Month: September 2023

Authored by Simon White, Bloomberg macro strategist,

Household spending has kept the US economy afloat, but as growth slows a continued rise in oil and gas prices is poised to push personal consumption expenditure (PCE) lower and thus trigger a near-term recession – with stocks and bonds unpriced for such an outcome.

Once again it has been the redoubtable consumer that has thus far kept a recession at bay. However, Bloomberg Economics (BBE) pointed out in a recent article that negative household sentiment – in confluence with other drivers of household spending – suggests that we should already be in a recession.

A regression model (using income, wealth and real rates) pins PCE growth roughly where it is. But if we add in the University of Michigan’s Consumer Sentiment index, it indicates much weaker PCE growth and thus an economy that would likely be already be in the midst of a slump.

I recreated BBE’s model and got something similar. I then substituted in the Conference Board’s Consumer Index instead of the Michigan survey. This also improves the fit of the original model, but does not paint as negative a picture for PCE. The reason is that the Conference Board’s measure has not deteriorated as much as the Michigan survey.

Why? The divergence between the two likely comes from the Michigan’s greater emphasis on frequent expenditures and business conditions, while the Conference Board’s index is more focused on the jobs market. As an employee, the jobs market has looked pretty good, boosting the Conference Board’s index, while the Michigan survey is more influenced by rising prices and conditions for small-business holders, which have been less rosy.

The Michigan survey is in fact very sensitive to gas prices. In the model, I added the average gas price to the model’s original inputs (i.e. ex Michigan). Doing so also improves the model’s fit, and as the chart below shows, implies notably weaker, and negative, PCE growth – and therefore an economy that would likely already be in a recession.

This highlights that the US economy is potentially on thin ice, with that ice represented by hitherto positive consumer sentiment, driven in no small part by gas prices (and sentiment on how high they are perceived to be) that remain comparatively cheap to the levels they reached last year.

But oil has been rising, driven by excess liquidity, falling inventories and supply cuts.

Tailwinds remain for oil, and therefore the nascent recent rise in gas prices is poised to continue as well. That could be the final straw which unseats the US consumer and tips the US into a recession.

Since Elon Musk has apparently become Donald Trump – in that any lie/twist/gaslighting will do to further the narrative, no matter how false it is known to be – last night saw the mainstream media overwhelmed with circle-jerk-justified accusations that Musk meddled in the Ukraine-Russia war to stop a Zelenskyy-driven offensive (that likely would have turned the war and hailed victory ticker-tape parades up and down Kiev’s streets).

Ok, admittedly that last bit was out hyperbole; but given a quick read of headlines from CNN and NBC, we could be forgiven for this view.

Elon Musk secretly ordered his engineers to turn off his company’s Starlink satellite communications network near the Crimean coast last year to disrupt a Ukrainian sneak attack on the Russian naval fleet, according to an excerpt adapted from Walter Isaacson’s new biography of the eccentric billionaire titled “Elon Musk.”

As Ukrainian submarine drones strapped with explosives approached the Russian fleet, they “lost connectivity and washed ashore harmlessly,” Isaacson writes.

NBC led with the following headline: Ukraine is furious with Elon Musk for thwarting an attack on Russia’s navy

Tech billionaire Elon Musk has come under fire from Ukraine after it emerged he thwarted a major attack on the Russian navy.

According to excerpts published by CNN, a soon-to-be-released biography of the SpaceX CEO claims that Musk secretly ordered his engineers to turn off his Starlink satellite network over Russian-occupied Crimea last year in order to prevent a Ukrainian drone attack on Russia’s naval fleet.

Elon Musk last year secretly ordered SpaceX engineers to switch off the Starlink satellite communications network near the Crimean coast in order to thwart a Ukrainian surprise attack on Russia’s naval fleet, according to Walter Isaacson’s upcoming Musk biography. pic.twitter.com/uPto8hm1pW

— The Recount (@therecount) September 7, 2023

The mainstream media did not have to look too far to find someone willing to denigrate Musk:

Mykhailo Podolyak, an adviser to President Volodymyr Zelenskyy, blasted the tech billionaire on X, formerly Twitter, which Musk owns.

“Sometimes a mistake is much more than just a mistake,” Podolyak wrote.

“By not allowing Ukrainian drones to destroy part of the Russian military (!) fleet via #Starlink interference, @elonmusk allowed this fleet to fire Kalibr missiles at Ukrainian cities,” he added.

“As a result, civilians, children are being killed,” Podolyak said.

“This is the price of a cocktail of ignorance and big ego. However, the question still remains: why do some people so desperately want to defend war criminals and their desire to commit murder? And do they now realize that they are committing evil and encouraging evil?”

Isaacson quotes Musk at the time as questioning “How am I in this war?”

“Starlink was not meant to be involved in wars. It was so people can watch Netflix and chill and get online for school and do good peaceful things, not drone strikes.”

Couple quick questions – how would Musk know – pre-emptively – of the attack, and choose to disable Starlink? Is his intel better than Putin’s; better than the CIA’s?

The spin here is utterly mind-blowing.

In fact, according to Musk – who responded to the accusations on X, the details are the exact opposite to how CNN described them…

In fact, Musk NEVER turned Starlink on in those controversial border zones – for exactly this reason, as he feared using this technology near borders could prompt an escalation in the war.

The Starlink regions in question were not activated. SpaceX did not deactivate anything.

— Elon Musk (@elonmusk) September 7, 2023

In fact, Musk did not ‘turn Starlink off’ but refused to ‘turn Starlink on’ for Ukraine’s offensive.

There was an emergency request from government authorities to activate Starlink all the way to Sevastopol.

The obvious intent being to sink most of the Russian fleet at anchor.

If I had agreed to their request, then SpaceX would be explicitly complicit in a major act of war and…

— Elon Musk (@elonmusk) September 7, 2023

Which makes more sense to you – the richest man in the world unilaterally switching off internet access to pre-emptively thwart a secret attack by Ukraine on Russia in a Blofeld-esque move? Or the CEO of a major communications company refusing to enable his technology to be used to escalate a war that could well lead to armageddon?

Both sides should agree to a truce.

Every day that passes, more Ukrainian and Russian youth die to gain and lose small pieces of land, with borders barely changing. This is not worth their lives.

— Elon Musk (@elonmusk) September 7, 2023

Another day, another overnight drop pushing US equity futures, European and Asian markets all broadly lower. Bond yields are also lower, while the Bloomberg Dollar Index is modestly weaker and pulling back from a six-month high as dovish comments from Federal Reserve officials revived speculation that the central bank may keep interest rates at current levels; still it is set to close a record 8th consecutive week of gains.

At 7:30am ET, S&P futures and Nasdaq 100 futures are both down 0.2%. Asian stocks fell, heading for their first weekly loss in three, as rising US-China tensions over a new technology war, while European stocks are on course to extend their losing streak to eight consecutive sessions – the longest run of declines since 2016. Commodities are mixed with Nat Gas leading gains as Chevron’s Australian LNG workers begin striking while base metals lag on continued China fears. Today the macro focus will be the Manheim Used Vehicle Value Index at 9am ET; we will also receive Wholesale Inventories revision and Consumer Credit. China is set to release their CPI and PPI tonight at 9.30pm ET.

Pre-market, megacap tech are mostly lower, with Apple shares down 0.1% as mounting risks related to iPhone restrictions in China and a premium valuation make it unlikely for Apple shares to outperform in 2H, JPMorgan said in a Friday note, cutting its price target from $235 to $230 (full note available to pro subscribers in the usual place).

Some other notable premarket movers:

• DocuSign gained  3.0% after the e-signature company reported second-quarter results that beat expectations and raised its full-year forecast for revenue and billings. Analysts said the results were better than expected, and highlighted strong billings.
• First Solar rose 2.2%, as analysts raise their price targets following the solar tech company’s capital markets day.

The biggest narrative of the week has been the dramatic moves in currencies and the widening gulf in economic growth prospects between the US and the rest of the world. The Bloomberg Dollar Spot Index is still on track for an eighth consecutive week of gains, which would be the longest run of increases in data going back to 2005.

“The dollar upside we have seen recently has surprised our expectations,” Laura Cooper, senior investment strategist at BlackRock International, said in an interview on Bloomberg Television. “We question the sustainability of that, largely as we look forward to the Fed, we think it is going to signal a hawkish pause.”

New York Fed chief Williams said policy is having the desired effects of bringing demand and supply more into balance and easing inflation, adding that the Fed has “done a lot” by raising interest rates significantly. At the same time, officials must calibrate policy if needed to ensure they’re bringing inflation sustainably down to their 2% goal. Upward pressure on inflation however is about to jump, with Brent back near $91 and European benchmark gas prices surging as much as 11% after LNG workers at key Chevron sites in Australia began partial strikes on Friday after talks failed to reach an agreement.

Here is a recap of what some other Fed officials said overnight:

• Fed’s Goolsbee (voter) said it is possible to get on the ‘golden path’ and that monetary policy is working, while he added that overall inflation is above where they want it and there are risks. Goolsbee also stated that they are very rapidly approaching the time when the argument is not about how high should rates go, but rather how long rates have to stay high and collectively, the Fed forecast is that rates will have to stay up for a relatively extended period, according to a Marketplace interview.
• Fed’s Logan (voter) said it could be appropriate to skip an interest rate increase in September and skipping does not imply stopping rate hikes, while she noted that there is work left to do to get to sufficiently restrictive policy and is not yet convinced that they have extinguished excess inflation.
• Fed’s Bostic (non-voter) said there is still work to do to get inflation back to 2%, while he added the US economy is still working through pandemic dynamics and consumer strength has kept economic pain at bay.

Meanwhile, stock markets have been hit on the first week of the seasonally week month of September by a decoupling data hinting at a deepening economic downturn in Europe and China offset by continued bizarro strength in the US (at least when it comes to easily manipulated sentiment surveys like the ISM). The mood is especially pessimistic toward European markets, which saw a 26th straight week of investment outflows, according to a note from Bank of America Corp.

And speaking of European stocks, they are on course to extend their losing streak to eight consecutive sessions – the longest run of declines since 2016. Investors remain cautious heading into the weekend as the US announces an official probe into Huawei’s new smartphone. The Stoxx 600 is down 0.6%, led by declines in the construction, chemical and industrial sectors. Here are sopme of the most notable European movers:

• Computacenter jumps as much as 8.5%, the most since Jan. 30, after the IT reseller reported first-half results that beat market expectations. JPMorgan analysts highlighted demand resilience and market share gains, while Jefferies lifted its earnings estimates for the year.
• D’Ieteren gains as much as 7.8%, the most in a year, after the Belgian automobile distributor raised its forecast for adjusted pretax profit for the full year. KBC Securities praised the firm’s very strong set of results and said it’s more than likely to exceed the new target.
• Next gains as much as 2.4% after SocGen upgrades the retailer to buy from hold, citing the company’s tilt toward online as a positive.
• Wartsila falls as much as 6.1%, the most since March, after Barclays initiated coverage of the Finnish marine and energy equipment maker, seeing around 20% downside to current 2024 estimates, calling the stock “materially overvalued.”
• ConvaTec drops as much as 5.6%, before paring the drop, after news that Novo Holdings’ representative on Convatec’s board will step down.
• Energean drops as much as 5.8%, before paring the decline, after Panmure Gordon slashed its PT for the British exploration and production company, citing reduced production and high debt levels.
• Saipem shares gains as much as 2.7% in Milan trading after the engineering company won two new contracts for offshore activities in Côte d’Ivoire and Italy worth a total of €850m.

Asian stocks fell, heading for their first weekly loss in three, as rising US-China tensions over technology and concern that the Fed may keep interest rates higher for longer weighed on risk appetite. The MSCI Asia Pacific Index slid as much as 0.5%. Tokyo Electron and TSMC were the biggest drags on the gauge while trading in Hong Kong was delayed amid the heaviest rainstorm to hit the city since records began in 1884. The CSI 300 Index, a benchmark of onshore Chinese stocks, fell as much as 0.9%.  Regional equities extended declines on news the US government has begun an official probe into an advanced made-in-China chip housed within Huawei Technologies’ latest smartphone. Technology stocks also suffered in the US session on Thursday as China’s plan to broaden a ban on the use of iPhones weighed on Apple’s shares and as data on US unemployment benefits fanned speculation that the Fed could turn hawkish again after pausing its rate hikes.

• Hang Seng was shut due to severe rainfall and Shanghai Comp traded subdued amid tech frictions as China seeks to expand its iPhone ban and with the US Commerce Department investigating the ‘made in China’ Huawei chip.
• Australia’s ASX 200 was led lower by continued underperformance in the commodity-related sectors and with strike action beginning in some offshore LNG platforms, although losses in the index were stemmed by resilience in defensives.
• Nikkei 225 fell below 33,000 with risk appetite sapped by disappointing GDP revisions and slower wage growth.
• Stocks in India recorded their biggest weekly gains since June amid optimism for economic growth and earnings, with energy and infrastructure stocks leading the way. The S&P BSE Sensex rose 0.5% to 66,598.91 in Mumbai, while the NSE Nifty 50 Index advanced by a similar magnitude. Both the indexes ended higher for a sixth straight session. The MSCI Asia Pacific index was down 0.4%. The Nifty50 gauge climbed 2% for the week, while the Sensex rose 1.9%. Indian stocks were among the best performers in Asia as the regional index lost about 0.9% for the week.

In FX, the Bloomberg Dollar Spot Index is down 0.1%, dropping for the first time in four days after Federal Reserve speakers discussed whether policy was already restrictive enough while the kiwi tops the G-10 table, rising 0.6% versus the greenback.

• USD/JPY reversed a 0.5% drop to rise 0.1% after Japan’s Finance Minister said he will appropriately address excessive moves in the yen
• EUR/USD climbed 0.1% after industrial production data for France and Spain beat expectations; the pair is still on track for eight-straight weeks of losses, the worst performance since 2014
• USD/CNH gained 0.2% as the offshore yuan weakened toward its lowest on record against the dollar; a PBOC fixing at a two-month low stoked bets China is comfortable with a gradual depreciation of the currency

In rates, treasuries reversed earlier gains, with the US 10-year trading flat at 4.26% after dropping as low as 4.21%, with bunds and gilts outperforming by 0.5bp and 1.5bp in the sector; belly-led gains steepen 5s30s spread by 2bp on the day; it remains near top of session range. Treasuries price action broadly steady with belly outperforming on the curve where 5-year yields are richer by almost 2bp on the day. Core European rates outperform, which also acted a driver for lower Treasury yields on Thursday. Stock futures marginally lower, with focus continuing to be on Apple amid reports that China plans to expand a ban on the use of iPhones in some government agencies. Dollar IG issuance slate empty for the session so far; five names priced almost $5b on Thursday, taking weekly volume over $55b; at least three issuers elected against moving forward with deals on Thursday

In commodities, crude futures are up 0.5%, with Brent trading near $90.60 and unwinding much of Thursday losses. European natural gas priced jump 9% on renewed strike action. Spot gold adds 0.3%.

Bitcoin is well within recent parameters after multiple sessions of near-unchanged closes despite marginally more pronounced intra-day action. Currently, BTC is just below the USD 26k mark with downside of circa. 1.5%

Looking to the day ahead now, data releases include Wholesale Inventories and Trade as well as Household change in net worth and Consumer Credit at 3pm. Central bank speakers include Fed Vice Chair for Supervision Barr.

Market Snapshot

• S&P 500 futures down 0.1% to 4,450.50
• MXAP down 0.4% to 161.10
• MXAPJ little changed at 502.85
• Nikkei down 1.2% to 32,606.84
• Topix down 1.0% to 2,359.02
• Hang Seng Index down 1.3% to 18,202.07
• Shanghai Composite down 0.2% to 3,116.72
• Sensex up 0.5% to 66,606.10
• Australia S&P/ASX 200 down 0.2% to 7,156.69
• Kospi little changed at 2,547.68
• STOXX Europe 600 down 0.4% to 451.86
• German 10Y yield little changed at 2.61%
• Euro up 0.2% to $1.0716
• Brent Futures up 0.1% to $90.03/bbl
• Gold spot up 0.2% to $1,923.72
• U.S. Dollar Index down 0.14% to 104.91

Top Overnight News from Bloomberg

• President Joe Biden does not intend to meet with Chinese Premier Li Qiang during the Group of 20 summit this weekend in New Delhi, a White House official said on Thursday night. BBG
• Xi apparently is resistant to large-scale consumer stimulus as he fears such a move “might make people weak” while foreign companies are increasingly turned off to investing in China by capricious gov’t policies. Washington Post
• US Treasury secretary Janet Yellen said China had the “policy space” to tackle its economic slowdown as Beijing extended efforts to pull the renminbi back from 16-year lows against the dollar. FT
• The US began an official probe into an advanced made-in-China chip used in Huawei’s latest smartphone, a revelation that set off a debate in Washington about the efficacy of restrictions against China’s semiconductor industry. The news also spurred a surge in Chinese chip-gear makers on bets the sector will get increased state support. BBG
• Joe Biden is pushing to secure international support to expand the World Bank’s lending capacity, as Washington comes under intense pressure to fund the fight against climate change and offer a viable alternative to China’s economic influence. FT
• The UN’s food price index dropped 2.1% M/M in August and is 24% below its Mar 2022 peak despite a spike in rice prices. RTRS
• Chevron LNG workers in Australia began partial strikes after talks failed, sending natural gas prices soaring in Europe. A complete two-week halt is expected to start Sept. 14 at Gorgon and Wheatstone facilities, which accounted for 7% of global supply last year. The prospect of disruptions threatens greater competition for cargoes during peak winter demand. BBG
• Pay for new hires is starting to shrivel after years of hefty salary bumps, requiring workers to reset what financial gains to expect from switching to a new job. Wages, especially for people who changed jobs, climbed in recent years as companies competed for workers to fill pandemic-induced labor shortages. Now, as the job market cools and businesses become more cautious in their hiring, many companies are paying new recruits less than they did just months ago—in some cases, much less. WSJ
• Senior Federal Reserve officials signaled that the US central bank would hold interest rates steady at its meeting in September, even as they resisted declaring victory in their fight against inflation. FT

A more detailed look at global markets courtesy of Newsquawk

APAC stocks declined amid US-China tech-related frictions and disappointing Japanese GDP revisions. ASX 200 was led lower by continued underperformance in the commodity-related sectors and with strike action beginning in some offshore LNG platforms, although losses in the index were stemmed by resilience in defensives. Nikkei 225 fell below 33,000 with risk appetite sapped by disappointing GDP revisions and slower wage growth. Hang Seng was shut due to severe rainfall and Shanghai Comp traded subdued amid tech frictions as China seeks to expand its iPhone ban and with the US Commerce Department investigating the ‘made in China’ Huawei chip.

Top Asian news

• Chinese Premier Li said in a meeting with UN Secretary-General Guterres that it is necessary to uphold the concept of open and inclusive development, as well as jointly resist the practice of securitising and politicising economic issues.
• Japanese PM Kishida is expected to reshuffle the Cabinet as early as next Wednesday and Chief Cabinet Secretary Matsuno is expected to stay on or take another key post, according to Nikkei; subsequently echoed by NHK.

European bourses are in the red, Euro Stoxx 50 -0.9%, as sentiment has continued to deteriorate following the cash open and spurred on in part by incremental iPhone updates. Sectors are mostly softer, with Chemical names under pressure while Media names experience some slight outperformance. Stateside, futures have drifted in line with the above but magnitude more contained after recent pressure, ES -0.2%; NQ is in line with AAPL unreactive in the pre-market to the mentioned incremental reports.

Top European news

• Germany’s DIW Institute lowers its 2023 GDP growth forecast to -0.4% from -0.2% previously.
• Citi cuts its 2023 EZ GDP Growth forecast to 0.4% (prev. 0.8%)

FX

• DXY slips in tandem with US Treasury yields, but the Dollar remains underpinned as Yen wanes from overnight highs and Yuan continues to depreciate.
• Index off worst levels within 104.750-105.050 range and back towards the 105.00 mark, USD/JPY back above 147.00, USD/CNY pivoting 7.3400 and USD/CNH around 7.3500.
• Kiwi takes advantage of Greenback lapse to probe 0.5900, but Aussie lags after brief breach of 0.6400.
• Euro drawn to more hefty option expiries at 1.0700 vs Buck, Loonie flits between 1.3650-1.3700 awaiting Canadian jobs data.
• PBoC set USD/CNY mid-point at 7.2150 vs exp. 7.3284 (prev. 7.1986).
• NBP Kotecki says 75bps rate cut is interpreted as being part of the election campaign; says “silence fell” at MPC meeting when the proposal of 75bps rate cut came. Rate cut was risky.

Fixed Income

• Bonds run out of gas after extending upside parameters to 131.47, 94.95 and 110-10+ for Bunds, Gilts and the T-note respectively.
• Broad risk aversion likely to underpin debt given a lack of scheduled events, aside from Canadian jobs data that could impact if well outside of consensus.
• UK DMO is seeking market feedback on a potential tender for a Gilt with a maturity in excess of 40 years, to occur on September 27th.

Commodities

• Thus far, fundamentals have been limited for the crude complex with the broader macro narrative digesting the latest data/speaker updates ahead of announcements from key Central Banks in the next few weeks, in addition to US-China tensions via Apple’s iPhone.
• WTI and Brent have spent the morning posting downside of circa. USD 0.30/bbl but have since picked up slightly into the green, with the benchmarks on track to retain around half of the week’s pronounced output-driven upside
• Similarly, newsflow for the gas space has been limited but the updates pertinent as strike action commences and a marked bullish move is seen; Dutch TTF Oct’23 firmer by over 10% as the strike commences.
• Finally, metals are diverging slightly as gold benefits from the tone and incremental USD softness but remains between the 200- & 10-DMAs while base metals succumb to sentiment.
• Australia union confirmed planned strikes by Chevron (CVX) Australia LNG workers from 13:00 local time on Friday and said Chevron is demanding to be given special concessions in bargaining which the union rejected.

Geopolitics

• Russia’s embassy in the US said Washington is meddling in Russia’s internal affairs by calling elections in occupied areas of Ukraine illegitimate, according to RIA.
• US State Department said Secretary of State Blinken and Romanian Foreign Minister Odobescu discussed Romania’s investigation of drone debris found in Romania, close to the border with Ukraine.
• UK is to urge India to ‘call out’ Russia over the war in Ukraine, according to FT.
• North Korea said leader Kim inspected a new strategic nuclear attack submarine, while Kim said they will accelerate the push to build nuclear-powered submarines, according to NHK and Yonhap.
• South Korea’s military said North Korea’s new submarine doesn’t appear poised to operate normally and noted some external features appear to be scaled up to carry missiles, while the Unification Ministry condemned North Korea’s launch of a nuclear-armed submarine and said Pyongyang’s action is hurting its citizens’ lives.

US event calendar

• 10:00: July Wholesale Trade Sales MoM, est. 0.2%, prior -0.7%
• 10:00: July Wholesale Inventories MoM, est. -0.1%, prior -0.1%
• 12:00: 2Q US Household Change in Net Wor, prior $3.03t
• 15:00: July Consumer Credit, est. $16b, prior $17.8b

DB’s Jim Reid concludes the overnight wrap

My EMR routine means as soon as the early morning alarm goes I’m logged in within minutes and frantically typing away. However, the problem with this is that on those rare occasions my alarm interrupts a vivid dream I can be discombobulated for some time while writing this. Today is such a day. I had an actual meeting yesterday about DB’s swanky new building in Moorgate, London that opens soon and we’ll move into in March next year. That was obviously on my mind as I just dreamt that DB had commissioned a state-of-the-art building in Canary Wharf and in order for us to get to the City 3 miles away as quickly as possible, they had a 1200km/hour underground individual travel pod/jet installed. To use it you had to strap yourself in flat and be sealed in. It was incredibly scary. My alarm went off as the g-forces were at their most extreme.

Thankfully in real life our new building is directly above a normal tube station so more sedate travel there is available. Anyway while the discombobulation fades in the background I’m currently running a flash poll on US housing, where I’m keen to get your view on how the current stand-off between affordability and prices resolved over the next few years. You can answer here and it’ll take just a few seconds to fill in. Answers later in CoTD. Yesterday, I also hosted a webinar with Henry on our recent chartbook, and the replay for that is available here. The “Back to School” chartbook we went through is here.

For markets, there were several developments to run through yesterday, but the broad tone was skewed towards risk-off across multiple asset classes. $190bn has been wiped off of Apple shares spread fairly equally over the last 2 days (totalling -6.4%) which hasn’t helped. For context, a company with the market cap of the size of this drawdown would be the 11th largest in the Stoxx 600. It shows the size of the mega cap stocks that even a small jolt can be so consequential.

An element of additional confusion for markets was added with the latest weekly jobless claims data from the US, which fell to their lowest level since February at just 216k (vs. 233k expected). Of course, that’s just one data point, but after the strong ISM services reading on Wednesday, it added to the sense that the US economy might be in better shape than feared. The data initially led markets to increase the prospects of another hike from the Fed this year, but this more than reversed during the course of the day as a risk-off rates rally took hold.

Even with a break in the rates sell-off, the backdrop proved to be a tough one for equities, with the S&P 500 (-0.32%) losing ground for a 3rd consecutive day, and Europe’s STOXX 600 (-0.14%) falling for a 7th consecutive day. But it was tech stocks that saw the biggest underperformance, and as stated Apple (-2.92%) saw further declines after reports that China would be increasing its restrictions on iPhone use by government workers. Those declines were less pronounced across the rest of the tech sector, with the NASDAQ (-0.89%) and the FANG+ index (-0.48%) falling back more moderately. But Europe’s STOXX Technology index (-2.09%) saw a larger decline. On the other hand, defensive stocks outperformed, with S&P 500 utilities up +1.26%.

Whilst the US data has been looking a bit better over the last couple of days, in Europe the newsflow continued to point to the downside. For instance, the latest revisions to Q2 GDP growth for the Euro Area showed a two-tenths downgrade, with the latest estimate now at just +0.1%. So that means we’ve now had a -0.1% contraction in Q4, followed by +0.1% growth in Q1 and Q2, meaning there’s basically been stagnation since last autumn. Alongside that, German industrial production fell by a larger-than-expected -0.8% in July (vs. -0.4% expected).

With the data weakening further, sovereign bond yields fell back across Europe, and those on 10yr bunds (-4.2bps), OATs (-4.6bps) and BTPs (-6.1bps) all moved lower. That said, market expectations for the ECB’s decision next week actually moved in a slightly hawkish direction, with pricing for a September hike now at 35%, up from 33% on Wednesday. So clearly investors aren’t completely discounting the chances that the ECB could move again next week.

Over in the US, yields on 10yr Treasuries were down -3.5bps at 4.25% (4.22% overnight), a notable reversal from their intraday peak above 4.30% just after the jobless claims data. This rally was led by the front-end with 2yr yields down -6.9bp to 4.95% (4.925% overnight), as Fed funds pricing for end-24 declined by 7.9bps from its cycle high reached the previous day. This reversal didn’t have a clear trigger but matched an overall risk-off tone that saw the dollar index (+0.19%) reach a new 6-month high and oil end a run of nine consecutive increases (Brent crude -0.75% to $89.92/bl).

Fedspeak late in the US session did little to lean against the rates rally. Chicago Fed President Goolsbee, one of the more dovish FOMC members and a voter this year, noted that “we are very rapidly approaching the time when our argument is not going to be about how high should the rates go”. New York Fed President Williams said that the Fed is “in a good place”, and “we are restrictive, still an open question whether we are sufficiently restrictive”. Echoing the restrictive policy tone, Atlanta Fed President Bostic (non-voter) commented that “we just need to let that restriction play out”. After US market close we did get some more hawkish comments from Dallas Fed President Logan (voter), who noted that “another skip could be appropriate” in September, “but skipping does not imply stopping” and her base case “is that there is work left to do”.

Overnight in Asia, major indices are selling off following yesterday’s weakness in the US,led by declines in the Nikkei 225 (-1.29%) and the CSI 300 (-0.80%), with the Kospi also losing ground (-0.59%). Hong Kong markets are closed due to severe rainfall. In terms of data, key releases overnight included a miss in labour cash earnings in Japan (+1.3% YoY vs +2.4% expected) as well as downward revisions in the country’s Q2 GDP (4.8% annualised down from 6% at first estimate and 5.6% expected). US Equity futures are fairly flat. WTI is -0.73% this morning.

Back in Europe, gilts outperformed again yesterday, which came as the BoE’s Decision Maker Panel survey suggested that inflation expectations were falling among firms. For instance, 1yr CPI expectations were down to 4.8% in August, having been at 5.4% in July. And 3yr expectations were also down a tenth to 3.2%. As a result, sterling weakened by -0.22% against the US Dollar, whilst yields on 10yr gilts were down -7.9bps on the day. We’ve also seen investors’ conviction in a September hike continue to decline, with an 82% chance of one now priced in, which is the lowest in almost a month. The “Table Mountain” strategy is clearly working for now.

To the day ahead now, and data releases include French industrial production for July and the Canadian employment report for August. Central bank speakers include Fed Vice Chair for Supervision Barr.

Ryan Cohen made his money by selling Chewy to Petsmart for over $3 billion. His claim to fame, however, is in being one of the key architects of the meme stonk craze which emerged in early 2021, and which culminated with Cohen becoming Chairman of Gamestop later that year with multiple pump and dump schemes orchestrated by Cohen – who has a deep fan base of individual investors who herd into the stocks he buys – before and after, including Nordstrom and Alibaba, but none more grotesque and in your face than his 2022 involvement in Bed Bath and Beyond, which we watched quietly for weeks before lashing out against what was one of the most blatant stock manipulations in recent history.

So Ryan Cohen himself was instrumental in triggering the BBBY gamma squeeze buying massively OTM calls

— zerohedge (@zerohedge) August 16, 2022

Rugpull: After Stratospheric Gamma Squeeze, Ryan Cohen Files To Sell Stake In Bed, Bath & Beyond https://t.co/LJT9NdHBlr

— zerohedge (@zerohedge) August 17, 2022

As If Millions Of Apes Suddenly Cried Out In Terror: Ryan Cohen Dumps Entire BBBY Stake https://t.co/kxkrAsPDd9

— zerohedge (@zerohedge) August 18, 2022

And while regular readers will recall that it was last August when we mocked Gery Gensler and his SEC for chronically failing to grasp how management and top shareholders use deep OTM call buying to spark massive gamma squeezes and stock meltups – basically what Cohen did with the now bankrupt Bed Bath & Beyond…

One day the SEC and @GaryGensler will figure out how management and top shareholders use call buying to force gamma squeezes of their own stock. But not yet…. not yet.

— zerohedge (@zerohedge) August 17, 2022

… it now appears that Gensler has finally figured it out, because according to the WSJ, the SEC is investigating billionaire Ryan Cohen’s ownership — and surprise dump – of Bed Bath & Beyond shares at a time when such so-called meme stocks were all the rage with investors.

As we reported at the time, in early 2022 Cohen took a 9%, $120 million stake in Bed Bath & Beyond and pushed for changes to the housewares retailer’s sales strategy, but abruptly sold his 11.8% interest in August 2022, just days after tweeting positively about the company. The five-month investment netted him a profit of nearly $60 million as many investors followed Cohen blindly into the trade, believing he would follow the same playbook as he did with GameStop.

Cohen’s apparent, if fake, interest in the company spurred a frenzy of trading that caused its stock to soar 34% in a day before collapsing when he disclosed the sales, prior to which he had gotten three new members appointed to the board.

According to the WSJ, the SEC has requested information from Cohen about his trades and his communications with officers or directors at Bed Bath & Beyon. The regulator has also sought records from some of the company’s current and former board members.

A group of Bed Bath and Beyond investors sued Cohen last year in Washington, D.C., federal court, alleging he committed fraud because he was aware of bad news about the company that hadn’t been disclosed when he sold his shares. They claim his statements on Twitter and in SEC filings were part of a pump-and-dump strategy that left small investors nursing big losses.

In an order issued in late July declining to dismiss the investors’ claims, U.S. District Judge Trevor N. McFadden called the timing of Cohen’s trades “sketchy.” According to the investors’ lawsuit, Cohen misled investors when he tweeted on Aug. 12, 2022, in response to a negative news article about Bed Bath & Beyond, that included an emoji showing the face of the moon.

Cohen’s defense argued that emojis can never be actionable because they have no defined meaning. The judge disagreed, and wrote a rather strongworded opinion on the matter:

“Emojis may be actionable if they communicate an idea that would otherwise be actionable. A fraudster may not escape liability simply because he used an emoji. Just like with words, liability will turn on the emoji’s particular meaning in context.”

To be sure, many investors took it as a bullish signal, indicating that Bed Bath & Beyond stock would go “to the moon,” according to the lawsuit. The stock rose 12% that day.

The judge in that lawsuit also found Cohen’s 13D filing material and misleading for failing to disclose any solid plans to sell the stock. Cohen sold stock on the same day as he filed the 13D, which makes it plausible that the sales were planned before filing the 13D.

And lastly, the judge found the Form 144 plausibly material and misleading for only mentioning ‘the potential sale’, even though Cohen had already sold stock at the time. The judge found it plausible that Cohen had knowledge on material adverse information about the company at the time.

In his response to the investors’ lawsuit, Cohen denied misleading the market about his trading plans. He decided to sell, he said in a court filing, because the stock price had “unexpectedly increased to a value that exceeded what he believed it was worth.” Cohen also said that one of his earlier disclosures told investors that he could sell some or all of his shares. He didn’t change that statement, so investors were on notice that Cohen could dump his stake at any time, his court filing said.

In declining to dismiss the case, Judge McFadden wrote that investors “plausibly alleged that the moon tweet relayed that Cohen was telling his hundreds of thousands of followers that Bed Bath’s stock was going up and that they should buy or hold.”

In the week after his tweet, Cohen filed two public updates to his Bed Bath & Beyond holdings. The first, on Aug. 16, 2022, said he hadn’t done any trading during the prior 60 days. The second, filed on Aug. 18, said he began selling all of his shares two days earlier.

As for the “fundamental” investment case that Cohen may have had when he bought $120 million in BBBY stock, there was none: the company filed for bankruptcy in April and has closed hundreds of its stores since last year.

Via SchiffGold.com,

After returning to net gold buying in June, central banks continued to add to their gold reserves in July.

Globally, central banks reported net purchases of 55 tons in July, according to the latest data compiled by the World Gold Council.

In March, April and May, central banks reported net gold sales, primarily due to Turkey selling 160 tons of gold over that three-month period. According to the World Gold Council, this was a specific response to local market dynamics and didn’t likely reflect a change in the Turkish central bank’s long-term gold strategy.

This was confirmed in June when the Central Bank of Turkey flipped back to buying, adding 11 tons of gold to its reserves. It continued increasing its reserves in July with a 17-ton gold purchase.

According to the World Gold Council, the Turkish government reinstated gold import quotas in early August. It remains to be seen whether this will lead to renewed central bank gold selling should local gold demand remain elevated.

The Turkish government recently raised the country’s inflation forecast to 65%.

The People’s Bank of China ranked as the largest buyer in July, adding 23 tons of gold to its holdings. It was the ninth consecutive month of buying for the Chinese central bank. China is the largest gold buyer year-to-date, having increased its official reserves by 188 tons. The People’s Bank of China now officially holds 2,136 tons of gold, making up 4% of its total reserves.

China has a history of adding to reserves and then going silent.

The People’s Bank of China accumulated 1,448 tons of gold between 2002 and 2019, and then reported nothing for more than two years before resuming reporting last fall.

Many speculate that the Chinese continued to add gold to its holdings off the books during those silent years.

In fact, there has always been speculation that China holds far more gold than it officially reveals. As Jim Rickards pointed out on Mises Daily back in 2015, many people speculate that China keeps several thousand tons of gold “off the books” in a separate entity called the State Administration for Foreign Exchange (SAFE).

Last year, there were large unreported increases in central bank gold holdings.  Central banks that often fail to report purchases include China and Russia. Many analysts believe China is the mystery buyer stockpiling gold to minimize exposure to the dollar.

The National Bank of Poland (NBP) was also a big gold buyer in July, adding 22 tons of gold to its holdings. It was the fourth consecutive month of gold purchases for the Polish central bank, totaling 71 tons.

In the fall of 2021, Bank of Poland President Adam Glapiński said the central bank planned to add 100 tons of gold to its reserves in 2022. It’s unclear why the bank didn’t follow through, but it is now just 29 tons short of that stated goal.

When he announced the plan to expand its gold reserves, Glapiński said holding gold was a matter of financial security and stability.

Gold will retain its value even when someone cuts off the power to the global financial system, destroying traditional assets based on electronic accounting records. Of course, we do not assume that this will happen. But as the saying goes – forewarned is always insured. And the central bank is required to be prepared for even the most unfavorable circumstances. That is why we see a special place for gold in our foreign exchange management process.”

Three other central banks bought gold in July.

• Qatar – 3 tons

• Singapore – 2 tons

• The Czech Republic – 2 tons

Libya’s central bank reported a gold purchase of 30 tons in June after the data for that month had already been compiled.

Significantly, there are reports that Russia will recommence the buying of foreign currency and gold in the coming months, but there are few details about the plan.

Kazakhstan (4 tons) and Uzbekistan (11 tons) were the notable gold sellers in July. It is not uncommon for banks that buy from domestic production – such as Uzbekistan and Kazakhstan – to switch between buying and selling.

Even with Turkey’s big sales earlier this year, net central bank gold purchases totaled 387 tons through the first half of the year. That was the highest first-half total since the organization started compiling quarterly data in 2000. This continued the trend of increasing gold reserves we saw last year.

Total central bank gold buying in 2022 came in at 1,136 tons. It was the highest level of net purchases on record dating back to 1950, including since the suspension of dollar convertibility into gold in 1971. It was the 13th straight year of net central bank gold purchases.

According to the 2023 Central Bank Gold Reserve Survey recently released by the World Gold Council, 24% of central banks plan to add more gold to their reserves in the next 12 months. Seventy-one percent of central banks surveyed believe the overall level of global reserves will increase in the next 12 months. That was a 10-point increase over last year.

The world’s largest offshore wind farm developer is preparing to walk away from US projects unless the Biden administration guarantees more support, Bloomberg reported. 

“We are still upholding a real option to walk away,” Orsted CEO Mads Nipper told Bloomberg in an interview in London on Tuesday. 

Nipper continued, “But right now, we are still working towards a final investment decision on projects in America.”

The Biden administration has touted offshore wind farms as an essential component of decarbonizing America’s grid, but soaring inflation costs have undermined the sector’s growth and left many projects dead in the water. 

Under the Inflation Reduction Act, Orsted receives upwards of 30% tax credits, but more appears to be needed as a financial crisis is unfolding in the offshore wind power industry. 

Nipper has asked the Biden administration to guarantee subsidies without the domestic content requirement and requested more time to overcome supply chain snarls in sourcing US-made materials. 

“What we proposed was a grace period, say, so give us three to five years,” the CEO said, adding, “Right now, it can’t deliver.”

More from Bloomberg on Nipper, who warned offshore wind farm plays are ‘uninvestable’: 

Orsted’s delays were triggered by bureaucratic uncertainties during the previous US administration and were intensified by supply-chain disruptions during the COVID-19 pandemic. Biden’s push on clean energy helped accelerate some plans, but high-interest rates and delays in procuring foundations, known as monopiles, for its wind turbines slowed developments even more.

Because final investment decisions weren’t made and the projects were being funded by the company’s balance sheet, the fact that long-term interest rates in the US soared above 3% means Orsted’s cost of capital is higher.

“For a company like ours, where the targeted range of returns is 150 to 300 basis points above our cost of capital, it has essentially made this extremely tough,” Nipper said.

Nipper said Orsted couldn’t have predicted the industry turmoil, yet an investor selloff saw the company lose $8 billion in value last week after impairments were booked on several US projects. Longer-term plans also are at risk, with developments near New Jersey and Delaware not investible right now, he said.

Last month, Nipper warned investors on a conference call: “The situation in US offshore wind is severe.” As we noted, “snarled supply chains, soaring interest rates, and easy money tax credits drying up” is a “warning sign the green energy revolution bubble is in trouble.” 

Shares in Denmark-listed green energy giant have crashed in recent weeks on the mounting headwinds — now back to levels last seen in 2018. 

The Biden administration’s ambitious goal of achieving 30 gigawatts of offshore wind energy capacity by 2030 appears to be in jeopardy. Even though the Inflation Reduction Act was supposed to ease inflation, a green energy crisis has emerged, as Orsted describes, that stems from inflation. 

We have asked the question: Is The ESG Investing Boom Already Over?

It seems so, given that Shell, Europe’s leading oil company, has discreetly set aside the world’s most expansive corporate initiative to create carbon offsets. Meanwhile, Europe’s ‘green tech’ future has been threatened due to waning investment flows. 

Authored by Marina Zhang via The Epoch Times (emphasis ours),

A recent study on the immune effects of Pfizer’s COVID-19 mRNA vaccine has scientists raising concerns over vaccine-acquired immune deficiencies.

Vaccine-acquired immune deficiency syndrome (VAIDS) is a new colloquial term coined by researchers and health practitioners since the COVID-19 vaccine rollout. Though not recognized as a medical condition, some experts believe the COVID-19 vaccines may impair or suppress immune responses.

While the new study does not use the term VAIDS, the researchers recognized “a general decrease in cytokine and chemokine responses” to bacteria, fungi, and non-COVID viruses in children after COVID-19 vaccination.

“Our findings suggest SARS-CoV-2 mRNA vaccination could alter the immune response to other pathogens, which cause both vaccine-preventable and non-vaccine-preventable diseases,” the authors of the paper published in Frontiers in Immunology wrote.

“This is particularly relevant in children as they: have extensive exposure to microbes at daycare, school, and social occasions; are often encountering these microbes for the first time; and receive multiple vaccines as part of routine childhood vaccination schedules.”

The researchers from the Murdoch Children’s Research Institute and Royal Children’s Hospital in Melbourne, Australia, took blood samples of 29 children, both prevaccination and after two Pfizer mRNA doses.

They found that blood samples postvaccination had a lower cytokine response to non-COVID pathogens compared to prevaccination. This reduced immune response was particularly persistent for non-COVID viruses. Blood samples taken at six months showed some children still had low responses for hepatitis B virus proteins and proteins that mimic a viral infection; however, cytokine responses had increased for bacterial exposures.

Immune responses to COVID-19 proteins—including spike proteins and their S1 and S2 subunits—and nucleocapsid proteins remained high after vaccination.

Professor Retsef Levi, specializing in risk management and health systems at the Massachusetts Institute of Technology (MIT), posted on X (formerly known as Twitter) that the study “adds to cumulative evidence suggesting adverse immune alteration” by COVID-19 vaccination. Family physician Dr. Syed Haider and immunologist and computational biologist Jessica Rose both connected the study’s findings to VAIDS.

Rebuttal

Marc Veldhoen, an immunologist specializing in T-cell responses and the head of a laboratory at Instituto de Medicina Molecular in Portugal, challenged the study’s findings.

In an X thread, Mr. Veldhoen highlighted flaws in the study, including the lack of controls, meaning children who were not vaccinated, to compare against the subject group on their innate immune responses to other pathogens.

“Without a non-vaccinated control group, at least another vaccine control group (to claim specificity), much larger numbers of subjects, and cellular composition data, [the study authors’] conclusion is speculation, and unlikely to hold,” Mr. Veldhoen wrote.

Accumulation of Studies Suggesting Decreased Immunity After Vaccination

The study is one of many suggesting declined immune response after COVID-19 vaccination.

A preprint study in 16 adults inoculated with the Pfizer mRNA vaccines had similar findings of a reduced innate immune response in participants exposed to pathogenic fungi. The same paper also found long-term changes in innate immune cells.

The Epoch Times reported on a January study out of Germany that showed multiple mRNA vaccinations induce a “class switch” in the type of antibodies formed against the spike protein and other COVID-19 proteins.

Read more here…