vindicated when it turns out that the collusion was not on the Trump side, but on the DNC one, and very much on the Biden family’s one.
That the DNC media refuse to report on that hardly matters anymore.
They’ll have huge problems if Biden wins, because their day-to-day coverage has been based exclusively on Trump and scandal and intrigue for 5 years now, and they don’t remember how they used to make money without that, with just reporting honestly on what is going on. Trump is their golden goose. What will they do, report on Joe hiding in the White House basement? “Today, Joe slept only 12 hours!” Truman Show.
They will have even bigger problems if Trump wins, since that means his supporters will come after the entire DNC/FBI etc. cabal, including the media. I’ve often said that Michael Flynn lawyer Sidney Powell will not be satisfied anymore with a full exoneration of her client, and her legal team is sure to have accumulated an entire library of fabricated media pieces against him on top of FBI and Judge Sullivan “mishaps”.
And whatever side of politics, or even the law, you’re on, and no matter who wins the election, the judicial system will still churn on. She won’t stop, she won’t wave a white flag, guaranteed. Trump must have offered Flynn a full exoneration many times, but every one of his refusals of the offers must have been more stern than the last one.
And now, 6 days before the election, Facebook’s Mark Zuckerberg, Twitter’s Jack Dorsey, and Google’s Sundar Pichai testified in front of a congressional committee. While, from what I’ve seen, half of US eligible voters have already cast their vote. 50% of the social media job is done. And no-one on Capitol Hill will dare touch them. Because they are the new arms and tools of US intelligence, and you don’t mess with that.
Trump wins, we’ll see a huge increase in the violent street parties dressed up as “peaceful protests” we’ve become accustomed to over the past 6 months. Just last night, like it’s some kind of warning shot, things got way out of hand in New York and Philadelphia.
Biden wins, the right wing will come looking for what’s been taken away from them over the past 4 years, with the president they elected under constant investigation based on nothing other than party political gossip – and that’s putting it nicely. The Hunter and Joe Biden files that have been revealed so far give them ample reason to do just that.
To get back to Collum’s “Nothing makes sense to me without invoking some seriously bizarre thinking”, I think we should all prepare for just that. Unless there’s a landslide win for either side, which looks impossible, there doesn’t seem to be any way to know who will win in six days, before the new year. While the “peaceful protests” rage on.
And then we end up in the Supreme Court and Amy Handmaid Barrett casts the deciding vote. That’s not her fault, it’s everybody else’s. Everything about American politics has gotten out of hand, on all sides of all aisles. We don’t want the most qualified judges anymore, or the most qualified presidents, we instead want people in all these positions who agree with everything we think is right, which we know because our media has told us.
Collum: “I have never spent a year so completely baffled by the world as this year.”
