Month: May 2024

Predictably, the Kremlin is fuming at widespread reports that the Biden administration has made a U-turn on its policy which previously prohibited Ukraine from attack Russian soil with US-supplied weaponry.

Former Russian president and current Security Council Deputy Chairman Dmitry Medvedev has warned that Russian forces could strike back from any point where attacks are launched, including on “NATO specialists” advising Ukraine forces.

“NATO countries that have approved strikes with their weapons on Russian territory should be aware that their equipment and specialists will be destroyed not only in Ukraine, but also at any point from where Russian territory is attacked,” he said on Telegram, according to TASS, also noting that “the participation of NATO specialists could be seen as a casus belli.”

“All their military equipment and specialists fighting against us will be destroyed both on the territory of former Ukraine and on the territory of other countries, should strikes be carried out from there against Russian territory,” Medvedev added in the warning.

He said that contrary to much of the West’s attempts to obfuscate the reality, Ukraine’s long-rage missile systems are actually “directly operated by servicemen from NATO countries.” He said this is tantamount to these countries’ direct participation in the war.

He explained that this raises the specter of major war and confrontation with the West, as in such a scenario where Russia attacks NATO personnel, the alliance would then have to weigh “possible retaliatory strikes… in the context of articles 4 and 5 of the Washington Treaty.“

Politico reported Thursday afternoon, “The Biden administration has quietly given Ukraine permission to strike inside Russia — solely near the area of Kharkiv — using U.S.-provided weapons, two U.S. officials and two other people familiar with the move said Thursday, a major reversal that will help Ukraine to better defend its second-largest city.”

The same official stipulated that the policy of not allowing long-range strikes inside Russia “has not changed.” However, this is surely going to be a distinction without substance or meaning from Russia’s point of view, as it makes attacking Russia’s sovereign territory with US weaponry ‘allowable’ for the first time. Clearly it’s a highly dangerous slippery slope.

For two years Biden was absolutely adamant that no US weapons could be used to strike Russia. Now he reverses the policy — aka, he lied. So where’s the pushback? Congress, media? What could be of greater consequence than lying the country into war with a nuclear superpower?

— Michael Tracey (@mtracey) May 31, 2024

Other NATO countries have been openly advocating for hitting Russia with long-range missiles, and have even approved for Kiev to start doing so in a huge escalation. Denmark has even said it’s fine with Ukraine attacking Russia with Western-supplied F-16 jets.

Ukraine has been complaining that all restrictions need to be taken off if it is to defend against Russia’s recent major offensive in Kharkiv, which was launched from across the border. For example, Russian artillery is able to fire from rear positions within the Belgorod region near the border. It meanwhile remains part of Moscow’s stated aim to push the border deeper into Ukraine to create a ‘buffer zone’ – making it harder for pro-Kiev forces to shell Russian towns and villages.

Authored by Omid Malekan,

News that a bank or payment provider is doing something in crypto used to be a big deal. When I first entered crypto a decade ago, it was often the biggest deal. One of the first major spikes in the price of ETH was triggered by the launch of the Enterprise Ethereum Alliance. Never mind that the corporations who joined it only wanted a permissioned version that’d never touch Ethereum itself. Crypto was still nascent back then and we coveted any blessing from an established authority.

So we cheered on J.P. Morgan’s supposed coin (which wasn’t) and the launch of Libra. We took note when the CEO of DTCC talked about replacing his proprietary database with a private blockchain (an objectively inferior proprietary database) and cheered on IBM’s supply chain solutions. We admired central bankers who uttered the magical word tokenization, even though it was clear they had no idea what it meant. Crypto was unproven back then and we took what we could get from the scions of finance.

But crypto is unproven no more. Bitcoin is a trillion-dollar asset, stablecoins are a force in payments and DeFi’s balance sheet is larger than that of most banks. The burden of proof is now on them.

It’s time to treat all TradFi embraces with a grain of salt, if not outright suspicion. Somewhere after the phase where they laugh at you, and in between the ones where they fight you and you win is the one where they try to co-opt you.

Consider the case of PayPal expanding its stablecoin to Solana. PayPal has actually been one of the better-faith TradFi firms in crypto. It introduced trading years ago and fought an uphill battle to issue its stablecoin. I’ve met some of their crypto folks, and they are extremely sharp. But lost in the shuffle of their stablecoin news this week was how they were raising merchant fees on Venmo by 33% (I only found out about it from my editor on Re-Architecting Trust, who runs an amazing donut business in Montana).

Why are they raising those fees? Because they can. Raising fees is what proprietary network operators do. Visa and Mastercard did something similar earlier this year, right around the time when Visa was making news in crypto with its own Solana expansion.

To be clear: the Visa crypto team is very smart and well-intentioned. They’ve identified productive things to do in crypto and are approaching them methodically. I’ve also written extensively about PayPal’s opportunities with stablecoins. But the soul of both companies is to own the network. And companies almost never change their soul, even in the face of existential disruption.

So brace yourself for a new wave of TradFi X Crypto announcements that a) Sound smart b) Incrementally move the needle for us c) Don’t threaten their core businesses.

I’m talking about crypto-meets-cards products that preserve interchange, stablecoins that don’t pay interest to end-users (and have the audacity to claim this is doing them a favor) and tokenization projects for assets that have no existing market.

Wall Street people on Tokenization and RWA panels love to talk about examples like real estate or private equity LPs. What they don’t talk about is tokenizing Apple stock on a public chain, even though demand for that product would be 100x greater, particularly in places where people don’t have access to US equity markets — which is almost everywhere.

But therein lies the rub, because tokenized AAPL would threaten the dominance of NASDAQ, DTCC, and the limited-set of brokers that have controlled the U.S. equity market for half a century. The people who run these companies are very smart, and only a fool would willingly lower the bridge over its most protective moat.

There are exceptions to this rule, such as the asset management firms who have embraced Bitcoin ETFs and tokenized money market funds. But those products don’t compete with anything the BlackRocks and Franklin Templetons of finance do today. If anything, they are tools the Buy Side can use to break free from the shackles of the Sell Side. A company like Blackrock pays hundreds of millions of dollars in fees every year to firms like J.P. Morgan, for the simple reason that the asset managers own the assets but the money center banks own the plumbing they move through.

But now, there’s a public blockchain for that. Crypto threatens the Sell Side by empowering the Buy Side. A tokenized Blackrock MMF on Ethereum is a better payment instrument than correspondent banking will ever be — which is why Larry loves crypto, but Jamie doesn’t.

Most people on Wall Street have really stepped up their game in recent years, and the daylight coming out of the Biden admin will accelerate that process. But it’s time for the crypto industry to do the same, and to be a lot more discerning about which aspects of the TradFi embrace we celebrate. Good executives protect their moats to the bitter end.

After a somewhat weaker than expected CPI print two weeks ago, and with inflation data generally surprising modestly to the downside…

… the doves’ last chance for “sooner than later” rate-cuts is today’s Core PCE Deflator – often described as The Fed’s favorite inflation signal. And indeed, after last month saw a stronger than expected print in both the headline and core prints, moments ago the Biden Bureau of Economic Analysis confirmed that – just as we previewed – the core PCE dropped from 0.3% to 0.2%, the lowest monthly increase of 2024…

… with all prints coming in just as expected, to wit:

• PCE 0.3% MoM, Exp. 0.3%
• PCE Core 0.2%, Exp. 0.2%
   
• PCE 2.7% YoY, Exp. 2.7%
• PCE Core 2.8%, Exp. 2.8%

Extending the scientific notation a bit, we find that the core PCE print was actually 0.249%, so literally made the rounding to 0.2% by 1 thousandth of a point, down from 0.317% last month. Amusingly, this brings to mind something Governor Christopher Waller said last week: “I look forward to the day when I don’t have to go out two or three decimal places in the monthly inflation data to find the good news.”

Also as previewed, the drop in the annual change in core PCE from just over 2.81% to 2.7537% means that the annual increase in core inflation is now the lowest since April 2021, something which will surely allow the Fed to exhale and maintain its plans to cut rates some time before the election…

… which in turn will give fresh wind to the doves new wings, something which can be seen by the euphoric reaction in futures which have spiked to session lows as yields have dumped after the report.

To be sure, it’s not all roses, and the WSJ’s Fed whisperer Nick Timiraos, aka Nikileaks, writes that while the 12-month change was 2.75%, a three-year low, the 6-month annualized rate was 3.18%, the highest since July.

He also notes that the “3-month annualized rate was 3.46%, down from the previous two months but still higher than any point in 2H 2023” which leads him to concludes that “this report was largely anticipated two weeks ago and won’t change much of anything for the near-term Fed outlook of “wait and see.”

The 3-month annualized rate was 3.46%, down from the previous two months but still higher than any point in 2H 2023

This report was largely anticipated two weeks ago and won’t change much of anything for the near-term Fed outlook of “wait and see.”

— Nick Timiraos (@NickTimiraos) May 31, 2024

Taking a closer look at the data reveals that like last month, the Service sector led the MoM and YoY acceleration in headline PCE.

For the Core PCE print, it was also Services prices too that drove the acceleration.

More importantly, the so-called SuperCore – Services inflation ex-Shelter – dropped led by the first drop in transportation services in 2024.

Income and Spending both rose again on a MoM basis although after March’s 0.7% surge in spending (which was downward revised from 0.8% but still matched the highest since Jan 2023), in April spending rose just 0.2%, below the 0.3% expected as income rose 0.3% as expected, and also a drop from the 0.5% March increase.

This meant that after plunging to just 3.6% last month, the lowest level since Nov 2022, in April the personal savings rate remained unchanged at 3.6%.

And the soaring credit card balance explains how people are getting by.

All this takes place amid the fifth straight month of government handouts.

Finally, while the markets are exuberant at the survey-based disinflation, we do note that it’s not all sunshine and unicorns. The vast majority of the reduction in inflation has been ‘cyclical’…

After President Joe Biden shredded Donald Trump’s Executive Orders on border security his first day in office, resulting in a staggering 10 million illegals pouring into the United States, the White House is reportedly on the verge of implementing new executive orders in order to recapture pissed-off voters stem the absolute flood of illegal migration he caused, AP reports.

According to the report, the new policy would cap the number of daily encounters at an average of 4,000 over a week (or 208k per year), which might include asylum-seekers with scheduled appointments through U.S. Customs and Border Protection’s CBP One app.

Moreover, under the new regulations, migrants arriving after reaching the set threshold could face automatic removal—a process akin to deportation—with significantly reduced chances of re-entry. This contrasts sharply with the more lenient conditions under the pandemic-era Title 42 policy, which allowed many expelled migrants to quickly attempt re-entry.

The potential decision follows the demise of a bipartisan border bill earlier this year – and with the U.S. presidential election looming in November, immigration remains a focal point of contention, providing Republicans with ample ammunition against Biden.

The Democratic administration’s effort would aim to head off any potential spike in crossings that could occur later in the year, as the fall election draws closer, when the weather cools and numbers tend to rise, two of the people. They were not authorized to speak publicly about the ongoing discussions and spoke to The Associated Press on condition of anonymity. -AP

A brief timeline:

• Jan. 2017- Jan. 2021: Trump issues Executive Orders to protect the southern US border.

• Jan 20, 2021: Biden shreds these orders his first day in office in a massive virtue signal.

• Jan. 2021 – April 2024: 10 million illegals pour into the United States, many of whom are then bused to blue ‘sanctuary cities’ full of now-angry (angrier) Democrats.
• Now: After pretending they can’t fix the border unless we give $60 billion to Ukraine – Biden team panics ahead of the 2024 election and will roll out Executive Orders so they can claim credit for fixing the border crisis they caused.

According to Axios, Biden would be “taking a page from former President Trump” by using Section 212(f) of the Immigration and Nationality Act, which gives the president broad discretion to block the entry of certain immigrants considered “detrimental” to US interests.

Then there’s this idiot:

Rep. Dan Goldman tried to trip up a former immigration judge.

Spoiler: It did not go as planned. pic.twitter.com/01BNhXkv5D

— Oversight Committee (@GOPoversight) February 15, 2024

Currently, the U.S. grapples with over 2 million pending immigration court cases, with many individuals waiting years for resolution while in limbo. Despite the chaotic backdrop, U.S. officials are urging migrants to opt for legal pathways or apply for asylum from regional outposts in countries like Colombia, Guatemala, and Costa Rica.

“Don’t underestimate Joe’s ability to fuck things up.” –Barack Obama

Futs are slightly lower as bond yields rise after European inflation prints came in stronger than expected and PCE looms. As of 7:30am S&P futures are down -0.2%, off the worst levels of the session; Nasdaq futures slumped 0.5% as last night’s latest round of tech earnings disappointed: DELL plunged -14% as it failed to meet the high expectations on AI demand; MDB cratered 24% and is now down 55% below YTD highs. Indeed, most AI names (ex-NVDA) are mostly lower: AMD -1.0%, MU -78bp. Bond yields are 1-2bp higher in sympathy with the move wider in Bunds where the latest data showed European consumer prices rose more than expected; the Bloomberg dollar index dipped and commodities, energy and ags are mostly lower. Today’s macro data focus will be March PCE release; the street expects a headline and core PCE print of +0.3% MoM; on YoY basis, Core PCE is expected to rise 2.8%. Over the weekend, NVDA will host the CEO live keynote ahead of the Computex 2024 event on Sunday June 2 at 7am ET.

In premarket trading, megacap tech was mixed: NVDA +58bp, MSFT +25bp, AAPL -22bp, TSLA -53bp. Dell shares sink 15% as the personal computer maker’s strong AI server sales fail to impress investors. Analysts note that the first revenue increase since 2022 came at the cost of weaker profit margins. Here are some other notable premarket movers:

• Asana shares rise 13% as RBC says the application software company’s first-quarter results show signs of demand stabilization.
• Gap shares soar 23% after the apparel retailer reported first-quarter total comparable sales that topped Wall Street expectations, and upgraded its sales and margin projections for the full year.
• Marvell Technology shares fall 4.8% after reporting net revenue for the first quarter and July guidance in-line with average analyst estimates. Despite the match, the chipmaker’s “high share price leaves little room for error,” Morgan Stanley analysts write in a note.
• MongoDB shares plummet 25% after the database software company cut its full-year forecast, the latest in a series of disappointing software company results. DataDog -2.8%
• Nordstrom shares slide 7.4% after the apparel retailer’s first-quarter adjusted Ebitda missed estimates.
• PagerDuty shares rise 11% after the wireless applications company boosted its adjusted earnings per share forecast for the full year.
• SentinelOne shares slump 14% after the security software company cut its FY25 revenue guidance and annual recurring revenue missed the average analyst estimate. Barclays analysts trimmed their net new ARR FY25 estimates as a reflection of macro headwinds and leadership changes at the firm.
• Trump Media shares fall 6.5% after a jury found Donald Trump guilty of multiple felonies.
• Ulta shares jump 7.0% after the beauty retailer reported first-quarter earnings per share that came in ahead of estimates. The company also lowered its full-year outlook, though analysts said it was now more achievable than before.
• Zscaler shares surge 17% after the security software firm’s results beat estimates and it raised its full-year forecast as demand for its platform grows. Analysts noted that Zscaler is defying a broader slowdown in the industry, and increased their price targets on the stock.

Prior to the recent swoon in tech, and especially software names, stock gains this month were fueled by the rally in tech as well as Jerome Powell’s dovish posture on rates at the start of May. That optimism has faded over the course of the month, and Friday’s data could revive hopes for easing if there are signs inflation is returning to target.

Indeed, investor attention now turns to the Federal Reserve’s preferred price-growth measure, the core PCE deflator, due at 8:30am and which likely moderated in April to the slowest monthly pace yet this year. As previewed earlier, headline PCE prices are seen rising +0.3% M/M in April (prev. +0.3%), with the annual rate expected to be unchanged at 2.7%. The core measure is seen rising +0.2% M/M (prev. +0.3%), while the core rate of annual PCE is seen unchanged at 2.8% Y/Y, although even a modest dip in the annual print would lead to the lowest annual increase in three years, since April 2021.

Elsewhere, a jury found Donald Trump guilty on all 34 counts of falsifying business records at his hush-money trial, making him the first former US president to be convicted of crimes. With Trump to due to face sentencing on July 11, the conviction creates a challenging legal and political path as he faces Biden in November as the presumptive Republican nominee. Trump Media & Technology Group traded down 12% in extended trading Thursday.

“Expectations for a guilty verdict were somewhat priced into markets,” Paresh Upadhyaya, director of fixed income and currency strategy at Amundi Asset Management in Boston. “The bigger impact to markets could be if this guilty verdict begins to turn the momentum away from Trump to Biden.”

European stocks are little changed with losses in technology shares capping any upside in the Stoxx 600. Here are the biggest movers Friday:

• Neoen share rise as much as 21% to €37.98 following news that Brookfield is in exclusive talks to acquire a majority stake at a price of €39.85 per share
• Centrica rises as much as 4.6% as analysts at RBC Capital Markets raised the British energy company to outperform, expecting further scope amid market tailwinds
• Nel gains as much as 9.5% after its Cavendish Hydrogen fueling division applied for its shares to be admitted to trading on the Oslo Stock Exchange
• Lalique Group shares climb as much as 32% to CHF 39.60 as its majority shareholder Silvio Denz intend to delist the company’s shares from the Swiss stock exchange
• Capgemini shares slide as much as 6.9% to the lowest since November after JPMorgan and Jefferies both downgraded their buy ratings on Friday
• Flutter Entertainment shares fall as much as 18% in London after the CFO announced his departure; today is also the first day Flutter’s primary listing is in the US
• JD Sports drop as much as 13%, the most in almost five months, after full-year adjusted pretax profit and sales from the sports apparel retailer missed estimates
• Pharming shares tumble as much as 12% to the lowest since June 2022 after the Dutch biopharmaceutical company noted a delay to the European regulatory review
• AB Foods fall as much as 3.8%, the most in a month, after Wittington Investments announced a sale of up to 10.3m shares at a discount of 4.1% versus Thursday’s close

Earlier, Asian stocks failed to hold initial gains to head for their second straight weekly decline, dragged by a selloff in equities in Hong Kong while contraction in factory activity weighed on Chinese shares. The MSCI Asia Pacific Index rose as much as 0.7% before trading little changed as TSMC, Tencent and Alibaba were among the biggest drags. Japan and New Zealand were among the key gainers, while a rebound in Samsung helped Korean shares higher. Shares fell about 1.5% on the week. Despite the recent decline, the Asian benchmark is still on track for a monthly gain of about 1.5% on an easing dollar and renewed expectations for help from the Fed, in addition to China’s support measures for its beleaguered property market.  

In FX, the Bloomberg Dollar Spot Index is up less than 0.1% and is set to end the month 1% lower in May, after rising in the previous four months. The Swiss franc and Japanese yen are the weakest of the G-10 currencies. Euro rises 0.1% against the dollar to 1.0845 after earlier falling to 1.0811. The yen slips 0.3% to 157.27 per dollar, having risen 0.2% earlier due to a pickup in Tokyo CPI in May. In emerging markets, South Africa’s rand led declines after falling more than 3% over three days. Investors are awaiting the final results of the nation’s elections amid concern over the different permutations a coalition may take, and whether a market-friendly government will emerge.

In rates, US Treasuries slip, sending 10-year yields 1-2bps higher to 4.56%.  German bund yields advanced five basis points to 2.70%, the highest since November, after the latest data showed European consumer prices rose 2.6% from a year ago in May, up from +2.4% in Apr and ahead of the Street’s +2.5% forecast. Core CPI came in +2.9%, up from +2.7% in Apr and ahead of the Street’s +2.7% forecast. Still, traders maintained bet for a cut at the ECB meeting next week, but reduced bets on easing after that. US Treasuries were also slightly cheaper across the curve with losses led by front-end, following a more aggressive selloff across bunds. Focal points of US session include PCE deflator data at 8:30am New York time. Treasuries may subsequently garner support from month-end buying flows, with a larger-than-average extension estimated for June. 

In commodities, oil prices declined, with WTI falling 0.3% to trade near $77.70. Spot gold is steady near $2,343/oz.

Bitcoin has reversed earlier losses and trades just above $68k, while Ethereum has staged a rally and is trading just above $3,800.

US economic data includes April personal income and spending, including PCE deflators (8:30am) and May Chicago PMI (9:45am, 3 minutes earlier to subscribers). Fed officials’ scheduled speeches include Bostic at 6:15pm.

Market Snapshot

• S&P 500 futures little changed at 5,247.75
• STOXX Europe 600 little changed at 516.97
• MXAP up 0.1% to 176.88
• MXAPJ down 0.4% to 547.97
• Nikkei up 1.1% to 38,487.90
• Topix up 1.7% to 2,772.49
• Hang Seng Index down 0.8% to 18,079.61
• Shanghai Composite down 0.2% to 3,086.81
• Sensex up 0.6% to 74,304.07
• Australia S&P/ASX 200 up 1.0% to 7,701.74
• Kospi little changed at 2,636.52
• German 10Y yield little changed at 2.67%
• Euro little changed at $1.0834
• Brent Futures down 0.2% to $81.72/bbl
• Gold spot down 0.1% to $2,341.85
• US Dollar Index little changed at 104.78

Top Overnight News

• Former US President Trump was found guilty by a jury verdict on all 34 counts he faced at the hush money trial and will be sentenced on July 11th. Following the verdict, Trump said this was a disgrace and the real verdict will be on November 5th (US election), while he added that he is innocent and this was a rigged decision. There were also comments from House Speaker Johnson who said this was a shameful day in American history and that “President Trump will rightfully appeal this absurd verdict—and he will win”: WSJ
• China’s NBS PMIs for May fall short of expectations, coming in at 49.5 for manufacturing (vs. the Street 50.5 and down from 50.4 in Apr) and 51.1 for services (vs. the Street 51.5 and down from 51.2 in Apr). RTRS
• Japan’s Tokyo CPI for May is inline on a headline basis at +2.2% (up from +1.8% in Apr and vs. the Street +2.2%) and a tiny but cooler on core (ex-energy/food) at +1.7% (down from +1.8% in Apr and vs. the Street +1.8%). RTRS
• Japan spent a record ¥9.8 trillion ($62.2 billion) in the past month to prop up the yen, surpassing the amount it used in 2022 to defend the currency. BBG
• Eurozone CPI for May runs hot, with core coming in +2.9% (up from +2.7% in Apr and ahead of the Street’s +2.7% forecast) and headline +2.6% (up from +2.4% in Apr and ahead of the Street’s +2.5% forecast). France’s CPI for May also runs a bit hot, coming in at +2.7% Y/Y on an EU harmonized basis, up from +2.4% in Apr and ahead of the Street’s +2.6% forecast. BBG   
• France is seeking to assemble a coalition of European countries willing to send military trainers to Ukraine as western allies look for ways to speed up Kyiv’s recruitment efforts in the face of Russia’s renewed offensive. FT
• Trump was found guilty Thursday by a New York jury on all 34 counts in his hush-money case, concluding the first-ever criminal trial of a former president. Now voters will render their own judgment, as Trump, the presumptive GOP presidential nominee, barrels ahead to the Nov. 5 election, using the trial and other prosecutions he faces as a rallying cry for his supporters. WSJ
• Bill Ackman is planning to take his investment firm public as soon as next year, the boldest move yet by the hedge-fund manager to capitalize on his social-media fame. As a precursor to a public listing, Ackman is selling a stake in the firm, Pershing Square, to investors in a funding round expected to value the firm at about $10.5 billion, people familiar with the matter said. That deal is expected to close in the coming days. WSJ
• The Fed’s favored inflation gauge may bring some cheer to markets, with the core PCE deflator forecast to have moderated to 0.2% in April, the slowest monthly pace this year. Personal spending and income also probably cooled. But this alone won’t make the case for rate cuts, Bloomberg Economics said. BBG
• Deutsche Bank CFO James von Moltke said fixed-income trading revenue is set to drop in the second quarter. RTRS
• Fed’s Logan (non-voter) said there are good reasons to think we are still on the path to 2% inflation but it is bumpy, while she added it is too soon to think about rate cuts and policy may not be as restrictive as we might think. Furthermore, she said there are good reasons to believe the neutral rate is higher now than before the pandemic and if the neutral rate is higher than before, it suggests rates won’t go back down to pre-pandemic levels.
• Tesla is recalling 125,227 US vehicles as a seat belt warning system fails to alert occupants of an unbelted seat belt.

A more detailed look at global markets courtesy of Newsquawk

APAC stocks traded mostly in the green and shrugged off the weak lead from the US but with gains capped amid a deluge of data releases at month-end including disappointing official Chinese PMIs. ASX 200 traded higher with outperformance seen in gold mining stocks and the defensive sectors. Nikkei 225 advanced with the index ultimately unfazed by the mixed data mixed data from Japan including mostly in-line Tokyo CPI, a surprise contraction in Industrial Production and better-than-expected Retail Sales. Hang Seng and Shanghai Comp conformed to the positive tone albeit with gains capped in the mainland after disappointing Chinese PMI data in which Manufacturing PMI unexpectedly slipped into contraction territory

Top Asian News

• Japan’s MOF says it spent JPY 9.788tln on currency intervention between 26th April and 29th May
• Chinese state media said China has richer and more powerful countermeasures if the US continues to violate and endanger China’s sovereignty and security interests on core issues, or squeeze the development space of Chinese firms and individuals. Furthermore, it warned that in the future, whether the US will suffer greater backlash and losses depends on its sincerity and actual actions.
• Japan is to shift USD 640bln in public pension money into active investment, according to Nikkei.
• US Defence Secretary Austin says the meeting with his Chinese counterpart went well, via CNN/Pentagon Spokesperson.
• Tencent Holdings (0700 HK) has reportedly been asked by Chinese regulators to recude the mobile payment market shae of WeChat, via Nikkei citing sources; aimed at the market share of in-person payments rather than online shopping.
• Japan Business Lobby Keidanren Deputy Head Takashima says stable currency is important no matter what levels they may be at.
• Japan Business Lobby Keidanren Deputy Head Yoshida says economic strength and interest-rate differentials are among factors behind the weak Yen, so much boost investment to address this issue.
• Japan Business Lobby Keidanren Deputy Head Nagasawa says current DX levels at the mid-150 Yen range are excessively weak.

European bourses, Stoxx 600 (+0.1%) are mixed, and generally trading near the unchanged mark as focus turn to the upcoming US PCE report. Equities saw very modest pressure on the back of the hotter-than-expected EZ HICP figures. European sectors are mixed and with the breadth of the market fairly narrow; Telecoms takes the top spot, continuing to build on the prior day’s outperformance. Tech is among the worst performers, joined by Travel & Leisure. US Equity Futures (ES -0.2%, NQ -0.4%, RTY -0.3%) are entirely but modestly in the red, continuing the negative sentiment seen in the prior session; however, the price action is relatively contained given the focus around the upcoming US PCE at 13:30 BST / 08:30 EDT.

Top European News

• ECB’s Panetta says policy will remain restrictive even after several rate cuts; Monetary easing will be expected over the coming months if our forecasts are confirmed by data. Must avoid monetary policy becoming too restrictive, which could push inflation below the ECB’s symmetrical target. Euro zone inflation is expected to continue to ease in the next few quarters. Salary rises can also be expected to slow as workers recover purchasing power, firms can be expected to absorb recent salary hikes without raising prices. ECB will take account Federal Reserve’s moves, but not be bound by them. ECB’s balance sheet reduction mustn’t interfere with the monetary policy stance or create a lack of liquidity in the financial system. Larger Italian banks lag behind European peers in IT investments, must step up spending. Says the latest EZ inflation rate of 2.6% is in line with forecasts and as such is “neither good or bad”

FX

• USD is flat and trading within the middle of its weekly 104.33-105.18 range; PCE will likely determine the fate of the USD today with analysts at ING suggesting that a 0.2% M/M print could trigger a run of bond bullishness (USD weakness).
• EUR is a touch firmer vs. the USD in wake of firmer-than-expected headline and core inflation metrics from the Eurozone. Next upside target would come via the high from Wednesday at 1.0861.
• GBP is slightly softer vs. the USD in quiet trade with tier 2 data releases from the UK unable to have much sway on the pair. For now, Cable is caged within yesterday’s 1.2688-1.2747 range.
• JPY is giving back some of yesterday’s gains which saw USD/JPY dragged lower from 157.61 to 156.36. The pair has since moved back onto a 157 handle following mixed data overnight.
• Antipodeans are both a touch firmer vs. the USD. AUD/USD has made further progress on a 0.66 handle but is yet to test yesterday’s 0.6647 as the pair remains in close proximity to its 10DMA.
• South Africa’s ANC vote share drops below 42% based on results from 55.63% of polling stations; FT writes that South African President Ramaphosa’s future is in doubt after disappointing South African election, figure within the ANC notes that if the vote remains close to 40% “people will suggest he leaves”.

Fixed Income

• USTs are slightly softer as Thursday’s bounce runs out of steam and hot Tokyo headline CPI, but with price action fairly contained ahead of the key US PCE figure later today. USTs are at lows of 108-12 having dipped from Thursday’s 108-19+ peak but currently remain comfortably above the WTD base at 107-31.
• Bunds were pressured alongside USTs into Final EZ HICP, prior to this some modest two-way action was seen on German Retail Sales & Import Prices. Thereafter, hotter-than-expected prints on the three headline Y/Y metrics sent Bunds down from circa. 128.90 to a 128.74 base (matching Wednesday’s low); EGBs now back towards pre-release levels.
• Gilts are essentially unchanged with specifics light into EZ HICP, which resulted in some very modest pressure for Gilts to an incremental new session low; Gilts in a narrow 95.62-95.94 bound which itself is entirely within Thursday’s 95.54-95.99 range.

Commodities

• Crude is softer and towards session lows, continuing the overnight pressure seen following the disappointing Chinese PMI data, which saw the Manufacturing component dip into contractionary territory.
• Precious metals are flat/mixed in the run-up to US PCE and unreactive to the hotter-than-expected EZ Flash CPI figures; XAU trades in a USD 2,337-2,347.81/oz range.
• Base metals are mixed and consolidating after yesterday’s slump despite the lack of a clear driver, but amid cautiousness as yields remain elevated and US PCE nears.
• OPEC+ could extend production cuts at the June meeting, via CNBC citing sources; “demand concerns persisted until only recently”. Delegate cited notes that the US SPR release is unlikely to have an impact beyond price relief during the summer period. Three delegates cited said the 2.2mln BPD supply reduction will likely be extended, which is regarded as anticipated by the market; one noted there will probably be market tightness in H2 but added that demand concerns persisted until only recently. Gaza Strip situation is adding a little pressure to prices, but the market has absorbed the majority of this.
• Russia’s Lukoil reportedly plans to restart CDU-6 and catalytic cracker units at Norsi oil refinery (340k BPD) in June, according to Reuters sources
• Chevron (CVX) Australia has confirmed full LNG production has resumed at Gorgon gas facility, according to a spokesperson.
• Ukrainian Navy hit an oil depot in the Krasnodar region of Russia with Neptune missiles.
• Oman Crude OSP calculated at USD 83.89/bbl for July (prev. USD 89.3/bbl M/M, – USD 5.41)

Geopolitics: Middle East

• Senior Israeli Security Official says there will be no truce or any halt in fighting in Gaza which is not part-and-parcel of a hostage release deal
• US military said American and British forces conducted strikes against 13 Houthi targets in Yemen, while Houthi Al Masirah TV said one person was killed in the US-British strikes on Yemen’s Hodeidah.
• Deputy Chairman of Russia’s Security Council says the use of long-range weapons against Russia could become a reason to go to war with NATO.
• “Ukrainian media: The first attacks on the territory of the Russian Federation using US weapons may begin within hours or days”, according to Sky News Arabia
• China has told other governments it will not join the Swiss peace conference on Ukraine and said the peace conference does not meet its conditions since Russia is not attending, according to Reuters sources.
• North Korean leader Kim guided a demonstration of large-scale multiple rocket launchers, according to KCNA.

US Event Calendar

• 08:30: April PCE Deflator MoM, est. 0.3%, prior 0.3%
  • April PCE Deflator YoY, est. 2.7%, prior 2.7%
  • April PCE Core Deflator YoY, est. 2.8%, prior 2.8%
  • April PCE Core Deflator MoM, est. 0.2%, prior 0.3%
• 08:30: April Personal Income, est. 0.3%, prior 0.5%
  • April Personal Spending, est. 0.3%, prior 0.8%
  • April Real Personal Spending, est. 0.1%, prior 0.5%
• 09:45: May MNI Chicago PMI, est. 41.5, prior 37.9

Central Bank Speakers

• 18:15: Fed’s Bostic Gives Commencement Speech

DB’s Jim Reid concludes the overnight wrap

I arrived back from NY yesterday to unexpectedly find a half-term sleepover with several noisy and excitable 8-year old girls. I ran back to the taxi to try to return to the airport but alas the driver had gone.

While I was away, the last few days have been the first for some time where good economic data (Tuesday) was a reason for markets to sell-off, and then weaker economic data (yesterday) was also seen as a reason for markets to sell-off. In recent times, both good and bad data have managed to build a bullish narrative, as bad data has been seen to raise the likelihood of rate cuts. Having said that, the sell-off this week remains pretty mild and the S&P 500 is only -1.6% beneath its record from last week, so it’s hard to get too excited about a new trend emerging.

On the plus side, sovereign bonds recovered yesterday as investors dialled up the likelihood of rate cuts this year. But on the more negative side, the S&P 500 (-0.60%) still fell back for a second day, as the data included negative revisions to consumer spending. So it encouraged the idea that the US economy had lost some momentum at the start of the year, and it means the S&P 500 has now posted its worst two-day performance (-1.33%) in four weeks.

In terms of the details of that US data, the main headline was that Q1 growth was revised down to an annualised pace of just +1.3%, having been at 1.6% in the first estimate. That included downward revisions on the consumer spending side, with personal consumption expenditures revised down to half a point to +2.0%, whilst final sales to private domestic purchasers was also revised down three-tenths to +2.8%. That final measure was something Chair Powell had cited in his May press conference, as it was argued that underlying demand was strong despite the slowdown in headline growth. So it’s noticeable that’s been revised lower.

The better news came on the inflation side, with headline PCE inflation for Q1 revised down a tenth to 3.3%, whilst core PCE inflation was also revised down a tenth to 3.6%. So that leant slightly against the Q1 inflation spike, although there’s no doubt that it was still well above target. Bear in mind as well that we’ll get some more info on inflation today, as the monthly PCE inflation print for April is out later. That still gets a lot of attention because it’s what the Fed officially targets, even though it comes out after the CPI print a couple of weeks earlier.

This data backdrop proved supportive for sovereign bonds, and US Treasuries saw a clear rally after the release came out, taking the 10yr yield (-6.6bps) to 4.55%. That also came as investors became marginally more confident about rate cuts, with the likelihood of a cut by November up to 83% by the close, having been at 75% the previous day. Yesterday also saw mixed Fedspeak with Federal Reserve Bank of New York President Williams saying, “ I expect inflation to resume moderating in the second half of this year.” Federal Reserve Bank of Atlanta President Bostic added that he did not expect a Fed cut in July but was open to it if the data moved accordingly, and that another hike was not necessary at this time. But on the other hand, Federal Reserve Bank of Dallas President Logan was more hawkish, saying that policy may not be “as restrictive as we think it is” and that all policy options are on the table.

Remember as well that today is the last day before the Fed’s blackout period begins at the weekend, so we now won’t hear from Fed speakers until Chair Powell’s press conference in June.

That dovish trend carried over to Europe, with expectations mounting further that the ECB is going to cut rates next Thursday. Indeed, the likelihood of a cut is now priced as a 97.8% probability by overnight index swaps. In turn, sovereign bond yields fell back across the continent, having closed at their highest level in months on Wednesday. For instance, yields on 10yr bunds (-3.8bps), OATs (-3.7bps) and BTPs (-6.2bps) all fell. And that came in spite of strong labour market data, with the Euro Area unemployment rate down to 6.4% in April (vs. 6.5% expected), which is its lowest rate since the formation of the singe currency.

For equities, there was a more divergent performance on either side of the Atlantic. In the US, the S&P 500 (-0.60%) lost ground, but that was mainly down to sharp losses from tech stocks, with the Magnificent 7 down -1.73% and the Nasdaq -1.08%. In fact, 72% of the S&P was actually higher on the day, and the equal-weighted S&P 500 was up +0.44%, so it wasn’t all bad. For example, the small-cap Russell 2000 saw an even larger gain of +1.00%. Meanwhile in Europe, there was also a decent performance, with the STOXX 600 (+0.59%), the DAX (+0.13%) and the CAC 40 (+0.55%) all recovering after two days of losses.

Overnight in Asia, we’ve seen a more optimistic tone in markets, with a recovery across the major equity indices. That’s come despite weaker-than-expected data from the China PMIs, with the manufacturing PMI falling back to 49.5 (vs. 50.5 expected), whilst the non-manufacturing PMI fell to 51.1 (vs. 51.5 expected). The data out of Japan has also been mixed overnight, with industrial production down -0.1% in April (vs. +1.5% expected), although retail sales did see growth of +1.2% (vs. +0.6% expected). Nevertheless, the weaker data has been seen as raising the likelihood there might be more stimulus, and there’ve been gains for the Nikkei (+0.94%), the Hang Seng (+0.94%), the KOSPI (+0.39%), the Shanghai Comp (+0.27%) and the CSI 300 (+0.20%). Looking forward, however, US equities are still struggling for momentum, and futures on the S&P 500 (-0.19%) currently point towards a third day of losses.

Looking at yesterday’s other data, the US weekly initial jobless claims were at 219k (vs. 217k expected) in the week ending May 25. Continuing claims were also broadly in line with expectations at 1.791m (vs. 1.796m expected). Otherwise, pending home sales were down -7.7% in April (vs. -1.0% expected), taking the index down to its lowest level since April 2020 at the height of the pandemic.

To the day ahead now, and data releases include the US PCE inflation reading for April, alongside personal income and personal spending. Elsewhere, there’s the Euro Area CPI reading for May, UK mortgage approvals for April, German retail sales for April, Canada’s Q1 GDP, and in the US there’s also the MNI Chicago PMI for May. From central banks, we’ll hear from the ECB’s Vujcic and Panetta, and the Fed’s Bostic.

Authored by Pete McGinnis via RealClearPolicy,

In June 2023, the Bureau of Ocean Energy Management proposed a rule that would require stricter financial assurance standards for oil companies operating in the Outer Continental Shelf. This costly rule became final on April 15, 2024, but in the 10 months since its initial proposal, BOEM did nothing to alleviate concerns for smaller companies that comprise of 76 percent of oil and gas operators in the Gulf. As a result, many of these companies could be forced out of business by extreme and unnecessary costs from this rule. The situation threatens an estimated 36,000 jobs, more than $570 million in federal government royalties, and $9.9 billion from our GDP.

Records obtained via the Freedom of Information Act show private meetings between Interior officials and representatives of the major oil companies as they cooperated on this rule. If you think that’s strange, you’re not alone. President Biden made clear in his campaign that he wanted to end oil and gas production on public lands. It’s baffling that Big Oil – among the administration’s most, if not the most, maligned businesses – would stand on the same side with environmental groups such as the Sierra Club who praised the rule. But needless government intervention makes strange bedfellows. Big Oil must think it won’t miss the small competitors the rule will drive from the market.

The conditions for obtaining an oil and gas lease include meeting obligations for decommissioning. Leaseholders must provide “financial assurance” that they can bear the costs to cap wells and restore the site. If the financial strength of the company is insufficient, costly surety bonds can be purchased to satisfy the requirements. However, a quiet omission is the larger threat for smaller operators.

Historically, joint and several liability protected these small businesses from the financial demands of surety bonds. Most small businesses operating in the OCS have assumed a lease started by a bigger oil company. Typically, a large company drills the well and harvests a large amount of oil (and profits), and then sells the lease. Under this system, all companies who have ever held the lease are liable for decommissioning. Accordingly, if any company who could be liable for decommissioning can prove capable of paying for decommissioning, no company is required to buy surety bonds.

The new rule is largely silent on joint and several liability, causing some uncertainty. It appeared that all present leaseholders will have to prove their financial strength on their own. BOEM’s director Liz Klein cleared up some confusion – and confirmed fears about the rule – at the Energy and Minerals Subcommittee hearing on May 23. She said that BOEM “would be going to those financial assurance requirements before we went to predecessors” when asked by Rep. Garret Graves (La.) about this issue. In short, the rule’s dysfunction appears quite intentional.

Mega oil companies will have little problem with the rule’s new credit rating requirement. Smaller companies, with fewer assets, may be unable to meet the new standards and need to purchase surety bonds. Small oil companies will now have to spend, conservatively, $379 million per year on surety bonds, but some estimates are closer to $800 million.

But all that assumes the market exists for those bonds. The Surety and Fidelity Association of America informed BOEM that the rule is either impossible or extremely cost-prohibitive for underwriting. The market supply of surety bonds in the OCS had already contracted before the rule. The problem is only going to get worse. Companies may not be able to acquire the needed financial assurances because the market likely will not even exist.

What makes matters worse is that all this cost covers a risk that is effectively a rounding error historically and in the context of the royalties flowing from the offshore oil and gas industry. According to BOEM, taxpayers have borne decommissioning liability totaling $58 million – from a single company that lacked predecessor owners of the platform to call on to cover unfunded cleanup costs. Against a conservative estimate of roughly $25 billion in decommissioning costs borne solely by private companies over the years, and the contribution of billions each year from all oil and gas royalties, the public is left to wonder whether this rule is a solution in search of a problem. The existing system of joint and several liability has protected the taxpayers and could continue to do so. The new costs to small oil businesses are for naught – unless the motivation is to make energy more expensive and drive out more companies.

That motivation makes sense for the radical environmental special interests, who have made clear they intend to shutter energy production at every opportunity. It doesn’t make sense for Big Oil companies, who stand to lose customers who buy their leases. Their support for the rule is short sighted.

Since BOEM knew this outlook and finalized the rule anyway, the motive must be something other than protecting taxpayers. Agency leadership at BOEM appears more concerned with penalizing responsible energy producers than protecting American families and businesses from out-of-control inflation stemming from their policies. 

Peter McGinnis is the Communications Director for the Functional Government Initiative (FGI). He has worked for political campaigns and advocacy organizations at the state and national level. He holds a dual B.A. in Economics and Political Science from Temple University.

Shares of Dell Technologies plunged the most in years in premarket trading in New York after the company posted in-line fiscal first-quarter results that showed the first revenue increase since 2022. Despite this positive news, investors were primarily concerned with the performance of the company’s artificial intelligence server business, which fell short of expectations.

The Texas-based company said Thursday that sales increased 6.3% to $22.24 billion in the quarter ending May 3. Analysts tracked by Bloomberg estimated an average of $21.62 billion. Profit topped $1.27 a share, beating analysts’ estimates of $1.23. 

Revenue from Dell’s AI servers doubled from the previous quarter to $1.7 billion, Chief Operating Officer Jeff Clarke said in the statement. He noted that the backlog for those servers increased more than 30% quarter-over-quarter to $3.8 billion. 

However, Morgan Stanley analyst Erik Woodring pointed out that the strong quarter was overshadowed by the AI server backlog, which fell short of expectations. 

Here’s a snapshot of earnings (courtesy of Bloomberg):

• Adjusted EPS $1.27 vs. $1.31 y/y, estimate $1.23

• Total net revenue $22.24 billion, estimate $21.62 billion

• Infrastructure Solutions Group net revenue $9.23 billion, +22% y/y, estimate $9.06 billion

• Servers and Networking revenue $5.47 billion, estimate $4.89 billion

• Storage revenue $3.76 billion, estimate $3.98 billion

• Client Solutions Group net revenue $11.97 billion, -0.1% y/y, estimate $11.51 billion

• Commercial revenue $10.15 billion, estimate $9.66 billion

• Consumer revenue $1.81 billion, estimate $2.06 billion

• Adjusted operating income $1.47 billion, estimate $1.48 billion

Second quarter forecast:

• Sees revenue $23.5 billion to $24.5 billion, estimate $23.17 billion

Full-year forecast: 

• Sees revenue $93.5 billion to $97.5 billion, estimate $94.62 billion (Bloomberg Consensus)

• Sees adjusted EPS $7.40 to $7.90, estimate $7.70

With AI server sales and backlog failing to impress investors, shares of Dell tumbled 15% in premarket trading. If premarket gains hold into the cash session and settle more than -13% (Aug. 26, 2022) by the end of the session – this would be the largest single daily decline ever since re-entering public markets in late 2018. 

Parabolic moves higher never end well. 

Here’s what the rest of Wall Street analysts are saying about Dell’s earnings (courtesy of Bloomberg):

Morgan Stanley analyst Erik Woodring (overweight, PT to $155 from $152)

• While near-term expectations get ahead of themselves, confidently buying the dip
• Dell’s unexpectedly strong April quarter revenue was overshadowed by AI server backlog missing expectations

JPMorgan analyst Samik Chatterjee (overweight, PT $155)

• Dell’s margin choppiness is creating “a more attractive buying opportunity”
• Investors are likely to get anxious as the company’s strong revenue growth is coming at a cost “with margins coming in below expectations for both the reported and guided-to quarters”

Bloomberg Intelligence analyst Woo Jin Ho

• While Dell’s AI-server sales have come in strong, its profit “less so”
• “Setting aside the frothy expectations, the momentum in Dell’s AI-server results is better than anticipated”

Evercore ISI analyst Amit Daryanani (outperform, PT $165)

• While Dell’s results were “fairly solid,” its shares “reacted negatively post the print reflecting very high expectations”

Although Dell’s quarterly results were strong, the adoption of AI is still in its early stages, and investors had extremely high expectations to start.

On Thursday, Goldman tech trader Peter Callahan pointed out (read our full note here) a “very tough session today that saw: 1) extreme pressure across the software space (largest 1d move lower in ~2 years),  2) a big reversal in recent Momentum winners (NVDA / FICO / IT / DELL / MU types down -4%), and 3) sneaky outperformance of defensives, specifically (names like VZ, T, AMAT, SBAC, CMCSA up +2-4%).”

Callahan provided color on the Salesforce implosion:

• Software was clearly the focus today with CRM -20% on the day (worst day in 20+ years), which set the tone early and appeared to trigger what felt like capitulation…

Another must-read is “Goldman: There Is Growing Fatigue Around The Lack Of Performance Outside Of AI And Mag 7. “

By John Kingston of FreightWaves

Further credit deterioration in trucking is evident in the quarterly earnings report of Canada’s BMO bank.

BMO, the former Bank of Montreal, is one of the largest lenders to the trucking industry. Its transportation unit, purchased from GE Capital in 2015, has a customer base believed to be in the tens of thousands. Roughly 90% of its transportation sector is reportedly truck financing.

Provisions for credit losses at BMO in the quarter ended April 30 climbed to CA$56 million (U.S. $41 million). That marks the seventh consecutive quarter in which that important benchmark figure has risen, and it is easily the highest figure in the history of the BMO data going back to 2015 when the bank bought the business from GE Capital.

That seven-quarter stretch started with provisions of $2 million in the fourth quarter of 2022, an amount that followed a net positive provision of $3 million a quarter earlier. Provisions can be positive when losses are extremely low and are offset by earlier provisions being removed from the danger list as financial conditions allow earlier troubled borrowers to get financially healthy.

Since that Q4 2022 figure, the provisions rose sequentially to $6 million, $18 million, $19 million, $26 million and $41 million before its latest amount. In one year,  provisions for credit losses in the transportation group at BMO have risen about 210%.

Even in the depths of the pandemic, in the second quarter of 2020, provisions for credit losses in BMO’s transportation group were only $38 million.

Write-offs also have soared. In the second quarter, BMO write-offs in the transportation sector were $51 million. The sequential transportation sector write-offs over the prior four quarters were $10 million, $16 million, $20 million and $31 million.

But BMO’s transportation group shows no signs of pulling back. Its gross loans and acceptances rose to $15.05 billion, the highest in its history since the activities became part of the bank’s operations.

Another key category, gross impaired loans, totaled $305 million, up from $230 million in the prior quarter. An impaired loan has been defined as one about which management believes there is significant doubt whether it can be repaid. The sequence at BMO for that category in the previous four quarters is $91 million, $113 million, $170 million and $230 million. 

If there was anything positive in the report about the credit health for trucking, it came in allowances for credit losses, which held at $24 million. The difference between allowances and provisions, which worsened considerably, has been described as allowances representing a balance sheet item that gets charged against gross loans. Provisions for credit losses have been described as a figure that affects bank income.

On BMO’s earnings call with analysts, the transportation group was the subject of specific discussion, which is not the norm.

Chief Risk Officer Piyush Agrawal said BMO has been in transportation “for 40 years, 50 years. We’ve been through several cycles. We managed through several cycles, and we’re beginning to see some recovery or flattening out of delinquencies out there.”

According to a transcript of the call, Agrawal added that the transportation business is weighted toward small truckers, many with 10 or fewer trucks in their fleets.

BMO’s transportation group is outperforming delinquency benchmarks, Agrawal said. But it still took increased impairment charges for the quarter, leading to the increased level of impaired loans.

“We feel good about that performance because with the summer, tonnage is picking up. Freight rates will move up,” Agrawal said. “And I think as supply goes down, they should do well.”

Authored by Victoria Friedman via The Epoch Times,

The UK government has banned private gender clinics from prescribing puberty blockers to under-18s, in a move which campaigners say will close a loophole for access to the drugs.

The Department of Health and Social Care (DHSC) announced on Wednesday that it would put a three-month emergency ban on supplying puberty-suppressing hormones to gender-confused children in England, Wales, and Scotland. It will apply to prescriptions written by prescribers in the UK and those registered in the European Economic Area and Switzerland.

The ban, taking affect on June 3 until Sept. 3, was made “to address risks to public safety,” the DHSC said.

“Indefinite restrictions” have also been put in place on the prescription of these drugs within the National Health Service (NHS), the UK’s publicly-funded health care system. The NHS has already stopped the routine prescription of puberty blockers.

Announcing the measures on social media platform X, Health Secretary Victoria Atkins said, “Today I have taken bold action to protect children following the Cass Review, using emergency powers to ban puberty blockers for new treatments of gender dysphoria from private clinics and for all purposes from overseas prescribers into Great Britain.”

Ms. Atkins added that she had introduced similar restrictions for NHS prescriptions “to further close the loopholes.”

Concerns Over Private Clinic Loophole

Published in April, the Cass Review criticised NHS care providers for pushing gender-confused children onto inappropriate pathways of medical treatment that included drugs and surgery.

Among her recommendations, Dr. Hilary Cass called for a “holistic” approach to treating gender dysphoria, in a move away from the prevalent “gender-affirming” approach which saw health care professionals simply affirming a child’s chosen gender and prescribing them puberty blockers and then cross-sex hormones and putting them on the path to surgical interventions.

The completion of the landmark review saw publicly-funded NHS England and health authorities in Scotland stopping the prescription of puberty blockers, but campaigners warned at the time that private clinics would still be able to provide the drugs to children.

Stephanie Davies-Arai, director of Transgender Trend, welcomed the government’s announcement, telling The Epoch Times it will “close that loophole for puberty blockers.”

The government has gone as far as it could go “in preventing those drugs moving through UK pharmacies,” Ms. Davies-Arai said, adding that while there will always be black market means to obtain the drugs, largely it is going to be “much more difficult to get hold of puberty blockers.”

Cross-Sex Hormones

The Transgender Trend director also voiced concern that masculinising/feminising, or cross-sex, hormones for those aged 16 and over were still available on the NHS and privately, despite the Cass Review saying they should be prescribed with “extreme caution.”

Cross-sex hormones can cause a range of health problems and permanent physical changes, such as infertility in both sexes and male pattern baldness and a deep voice in women. For men, known side effects of testosterone-blocking drugs include an increased risk of blood clots and cardiovascular disease.

Ms. Davies-Arai said that banning puberty blockers was a significant step, but that it “doesn’t really solve the problem if teenagers are getting cross-sex hormones that are going to have effects for the rest of their lives—some of them known, some of them not known, because this is so new.”

Following the Cass Review, the NHS said it will review the prescription of cross-sex hormones. Scottish health services dealing with patients with gender dysphoria have said that patients will no longer be prescribed cross-sex hormones until they are 18.

The Vulnerable 17–25 Cohort

The Cass Review was triggered following a sharp increase in referrals to the Gender Identity Development Service run by the now-closed Tavistock and Portman NHS Foundation Trust in London, which specialised in working with children and young people who have gender dysphoria.

Dr. Cass’s review also looked at provisions for older teenagers and young adults. The review suggested that NHS England ensures regional gender care centres which have been set up to replace the Tavistock clinic have a “follow-through service” for 17- to 25-year-olds to ensure continuity of care and support during what Dr. Cass noted was “a potentially vulnerable stage in [the patient’s] journey. ”

Ms. Davies-Arai shared her concerns over provision for this older teen/young adult cohort, which she said was “incredibly vulnerable,” noting those in that stage life are becoming adults, often moving away from home for the first time.

She added that that generation in particular have been brought up with gender ideology taught to them “as fact and that biological sex is irrelevant” and that gender transition has been “marketed ruthlessly to young people.”

While still legally adults at that stage, the Transgender Trend director said that it is still “much too young to be making those kinds of decisions.”

“I don’t think informed consent can be given to treatments that are at such an experimental stage,” she explained.

“The NHS have now committed to doing a full Cass-style review of the adult clinics, and that can’t come soon enough,” Ms. Davies-Arai said, adding: “Adult clinics are similar to the private clinics. They’re based on gender affirmation, giving ‘gender affirming care.’ And there is not enough exploration and finding out what’s behind the young person’s distress.”

She warned that many of these young people “coming up from the Tavistock” may have other underlying issues that have not been explored by health professionals, including gay and lesbian youths struggling with their sexuality, mental health problems, trauma, or if they have been in the care system.

Last month, The Epoch Times spoke to detransitioner Ritchie Herron, who underwent gender reassignment surgery in his mid-20s in an attempt to live as a woman. He is calling for reform of adult gender services to protect vulnerable adults so that they are given a comprehensive psychological assessment and the support they need.

Mr. Herron—who is autistic and has obsessive compulsive disorder—said that psychologists did not consider his mental health problems or his struggle to come to terms with being gay and did not assess him for autism before putting him on the path of drugs and surgery.

With each day that goes by there is more and more news indicating the EV market is saturated. First it was manufacturers cutting back on EV investments, then a gradual shift back to hybrid vehicles – and now it’s China pulling out of investments in Germany due to lack of demand.

Chinese electric vehicle battery producers are scaling back their expansion in Germany due to a drop in EV sales, according to Nikkei Asia. 

SVOLT Energy Technology, a spin-off from Great Wall Motor, announced the suspension of its planned battery cell plant in Lauchhammer, Brandenburg, attributing the decision to a “new European strategy” and a major order cancellation, reportedly from BMW.

Additionally, SVOLT expressed uncertainty about its factory project in Ueberherrn, Saarland, due to ongoing legal challenges. If impeded, SVOLT’s only operational facility in Germany will be a plant in Heusweiler, set to open on July 1, which will assemble battery cells into packs and modules.

Kai-Uwe Wollenhaupt, president of SVOLT Europe said this week: “At SVOLT, in addition to the already low level of planning security at various points — from the threat of international punitive tariffs to market distortions due to lengthy and unevenly distributed subsidies — a significant customer project has now also been lost.”

The Nikkei report notes that SVOLT’s decision follows that of battery behemoth CATL. CATL halted its expansion in Arnstadt after Volkswagen reduced EV production in Zwickau. Instead, CATL is now focusing on a new facility in Hungary.

The decline in Chinese investment in German battery production aligns with Germany’s late 2023 decision to end EV purchase subsidies, leading to a drop in electric car registrations to 12.2% in April.

And in Europe, this shift comes amid broader controversies, such as the EU’s 2035 ban on combustion engines, which is increasingly criticized by German politicians like Carsten Linnemann of the CDU, who argue it threatens Germany’s economic prosperity.

Despite this, major German automakers like Audi, Mercedes-Benz, Opel, and Volkswagen are moving away from combustion engines before the 2035 deadline, while BMW and Porsche have not set specific dates. This backdrop explains the cooling interest in EVs within Germany.

Kai-Christian Moeller, a deputy spokesperson for the Fraunhofer Battery Alliance added: “The cancellation of subsidies made several German automakers push back their plans for an end of production of combustion-powered cars, while the average consumer does not see any cost advantage in driving EVs over gas-powered cars”

Ferdinand Dudenhoeffer, director of the Center for Automotive Research in Bochum, concluded: “Those tariffs would artificially increase the price of electric cars for European consumers, and I have already heard that auto parts suppliers are stopping orders for EV production and that combustion engine plants are being spruced up for a few more years.”