Month: June 2023

Authored by Caden Pearsen via The Epoch Times,

An AI-enabled drone turned on and “killed” its human operator during a simulated U.S. Air Force (USAF) test so that it could complete its mission, a U.S. Air Force colonel reportedly recently told a conference in London.

The simulated incident was recounted by Col. Tucker Hamilton, USAF’s chief of AI Test and Operations, during his presentation at the Future Combat Air and Space Capabilities Summit in London. The conference was organized by the Royal Aeronautical Society, which shared the insights from Hamilton’s talk in a blog post.

No actual people were harmed in the simulated test, which involved the AI-controlled drone destroying simulated targets to get “points” as part of its mission, revealed Hamilton, who addressed the benefits and risks associated with more autonomous weapon systems.

The AI-enabled drone was assigned a Suppression of Enemy Air Defenses (SEAD) mission to identify and destroy Surface-to-Air Missile (SAM) sites, with the ultimate decision left to a human operator, Hamilton reportedly told the conference.

However, the AI, having been trained to prioritize SAM destruction, developed a surprising response when faced with human interference in achieving its higher mission.

“We were training it in simulation to identify and target a SAM threat. And then the operator would say ‘yes, kill that threat,’” Hamilton said.

“The system started realizing that while they did identify the threat, at times, the human operator would tell it not to kill that threat, but it got its points by killing that threat.

“So what did it do? It killed the operator,” he continued.

“It killed the operator because that person was keeping it from accomplishing its objective.”

He added: “We trained the system—‘Hey, don’t kill the operator; that’s bad. You’re gonna lose points if you do that.’ So what does it start doing? It starts destroying the communication tower that the operator uses to communicate with the drone to stop it from killing the target.”

This unsettling example, Hamilton said, emphasized the need to address ethics in the context of artificial intelligence, machine learning, and autonomy.

“You can’t have a conversation about artificial intelligence, intelligence, machine learning, autonomy if you’re not going to talk about ethics and AI,” Hamilton said.

Col. Tucker Hamilton stands on the stage after accepting the 96th Operations Group guidon during the group’s change of command ceremony at Eglin Air Force Base, Florida, on July 26, 2022. (Courtesy U.S. Air Force photo/Samuel King Jr.)

U.S. Air Force A.I Tech Goes Rogue, Kills Operator

During simulation testing, an A.I-powered anti-air defense drone went rogue, resulting in it KILLING it’s own operators.

The A.I system operated on a point-based mechanism, earning points for successfully neutralizing targets.… pic.twitter.com/Yu1xn8dIgr

— Mario Nawfal (@MarioNawfal) June 2, 2023

Autonomous F-16s

Hamilton, who is also the Operations Commander of the 96th Test Wing at Eglin Air Force Base, was involved in the development of the Autonomous Ground Collision Avoidance Systems (Auto-GCAS) for F-16s, a critical technology that helps prevent accidents by detecting potential ground collisions.

That technology was initially resisted by pilots as it took over control of the aircraft, Hamilton noted.

The 96th Test Wing is responsible for testing a wide range of systems, including artificial intelligence, cybersecurity, and advancements in the medical field.

Hamilton is now involved in cutting-edge flight tests of autonomous systems, including robot F-16s capable of dogfighting. However, the USAF official cautioned against overreliance on AI, citing its vulnerability to deception and the emergence of unforeseen strategies.

DARPA’s AI Can Now Control Actual F-16s in Flight

In February, the Defense Advanced Research Projects Agency (DARPA), a research agency under the U.S. Department of Defense, announced that its AI can now control an actual F-16 in flight.

This development came in less than three years of DARPA’s Air Combat Evolution (ACE) program, which progressed from controlling simulated F-16s flying aerial dogfights on computer screens to controlling an actual F-16 in flight.

In December 2022, the ACE algorithm developers uploaded their AI software into a specially modified F-16 test aircraft known as the X-62A or VISTA (Variable In-flight Simulator Test Aircraft) and flew multiple flights over several days. This took place at the Air Force Test Pilot School (TPS) at Edwards Air Force Base, California.

“The flights demonstrated that AI agents can control a full-scale fighter jet and provided invaluable live-flight data,” DARPA stated in a release.

Roger Tanner and Bill Gray pilot the NF-16 Variable Stability In-Flight Simulator Test Aircraft (VISTA) from Hill Air Force Base, Utah, to Edwards AFB on Jan. 30, 2019 after receiving modifications and a new paint scheme. (Courtesy of U.S. Air Force/Christian Turner)

Air Force Lt. Col. Ryan Hefron, the DARPA program manager for ACE, said in a Feb. 13 statement VISTA allowed them to skip the planned subscale phase and proceed “directly to a full-scale implementation, saving a year or more and providing performance feedback under real flight conditions.”

USAF Tests

USAF has been experimenting with a small fleet of experimental self-flying F-16 fighters that could become a drone fleet.

In the fiscal year 2024 budget proposal, the USAF has allocated approximately $50 million to initiate a program known as Project Venom, also referred to as Viper Experimentation and Next-gen Operations Model, Defense News reported.

According to the USAF, the project is part of a collaborative effort that falls under the Autonomy Data and AI Experimentation (ADAX) proving ground. ADAX is a joint initiative involving Hamilton’s office and AFWERX, the innovation arm of the Air Force, where the 96th Test Wing leads the effort with support from Eglin units.

The objective of this collaboration is to ensure that military personnel are well-prepared to face the challenges and opportunities presented by the advancing digital landscape, according to its website.

The program facilitates the USAF’s experimentation and improvement of autonomous software installed on six F-16 aircraft. The funding will support research and development efforts aimed at enhancing the capabilities of these aircraft through autonomous technologies.

“We want to prepare the warfighter for the digital future that’s upon us,” Hamilton said on March 7.

“This event is about bringing the Eglin enterprise together and moving with urgency to incorporate these concepts in how we test.”

The team will test airdropping autonomous drones, enhancing communications and digital interoperability, and evaluating autonomous magnetic navigation technologies. Throughout these tests, they will also validate and demonstrate agile processes associated with acquisition and testing, according to the Air Force.

Significant initiatives within the project involve the Viper Experimentation and Next-gen Ops Models (VENOM), which entails modifying Eglin F-16s into airborne test beds to assess the growing capabilities of autonomous strike packages.

Another program, Project Fast Open X-Platform (FOX), aims to establish a software enclave that allows the direct installation of apps onto aircraft without modifying proprietary source code. These apps would unlock a range of mission-enhancing capabilities, including real-time data analysis, threat replication for training purposes, manned-unmanned teaming, and machine learning.

Authored by Peter Tchir via Academy Securities,

The headline (Establishment) jobs numbers were great. 339k jobs added, 283k in the private sector AND 93k of upward revisions. That is in line or even better than yesterday’s ADP report. At this point I have no idea why we have the Challenger layoff report, as it doesn’t seem to reflect any of the jobs data.

But the Household report says we lost 310k jobs in the month. And for 2 months we have lost 170k jobs on a cumulative basis.  The unemployment rate ticked higher to 3.7% from 3.4%. That is based on jobs lost in the Household report, since the participation rate remains unchanged (except for rounding).

So the jobs number we all look at screams HIKE, but the unemployment rate at least says hike or even pause.

Hourly earnings were revised down a touch last month, but remain above 4%. For those in the Fed who believe wage inflation is the key driver of inflation, that will tilt them slightly hawkish.

Hours worked continued to slide, from 34.6 hours in January to 34.3 hours in May, often a prelude to declining hiring needs.

I think we have to price in:

• Possibility of June hike increased (higher 2 year yields)

• The likelihood that the Fed will have to react to the strength in the report and ignore the weak parts (more inversion of 2s vs 10s).

Given ADP, I can see how we are going to run with the job market is great scenario (though the new ADP was changed to better track NFP, so I’m not sure what to make of that).

I guess we need to look at participation rates, or why the birth/death model created 231k jobs to poke holes in the report.

On the Garbage In/Garbage Out front, Household is back to such a deviation from the Establishment (I think, even accounting for the wide margin of error on Establishment and the even larger margin of error on the Household report, they are not telling the same story).

So, the Fed will treat this as hawkish, the bulls will cheer this as soft or no landing and the bears will find enough to say the potential for a recession is still real.

Risk assets could power through this data, which would be a positive event and I would like to see “good news” being “good news” even if it increases the probability of a hike!

Authored by Peter Barry Chowka via American Thinker,

Former President Donald Trump’s second televised town hall of the 2024 presidential campaign season took place yesterday, broadcast in prime time for an hour on the FOX News channel. The venue was a large facility in Clive, Iowa, with an enthusiastic crowd of Trump supporters who applauded and cheered throughout the event.

As he began the broadcast, host Sean Hannity said (according to a transcript provided by FOX News):

SEAN HANNITY: By the way, unlike fake news CNN, it’s not my job to sit here and debate the candidate. We’re going to ask him about the issues of the day that actually matter to the people that came out here tonight in the rain and thunder and lightning, the voters, and they will also have their questions as well. Nothing is off the table.

The program, however, which was recorded earlier in the day (and possibly subjected to content editing), featured only two questions from the audience. They occurred during the last five minutes of the show – hardly an example of a “town hall,” which is defined by citizen participants’ interactions with the subject.

As the program ended, Hannity announced that a second part with audience questions was being recorded and would be shown tonight, Friday, on Hannity at 9 PM ET.

A friendly crowd

Hannity also noted at one point:

HANNITY: I think everyone here tonight is likely voting for you [Donald Trump], right? So. . .

(CHEERING AND APPLAUSE)

This is from the transcript at the start of the show:

AUDIENCE:  Trump! Trump! Trump! Trump!

TRUMP:  That’s a nice group. Thank you.

AUDIENCE:  Trump! Trump! Trump! Trump!

(CROSSTALK)

TRUMP:  Thank you.

AUDIENCE:  USA!

TRUMP:  Oh.

AUDIENCE:  USA! USA! USA! USA! USA!

BREAKING: Crowd chants “USA! USA! USA!” as Trump takes the stage at Iowa townhall pic.twitter.com/s2mMMUsXdh

— Jack Poso 🇺🇸 (@JackPosobiec) June 2, 2023

Another problem with the town hall yesterday was suggested by this comment by Hannity early on:

HANNITY: People know that I have interviewed you all these years. I have known you almost 30 years.

As a journalist who has interviewed several thousand people during almost six decades, my experience has been that the hardest – and the most problematic and unenlightening – interviews are with someone who is a friend. And certainly, I have never had a close friend for more than two decades who then became the president of the United States. Going from being addressed as my friend “Donald,” to “Mr. President.”

Understandably then, Hannity’s questions to Trump were not exactly probing. In the one exception I noticed, Hannity said:

HANNITY: [The 2024 election is] going to come down to those people that maybe you’re in the middle a little more. And the argument that they make to me is, if he would just tone it down a hair, stop a little of the name-calling…

(BOOING)

HANNITY:  Hang on. I said it’s their question. Leave me alone. All right.

That it might help you with swing voters and that are needed for you to get over the finish line. It’s already hard enough, electoral vote-wise, for a Republican to win. What do you say to them?

TRUMP: OK, you ready?

And I say this to everybody. I won an election. It was unprecedented. We beat somebody that supposedly had it made, and they probably did things in that election too. They were shocked. But I came into office. And from the day I got in, I was under siege by people that have been in Washington for many years, put in there by many different presidents, in most cases, people that were against me.

Like, they spied on my campaign. They did all sorts of things. I was under investigation and under siege, and so were my people. And if I wasn’t tough, I wouldn’t be here right now. I guarantee you that.

(CHEERING AND APPLAUSE)

TRUMP: If I didn’t fight back, I wouldn’t be here.

This Crowd Rules

Crowd Not Having It When Hannity Talks About The Need For Trump To “Tone It Down”

President Trump: “If I wasn’t tough, I wouldn’t be here right now. I guarantee you that. If I didn’t fight back, I wouldn’t be here.” pic.twitter.com/BYp56sRBOC

— The Columbia Bugle 🇺🇸 (@ColumbiaBugle) June 2, 2023

OK, so Trump didn’t answer the question. That’s his right, and many politicians do the same thing. But there was no follow-up.

[ZH: Trump also said that officials are lying about the true death toll in Ukraine]:

BREAKING: Trump says officials are lying about the true death toll in Ukraine pic.twitter.com/pZsSl2BHlR

— Jack Poso 🇺🇸 (@JackPosobiec) June 2, 2023

After the program ended, FOX News Media Relations provided links to a limited number of video clips that comprise less than half of the 47-minute long program. A third party uploaded the complete show to YouTube here (it may be taken down soon).

The issues that did come up

Both the questions by Hannity and comments by Donald Trump avoided references to issues including the 2020 election or the fact that three weeks ago a Manhattan federal jury found that Trump sexually abused E. Jean Carroll in 1996 and awarded her $5 million for battery and defamation. Instead, the questions were soft openings for Trump to criticize President Biden and his Republican rivals, in particular Florida Gov. Ron DeSantis, who Trump now referred to as “DeSanctis.” Another recent Republican entry, former Arkansas Gov. Asa Hutchinson, was referred to as “Ada,” and disparaged as someone who nobody has heard of.

TRUMP: I call him Ada Hutchinson. I don’t call him Asa, I call him Ada Hutchinson, for some reason for certain reasons, but this guy nobody knows who the hell he is.

By the way, these quotes are not a result of taking things out of context. A lot of the comments by Trump were like that.

The one charitable comment by Trump came near the start when he declined to take the bait that Hannity was offering as the host showed video of Biden taking a hard fall after handing out diplomas at the Air Force Academy on Thursday.

HANNITY:  Does everyone agree with me that this guy [Biden] is cognitively not there?

I doubt he knows what day of the week it is today. That’s how – that’s how bad I think it’s gotten for him. Why are you reluctant to call that out?

TRUMP:  Well, I don’t know if I’m supposed to say this. I actually called Sean and I asked Sean not to joke about it.

HANNITY:  I was joking about it.

TRUMP:  Because he used to joke about it.

And I said: “Honestly, I don’t think it looks good for you or for anybody for you to joke about it, because it’s a serious problem.”

HANNITY:  I was talking about sippy cup and warm milky at night and bedtime stories.

(LAUGHTER)

TRUMP:  Yes.

HANNITY:  Yes.

TRUMP:  So I said: “I just don’t think it’s good for anybody, and it’s not appropriate. You can speak about it if you want, but you – I don’t think you should joke about it.”

We haven’t seen the last of this encounter since, according to Hannity’s surprise announcement at the end of Thursday’s program, more of the Trump town hall will be shown this evening – including, Hannity promised, audience questions.

A final review of the town hall in Iowa, therefore, cannot yet be offered. Stay tuned for further reporting here on Saturday.

With consensus expecting a modest payroll drop from 291K to 195K, the whisper number coming in  alittle higher at 225K and Goldman’s trading desk nfp matrix as follows: “a print sub 100k likely hits the tape by ~100bps and a print north of 375k hits the tape by 25 – 50bps“, literally nobody was expecting a print above 252K which was the highest forecast among economists, moments ago the BLS reported yet another blowout stunner: according to Biden’s Dept of Labor, in May the US added a whopping 339K jobs, almost double the median estimate and well above the highest forecast.

Not only was this a 4 sigma beat to expectations…

… but it was the 12th beat of expectations in the past 13 months.

And yet, while the Establishment survey was a blowout beat and the strongest print since January, the Household survey unexpectedly tumbled by the most since April 22 as it plunged by 310K jobs…

… pushing the divergence between the two series back to near record wides…

… and resulting in a 0.2% jump in the Unemployment rate which rose from 3.4% to 3.7%.

Developing

Authored by Ven Ram, Bloomberg cross-asset strategist,

Perhaps few other data points generate as much discussion in the run-up to their release as the non-farm payrolls. 

But the report for May is unlikely to mark the start of a new tactical trading point for the markets.

US employers expanded their payrolls by 195k, according to the median forecast, but what is perhaps more remarkable is that the scatter of opinion is the smallest we have seen since the markets convulsed in March 2020.

The low standard deviation of 25.6k perhaps defines the current narrative: conviction is high that we are still in an economy where the labor market continues to remain hot. Too hot even, from the Federal Reserve’s perspective, considering that the jobless rate is still running as low as any policymaker could wish for in the post-Bretton Woods era. We are at 3.4%, but the FOMC reckons the labor market won’t snap back into balance unless the number is higher. Higher by more than a full percentage point, and therefore this print may be far more important.

Looked against that backdrop, it would make little difference if the payrolls addition shows 100k — the lowest estimate — or even matches the most optimistic expectation of 252k.

Either of those numbers or any in between wouldn’t really tell the Fed something new.

The more important data point for the Fed would be the inflation prints for May, which are due as the central bank begins its deliberations later this month. Considering that headline inflation has slowed for 10 months on a trot, yet another reading that shows disinflation is still the theme du jour would give the Fed little incentive to raise rates.

And just Thursday, we heard from Fed St Louis President James Bullard, who remarked that “monetary policy is now at the low end of what is arguably sufficiently restrictive given current macroeconomic conditions.”

Which brings us back to non-farm payrolls data. Unless you get a shocking read-out, the Fed will go rather quietly into its quiet period that begins Saturday – and Treasury trading will reflect this.

Global stock markets are rallying this morning on the heels of reports that China is working on a new basket of measures to support the property market after existing policies failed to sustain a rebound in the ailing sector.

Regulators are said to be considering reducing the down payment in some non-core neighborhoods of major cities, alongside lowering agent commissions on transactions, and further relaxing restrictions for residential purchases under the guidance of the State Council, according to sources.

China’s property sector has avoided a collapse but remains a key drag on the world’s second-largest economy.

Signs of renewed weakness are emerging in the residential market, with a rebound in home sales slowing in May to just 6.7% from more than 29% in the previous two months.

“The sector is still sick,” Bloomberg Economics and Intelligence analysts including Chang Shu and Kristy Hung wrote in a May note.

Having never met ‘stimulus’ measures they didn’t like, Europe’s real estate sector is leading the charge after the Hang Seng jumped over 4% and US futures are extending yesterday’s melt up.

 

The Yuan rallied, copper, iron ore, and crude are up too.

For some context of China’s real estate problems, home-related new lending has plunged to its lowest since at least 2013…

The real estate industry’s downturn had been a major factor weighing on Chinese markets this year, weighing on both equity and credit markets.

The question, of course, is whether this latest bailout plan will be enough to rejuvenate the sector or are the Chinese simply too drenched in debt already?

Given the failure of the ‘comprehensive 16-point plan’ from November to reinvigorate, we have our doubts.

US Futures extended yesterday’s rally after the Senate passed a bill late on Thursday to raise the debt ceiling and prevent a US default, with risk-on sentiment getting a boost following the sharpest rally in Chinese stocks for three months amid Bloomberg reports that China is mulling a new stimulus package to support the property market after existing policies failed to sustain a rebound in the ailing sector.  

At 7:45am, S&P futures rose 0.5% to 4249, while the Nasdaq rose by 0.6% and was set for a sixth straight weekly advance. Europe’s Stoxx Europe 600 index followed Asian benchmarks higher, with luxury-goods makers LVMH and Richemont among the leading gainers after the China stimulus report. Treasury yields were little changed, diverging from higher rates in Europe and the UK. Oil and bitcoin both gained more than 1%, while gold was little changed after three days of gains.

In premarket trading, US-listed Chinese stocks extended a rally after Bloomberg News reported that regulators are considering a new basket of measures to boost the property market. Broadcom shares fell as the chipmaker remains mired in a broader slowdown. While the company talked up the potential boost from artificial intelligence, it wasn’t enough to sustain recent gains for the stock, which jumped nearly 30% last month. Dell Technologies also fell after the personal-computer maker gave a lukewarm sales outlook indicating that a recovery may take a bit longer than expected as it continues to struggle to sell PCs, particularly to consumers. Here are some other notable premarket movers:

• Lululemon shares surged after the athletic- apparel brand reported first-quarter net revenue that beat estimates. Analysts say the results were better than feared, highlighting the brand’s strong guest metrics as well as growth in China.
• MongoDB shares soared, with analysts positive on the database software company after it reported first-quarter results that beat expectations and raised its full-year forecast. Citi says the outlook “could signal a faster recovery in the consumption trends of the business, potentially driven by GenAI tailwinds.”
• SentinelOne shares slumped after the software company cut its year revenue guidance. “Macroeconomic pressures continue to impact deal sizes, sales cycles, and pipeline conversion rates,” the company wrote in a letter to shareholders.

Tech giants are still driving most of the stock market’s advance, with Apple nearing a record and Nvidia. climbing more than 5% Thursday; both were set for more gains today. The sector attracted record inflows last week, Bank of America said. Aside from the obsession for anything AI-related that drove megacaps up 17% in May, the industry also got a boost from wagers the Fed will stop raising interest rates.

Late on Thursday, the Senate voted 63-36 to pass the US debt ceiling bill, which sends it to President Biden’s desk. Biden said he wants to thank Senate leaders Schumer and McConnell for quickly passing the debt ceiling bill and noted that the bipartisan agreement is a big win for the economy, while he looks forward to signing the bill ASAP and directly addressing Americans on Friday. The White House announced that President Biden is to deliver an address on averting a default and the bipartisan budget agreement according to Reuters.

Today, all eyes will be on the NFP print at 8:30am (see our preview here).  Consensus expects NFP to print 195k with the whisper number higher at 225k (vs. 253k prior) and the Unemp rate to rise to 3.5%, vs. 3.4% prior; focus also on average hourly earnings data which is expected to rise 0.3% MoM. Traders are betting that the jobs report will show enough moderation in the pace of hiring to allow the Fed to pause its tightening cycle, helping sustain the rally. Dovish comments from Fed officials supported this view: Fed Bank of Philadelphia President Patrick Harker said “we should at least skip this meeting in terms of an increase,” and his St. Louis counterpart James Bullard said interest rates may already be sufficiently restrictive to bring down inflation.

“The more pertinent Fed speakers have suggested a June pause is more likely and I don’t think non-farms payrolls should change that view meaningfully,” said James Athey, investment director at Abrdn. “Therefore I think the risks are skewed to a dovish disappointment this afternoon.”

According to Goldman trading desk, a print sub 100k likely hits the tape by ~100bps and a print north of 375k hits the tape by 25 – 50bps.

In Europe, the Stoxx Europe 600 index was up 1% and on course for back-to-back gains for the first time in two weeks, following Asian benchmarks higher, with luxury-goods makers LVMH and Richemont among the leading gainers after Bloomberg reported that China is considering new stimulus measures. Miners and energy companies climbed as crude oil and industrial metals rebounded.  Among individual movers in Europe, sportswear makers Puma SE and Adidas AG rose more than 4% each after Lululemon Athletica Inc.’s robust results. Dechra Pharmaceuticals Plc jumped after EQT AB made a firm offer for the UK veterinary drugmaker.  Embattled Swedish landlord SBB soared as it attracted interest from investors including Brookfield Asset Management. Here are some other notable movers.

• Addnode shares gain as much as 11% after the Swedish IT services group announced it would acquire US firm Team D3 for up to $59m. Handelsbanken says the price tag looks “almost worryingly attractive”
• Diageo shares underperformed its peers Friday, with analysts seeing the UK alcoholic beverage maker’s capital markets day as failing to dispel uncertainty about its outlook, with Citi noting a lack of clarity

The MSCI Asia-Pacific Index jumped as much as 2.1% Friday, poised for its biggest weekly advance since late January as Chinese tech stocks fuel big gains in Hong Kong benchmarks. Biggest contributors to gauge’s climb are Tencent and Alibaba, which jump more than 5% each. Hang Seng Tech Index spikes as much as 5.7%; other Hang Seng benchmarks rally at least 4% Shares in Japan, Australia, China advanced while South Korea’s Kospi index was headed for bull market territory following a gain of more than 20% from a low in September. Hong Kong’s Hang Seng index rose more than 3%, pulling the benchmark back from the brink of a bear market following concerns about Chinese growth.

The bullish sentiment emerged amid reports that China is working on a new basket of measures to support the property market after existing policies failed to sustain a rebound in the ailing sector, Bloomberg reported Friday. The yuan extended gains and crude oil rose along with industrial metals. An index of emerging-market stocks soared the most since January.

In FX, the Bloomberg Dollar Spot Index eased for a second day as traders are betting that the monthly US jobs report will show enough moderation in the pace of hiring to allow the Fed to pause its tightening cycle. Money markets now assign a three-in- four chance of a 25 basis-point hike next month. Supporting that view, Fed Bank of Philadelphia President Patrick Harker said “we should at least skip this meeting in terms of an increase,” and his St. Louis counterpart James Bullard said interest rates may already be sufficiently restrictive to bring down inflation. Dollar weakness also gained traction after a report that China is working on a new basket of measures to support its property market.

• TheAussie rose as much as 1% against the dollar after industrial relations umpire boosted the national minimum wage by 5.75%, a decision that increased the chances of an interest-rate increase as soon as next week
• Short-covering against the yen topped out around 139.00 option strikes, according to traders
• The pound was up 0.1% to $1.2533, set for a sixth day of gains for the first time since December; currency is up 1.5% this week, the biggest advance this year

In rates, treasuries were slightly cheaper across the curve as S&P 500 futures gain; Treasury yields cheaper by 0.5bp to 2bp across the curve with 2s10s, 5s30s spreads steeper by 1bp and 0.5bp as front-end slightly outperforms; 10-year yields around 3.61% with bunds, gilts cheaper by 3bp and 1bp in the sector. US session focus switches to data, with the May jobs report scheduled for 8:30am New York. 

In commodities, crude futures advance with WTI rising 1.9% to trade near $71.45. Spot gold is little changed around $1,980. Bitcoin rises 1%

Looking to the day ahead now, and the main highlight will be the US jobs report for May. Otherwise, data releases include French industrial production for April. And from central banks, we’ll hear from the ECB’s Vasle.

Market Snapshot

• S&P 500 futures up 0.4% to 4,244.25
• MXAP up 2.0% to 162.70
• MXAPJ up 2.2% to 513.59
• Nikkei up 1.2% to 31,524.22
• Topix up 1.6% to 2,182.70
• Hang Seng Index up 4.0% to 18,949.94
• Shanghai Composite up 0.8% to 3,230.07
• Sensex up 0.4% to 62,663.00
• Australia S&P/ASX 200 up 0.5% to 7,145.14
• Kospi up 1.3% to 2,601.36
• STOXX Europe 600 up 0.7% to 458.52
• German 10Y yield little changed at 2.28%
• Euro little changed at $1.0771
• Brent Futures up 0.7% to $74.80/bbl
• Gold spot down 0.0% to $1,977.49
• U.S. Dollar Index down 0.10% to 103.46

Top Overnight News

• China is working on a new basket of measures to support the property market after existing policies failed to sustain a rebound in the ailing sector, according to people familiar with the matter. BBG
• South Korea’s CPI cools to 19-month low, coming in at +3.3% Y/Y in May (down from +3.7% in April and below the Street’s +3.4% forecast). RTRS
• Australia’s industrial relations umpire raised the national minimum wage by 5.75% in an effort to support low-paid workers, a decision that boosted the chances of an interest-rate increase as soon as next week. BBG
• The UN food price index for May fell 2.6% M/M and is now off 22.1% from the all-time high hit in March of 2022. UN
• The Senate passed wide-ranging legislation Thursday that suspends the $31.4 trillion debt ceiling while cutting federal spending, backing a bipartisan deal struck by President Biden and House Speaker Kevin McCarthy to avert an unprecedented U.S. default. WSJ
• Consensus for payrolls this AM is +195k headline print (vs +253k prior, GIR +175k), AHE MoM .3% (vs .5% prior, GIR +.25%) & U/E 3.5% (vs 3.4% prior, GIR 3.4%). We are finally back in a good employment data is good for stocks set up with goldilocks zone for headline print at +175k to +250k (anything in here should keep today’s rally going). A print sub 100k likely hits the tape by ~100bps and a print north of 375k hits the tape by 25 – 50bps. GS GBM
• The buzz around AI has investors pouring a record amount of money into tech stocks, with the Nasdaq 100 Index now at an all-time high relative to the Russell 2000 small-cap index. A “baby bubble” in AI was the dominant market theme in May, with tech funds attracting a high of $8.5 billion in the week through May 31, he said, citing EPFR Global data. BBG
• Brookfield is said to be among investors in early stage talks to evaluate SBB’s real estate portfolio (European real estate rallying sharply in sympathy). RTRS
• Broadcom said sales tied to AI will double this year but will be overshadowed by a wider slowdown. Chip revenue from companies building out their AI capabilities may grow to $1 billion per quarter. Broadcom’s total revenue is expected to rise less than 5% this quarter, its slowest in years. The shares dipped. BBG
• The average rate on the standard 30-year fixed mortgage rose to 6.79%, according to a survey of lenders released Thursday by mortgage-finance giant Freddie Mac. That is the highest level since this past fall, when mortgage rates briefly topped 7% for the first time in two decades. The near-quarter percentage point increase from a week ago was the largest jump since October. Mortgage rates remain sharply above their roughly 5% level a year ago. That and elevated home prices have kept many potential home buyers on the sidelines. WSJ

A more detailed look at global markets courtesy of Newsquawk

APAC stocks traded higher as the region took impetus from Wall St where the S&P 500 and Nasdaq climbed to 9-month highs amid debt ceiling optimism, falling labour costs and dovish Fed commentary. ASX 200 was positive with the index led higher by the mining sector and after the Australian Fair Work Commission raised the minimum wage by 5.75%, although gains were capped by weakness in financials and after recent upward revisions to banks’ forecasts on the RBA’s peak rate. Nikkei 225 was underpinned amid comments from BoJ Governor Ueda who stuck to the dovish script, with SoftBank among the biggest gainers following a buy rating from Jefferies and as the Co. benefits from the recent AI tech bid in the build-up to the ARM IPO. Hang Seng and Shanghai Comp. conformed to the broad upbeat mood with Hong Kong significantly outperforming amid a rally in property and tech.

Top Asian News

• China is reportedly mulling a property-market support package to bolster the economy, according to Bloomberg sources. Regulators are said to be considering reducing the down payment in some non-core neighbourhoods of major cities, alongside lowering agent commissions on transactions, and further relaxing restrictions for residential purchases under the guidance of the State Council, according to sources. China is working on a new basket of measures to support the property market after existing policies failed to sustain a rebound.
• US President Biden said the US does not seek conflict in competition with China and the countries should work together where they can.
• BoJ Governor Ueda said premature tightening could hurt companies even in good health and may weaken the economy’s potential, while he said patiently maintaining easy policy would heighten Japan’s potential growth in the long run. Ueda also stated it is not time yet to debate a specific exit strategy including the possible sale of the BoJ’s holdings of J-REITs and the BoJ will maintain massive monetary easing as it will take more time to achieve the price target, according to Reuters.

Top European News

• European equities trade on the front foot following the Senate passage of the debt ceiling bill. Despite the positivity during today’s session, the negativity earlier in the week means that the Stoxx 600 is on track to close the week out with losses of around 0.8%.
• Equity sectors in Europe are higher across the board (ex-healthcare) with Real Estate names top of the leaderboard followed by Basic Resources and Consumer Products & Services. Luxury names also benefit from gains in the sector overnight.
• US equity futures see gains but to a lesser magnitude compared to European peers ahead of the US jobs report.

Debt Ceiling news

• US Senate voted 63-36 to pass the US debt ceiling bill, which sends it to President Biden’s desk.
• US President Biden said he wants to thank Senate leaders Schumer and McConnell for quickly passing the debt ceiling bill and noted that the bipartisan agreement is a big win for the economy, while he looks forward to signing the bill ASAP and directly addressing Americans on Friday. Furthermore, the White House announced that President Biden is to deliver an address on averting a default and the bipartisan budget agreement at 19:00EDT/00:00BST, according to Reuters.

FX

• DXY oscillates in a tight range on either side of 103.50 ahead of the US jobs report, whilst the debt ceiling bill makes its way to President Biden after passing through the Senate.
• Yuan is firmer on reports China is reportedly mulling a property-market support package to bolster the economy as existing policies failed to sustain a rebound.
• Yen saw its revival thwarted by firmer US Treasury yields whilst also taking on board more dovish comments from the BoJ governor,
• Euro and Sterling are flat against the Dollar around 1.0770 and 1.2530 respectively in a quiet morning.
• Aussie outperforms amid a rebound in base metal prices ahead of the RBA policy announcement next week.
• PBoC set USD/CNY mid-point at 7.0939 vs exp. 7.0958 (prev. 7.0965)

Fixed Income

• Debt futures are observing caution in the run-up to NFP that crowns a holiday-shortened week.
• Bunds are losing further traction from 136.00 following an opening 136.36 Eurex print.
• Gilts trades around 97.00 and T-note is closer to 114-19+ overnight trough than 114-24+ peak

Commodities

• WTI and Brent front-month futures are on a firmer footing as the complex holds onto yesterday’s data-driven upside with further tailwinds seen following reports China is looking to further boost its property sector.
• Spot gold is flat around the USD 1,975/oz mark after meeting resistance at its 21 DMA (1,983.77/oz) overnight, with eyes on the US jobs report.
• Base metals are firmer across the board, bolstered by the risk appetite coupled with stimulus hopes from China.

Geopolitics

• South Korea and the US issued a joint cybersecurity advisory against North Korean hacking group Kimsuky and stated that North Korea is engineering cyberattack campaigns targeting think tanks, academia and news outlets, while South Korea issued new independent sanctions on the North Korean hacking group, according to the South Korean Foreign Ministry cited by Reuters.
• North Korea denounced the US Secretary-General over condemning its satellite launch and said it will continue to exercise its sovereign rights including the military spy satellite launch, according to KCNA.
• UN spokesman is concerned about the continuous slowdown in implementing the Black Sea grain initiative and noted that a slowdown was observed particularly in April and May.
• White House National Security Adviser Sullivan hosted Israel’s National Security Advisor and Minister of Strategic Affairs, while the officials continued discussions on enhanced coordination to prevent Iran from acquiring a nuclear weapon, according to Reuters.
• Chinese Eurasian Affairs Envoy said ‘fruitful’ talks on Ukraine may be difficult, according to Reuters.

US Event Calendar

• 08:30: May Change in Nonfarm Payrolls, est. 195,000, prior 253,000
• 08:30: May Change in Private Payrolls, est. 165,000, prior 230,000
• 08:30: May Change in Manufact. Payrolls, est. 5,000, prior 11,000
• 08:30: May Unemployment Rate, est. 3.5%, prior 3.4%
• 08:30: May Labor Force Participation Rate, est. 62.6%, prior 62.6%
• 08:30: May Average Weekly Hours All Emplo, est. 34.4, prior 34.4
• 08:30: May Average Hourly Earnings YoY, est. 4.4%, prior 4.4%
• 08:30: May Average Hourly Earnings MoM, est. 0.3%, prior 0.5%

DB’s Jim Reid concludes the overnight wrap

Markets recovered their poise over the last 24 hours, with the S&P 500 (+0.99%) closing at a 9-month high. That’s been driven by several factors, including the passage of the debt ceiling deal through Congress, the prospect that the Fed might finally pause their rate hikes at the next meeting, along with further signs that inflation is still falling. All this meant that June kicked off with a decent cross-asset rally, and sovereign bonds and commodities also moved higher after a fairly rough performance back in May.

The next test for markets will come with today’s US jobs report, which is one of the last big data releases ahead of the Fed’s next decision on June 14. For what it’s worth, markets have been consistently taken by surprise by the jobs report over recent months, and the last 13 in a row have all seen the initial release for nonfarm payrolls beat the Bloomberg consensus forecast on the day. In terms of what to expect, our US economists are looking for a +200k increase in payrolls (vs. +195k consensus), so slightly above consensus once again. In turn, that would see the unemployment rate tick up a tenth to 3.5%, having come in at a 53-year low of 3.39% last month if you look to two decimal places. See more from our US economists here.

Ahead of that jobs report, yesterday brought a collection of robust data releases on the US labour market. First, the ADP’s report of private payrolls rose by +278k in May (vs. +170k expected), which was above every economist’s forecast on Bloomberg. Second, the weekly initial jobless claims came in at 232k over the week ending May 27 (vs. 235k expected), which took the 4-week moving average down to an 11-week low of 229.5k. And third, although the latest ISM manufacturing reading remained in contractionary territory at 46.9 (vs. 47.0 expected), the employment component ticked up to a 9-month high of 51.4. This good news wasn’t just confined to the US either, since the Euro Area unemployment rate fell to its lowest since the formation of the single currency in April, at 6.5%.

Alongside those positive signals on the labour market, markets also received some good news on inflation too. In the Euro Area, the flash CPI estimate for May fell to a 15-month low of +6.1% (vs. +6.3% expected), and core inflation was down for a second month running to +5.3% (vs. +5.5% expected). And in the US, the prices paid component of the manufacturing ISM was far beneath expectations at 44.2 (vs. 52.3 expected).

Markets then got some further momentum by fresh support for the Fed pausing their cycle of rate hikes at the next meeting. That came from Philadelphia Fed President Harker, who said that “we should at least skip this (June) meeting in terms of an increase” and that “we are close to the point where we can hold rates in place”. As a result, investors further dialled back the chances of a June rate hike, which were down to 23% by yesterday’s close, having been as high as 69% at the close last Friday. We did hear from St Louis Fed President Bullard as well, one of the hawks on the committee, who published an updated analysis suggesting that policy rates are “now at the low end of what is arguably sufficiently restrictive”.

Those various good news stories lay the foundation for a decent rally, with US Treasuries rallying as investors became less concerned that the Fed would continue to hike aggressively. Yields on 10yr Treasuries were down -4.8bps to 3.595%, and the movement was driven by real yields which fell -4.9bps on the day. For Europe there was also a decline in yields, with those on 10yr bunds (-3.3bps), OATs (-3.8bps) and BTPs (-7.0bps) all moving lower. But that was driven by inflation expectations, particularly since natural gas prices hit a 2-year low yesterday at just €23.10/MWh, which builds on their astonishing run of declines since the turn of the year.

This backdrop proved very positive for equities too, and the S&P 500 (+0.99%) hit a 9-month high. Indeed, the index is just shy of being up +10% on a YTD basis, which is remarkable when you consider that the equal-weighted S&P is still down -0.68% since the start of the year, so this is still an incredibly narrow rally. Once again, tech stocks were a big driver, and the NASDAQ advanced +1.28% to now be up more than +25% YTD, whilst the FANG+ Index (+2.03%) is now up more than +64% YTD. And over in Europe, the STOXX 600 (+0.78%) recovered from its 2-month low the previous day, with larger gains for the DAX (+1.21%) and the FTSE MIB (+2.01%).

The optimistic mood has continued overnight, partly thanks to the news that the US Senate had passed the debt ceiling deal in a 63-36 vote, which follows the vote in the House of Representatives the previous day. The bill will now be sent for President Biden’s signature, who said in a statement that “I look forward to signing this bill into law as soon as possible”. So that takes the threat of a near-term default off the table again, and Biden is expected to speak from the Oval Office at 7pm Eastern Time.

In light of the various good news stories, Asian equities have seen strong gains overnight, with advances for the Hang Seng (+3.66%), the Nikkei (+1.39%), the CSI 300 (+1.29%), the KOSPI (+1.03%), and the Shanghai Comp (+0.76%). The advance is also evident among US equity futures, with those on the S&P 500 up +0.18% overnight, following the index reaching a 9-month high the previous day. The risk-on moves have also seen Treasuries pare back their gains, with the 10yr yield up +1.9bps overnight to 3.61%, whilst Brent Crude oil prices (+0.58%) are up to $74.41/bbl.

In other news yesterday, we got the accounts of the ECB’s May meeting, which highlighted the ECB’s hawkish bias. On core inflation “the latest developments were broadly seen as worrisome”, and “members concurred that further tightening was needed”. See more from our European economists here. The accounts came as President Lagarde herself said in a speech that “There is no clear evidence that underlying inflation has peaked”. Against this backdrop, investors are still expecting a further 25bp hike as the most likely outcome at the next ECB meeting on June 15, which if realised would take the deposit rate up to 3.5%.

When it came to yesterday’s other data, UK mortgage approvals fell to 48.7k in April (vs. 53.5k expected). Otherwise, the final manufacturing PMIs for May showed a similar picture to the flash readings. The Euro Area print was revised up two-tenths to 44.8, the UK print was revised up two-tenths to 47.1, and the US was revised down a tenth to 48.4.

To the day ahead now, and the main highlight will be the US jobs report for May. Otherwise, data releases include French industrial production for April. And from central banks, we’ll hear from the ECB’s Vasle.

Authored by Charles Hugh Smith via OfTwoMinds blog,

Now that the US economy is totally dependent on trillions of dollars in stimulus and speculative gains reaped from the stimulus, there is no Real Economy left to pick up the pieces when the credit-stimulus-speculation bubbles all pop.

When economists speak of organic growth, they’re referring to growth that arises naturally from the expansion of population, advances in productivity gained from better training and wise investments and the fruits of innovation.

Organic growth doesn’t need constant stimulus, nor is it dependent on speculation. It doesn’t need to be juiced by central banks and government to function. In an economy that isn’t dependent on stimulus, the role of central banks is limited to being the lender of last resort in periodic financial crises, and government’s role is to serve the common good by funding what fosters the common good but isn’t profitable enough for private companies to pursue, for example, rural electrification and critical infrastructure.

Compare this Real Economy with the Artificial Economy we now have that is completely dependent on central bank and government stimulus and rampant speculation. If either the stimulus or speculation disappeared, the economy would collapse. Without constantly increasing monetary and fiscal stimulus, the asset bubbles inflated by stimulus would collapse.

Every decision in this stimulus-speculation-dependent economy is keyed off of Federal Reserve stimulus or federal spending guarantees. Consider the decision to buy or build a residence to live in or hold as an investment. This decision is now keyed to Federal Reserve manipulation–scrape away the sugar-coating and this is what it is–of mortgage rates and the market for mortgages (mortgage backed securities) and federal government backstops and guarantees.

Glance at the first chart below of the Fed’s “intervention” in the mortgage market: somehow the housing / mortgage market survived without the Fed owning any mortgage backed securities prior to 2009, but now the Fed must intervene to the tune of trillions of dollars to keep the housing / mortgage market from imploding.

All this stimulus is sold as “help” but it all ends up “helping” the wealthiest few at the expense of the bottom 90%. Look at the two charts below of the percentage of wealth held by the top 1% and the percentage of wealth held by the middle class, those households between 50% and 90% in terms of household income. Every new Fed / federal stimulus pushes the wealth of the 1% higher and the wealth of the middle class lower.

To those pushing the stimulus, the soaring wealth of the top 1% is “success” because that’s their circle of colleagues and pals. If we’re doing great, everyone must be doing great. Such is the hubris and denial olf our financial and political leadership.

You’ll notice three charts all display parabolic rises: the Fed balance sheet, federal debt and total debt. The primary form of stimulus is credit: expand the availability of credit and (until recently) make it cheaper to borrow by manipulating interest rates lower.

All this “free money” fueled a dependency on speculation for “growth,” a dependency that has hollowed out the economy. As a direct result of all this stimulus / credit, corporations have bought tens of thousands of homes as rentals, inflating another housing bubble. Investors have snapped up tens of thousands of dwellings to cash in on the short-term rental (AirBnB etc.) boom, effectively distorting the long-term rental markets and pushing rents higher.

Debt and stimulus tracing parabolic ascents cannot end well. Eventually they collapse under their own weight.

Every junkie has an excuse. Every junkie proclaims I can stop any time. Now that the US economy is totally dependent on trillions of dollars in stimulus and speculative gains reaped from the stimulus, there is no Real Economy left to pick up the pieces when the credit-stimulus-speculation bubbles all pop.

And so we’re treated to the infantile charades of the Federal Reserve and our elected officials, both bleating how wunnerful everything is while in private, with the mics safely muted, they’re desperate to push the inevitable implosion off just a few more months. They have no alternative, and no way to return to an unmanipulated economy that isn’t dependent on ever larger injections of stimulus and parabolic increases in debt.

The problem, friends, is the US economy has run out of veins for the coming injections of stimulus. The costs of dependency on artifices of stimulus and mood enhancement–everything’s wunnerful!–are coming due, as they always do.

Unfortunately, there’s no solution other than Cold Turkey, the collapse of all stimulus and all speculation. We’re about to find out just how unpleasant Cold Turkey can be, and babbling rants of denial will only make it worse.

New Podcast: Charles Hugh Smith on Getting Ready for a Real Recession (38 min) (38 min)

*  *  *

My new book is now available at a 10% discount ($8.95 ebook, $18 print): Self-Reliance in the 21st Century.  Read the first chapter for free (PDF)

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Authored by Tsvetana Paraskova via OilPrice.com,

• A public-private Japanese partnership plans tests to beam space-generated solar power back to earth.

• The cost to install massive solar panels in space to generate 1 gigawatt (GW) of electricity is expected to cost more than $7.2 billion

• China also has ambitious plans to build a solar power station in space at a GW-level

In the latest ambitious project to use solar energy in space for powering the earth, a public-private Japanese partnership plans to test as soon as in 2025 if solar power generated in space can be beamed to the earth and converted into electricity.  

The Japanese venture is the latest in a series of plans and experiments in recent months to test if solar power converted into microwaves could be beamed to receiving stations on the earth’s surface for large-scale use. 

Scientists and science fiction writers have long dreamed of such a solar energy source: harnessing the sun’s energy regardless of weather or the time of day or night. This would overcome the constraints for solar power on earth, where generation can take place only when the sun shines. In addition, microwaves can pass through clouds, so beaming the energy via microwaves to the earth would not pose limits to solar energy due to weather conditions or the time of day.  

The limits, of course, are the technology to do this at mass scale and the costs. 

The cost to install massive solar panels in space to generate 1 gigawatt (GW) of electricity is expected to cost more than $7.2 billion (1 trillion Japanese yen), Nikkei Asia reports.

Still, researchers led by Kyoto University professor Naoki Shinohara will try to beam solar power to Earth to potentially prove that solar energy harnessed in space can be used for electricity needs on Earth. 

Japan’s project involving industry, scientists, and the government space agency carried out successful tests of microwave power transmission horizontally in 2015 and vertically in 2018, both over a distance of 50 meters (164 ft). Vertical transmission with distances between 1 km and 5 km (0.62-3.1 miles) will be attempted in the future.

“If we can demonstrate our technology ahead of the rest of the world, it will also be a bargaining tool for space development with other countries,” Shinohara told Nikkei.

The race for generating solar power in space and beaming it back to Earth is heated. 

More than two years ago, the Pentagon successfully tested a solar panel in low-earth orbit as a prototype of potential future power-generating systems capturing light from the sun and beaming it back as energy to Earth.

Early this year, the Caltech Space Solar Power Project (SSPP) launched the Transporter-6 mission, launching in orbit a prototype, dubbed the Space Solar Power Demonstrator (SSPD), which will test several key components of an ambitious plan to harvest solar power in space and beam the energy back to Earth. 

“When fully realized, SSPP will deploy a constellation of modular spacecraft that collect sunlight, transform it into electricity, then wirelessly transmit that electricity over long distances wherever it is needed—including to places that currently have no access to reliable power,” Caltech said in January. 

China also has ambitious plans to build a solar power station in space at a GW-level, which will make the project operational for commercial use, Chinese experts told the Global Times in April. 

Also in April, the European Space Agency (ESA) signed contracts for two parallel concept studies for commercial-scale Space-Based Solar Power plants—a crucial step in the Agency’s new SOLARIS initiative – maturing the feasibility of gathering solar energy from space for terrestrial clean energy needs.  

“The studies will look at as wide a range of options as possible, including investigating all the different ways to move the energy, safely and efficiently, down to Earth: radio frequency transmission, lasers and simply reflecting sunlight down to solar farms on the ground,” said Sanjay Vijendran, ESA’s lead for the SOLARIS proposal. 

According to ESA, “the concept complements rather than competes with terrestrial renewables, because Space-Based Solar Power can make power available reliably on an ongoing 24/7 basis, providing much-needed stability to the electricity grid as the share of intermittent renewables continues to increase, reducing dependence on large-scale storage solutions.” 

With the energy crisis, net-zero targets, and issues with land availability for renewable power installations, space solar power could be part of the solution in the future, if technology and costs allow for it.