Peter Schiff: The Fed’s inflation reading is hilariously wrong

Americans are feeling uneasy for reasons that are hard to pin down,” quipped economist Paul Krugman in a New York Times interview published earlier this week.

Reasons that are hard to pin down? Bear in mind that this man received a Nobel Prize– our society’s most prominent award for intellectual achievement. Yet he doesn’t have the foggiest idea why his fellow citizens may be feeling uneasy.

Perhaps it’s the ever-lurking prospect of escalated warfare. Or the exasperation over dysfunctional government, weaponization of the justice system, and manipulative media. Or the invasion of millions of migrants streaming across the southern border, virtually unchecked.

Granted those issues may be outside of Krugman’s wheelhouse. But you’d think that he would at least understand people’s unease over inflation.

Yesterday the federal government reported that the Consumer Price Index (one of their key measures of inflation) was unchanged in the month of May… prompting official in the Biden administration and most “experts” like Krugman to uncork the champagne bottles and toast the end of inflation.

It has now been more than three years since the US inflation rate surged beyond the Fed’s 2% threshold… and over two years since the Fed began raising interest rates in an attempt to arrest that inflation.

Yet even after all this time, inflation at 3.3% still remains in excess of the Fed’s target rate.

3.3% is obviously much lower than its peak 9%. But that’s not really the point. For everyone else who doesn’t work at the White House or Federal Reserve or New York Times, it’s not about 3% versus 9%. It’s about the 20%+ change in prices over the past three years.

And many categories have seen price increases far in excess of 20%– and housing is a great example.

The median US home size back in Q1 of 2021 was 2,284 square feet and priced at $355,000. Three years later the median US home size shrank to 2,140 square feet, yet the price increased to $420,800.

So, Americans are paying more to live in smaller homes. On a per square foot basis, the price increased 26.5% in three years, from $155/ft to $196/ft.

But it becomes much worse when you factor in financing costs.

Interest rates were 3.2% back in Q1/2021, versus more than 7% three years later. So, the average monthly payment (principal & interest) per square foot for the median US house increased from $0.68 per square foot per month in Q1/2021 to $1.33 in Q1/2024.

That’s an increase of 95%– nearly double in three years. And this increase doesn’t factor in rising costs of homeowners’ insurance, HOA dues, maintenance costs, and property taxes.

Owning, maintaining, or renting a home is a LOT more expensive than it used to be… and people are sick of it. Yes, 3.3% inflation is better than 9%. But people don’t want less inflation (that’s still too high). They want prices to go back down.

Nobel laureate Paul Krugman doesn’t get it. Neither does Joe Biden… who seems irritated beyond belief that Americans aren’t groveling kowtowing in honorific gratitude over his handling of the economy.

The dirty secret that no one in power wants to say out loud is that prices will never go back down to where they were a few years ago. This is known as deflation, and the Fed simply will not allow it to happen.

For normal people, deflation is great. Who wouldn’t want lower prices?

But when you’re the most indebted government that has ever existed in the history of the world, deflation is a terrifying outcome that must be avoided at all costs. They much, much prefer inflation.

In 1914, at the outbreak of World War I, the British government borrowed what was considered an enormous amount of money at the time– more than 600 million British pounds. They paid interest on that debt for literally 100 years… and finally paid off the principal balance in 2014.

Obviously by 2014, 600 million pounds was a pretty trivial sum… thanks to inflation. And that’s the idea– inflation erodes the value of money over time, so heavily indebted governments can benefit from the mere passage of time.

The Fed knows this. They understand very well that the US government, with its $35 trillion debt, needs inflation to continue. And that’s why the Fed will never allow prices to go back to ‘normal’.

The Fed chairman made no mention of trying to bring prices down in his press conference yesterday. None.

In fact, he’s already talking about cutting interest rates– something the Fed would ordinarily only do once inflation has been licked once and for all. There was also no mention of the Fed potentially have INCREASE interest rates if the inflation problem worsens.

Nope, it was just more of this false sense that they have everything under control.

To make matters worse (and we’ve written about this extensively), the US government expects to add an additional $20 trillion to the national debt over the next ten years. It’s a staggering figure that will almost certainly create even more inflation.

Historically speaking, whenever the US government significantly expands the debt in a relatively short period of time, most of that financing comes from the Federal Reserve creating brand new money.

In the first two years of the pandemic, for example, US government debt surged by $7 trillion. The Federal Reserve. Over the same period, the Federal Reserve created $5 trillion in new money– with most of that going to buy Treasury bonds.

In other words, the Fed ‘printed’ over 70% of the money that the US government borrowed in the first two years of the pandemic. And that $5 trillion of new money created 9% inflation.

So just imagine how much inflation the Fed will create if they print 70% of the $20 trillion that the US government will need over the next decade…

No one knows for sure. But it’s probably going to be a lot more than their magical 2% target.

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8 Suspected Illegal Alien Terrorists Arrested In New York, Philadelphia & LA 

8 Suspected Illegal Alien Terrorists Arrested In New York, Philadelphia & LA 

For nearly a quarter-century, Americans have been subjected to mass surveillance via the Patriot Act. Yet, while the government violates the privacy rights of Americans with warrantless surveillance, the safety of the country is being undermined by top left-wing officials flooding the open southern border with millions of illegal aliens, some of which are known terrorists and or terrorist-linked. 

Fencing along the U.S. border with Mexico in San Ysidro, Calif.Credit…Mark Abramson for The New York Times

Disastrous open southern border policies pushed by the Biden administration make absolutely no sense in a world that is dangerously fracturing into a multi-polar state of war and conflict. America’s enemies can walk right in, and that’s exactly what’s happening. 

NBC News reported Tuesday that eight men from Tajikistan with potential ISIS connections out of central Asia were arrested in New York, Philadelphia, and Los Angeles. 

The FBI’s Joint Terrorism Task Force and US Immigration and Customs Enforcement were tracking the suspects for months after they crossed Biden’s open southern border in the spring of 2023.

While they have not been charged with a terrorist connection or plot yet, the FBI alerted ICE they should be arrested because of potential ties to ISIS, and they were arrested on immigration charges, two sources say. They are detained and face removal proceedings before an immigration judge, and they could later face terrorism-related charges, two sources say. -NBC 

One X user made this point, “Why do Americans still have to abide by the patriot act while migrants are free to roam? This is a failed president Biden.” 

When one tries to rationalize the White House’s decision to allow tens of millions (est.) of illegal aliens into the country, the outcome here is a manufactured crisis that has left the country vulnerable to attack.

In April, FBI Director Christopher Wray warned lawmakers that there is fear of a “coordinated attack” in major US cities. This warning came weeks after ISIS attacked a concert hall in Moscow, killing 145 people. 

“Our most immediate concern has been that individuals or small groups will draw twisted inspiration from the events in the Middle East to carry out attacks here at home.

“But now, increasingly concerning is the potential for a coordinated attack here in the homeland, akin to the ISIS-K attack we saw at the Russia concert hall a couple weeks ago,” Wray told a House Appropriations subcommittee earlier this year.

Meanwhile, an Iranian intelligence officer is still on the loose, planning to kill Trump-era officials

And in February, we penned this note, “More Red Flags Than Before 9-11”: Ohio Sheriff Warns American People Of Worsening Border Invasion.

So again, our rights were violated over these past two decades, all in the name of freedom, and now the government has flooded the nation with migrants, some of which are terrorist or terrorist-linked. And of course, if there is another attack, it will only be met with more mass surveillance by the intel community.

It’s becoming much more apparent what the agenda is at play here. Expand the nanny state one manufactured crisis at a time.

Tyler Durden
Wed, 06/12/2024 – 10:25

via ZeroHedge News https://ift.tt/Fxn2gHS Tyler Durden

Wall Street Reacts To Today’s Dovish CPI Shocker: “Down And Out”

Wall Street Reacts To Today’s Dovish CPI Shocker: “Down And Out”

As we expected in our preview calling for “optimism for a low print“, today’s CPI delivered the kind of downside surprise that bond bulls and the Fed have been waiting for, as both headline and core came in a tenth lower than expected, largely driven by a 3.6% drop in gasoline prices – the biggest reason why the headline CPI was flat on the month – and as Bloomberg adds, “the miss looks legit, given the shortfall in the actual indices relative to forecast.” Indeed, at 0.16% the rise in core nearly rose just 0.1% when rounded. Meanwhile, in what may have been the biggest surprise, supercore services ex housing fell by 0.04%, the first negative reading since September 2021!

The soft CPI print obvious puts two rate cuts in 2024 as the obvious center of policy distribution – with an outside chance for the Fed to keep its 3 cut baseline in today’s dots – and opens the door for the market to price more in 2025.

Meanwhile, the big delta remains housing: as the BLS noted, the shelter index increased 5.4% over the last year, accounting for over two thirds of the total 12-month increase in the all items less food and energy index. Yet with lagged OER/shelter/rent still hot relative to real-time prices, the core monthly CPI gain undershot the median forecast for the first time since October.

And here is the punchline: with real-time rent flat to down for the past year, the BLS-tracked OER 5-months lagged, is up 5.6%, and will decline gradually for the next 18 months as it catches down to real-time rents, even as the latter are actively rising, something which Omair Sharif at Inflation Insights agrees with in his morning note titled “Down and Out” : “A 0.2% monthly core CPI reading should be the base case for the balance of the year, especially as it looks more and more like the long-awaited slowdown in shelter costs will hit as soon as the next report.”

In any case, however one looks at today’s report, the bottom line is clear: the doves have it, and now the ball is in the Fed’s court to decide whether to keep the dots at 3 cuts for 2024 or move to 2, even as the hawkish “1 cut” case has been officially eliminated. Indeed, here is Bloomberg’s Fed Watcher Chris Antsey on this issue: “for any Fed governor or district bank president who had been on the fence about one rate cut or two for 2024, this might have tipped them over. All eyes at 2 p.m. in Washington will be on that median estimate for the year-end policy rate.”

And to underscore that, here are some of the more notable Wall Street reactions.

Gregory Faranello, head of rates strategy at AmeriVet Securities:

“The CPI is a really nice inflation reading. The Fed meeting today should see officials move toward two rate cuts for 2024 and softer CPI readings from here will keep a September cut in play.”

Omair Sharif at Inflation Insights:

“A 0.2% monthly core CPI reading should be the base case for the balance of the year, especially as it looks more and more like the long-awaited slowdown in shelter costs will hit as soon as the next report.”

Ira Jersey, Bloomberg Intel chief rates strategist:

“The knee-jerk reaction in the Treasury market isn’t surprising given the Fed-friendly CPI print, particularly the “low” 0.2% on core CPI. Jay Powell can now say ‘we’re making slow but additional progress on inflation’ at this afternoon’s press conference. Investors have been asking if members of the FOMC might change their summary of economic projection forecasts after the CPI print, since they are submitted prior to the start of the meeting. Today’s report probably doesn’t really shift expectations much. We’ve been thinking November and December cuts as our base base, and this data solidifies that view.

Lindsay Rosner of Goldman Sachs Asset Management

“This was good news but it is one piece of news. June is a no-go. We have felt July the same. Again today is a good print for restrictive rates working to quell inflation, so September is a possibility.”

Bryce Doty, Sit Investment Associates senior PM:

“A calm CPI report. This CPI report gives the Fed the flexibility to still cut rates. We still expect the Fed to hold off until after the election though.”

Ashwin Alankar, head of asset allocation at Janus Henderson Investors:

“Until greater dis-inflation evidence is seen both in breadth and depth, today’s softness is supportive of a preemptive cut rather than a pivot in Fed policy towards accommodation.”

Ana Galvao, Bloomberg Economics:

“The downside surprise in CPI could have an impact on asset prices over the medium term, not just today. Bloomberg Economics’ Macro-Finance model suggests forecasts for two-year Treasury yields will fall by 15 bps through 1Q25.”

Olu Sonola, head of US econ at Fitch

“This was unequivocally a good report, a delightful appetizer while we await the main course later on today. The core services print of 0.2% was the lowest since September 2021 and that will definitely boost confidence if that trend continues over the next couple of months. While the door to an interest rate cut in July is effectively shut, the window still looks open for later on this year.”

Finally, here is a good wrapper from Bloomberg’s econ team:

“May’s soft core CPI reading should reassure the Fed that inflation is slowing. Disinflation was broad across both goods and services categories.

“We expect core CPI prints over the summer to proceed at a mostly similar pace. With three more moderate prints in hand by the time of the September FOMC meeting, we think Fed officials will be convinced to start cutting rates then.”

Source: Bloomberg

Tyler Durden
Wed, 06/12/2024 – 10:03

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Appeals Court Upholds Ban On Student Wearing ‘Only Two Genders’ Shirt

Appeals Court Upholds Ban On Student Wearing ‘Only Two Genders’ Shirt

Authored by Zachary Stieber via The Epoch Times (emphasis ours),

A U.S. appeals court on June 9 upheld a ban preventing a Massachusetts middle school student from wearing a shirt reading “There are only two genders.”

Another prohibition by school administrators, this time blocking the same student from wearing the shirt with “only two” covered by tape, on which was written “censored,” is also allowed under court precedent, according to the ruling by the U.S. Court of Appeals for the First Circuit.

The question here is not whether the t-shirts should have been barred. The question is who should decide whether to bar them—educators or federal judges. Based on Tinker, the cases applying it, and the specific record here, we cannot say that in this instance the Constitution assigns the sensitive (and potentially consequential) judgment about what would make ‘an environment conducive to learning’ at NMS to us rather than to the educators closest to the scene,” U.S. Circuit Judge David Barron wrote for a unanimous panel of the court.

In Tinker v. Des Moines Independent Community School District, the U.S. Supreme Court in 1969 ruled that a ban on students wearing armbands in protest against the Vietnam War violated the students’ First Amendment rights.

U.S. District Judge Indira Talwani cited the ruling when in 2023 she ruled in favor of the administrators at the John T. Nichols Middle School (NMS) and Middleborough School District in Massachusetts against Liam Morrison (L.M.), the boy who wore the “two genders” shirt to school.

“[The school] permissibly concluded that the shirt invades the rights of others,” Judge Talwani said before quoting Tinker. “Schools can prohibit speech that is in ‘collision with the rights of others to be secure and be let alone.’”

The NMS dress code states in part that students must not wear pieces of clothing that “state, imply, or depict hate speech or imagery that [targets] groups based on race, ethnicity, gender, sexual orientation, gender identity, religious affiliation, or any other classification.”

Liam was removed from class after a teacher raised concerns about his shirt. He was ultimately sent home after he declined to remove the shirt, and his father said he would not force the removal.

When Liam went to school on another day with the shirt partially covered in tape, administrators told him to take it off, and he did.

Lawyers for Liam argued that the shirts did not impinge on the rights of other students. The shirts “like the Tinker children’s armbands, constitute ‘a silent, passive expression of opinion,’” they wrote in a brief to the appeals court.

“The school banned L.M.’s t-shirts based on a few subjective complaints that students felt upset, unsafe, or targeted,” they said. “But Tinker bars schools from censuring expression based on the ‘discomfort’ or ‘fear’ that results from exposure to ‘unpopular [viewpoints].’”

In a related ruling from the U.S. Court of Appeals for the Third Circuit, the court ruled that a school district could not bar speech about “contentious issues” such as “racial customs,” “religious tradition,” or “sexual orientation” without a “particularized reason as to why it anticipates substantial disruption.”

The First Circuit panel stated on June 10 that even if the shirts did not invade the rights of others, administrators reasonably forecast that they would disrupt learning.

Administrators said the message on the shirt would “materially disrupt transgender and gender non-conforming students’ ability to focus on learning while in a classroom where the message is being displayed.” The court agreed, because of “the demeaning nature of the message” and how administrators attested to knowing of some students who identify as transgender struggling with suicidal thoughts.

“In such circumstances, we think it was reasonable for Middleborough to forecast that a message displayed throughout the school day denying the existence of the gender identities of transgender and gender non-conforming students would have a serious negative impact on those students’ ability to concentrate on their classroom work,” wrote Judge Barron, who was joined by U.S. Circuit Judges O. Rogeriee Thompson and Lara Montecalvo.

Judges Barron, Thompson, and Talwani were appointed by President Barack Obama. Judge Montecalvo was appointed by President Joe Biden.

David Cortman, vice president of U.S. litigation for the Alliance Defending Freedom, which is representing Liam, told The Epoch Times in an email that “our legal system is built on the truth that the government cannot silence any speaker just because it disapproves of what they say.”

He said the First Circuit erred in its decision and that the group was reviewing all legal options, including an appeal.

A lawyer for the school and school district did not return an inquiry.

Tyler Durden
Wed, 06/12/2024 – 09:35

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Consumer Prices Hold At Record Highs – Up 20% Since Biden Elected

Consumer Prices Hold At Record Highs – Up 20% Since Biden Elected

The headline consumer price index was unchanged MoM in May – the smallest change since July 2022 – just less than the +0.1% MoM expected. On a YoY basis, headline CPI rose 3.3% (less than the 3.4% exp) – but very much stuck in a range well above the 2% target for over year now…

Source: Bloomberg

Energy was the biggest drag on the headline CPI MoM…(Gasoline prices tumbled 3.6% in May from April, one key reason why the headline CPI was flat on the month. )

Source: Bloomberg

Core CPI rose 0.2% MoM (below the 0.3% exp) pulling the YoY change down to 3.4% (from 3.6% and below the 3.5% exp). That is the lowest Core CPI YoY since April 2021…

Source: Bloomberg

Core CPI has not had a down-month since President Biden was elected.

Core Services inflation slowed notably MoM…

Source: Bloomberg

The shelter index increased 0.4 percent in May and was the largest factor in the monthly increase in the index for all items less food and energy.

  • May Shelter inflation 5.41% YoY, down from 5.55% in April and lowest since April 2022

  • May Rent inflation 5.30% YoY, down from 5.44% and lowest since May 2022

For context on how important housing costs are to US inflation data, the shelter index rose 5.4% over the last year, making up over two thirds of the total 12-month increase in the all items less food and energy index.

Source: Bloomberg

It does make one wonder were exactly the BLS is getting their BS OER data from…

The full breakdown…

Services INflation remains awkwardly stuck above 5% while Goods DEflation is at its weakest since January 2004…

Source: Bloomberg

SuperCore CPI fell 0.05% MoM – its first drop since Sept 2021, but that left the YoY level still above 5.0%…

Source: Bloomberg

Transportation Services costs tumbled MoM to drag SuperCore lower MoM…

Source: Bloomberg

We note that consumer prices have not fallen in a single month since President Biden’s term began (July 2022 and May 2024 was the closest with ‘unchanged’), which leaves overall prices up over 19.5% since Bidenomics was unleashed (compares with +8% during Trump’s term).

And prices have never been more expensive…

That is an average of 5.4% per annum (almost triple the 1.9% average per annum rise in price during President Trump’s term).

Source: Bloomberg

Since President Biden was elected, food prices at home are up around 21% and food prices away from home are up almost 23%…

And while the Biden administration will continue to gaslight voters with comments like “inflation is tumbling”… every man, woman, and child who actually buys food knows prices have NEVER been higher…

Finally, while the ‘flations’ have broadly tracked M2 lower, we note that M2 YoY is now starting to turn back higher once again…

Source: Bloomberg

Will the next President and Fed head face a 70s redux?

Source: Bloomberg

And is this guaranteed if Powell decides “insurance” cuts are required (for Biden?)

Tyler Durden
Wed, 06/12/2024 – 09:28

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Biden Approves Sending 2nd Patriot System To Ukraine Ahead Of G7

Biden Approves Sending 2nd Patriot System To Ukraine Ahead Of G7

“We’re going to continue to drive up costs for the Russian war machine,” White House spokesman John Kirby has said as President Biden departs for meetings with Group of Seven leaders in Italy.

The Thursday through Saturday meeting will focus in large part on unveiling new sanctions and export controls against Moscow, particularly the expected widening of sanctions on the sale of semiconductor chips for Russia, but also targeting third parties in China that deal with Russia.

Additionally the US will press allies on a plan to use frozen Russian assets to generate profits for Ukraine’s defense. “We will announce new steps to unlock the value of the immobilized Russian sovereign assets to benefit Ukraine and to help them recover from the destruction that Mr. Putin’s army has caused,” Kirby previewed additionally Tuesday.

The proposal involves utilizing future interest on nearly $300 billion of frozen Russian central bank funds to back a $50 billion loan to Ukraine, which can be used for arms, defense, infrastructure, and rebuilding.

During the summit of the world’s wealthiest democracies (Canada, France, Germany, Italy, Japan, UK, US, and with the EU a “non-enumerated member”), Biden will also meet with Ukraine’s Zelensky, where more US weapons for Kiev will be unveiled, especially the deployment of another Patriot missile system for Ukraine.

The NY Times details that “The new Patriot system — the second that the United States has sent to Ukraine — will come from Poland, where it has been protecting a rotational force of American troops who will be returning to the United States, officials said.”

“The system could be deployed to Ukraine’s front lines in the next several days, U.S. officials said, depending on any maintenance or modifications it needs,” the report adds.

Biden is also expected to seek to assure Zelensky that Washington is staying firmly behind his government for the long haul. However, as the Times also points out, significant political change is looming over Europe amid a general war-weariness and perhaps greater willingness to pursue peaceful settlement with Russia

Now, Europe is bracing for the possibility that former President Donald J. Trump, who has spoken openly of pulling out of NATO, could be back in power by the time the group next meets, in 2025. And several of the leaders present — including Prime Minister Rishi Sunak of Britain and President Emmanuel Macron of France — are facing elections that could redefine Europe.

Interestingly, the Pentagon has remained reluctant to provide more Patriot batteries, especially ones that would have to be moved from defending US soil, or else batteries currently in vital hotspots.

“With tensions rising on the Korean Peninsula, moving any Patriot batteries from defending against a possible North Korean attack was also deemed too risky, officials said,” NYT notes. The Israel-Gaza conflict is also a major concern.

“Pentagon officials did not want to move any batteries from the United States,” the report emphasizes. “There is a Patriot battery at Fort Sill, Okla., for training American and Ukrainian troops, but moving it would take away training, officials said. Other batteries protecting bases and troops in the United States, including in Hawaii, were either deemed too far away or necessary for homeland defense.”

This shows a greater pragmatism that is apparently on the rise among America’s generals and the defense establishment. Perhaps it’s also the result of the realization that Ukraine cannot ‘win’ under the current circumstances of the ongoing manpower and ammo crisis.

Tyler Durden
Wed, 06/12/2024 – 09:15

via ZeroHedge News https://ift.tt/kghmwvZ Tyler Durden

Our Apocalyptic ‘New Normal’: Most Global Conflict Since WWII, Most Billion-Dollar Disasters Ever, & Most Hungry People In History

Our Apocalyptic ‘New Normal’: Most Global Conflict Since WWII, Most Billion-Dollar Disasters Ever, & Most Hungry People In History

Authored by Michael Snyder via The End of The American Dream blog,

Our world is witnessing apocalyptic events so frequently that many of us are starting to become numb to it all.  Major wars are raging all over the globe, children in Africa are literally dropping dead from starvation as hunger spreads like wildfire, and “billion dollar disasters” are hitting us more frequently than we have ever seen before.  But as long as these tragedies are not affecting us directly, most people don’t really care too much.  As the level of worldwide suffering rises, it seems as though hearts are getting colder at the same time. 

The traumatic events of the past several years have left deep scars, and there are many that prefer to ignore the apocalyptic things that are happening in the world because it is just too much for them to handle emotionally.

According to a brand new study, the number of armed conflicts in 2023 was the most that we have seen in a single year since the end of World War II

More armed conflicts took place worldwide in 2023 than any other year since the end of the Second World War, according to a Norwegian study published Monday.

Last year saw 59 conflicts of which 28 were in Africa, the the Peace Research Institute of Oslo (PRIO) showed.

We really are living in a time of “wars and rumors of wars”.

But since it isn’t our sons and daughters that are being gunned down on the killing fields of eastern Ukraine, most of us in the western world aren’t really moved by all of the bloodshed.

Every single day, more young lives are being wasted.

But if you think that things are bad now, just wait until Israel and Hezbollah start lobbing thousands of missiles back and forth, China invades Taiwan, and the Russians and NATO begin directly pummeling one another.

Meanwhile, global hunger just continues to grow.

In fact, it is being reported that the number of people facing acute food insecurity last year was the highest ever recorded

The number of people threatened by hunger in the world has never been so high. In 2023, 281 million people in 59 countries were facing acute food insecurity, according to the 2024 Global Report on Food Crises, published on Wednesday, April 24, by several international organizations (including UN agencies, the European Union, the US Agency for International Development). This figure is up on 2022 (257 million) in its fifth year running.

“This Global Report on Food Crises is a roll call of human failings,” warned UN Secretary-General Antonio Guterres, prefacing the analysis.

A decade ago, world leaders dreamed of a day when hunger would be eradicated.

Today, that dream is completely dead.

Right now, hunger is exploding in areas all over the continent of Africa.

In Sudan, people are literally eating dirt and leaves just so that they can fill their stomachs with something…

Time is running out to prevent starvation in Sudan, warns the World Food Program.

Twenty-five million people in Sudan need humanitarian assistance, 18 million are facing acute food insecurity and 5 million people are at emergency levels approaching famine as the country’s civil war passes the one-year mark.

Amid so many other crises, the world’s largest hunger crisis is drawing little global attention. In the Al Lait refugee camp, for example, people are eating dirt and boiling leaves, just to have something in their bellies, reports Reuters. Others are eating grass and peanut shells, according to the World Food Program.

Since it isn’t happening to us, most of us don’t really care.

But hunger is growing here too.

According to one recent survey, over one-fourth of the entire U.S. population is now skipping meals due to crazy high food prices…

More than a quarter of Americans have resorted to skipping meals to avoid paying inflated grocery store prices, according to a new survey.

According to a study by Qualtrics on behalf of Intuit Credit Karma, 80% of Americans say they have felt a “notable increase” in grocery costs in recent years. More than a quarter of respondents said the increased cost has led them to occasionally skip meals, while about one-third said they spend more than 60% of their monthly income on mandatory expenses such as food, utilities and rent.

“Food insecurity is a major issue in this country as millions of Americans don’t have enough food to eat or don’t have access to healthy food,” Courtney Alev, a consumer financial advocate at Credit Karma, said in a statement.

I keep warning my readers that this is just the beginning, and I hope that they are taking me seriously.

We are also living at a time when major natural disasters are becoming more frequent.

Last year, our world was hit by more “billion dollar disasters” than ever before

The planet was besieged by a record 63 billion-dollar weather disasters in 2023, surpassing the previous record of 57 set in 2020, said insurance broker Gallagher Re in its annual report issued January 17.

Unfortunately, we may top that number this year.

So far in 2024, there have already been 11 “billion dollar disasters” in the United States alone

A deadly outbreak of tornadoes last month caused $4.7 billion in damages across the Southern, Southeastern and Central U.S., making it one of the costliest weather events of the year so far, the National Oceanic and Atmospheric Administration said on Monday.

The National Oceanic and Atmospheric Administration said there had been 11 confirmed weather and climate disaster events so far this year with losses exceeding $1 billion, with the total price tag topping $25 billion. There were more than 165 tornadoes during the May 6-9 outbreak, impacting Oklahoma, Kansas, Nebraska, Michigan, Indiana, Ohio, Kentucky, Tennessee, Alabama, North Carolina, South Carolina, Georgia and Florida, officials said.

We have already experienced so many historic disasters, and hurricane season and the heart of wildfire season are still ahead of us.

Almost every day, we are seeing things happen that we have never seen before.

For example, storm chasers in the middle of the country just recovered a piece of hail that was “about the size of a pineapple”

Val and Amy Castor, veteran storm chasers with Oklahoma City television station KWTV, discovered a piece of hail more than 7 inches (17.78 centimeters) long Sunday along the side of the road near Vigo Park while they were chasing a major thunderstorm system.

Val Castor said the stone was about the size of a pineapple.

“That’s the biggest hail I’ve ever seen, and I’ve been chasing storms for more than 30 years,” Castor said.

We aren’t supposed to have hail of that size.

But this is the “new normal” where the old rules simply don’t apply.

In California, there has been an alarming series of earthquakes during the past couple of weeks…

First, a magnitude 3.6 earthquake in the Ojai Valley sent weak shaking from Santa Barbara to Los Angeles on May 31. Then came two small quakes under the eastern L.A. neighborhood of El Sereno, the most powerful a 3.4. Finally, a trio of tremors hit the Costa Mesa-Newport Beach border, topping out at a magnitude 3.6 Thursday.

Having half a dozen earthquakes with a magnitude over 2.5 in a week, hitting three distinct parts of Southern California, all in highly populated areas, is not a common occurrence.

The “Big One” is coming eventually, but I don’t think it is coming quite yet.

Hopefully I am not wrong about that.

Other nations are getting pounded by natural disaster after natural disaster as well.

Brazil has been getting hit particularly hard.  Nightmarish flooding was making headlines down there for a while, but now wildfires are taking center stage

After historic floods recently claimed 172 lives in coastal Brazil, the country now faces a new crisis as fires rage through the Pantanal wetlands. These fires have surged nearly tenfold compared to the same period last year, setting the stage for a potential catastrophe worse than the devastating fires of 2020. With severe to extreme drought conditions expected, the situation is becoming increasingly dire.

Data from the Brazilian space research agency, National Institute for Space Research (INPE) reveals a staggering 980% jump in fires across the Pantanal wetlands this year through June 5, compared to the same timeframe in 2023.

Speaking of Brazil, it is in the midst of the worst pandemic of dengue fever that has ever been recorded in that nation

Brazil recorded the highest number of dengue cases globally in 2024 according to new data from the World Health Organization (WHO). There are nearly 6.3 million probable, and 3 million confirmed cases in the country.

The South American country counts 82% of the 7.6 million probable cases of dengue recorded in the entire world by the WHO this year. Sadly, it also accounts for 77% of the 3,680 deaths globally from the virus and 82% of the 16,242 cases of severe dengue reported.

Thus far, 2024 has seen the most serious dengue outbreak ever recorded in Brazil. According to the Ministry of Health, by the end of May, the number of probable cases was 328% higher than that recorded in the same period last year, which had already seen a record number of dengue diagnoses.

So many pestilences are causing major problems all over the globe right now.

In the Democratic Republic of Congo, the number of Mpox cases has surged to an all-time record high, and it is the form of the disease that has a particularly high death rate

The ongoing outbreak of clade I mpox in the DRC has already claimed many victims: The DRC reports “multiple provincial outbreaks” occurring between the beginning of 2023 and April 14, 2024, with an estimated total of 19,919 cases and 975 deaths — meaning that about 1 in every 20 patients have died.

This outbreak is also perhaps the most widespread: “During 2023 and 2024, clade I mpox cases were reported from 25 of 26 provinces and, for the first time, from the capital city of Kinshasa,” the CDC team noted.

Children are especially vulnerable: According to the report, “two thirds (67%) of suspected cases and more than three quarters (78%) of suspected deaths have occurred in persons aged 15 years [or younger].”

If you ever catch this form of Mpox, you will remember it for the rest of your life even if you survive, because it will be the worst pain that you have ever experienced.

On top of everything else, it is being reported that scientists have discovered “giant viruses” in the enormous sheets of ice that cover Greenland…

The idea of a giant virus lurking on a vast ice sheet might sound like the plot to the latest science fiction blockbuster.

But it’s become a reality, after researchers discovered giant viruses while exploring the Greenland ice sheet.

Hopefully none of those “giant viruses” poses a major threat to humanity.

But without a doubt, there will be more global pandemics in our future.

In fact, all of the trends that I have discussed in this article are going to continue to intensify.

Our apocalyptic “new normal” is here.

We live in a world that is going completely and utterly mad, and you can try to ignore that if you wish, but it is the truth.

*  *  *

Michael’s new book entitled “Chaos” is available in paperback and for the Kindle on Amazon.com, and you can subscribe to his Substack newsletter at michaeltsnyder.substack.com.

Tyler Durden
Wed, 06/12/2024 – 08:55

via ZeroHedge News https://ift.tt/b7hecty Tyler Durden

Futures Set For New Record High Ahead Of CPI, Fed Double Header

Futures Set For New Record High Ahead Of CPI, Fed Double Header

Futures are up modestly after another record close on Wall Street heading into today’s double whammy of CPI, and FOMC Dot Plot update, with Nasdaq leading and small-caps lagging. As of 8:00am, S&P futures are up 0.1% to 5,390 and set to extend the stretch of record highs as traders position for the potential disruption from US inflation data landing just hours ahead of Federal Reserve’s interest rate decision on Wednesday; Nasdaq futures rose 0.2%. Bond yields are flat to down 1bp after a stellar 10Y auction yesterday; the Bloomberg Dollar index rose again after four days of gains. Commodities are higher, led by Energy, despite with metals lagging. Today’s focus will be on the doubleheader of CPI and the Fed (our previews can be found here and here).

In premarket trading, Mag7 and semis names are mostly positive thanks to Oracle shares surging 8.7% to a new record high after the infrastructure software company announced a cloud infrastructure partnership with Google Cloud, as well as one with Microsoft and OpenAI. Oracle also reported fourth-quarter results that featured better-than-expected Cloud Infrastructure revenue, even as it missed on total revenue and earnings. PetMed shares drop 11% after the online pet pharmacy reported results.

Investors are preparing for a rare double-whammy of US CPI data and Fed announcements that have the potential to upend markets.

“Today is a big day in terms of economic data and Fed announcement,” said Ipek Ozkardeskaya, an analyst at Swissquote Bank. “It could determine the global market mood for the rest of the month, and a good part of summer.”

While policymakers are widely expected to hold borrowing costs at a two-decade high, there’s less certainty on officials’ quarterly rate projections, also known as the dot plot, where most expect the Fed to revise its dot plot from three rate cuts for the balance of 2024 to two, but a hawkish surprise of just one rate cut can not be excluded (see preview here). In any case, Fed voters already have the CPI print for May and it will feature prominently in their deliberations.

“If it’s two, I think the market reaction can be quite positive and would support new highs in the S&P 500,” Grace Peters, head of investment strategy for Europe, Middle East and Africa at JPMorgan Private Bank, said on Bloomberg TV.

Ahead of the Fed, the May consumer price index reading is due at 8:30 a.m. and is supposed to show another modest slowdown in inflation, with Goldman’s trading desk saying that it is optimistic for a low print.  Here is JPM’s core CPI MoM market reaction matrix (more details here).

  • Above 0.4%. The first tail-risk scenario, this outcome is likely achieved by an increase in both Core Goods and Core Services, with Core Goods flipping from deflationary to inflationary MoM. Within Core Services, we would likely see shelter inflation increase. The bond market reaction would likely be a 12-15bps increase as part of a bear flattening. Equities would react negatively to this repricing. Given the acceleration higher in inflation, rate cut bets for 2024 would evaporate and we will see the return of views of a rate hike. This would be exacerbated by any comments from Powell suggesting rates are not restrictive enough.  Probability 5%, SPX falls 1.5% to 2.5%.
  • Between 0.35% – 0.40%. This outcome is likely achieved by a smaller than expected disinflationary impulse from Core Goods with Shelter remaining flat. Bonds react negatively as Sept/Nov rate cut views decrease. With market fixings pricing in ~0.26% for Core MoM, the bond market reaction could be larger than expected with many Equity investors focused on the surveyed number of 0.3%. Probability 15%, SPX falls 1% to 1.25%.
  • Between 0.30% – 0.35%. This scenario has the widest range of outcomes since the low end of the range supports the disinflationary trend and the higher end of the range the stickier inflation argument. Feroli’s forecast for 0.33% would keep the YoY number flat from last month’s print. The biggest drivers are weak disinflation in shelter, increases in vehicle, medical, and communication prices. Given the move in bond yields on Friday (+14.6bps to 4.43%), there is likely a more muted response to a hotter print. Also referencing Friday, it was surprising to see stocks slough off the bond market move with the SPX falling only 11bps instead of 1%+ as we have seen over the last couple years in response to significant and sudden moves in bond yields. Probability 40%, SPX loses 0.75% to  gains 0.75%.
  • Between 0.25% – 0.30%. As mentioned, the market fixing implies a 0.26% core reading and the move in yields may not be as strong as one would expect on a beat where one would expect ~15bps move in the 10Y yield but this is a positive outcome for risk assets as this print would likely restart the Goldilocks narrative with 24Q1 data being viewed as an anomaly. Probability 25%, SPX gains 0.75% to 1.25%.
  • Between 0.20% – 0.25%. The immediate reaction would be a surge in September rate cut expectations with some likely pointing to July for a surprise, insurance cut given the move by the ECB. While July sees highly unlikely, putting September back on the table would be view favorably by risk assets and we could see some yield curve steepening to aid the Cyclicals/Value trade. Probability 12.5%, SPX gains 1.25% to 1.75%.
  • Below 0.20%. Another tail-risk scenario, likely fueled by a material decline in shelter inflation with goods disinflation supporting the print. Look for a collapse in yields, a material increase in July cut expectations, and a rally across all risk assets ex-commodities. In Equities, this would look like an “everything rally” with both NDX and RTY outperforming the SPX. This outcome, if confirmed in the July print, would trigger a reset in thinking about which stage of the economic cycle we currently reside as well as talks of the Fed having achieved a No Landing/Soft Landing scenario. Probability 2.5%, SPX gains 1.75% to 2.50%.

In Europe, the volatility of the past two days is subsiding investors were caught unprepared for French far-right gains in the weekend’s European Parliament elections; European stocks are on course to rise for the first time in four sessions, led by gains in banks, insurance and financial services. The CAC 40 is higher but underperforming its regional peers as political uncertainty continues to linger. Here are the biggest European movers:

  • UCB shares gain as much as 5.6%, the most since February and to a record high, after JPMorgan raised its recommendation for the Brussels-listed biotech to neutral from underweight.
  • Credit Agricole shares rise as much as 3.2% after Jefferies upgrades to buy, saying that the pullback in French banks since President Emmanuel Macron called a snap election presents an opportunity.
  • Rentokil shares jump as much as 16% after US investor Nelson Peltz’s Trian Fund Management amassed a stake that made it one of the ten biggest shareholders in the pest controller.
  • Richter shares gain as much as 1.5% after Hungarian pharmaceutical company agreed to buy some assets from Mithra Pharmaceuticals and its subsidiary late Tuesday.
  • RWS Holdings shares rise as much as 6% after the translation services company’s interim results, with Berenberg saying growth returned in the second quarter and should now continue into 2H.
  • Lonza shares dip as much as 3.2%, weighed down by speculation that a potentially beneficial US bill may be excluded from the National Defense Authorization Act due to a tight pre-election schedule.
  • Legal & General shares fall as much as 4.7%, most since April 25, after the UK financial services firm forecast a slowdown in dividend-per-share growth.
  • Colruyt shares plunge as much as 14% after the retailer issued cautious guidance because of increased competition and promo pressure.
  • Umicore shares drop as much as 9.1%, to their lowest intraday since 2011, as the Belgian materials technology firm downgraded its guidance.
  • Camurus shares fall as much as 6.1% after holder Sandberg Development offers 1.35m shares at SEK550 apiece, representing approximately an 8.6% discount to the last close.
  • Stabilus shares fall as much as 17%, the steepest decline on record, after the German machinery maker sent out a profit warning last night, cutting its revenue and Ebit margin guidance.
  • Safestore shares drop as much as 3.1% after the self-storage company’s interim results showed a drop in adjusted earnings, while warning full-year EPS will be at the lower-end of consensus.

Earlier, stocks in Asia fell for a second day, led by weakness in Japanese and offshore Chinese shares. The MSCI Asia Pacific Index declined as much as 0.4%, with Alibaba and Toyota among biggest drags. Benchmark in China was flat while that in Hong Kong closed at the lowest level since late April. Shares in Japan fell, while those in Korea were among the top gainers. In China, consumer prices rose less than expected in May and factory prices dropped for the 20th month in a row, fueling concerns over persistently weak demand. “Asian markets waded through murky waters today, with investors on edge ahead of a double-dose eventful day,” said Hebe Chen, an analyst at IG Markets. Also, specific headwinds are raising alarms for traders in China, Hong Kong, and Japan, she said.

In Hong Kong, the Hang Seng index slipped below the “crucial 18,000 level” due to the lackluster China’s CPI data and fresh speculation about looming US chip restrictions, Chen said, adding that Japanese stocks tumbled as hot PPI muddles the outlook for the Bank of Japan’s monetary policy decision due this Friday.

In FX, the Bloomberg Dollar Spot Index gained 0.1%, edging up for a fifth straight day as Treasury futures positioning data suggested the Fed will likely keep borrowing costs elevated. “A higher-than-expected US CPI will make the tone of the FOMC meeting more hawkish and result in USD strength,” said Richard Grace, a senior currency analyst at InTouch Capital Markets in Sydney. “Conversely, a lower-than-expected CPI will see the USD depreciate as Fed Chair Powell maintains the optimism for eventual rate cuts”

In rates, treasuries are also slightly higher ahead of US consumer prices and the Federal Reserve decision, with US 10-year yields falling 1bps to 4.40%. Traders are pricing an 80% possibility that the Fed may cut rates in November, while they price a total of 39 basis points of easing by the end of the year. French 10-year yields are flat at 3.22%. Gilts rise, with little reaction shown to a slight beat for UK GDP in April.

In commodities, oil prices are higher, with WTI rising 1.3% to trade near $78.90 a barrel. Spot gold falls ~$3 to around $2,314/oz.

Bitcoin in consolidation mode in-fitting with broader markets; currently sitting just above USD 67k.

Today’s economic calendar includes includes May CPI (8:30am), monthly budget statement and FOMC rate decision (2pm). Fed officials scheduled to speak after the FOMC meeting include Powell (2:30pm news conference), Williams (Thursday), Goolsbee and Cook (Friday)

Market Snapshot

  • S&P 500 futures little changed at 5,387.00
  • STOXX Europe 600 up 0.5% to 519.79
  • MXAP little changed at 178.98
  • MXAPJ up 0.3% to 559.05
  • Nikkei down 0.7% to 38,876.71
  • Topix down 0.7% to 2,756.44
  • Hang Seng Index down 1.3% to 17,937.84
  • Shanghai Composite up 0.3% to 3,037.47
  • Sensex up 0.4% to 76,762.03
  • Australia S&P/ASX 200 down 0.5% to 7,715.51
  • Kospi up 0.8% to 2,728.17
  • German 10Y yield little changed at 2.61%
  • Euro up 0.1% to $1.0752
  • Brent Futures up 0.8% to $82.61/bbl
  • Gold spot down 0.2% to $2,312.95
  • US Dollar Index little changed at 105.19

Top Overnight News

  • China’s May inflation is essentially inline (but still soft), with the CPI +0.3% (vs. +0.3% in Apr and vs. the Street +0.4%) and the PPI -1.4% (vs. -2.5% in Apr and vs. the Street -1.5%). RTRS  
  • Brussels will impose tariffs of up to almost 50 per cent on Chinese electric vehicles, brushing aside German government warnings that the move risks starting a costly trade war with Beijing. The European Commission notified carmakers on Wednesday that it will provisionally apply additional duties of between 17 and 38 per cent on imported Chinese EVs from next month. FT
  • The US Treasury is expected to roll out a big expansion of its secondary sanctions program on Russia this week, treating any foreign financial institution transacting with a sanctioned Russian entity as though it is working directly with the Kremlin’s military-industrial base. FT
  • The world faces a “staggering” surplus of oil equating to millions of barrels a day by the end of the decade, as oil companies increase production, undermining the ability of Opec+ to manage crude prices, the International Energy Agency has warned. FT
  • Israel/Hezbollah tensions spike after an Israeli strike killed the most senior Hezbollah commander since the start of the war in Gaza (Hezbollah fired a barrage of rockets toward Israel in response). Jerusalem Post
  • Emmanuel Macron said he won’t resign if his party suffers a poor result in snap French parliamentary elections, saying that’s absurd. “I will kill this idea, which never actually existed.” The French president said he’ll appoint a PM as the constitution demands but that doesn’t mean handing control to the far right. BBG
  • Today’s Fed meeting looks set to be one of the year’s most pivotal with Jerome Powell potentially offering his clearest hints yet to the rate path. Bloomberg Economics expects the new dot plot will probably indicate two 25-bp cuts this year, compared with three previously. BBG
  • US crude inventories resumed their downward trajectory, led by a 1.9 million barrel decline at Cushing, API data is said to show. That would be the biggest drop in more than four months if confirmed by the EIA today. BBG

A more detailed look at global markets courtesy of Newsquawk

APAC stocks were mostly subdued after the mixed handover from US peers as markets braced for the incoming US CPI data and the FOMC announcement. ASX 200 was pressured amid weakness in mining, tech, and the defensive sectors. Nikkei 225 retreated beneath the 39,000 level as participants digested firmer-than-expected PPI data which rose at the fastest annual pace in 9 months. Hang Seng and Shanghai Comp. were somewhat varied with underperformance in Hong Kong as China Evergrande New Energy Vehicle shares dropped around 20% amid the threat of losing key assets after local administrative bodies demanded repayment of CNY 1.9bln in subsidies by its units. Meanwhile, the mainland was cautious amid frictions with the US and after mixed Chinese inflation data including softer-than-expected CPI and a narrower deflation in factory gate prices.

Top Asian news

  • US President Biden’s administration is to widen sanctions on Wednesday on the sale of semiconductor chips and other goods to Russia, according to Reuters sources. US will change export controls to include US-branded goods and not just those made in the US, while the measures are aimed at targeting third-party sellers in China and Hong Kong that are supplying Russia.
  • China reportedly weighs a ban on bank distribution of hedge fund products, according to Bloomberg.
  • Chinese Foreign Ministry says EU tariffs on Chinese EVs violate market economy principles and international trade rules; China will take all measures to firmly defend interests.
  • EU intends to impose provisional tariffs on Chinese EV’s of 21% for cooperating companies, 38.1% for those which have not

European bourses, Stoxx 600 (+0.4%) are entirely in the green, attempting to trim some of this week’s significant losses, sparked by political uncertainty in Europe. European sectors hold a strong positive bias, with Banks taking the top spot as the sector finds its footing after this week’s weakness. Autos is the clear laggard, after news that the European Commission will notify carmakers that it will provisionally impose additional duties of up to 25% on imported Chinese EVs from next month. US Equity Futures (ES +0.1%, NQ +0.1%, RTY -0.1%) are trading on either side of the unchanged mark with price action tentative ahead of today’s key risk events, which includes US CPI and the FOMC Policy announcement.

Top European News

  • ECB’s Kazaks sees hopes of further rate cuts this year. Need to be convinced that inflation will not return.
  • ECB’s Villeroy says inflation will be below 2% in France starting next year, even at 1.7%.
  • ECB Schnabel says the economy is recovering gradually, last mile of disinflation is proving bumpy; first indications of easing wage growth.
  • UBS expects BoE to start cutting interest rates in August (prev. forecast June)
  • French President Macron says they have not been able to form lasting coalitions. EU vote clear, could not be ignored.

FX

  • USD is flat and in a narrow range as participants await the double dose of US risk events in the form of CPI and the FOMC; DXY resides within 105.21-32 parameters, well within yesterday’s 105.09-46 range.
  • EUR price action has been uneventful thus far awaiting today’s key risk events; EUR/USD in a 1.0733-47 range thus far.
  • GBP has also been trading sideways finding intraday resistance at 1.2750 (vs low 1.2729) with little immediate move seen in the wake of in-line GDP which ultimately resulted in little change in BoE pricing.
  • JPY is very modestly softer irrespective of the overnight risk aversion and firmer-than-expected PPI data; USD/JPY currently trading within a 157.03-37 range.
  • Antipodeans are both modestly firmer facilitated by an attempted recovery in base metals, but with gains capped as the risk tone remains cautious ahead of the aforementioned risk events.
  • PBoC set USD/CNY mid-point at 7.1133 vs exp. 7.2558 (prev. 7.1135).

Fixed Income

  • USTs are flat ahead of US CPI for one final read into the FOMC meeting where market pricing currently has a 99% chance of an unchanged rate. Currently holding near a fresh WTD high at 109-20, sparked by Tuesday’s strong US auction.
  • Bunds are firmer with initial impetus stemming from Tuesday’s strong US auction and perhaps some marginal follow through from UK GDP numbers. Bunds are within a 130.21-130.50 bound, and have edged down towards the mid-point of the range after a poorly received Bund auction.
  • Gilts are firmer, in tandem with broader strength in EGBs/USTs; amidst this, the morning’s UK GDP metrics were broadly in-line but the internals around Construction/Manufacturing were soft and sparked a very modest dovish move to BoE pricing.
  • Germany sells EUR 3.3bln vs exp. EUR 4bln 2.20% 2034 Bund: b/c 2.0x (prev. 2.8x), average yield 2.6% (prev. 2.53%) & retention 16.75% (prev. 17.9%).
  • UK sells GBP 900mln 0.625% I/L Gilt 2045: b/c 3.88x real yield 1.304%

Commodities

  • Crude is firmer and at session highs, continuing to build on yesterday’s bullish private inventory data which saw a larger than expected draw in crude and gasoline. Additionally, geopolitical updates out of Israel/Hezbollah point towards recent escalations within the region. Brent Aug currently around USD 82.85/bbl.
  • Precious metals are flat/mixed as traders look ahead to the US CPI and FOMC; XAU sits in a USD 2,310.60-2,317.70/oz range.
  • Base metals are attempting a recovery from the recent slide in prices induced by Fed expectations following Friday’s NFP data. Chinese inflation did little to sway prices as trades await upcoming US macro events.
  • IEA Oil Market Report: lowers 2024 demand growth forecast by 100k BPD to 960k BPD; 2025 oil demand growth seen at 1mln BPD amid a muted economy and clean energy tech deployment; major oil surplus seen this decade as demand peaks.
  • UBS says on Gold “we have raised our 2024 avg. forecast and year-end target by 8% to USD 2365 and USD 2600 respectively”
  • US Private Inventory Report (bbls): Crude -2.4mln (exp. -1.05mln), Cushing -1.9mln, Distillate +1mln (exp. +1.6mln), Gasoline -2.5mln (exp. +0.9mln).
  • Azerbaijan oil production was 62.1k/T day in May.

Geopolitics: Middle East

  • Rocket sirens are reportedly sounding over several towns in Northern Israel, according to Horowitz on X; Israeli media says “Heavy bombardment from Lebanon towards northern Israel, and sirens activated in Tiberias, Safed, and Galilee” via Sky News Arabia.
  • IDF Radio reports “More than 100 rockets fired from the south Lebanon on Safed, Tiberias and their surroundings in a few minutes”.
  • Hamas official said their response to the Gaza ceasefire deal is responsible, serious, and positive, while the official added the response opens a wide way to reach an agreement.
  • Israeli official said Hamas has rejected the proposal for a hostage release presented by US President Biden, while the official added that Israel received the Hamas response via mediators and that Hamas changed the proposal’s main parameters.
  • Israeli airstrike on south Lebanon killed four people including a senior Hezbollah field commander, according to three security sources cited by Reuters. It was later noted that the Hezbollah commander killed in an Israeli airstrike on Tuesday was the most senior member killed in the last 8 months.
  • US Pentagon said Secretary of Defense Austin discussed with his Israeli counterpart by phone efforts to calm tensions along the Israeli-Lebanese border, according to Sky News Arabia.
  • Rocket sirens are reportedly sounding over several towns in Northern Israel, according to Horowitz on X; Israeli media says “Heavy bombardment from Lebanon towards northern Israel, and sirens activated in Tiberias, Safed, and Galilee” via Sky News Arabia; IDF Radio reports “More than 100 rockets fired from the south Lebanon on Safed, Tiberias and their surroundings in a few minutes”.

Geopolitics: Other

  • EU is proposing to sanction Russian oil-shipping giant Sovcomflot, according to Bloomberg.
  • EU is pushing ahead with Chinese electric vehicle tariffs that are set to bring in more than EUR 2bln a year, despite opposition from Germany, according to FT. European Commission will notify carmakers that it will provisionally impose additional duties of up to 25% on imported Chinese EVs from next month. Note, it was reported that yesterday Chinese Auto Industry Association CPCA said the EU could impose a 20% tariff on Chinese EVs, which is an understandable trade practice.
  • Japan mulls sanctioning groups including Chinese firms for aiding Russia’s invasion of Ukraine, according to NHK.

US Event Calendar

  • 07:00: June MBA Mortgage Applications +15.6%, prior -5.2%
  • 08:30: May CPI MoM, est. 0.1%, prior 0.3%
    • May CPI YoY, est. 3.4%, prior 3.4%
    • May CPI Ex Food and Energy MoM, est. 0.3%, prior 0.3%
    • May CPI Ex Food and Energy YoY, est. 3.5%, prior 3.6%
    • May Real Avg Hourly Earning YoY, prior 0.5%
    • May Real Avg Weekly Earnings YoY, prior 0.5%, revised 0.6%
  • 14:00: June FOMC Rate Decision
  • 14:00: May Monthly Budget Statement, est. -$276.5b, prior -$240.3b

DB’s Jim Reid concludes the overnight wrap

Forgive me for feeling a touch melancholy this morning as I type this at 5am as a 50 year old. I’ll be celebrating by giving the opening speech this morning at DB’s 28th annual European LevFin conference featuring over 1000 investors and issuers. See you there if you’re attending. The highlights from my 40s were 3 kids I didn’t know if I’d ever have, 4 costly renovation projects, 6 knee surgeries, several inner ear surgeries, one back surgery and several trapped nerves. On the plus side of my mid-life crisis, my golf handicap has gone from 6 to 1.9 in my 40s which partly explains some of the ailments above. Let’s hope by the time I’m 60 I’ll have a few AI generated artificial limbs to help me hit the golf ball further.

It’s been another challenging 24 hours for European markets, with risk assets hacking out of the rough thanks to the ongoing political uncertainty in Europe. Meanwhile in a different universe, the S&P 500 (+0.27%) sailed down the middle of the fairway and hit a fresh all time with Apple (+7.26%) having its best day since November 2022 and returning above $3tn market cap and to an all time high itself after a difficult first 3-4 months of the year.

In terms of the European market moves, it was another difficult day for French assets. For instance, the 10yr Franco-German spread widened by another +5.0bps to 60bps, and the CAC 40 (-1.33%) fell to its lowest level in almost four months. Banks were among the worst affected again, with fresh losses for Société Générale (-5.02%), Crédit Agricole (-3.90%) and BNP Paribas (-3.89%). The three banks are now down -12.11%, -7.34% and -8.47% respectively since Monday’s open. At the height of the selloff yesterday, there were even unconfirmed press reports (later denied) that President Macron could resign after the election, before yields came off from their highs later on in the session.

President Macron is set to speak at a press conference today, but in the meantime, there have been growing questions about the political landscape his centrist alliance will be facing at the elections. On the left, an alliance was formed on Monday night between the Greens, Socialists, Communists and La France Insoumise. But on the right of the political spectrum there’s still uncertainty, as Éric Ciotti, who leads Les Républicains party, called for an alliance with Marine Le Pen’s Rassemblement National. Other figures in the party sternly rejected those suggestions, but the historic divisions between the traditional right-wing parties and the RN are becoming increasingly blurred as the latter has come to dominate the right-wing of the political spectrum in France . Later in the day, we heard that talks on forming an alliance between RN and the smaller far-right Reconquest party had broken down. In terms of the latest polls, an Ifop survey out yesterday had Marine Le Pen’s party on 35%, an alliance of four left-wing parties on 25%, and Macron’s alliance on 18%.

This political uncertainty weighed on markets across the continent. That included a third day of losses for the STOXX 600 (-0.93%), with the Stoxx banks index (-2.66%) seeing its largest decline since August. Equities slumped in several countries, with particularly sharp declines in southern Europe, including Italy’s FTSE MIB (-1.93%) and Spain’s IBEX (-1.60%). Sovereign bonds mostly rallied given the risk-off tone, and yields on 10yr bunds came down -4.8bps. But there was still a clear widening in spreads, with 10yr French yields (+0.2bps) just closing at their highest level of 2024 so far. Italian yields (-0.1bps) were also broadly flat despite the core rates rally.

This included 10yr US yields being down -6.3bps to 4.405%. US yields had been trading modestly lower on the day in the risk-off environment emanating from Europe but then saw a sizeable rally after a strong 10yr Treasury auction. This saw the highest bid-to-cover ratio in over two years and the lowest primary dealer take up since August, with $39bn of bonds issued 2bps below the pre-sale yield.

The next test / opportunity for Treasuries will come with today’s epic double bill with the US CPI release for May, as well as the Fed’s latest decision. In terms of the Fed, they’re widely expected to leaves rates unchanged today, so the focus is likely to be on the latest dot plot, as well as the new economic projections. Last time, the dot plot still pencilled in three cuts this year, but only just, and it would have only taken one dot to shift for the median to be at two cuts. Since then, the inflation figures have remained higher than the Fed would ideally like, and our US economists expect the median dot to only show two cuts now, and they also see the core PCE forecast for this year being upgraded by two-tenths to +2.8%. Looking forward, they also see the 2025 dot being revised up by 25bps, so that would signal a shallower pace of cuts. See here for their full preview.

Of course, the signals from the meeting could be influenced by the CPI release earlier in the day, as a surprise in either direction could lead to shifts in their inflation projections. In terms of what to expect, our US economists expect headline CPI to come in at +0.12%, and core CPI to come in at +0.27%. If those are realised, then that would mean the year-on-year headline CPI comes in at +3.4%, while core falls to +3.5%. Click here for their full CPI preview and how to sign up for the subsequent webinar.

Ahead of this US markets were largely unphased by the developments in Europe, with the S&P 500 (+0.27%) posting another record high. One sector affected by contagion from Europe were banks as the S&P 500 banks index fell -2.15%. Tech stocks outperformed, with the NASDAQ up +0.88% and the Magnificent 7 up +1.00%. The latter came mostly as Apple (+7.26%) posted its best day since November 2022 to climb to a new all-time high. Less than two months ago Apple was down -16.7% from its last all time high back in December so a decent bounce back. Monday initially saw a dip after the OpenAI partnership was a “sell the fact” moment but the reaction turned much more positive yesterday.

Asian equity markets are mostly declining this morning with China’s soft consumer prices data weighing on proceedings. As I check my screens, the Hang Seng (-1.43%) is the worst performer among Asian indices on news that the US is considering further trade sanctions on China’s access to AI chip technology. Meanwhile, the Nikkei (-0.63%), CSI (-0.18%) and Shanghai Composite (-0.04%) are also trading marginally lower. The KOSPI (+0.38%) is managing to buck the trend though. US equity futures are flat along with US treasuries.

Coming back to China, CPI disappointed as it rose +0.3% y/y in May, weaker than market expectations for a rise of +0.4%. PPI contracted -1.4% y/y in May (v/s -1.5% expected), marking its smallest contraction since February 2023 and up from last month’s -2.5% decline. It has been negative for 20 months now though. Elsewhere, Japan’s PPI rose +2.4% y/y in May (v/s +2.0% expected) as against prior month’s upwardly revised increase of +1.1%.

Looking at yesterday’s other data, the UK unemployment rate rose to 4.4% (vs. 4.3% expected) over the three months to April, which is its highest level in two-and-a-half years. Separately in the UK, there’s just over three weeks until the election on July 4, and a YouGov poll showed the right-wing Reform UK party on 17%, just one point behind the governing Conservatives on 18%. Labour are still clearly ahead on 38%, but that’s the closest gap between the Conservatives and Reform in a poll so far.

To the day ahead now, and the main highlights will be the US CPI release, along with the Federal Reserve’s decision and Chair Powell’s press conference. Otherwise in Europe, we’ll get the UK GDP release for April, and central bank speakers will include ECB Vice President de Guindos, and the ECB’s Vujcic, Nagel and Villeroy.

Tyler Durden
Wed, 06/12/2024 – 08:13

via ZeroHedge News https://ift.tt/Cz1PMOm Tyler Durden

CPI Preview: “Optimism For A Low Print”

CPI Preview: “Optimism For A Low Print”

If May was a month that brought us that much closer to the Fed’s “soft landing” soft landing, where jobs slumped and CPI came slightly below estimates (as we predicted), June has been a mirror image with last week’s payrolls report coming in red hot (if one can claim that a 600K+ drop in full-time jobs is a red hot), and so all eyes will be on tomorrow’s CPI print at 8:30am ET for the tie breaking vote, not least of all because it will come just hours before the Fed’s 2pm ET decision (as a reminder, FOMC members already have the CPI report in hand, and are encouraged to update their forecasts up until mid/late morning). In other words, the CPI print will be very important.

What does Wall Street expect?

  • Headline CPI is expected to rise just 0.1% MoM in May, down from 0.3% in April thanks to a drop in gas/oil prices, with the range of analyst forecasts between just 0.1-0.2%.  The Y/Y is expected to maintain the prior month’s pace at 3.4%, with forecasts between 3.3-3.5%.
  • Core CPI is expected to match April’s 0.3% pace, with analyst forecasts ranging between 0.1-0.3%. The Y/Y is expected at 3.5%, down from the 3.6% in April, with forecasts between 3.4-3.6%.

  • It’s worth noting that there is a bimodal distribution for tomorrow’s core CPI with most economists (57 out of 69) expecting a 0.3% print with just 12 economists slotting in a 0.2% forecast, and nobody forecasting a 0.4% MoM increase. Needless to say, a below-estimate 0.1% core CPI print – distinctly possible if OER comes in very weak – and we are off to the races and probably a July rate cut.

After a string of hot inflation reports in Q1 when all core CPI reads came in stronger than expected, last month’s, April CPI, was the first to show some inflation progress return in 2024, something that Fed officials have acknowledged, but caveated they are not there yet. Fed’s Waller noted in the wake of the data that it suggests progress towards the 2% target has likely resumed, but he admitted the progress was modest. This data will be used to help confirm if that progress is continuing, and at what pace, or perhaps stalling, or even reversing.

The hot inflation reports at the start of the year questioned whether the Fed has done enough to return inflation to target. The Fed largely toed the line that they will keep rates at the current “restrictive” level for a longer period of time, and that further rate hikes were not the base case. Nonetheless, some had opted to leave the options of rate hikes on the table in case inflation reaccelerated. Ahead of last week, money markets were fully pricing in two 25bp rate cuts from this year, however, the hot May NFP report saw these expectations ease with now just one rate cut fully priced. The CPI data will help either cement market expectations for one rate cut, or if it comes in on the soft side it will likely see markets start to price in two rate cuts with more conviction.

The data will also have implications for the FOMC rate decision due later on Wednesday (previewed earlier), which also releases its updated Dot Plots. Fed Chair Powell in December noted that “participants are allowed to, encouraged to update their SEP forecast until probably midmorning today”, therefore some may revise their dot plots on the day of the FOMC after they see the CPI data.

Turning to the specifics of the report, in their CPI preview note (available to pro subscribers in the usual place) Goldman’s economists expect a 0.25% increase in May core CPI (vs. 0.3% consensus), corresponding to a year-over-year rate of 3.50% (same as 3.5% consensus). The forecast is consistent with a 0.20% increase in CPI core services excluding rent and owners’ equivalent rent and with a 0.19% increase in core PCE in May.

Goldman highlights three key component-level trends it expects to see in this month’s report.

  • Slower pace of inflation in consumer electronics, personal care, and other consumer products, reflecting price declines in the Adobe dataset and consistent with price cuts announced by large retailers.

Car insurance prices will keep rising but the pace of increases will slow: Goldman forecasts a 1% increase in the car insurance component, compared to 1.8% in April and 2.6% in March.

  • Rent and OER inflation will remain stable at 0.35% and 0.42%, respectively, reflecting a normalization in the pace of new-tenant rent growth and a larger gap between new- and existing-tenant rents among single-family units, which are weighted more heavily in OER, than in the overall rental market. Going forward, Goldman believes that stronger rent growth for single-family homes will likely lead OER to continue to outpace rent in the CPI, and expects overall shelter inflation to be running at a monthly pace of around 0.34% by December 2024 (reflecting a 0.26% pace for rent and a 0.37% pace for OER), implying a year-over-year rate of 4.9%.

Elsewhere in the report, Goldman expects a 3% pullback in airfares, reflecting lower jet fuel prices and declining prices in its real-time measure of airfares. The bank also expects a 1.1% increase in used car prices, reflecting higher auction prices in May

Going forward, Goldman expects monthly core CPI inflation remain in the 0.2-0.3% range for the next few months before settling around 0.2% by end-2024. The bankers see further disinflation in the pipeline in 2024 from rebalancing in the auto, housing rental, and labor markets, though expect offsets from catch-up inflation in healthcare and car insurance and from single-family rent growth continuing to outpace multifamily rent growth. Goldman forecasts year-over-year core CPI inflation of 3.5% and core PCE inflation of 2.8% in December 2024.

In terms of the market’s reaction function, Goldman trader Lee Coppersmith is out with a note (also available to pro subs) in which he makes the following market reaction prediction:

The straddle-implied move for tomorrow is 1.00, up modestly from last month’s expectation of a 0.95% move and notably higher from the January’s 0.70% move on CPI day; this is also the highest since November, but generally on the low side over the past two years.

Looking at some additional thoughts from around the Goldman trading desk, the consensus is “cautiously optimistic” even as the bank likes “replacing equity length with call spreads”

  • Dom Wilson (Senior Markets Advisor): The combo of a CPI release and an FOMC with a fresh SEP is obviously a key event risk and creates the potential for a decent amount of intra-day movement too. Our baseline forecasts (0.25% on core CPI with an eye into a 0.19% on core PCE and a 2-cut median dot for 2024) are likely to be a source of at least modest relief, and the news since the May FOMC suggests that Chair Powell should not sound too different from the last press conference. The market is still worried about the extent of progress on the inflation side and I think there are plenty of people expecting a 1-cut Fed dot, so avoiding those more hawkish outcomes should deliver some upside to risk assets. You’ve also got a somewhat higher vol profile for the day than in some prior months, which suggests more focus/nervousness on these events. I think you need a core inflation reading above 0.3% to create a real challenge, and a 1-cut 2024 dot – even though it won’t really be unexpected – would probably also create some renewed upward pressure on yields and downside for equities. Our core view has remained positive on US stocks, while using cheaper optionality to protect against event risk, so the basic strategy hasn’t changed. There isn’t as clear an opportunity here as we sometimes see, but I think the current set-up favors calls or call spreads. With very near-dated vol elevated it may make sense to avoid very short-dated tenors, which have often looked particularly attractive for these events. And we’ve also started to think about more medium-term protection opportunities as the US election comes more firmly into focus. I think part of the challenge is that the calendar beyond here doesn’t create an obvious runway for extended relief, particularly with European political noise picking up. You’ve also got the BOJ behind this and beyond that the focus turning to the first Presidential debate – we’ve generally liked using the recent weakening in the USD to set up some medium-term long USD exposure for the coming month, though the European election surprises have meant that entry points in spot and vol are not nearly as good as last week.
     
  • Joe Clyne (US Index Vol Trading): Heading into FOMC/CPI, short-dated vols have retraced back towards the lows of the year (excluding the very end of May). S&P 1 month 25 delta call vols are trading on a single digit vol handle which is more than a vol below its one year average. Interestingly, we are still seeing substantial vol inversion between June and July with the rich event calendar over the next few days. The combination of the vol inversion, the low vol further out the curve, and the substantial dealer long gamma positioning leads to us liking long vol trades better than long gamma trades over the course of this week. The straddle for CPI/FOMC itself looks to go out around 1% which certainly isn’t egregious, but you would need both events to surprise in the same direction to substantially outrealize that straddle. In the short-dated space, we like SPY July call spreads to play for further upside and, in the belly of the curve, we think 4 month SPY vol is the most attractive area to go outright long vol as it approaches post-2017 lows.
     
  • Shawn Tuteja (Macro EQ Vol Trading): Our sense from client conversations is that there is optimism for a low CPI print, and we think that’s helped provide support for broader equities (excluding RTY / cyclicals / banks) on this most recent leg higher in bond yields. We’re watching as to whether clients use a low CPI print as a way to reduce overall portfolio risk. GS PB shows nets in the 99th percentile now on a 1y lookback (70th on a 5 year lookback), with grosses at historical highs, yet clients continue to remain constructive equities in light of a friendly FOMC committee and mixed data thus far. While much has been made of SPX implied volatility reaching new lows, this vol pressure has spilled into other assets and themes. We think there are opportunities to buy implied volatility on cyclicals and high leverage EQ names that have yet to fully price in the effects of insurance cuts coming out of the rates curve. Our view is that after the CPI/FOMC, clients will start to turn their focus to the elections, which have historically led to risk-reduction. In 2016, SPX corrected almost 9% from early Sep to end of Oct (and almost 5% over the same timeframe in 2016), and both of the previous elections have seen implied vol squeeze into them. Our internal model shows a 2.74% implied move (1.9% of which is “extra” variance) already for the election, and the first debate is on June 27th.

A quick look at JPMorgan finds the largest US bank somewhat on the hawkish side: the bank’s chief economist Michael Feroli sees headline MoM CPI printing +0.2%, above the Street’s 0.1%, and sees Core MoM printing +0.33%, above the Street’s +0.3% estimate (market fixings imply ~0.26% increase). On a YoY basis, he sees headline inflation of 3.4% (vs. 3.4% in previous print), aligned with the Street, and he sees core inflation of 3.6% (vs. the Street at 3.5% and 3.6% in the previous print).

JPM’s market intel desk is likewise ready with its own analysis (link here for pro subs), and also looks at core CPI as the key variable to 1-day SPX moves. That said, with CPI and Fed on the same day there is a possibility of a CPI outcome being reversed by Powell’s press conference.

  • Above 0.4%. The first tail-risk scenario, this outcome is likely achieved by an increase in both Core Goods and Core Services, with Core Goods flipping from deflationary to inflationary MoM. Within Core Services, we would likely see shelter inflation increase. The bond market reaction would likely be a 12-15bps increase as part of a bear flattening. Equities would react negatively to this repricing. Given the acceleration higher in inflation, rate cut bets for 2024 would evaporate and we will see the return of views of a rate hike. This would be exacerbated by any comments from Powell suggesting rates are not restrictive enough.  Probability 5%, SPX falls 1.5% to 2.5%.
  • Between 0.35% – 0.40%. This outcome is likely achieved by a smaller than expected disinflationary impulse from Core Goods with Shelter remaining flat. Bonds react negatively as Sept/Nov rate cut views decrease. With market fixings pricing in ~0.26% for Core MoM, the bond market reaction could be larger than expected with many Equity investors focused on the surveyed number of 0.3%. Probability 15%, SPX falls 1% to 1.25%.
  • Between 0.30% – 0.35%. This scenario has the widest range of outcomes since the low end of the range supports the disinflationary trend and the higher end of the range the stickier inflation argument. Feroli’s forecast for 0.33% would keep the YoY number flat from last month’s print. The biggest drivers are weak disinflation in shelter, increases in vehicle, medical, and communication prices. Given the move in bond yields on Friday (+14.6bps to 4.43%), there is likely a more muted response to a hotter print. Also referencing Friday, it was surprising to see stocks slough off the bond market move with the SPX falling only 11bps instead of 1%+ as we have seen over the last couple years in response to significant and sudden moves in bond yields. Probability 40%, SPX loses 0.75% to  gains 0.75%.
  • Between 0.25% – 0.30%. As mentioned, the market fixing implies a 0.26% core reading and the move in yields may not be as strong as one would expect on a beat where one would expect ~15bps move in the 10Y yield but this is a positive outcome for risk assets as this print would likely restart the Goldilocks narrative with 24Q1 data being viewed as an anomaly. Probability 25%, SPX gains 0.75% to 1.25%.
  • Between 0.20% – 0.25%. The immediate reaction would be a surge in September rate cut expectations with some likely pointing to July for a surprise, insurance cut given the move by the ECB. While July sees highly unlikely, putting September back on the table would be view favorably by risk assets and we could see some yield curve steepening to aid the Cyclicals/Value trade. Probability 12.5%, SPX gains 1.25% to 1.75%.
  • Below 0.20%. Another tail-risk scenario, likely fueled by a material decline in shelter inflation with goods disinflation supporting the print. Look for a collapse in yields, a material increase in July cut expectations, and a rally across all risk assets ex-commodities. In Equities, this would look like an “everything rally” with both NDX and RTY outperforming the SPX. This outcome, if confirmed in the July print, would trigger a reset in thinking about which stage of the economic cycle we currently reside as well as talks of the Fed having achieved a No Landing/Soft Landing scenario. Probability 2.5%, SPX gains 1.75% to 2.50%.

We conclude with the view from JPM’s market intel team, which is even more “tactilcally bullish” than the Goldman trading desk (and thus, even more opposed to the pessimism that JPM’s Marko Kolanovic continues to sell week after week ever since late 2022).

  • Tactically bullish. We think the 0.3% – 0.35% scenario is what unfolds. As we continue to wait for a ‘catch down’ between official housing pricing and real-time indicators, we are seeing other elements increase their inflationary impulse such as medical services and vehicle prices. This year, core prints have surprised hawkishly (3 of 5 prints) or been in line with survey (2 of 5 prints). The combination of this print with a neutral/dovish Powell press conference means that we would buy any dip created by this event. Our bullish view (at/above trend GDP + positive earnings growth + paused Fed) remains intact and the bull case gets additional support from the AI-theme which has two more data points this week in AAPL and AVGO. With 2 US holidays over the next 4 weeks, we may see volume declines lead to larger than expected moves despite an information vacuum after this week.
  • Monetization menu: Tech has been the only major sectors that has outperformed on both a 1-week and 1-month basis, highlighting narrowing breadth. I think we need to see either a pullback or a shift in how the market views economic fundamentals to see market breadth return. For that to occur with this week’s events, we would need a dovish CPI print and a dovish Powell who highlights broad economic strength that is accelerating, e.g., growth without inflation. MegaCap Tech remains the “safest” long but keep an eye on Healthcare and Consumer Discretionary as other long plays if we fail to see a narrative shift. In a market broadening scenario, Energy, Financials, and Industrials are the long plays that I would add.

More in the preview folder available to pro subscribers in the usual place.

Tyler Durden
Wed, 06/12/2024 – 08:01

via ZeroHedge News https://ift.tt/p5y0GPu Tyler Durden

The ECB Policy Nightmare And Rate-Cut Mistake

The ECB Policy Nightmare And Rate-Cut Mistake

Authored by Daniel Lacalle,

The ECB decided to cut rates by 25 basis points the same day it elevated its own inflation estimates for 2024 and 2025. You simply cannot make this up. If you wanted unmistakable proof of the lack of independence of central banks, this is it. The ECB only has one mandate, price stability, and has violated it for nearly four years.

Why?

The purpose is to fund the biggest expansion of the government’s size since the euro’s inception and uphold the delusion of a sovereign debt bubble.

We must remember that the ECB has not implemented a restrictive policy at all. It has kept the “anti-fragmentation tool,” which disguises the real risk of sovereign issuers and should be called the “anti-market tool.”

This has allowed governments that have increased their fiscal imbalances to keep an artificially low-risk premium versus the German bond. Furthermore, the ECB continues to repurchase part of the bond maturities and the EU launched the Next Generation Fund, which is another massive money-printing exercise.

The ECB has only used rate increases as a real restrictive tool. Due to higher financing costs, families and small businesses have had to bear the full negative impact of the ECB policy. Meanwhile, governments have not limited their money printing through deficit spending, nor have they simply consolidated the extraordinary expenditures of 2020. In some cases, they have even increased spending beyond that “unique” figure.

Inflation is neither a coincidence nor a fatality. It’s a policy, because the government is the biggest beneficiary of the steady rise in aggregate prices.

It is worth remembering that the consumer price index (CPI) is not “inflation”; it is a measure of inflation. Inflation is the loss of the purchasing power of a currency.

CPI inflation in the eurozone rose to 2.6% in May, according to Eurostat. In fact, all measures rose from the April level, particularly services, which are rising at a 4% annual rate. Furthermore, eight countries in the euro area reported annual CPI inflation rates of more than 3%. This means that the accumulated level of inflation from 2020 will be more than 23%. Despite the previously mentioned evidence and the upward revision of its own estimates of inflation, the ECB decided to cut rates.

The government and its group of propagandists are attempting to persuade you that everything, with the exception of massively issuing more currency than the private sector’s demand, is the cause of price increases. However, the only thing that can cause aggregate prices to rise, consolidate that increase, and continue to go up, even if at a slower rate, is the destruction of the purchasing power of the currency that states issue by issuing much more than the private sector demands.

The most extreme interventionism asserts that inflation indicates a production deficit rather than a rise in currency quantity. It is a falsehood of such magnitude that it should not even be debated. The state generates a huge amount of money, and even if production increases, it cannot prevent everything we import, from components to raw materials, from costing us much more in local currency. No. A widespread increase in output does not eliminate inflation if the state continues to consume new currency units to artificially increase its weight on the economy.

Why are there supporters of inflationism? This is the most effective method for the government to exert its influence on the economy and seize the resources generated by the productive sector, all while using a currency that is increasingly depreciated.

Inflation is the equivalent of an implicit default on debt. The state issues a pledge of payment and returns it with a decreasing value.

There was no data on the May inflation release to justify a rate cut.

First, the latest monetary aggregate note from the ECB indicates a significant increase in the amount of money in the system. Moreover, the calculation of the total amount according to the Murray Rothbard method (True Money Supply), which includes monetary funds in financial aggregates, shows that the quantity of money has not decreased at all since September 2023 and will likely increase significantly in 2024.

The annual growth rate of the eurozone’s broad monetary aggregate, M3, rose to 1.3% in April 2024 from 0.9% in March. If we calculate the true money supply, the figure would be +4.5% in April 2024, consistent with an inflation rate of 2.6% and a cumulative of 23% since 2020.

Second, lowering interest rates is an incentive to continue increasing state imbalances in countries that have refused to control their deficits and, above all, have taken advantage of inflation to collect more taxes.

Third, a cut in interest rates is an incentive to increase the total amount of money in the system and the rate of increase on the monetary base.

Fourth, the eurozone’s problems are not caused by interest rate hikes. The eurozone was already stagnant with negative nominal interest rates, was in the middle of the Juncker Plan and is still stagnating amid the Next Generation EU Fund.

Fifth, it makes no sense to cut rates when the credit supply has not decreased (in fact, it is rising) and the credit demand remains stable. In April, the year-on-year growth rate of loans to households rose by +0.2%. Credit to non-financial corporations rose by 3%, according to the ECB.

The first impact of the ECB rate cut was a swift slump in the euro-US dollar exchange rate, which will make citizens poorer and imports more expensive.

The eurozone economy is not in stagnation due to rate hikes. It is in stagnation due to the wrong fiscal, industrial, and energy policies.

What reason is there for cutting rates?

Just one.

Cheaper funding for fiscally irresponsible states. The state promises you free things and charges you more with less purchasing power, higher taxes, and impoverishment. There is no such thing as what they call inclusive monetary and fiscal policy. It is the recipe for stagnation.

Tyler Durden
Wed, 06/12/2024 – 06:30

via ZeroHedge News https://ift.tt/6EBHQRz Tyler Durden