Last month’s episodes of Divided Argument

In the last two weeks, co-host Dan Epps and I recorded four episodes of Divided Argument, our Supreme Court podcast. This follows the unpredictable decision to record almost no episodes during the month of June when the Court was actually releasing most of its opinions—but now we are taking our time to catch up on a lot of interesting decisions!

The episodes are:

My Despised World (already linked here)

After some inevitable self-flagellation for our lengthy hiatus, we catch up on some recent news and debate SCOTUS ethics. We then talk about implications of the Harvard/UNC affirmative action case, revisit Mallory v. Norfolk Southern, and break down the latest case captioned “United States v. Texas.”

Peak SG

This time, we take a deep dive into two jurisdiction-y cases in the Divided Argument wheelhouse: Jones v. Hendrix and Moore v. Harper.

Dishonorable Tradition

This time, we talk about the intersection of public accommodations law and the First Amendment in 303 Creative and the Confrontation Clause in Samia v. United States.

Triple Threat

We briefly discuss the jurisdictional complexities in the Mountain Valley Pipeline shadow docket dispute, and then revisit recent ethics controversies. Then, we continue marching through the June cases we missed. We talk about the First Amendment’s “true threats” exception in Counterman v. United States, and then ponder the two student loan cases, Biden v. Nebraska and Department of Education v. Brown.

Transcripts and hyperlinks should be up soon.

The post Last month's episodes of Divided Argument appeared first on Reason.com.

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Homebuyers Need To Earn 13% More In 2022 To Afford Their First Home

Homebuyers Need To Earn 13% More In 2022 To Afford Their First Home

Authored by Bryan Jung via The Epoch Times,

First-time homebuyers are facing some of the highest home prices in years, in the midst of high inflation and mortgage rates, according to a new report.

The strain on household budgets comes in the midst of the ongoing housing shortage, which pushed the cost of starter homes to a record high.

Redfin noted in a July 28 report that first-time buyers need to earn $64,500 per year to afford a home at this point – a $7,200 or 13 percent increase from 2022.

The average sale price of a typical starter home reached $243,000 in June, up 2.1 percent from a year ago and 45 percent above pre-pandemic levels, said the real estate brokerage.

San Francisco, Austin, and Phoenix are currently the only metro regions where home buyers are able to purchase a starter home from below last year’s average rates, said Redfin.

Meanwhile, buyers in Miami needed 25 percent more income than last year to afford the average price of a starter home at $300,000.

Home Prices Surge Again This Summer

After a brief cooldown, home prices rose again in much of the country, after the Federal Reserve hiked interest rates again in July to slow inflation.

Meanwhile, the median cost of a home in the United States rose to over $400,000 for the third time on record, according to data from the National Association of Realtors (NAR).

“Homebuyer affordability is still strained this summer, with mortgage rates remaining high and volatile, and home prices high because of low inventory,” said Edward Seiler, an associate vice president at MBA.

Average mortgage rates hit 6.7 percent in June, up from 5.5 percent the year before and just under 4 percent before the pandemic in 2020.

The benchmark 30-year fixed rate mortgage rose slightly last week to 6.81 percent, according to Freddie Mac.

Many potential sellers are reluctant to sell their homes at the risk of a higher mortgage rate when buying a new home, which is a big factor driving the lack of inventory in the market.

“Homeowners that bought a few years ago, at lower prices and at lower interest rates, can feel trapped. If they’ve considered buying a new home, they’ve looked around at today’s higher home prices and also know they can never replace the historically low interest rate they have now,” RubyHome CEO Tony Mariotti said in a statement.

Prices for starter homes continue to rise due to lack of housing stock, amid tight completion and elevated prices across the board.

The amount of new listings for sale in June dropped 23 percent over the last 12 months, the biggest drop since the start of the pandemic.

The total number of starter homes on the market is also down, failing 15 percent since June of last year.

“Buyers searching for starter homes in today’s market are on a wild goose chase because in many parts of the country, there’s no such thing as a starter home anymore,” said Redfin Senior Economist Sheharyar Bokhari in a statement.

The combination of low housing stock, rising prices, and persistently high mortgage rates have continued to push potential buyers out of the market, said Mr. Bokhari.

All of these factors have stifled sales activity, causing purchases of new homes to tumble 17 percent year over year in June.

Most Homebuyers Remain Stuck Out of Market

Average household wages have risen 4.4 percent from a year ago and roughly 20 percent from before the pandemic, but that is not enough for the average buyer to overcome the jump in monthly mortgage payments.

“People who are already homeowners are sitting pretty, comparatively, because most of them have benefited from home values soaring over the last few years,” Mr. Bokhari continued.

“That could lead to the wealth gap in this country becoming even more drastic,” he added.

Home prices have skyrocketed since the pandemic, due to near zero mortgage rates and a massive home buying spree after millions of Americans relocated across the country to work remotely.

Rents have surged as well, putting many prospective first-time homebuyers in a tight spot, with the typical asking rent falling just $24 under last year’s $2,053 high.

Wealthier buyers remain the main drivers on the market, as many are able to buy properties in cash without paying a mortgage.

About 36.6 percent of starter homes in the United States were purchased with cash in May, the last month for which data is available.

This is a slight decline from April’s decade high and up from 35.2 percent a year earlier.

Declining Inflation May Lead to Lower Mortgage Rates

Fed Chairman Jerome Powell said last week after the last central bank policy meeting that the U.S. housing market will have “a ways to go” before it balances out and prices begin to cool.

Realtor noted in June that demand is still rising as pending home sales data, a forward-looking indicator of home sales based on contract signings, increased for the first time since February.

“The recovery has not taken place, but the housing recession is over,” NAR’s Chief Economist Lawrence Yun said in a statement.

“The presence of multiple offers implies that housing demand is not being satisfied due to lack of supply. Homebuilders are ramping up production and hiring workers.”

He said that the drop in inflation since last year’s record high will gradually cause mortgage rates to drop to more reasonable levels.

Mr. Yun said that NAR expects that the 30-year fixed rate mortgage will dip to 6.4 percent this year before declining to 6 percent in 2024.

“With consumer price inflation calming close to the Federal Reserve’s desired conditions, mortgage rates look to have topped out,” Mr. Yun said.

“Given the ongoing job additions, any meaningful decline in mortgage rates could lead to a rush of buyers later in the year and into the next.”

Tyler Durden
Tue, 08/01/2023 – 08:30

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Futures Drop And Dollar Spikes As Bulls Get Cold Feet

Futures Drop And Dollar Spikes As Bulls Get Cold Feet

S&P futures are are weaker to start the new month with bond yields flat and Bloomberg Dollar Spot Index climbed to session highs, dragging down all Group-of-10 currencies, as the rally that sent the S&P 500 to a 16-month high in July lost momentum after a flurry of companies reported disappointing earnings. Commodities are mixed as China’s Caixin PMI-Mfg prints 49.2, down from 50.5 and missing the est. 50.1.

As of 7:40am, S&P futures traded down 0.3% to 4,600 as the bizarre last minute spike in the S&P yesterday melted away, while Nasdaq 100 futures traded down 0.4%. Europe’s Estoxx 50 drops almost 1% with Asian stocks also lower. The US Dollar was boosted by weak Chinese data as well as the surprise RBA decision to leave rates unchanged. Treasury yields were little changed, while UK and Europe bond markets are similarly listless. Gold and oil fell, while Bitcoin slid nearly 1% and headed for a third straight day of losses. WTI futures fall less than 0.5%. A quick look at seasonals: August/Sept are typically the weakest 2 months of the year, so we may see increasing calls for a pullback, before resuming the squeeze higher. Keep an eye on oil, bond yields, and vol as we await macro data, Jackson Hole, and the Sept Fed meeting. Today’s macro data focus includes ISM-Mfg, JOLTS, Construction Spending, and Regional Fed data.

In premarket trading, major technology and internet stocks are edging lower in premarket trading with Advanced Micro Devices, Electronic Arts and Pinterest all set to report after the close. Arista Networks shares rose as much as 18%, after the communications equipment company reported second-quarter results that beat expectations and gave a revenue forecast that is above the consensus analyst estimate. Analysts note that the company’s earnings are boosted by its diversified revenue streams. CVS Health rose as much as 1.5% after the Wall Street Journal reported that the pharmacy chain operator said it would cut about 5,000 jobs to help reduce costs. Here are some other notable premarket movers:

  • Emergent BioSolutions shares soared as much as 12% after the maker of medical countermeasures was awarded a 10-year US government contract valued at up to $704 million.
  • Rambus shares slide 8.2% as Jefferies notes that the semiconductor device company expects headwinds for DDR4 buffer chipset inventory to continue for the rest of the year.
  • ZoomInfo Technologies shares fall as much as 20%, after the infrastructure software company cut its full-year revenue forecast. Analysts note continued weakness in software spending, though they remain optimistic about the company’s long-term prospects. Deutsche Bank downgraded its rating on the stock saying there’s a “persistent lack of visibility.”

While futures suggest a weaker open on Wall Street later, the buoyant mood of the past months has prompted a retreat among bears as market returns and economic data continue to challenge expectations. The S&P 500 on Tuesday received its most bullish outlook from Oppenheimer Asset Management, which raised its year-end S&P price target to 4,900 and predicts further strength in stocks as the Federal Reserve nears a pivot and the US economy stays resilient.

As BBG notes, with the S&P 500 now less than 5% away from an all-time high, there are signs that investors are taking a pause before a Bank of England interest rates decision on Thursday and US employment figures Friday. The line-up of blockbuster earnings still to come this week includes tech heavyweights Apple and Amazon.com Inc.

“When we look forward from here, we feel that the drivers for the rally may become a little bit more mixed,” said Karim Chedid, head of EMEA iShares investment strategy at BlackRock International. “We still don’t feel that the trough in earnings has come yet. Whilst the macro picture has been stronger than expected, there is no doubt that the tightening from central bank policy is starting to come through.”

Meanwhile, China’s economic weakness reminded markets it isn’t going away any time soon: Chinese new home sales plunged by the most in a year last month, underscoring why policymakers need to address faltering demand and a liquidity crunch in the sector. Caixin PMI figures showed factory activity contracted in July, missing economists’ estimates for a small expansion.

In Europe, the Stoxx 600 is down 0.5% with auto shares leading declines as BMW dropped more than 6% after warning about higher costs for developing electric cars, while logistics giant DHL Group gave a profit guidance that missed analyst estimates. The results highlight growing concern about the durability of corporate earnings and questions about whether stocks can keep rallying after notching big gains in July. In other individual stock moves, HSBC Holdings Plc provided one of the bright spots in Tuesday’s company results, rising after the bank announced a new share repurchase program and earnings that outpaced estimates. Energy names outperform as BP rallies after raising its dividend despite disappointing profit. Here are the most notable European movers:

  • HSBC gains as much as 3% in London after the banking giant delivered a strong beat on revenue in the second quarter and a buyback near the high end of analyst expectations
  • BP shares rise as much as 2.5%, reversing initial losses, after the energy company’s dividend hike and buyback announcement eclipsed what analysts said was a drab set of results
  • Diageo rises as much as 3.3% as the UK alcoholic beverages group offered reassurance over its key US market, offsetting lackluster yearly sales and operating profits
  • Weir Group gains as much as 6.6%, the steepest advance since March 1, after first-half results beat estimates on most metrics
  • Redcare Pharmacy jumps as much as 13%, the most since January, after the German online pharmacy formerly known as Shop Apotheke presented strong 1H earnings that confirmed the company’s solid market-share gains, analysts say
  • Galapagos NV rises as much as 4.6% after being raised to accumulate at KBC, which says it has conviction in the biotechnology company’s experienced management and point-of-care model for CAR-T cell therapy
  • BMW shares slide as much as 5.9% after the carmaker gave cautious comments on a potential second-half headwind, while also raising guidance for 2023
  • DHL Group shares fall as much as 4.8% in Frankfurt after the logistics firm’s improved FY23 earnings guidance came short of market expectations, even as the company posted a 2Q beat, Citi writes
  • Daimler Truck falls as much as 3.4% after reporting second-quarter earnings. Morgan Stanley notes a measure of free cash flow missed consensus
  • Nexi shares fall as much as 5.9% after the payment firm reported slowing consumption volume growth across key markets amid concerns that a recession could weigh on consumer spending
  • Man Group shares drop as much as 7.9%, the most in more than 10 months, after the world’s largest publicly traded hedge fund firm reported 2Q results which reflected a lower-margin long-only focus from clients
  • Greggs shares fell as much as 7.9% after the sandwich- and-bakery products retailer kept its 2023 outlook unchanged and posted 1H results that weren’t strong enough to push the rally higher

Earlier in the session, Asian stock benchmarks were steady in the first day of August trading, as investors snapped up some bigger tech shares but Chinese equities took a breather after recent gains. The MSCI Asia Pacific Index was little changed after six-straight days of gains. Samsung, Alibaba and TSMC were among the biggest boosts. Korea’s Kospi rose, poised to reach a fresh year-to-date high, and Australian stocks gained ahead of the central bank’s policy decision due later Tuesday. Benchmarks in Indonesia, Malaysia and Singapore fell. Key gauges in Hong Kong and mainland China failed to extend Monday’s gains after their best week in months. Investors await further stimulus measures after the latest Politburo meeting as the world’s second-largest economy continues to struggle.

China investors “are still waiting to see some meaningful comeback in high frequency indicators,” Alec Jin, investment director of Asian equities at abrdn, wrote in a note. “We would expect targeted measures that can boost consumer income and demand in sectors like autos, electronics and household products,” as well as more support for the property sector, he added. The MSCI Asia gauge is coming off its best month since January, flirting with its highest close since April 2022. It rose 4.6% in July amid improved sentiment on China, an AI-driven rally in chip stocks and expectations of a soft landing in the US.

Japan’s Nikkei 225 was underpinned by a weaker currency and with headlines in Japan dominated by earnings releases, while a recent poll by Bloomberg also showed that BoJ watchers don’t expect a further policy shift from the central bank this year with April 2024 now seen as the likely timing for a policy change. Australia’s ASX 200 traded positive amid strength in tech and the commodity-related sectors with further upside after the RBA kept rates unchanged.

In FX, the Bloomberg dollar index climbed by about 0.3% to a three-week high before the release of US economic data including ISM manufacturing and JOLTS job openings. The Aussie is the weakest of the G-10 currencies after the RBA left rates on hold for a second straight meeting, falling 1.2% versus the greenback. Relief rallies in the Aussie were limited as leveraged funds maintained short positions in expectation of further selling following the RBA decision, traders said. The rate-sensitive three-year government bond yield slumped as investors speculated the central bank may be close to wrapping up its tightening campaign. The yen traded weaker against the dollar, adding to Monday’s decline, amid sluggish demand at a 10-year bond auction. While investors had earlier anticipated that the Bank of Japan is moving toward letting yields rise after a tweak to its yield-curve control policy, it bought bonds on Monday to anchor rates.

In rates, treasuries were slightly cheaper from the belly to long end of the curve, unwinding gains seen in Asia session after the RBA left policy rates steady while keeping the door ajar to future hikes. US 10-year yield sit around 3.98%, cheaper on the day; yields across the curve are within one basis point of Monday’s close. 10-year gilts lag Treasuries by around 1bp while bunds trade broadly in line. Bunds and gilts are both in the red with German and UK 10-year yields rising by 1bps and 2bps respectively.  Traders’ focus during the US session will be on activity data including PMI and ISM manufacturing gauges, as well as JOLTS job openings.

In commodities, crude futures decline with WTI falling 0.5%. Spot gold drops 0.4%

Looking to the day ahead, we have a data heavy day. From the US, we have the July ISM index, the Dallas Fed services activity and the June JOLTS report, as well as total vehicle sales and construction spending. In Europe, we have the Eurozone unemployment rate for June, as well as the Italian July PMI, the new car registrations, budget balance and June unemployment rate. From Germany, we have the July unemployment rate, and finally the Canadian PMI for July. We also have several key earnings releases, including Pfizer, AMD, Caterpillar, Starbucks, Uber, Altria, Marriott, Pioneer Natural Resources, Electronic Arts, Devon Energy and Pinterest.

Market Snapshot

  • S&P 500 futures down 0.3% to 4,602.00
  • MXAP down 0.2% to 170.47
  • MXAPJ down 0.3% to 539.82
  • Nikkei up 0.9% to 33,476.58
  • Topix up 0.6% to 2,337.36
  • Hang Seng Index down 0.3% to 20,011.12
  • Shanghai Composite little changed at 3,290.95
  • Sensex little changed at 66,477.12
  • Australia S&P/ASX 200 up 0.5% to 7,450.71
  • Kospi up 1.3% to 2,667.07
  • STOXX Europe 600 down 0.5% to 469.13
  • German 10Y yield little changed at 2.51%
  • Euro down 0.2% to $1.0974
  • Brent Futures down 0.5% to $85.04/bbl
  • Gold spot down 0.5% to $1,955.71
  • U.S. Dollar Index up 0.30% to 102.17

Top Overnight News

  • Australia’s RBA leaves rates unchanged, signaling further that it is done hiking (markets were mostly looking for unchanged, although economists were more split, with some calling for a 25bp hike). RTRS
  • China’s Caixin manufacturing PMI for Jul came in at 49.2, missing the Street’s 50.1 forecast and falling from 50.5 in June. RTRS
  • Foreign investors are returning to China’s stock market en masse, signaling a bullish shift in sentiment after months of skepticism. Overseas funds added a net 49 billion yuan ($6.9 billion) worth of mainland stocks via trading links with Hong Kong in the past five sessions, encouraged by the new pro-growth policies. The buying spree has taken the year-to-date net purchase to a new high of 230 billion yuan. BBG
  • The eurozone unemployment rate has fallen to a record low, indicating that the single currency bloc’s labor market remains healthy despite concerns about weak growth. Eurostat, the EU’s statistical agency, said on Tuesday the June unemployment rate was 6.4 per cent — an all-time low in the eurozone — as it also revised down the rate in the previous two months from 6.5 percent to 6.4 percent. FT
  • Trump’s lead within the GOP primary seems increasingly insurmountable. Trump and Biden are tied at 43% in a new poll looking at a 2024 rematch. NYT
  • Top active fund managers say they are struggling to attract money from large investors who are holding back in the face of volatile markets and cash accounts offering the best yields in years. Institutional investors such as pension funds, endowments, and foundations control billions in capital and are responsible for the majority of allocations to the biggest asset managers. Cash sitting in US institutional money market accounts now totals almost $3.5tn, according to the Investment Company Institute, a sum that has climbed steadily this year even as stock markets gather strength. FT
  • BMW shares slide in Europe despite boosting guidance for 2023 as Q2 auto EBIT margins missed and investors focus on this line from the release (“expects higher expenses for suppliers due to inflation and the supply chain to continue to be a headwind in the second half of the year”). RTRS
  • BP hiked its dividend by 10%, well above guidance, and announced another $1.5 billion buyback. The surprise payout eclipsed a big profit miss and weakness in oil trading. CEO Bernard Looney sees a strong outlook for oil prices and demand growth on top of “huge demand” for green electricity. BBG
  • AMZN aims to double its same-day delivery facilities in the “coming years” as it works to extend its e-commerce advantage, although investors question all this spending amid paltry margins in the retail business. Fortune

A more detailed look at global markets courtesy of Newsquawk

Asia-Pac stocks were mostly higher following the positive lead from Wall St where the S&P 500 notched its 5th consecutive monthly gain, while participants also digested disappointing Chinese Caixin Manufacturing PMI data and the  RBA rate decision. ASX 200 traded positive amid strength in tech and the commodity-related sectors with further upside after the RBA kept rates unchanged. Nikkei 225 was underpinned by a weaker currency and with headlines in Japan dominated by earnings releases, while a recent poll by Bloomberg also showed that BoJ watchers don’t expect a further policy shift from the central bank this year with April 2024 now seen as the likely timing for a policy change. Hang Seng and Shanghai Comp managed to shrug off the disappointing Chinese Caixin Manufacturing PMI data which slipped into contraction territory for the first time in 3 months with Hong Kong boosted by tech strength and the mainland kept afloat by further support efforts from China.

Top Asian News

  • China’s NDRC issued a notice to promote private economy development in China and said it will extend loan support tools for small and micro firms until the end of 2024.
  • RBA maintained its Cash Rate Target unchanged at 4.10% (vs split views between 25bps hike and unchanged) and noted that some further tightening of monetary policy may be required. RBA reiterated that the Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that, while it also reaffirmed a priority to return inflation to target within a reasonable timeframe and expects inflation will be back at 2-3% target range in late 2025.

European bourses are in the red, Euro Stoxx 50 -1.0%; as sentiment has deteriorated gradually since the European cash open and was impacted further by the morning’s Final PMIs. Sectors are similarly negative, with Autos lagging amid marked losses in BMW despite a guidance update as associated H2 commentary flagged headwinds. Basic Resource names are similarly dented post-Fresnillo. To the upside, Energy is the only sector in the green bolstered by Q2 earnings from BP who announced a buyback and increased their dividend while Banks derive support from HSBC. Stateside, futures are modestly softer and have been drifting in-line with European peers throughout the morning but with magnitudes more contained ahead of key data points; ES -0.3%.

Top European News

  • Germany’s VDMA says German engineering orders in June -15% Y/Y (domestic -18%; Foreign -14%).
  • German Economy Ministry says the European Commission has made important progress on subsidies for hydrogen power plant talks, but no approval yet.

FX

  • A session of firm gains thus far for the Dollar amid the broader risk aversion across the market coupled with continued weakness in the JPY against major peers.
  • Antipodeans remain the marked laggards amid a combination of subdued risk and RBA opting to pause.
  • Traditional havens are also on the back foot against the Dollar but to a lesser extent vs the non-US dollar counterparts. JPY continues to feel headwinds following the BoJ policy decision and subsequent off-schedule bond purchases conducted yesterday.
  • EUR and GBP are subdued against the Dollar with little initial reaction seen to the final release of the S&P Manufacturing PMIs, which underscored increasing risks of recession, although prices have been moving favourably amid sharply deteriorating demand.
  • PBoC set USD/CNY mid-point at 7.1283 vs exp. 7.1495 (prev. 7.1305)

Fixed Income

  • EGBs slip while USTs are mixed/tentative with drivers limited overall ahead of a busy PM agenda; EGBs are under bearish pressure despite deteriorating risk sentiment and welcome EZ PMI commentary re. inflation.
  • Bunds at the lower-end of 132.64-133.06 parameters with attention still on Friday’s 131.81 low, specific catalysts remain light aside from the referenced PMI commentary.
  • USTs are more mixed with the short-end bid and the long-end soft though magnitudes are relatively minimal and from a yield perspective it is only resulting in very modest curve flattening

Commodities

  • WTI and Brent front-month futures are modestly softer intraday as the Dollar remains firm and risk sentiment tilts lower.
  • Spot gold is pressured by the firmer Dollar awaiting the US ISM and JOLTS data, with the yellow metal sandwiched between its 100 and 21 DMAs at USD 1,968.25/oz and USD 1,950.60/oz respectively.
  • Base metals are on the back foot amid the broader risk aversion, stronger Greenback, and the surprise contraction in the Caixin Manufacturing PMI.

Geopolitics

  • White House’s Kirby said the US is not encouraging attacks inside Russia and that the decision is for Ukraine to make, according to a CNN interview.
  • A drone hit a high-rise building in Moscow and a second drone was downed in Moscow’s suburbs, according to agencies quoting emergency services.
  • China’s Defence Ministry said it lodged solemn representations to the US side regarding US military arms sales to Taiwan and urges the US to stop all forms of military collusion with Taiwan, according to Reuters.

US Event Calendar

  • July Wards Total Vehicle Sales, est. 15.7m, prior 15.7m
  • 09:45: July S&P Global US Manufacturing PM, est. 49.0, prior 49.0
  • 10:00: June JOLTs Job Openings, est. 9.6m, prior 9.82m
  • 10:00: July ISM Manufacturing, est. 46.9, prior 46.0
  • 10:00: June Construction Spending MoM, est. 0.6%, prior 0.9%
  • 10:30: July Dallas Fed Services Activity, prior -8.2

DB’s Jim Reid concludes the overnight wrap

Welcome to August, the last month of an increasingly wet summer here in the UK. A bright spot yesterday was a tremendous climax to the Ashes where England levelled a barn-storming series 2-2 after 6 weeks of high drama, a diplomatic incident, interventions from both prime ministers, and a series where but for the weather England could have won 3-2 after being 2-0 down. This will mean nothing to 99% of global readers but it was nothing short of a sensational series.

Unlike with the Ashes, July ended quietly for markets but the month overall was largely positive for assets across the board. Commodities, and oil, stole the show, as supply cuts spurred upward pressure on prices, but the AI excitement saw both S&P 500 and the NASDAQ extend their rally, securing their fifth and fourth consecutive month of positive returns, respectively. However, fixed income took a hit in July, as central banks continued their hiking cycle and near-term cuts continue to be priced out. All-in-all, we had the strongest month in performance terms since January, with 32 of the 38 non-currency assets in our sample ending July in positive territory. In YTD terms, 36 out of 38 non-currency assets are now in the green. See the full review in your inboxes shortly.

Turning to yesterday, it was a relatively quiet day in markets with the main event the Federal Reserve’s senior loan officers’ opinion survey (SLOOS) late in the US session. This continues to be one of the few data points to argue against a soft-landing narrative. The share of banks reporting tighter credit standards for commercial & industrial loans increased (from +46 to +51). The four times since the start of the SLOOS in 1990 (as we know it today) that have seen such tightening have all been associated with recessions. The decline in demand for C&I loans eased a touch (from -56 to -52) but remains very negative. Commercial real estate (CRE) remained a focal point of the tightening in credit conditions, as “banks reported tighter standards and weaker demand for all CRE loan categories”. There were some more encouraging details on the residential side, as the slowdown in demand for mortgages was the least severe since H1 2022. But in all, while activity and inflation data have been more encouraging of late, it would take an unusual decoupling of the US economy from the bank credit cycle to avoid a recession. Clearly the market is expecting such a “this time is different” narrative. Standby for the June US JOLTS data and ISM today for the next data instalment.

In markets, the SLOOS survey hardly moved the needle and the positive mood from Friday continued, albeit in a subdued session. The S&P 500 gained a modest +0.15% and 10yr US Treasury yields inched up by +0.9bps despite dovish commentary from the Chicago Fed’s Goolsbee. A known dove, Goolsbee emphasised that the most recent inflation prints were “fabulous news” and that the US was now on what he called the “golden path”. However, he was careful to note that the Fed still needed to “play by ear” and did not commit to a view on the September meeting, with the potential for cuts only arising when inflation recedes.

There was little change to market expectations following Goolsbee’s interview, with the probability of a Fed hike in September unchanged at 19%. An 18% chance of a further 25bps hike is priced in for November. Overall, the market is anticipating just over a third of another hike this Fed hiking cycle, and 115bps of rate cuts in total by December 2024.

Across the Atlantic, following the German and French CPI prints on Friday, eyes were on the release of the Euro area flash CPI data for July, with headline HICP as expected at 5.3%, easing from 5.5% in June. However, core inflation surprised to the upside at 5.5% (vs 5.4% expected) rising above the headline result for the first time since the start of 2021. Will it be enough to justify a pause on September 14th? There is still a fair amount of data before then but only one inflation print.

Within the same data package was the euro area economic growth for Q2, which overshot expectations to hit +0.3% quarter-on-quarter (vs +0.2% expected). However, markets did not lend much credence to the beat. When digging into the details, it’s apparent Ireland (+3.3% quarter-on-quarter) created a sizeable upward distortion, while French numbers (+0.5% quarter-on-quarter, expectations were for +0.1%) were also distorted, by the delivery of a cruise ship. In contrast, Germany recorded no growth (0% quarter-on-quarter), and Italy a contraction (-0.3% quarter-on-quarter)

With markets taking on board these prints, European overnight index swaps are now pricing 61% chance of an additional 25bps hike by the end of 2024, down from nearly 90% prior to last Thursday’s ECB meeting. Off the back of this, German fixed income fluctuated over the day, with the 10yr struggling for direction before eventually closing down -0.2bps, while the 2yr was down -1.3bp.

US equities continued their rally on Monday, albeit at a slower pace, with the S&P up +0.15% after a late rally, securing its fifth consecutive month of advances (+3.11% in price terms in July), the longest streak since August 2021. At the sectoral level, the energy sector outperformed on the day, up +2.00%, as WTI and Brent Crude rounded up their third consecutive day of gains, climbing +1.51% and +0.67%, respectively. On the oil side, the market will be watching whether Saudi Arabia announces an extension of its output cut in the coming days. Real estate (+0.70%) and financials (+0.44%) equity sectors followed energy’s lead. The NASDAQ also traded modestly up by +0.21%, whilst the FANG+ index of megacap stocks outperformed with a +0.43% gain. Price action in European equities also saw the same modest risk-on sentiment, as the STOXX 600 climbed +0.12%. The consumer staples sector particularly struggled on Monday after beverage firm Heineken (-7.97%) pared back its full-year guidance, whilst energy outperformed, climbing +1.32%.

As we go to print, the Reserve Bank of Australia (RBA) has just kept the official interest rate unchanged at 4.1% (the highest level since 2012), thus extending its pause for the second consecutive month to assess if further rate hikes are needed to tame inflation. Most economists expected a hike but it was a close call. 2yr yields are around -8bps lower after the decision.

Asian equity markets are mostly trading higher this morning. Across the region, The KOSPI (+1.22%) is leading gains with the Nikkei (+0.74%) and the Hang Seng (+0.23%) also trading in the green. However, mainland Chinese stocks are mixed with the CSI (-0.12%) losing ground and the Shanghai Composite (+0.10%) eking out minor gains. Meanwhile, S&P 500 (+0.08%) and NASDAQ 100 (+0.09%) futures are seeing marginal gains.

Early morning data showed that China’s private factory activity returned to contraction for the first time since April as the Caixin manufacturing PMI came in at 49.2 in July (v/s 50.5 in June) in contrast to market expectations of 50.1. The data comes a day after the official factory activity remained in negative territory for the fourth straight month. Elsewhere, Japan’s jobless rate unexpectedly dropped to 2.5% in June from 2.6% a month earlier amid the ongoing COVID-19 recovery. Meanwhile, the job availability ratio, fell 0.01 point from May to 1.30 (v/s 1.32 expected).

In FX, the Japanese yen fell to a fresh low of 142.80 against the dollar after the Bank of Japan (BOJ) yesterday conducted an unscheduled buying operation of JGBs to cap the surge in government bond yields after the central bank tweaked its YCC policy on Friday. A 10yr auction this morning was soft but yields are fairly stable overnight.

We had an update in the geopolitics arena on Monday, with Bloomberg reporting that Ukrainian President Zelensky is likely to head to the UN General Assembly in New York come September. It is anticipated that he intends to make the case for Ukraine’s “peace formula”, a blueprint for ending the conflict. Ukraine’s peace plan may also get discussed at a gathering in Saudi Arabia next weekend, with the planned meeting first reported by the Wall Street Journal on Saturday. While Russia’s withdrawal from the Black Sea grain deal, and accompanying escalation, gathered attention in July, diplomatic efforts could become an increasing topic in the coming weeks.

Finally on the data side, the MNI Chicago PMI for July slipped below expectations at 42.8 (vs 43.5 expected). This was an increase from June (41.5), but still speaks to continued contraction in factory sector activity. The Dallas Fed Manufacturing Activity surprised modestly to the upside at -20.0 (vs -22.5 expected), and the six month ahead new orders index ticked slightly higher.

Now to the day ahead, we have a data heavy day. From the US, we have the July ISM index, the Dallas Fed services activity and the June JOLTS report, as well as total vehicle sales and construction spending. In Europe, we have the Eurozone unemployment rate for June, as well as the Italian July PMI, the new car registrations, budget balance and June unemployment rate. From Germany, we have the July unemployment rate, and finally the Canadian PMI for July. We also have several key earnings releases, including Pfizer, AMD, Caterpillar, Starbucks, Uber, Altria, Marriott, Pioneer Natural Resources, Electronic Arts, Devon Energy and Pinterest.

Tyler Durden
Tue, 08/01/2023 – 08:15

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Optimism About Inflation May Be Premature

Optimism About Inflation May Be Premature

Authored by Daniel Lacalle,

Markets are pricing a rapid decline in inflation and the end of central bank policy normalization.

However, there are two challenges ahead that we must consider.

The most important is that inflation is cumulative, and the year-on-year change between January and July was supported by the base effect.

When the inflation rate used for the year-on-year change is high, even a persistent increase in prices looks like a “decline” in inflation. If I gain ten pounds one year and four the next, my inflation rate will fall, but I am not slimming. And prices continue to bite, hurting the economy and consumers.

The end of this “base effect tailwind” is particularly important. According to Bank of America Global Investments, unless month-on-month inflation in the U.S. stays below 0.2%, inflation will rise in 2024. If the CPI rises 0.3% month-on-month, annual inflation will rise to 4.6%. Furthermore, if month-on-month inflation is 0.5%, annual inflation will soar to 6.1%. Even if CPI is 0% month-on-month, annual inflation would be 2.5% in 2024, significantly above the Fed’s 2% target.

The second challenge is that commodity disinflation, alongside the base effect, has been a major driver of the reduction in the annual inflation rate.

Rate hikes and monetary normalization triggered a decline in almost all global commodities in international markets, sending oil, natural gas, food prices, and agricultural goods down to pre-Ukraine invasion levels. It proved that inflation is a monetary phenomenon. However, the Fed-induced commodity decline reached a bottom in May, and the Bloomberg Commodity Index has bounced from the two-year low and is almost flat on the year. Rate hikes and monetary contraction have slowed, and commodity prices bounced as the fundamentals of supply and demand remained unchanged.

Real wages remain in negative territory, and this means a weakening of consumers’ purchasing power. The latest Employment Cost Index (ECI) shows a severe slowdown, and ECI private wages and salaries in the second quarter pushed the annual growth rate down from 5.1% to a two-year low of 4.6%, according to the Bureau of Labor Statistics (BLS). Average hourly earnings in real terms have fallen from $30 in 2021 to less than $29, according to the BLS.

Why should we remain worried? Because the market is excessively optimistic about the end of the inflation problem and investors keep buying extremely cyclical, high-beta stocks,

Real Personal Spending in June continued to show a weak trend (0.4%), and the Personal Consumer Expenditure (PCE) Deflator is still rising, 0.2% in June and 3.0% in the year, with its core component increasing 0.2% in the month and 4.1% in the year.

The reality is that monetary normalization remains far from complete. The Fed’s balance sheet soared from 17% to 36% of GDP and is now at 34.5%. It rose in July from the May low of 32.4%.

Many investors believe we have seen the worst of the inflation burst and hope that the economy will remain on a soft landing while central banks start easing, which would be very bullish. However, persistent inflation is hurting the economy, and the worst is yet to come now that savings have been mostly consumed and credit conditions are much tighter. If the base effect and monetary easing drive inflationary pressures higher, betting on central banks to cut rates and purchase government bonds may be very risky.

Tyler Durden
Tue, 08/01/2023 – 07:20

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Twitter Sues Pro-Censorship Wokescolds Over “False And Misleading Claims”

Twitter Sues Pro-Censorship Wokescolds Over “False And Misleading Claims”

Elon Musk’s “X” has filed a lawsuit against the pro-censorship group, Center for Countering Digital Hate (CCDH), which it has accused of “actively working to assert false and misleading claims encouraging advertisers to pause investment on the platform.”

X is a free public service funded largely by advertisers,” reads a Monday night Twitter blog entry. “Through the CCDH’s scare campaign and its ongoing pressure on brands to prevent the public’s access to free expression, the CCDH is actively working to prevent public dialogue.”

The move follows a July 19 Bloomberg article featuring the CCDH to claim that a “surge in harmful content” has caused advertisers to stay away from the free speech platform.

“During Musk’s tenure, hate speech towards minority communities increased, according to the CCDH,” reads the article.

To justify their claim, the CCDH used data from social media analysis provider Brandwatch, which – according to the company, “contained metrics used out of context to make unsubstantiated assertions about X (formerly Twitter).

X also claims that “the CCDH has recently scraped X’s platform, which is a violation of our terms of service.”

Continued:

That’s why X has filed a legal claim against the CCDH and its backers. X not only rejects all claims made by the CCDH, but, through our own investigation, we have identified several ways in which the CCDH is actively working to prevent free expression. That includes:

  • Targeting people on all platforms who speak about issues the CCDH doesn’t agree with.
  • Attempting to coerce the deplatforming of users whose views do not conform to the CCDH’s ideological agenda.
  • Targeting free-speech organizations by focusing on their revenue stream to remove free services for people.  
  • Attempting to illegally gain unauthorized access to social media platform data and to misuse that data.

We have a big responsibility to protect free expression. And we will continue to cooperate with all partners who want to both preserve people’s right to freely express themselves, and equally work to create a safe and healthy space for everyone.

As we noted yesterday, the CCDH is operated by an operative named Imran Ahmed. As noted by journalist Paul Thacker:

The Center for Countering Digital Hate (CCDH) sprang out of nowhere in late 2017 or early 2018. At the time, Ahmed was leaving a job as a political advisor to members of the British Labour Party and had just written a book.

As we chronicle in our just published book The New Serfdom, the dominance of market fundamentalism has been a disastrous experiment that has ripped up social cohesion and solidarity while the gap between the 1 per cent and the 99 per cent has soared to levels not seen since the beginning of the last century. Home ownership, secure employment and fair wages seem like relics of a bygone era. Meanwhile exploitative workplace practices have created a new serfdom leaving many people trapped in insecure, unfulfilling and underpaid work with no escape route.

How this background as a political operative prepared Ahmed to brand himself as an expert in disinformation is unclear. His LinkedIn account makes no mention of his work as a political operative in England, although his biography at CCDH states that he is an “authority on social and psychological malignancies on social media, such as identity-based hate, extremism, disinformation, and conspiracy theories.”

Ahmed now lives in Washington DC and his organization does not provide a list of funders.

In early 2021, CCDH posted a report titled “The Disinformation Dozen” that alleged the majority of COVID vaccine disinformation came from just 12 accounts, including Robert F. Kennedy Jr. Ahmed released the report just as the Biden administration began their COVID vaccine rollout and shortly before the House held hearings on disinformation at social media companies.

Twitter officials began sharing Ahmed’s findings, soon after CCDH released them that March. “COVID-19 misinfo enforcement team is planning on taking action on a handful of accounts surfaced by the CCDH report,” reads a March 31 email, noting that Ahmded’s report was released right before the House held a hearing on disinformation where Facebook’s Mark Zuckeberg and Twitter’s Jack Dorsy both testified, along with Google CEO Sundar Pichai.

As Thacker further noted earlier this month in a Twitter Files release: 

In a bumbling campaign they ran the year prior, CCDH targeted 10 websites for allegedly posting racist narratives. CCDH claimed in one example that Zero Hedge had run a racist article that stated Black Lives Matter is “practically a revolutionary operative of the CIA via Soros” and another article that suggested Black Lives Matter is a George Soros “Astroturf” campaign for “leftists and their agenda to reshape the fabric of American society.”

Fact checkers with the NBC News “verify unit” fell for CCDH’s fake report, writing, “Google has banned two far-right websites from its advertising platform after research revealed the tech giant was profiting from articles pushing unsubstantiated claims about the Black Lives Matter protests.”

In fact, the passages CCDH cited did not appear in Zero Hedge articles, but beneath the articles in the hundreds of readers comments posted without moderation. The following day, NBC stealth edited their article to remove CCDH’s misinformation, instead of running a correction.

Discovery should be fun, eh?

Tyler Durden
Tue, 08/01/2023 – 06:55

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Big Drop In Cardboard Box Sales Scream Recession

Big Drop In Cardboard Box Sales Scream Recession

Authored by Michael Maharrey via SchiffGold.com,

Good news. The looming US recession has been canceled.

Or has it?

Just a few weeks ago, Treasury Secretary Janet Yellen said that while economic growth has slowed, “our labor market continues to be quite strong — I don’t expect a recession.” Meanwhile, Federal Reserve Chairman Jerome Powell said staff economists at the central bank now project a noticeable slowdown in growth starting later this year, “But given the resilience of the economy recently, they are no longer forecasting a recession.”

In fact, with much stronger-than-expected second-quarter GDP growth and continued labor market strength, a growing number of people in the mainstream now think the US has escaped the clutches of a recession despite the Fed driving interest rates to the highest level in 16 years.

Perhaps the optimism is premature.  And maybe we shouldn’t put too much stock in the current official government numbers.

In the first place, it seems unlikely the US economy can avoid a significant downturn given the fact that the Fed has taken away its lifeblood – easy money. The economy was built on artificially low-interest rates and quantitative easing. Taking that away is like draining half the oil out of an engine. It might run for a little bit, but eventually, that engine is going to seize up.

It’s just a matter of time.

Remember — everybody thought the economy was fine in 2007 too, even though the housing market had already cracked and the Fed was cutting interest rates. In fact, GDP in the third quarter of that year was 3.9%.

Second, it’s hard to reconcile the veracity of the government numbers when there are so many other data points indicating recession, including 15 consecutive drops in the Index of Leading Economic Indicators (the most consecutive negative prints since 2007-2008), an inverted yield curve, and a rising number of corporate defaults.

And here’s another off-the-beaten-path metric that is screaming recession — a big plunge in the sale of cardboard boxes.

Earlier this month, Packaging Corp. of America reported that cardboard box sales fell 9.8% in the second quarter. That ranks as one of the biggest slumps on record when you combine it with the 12.7% drop in Q1.

According to a report by FreightWaves Research, the combined six-month decline ranks as the biggest plunge since early 2009.

Now, you might wonder, ‘What do cardboard box sales have to do with the economy?’

Stop and think about it. Stuff gets shipped in boxes. Everything from raw materials to final products arriving at your door is packaged in boxes. If there is less stuff produced and sold, an economy will need fewer boxes. So, cardboard box sales serve as a pretty good indicator of real economic activity — production, buying, and selling.

And the box barometer is not subject to government accounting tricks.

The FreightWaves Research report said there isn’t anything indicating the sale of cardboard boxes will increase anytime soon.

With regional banks cutting back on lending out of necessity, the emergency government food stamp (SNAP) benefits a thing of the past, federal student loan payments set to resume in October and the Federal Reserve continuing to tighten monetary policy to combat inflation, we’re unsure what would lead to improved box demand.”

So, while the GDP and job numbers may make you think the Fed can control price inflation without driving the economy into the ground, I wouldn’t get too giddy. The box barometer is flashing “worry,” and that metric seems a whole lot more connected to reality than numbers pumped out by the Bureau of Labor Statistics or the US Bureau of Economic Analysis.

Tyler Durden
Tue, 08/01/2023 – 06:30

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I Wanted To Believe, But…

I Wanted To Believe, But…

For decades the government and regime media have scorned and ridiculed anyone who claimed to have seen a UFO.

Anyone daring to publicize what they had seen was immediately classified as a loony conspiracy theorist.

Now, as this teetering empire of debt, corruption, and war is rapidly heading towards economic and social collapse, the government and regime media suddenly declare UFOs to be absolutely true and admit they have known about them for decades.

They spent trillions on the covid scam to keep government favored mega-corporations afloat, while initiating their depopulation scheme.

But that scam is winding down.

They spent a few hundred billion on their Ukraine psy-op to prop up our defense industry and distract the ignorant masses from their rapidly declining living standards.

With the Biden crime family seemingly on the ropes, it was time to roll-out the UFO tripe.

And based on how the NPCs fell for the covid narrative and Ukraine narrative, it is guaranteed the low IQ mouth breathers will buy this sack of shit.

Whenever the government tells you anything, just remember George Carlin’s first rule.

“I have certain rules I live by. My first rule: I don’t believe anything the government tells me.”

Via The Burning Platform blog

Tyler Durden
Tue, 08/01/2023 – 05:45

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Brickbat: Three’s Company


Apartment complex.

Several landlords of residential properties have sued the town of Monroe, New York, claiming the city is depriving them of their property rights without due process. A city ordinance passed earlier this year prohibits landlords from owning more than three residential rental properties in the city. They note that just happens to be the number of residential rental properties owned by Town Supervisor Anthony Cardone. The law also bars more than two people from occupying a one-bedroom apartment.

The post Brickbat: Three's Company appeared first on Reason.com.

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Arab States Sour On Israel Peace Pact As Saudis Pivot To Ukraine Mediation

Arab States Sour On Israel Peace Pact As Saudis Pivot To Ukraine Mediation

There are emerging reports that Saudi Arabia and its Arab allies are souring on the prospect of peace deals with Israel, three years after Trump’s Abraham Accords was struck with several states. This comes at a moment the Saudis have pivoted to greater involvement in the Ukraine crisis, as they are hosting an August summit geared toward getting BRICS countries to move toward support of Kiev.

According to fresh reporting in Bloomberg, “The United Arab Emirates has expressed frustration in high-level contacts with Israel about the outcome of the 2020 Abraham Accords negotiated under the U.S. presidency of Donald Trump, while Bahrain has outlined its disappointment, according to people familiar with the matter.”

Getty Images

Things have been growing more violent and deadly amid clashes between Palestinians and Israeli police this month and in months prior, given policies of the hardline Netanyahu coalition government.

This is putting new pressure on Arab leadership, as Bloomberg points out furtherwillingness to pause expansion of the Abraham Accords is “largely due to concerns over Israel’s deteriorating relations with the Palestinians — typified by the recent deadly raid on a refugee camp in the city of Jenin and incendiary comments by some far-right Israeli cabinet members.”

One analyst is quoted in Bloomberg as saying—

“This is not part of the vision some in the Abraham Accords had — Israel wanted it as an anti-Iranian axis,” said Aziz Alghashian, a Riyadh-based analyst who studies Saudi policy toward Israel. “The region is moving in a different direction now.”

Indeed the Saudis have already made their separate peace with Tehran, and Iran-aligned Assad of Syria has been “brought in from the cold” – reentering the Arab League to boot.

Few regional analysts pretend that the Saudi royals are serious about standing up for Palestinians or a dream of an independent state of their own, but what Riyadh does want is White House approval and support for a domestic nuclear energy program, including uranium enrichment. Advanced American weaponry is also a bedrock of the relationship. This is the real quid pro quo behind any potential historic peace with Israel, if it ever does happen.

But recent events in Israel, the West Bank, and Gaza threaten to create backlash from among Arab populations against their rulers, making the already risky endeavor of rapprochement and normalization with the Jewish state all the more precarious, and perhaps “not worth it” for the Saudi royals.

“Lukewarm Gulf Arab support for normalization now lukecold,” says Mideast analyst and author Aron Lund.

Below is additional commentary from Michael Every, a Global Strategist at Rabobank [emphasis ZH]…

* * *

Saudi Arabia is to hold a peace summit over Ukraine, without Russia(!), and is potentially interested in a peace deal with Israel, with strings attached for the far-right Israeli government and the White House, which would have to offer a mutual defence treaty, against Iran, and backing for a Saudi civilian nuclear program – those who know the Middle East can see the upsides *and* the downsides of that potential dynamic.

But ‘Peace now’, then, to match the ‘rate cuts soon’ vibe? Hardly! Consider: Kyiv may (or may not) have been behind new drone attacks on Moscow; Ukraine’s counter-offensive may finally be working; Russia’s Medvedev has stated Ukrainian success would require a Russian nuclear response; and, as the Financial Times (and others) warn, ‘Putin is looking for a bigger war, not an off-ramp, in Ukraine’, the Polish PM and senate suggest the Wagner group may soon stage a provocation at the Suwalki gap between Belarus and the Russian enclave of Kaliningrad to test NATO unity.

In short, far fatter tail risks than another 25bp hike from the Fed or ECB remain present. Even assuming we don’t get a bigger war, NATO defence spending needs to surge to keep pace with rising global threats just as some economists are talking about fiscal prudence again. Japan, which just tightened monetary policy, will see its military spending leap from $122.5bn to $310bn over the next five years. Meanwhile, the New York Times warns Chinese hackers placed malware in key US infrastructure, which logically may need to be replaced, alongside ongoing onshoring. In short, markets may like doves but there is no guarantee of either ‘peace now’ or ‘rate cuts soon’.

Tyler Durden
Tue, 08/01/2023 – 04:15

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