Month: September 2022

Minnesota Engineering Board Fines, Censures Engineer-Activist for Calling Himself an Engineer


reason-citation

The head of an urban policy nonprofit has been penalized by Minnesota’s licensing board for referring to himself as a “professional engineer” in speeches and articles while his license was expired.

Last month, the state’s Board of Architecture, Engineering, Land Surveying, Landscape Architecture, Geoscience, and Interior Design (AELSLAGID) issued an official censure of Charles Marohn, founder of the Brainerd-based advocacy group Strong Towns, and slapped him with a $1,500 fine.

The board argues that such sanctions were a necessary and proportional punishment for Marohn’s purported misrepresentation of his credentials.

Marohn counters that the board’s primary interest is in censoring his criticisms of the engineering profession. The penalties he’s been hit with are both extraordinary and unconstitutional, he contends.

“I’m very disappointed in the board and I’m very disappointed with my colleagues in the engineering profession who try to stifle not just free speech but also calls for reform,” says Marohn. “The point is to tell other engineers within the profession, if you go down this path and make yourself a target, the violation process can and will be weaponized against you.”

Marohn has been a licensed civil engineer since 2000. Though he stopped practicing in 2012 to focus on his advocacy with Strong Towns—which generally argues for zoning reform and safer road designs, and against additional infrastructure spending—he’s kept renewing his Minnesota license every two years.

The one lapse occurred in 2018. Marohn says he moved without informing the board of his change of address, and thus missed the biennial reminder to renew his license. In June 2020, a colleague made Marohn aware of his lapsed license. He promptly renewed it and paid a $120 late fee.

That was unfortunately too late to stave off a February 2020 complaint filed by South Dakota engineer David Dixon, who checked up on Marohn’s licensing status after seeing he referred to himself as a professional engineer in an article critical of traffic engineers on the Strong Towns website.

Seeing that his license had expired in 2018, but that Marohn had made repeated references to himself as an engineer as part of his advocacy work since then, Dixon decided to complain to the licensing board.

“Mr. Marohn talks about being a policy expert, the type that reads law and ordinance. It is not reasonable to assume that Mr. Marohn was not aware that use of the term Professional Engineer, PE, or other similar representations while not licensed, is a violation of law,” Dixon wrote in his complaint. “I urge the board to investigate as it sees fit, and to send a clear message that frauds of this sort are not tolerated.”

Marohn was first made aware of the complaint in July 2020, a month after he’d already renewed his license. In an interview with Reason at that time, he initially waived off the possibility that the board would sanction him.

That prediction hasn’t aged well.

After an investigation, AELSLAGID initially recommended a $1,500 fine against Marohn in November 2020. Board members argued that the references Marohn made to his engineering credentials while his license was expired posed a threat to public safety, and therefore needed to be punished.

Marohn declined to accept that fine, arguing that the state’s restrictions on unlicensed people referring to themselves as engineers only applied in circumstances where people were doing actual engineering work—and he’d stuck to First Amendment–protected advocacy.

He wasn’t the only one to hold that view.

“The board’s enforcement against [Marohn] raises some serious First Amendment concerns,” Sam Gedge, an attorney at the Institute for Justice, a public interest law firm, told Reason last year. “The government licensing boards are the new censors in America. They’re aggressive, and time and time again it becomes clear they just don’t believe the First Amendment applies to them.”

Marohn’s case got appealed up to a Minnesota administrative law judge who declined to rule on the First Amendment arguments and instead said AELSLAGID had the authority to bring enforcement actions against him.

A federal First Amendment lawsuit Marohn had filed against the board was also dismissed on the technical grounds that he needed to exhaust his options in state court first.

All that resulted in AELSLAGID moving ahead with its sanctions against Marohn in July. Their decision argues that the number of times Marohn referred to himself as an engineer while his license was expired, and the prestige he gained from doing so, more than justified penalties.

The board also punted on the constitutional claims Marohn made, saying the law is the law, and they were bound to enforce it.

A Strong Towns press release from this week notes that the board has declined to censure professional engineers who have committed far more egregious violations. That includes one civil engineer who gave public contracts to his former company (where he was still a shareholder), another who concealed past embezzlement convictions when applying for a license, and, most ironically, a man who worked as an engineer for 10 years without a license.

Marohn has appealed these penalties to the Minnesota Court of Appeals. He says overturning these penalties is important for protecting the ability of engineers to criticize practices within their profession.

“I’m not practicing engineering. I don’t make my living doing engineering work,” he says. “If you do, you can see how someone who has now spoken up for reform gets hit with a fine and a censure, you can see the chilling effect that could have on others working in the profession.”

The post Minnesota Engineering Board Fines, Censures Engineer-Activist for Calling Himself an Engineer appeared first on Reason.com.

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Some “Classified” Events

An update regarding my book Classified: The Untold Story of Racial Classifications in America:

The Federalist Society’s Civil Rights Practice Group will be hosting a teleforum on Tuesday, Sept. 6, at 1pm. You can register here.

The Cato Institute will be hosting a book forum/luncheon on Wednesday, Sept. 7, at noon, with commentary from Jane Coaston, host of The Argument at the New York Times, and Robert Cottrol,
Professor of Law, George Washington University Law School. Wally Olson of Cato will moderate. You can register for in-person or virtual attendance here–the virtual program will start at approximately 12:20.

For those of you in the Bay Area, I will be speaking at Berkeley Law School on Wednesday, Sept. 14 at 12:50 PST. I don’t have know the room yet.

I will also be speaking at the University of Toledo Law School on Monday, September 19, at noon, and, for those of you in Philly, Temple Law School on Thursday, October 6, at noon.

Some other Classified news:

ONU Law Professor Scott Gerber reviewed the book in Law & Liberty.

And here’s a podcast I recorded with Ed Morrisey of Hot Air.

Finally, Bill McGurn at the Wall Street Journal quotes from an amicus brief that was based on my research for the book:

Even so, one of the more persuasive friend-of-the-court briefs argues that such a decision would still leave unfinished business. Filed by David Bernstein of George Mason University’s Antonin Scalia Law School, it suggests that not only are racial preferences arbitrary, unfair and unconstitutional, so are the racial boxes the schools use to classify students.

Take “Asian,” a label that covers 60% of the world’s population—lumping Indians with Chinese and Cambodians and Koreans. They have almost nothing in common, from religion to language to culture.

Same with “Hispanic.” Harvard and UNC, Mr. Bernstein writes, can’t “explain why white Europeans from Spain, people of indigenous Mexican descent, people of Afro-Cuban descent, and South and Central Americans who may be any combination of European, African, and indigenous by descent are grouped together as ‘Hispanic.’ “

The post Some "Classified" Events appeared first on Reason.com.

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Pro-American Propaganda on Social Media Had Little Impact—Just Like Russian Propaganda on Social Media


U.S. social media propaganda

A purge of pro-U.S. bot accounts on Facebook and Twitter has given way to an inside look at covert propaganda on social media. In a new report, the Stanford Internet Observatory (SIO) and Graphika analyze these pro-America accounts, including the kind of content they shared and the paltry influence they had.

In July and August, Twitter, Facebook, and Instagram removed more than 100 accounts spreading pro-U.S. messages in Afghanistan, Central Asia, and the Middle East. The accounts—including fake people with images generated through artificial intelligence as well as sham news outlets—were kicked off Twitter for violating its policies on “platform manipulation and spam” and off Facebook for “coordinated inauthentic behavior.”

The tech companies then provided a portion of this account data to SIO and Graphika. “The platforms’ datasets appear to cover a series of covert campaigns over a period of almost five years rather than one homogeneous operation,” notes the SIO/Graphika report, titled “UNHEARD VOICE: Evaluating five years of pro-Western covert influence operations.” These campaigns “consistently advanced narratives promoting the interests of the United States and its allies while opposing countries including Russia, China, and Iran.”

The accounts shared myriad articles from U.S. government-funded media such as Voice of America, as well as links to websites run by the U.S. military.

They also shared memes mocking and criticizing certain foreign leaders, as well as random content and hashtags presumably meant to generate attention. (Also: “Accounts often replied to tweets with the face with tears of joy emoji.”)

Overall, these accounts received very little engagement:

The vast majority of posts and tweets we reviewed received no more than a handful of likes or retweets, and only 19% of the covert assets we identified had more than 1,000 followers. The average tweet received 0.49 likes and 0.02 retweets. Tellingly, the two most-followed assets in the data provided by Twitter were overt accounts that publicly declared a connection to the U.S. military.

The lack of actual influence draws into question why exactly these accounts exist.

But their ineffectiveness shouldn’t be surprising. In the wake of the 2016 election, much was made of Russians posing online as U.S. citizens and media and then using these accounts to promote particular political ends or simply sow division. But these efforts’ tendency to spur panic and fear has always been a bit strange, given “the puny reality” (as Reason‘s Jacob Sullum put it) of their footprint.

The shock and outrage generated by Russian attempts to influence U.S. politics was also odd, given all the ways the U.S. government has historically engaged in covert influence operations abroad—and still seems to be doing so.

Not all of the accounts in the social media datasets could be directly traced to the U.S. government, though some could:

The Twitter dataset provided to Graphika and SIO covered 299,566 tweets by 146 accounts between March 2012 and February 2022. These accounts divide into two behaviorally distinct activity sets. The first was linked to an overt U.S.government messaging campaign called the Trans-Regional Web Initiative, which has been extensively documented inacademic studies, media reports, and federal contracting records. The second comprises a series of covert campaigns of unclear origin. These covert campaigns were also represented in the Meta dataset of 39 Facebook profiles, 16 pages, two groups, and 26 Instagram accounts active from 2017 to July 2022.

Twitter said the sham account activity originated in the U.S. and the U.K., while Facebook reported that it came from the U.S. alone. However, many of these accounts purported to be people or publications based in other countries.

In at least one instance, a Twitter account that purported to be an Iraqi man was previously identified as an account run by the U.S. military.

The account “was created in November 2016 and claimed in its bio to be ‘always in the service of Iraqis and Arabs.'” It “used a profile picture likely generated using artificial intelligence techniques,” and “an Instagram account and a Facebook profile in the Middle East group used the same image as well.”

Accounts less directly linked to the U.S. military were also suspiciously invested in military or other government-linked content. For example:

In 2020 and 2021, a Twitter account that presented itself as an Iranian individual living in “Cambridge” posted links to almashareq[.]com and diyaruna[.]com 25 and 26 times, respectively. Both websites say they are sponsored by the U.S. Central Command (CENTCOM) and post pro-Western articles in Persian and Arabic. This Twitter account was created on June 16, 2019, and its Twitter bio linked to a Telegram account with the same name and just three subscribers.

Another group of analyzed accounts mentioned the United States Agency for International Development 94 times on Twitter and 384 times on Facebook.

SIO and Graphika focused their analysis largely on the covert propaganda accounts, rather than those overtly linked to the U.S. government.

“Importantly, the data … shows the limitations of using inauthentic tactics to generate engagement and build influence online,” states their report. 

For instance, an operation targeting Russian-speaking Central Asian audiences “focused on praising American aid to Central Asia and criticizing Russia, particularly its foreign policy.” But the posts “gained little traction on social media. Facebook posts often had fewer than 10 likes, and only 10 posts gained more than 1,000 reactions.” Only two videos from this operation received a significant number of views, and one “was a non-political TV news excerpt about an Uzbek farmer growing fruits in the desert.”

FREE MINDS

A crackdown on “harmful” content on Chinese apps has silenced feminist concerns:

FREE MARKETS

A new view of income inequality. “Contrary to conventional wisdom, the most dramatic and consequential change in the distribution of income in America in the past half-century isn’t rising income inequality but the extraordinary growth in income equality among the bottom 60% of household earners,” write Phil Gramm and John Early in The Wall Street Journal:

In 2017, among working-age households, the bottom 20% earned only $6,941 on average, and only 36% were employed. But after transfer payments and taxes, those households had an average income of $48,806. The average working-age household in the second quintile earned $31,811 and 85% of them were employed. But after transfers and taxes, they had income of $50,492, a mere 3.5% more than the bottom quintile. The middle quintile earned $66,453 and 92% were employed. But after taxes and transfers, they kept only $61,350—just 26% more than the bottom quintile.

Even these figures don’t tell the whole story. In the bottom quintile, there are on average only 1.92 people living in a household. The second and middle quintiles have 2.41 and 2.62 people respectively. After adjusting income for the number of people living in the household, the bottom-quintile household received $33,653 per capita. The second and middle quintile households had on average $29,497 and $32,574 per capita, respectively. The blockbuster finding is that on a per capita basis the average bottom quintile household received 14% more income than the average second-quintile household and 3.3% more than the average middle-income household.

QUICK HITS

• The Food and Drug Administration has authorized an updated COVID-19 booster vaccine that specifically targets omicron subvariants. “The agency cleared two options aimed at the BA.5 variant of Omicron that is now dominant: one made by Pfizer and its German partner BioNTech for use in people as young as 12, and the other by Moderna, for those 18 and older,” notes The New York Times. “Only people who have received at least two shots will be eligible for the updated booster.”

• 11,000 federal inmates were sent home during the pandemic. Only 17 were arrested for new crimes, reports Reason‘s C.J. Ciaramella. Most of these were drug crimes, “while the rest of the charges included smuggling non-citizens, nonviolent domestic disturbance, theft, aggravated assault, and DUI.”

• Sarah Palin lost her election in Alaska. Palin was competing for Alaska’s sole congressional seat with former state Rep. Mary Peltola and the grandson of the man who previously held the seat. Peltola won, becoming “the first Democrat elected to that seat in nearly 50 years, and only the third Democrat since Alaska became a state,” notes Reason‘s Joe Lancaster. “She is also the first Native Alaskan to represent the state in Congress.”

• U.S. life expectancy has dropped for the second year in a row. “It was the biggest drop in almost 100 years,” reports NPR. “In 2019, someone born in the U.S. had a life expectancy of nearly 80 years. In 202o, because of the pandemic, that dropped to 77 years. In 2021 life-span dropped again — to 76.1 years.”

• Jesse Singal offers a worthwhile critique of an Inside Higher Ed column on affirmative action.

• President Joe Biden is going to give a speech on the “battle for the soul of the nation” tonight.

The post Pro-American Propaganda on Social Media Had Little Impact—Just Like Russian Propaganda on Social Media appeared first on Reason.com.

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Some “Classified” Events

An update regarding my book Classified: The Untold Story of Racial Classifications in America:

The Federalist Society’s Civil Rights Practice Group will be hosting a teleforum on Tuesday, Sept. 6, at 1pm. You can register here.

The Cato Institute will be hosting a book forum/luncheon on Wednesday, Sept. 7, at noon, with commentary from Jane Coaston, host of The Argument at the New York Times, and Robert Cottrol,
Professor of Law, George Washington University Law School. Wally Olson of Cato will moderate. You can register for in-person or virtual attendance here–the virtual program will start at approximately 12:20.

For those of you in the Bay Area, I will be speaking at Berkeley Law School on Wednesday, Sept. 14 at 12:50 PST. I don’t have know the room yet.

I will also be speaking at the University of Toledo Law School on Monday, September 19, at noon, and, for those of you in Philly, Temple Law School on Thursday, October 6, at noon.

Some other Classified news:

ONU Law Professor Scott Gerber reviewed the book in Law & Liberty.

And here’s a podcast I recorded with Ed Morrisey of Hot Air.

Finally, Bill McGurn at the Wall Street Journal quotes from an amicus brief that was based on my research for the book:

Even so, one of the more persuasive friend-of-the-court briefs argues that such a decision would still leave unfinished business. Filed by David Bernstein of George Mason University’s Antonin Scalia Law School, it suggests that not only are racial preferences arbitrary, unfair and unconstitutional, so are the racial boxes the schools use to classify students.

Take “Asian,” a label that covers 60% of the world’s population—lumping Indians with Chinese and Cambodians and Koreans. They have almost nothing in common, from religion to language to culture.

Same with “Hispanic.” Harvard and UNC, Mr. Bernstein writes, can’t “explain why white Europeans from Spain, people of indigenous Mexican descent, people of Afro-Cuban descent, and South and Central Americans who may be any combination of European, African, and indigenous by descent are grouped together as ‘Hispanic.’ “

The post Some "Classified" Events appeared first on Reason.com.

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German Foreign Minister Says Support For Ukraine Will Continue “No Matter What Voters Think”

German Foreign Minister Says Support For Ukraine Will Continue “No Matter What Voters Think”

Authored by Paul Joseph Watson via Summit News,

Despite soaring energy prices that threaten the stability of the country, Foreign Minister Annalena Baerbock said she would continue to support Ukraine “no matter what German voters think.”

Baerbock made the remarkable comments during an event in Prague yesterday organized by the NGO Forum 2000.

“If I give the promise to people in Ukraine – ‘We stand with you, as long as you need us’ – then I want to deliver. No matter what my German voters think, but I want to deliver to the people of Ukraine,” she said.

The German official said that such an approach would not change even if large numbers of people were out in the streets protesting against crippling energy bills.

“We are facing now wintertime, when we will be challenged as democratic politicians. People will go in the street and say ‘We cannot pay our energy prices’. And I will say ‘Yes I know, so we help you with social measures.’ But I don’t want to say ‘Ok then we stop the sanctions against Russia.’ We will stand with Ukraine, and this means the sanctions will stay also in wintertime, even if it gets really tough for politicians,” said Baerbock.

The comment is a fairly stunning admission that world leaders are intent on prolonging the war for as long as possible, no matter how much it harms the countries they are supposed to represent.

Germans face one of the worst cost of living crises in Europe, with governments arranging ‘warm up spaces’ in major cities where people who can’t pay their bills will go to avoid freezing to death, with blackouts expected.

Citizens have already exhausted supplies of electric heaters, firewood and stoves in many areas as they prepare for energy rationing this winter, while inflation in Germany just hit its highest level in almost 50 years.

Those planning to protest against the situation have also been demonized as domestic extremists by the authorities.

As we reported last month, the interior minister of the German state of North Rhine-Westphalia (NRW), Herbert Reul (CDU), outrageously suggested Germans who may be planning to protest against energy blackouts were “enemies of the state” who want to overthrow the government.

*  *  *

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Tyler Durden
Thu, 09/01/2022 – 09:15

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Dollar Index Surges Above COVID-Panic Highs, Gold Back Below $1700

Dollar Index Surges Above COVID-Panic Highs, Gold Back Below $1700

The DXY Dollar Index has spiked to its strongest against a small basket of fiat peers since June 2002…

Source: Bloomberg

But the broader-based Bloomberg Dollar Index has now spiked above the safe-haven panic-bid highs from March 2020’s COVID lockdown crisis to hit a new record high…

Source: Bloomberg

This, combined with surging real rates, has sent gold reeling with spot now trading back below $1700…

Source: Bloomberg

Crypto and the precious metals are tracking real rates…

Source: Bloomberg

As we noted earlier, this surge comes amid the rumble of crisis in emerging markets facing dollar margin calls on their debt.

Critically, this dollar rally is a time-bomb for global markets and we humbly suggest that if this trend continues, the Powell Pivot will come not from “inflation targets hit”, but from pressure to stall devastation across the rest of the world.

But, as Ruchir Sharma recently warned, “don’t be fooled” by the recent dollar strength. The currency may look strong but its weaknesses are mounting…

Today, as in the dotcom era, the dollar appears to be benefiting from its safe-haven status, with most of the world’s markets selling off. But investors are not rushing to buy US assets. They are reducing their risk everywhere and holding the resulting cash in dollars.

This is not a vote of confidence in the US economy, and it is worth recalling that bullish analysts offered the same reason for buying tech stocks at their recent peak valuations: there is no alternative. That ended badly. Tina is never a viable investment strategy, especially not when the fundamentals are deteriorating.

So don’t be fooled by the strong dollar. The post-dollar world is coming.

And nowhere is that post-dollar world more evident that in news this morning that Russia is considering a plan to buy as much as $70 billion in yuan and other “friendly” currencies this year to slow the ruble’s surge.

Tyler Durden
Thu, 09/01/2022 – 08:58

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Biden’s Most Enduring Legacy?

Biden’s Most Enduring Legacy?

Authored by James Rickards via DailyReckoning.com,

Central bank digital currencies (CBDCs) are coming fast, and you need to be prepared for them because they’ll mark a major victory in the war against cash — and against your personal privacy.

You’ll see why today.

As the name implies, central bank digital currencies are digital, existing exclusively in electronic form. They’re not physical at all. Central banks would control them.

But it’s important to understand they’re not new currencies. They’re just digital forms of existing currencies. So the central bank digital currency of the European Central Bank will still be the euro. The central bank digital currency of the Fed will be the dollar. The Chinese yuan will be a digital yuan.

They’ll just exist in 100% digital form. A lot of people say, “Wait a second. Isn’t that a cryptocurrency?” The answer is it’s not.

Digital, but Not Crypto

Cryptocurrencies are different in some important respects. Number one, cryptocurrencies operate on a blockchain, or a digital ledger. It’s a way of keeping track of every transaction involving a particular cryptocurrency like Bitcoin.

A central bank digital currency does not have to be on a blockchain. It could be, but it probably won’t be. So it is digital, it is encrypted, but it’s not a blockchain and it’s not a cryptocurrency.

The other thing about cryptocurrencies is that they’re not issued by any central authority. They’re created mathematically. But a central bank digital currency is issued by a central authority. It’ll come from the Federal Reserve, or the European Central Bank, or the People’s Bank of China or other central bank institutions.

So CBDCs and cryptocurrencies aren’t the same.

Slowly, Then Quickly

The idea of CBDCs has gained momentum over the past few years, and they’re actually being implemented in China.

If you had asked me about CBDCs two years ago, I would have said, “Yes, China’s rolling them out. Europe is coming along not far behind. The U.S. was still maybe three or four years away because the U.S. is taking a much more studious approach.”

But that’s changed under Biden, who has fast-tracked their development. We’ve moved fairly quickly from what I would call the research phase to an implementation phase. The Federal Reserve is working with MIT to work out the technological kinks, which shouldn’t take long.

The Bahamas actually has a central bank digital currency, so if they can figure it out the U.S. certainly can.

How CBDCs Will Be Promoted

What are the advantages of a central bank digital currency? Well, the advantages are speed, cost, security and ease of use.

Assume you buy a candy bar at a convenience store. You pay for it with a credit card, which begins a payment process involving maybe five parties including the merchant, the credit card company, the bank and an intermediary called a merchant acquirer (no need to list the details here, but it’s complicated).

Ultimately the bank that issues your credit card sends you a bill and you pay it. You also pay a fee, maybe 3%, all to buy a candy bar. But with a central bank digital currency, you could simply pay for the candy bar with an account you have at the Fed.

You would disintermediate the merchant acquirer, the banks and the credit card company. It would eliminate the fees we currently face.

In a nutshell, the payment system will be faster, cheaper, easier, more streamlined and more secure.

The Real Reasons They’re Pushing CBDCs

The question is why are they doing this? Well, the banks and the government will tell you that it’s cheaper, faster and safer, so it makes sense. And that’s true, as far as it goes, but there are a lot of hidden agendas here.

The first one is to eliminate cash. If you didn’t like the central bank digital currency system for privacy reasons, you might say, “Hey, I feel like I’m under surveillance. This is intrusive. I just don’t trust it. Where’s my alternative?”

Particularly if they eliminate the traditional credit card payment system, you might buy your candy bar with cash. But if you’re the government and you want the central bank digital currency to succeed, you have to eliminate cash because it’s your competition.

The government hates cash because it’s not traceable. If you spend it, they don’t know that you spent it or how you spent it. They can’t put you under surveillance with cash.

Negative Interest Rates

The other thing the government wants is the ability to impose negative interest rates. Instead of earning interest on your money in the bank, you’d be charged to keep it there. Cash stands in the way of negative interest rates because cash doesn’t have a negative interest rate.

Assume you bury $100,000 in cash in your backyard. You come back a year later, you still have $100,000. You might not earn any interest on your money, but at least the government can’t take it away. But if all your money is in digital form within the banking system, they can impose negative interest rates on it.

The government wants to use the banking system for a lot of other things. They might want to freeze your account, they might want to seize your assets, they might also want to put an expiration date on your money.

Imagine you get paid and the government tells you, “That money is going to evaporate or disappear if you don’t spend it in the next six months.” How’s that for a stimulus program?

So the push for central bank digital currencies, which has a full head of steam, should be understood in the context of eliminating cash.

The Total Surveillance State

CBDCs also have enormous political implications, including the culmination of the total surveillance state. This is why China did it. And don’t believe anyone who tells you that the United States won’t do it.

They’ll start out saying, “Oh, it’s cheaper than Mastercard. Sign up here.” They won’t give you a chance. They’ll force you to sign up, but what they’re doing is putting you under a new level of surveillance. They have you at the point of purchase.

What if you’re in a bookstore and buy a book written by Donald Trump or a book by some author who supports Trump, Ron DeSantis, Rand Paul or any of Biden’s political enemies?

Now they can tag you and potentially label you a domestic terrorist or some such. And what if you make a political contribution to a candidate the administration doesn’t like?

Well, now you could really be in trouble. You bought a pro-Trump book. You gave money to a pro-Trump political candidate. You’re on a list. And they know this because of the payment system.

This is the point.

Biden’s Most Enduring Legacy?

Obviously, they can have an FBI agent follow you around and see what you bought at the book counter, but they don’t have enough FBI agents for that. But if they’re using central bank digital currencies in an account that identifies you, then they can pigeonhole you.

And what about these 87,000 IRS agents they’re hiring? Maybe your name will pop up on one of their lists and they’ll audit you.

So I would caution you that CBDCs aren’t just a cheaper, better, faster payment system, although they may be and that is how they’ll be sold. They will also be used to eliminate cash, impose negative interest rates and track your purchases. They can even freeze your account.

I call the dollar version of the CBDC Biden Bucks because Joe Biden will prove to have been responsible for implementing CBDCs at a very quick tempo in the U.S.

They could one day end up as his most enduring legacy.

Tyler Durden
Thu, 09/01/2022 – 08:45

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Continuing Jobless Claims Hit 5-Month-Highs

Continuing Jobless Claims Hit 5-Month-Highs

The number of Americans filing for jobless benefits for the first time fell from a revised lower 237k to 232k last week (the lowest since June) which suggests the pain the labor market is improving at the margin. However, continuing claims rose to their highest level since April at 1.438mm…

Source: Bloomberg

Notably, while the seasonally-adjusted claims data remains high, unadjusted initial jobless claims just hit a new record low…

Source: Bloomberg

New York, Massachusetts, and Michigan saw the biggest rise in initial jobless claims while Connecticut, Missouri, and Oklahoma saw the biggest drop in claims…

And finally, ahead of tomorrow’s payrolls print, we wonder just WTF is going on in the US labor market…

Source: Bloomberg

When will all the reported layoffs hit the ‘official’ data?

What would Jack Welch say?

Tyler Durden
Thu, 09/01/2022 – 08:37

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Blain: The Stock Market Rout Has Only Just Begun

Blain: The Stock Market Rout Has Only Just Begun

Authored by Bill Blain via MorningPorridge.com,

“The thieves, they love a siege. Soon as the gates are sealed, they steal all the food. By the time it’s all over, they’re the richest men in town.”

Harry Hindsight is the greatest trader who ever lived. He saw the July/August rally was just a bear trap. But, he’s not revealing his thoughts on how much further the market has to correct. Some analysts see mean reversion all the way back to 2008 levels!

This morning – back the usual stuff: Wither the stock market?

Yesterday myself and some colleagues were recording the latest Shard Podcast, talking about the market outlook for the rest of this tumultuous year. We weighed the risks of recession, price to earnings ratios, declining profits, inflation eating into consumer discretionary cash, and global trade, plus a host of other stuff. We concluded there is still significant downside risk to equities, and more pain to come for longer in bond markets.

As soon as the podcast is out, I will flag it.

I’m pretty sure I mentioned “mean reversion” risk at one point… the basic rule of everything that all things revert back to normal, which in the case of the stock market is going to be “painful” at best.

Yesterday we also had market legend Jeremy Grantham on BBerg warning the current stock market super bubble has “yet to pop”. He said what many of us believed about the July/August rally – it was a bear trap: a bear market rally after an initial sharp decline. Grantham cited “a dangerous mix of overvalued stocks, bonds and housing, combined with a commodity shock and hawkishness from the Fed” as further reasons to be fearful.

The reality of mean reversion takes us right back to when the stock market was last normal – which was sometime back in the late 1990s, early 2000s before Central Banks decided their price stability mandate included market stability as a precondition to stability.

Oh, ye Mighty, look upon my works and despair… is the lesson they have now learnt. Mess with markets, and they will mess you back.

Central Bank monetary experiment has proved a clusterf*ck of monumental proportions. Its  resulted in the most distorting period of market manipulation ever. From 2010-2021 central banks piled on Quantitative Easing and Zero Interest Rate Policy to notionally boost economic growth (which they did not) and then Governments made massive fiscal injections into the economy to combat Covid. Sweet Jesus – what a mess they made…

The result is all that cash – trillions up gazillions of dollars – ended up not in the real economy, but in financial assets. The value of bonds and stocks went stratospheric, chasing each other higher, even though the real economy did little more than chug along. We pretended the world was changing as tech – basically someone delivering take-away food to your front door, electric batteries, or using a phone to order a taxi by app instead of an actual call – was technological miracle advancement. Doh!

We did not see any great industrial revolution improving productivity – what we saw was the creation of millions of low paid, zero-hours type jobs and a massive imbalance in wealth equality as the rich got insanely richer on stock market gains, and inflated C-suite rewards, while everyone else got progressively poorer.

We are now into the end stage of the game:

  • Central Banks are not longer playing ball. They actively want markets to correct to remove the inflationary impulse from falling financial markets adding to real world inflation. The Fed “Put” has become the Fed “Call”.

  • Financial asset sanity is reasserting itself – folk have woken up to fundamental truths like: cash is a better place to store wealth than negative yielding bonds, stocks with no income have no value, and emperor’s new clothes swindles like Crypto and NFTs are zero-value, zero-utility Ponzi games that rely on a greater fool to keep buying and push them up.

  • Savers have no discretionary income left to save – and little incentive to invest in financial asset markets, which are now revealed as so clearly mispriced.

So where does this take us?

Clearly… after a very boozy market party there are going to be hangovers a plenty. They are going to hurt. How much?

I would refer you to great chum of mine, David Murrin, who has done fantastic work on reading the Code of Markets. Check out his website www.DavidMurrin.co.uk – he may even give you a free trial if you mention the Morning Porridge.

David does a lot of stuff – and has an opinion on just about everything – but his chart work is absolutely on the ball. As central banks continue to aggressively hike interest rates (and everyone now expects 75 bp from the ECB), David is predicting: “the Western Economies that have been based on cheap money at ultra-low interest rates will quite literally fall apart, and the stock market will collapse.”

His read on the charts is the current down leg takes global stock markets down 50% from the highs – to the kind of levels we were back in 2015-17, before a bounce before a second down-leg takes us the full mean reversion back to levels (adjusted for inflation) last seen pre-2008.

With that warning of significant downside to come… please enjoy the rest of your day… 

Tyler Durden
Thu, 09/01/2022 – 08:24

via ZeroHedge News https://ift.tt/OmWkKY0 Tyler Durden

Futures Slump In Ugly Start To Ugliest Month Of The Year

Futures Slump In Ugly Start To Ugliest Month Of The Year

With September already historically the ugliest month for markets of the entire year…

… an underperformance which this year will likely be on steroids thanks to the Fed’s doubling of QT to $95BN starting today…

… especially with stocks having gone from overbought to oversold in two weeks as bullish sentiment imploded…

… it’s not like stocks needed an additional impetus to dump, yet they got just that overnight when first China announced that it would put 21 million citizens living in its megacity of Chengdu on lockdown (as part of Beijing’s “Zero Covid” policy of blaming China’s slowdown on 1 or 2 cases of covid per city and promptly locking down whole swaths of the economy, you know, for the kids), and second in a major escalation, Taiwan shot down an unidentified drone off the Chinese coast; the news sent S&P 500 futures sharply lower on the first of the month, dropping as much as 0.9%, with Nasdaq futures down as much as 1.3% after another sales warning from Nvidia sent chipmakers in retreat on new China export rules.

The US 10-year Treasury yield rose to 3.20% and threatening to break above the previous level, a move which would be seen as especially bearish. The dollar gained and oil tumbled for a 3rd day amid fears about Chinese demand, even as OPEC+ is preparing to announce some sort of price stabilization intervention. Industrial metals fell after China locked down Chengdu’s 21 million residents, while oil and natural gas retreated as Europe considers various measures to intervene in the energy market. Commodity-linked and Group-of-10 currencies weakened, while the yen dropped to a 24-year low.

The market jitters come after August’s losses, reflecting fears of an economic downturn alongside restrictive monetary policy to choke inflation. A global bond rout saw the two-year Treasury yield touch 3.50% for the first time since 2007.

In premarket trading, US chipmakers fell in premarket trading after Nvidia warned that new rules governing the export of artificial-intelligence chips to China may affect hundreds of millions of dollars in revenue. Nvidia fell 6%, AMD -3.5%, Intel -1.2%, Micron -2.3%. Bank stocks were lower as investors await the release of jobs data. Here are other notable premarket movers:

  • Okta shares slumped as much as 15% in premarket trading after results, which analysts said were “muted” and spurred worries over billings growth and demand.
  • MongoDB shares fell 17% in premarket trading, after the database software company gave a “conservative” full-year forecast.
  • C3.ai shares were down 14% in premarket trading after the application software company cut its full-year revenue forecast amid an uncertain macro environment.
  • Bed Bath & Beyond shares slid as much as 6.3% in premarket trading, with other meme stocks also down, as investors continue to assess the home-goods retailer’s turnaround plan.
  • Five Below reported second-quarter results that failed to meet estimates. While disappointed, analysts said they weren’t surprised. The stock rose 3.2% in thin premarket trading.

“The Fed effect is now melding with other global factors such as China’s growth slowdown and Europe’s stagflation to create a more fraught global macro environment with higher rates and lower growth,” said Alvin Tan, strategist at RBC Capital Markets in Singapore. “It is this combination of hawkish central banks led by the Fed, China’s slowdown and Europe’s stagflation that is now driving volatility across global markets.”

European stocks also declined, Euro Stoxx 50 slumps 1.6%. IBEX outperforms, dropping 0.9%, CAC 40 lags, dropping 1.7%. Miners, real estate and consumer products are the worst-performing sectors.  Miners led declines in Europe as commodities dropped amid concerns that aggressive tightening and China’s slowdown will lower demand.  Among individual moves, Reckitt Benckiser Group Plc’s shares fell on news that Chief Executive Officer Laxman Narasimhan will step down at the end of the month to pursue a new opportunity in the US. Here are the other notable European movers today:

  • Jet2 shares rise as much as 4.2% with HSBC saying the tour operator’s AGM statement was reassuring for the short- term
  • EuroAPI gains as much as 6.1%, the most since June, after the company presented its 1H earnings. Oddo BHF says the strong report shows EuroAPI’s strategy is “beginning to bear fruit.”
  • Chrysalis Investments climbs as much as 5.7% as the Telegraph newspaper’s Questor column says now is “the best time to buy” shares in the investment firm
  • Basic Resource stocks fall the most in seven weeks, the sector’s longest losing streak since mid-June, as a slide in metal prices accelerated amid demand concerns over fresh Covid lockdowns in China
  • The European real estate sector is among the day’s worst performers on the regional equity benchmark, weighed down by concerns around hawkish central banks
  • Luxury-goods stocks slide in Europe after a new Covid lockdown in the key market of China and as HSBC downgraded a bunch of the sector’s biggest firms
  • Reckitt Benckiser drops as much as 5.7%, the most since July 2021, after the unexpected news that CEO Laxman Narasimhan will step down
  • Zur Rose slumps as much as 11% after an offering of shares priced at CHF39 apiece, representing a 15% discount to the last close
  • Warsaw’s WIG20 index continues its retreat, widening this year’s drop to 34% as appetite for commodity stocks wanes amid growth fears and a decline in energy prices in Europe

Some of Wall Street’s biggest banks now expect the European Central Bank to hike rates by 75 basis points at next week’s meeting, while the latest economic data underlined a parlous outlook for China. Meanwhile, Russia said it is considering a plan to buy as much as $70 billion in yuan and other “friendly” currencies this year to slow the ruble’s surge, before shifting to a longer-term strategy of selling its holdings of the Chinese currency to fund investment.

Earlier in the session Asian stocks traded mostly lower following the weak handover from global counterparts amid the higher yield environment and following a surprise contraction in Chinese Caixin Manufacturing PMI data. Hang Seng and Shanghai Comp were subdued after weak factory activity data from China and with Meituan among the worst performers in Hong Kong after reports its shareholder Tencent is planning about USD 14.5bln of divestments from its equity portfolio including a partial divestment of its stake in Meituan, while the mainland was cushioned after further policy support pledges by China’s cabinet. 

Japanese stocks closed lower ahead of a raft of US data that may back the case for the Federal Reserve to continue raising interest rates. The Topix index fell 1.4% to 1,935.49 at the 3 p.m. market close in Tokyo, while the Nikkei 225 declined 1.5% to 27,661.47,  closing beneath the 28k alongside the broader risk aversion with further currency weakness and an upgrade to Japanese PMI data doing little to inspire a turnaround. Toyota contributed the most to the Topix’s decline, decreasing 2.3%. Out of 2,169 stocks in the index, 226 rose and 1,879 fell, while 64 were unchanged. Shares also slid as parts of China went back into lockdown.

In Australia, the S&P/ASX 200 index fell 2%, the most since June 14, to close at 6,845.60, dragged by losses in banks and mining shares.  The materials sub-gauge was the worst performer, slumping to the lowest since July 27, as commodity prices tumbled and as BHP, the benchmark’s heaviest-weighted stock, trades ex-dividend. In New Zealand, the S&P/NZX 50 index was little changed at 11,609.83.

In FX, the Bloomberg Dollar Spot Index advanced as the greenback strengthened against all of its Group-of-10 peers apart from the Swiss Franc. The euro slumped but managed to hold above parity against the dollar after Germany July retail sales rose 1.9% m/m vs estimated 0.1% decline. Italian bonds and bunds slid for a fifth day, lifting Italy’s 10-year yield above 4% for the first time since June 15 as money markets continued to raise ECB tightening bets ahead of next week’s policy outcome. The Swiss Franc snapped a four-day loss against the dollar. A report showed that Swiss prices increased by 3.5% in August, above July’s reading of 3.4% — already the highest in three decades. The pound extended declines, dropping to a 2 1/2-year low against a broadly stronger US dollar. Sterling was set for its fifth- straight day of declines, after August saw its worst month versus the greenback since 2016. The yen dropped to 139.68 per dollar, its lowest since 1998 as surge in Treasury yields heaped more pressure on the currency, prompting a warning from a Japanese government official that did little to stem the tide. Australian and New Zealand dollars fell as a stronger greenback boosted by rising Treasury yields and a drop in iron ore prices weighed.

The offshore yuan fleetingly extended gains against the dollar on reports that Russia is considering buying as much as $70 billion in yuan and other “friendly” currencies. The yen pares some declines to trade at 139.24/USD after falling to weakest level since 1998 as US-Japan yield spread keeps widening. Bloomberg dollar spot index rises 0.2%, while CHF outperforms G-10 peers.

In rates, Treasuries were narrowly mixed as US trading gets under way Thursday with the yield curve steeper after the 2-year failed to sustain its first breach of 3.5% since 2007. 2-year yields are lower by 1.4bp at 3.479% after rising as much as 1.8bp to 3.511%; 30-year higher by 2.2bp near day’s high; inverted 2s10s spread steeper by 1.6bp at -29bp, 5s30s by nearly 4bp at -2.2bp. Wednesday’s month-end close entailed bear-flattening that continued until 5pm New York time, an hour after the Bloomberg Treasury index rebalancing, and was especially pronounced in TIPS. The US 10-year trails steeper yield increases for UK and most euro-zone counterparts. Treasuries’ 2.5% August loss was the market’s biggest since April; paced by UK and euro-zone yields, it was driven by more hawkish expectations for Fed policy that lifted 2- and 5-year yields by more than 60bp. Gilts push lower, with the yield on 10-years up 7 bps to 2.87%, while European bonds extend declines. Italian 10-year yield went briefly above 4% for the first time since June 15. Bunds also slipped, leaving the two-year rate within a whisker of its June peak.

In commodities, WTI crude fell to around $88; gold loses ~$5 to near $1,705. European natural gas declines for a fourth day. Spot gold is meandering just north of USD 1,700/oz after testing the figure to the downside. Base metals are lower across the board following the downbeat Chinese manufacturing PMI overnight alongside news of stricter Chinese lockdowns in some regions. US Treasury Secretary Yellen and UK Chancellor Zahawi discussed efforts regarding a price cap on Russian oil to lower global energy prices and restrict Russia’s revenue, according to the US Treasury Department. It was separately reported that US and allies are to set out a plan on Friday to limit the price of Russian oil with a strategy that aims to cut Russian energy revenues without increasing global oil prices, according to WSJ. OPEC+ JTC acknowledges the relevance of the Saudi Energy Minister’s comments on volatility and thin liquidity of crude markets, via Reuters citing a document.

Bitcoin remains under pressure and below the USD 20k mark, fairly in-fitting with its Ethereum peer in residing at the bottom-end of very narrow ranges.

To the day ahead now, data releases include the global manufacturing PMIs for August and the ISM manufacturing reading from the US. Otherwise, there’s also the US weekly initial jobless claims, the Euro Area unemployment rate for July, and German retail sales for July. Central bank speakers include the ECB’s Centeno and the Fed’s Bostic. Finally, earnings releases include Broadcom and Lululemon.

Market Snapshot

  • S&P 500 futures down 0.8% to 3,924.25
  • STOXX Europe 600 down 1.6% to 408.48
  • MXAP down 1.9% to 155.53
  • MXAPJ down 1.9% to 510.07
  • Nikkei down 1.5% to 27,661.47
  • Topix down 1.4% to 1,935.49
  • Hang Seng Index down 1.8% to 19,597.31
  • Shanghai Composite down 0.5% to 3,184.98
  • Sensex down 1.6% to 58,581.55
  • Australia S&P/ASX 200 down 2.0% to 6,845.60
  • Kospi down 2.3% to 2,415.61
  • German 10Y yield little changed at 1.63%
  • Euro down 0.2% to $1.0032
  • Brent Futures down 1.8% to $93.88/bbl
  • Brent Futures down 1.9% to $93.87/bbl
  • Gold spot down 0.6% to $1,701.34
  • U.S. Dollar Index up 0.19% to 108.91

Top Overnight News from Bloomberg

  • The hotly anticipated US jobs report has the potential to tip the scales toward a third jumbo-sized hike in interest rates later this month after a wave of data that point to a resilient consumer and high labor demand
  • The Chinese metropolis of Chengdu will lock down its 21 million residents to contain a Covid-19 outbreak, a seismic move in the country’s vast Western region that has largely been untouched by the virus
  • Europe is considering various measures to intervene in the energy market, including price caps, reducing power demand and windfall taxes on energy companies as surging prices threaten the economy and push households toward poverty
  • PMIs for the 19-nation euro zone slipped to 49.6 in August from 49.8 in July, according to S&P Global — a reflection of dwindling demand as consumers face surging costs for energy and a broadening range of goods and services. Germany and Italy both saw the worst readings in 26 months
  • Russia is considering a plan to buy as much as $70 billion in yuan and other “friendly” currencies this year to slow the ruble’s surge, before shifting to a longer-term strategy of selling its holdings of the Chinese currency to fund investment
  • Japanese workers’ share of company earnings fell for the first time in four years, suggesting Prime Minister Fumio Kishida’s call for companies to pay more to employees is running into resistance

A more detailed summary of global markets courtesy of Newsquawk

Asia-Pac stocks traded mostly lower following the weak handover from global counterparts amid the higher yield environment and following a surprise contraction in Chinese Caixin Manufacturing PMI data. ASX 200 was dragged lower by the mining-related sectors after recent declines in underlying commodity prices. Nikkei 225 retreated beneath the 28k alongside the broader risk aversion with further currency weakness and an upgrade to Japanese PMI data doing little to inspire a turnaround. Hang Seng and Shanghai Comp were subdued after weak factory activity data from China and with Meituan among the worst performers in Hong Kong after reports its shareholder Tencent is planning about USD 14.5bln of divestments from its equity portfolio including a partial divestment of its stake in Meituan, while the mainland was cushioned after further policy support pledges by China’s cabinet.

Top Asian News

  • China’s city of Chengdu will conduct mass COVID testing from September 1st-4th and the city government said all residents will stay at home from this evening, according to Reuters.
  • Hong Kong will push ahead with a proposal that will allow more residents to travel to mainland China after completing a quarantine period locally, according to SCMP citing sources.
  • UN Human Rights Office issued its assessment of human rights concerns in Xinjiang in which it stated that China’s government has committed serious human rights violations in Xinjiang and recommended China take prompt steps to release all those detained in training centres, prisons or detention facilities, according to Reuters and AFP.
  • Chinese mission in Geneva said it expresses strong dissatisfaction regarding the UN report on Xinjiang and firmly opposes the report, while it added that the so-called assessment was a farce planned by the US, western nations and anti-China forces, according to Reuters.
  • Hong Kong officials are targeting a conclusion to hotel COVID quarantines in November.
  • Macau gov’t intends to gradually reopen the city to foreign travellers, via Reuters.

European bourses are underpressure amid continued hawkish pricing, but off lows as yields ease from highs, Euro Stoxx 50 -1.4%. Stateside, a similar picture to fixed with action in-fitting directionally but steadier in terms of magnitudes ahead of data, ES -07%; NQ -1.1% lags given elevated yields.

Top European News

  • Russia is said to be mulling as much as USD 70bln in “friendly” currencies, according to Bloomberg sources; this is in order to slow the RUB surge “before shifting to a longer-term strategy of selling its holdings of the Chinese currency”.
  • Lufthansa Pilot Union Calls for One-Day Strike on Friday
  • Zur Rose Slumps Amid Offering at Discount, Convertibles Sale
  • Russia Mulls Buying $70 Billion in Yuan, ‘Friendly’ Currencies
  • Factory Slowdown in Europe and Asia Is Warning for Global Trade

Central Banks

  • Fed’s Logan (2023 voter) said the number one priority is to restore price stability, according to Reuters.
  • Japan’s Chief Secretary Matsuno provides no comment on every day-to-day FX moves, watching moves with a high sense of urgency; desirable for currencies to move stably, reflecting economic fundamentals.

FX

  • DXY sits around USD 109.00 after seeing fresh lows amid Yuan appreciation.
  • EUR, GBP AUD, NZD, JPY are all softer vs the USD to similar magnitudes.
  • CAD and CHF are the G10 outliers, with the latter supported after Swiss CPI and the former hit by softer oil prices.

Fixed Income

  • Core benchmarks are under pronounced pressure once more with yields across the board at fresh near-term peaks
  • Pressure occurring despite geopolitical tensions as hawkish ECB pricing continues to increase, ~85% chance of a 75bp hike.
  • Though, following the passing of hefty European/UK issuance, the magnitude of this downside has eased.
  • USTs are directionally in-fitting but more contained overall awaiting ISM Manufacturing today and then NFP on Friday.

Commodities

  • WTI and Brent futures have resumed downward action following an APAC session of consolidation.
  • Spot gold is meandering just north of USD 1,700/oz after testing the figure to the downside.
  • Base metals are lower across the board following the downbeat Chinese manufacturing PMI overnight alongside news of stricter Chinese lockdowns in some regions
  • US Treasury Secretary Yellen and UK Chancellor Zahawi discussed efforts regarding a price cap on Russian oil to lower global energy prices and restrict Russia’s revenue, according to the US Treasury Department. It was separately reported that US and allies are to set out a plan on Friday to limit the price of Russian oil with a strategy that aims to cut Russian energy revenues without increasing global oil prices, according to WSJ.
  • OPEC+ JTC acknowledges the relevance of the Saudi Energy Minister’s comments on volatility and thin liquidity of crude markets, via Reuters citing a document.
  • EU Commission President von der Leyen will outline ideas on an energy price cap in more detail in a speech on September 14th.
  • Four people killed in overnight clashes in Iraq’s Basra, according to security officials cited by Reuters.

US Event Calendar

  • Aug. Wards Total Vehicle Sales, est. 13.3m, prior 13.4m
  • 07:30: Aug. Challenger Job Cuts YoY, prior 36.3%
  • 08:30: 2Q Unit Labor Costs, est. 10.5%, prior 10.8%
    • 2Q Nonfarm Productivity, est. -4.3%, prior -4.6%
  • 08:30: Aug. Initial Jobless Claims, est. 248,000, prior 243,000
    • Continuing Claims, est. 1.44m, prior 1.42m
  • 10:00: July Construction Spending MoM, est. -0.2%, prior -1.1%
  • 10:00: Aug. ISM Manufacturing, est. 51.9, prior 52.8
    • ISM Employment, est. 49.5, prior 49.9
    • ISM New Orders, est. 48.0, prior 48.0
    • ISM Prices Paid, est. 55.2, prior 60.0

DB’s Henry Allen concludes the overnight wrap

Welcome to September. Given it’s the start of the month, we’ll shortly be publishing our regular monthly review of financial assets across for the month just gone. August was very much a month of two halves when it came to risk assets, with most ending the month in negative territory. There were still plenty of headlines though, and in Europe we saw some of the largest rises in short-term yields in decades. For instance, yields on 2yr German debt haven’t risen this much in a month since 1981, and for their UK counterparts you also have to go back to 1986. The full report will be in your inboxes shortly.

When it comes to the last 24 hours, markets have been playing a familiar theme, with risk assets losing further ground as investors price in more rate hikes over the coming months. The big driver behind that yesterday was another stronger-than-expected inflation print from the Euro Area, where the flash CPI reading rose to a record +9.1%. We haven’t seen inflation that strong since the formation of the single currency, and it was also above the +9.0% reading expected by the consensus. The details didn’t look much better either, with core inflation rising to a record +4.3% too (vs. +4.1% expected). So a disappointment for those hoping we might have seen the worst of inflation by now, and another demonstration of how the energy shock is sending European inflation increasingly above that in the US.

Unsurprisingly, the high inflation bolstered the arguments of the hawks on the ECB’s Governing Council, and Bundesbank President Nagel said yesterday that “We need a strong rise in interest rates in September.” In addition, Austria’s Holzmann further said that he saw “no reason to show any kind of leniency in our positioning and our wish to reduce inflation”. That’s more voices bolstering the speakers we’ve heard from in recent days who’ve put a 75bps hike on the table, and investors themselves moved to price in a more aggressive ECB response too. Indeed, overnight index swaps are now pricing in a 69.0bps hike for the next meeting, which is noticeably closer to 75 than 50 now. And for the September and October meetings as a whole, 130.7bps worth of hikes are priced in, which is equivalent to at least one of them being a 75bps move and the other at 50bps.

In light of these developments, our own European economists at DB have changed their call and now expect that the ECB will hike by 75bps at the next meeting (link here for the full details). Their view is that the upside inflation surprise and the more vocal support from Governing Council members to have 75bps on the table has tipped the balance in favour of a larger hike. Remember that we’re just a week away from the next policy decision now, so not long until we find out, and it was only at the last meeting in July when the ECB went against their own forward guidance in June and hiked by 50bps rather than the 25bps they’d indicated.

For markets, the prospect of additional rate hikes knocked European sovereign bonds once again, meaning that for many country’s government bonds (including Germany and the UK) it’s been their worst monthly performance on a total returns basis for the 21st century so far. Yields rose across the continent, with those on 10yr bunds (+2.8bps), OATs (+1.9bps) and BTPs (+6.7bps) all moving higher. Gilts underperformed in particular with a +9.6bps move, whilst US Treasuries also lost ground as the 10yr yield rose +9.0bps to 3.19%. The move in Treasuries came as Cleveland President Mester said that her view was the “move the fed funds rate up to somewhat above 4% by early next year and hold it there”, saying in addition that she did “not anticipate the Fed cutting the fed funds rate target next year.”

For equities it wasn’t a great day either, with the S&P 500 (-0.78%) in negative territory for a 4th consecutive session, and leaving the index down by -4.08% over the month in total return terms. That came in spite of a decent performance at the open yesterday, when it had been up +0.73% at one point, but it couldn’t sustain those gains by the close. In Europe there was an even worse performance as the inflation data hurt risk appetite, and the STOXX 600 (-1.12%) fell to a six-week low. That said, in a contrast with recent days, megacap tech stocks were an outperformer, and the FANG+ index advanced +0.32%.

One brighter piece of news for the ECB yesterday was the latest decline in energy prices, which have continued to fall back from their recent highs. European natural gas futures shed -5.15%, bringing their declines since the start of the week to more than -29%, and German power prices for next year fell -5.61%, bringing their own declines since the start of the week to more than -40%. Oil lost ground too, with Brent Crude down -2.84% as it capped off its worst monthly performance since last November, with a -12.29% decline over August as a whole.

Those negative moves in the US and European equities are continuing in Asia this morning with many of the major indices seeing sharp losses. The Kospi (-1.89%) is the biggest underperformer followed by the Nikkei (-1.77%) and the Hang Seng (-1.52%) whilst the CSI (+0.09%) and the Shanghai Comp (+0.24%) have made modest gains. An important factor affecting sentiment this morning has been a new lockdown in the Chinese city of Chengdu, making it the largest city to be locked down since Shanghai earlier in the year. 157 cases were reported in the city yesterday.

We also got the latest manufacturing PMIs for August overnight, which painted a mixed picture across the region’s main economies. In China, the Caixin PMI showed the sector falling into contraction for the first time in three months with a 49.5 reading (vs. 50.0 expected), and in South Korea the reading fell to 47.6 (vs. 49.8 previously), which is its lowest level since July 2020. Meanwhile in Japan, the 51.5 reading was the lowest since September 2021, and the Yen has hit a 24-year low of 139.52 against the US Dollar overnight.

Elsewhere on the data side, we had the ADP’s report of private payrolls from the US ahead of tomorrow’s jobs report. That came in at +132k (vs. +300k expected) and marked the first release that uses an updated methodology. They also updated their previous data, and on the same basis the job growth in August was the slowest since January 2021.

Otherwise in the UK, there was a significant piece of news from the Office for National Statistics, as they said that the government’s £400 discount for energy customers this winter would not affect the Consumer Price Index. As our UK economist has written, that decision was an important one because if it had been counted as part of inflation, then the October RPI projections would have been affected by around 2.7 percentage points.

To the day ahead now, and data releases include the global manufacturing PMIs for August and the ISM manufacturing reading from the US. Otherwise, there’s also the US weekly initial jobless claims, the Euro Area unemployment rate for July, and German retail sales for July. Central bank speakers include the ECB’s Centeno and the Fed’s Bostic. Finally, earnings releases include Broadcom and Lululemon.

Tyler Durden
Thu, 09/01/2022 – 08:13

via ZeroHedge News https://ift.tt/b20W4F7 Tyler Durden