Month: June 2021

According to Reuters, Israel’s Health Ministry released a statement Tuesday describing how Pfizer Inc. and BioNTech SE’s COVID-19 vaccine could be linked to dozens of heart inflammation cases, mainly observed in younger men. 

So far, the vaccine has been administered to 5 million people in the country and could soon be expanded to teens as young as 12-15 years old. 

The ministry’s findings found 275 cases of myocarditis between December 2020 and May 2021, including 148 cases within a month after the first vaccination. Of these, 27 cases after the first dose and 121 after the second. Half of the people had previous medical conditions. 

According to the findings, most patients who experienced heart inflammation spent less than four days in the hospital, and 95% of the cases were classified as mild. 

The study found “there is a probable link between receiving the second dose (of Pfizer) vaccine and the appearance of myocarditis among men aged 16 to 30.” 

Pfizer said in a statement that it had reviewed the Israeli observations of myocarditis, noting that no link to its vaccine has been confirmed. 

“A careful assessment of the reports is ongoing and it has not been concluded,” Pfizer said. “Adverse events, including myocarditis and pericarditis, are being regularly and thoroughly reviewed by the companies as well as by regulatory authorities.”

Meanwhile, Nachman Ash, Israel’s pandemic-response coordinator, told local radio station Radio 103 FM, “the health committee gave the green light for vaccinating 12- to 15-year-olds, and this will be possible as of next week.” 

An advisory group with the U.S. Centers for Disease Control and Prevention recommended last month further examination into the possible link between myocarditis and mRNA vaccines. 

The handful of myocarditis cases seem to outweigh the positives as more than 55% of Israel’s population has already been vaccinated. 

While the country continues a vaccination spree, what’s not being widely spoken about is a new study that suggests natural immunity to the virus could last a lifetime. 

Authored by Michael Lebowitz via RealInvestmentAdvice.com,

“Powell Says Fed Policies “Absolutely” Don’t Add To Inequality”

– Bloomberg May 2020

The headline above is but one of countless times Fed Chairman Powell and his colleagues confidently said their policies do not result in wealth or income inequality. Their political stature and use of complex economic lingo give weight to their opinions in the media. Nevertheless, a deep examination of the Fed’s practices and their consequences leaves us to think otherwise.

In our opinion, the Fed’s contribution to wealth inequality is significant and grossly misunderstood. We have written articles explaining why QE and low interest rates generally benefit the wealthy and harm the poor. This article backs up those prior arguments with quantitative muscle.

Timely for investors, we also draw some lines between wealth inequality and financial stability and their relationship to monetary policy. We think it is becoming increasingly possible wealth inequality, and in particular, the outsized effect inflation has on the poor, could be the needle to pop many asset bubbles. The other possible needle is the Fed’s wanting for financial stability.

**Due to the importance of monetary policy from economic, societal, and market perspectives we are breaking this article into two. We will share part two next week.

Background

More inflation and financial stability (rising asset prices) are two of the three core tenets backing monetary policy. A strong labor market is the third objective. We focus on inflation in this article and financial stability in part II.

In our article Two Percent for the One Percent, we explain why inflation is detrimental to the poor, while rising asset prices (financial stability) primarily benefit the wealthy. The following paragraphs from the article explain:

“With that in mind consider inflation from the standpoint of those living paycheck to paycheck. These citizens are often paid on a bi-weekly basis and spend all of their income throughout the following two weeks. In an inflationary state, one’s purchasing power or the amount of goods and services that can be purchased per dollar declines as time progresses. Said differently, the value of work already completed declines over time.  While the erosion of purchasing power is imperceptible in a low inflation environment, it is real and reduces what little wealth this class of workers earned. Endured over years, it has adverse effects on household wealth.”

“Now let’s focus on the wealthy. A large portion of their earnings are saved and invested, not predominately used to pay rent or put food on the table. While the value of their wealth is also subject to inflation, they offset the negative effects of inflation and increase real wealth by investing in ways that take advantage of rising inflation. Further, the Fed’s historically low-interest-rate policy, which supports 2% inflation, allows the more efficient use of financial leverage to increase wealth.”

The Fed Craves More Inflation

• “If we generated some modest inflation, I think we would consider that a success,” –Neel Kashkari 12/2020

• “If we got 3 percent inflation that would not be so bad.” Charles Evans 1/2021

• “By committing to achieve inflation outcomes that average 2 percent over time, the Committee would make clear in advance that it would accommodate rather than offset modest upward pressures to inflation in what could be described as a process of opportunistic reflation. This approach will help move inflation expectations back to our 2 percent objective, which is critical to preserve conventional policy space.” – Lael Brainard 2/2020

In no uncertain terms, Fed members make it clear, they want more price inflation. Unfortunately, inflation is not best for everyone. Inflation affects different income classes vastly differently. The disparity is most accentuated with necessities, such as food and housing prices.

Food and Housing Inflation

Spending on food and shelter comprise over 75% of the after-tax income of the lowest income classes but only about 25% for the highest income classes. The graphs below, courtesy of Brett Freeze, compare food and shelter spending across multiple income classes. In each illustration, the bar chart on the left shows the total food or shelter expense as a percent of after-tax income.  The charts to their right are the sub-components expenditures that comprise the total.

Over the last year, the BLS reported food and beverage prices rose at an average annual rate of 8.84%. For a family in the $15,000 – $29,999 income class, total spending would have to rise by 2.07% on average to consume the same amount of goods and services as a year ago. The increase only accounts for higher food prices. For the highest income class, their change was only .67%.

Housing prices, over the same period, rose on average by 7.07%. For a family in the lowest income class, this one expense pushes their total expenses up by 3.98%. The families in the highest income class will pay 1.42% more.

Only accounting for food and housing, two necessities, the lowest income classes saw their annual expenses rise by 6.05%. The highest income classes saw their expenses rise by 2.10%.

Who Can Afford Inflation?

The graph below, courtesy of Congressional Research Service – The U.S. Income Distribution: Trends and Issues, quantifies changes in income by income class. The data allows us to assess if wage inflation can offset price inflation.

As shown, the lowest income group saw incomes rise by 11% over the period spanning 2009-2019. That equates to approximately 1% a year. The highest income group saw their income rise by about 3% a year over the same period.

The current annual increases in food and housing costs will require an additional 6.05% of income for the lowest wage earners to keep their financial position indifferent. Any amount less than that and they fall behind. Keep in mind that does not cover inflation for any other expenditures.

Stimulus checks may fill the immediate gap, but in the long-run inflation makes their financial difficulties worse.

The highest income earners will need to earn 2.10% more in income to cover recent price increases. Fortunately for them, that is below the recent rate of annual income increases.

The data above is further affirmed by the latest BLS employment data released May 7, 2021.  Per the BLS, wages rose 0.3% over the last year versus a 4.2% increase in CPI.

Why Investors Should Care

If the prices of food, shelter, and other necessities continue to surge higher without equivalent wage growth, wealth inequality will worsen. This problem represents a coming dilemma for the Fed.

When the media and politicians take notice, they will pressure the Fed on their inflation stance. If the Fed is persuaded or even forced to act, bubbles driven by the latest round of excessive liquidity, are likely to deflate.

Growing wealth inequality may be a needle in search of a bubble.

Part two, coming next week, discusses the other needle looking for a bubble, financial stability.

JBS SA, the world’s largest meat producer, released a statement in the overnight session stating “significant progress” has been made to resolve a ransomware attack that paralyzed its US operations and some plants in other countries. 

“Our systems are coming back online, and we are not sparing any resources to fight this threat,” JBS USA CEO Andre Nogueira said in a statement.

“Given the progress, our IT professionals and plant teams have made in the last 24 hours, the vast majority of our beef, pork, poultry and prepared foods plants will be operational Wednesday“, Nogueira said.  

The cyberattack forced the shutdown of all JBS’ US beef plants, which account for almost a quarter of American supplies. 

“On Sunday, 30 May, JBS USA determined that it was the target of an organized cybersecurity attack, affecting some of the servers supporting its North American and Australian IT systems”, JBS said at the time. 

JBS Facilities 

The shuttering raises concern about food security as hackers increasingly target critical commodity-linked companies. 

White House Deputy Press Secretary Karine Jean-Pierre said Tuesday that the hacking group behind the attack is “likely” based in Russia.” 

“The White House is engaging directly with the Russian government on this matter, and delivering the message that responsible states do not harbor ransomware criminals,” she said.

Three weeks ago, another ransomware attack brought down Colonial Pipeline Co., operator of fuel pipelines on the East Coast. It was targeted by a group called “DarkSide.” 

While JBS soothes fears of potential meat shortages and soaring food prices – there has yet to be a statement released by the company indicating all systems are operational. 

Authored by Steve Watson via Summit News,

Dr Fauci’s emails have been released via a Freedom of Information Act request, and there is some pretty interesting stuff in them, particularly one email where a researcher who funded the Wuhan Institute of Virology thanks Fauci for publicly dismissing the lab leak theory early on during the pandemic.

The email from Dr. Peter Daszak, President of the EcoHealth Alliance, a group that has extensive ties to the Wuhan lab gain of function research, sent the email to Fauci on April 18, 2020, roughly six weeks after the outbreak had taken hold.

The email states:

“As the Pl of the ROl grant publicly targeted by Fox News reporters at the Presidential press briefing last night, I just wanted to say a personal thank you on behalf of our staff and collaborators, for publicly standing up and stating that the scientific evidence supports a natural origin for COVID-19 from a bat-to-human spillover, not a lab release from the Wuhan Institute of Virology.

From my perspective, your comments are brave, and coming from your trusted voice, will help dispel the myths being spun around the virus’ origins. Once this pandemic’s over I look forward thanking you in person and let you know how important your comments are to us all.”

Fauci responded to the email the day after, writing

“Peter:

Many thanks for your kind note.

Best Regards,

Tony”

Daszak, who also works for the World Health Organisation, is on record admitting that he was involved with manipulating coronaviruses. Here is a video of him talking in DECEMBER 2019 about how ‘good’ the viruses are for messing around with in a lab:

Daszak notes that “coronaviruses are pretty good… you can manipulate them in the lab pretty easily… the spiked proteins drive a lot about what happens. You can get the sequence you can build the protein, we work with Ralph Baric at UNC to do this, insert into the backbone of another virus and do some work in a lab.”

Elsewhere, the emails show that Fauci also knew very early on, before the WHO even declared a pandemic, that researchers suspected the virus had been ‘potentially engineered’ in a lab, as this exchange with Kristian G. Andersen of the Scripps Research Institute from January 2020 shows:

At the very minimum, this shows lab leak (or worse) was taken exceedingly seriously and was never a “conspiracy theory.”

At the maximum, it opens up questions of an unprecedented global cover up.

Either way establishment politicians and corporate media look worse than ever. pic.twitter.com/R4UOA5M3gg

— Raheem J. Kassam (@RaheemKassam) June 2, 2021

The emails with Fauci show that Daszak had already dismissed the lab leak notion nearly a year before that ‘investigation’ began, and despite other researchers saying it looked potentially engineered.

Perhaps the most disturbing aspect of this is that Daszak was one of the lead “investigators” on the WHO panel tasked with looking into the origins of the pandemic.

Is it any surprise that this guy, whose organisation has shovelled at least $600,000 to the Wuhan Institute of Virology in the past few years to play around with coronaviruses inside the lab, determined within 3 hours of visiting the lab in February 2021 that there was ‘nothing to see here’?

Peter Daszak (R), Thea Fischer (L) and other members of the World Health Organization (WHO) team investigating the origins of the COVID-19 coronavirus, arrive at the Wuhan Institute of Virology in Wuhan in China’s central Hubei province on February 3, 2021. (Photo by Hector RETAMAL / AFP) (Photo by HECTOR RETAMAL/AFP via Getty Images)

Daszak, like Fauci, has also since denied that there was any gain of function research being conducted at the Wuhan lab, and that it wasn’t being funded by EcoHealth Alliance or via the NIH with US tax dollars.

These are blatant lies, as there is mountains of evidence that confirms this was exactly the case.

Why would they deny it when it can be so easily proven the research was being conducted?

Another interesting factoid about Daszak is that he was employed as an ‘expert fact checker’ by Facebook when it was monitoring and removing ‘misinformation’ about the origins COVID on its platform.

If all of that doesn’t scream coverup then what does?

*  *  *

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

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

One day after a concurrent ramp (then reversal) in stocks and the VIX prompted some confusion on trading desks, on Wednesday e-mini futs were stuck at the 4200 gamma pin…

… while European stocks rose and Asian markets fell as the tussle between economic optimism and inflation concern continues to play out in markets. Bitcoin and the dollar ticked up, oil and treasuries were mostly flat.

The S&P 500 slipped fractionally after three straight days of gains on Tuesday as losses in healthcare and technology stocks overshadowed gains in economically sensitive financials and energy after upbeat U.S. factory activity data. While futures were little changed – with Dow e-minis up 36 points, or 0.10%, S&P 500 e-minis up 0.75 points, or 0.02%, and Nasdaq 100 e-minis flat – ahead of key economic data due later this week, it was the latest leg of the surge in “meme stocks” that stood out in early moves on Wall Street on Wednesday. Here are some of the biggest U.S. movers today:

• AMC Entertainment (AMC) extends rally in premarket trading, rising 31% to $44 after raising $230.5 million in a stock sale to Mudrick Capital Management. The stock has since faded much of its gains.
• Cannabis stocks like Tilray (TLRY) and Aurora Cannabis (ACB) climb in premarket trading after Amazon.com (AMZN) said it will actively support proposed U.S. legislation that would legalize marijuana at the federal level.
• Etsy Inc rose 1% after the company said it would acquire Depop, a privately held fashion marketplace, for $1.63 billion, as the online seller looks to attract Gen-Z consumers.
• IRhythm Technologies (IRTC) drops 13% after saying Chief Executive Officer Mike Coyle plans to resign due to personal matters.
• Orbital Energy Group (OEG) drops 4.5%, reversing some of Tuesday’s 115% rally after its unit Gibson Technical Services reached an agreement with telecom service provider TEC for a project in central Mississippi.
• Zoom Video Communications (ZM) gains 2.8% after analysts said its quarterly results signaled a good start to the year.

While broader stock markets remain close to record highs, the momentum of earlier in the year has ebbed as investors begin to worry a stronger-than-expected rebound from COVID-19 means higher inflation and sooner-than-expected monetary policy tightening.

Fed Governor Lael Brainard said on Tuesday there are risks on both sides of monetary policy as the U.S. economy surges ahead while millions of people are unemployed. “Investors would see a surge in payrolls growth as a sign that the Fed is more likely to move,” said Lauren Goodwin, portfolio strategist at New York Life Investments.

The MSCI world equity index bounced in and out of positive territory for the day and below Tuesday’s record high.  In Europe, the Stoxx 600 Index climbed 0.1%, trading near all time highs, with energy shares getting a boost from rising oil prices. British shares’ initial gains fizzled with the FTSE 100 last up 0.1%, while Germany’s DAX and the French CAC 40 gained 0.2%. Here are some of the biggest European movers today:

• Interpump Group shares rise as much as 7.6% to a record high after the company said it is acquiring White Drive Motors & Steering, in a transaction expected to close in 4Q.
• Beiersdorf gains as much as 3.3%, hitting the highest since Nov. 17. The personal-care products maker is well-positioned for a strong recovery and is trading at an “undemanding” valuation, Berenberg said, upgrading the stock to buy and raising its price target.
• Volvo adds as much as 3.8% after the company proposed a distribution of proceeds from the sale of UD Trucks. Handelsbanken sees the plan as a “clear indication” of a solid outlook.
• U-Blox rises as much as 10% after the Swiss electronic components maker raised its sales growth guidance; analysts at ZKB and Vontobel highlight strong order intake and see upside to consensus.
• Solutions 30 climbs as much as 12%, continuing its roller-coaster ride since last week’s slump.
• Wizz Air falls as much as 3.4%, the most since May 11, after the Eastern Europe- focused budget carrier cut its fleet guidance.
• Eurofins Scientific drops as much as 4.1%, falling with stocks of other lab-testing companies, after Abbott Laboratories issued a profit warning on declining demand

Earlier in the session, Asian stocks slipped snapping a three-day winning streak, as inflation concerns offset a positive outlook for earnings growth. The MSCI Asia Pacific Index fell 0.1% paring an advance of as much 0.4%, as tech stocks declined. China’s CSI 300 Index slid 1%, after the state-run Securities Times reported that regulators are against analysts’ practice of setting specific targets for market gauges. China’s IT sector pulled back from a near-three-month peak. Meanwhile, Philippine stocks were the biggest gainers, with the benchmark closing at its highest since March 5, after a media report said the government increased allowable capacity for restaurants and personal care shops, while allowing venues for conferences and exhibits to open. Japanese shares were also among the top performers. The Topix gained for a second day with investors assessing the nation’s vaccine rollout and upcoming U.S. employment data this week. Korea’s Kospi ended the day 0.1% higher — pulling back from an initial climb — after the country announced that inflation rose at its highest pace since 2012 in May as the economy’s rebound gathered momentum. “The fears around inflation likely won’t be proved or disproved for a few months yet – although the lack of excitement around last week’s high-ish PCE readings perhaps suggests that in this area, too, a lot is in the price with break-evens around 2.5%,” Patrik Schowitz, globalmulti-asset strategist at JPMorgan Asset Management wrote in a note.

There was more good news on the data front, where economies are recovering much faster than anticipated — the latest data showed Australia’s economy racing ahead last quarter as consumers and businesses spent with abandon, lifting output back above where it was last year before the pandemic.

That helped the Australian stock market to its latest record but the Aussie dollar succumbed to selling to remain with its recent range as the central bank has been stubbornly sticking to its dovish tone. The S&P/ASX 200 index rose 1.1% to close at 7,217.80, a new record. Energy stocks led sector gains as oil extended advances after closing at the highest since October 2018. Worley was among the top performers after saying it was poised to deliver an improved 2H. Regis Resources was among the worst, snapping a three-day winning streak. In New Zealand, the S&P/NZX 50 index fell 0.2% to 12,440.05

In rates, Treasury 10-year yields slipped 1 basis point on Wednesday to 1.6028%, after choppy price action in Asia and European morning in which gilts and bunds advanced. 10-year yield, lower by about half a basis point at ~1.60%, lagging bunds and gilts despite Euro zone yields largely shrugged off Tuesday’s data showing euro zone inflation rose to 2% in May — a sign that markets were confident the European Central Bank would not decide to slow the pace of its bond buys when it meets on June 10. Germany’s 5-year bond sale receiving a bid/cover ratio of 1.21x, the lowest since April 2020.

“As the major developed economies continue to reopen from COVID lockdowns, the focus on central bank meetings is going to intensify,” MUFG analysts said in a monthly outlook note. They expect the ECB to avoid signaling a slowdown in bond purchases, but think the Fed might confirm that “very initial” discussions on tapering its bond buying have begun.

In FX, the Bloomberg dollar index was heading for its best two-day run in almost three weeks, with the ongoing shift in tone from Federal Reserve policy makers offering support. The Bloomberg Dollar Spot Index rose 0.3%, with the greenback gaining against all of its major peers. The pound declined as worries over a third wave of coronavirus and a delay in economic reopening intensified. The onshore yuan edged lower to 6.3871 per dollar after retreating from three-year highs as policymakers took steps to cool its advance including raising banks’ FX reserve requirements.

The yen declined against most of its major peers amid expectations that a slower recovery in Japan’s economy will keep the central bank from tapering stimulus. USD/JPY rose for the first time this week as Bank of Japan board member Seiji Adachi said “a long battle” must be anticipated toward achieving 2% inflation. The pound edged lower on concern over a possible third U.K. coronavirus wave and a delay to economic reopening; GBP/USD was down as much as 0.2% to 1.4129, the lowest in a week. Australia’s dollar was lower even as its economy expanded faster than economists forecast in the first three months of the year, driven by the private sector as firms boosted investment and households tapped their pandemic savings war chest. The Reserve Bank of Australia left policy unchanged on Tuesday and reiterated that inflation and wage gains are unlikely to be at the point where an interest-rate hike is needed until 2024.

The Turkish lira fell to a record low against the greenback after President Recep Tayyip Erdogan renewed calls for lower interest rates.

In commodities, crude oil prices rallied again after closing above $70 a barrel for the first time in two years, aided by investors wagering that the economic recovery would lift energy demand and that supply would fall behind. Brent futures added 1.3% to $71.16 per barrel and U.S. West Texas Intermediate crude added 1.11% to $68.47, despite the OPEC+ alliance agreeing to hike output in July.

Mark Haefele, chief investment officer at UBS, Global Wealth Management, said vaccination rollouts would spur “a return to normal patterns of mobility, supporting energy demand”, while support for prices also came from an OPEC showing discipline about production increases. “We see energy firms as among the main beneficiaries of the broader global reflation trend, along with financials,” he said.

Cryptocurrency prices rose, with Bitcoin up 1.2% to $37,175 . Gold was flat at $1,900 having traded slightly lower for much of the session.

To the day ahead now, and data releases include the April numbers for German retail sales, UK mortgage approvals and Euro Area PPI. Meanwhile from central banks, we’ll hear from the Fed’s Evans, Bostic, Kaplan and Harker, along with the ECB’s Villeroy. Furthermore, the Federal Reserve will be releasing their Beige Book. Looking at the rest of the week, we get the weekly unemployment claims report and May’s private payrolls data on Thursday will be followed by the crucial monthly jobs numbers on Friday. Investors are closely tracking the labor market’s recovery after an unexpected slowdown in jobs growth in April fanned inflation worries.

Market Snapshot

• S&P 500 futures little changed at 4,197.50
• MXAP little changed at 210.20
• MXAPJ down 0.3% to 708.54
• Nikkei up 0.5% to 28,946.14
• Topix up 0.8% to 1,942.33
• Hang Seng Index down 0.6% to 29,297.62
• Shanghai Composite down 0.8% to 3,597.14
• Sensex down 0.7% to 51,583.79
• Australia S&P/ASX 200 up 1.1% to 7,217.80
• Kospi little changed at 3,224.23
• Brent Futures up 0.78% to $70.80/bbl
• Gold spot down 0.22% to $1,896.28
• U.S. Dollar Index up 0.28% to 90.08
• STOXX Europe 600 +0.2% to 450.99
• German 10Y yield fell 5 bps to -0.184%
• Euro down 0.27% to $1.2180

Top Overnight News from Bloomberg

• Turkey’s President Recep Tayyip Erdogan renewed calls for lower interest rates, pushing the lira to a fresh low against the dollar and piling pressure on his central bank governor to ease policy despite high inflation
• A selloff in China Huarong Asset Management Co.’s bonds is broadening to the nation’s other major bad-debt managers
• Federal Reserve Governor Lael Brainard said there are risks on both sides of monetary policy right now as the U.S. economy surges ahead in a post-pandemic boom while millions of people remain unemployed
• Europeans are in for a costly summer that will test central bankers’ resolve on stimulus as the region’s delayed economic recovery unleashes surging demand
• South Korea’s inflation rose to its highest since 2012 in May as the economy’s rebound gathered pace, adding support to views that the central bank could be among the first in the region to start normalizing policy

Quick look at global markets courtesy of Newsquawk

Asian equity markets traded mixed following a similar indecisive performance in the US where the mood was kept tentative on return from the extended weekend alongside mixed data releases and as this week’s key event remained on the horizon with the NFP jobs data on Friday. ASX 200 (+1.1%) was led higher by outperformance in the energy sector after recent upside in oil prices and with better-than-expected GDP data for Q1 contributing to the tailwinds, although participants also digested confirmation of the one-week lockdown extension to Australia’s second most populated city of Melbourne. Nikkei 225 (+0.5%) briefly reclaimed the 29k level, helped by favourable currency flows and after recent comments by BoJ board member Adachi who stuck to the dovish message in which he suggested to be ready for a long battle to reach the 2% price goal and that the BoJ must ease further without hesitation if an external shock places large downward pressure on the economy. Elsewhere, Hang Seng (-0.6%) and Shanghai Comp. (-0.8%) were lacklustre amid mixed US-China headlines including a call between US Treasury Secretary Yellen and Chinese Vice Premier Liu He where they agreed bilateral ties between the two countries are very important and expressed a willingness to maintain communication, although there was also a recent US congressional advisory report that alleged the US Commerce Department is failing to do its part to protect national security and keep sensitive technology out of the hands of China’s military. Finally, 10yr JGBs were flat as price action was contained by resistance at the 151.50 level and with demand sapped due to the positive mood in Japanese stocks, although downside was also limited with the BoJ present in the market for over JPY 1.1tln of JGBs ranging from 1yr-5yr and 10yr-25yr maturities.

Top Asian News

• China Stocks Drop as Technology Shares Come Off Three-Month High
• Singapore’s Local Virus Cases Rise to More Than One-Week High
• Musk Says Tesla’s Biggest Challenge Is Supply Chain
• Bank of Korea Moves to Dispel Concerns on 9-Year High Inflation

European bourses thus far have been inspired, with flat and caged trade seen across the board (Euro Stoxx 50 Unch), with the European calendar on the light side and news flow also quiet. US equity futures have also been trading horizontally ahead of a slew of Fed speakers later today, and Friday’s looming US jobs report also likely prompting trader to keep some dry powder. Back to Europe, sectors are mostly firmer but do not portray a particular theme nor bias, whilst the breadth of the market also remains narrow. Oil & Gas modestly outperform following the post-OPEC+ gains across the crude complex, whilst there is little to report regarding the other sectors. In terms of individual movers, Volvo (+3.4%) resides near the top of the pack after Co’s board has proposed a SEK 9.5/shr share distribution of the proceeds, corresponding to around SEK 19bln, from the sale of UD Trucks. Lufthansa (+2.2%) is firmer alongside source reports that Germany is said to be taking part in a Lufthansa capital raise. Alstom shares (Unch) gave up gains seen at the open as shareholder Bouygues (+0.3%) offloaded 11ml Alstom shares at EUR 45.35/shr.

Top European News

• U.K. Mortgage Approvals Rise to 86,921 in April Vs. Est. 81,000
• U.K. to Begin Process to Join Trans-Pacific Trade Partnership
• EU to Force Multinationals to Report Revenue in Each Country
• Wizz Air Holds Hope for Busier Summer Even As Outlook Cloudy

In FX, the Greenback continues to grind higher having formed a base or at least finding underlying bids on Tuesday to bounce off post-Memorial Day lows, and has now probed 90.000 to the upside in DXY terms amidst a broad if not all round recovery vs major counterparts. The Buck appears to have overcome initial disappointment with elements of the manufacturing ISM, while also taking comfort from the failure of other currencies to maintain momentum and breach key resistance or psychological levels when it was floundering. Moreover, the Dollar may be benefiting from some short covering ahead of another raft of Fed speakers flanking the Beige Book for June’s FOMC meeting as the index hovers between 90.193-89.856 parameters vs yesterday’s 89.941-662 session range.

• TRY – Scant respite for the Lira, though it has clambered off extreme and fresh all time lows circa 8.7775 hit on the back of latest attempts by Turkish President Erdogan to steer CBRT monetary policy towards lower rates. In short, he met with the Governor and reiterated that the country needs to ease in order to bring down inflation in typically unorthodox fashion, and Usd/Try is now trying to regain composure, but failing to get near 8.5000 again.
• AUD/JPY/NZD/CHF – The high betas and low yielders are conceding most ground to the Greenback as the pendulum changes direction and Aussie loses traction around 0.7750, Kiwi retreats through 0.7250, Yen succumbs to stop-sales beyond 109.70 and Franc slips back below 0.9000. Note, Aud/Usd was only briefly uplifted by firmer than forecast Q1 GDP data as the good news was countered by a week long extension to lockdown in Melbourne, while upbeat comments from the RBA’s Head of Economic Analysis, jones were tinged with caution, but the headline pair may still be drawn to decent option expiry interest between 0.7740-50 (1.3 bn) even though RBA Deputy Governor Debelle is adamant that wage growth will not be strong enough to boost overall inflation until 2024. Meanwhile, NZ Q1 terms of trade were mixed and Head of Financial Markets at the RBNZ, Raynor, stated that the balance sheet is likely to be enlarged for a long time, and BoJ Board member Adachi chimed with the usual dovish script that further easing must be implanted without hesitation if an external shock puts large downside pressure on the economy.
• EUR/GBP/CAD – Stops also contributed to the Euro’s downfall with market contacts noting sell orders at 1.2200, but the headline pair has held around recent lows in the 1.2170-80 region with ongoing support from the Eur/Gbp cross that remains elevated on the 0.8600 handle, as Sterling slips further from yesterday’s new multi-year highs vs the Buck around 1.4250 to pivot 1.4150 and hover mostly below. Conversely, the Loonie continues to outperform above 1.2100 against the backdrop of lofty crude and awaiting Canadian building permits for further direction before Friday’s face-off with the US on employment.

In commodities, WTI and Brent front month futures see modest gains, but the benchmarks have eclipsed overnight ranges – with the former just north of USD 68/bbl (67.78-68.48 range) and the latter testing USD 71/bbl (vs 70.35 low) at the time of writing. OPEC+ saw a swift meeting yesterday with quotas through to July maintained as expected, whilst the producers also reiterated a proactive stance against the backdrop of the Iranian JCPOA talks, which are poised to resume next week after a wrap-up meeting later today – with the Iranian President also noting that talks are progressing well. OPEC+ refrained from giving guidance past July, given the fluidity of the supply/demand situation. Analysts at ING have maintained the view that ICE Brent will average USD 70/bbl over the second half of this year. As a reminder, the weekly Private Inventory data will be released later today due to the US Memorial Day holiday on Monday. Meanwhile on the geopolitical front, Iran’s largest warship caught on fire and sunk in the Gulf of Oman, with the circumstances currently unclear. This situation is one to keep on the radar, given that the Gulf of Oman is the mouth of the Strait of Hormuz chokepoint. Elsewhere, precious metals are mildly pressured by the recent Dollar strength, although some losses are cushioned as yields remain stable following a modest pullback from yesterday’s best levels. Spot gold and silver trade within narrow parameters under USD 1,900/oz and USD 28/oz respectively. Over to base metals, LME copper is subdued but holds onto its USD 10,000/t status, with the red metal facing headwinds from the firmer Buck alongside continuing operations at BHP’s Chilean copper mines despite strike action. Meanwhile, Dalian iron ore and coking coal futures saw another session of gains as traders continue to cheer the relaxation of restrictions at the top steelmaking Chinese city of Tangshan.

US Event Calendar

• 7am: May MBA Mortgage Applications -4.0%, prior -4.2%
• 2pm: U.S. Federal Reserve Releases Beige Book

DB’s Jim Reid concludes the overnight wrap

Since we last spoke I’ve played 5 tournament rounds of golf over three days and been to Legoland. 4 rounds were decent. One very bad which for golf is not bad going. A very busy Legoland was enough to try the patience of a saint and I must confess I lost it towards the end of a long day when someone jumped what was an hour long queue with his whole family to join a friend. Steam came out of my ears and I went up to him and told him he was bang out of order. A row ensued but they didn’t relent. I came up with the immortal line “where would the world be if everyone acted like you”. He shrugged his shoulders and carried on. My wife had to tell me to calm down.

I’m contrast there seemed to be an orderly queue of buyers and sellers yesterday as most risk assets pressed on to fresh highs after strong data releases helped bolster investor sentiment. By the close of trade, the MSCI World Index (+0.21%) and the STOXX 600 (+0.75%) had both climbed to all-time records, while the S&P 500 (-0.05%) fell back ever so slightly as it reopened following Monday’s holiday. Even though the S&P was largely unchanged, US equities saw large moves under the surface as the cyclical over growth trade continued with energy (+3.93%), materials (+1.39%) and banks (+0.97%) outperforming higher growth industries like biotech (-1.41%) and software (-0.61%). The worst performing industry in the S&P 500 was healthcare equipment (-1.88%), on the back of Abbott Laboratories (-9.3%) warning investors of lower-than-expected profits this year as demand for Covid-19 testing kits is drying up. Good news in general however.

The Euro Area flash CPI reading coming in at 2.0% for the first time since 2018 was interesting, but it didn’t stop a broad-based rally in Europe with 19 of 20 sectors higher with cyclicals leading the way – particularly inflation-sensitive basic resources (+2.85%).

Looking at those economic reports in depth now and the main highlight were the various manufacturing PMIs from throughout the world, which added to the positive tone set by the flash readings. The Euro Area manufacturing PMI was revised up from the flash reading to 63.1 (vs. flash 62.8), with both France and Germany seeing positive revisions too. And in the US, the final PMI was revised up to 62.1 (vs. flash 61.5), while the ISM manufacturing print also came in at an above-expected 61.2 (vs. 61.0 expected).

So far so good, but the breakdowns pointed to what could be some issues down the line, as the ISM employment measure was fairly soft at 50.9 (vs. 54.6 expected). Looking through the press release where it quoted various respondents, it was noticeable how many referred to supply-side issues, such as difficulties in obtaining components or hiring qualified candidates, so it’ll be interesting to see how this translates to the nonfarm payrolls number on Friday. The measure of average lead time for production materials has risen nearly 20 days over the last 3 months and is now at 85 days – the longest length of time recorded since the data started being kept in 1987. Meanwhile although the prices paid measure did slip back slightly to 88.0 (vs. 89.5 expected), it’s worth bearing in mind that this is still the 2nd highest reading for the measure since the GFC.

One factor helping to bolster the inflationary case recently has been the rise in a number of key commodity prices, and yesterday saw them extend their gains from last week as the Bloomberg Commodity Spot Index rose +1.42%. Oil prices were one of the big movers, with Brent crude (+1.34%) and WTI (+2.11%) closing at their highest level in over 2 years, which came even as OPEC+ agreed that they’d maintain their plans to increase production in July. OPEC+ gave little indication on exactly how much production will increase by with forecasts clouded by the US-Iran nuclear talks and the uncertain global demand picture. Elsewhere agricultural prices moved higher too, with corn (+4.87%) and wheat (+4.52%) futures both rebounding following recent declines.

Asian markets are trading mixed overnight with the Nikkei (+0.50%) and Kospi (+0.14%) up while the Hang Seng (-0.50%) and Shanghai Comp (-0.65%) are both down. Futures on the S&P 500 (-0.01%) are pointing to a flat open while, those on the Stoxx 50 are up +0.10%. In Fx, the Turkish lira is down -1.13% as we type, after being down as much as -3.08% at one point overnight, weighed down by remarks from President Recep Tayyip Erdogan calling for lower interest rates. Elsewhere, the US Treasury Secretary Janet Yellen and China’s Vice Premier Liu He held an “introductory virtual meeting,” overnight where the two sides discussed how to “support a continued strong economic recovery and the importance of cooperating on areas that are in U.S. interests, while at the same time frankly tackling issues of concern,” according to a statement from the US Treasury.

Back to data and as mentioned earlier, yesterday saw the release of the Euro Area flash CPI data, which rose to +2.0% in May (vs. +1.9% expected), which was the highest reading since November 2018. Energy prices drove the move higher with a +13.1% year-on-year increase, as core CPI came in at just +0.9%, in line with expectations. As a result, it’s unlikely to weigh heavily on the ECB Governing Council ahead of next week’s meeting, in contrast to the US where core CPI stood at +3.0% in April, its highest level so far this century.

Against this backdrop, sovereign bond markets had a weaker performance yesterday, with yields on 10yr Treasuries (+1.2bps) and gilts (+3.1bps) seeing the largest rises as they caught up from the previous day’s holiday. Nevertheless, yields on the European continent were also higher for the most part, with those on 10yr bunds (+0.9bps) and OATs (+1.0bps) rising too. And there was a further reduction in the spread of Greek 10yr yields over bunds, falling to a fresh post-2008 low of 101bps yesterday.

In terms of the latest on the pandemic, there was some good news out of the UK yesterday as the country recorded 0 Covid-19 deaths within 28 days of a positive test. Even if this may have been distorted a bit by reporting over the longer holiday weekend, the fact it’s capable of happening is still a positive sign of movement in the right direction, as the government faces calls from some to delay its planned easing for England on June 21. Elsewhere, Germany announced it has downgraded its risk level for the pandemic to “high” from “very high”, which means loosening restrictions may soon be coming to Europe’s largest economy. The threat level has been at “very high” since December. And staying on the positives, New York City saw their positivity rate fall to its lowest level since the pandemic began yesterday, at 0.83%. Separately, it was reported by Axios that the White House would invite all employees back to work in person in July.

Looking at yesterday’s other data, unemployment in Germany fell by -15k in May (vs. -9k expected), while the wider Euro Area saw unemployment fall a tenth to 8.0% in April (vs. 8.1% expected), marking its lowest level since last June. Finally in Italy, growth in Q1 was revised up to show +0.1% growth (vs. -0.4% contraction before).

To the day ahead now, and data releases include the April numbers for German retail sales, UK mortgage approvals and Euro Area PPI. Meanwhile from central banks, we’ll hear from the Fed’s Evans, Bostic, Kaplan and Harker, along with the ECB’s Villeroy. Furthermore, the Federal Reserve will be releasing their Beige Book.

AMC shares continue to power higher in premarket trading Wednesday after Muldrick Capital bought, and then abruptly turned around and sold, 8.5MM shares of the company’s stock almost entirely to AMC’s army of retail bagholders (members of which proudly refer to each other as “apes” on Reddit, Facebook, Twitter and elsewhere).

Let me address the smart raising of equity capital. I believe one of the best things $AMC did in 2021 was to raise $428 million a few weeks ago, at $9.94 per share. Rather than dilution affecting AMC badly in the short term, as some feared, we greatly strengthened AMC. {1 of 5}

— Adam Aron (@CEOAdam) June 1, 2021

We are seeing some terrific opportunities to pick up important theatres from other faltering chains. This can be a real way for AMC to grow again, creating immediate value for AMC shareholders. But we will need more cash to get these theatres under lease. {2 of 5}

— Adam Aron (@CEOAdam) June 1, 2021

Today, we announced selling 8.5 million AMC shares at a price of about $27.12 each. 8.5 million shares is less than 1.7% of our outstanding shares, and is a small portion of our typical trading volume. But it gives us $230.5 million of cash to use primarily to grow AMC. {3 of 5}

— Adam Aron (@CEOAdam) June 1, 2021

First in our sights are the strongest Arclight/Pacific theatres that will not re-open due to pandemic pressures. No one is out of the woods yet, but we like AMC’s improved liquidity, the increases of vaccinated people and the imminent release of new blockbuster movies. {4 of 5}

— Adam Aron (@CEOAdam) June 1, 2021

In our view, this is not mindless dilution, but rather this is very smart raising of cash so that we can grow this company… to many of you on Twitter, to grow YOUR company. Watch out naysayers, $AMC is going to play on offense again. Here we come! {5 of 5}

— Adam Aron (@CEOAdam) June 1, 2021

Now, after CEO Adam Aaron explained in a series of tweets that this was not “mindless dilution, but rather…very smart raising of cash so that we can grow this company…”, Aaron and his firm have just launched a unique new program to engage the retail traders who now own more than 80% of the company’s float as the company takes steps to keep them happy as management grapples with the fact that the company is going to need to raise even more capital (on top of the billions of dollars it has raised in equity issuance this year).

In a press release that hit just minutes ago, AMC announced that it would launch a “new communication initiative” that will put AMC “directly in communication with its extraordinary base of enthusiastic and passionate individual shareholders to keep them up to date about important company information and to provide them with special offers.”

The program will allow AMC’s 3MM retail shareholders to “self identify” through the company’s website, where they will receive “special offers” and “company updates” including an initial offer of a free large popcorn at any AMC-owned theater in the US. More benefits and offers will come, the company added.

Aaron followed up the press release with a tweet announcing the program.

Today, AMC and I launch an innovative effort to communicate often with AMC shareholders. #AMCInvestorConnect gets you AMC Stubs benefits and ***SPECIAL SHAREHOLDER REWARDS*** for those who patronize AMC Theatres in the U.S. Sign up is completely free at https://t.co/b5l62CQlD0 pic.twitter.com/h42VGCCD1I

— Adam Aron (@CEOAdam) June 2, 2021

Just minutes before Aaron’s announcement, we quipped that AMC should only allow shareholders into its theaters.

AMC should only allow shareholders to enter its theaters

— zerohedge (@zerohedge) June 2, 2021

That was fast pic.twitter.com/kF4w9rDUmJ

— zerohedge (@zerohedge) June 2, 2021

However, giving back to shareholders makes sense since AMC is using their money to shed debt, strengthen its capital structure all while creating an enormous cushion for cash-burn. Because AMC knows that this army of retail capital has been a godsend to its business, especially as pretty much all of its big institutional backers, including China’s Dalian Wanda, have exited their positions, leaving management firmly in control at the helm of a retail army. Now, the firm needs to do whatever it can to keep the retail bagholders shareholders in line, because yesterday’s capital raise via Muldrick probably won’t be AMC’s last.

AMC shares have given back some of their gains overnight, but are still up ~200% from a week ago.

In other industry news, Goldman Sachs analysts cut both Imax and Cinemark to sell from neutral, saying a sharp rebound in US box office sales is already priced in. However, they didn’t say anything about AMC.

Read the full press release below:

AMC Entertainment Holdings, Inc. (NYSE: AMC) (“AMC” or “the Company”), announced today that it is launching AMC Investor Connect, an innovative, proactive communication initiative that will put AMC in direct communication with its extraordinary base of enthusiastic and passionate individual shareholders to keep them up to date about important company information and to provide them with special offers. Over the last several months, AMC has seen its retail shareholder base grow beyond 3 million owners. With this sizable number of retail shareholders, AMC is taking a groundbreaking new approach to investor relations and investor communications.

AMC Investor Connect launches in conjunction with the preliminary proxy statement for AMC’s July 29 annual meeting of shareholders, which is expected to be filed publicly on June 3, 2021.

Commenting on this novel step of creating a communication platform to directly reach the millions of AMC’s shareholders, AMC CEO and President Adam Aron said, “AMC Investor Connect will put our Company in direct communication with a retail investor shareholder base that owned more than 80% of AMC at last count. Many of our investors have demonstrated support and confidence in AMC. We intend to communicate often with these investors, and from time to time provide them with special benefits at our theatres. We start with a free large popcorn on us, when they attend their first movie at an AMC theatre this summer.”

Aron added, “During my five-plus year tenure as CEO at AMC, I’ve taken great pride in the relationships I have forged with AMC’s owners. With AMC Investor Connect, that effort in relationship building will continue apace even if our shareholders now number in the millions. After all, these people are the owners of AMC, and I work for them.”

Beginning today, shareholders can sign up to receive special offers and investor updates by registering at amctheatres.com/stockholders. Investors who sign up starting today and in the coming weeks will be awarded with an initial free large popcorn usable this summer when attending a movie at an AMC theatre in the United States. The offer will be made available in their AMC Stubs rewards account.

Investor benefits through AMC Investor Connect include:

• Shareholder-exclusive promotions, including free or discounted items, and invitations to special screenings.
• Communications directly from CEO & President of AMC Theatres, Adam Aron.
• Other interesting information about AMC and its place in the movie eco-system.

To sign up for AMC Investor Connect, an investor must be or enroll as an AMC Stubs member, which includes AMC Stubs Insider, AMC Stubs Premiere and AMC Stubs A-List. AMC Stubs Insider is free to join and includes additional perks and rewards. Additional information about AMC Stubs and how to sign up can be found here: amctheatres.com/amcstubs.

Investors anywhere in the world may sign up for AMC Investor Connect, but initially the free popcorn launch reward can only be redeemed at a U.S. theatre. AMC is currently reviewing its ability of extending the redemption of future offers at its international theatres on a country-by-country basis.

Just as negotiators were preparing to meet in Vienna on Wednesday to wrap up the latest round of talks on reviving the Iran nuclear deal, Iran’s largest warship caught fire Wednesday in the Gulf of Oman and sank under unclear circumstances.

The Fars and Tasnim news agencies reported that efforts to save the support warship, named Kharg (after the island where Iran’s main oil terminal sits), were a failure. The fire started around 0225 local time roughly 1,270 kilometers (790 miles) southeast of Tehran in the Gulf of Oman, not far from the Strait of Hormuz, where several Saudi oil tankers have been attacked in recent years (the US Navy accused the Iranians of using limpet mines to carry out these attacks).

The blaze reportedly raged for 20 hours before the ship sank. It appears the entire crew safely left the vessel. The fire occurred during a “training naval operation” and it’s not clear exactly what caused it.

“All efforts to save the vessel were unsuccessful and it sank,” Iran’s semi-official Fars News Agency said.

According to the AP, the Kharg is one of only a few vessels in the Iranian navy capable of providing replenishment at sea for other ships. The Kharg can also lift heavy cargo, while also carrying a launch pad for helicopters. The warship, built in Britain and launched in 1977, entered the Iranian navy in 1984 after lengthy negotiations following Iran’s 1979 Islamic Revolution.

The ship had light armament and was capable of carrying three helicopters on board, one on the helipad and two more stashed in hangars.

Typically, the Iranian navy patrols the Gulf of Oman and the surrounding area, while the paramilitary Revolutionary Guard patrols the shallower waters in the Strait of Hormuz and the Persian Gulf.

Back in April, another Iranian ship called the MV Saviz, which was believed to be a Guard base and anchored for years in the Red Sea off Yemen, was targeted in an attack suspected to have been carried out by Israel. It’s certainly possible that Israel might be behind this attack as well, as tensions have flared recently between Israel and Iran following the latest war between Israel and Hamas in Gaza.

Iranian authorities say the vessel has been used in anti-piracy operations.

While there were no reports of casualties, the sinking of the Kharg marks the latest naval disaster for Iran following a 2020 incident that occurred during an Iranian military training exercise. At the time, a missile mistakenly struck a naval vessel near the port of Jask, killing 19 sailors and wounding 15. Before that, in 2018, an Iranian navy destroyer sank in the Caspian Sea.