Month: June 2024

In a flurry of SCOTUS decisions that have seen a clustering of losses for liberals and pro-government deep-staters, including a reversal of the Chevron Deference decision which crushes the encroaching administrative state, and a huge victory for the politically prosecuted Jan 6 protesters, today’s Supreme Court ruling that may be the most adverse impact on Democrats everywhere, was the decision to enforce bans on homeless people sleeping outdoors, even in the mostly socialist West Coast, where shelter space is lacking yet where the population of the homeless is highest due to the generally nice weather (at least until the icebergs melt later today).

The case is the most significant to come before the high court in decades on the issue of America’s rising wave of homeless democrat.

In a 6-3 decision, split as usual along ideological lines, the high court reversed a ruling by a deeply liberal San Francisco-based appeals court that found outdoor sleeping bans amount to cruel and unusual punishment. Which is only appropriate since San Francisco recently has descended into 8th circle of homeless hell territory, with drug needless, piles of human excrement, and armies of homeless zombies covering the streets of the once great city.

The majority found that the 8th Amendment prohibition does not extend to bans on outdoor sleeping bans.

“Homelessness is complex. Its causes are many. So may be the public policy responses required to address it,” Justice Neil Gorsuch wrote for the majority. “A handful of federal judges cannot begin to ‘match’ the collective wisdom the American people possess in deciding ‘how best to handle’ a pressing social question like homelessness.”

Gorsuch suggested that people who have no choice but to sleep outdoors could raise that as a “necessity defense,” if they are ticketed or otherwise punished for violating a camping ban.

Or they can just stop taking drugs, clean themselves up and find a job, but that may require actual effort. Hence, easier to just vote Democrat.

A bipartisan group of leaders had argued the ruling against the bans made it harder to manage outdoor encampments encroaching on sidewalks and other public spaces in nine Western states. That includes California, which is home to one-third of the country’s homeless population.

“Cities across the West report that the 9th Circuit’s involuntary test has created intolerable uncertainty for them,” Gorsuch wrote.

Homeless advocates, on the other hand, said that allowing cities to punish people who need a place to sleep would criminalize homelessness and ultimately make the crisis worse. Cities had been allowed to regulate encampments but couldn’t bar people from sleeping outdoors.

“Sleep is a biological necessity, not a crime,” said communist Justice Sonia Sotomayor said, reading from the bench a dissent joined by her liberal colleagues.

“Punishing people for their status is ‘cruel and unusual’ under the Eighth Amendment,” she wrote in the dissent. ”It is quite possible, indeed likely, that these and similar ordinances will face more days in court.”

It wasn’t clear how “status” is a factor in determining how someone ends up homeless but nobody every accused Sotomayor of being rational.

The case came from the rural Oregon town of Grants Pass, which appealed a ruling striking down local ordinances that fined people $295 for sleeping outside after tents began crowding public parks. The U.S. 9th Circuit Court of Appeals, which has jurisdiction over the nine Western states, has held since 2018 that such bans violate the Eighth Amendment in areas where there aren’t enough shelter beds.

Friday’s ruling comes after homelessness in the United States grew a dramatic 12% last year to its highest reported level thanks to Bidenomics, as soaring rents and a decline in coronavirus pandemic assistance combined to put housing out of reach for more people.

It’s only ironic that the homeless, most of whom are Democrats and voted for Joe Biden, ended up there thanks to their vote. It turns out actions do have consequences.

More than 650,000 people are estimated to be homeless, the most since the country began using a yearly point-in-time survey in 2007. Nearly half of them sleep outside. Older adults, LGBTQ+ people and people of color are disproportionately affected, advocates said. In Oregon, a lack of mental health and addiction resources has also helped fuel the crisis.

Finally, we can’t help but wonder what would have happened if Soros had diversified better, and had saved a few billion to retain control of SCOTUS instead of just blowing most of his money on regional courts and various DAs across the country.

The Supreme Court has ruled to overturn the so-called ‘Chevron Deference’ dealing a huge blow to the so-called ‘administrative state’ that have enjoyed

In an 6-3 decision along ideological lines, the Supreme Court’s conservative majority upended the 40-year administrative law precedent that gave agencies across the federal government leeway to interpret ambiguous laws through rulemaking.

Conservatives and Republican policymakers have long been critical of the doctrine, saying it has contributed to the dramatic growth of government and gives unelected regulators far too much power to make policy by going beyond what Congress intended when it approved various laws. The authority of regulatory agencies has been increasingly questioned by the Supreme Court in recent years.

Those on the other side say the Chevron doctrine empowers an activist federal government to serve the public interest in an increasingly complicated world without having to seek specific congressional authorization for everything that needs to be done.

As The Hill report, judges previously had to defer to agencies in cases where the law is ambiguous.

Now, judges will substitute their own best interpretation of the law, instead of deferring to the agencies – effectively making it easier to overturn regulations that govern wide-ranging aspects of American life.

This includes rules governing toxic chemicals, drugs and medicine, climate change, artificial intelligence, cryptocurrency and more.

The move hands a major victory to conservative and anti-regulatory interests that have looked to eliminate the precedent as part of a broader attack on the growing size of the “administrative state.”

The Biden administration defended the precedent before the high court.

As Mark Joseph Stern writes on X:

“Today’s ruling is a massive blow to the ‘administrative state’, the collection of federal agencies that enforce laws involving the environment, food and drug safety, workers’ rights, education, civil liberties, energy policy—the list is nearly endless.”

“The Supreme Court’s reversal of Chevron constitutes a major transfer of power from the executive branch to the judiciary, stripping federal agencies of significant discretion to interpret and enforce ambiguous regulations.“

Chief Justice Roberts, writing the opinion of the court, argued Chevron “defies the command of” the Administrative Procedure Act, which governs federal administrative agencies.

He said it “requires a court to ignore, not follow, ‘the reading the court would have reached had it exercised its independent judgment as required by the APA.'”

Further, he said it “is misguided” because “agencies have no special competence in resolving statutory ambiguities. Courts do.”

The liberals on the court are not happy:

“In dissent, Justice Kagan says the conservative supermajority “disdains restraint, and grasps for power,” making “a laughingstock” of stare decisis and producing “large-scale disruption” throughout the entire government. She is both furious and terrified.”

As Stern concludes:

“Hard to overstate the impact of this seismic shift.”

Simply put, a massive win for the constitution…

Wow, this is a big deal for addressing overreaching regulation!

— Elon Musk (@elonmusk) June 28, 2024

The decision comes one day after the Supreme Court curtailed federal agencies’ use of administrative law judges in another blow to the administrative state.

Read the full decision below:

Authored by Lance Roberts via RealInvestmentAdvice.com,

Financial advisors get a bad rap. Some deserve it; most don’t. The problem for the entire investment advisory and portfolio management community stems from the “career risk” they inevitably face. That “career risk” has been exacerbated over the last decade as massive monetary interventions and zero interest rates created outsized returns. A point we discussed last week in “A Permanent Shift Higher In Valuations.”

“The chart below shows the average annual inflation-adjusted total returns (dividends included) since 1928. I used the total return data from Aswath Damodaran, a Stern School of Business professor at New York University. The chart shows that from 1928 to 2021, the market returned 8.48% after inflation. However, notice that after the financial crisis in 2008, returns jumped by an average of four percentage points for the various periods.”

With social and mainstream media reporting on the latest investment hype surrounding market phases like “disruptive technology,” “meme stocks,” and “artificial intelligence,” it is unsurprising investors will salivate over the next “get rich quick” scheme. In addition, the annual reports from SPIVA measuring the performance of actively managed funds against their benchmark index intensify the “fear of missing out.”

The SPIVA report further fuels the debate over active versus passive indexing, or the “if you can’t beat ’em, join ’em” mentality.

Unsurprisingly, the result is the increasing pressure on financial advisors and portfolio managers to “chase performance.” Such is the basis of “career risk.”

“Career risk is the probability of a negative outcome in your career due to action or inaction.”

In other words, if financial advisors or portfolio managers don’t meet or beat benchmark returns from one year to the next, they risk losing clients. Lose enough clients, and your “career” is over. However, it is worse than that because even if the client states they are “conservative” and want little risk, they then compare their returns to that of an all-equity benchmark index. (Read this to understand why benchmarking your portfolio increases risk.)

Therefore, this career risk forces financial advisors and portfolio managers to push boundaries due to the risk of losing clients.

That brings us to two primary questions. The first is how we got here. The second is what you (as an investor or financial advisor) should do about it.

Performance Chases Performance

I recently discussed on the “Real Investment Show” that there is a big difference between a financial advisor or portfolio manager and an individual investor. The difference is the “career risk” of underperformance from one year to the next. Therefore, advisors and managers MUST own the assets that are rising in the market or risk losing assets. A great example of career risk is seen with Cathy Wood’s ARK Innovation Fund. That fund was the darling of Wall Street during the “disruptive technology” mania phase of the market following the stimulus-fueled investing craze following the Pandemic shutdown.

Unsurprisingly, during the mania phase, investors poured billions into the fund. Unfortunately, as with all mania phases, that investing style lost favor, and the fund has recently underperformed the S&P 500. That underperformance resulted in a massive loss of assets under management for ARK and Cathy Woods

Today, the investment chase is all about “artificial intelligence.” Such has led to an enormous bifurcation in the market as a handful of stocks increasingly rise versus the rest of the market, as shown.

Once again, portfolio managers and financial advisors face enormous “career risk” pressure. As discussed in “It’s Not 2000,” as the market’s breadth narrows, advisors and managers must take on increasingly larger weights of fewer stocks in portfolios.

“The top-10 stocks in the S&P 500 index comprise more than 1/3rd of the index. In other words, a 1% gain in the top-10 stocks is the same as a 1% gain in the bottom 90%. As investors buy shares of a passive ETF, the shares of all the underlying companies must get purchased. Given the massive inflows into ETFs over the last year and subsequent inflows into the top-10 stocks, the mirage of market stability is not surprising.

“That lack of breadth is far more apparent when comparing the market-capitalization-weighted index to the equal-weighted index.”

The question every investor should be asking themselves is:

“Is it really wise from risk management perspective to have nearly 40% of my portfolio in just 10-stocks?”

However, if you answer that question “no,” or if you have any other type of investment allocation, you will underperform the benchmark index. If you have an advisor or manager that matches a portfolio to your financial goals, they will also underperform. They now face the potential “career risk” of getting fired if the client fails to understand the reason for the underperformance.

So, what should financial advisors and clients do?

 

What Should Advisors Do?

For advisors, “career risk” is a real and present danger. Many opt for simplistic ETFs or mutual fund-based portfolios that track an index. The question is, as a client, what are you paying for?

Knowing that clients are emotional and subject to market volatility, Dalbar suggests four practices to reduce harmful behaviors:

1. Set Expectations Below Market Indices: 
   Set reasonable expectations and do not permit expectations to be inferred from historical records, market indexes, personal experiences, or media coverage. The average investor cannot be above average. Investors should understand this fact and not judge the performance of their portfolio based on broad market indices.

2. Control Exposure to Risk:
   Explicit, reasonable expectations should be set by agreeing on predetermined risk and expected return. Focusing on the goal and the probability of its success will divert attention away from frequent fluctuations that lead to imprudent actions.

3. Monitor Risk Tolerance:
   Even when presented as alternatives, investors intuitively seek capital preservation and appreciation. Risk tolerance is the proper alignment of an investor’s need for preservation and desire for capital appreciation. The determination of risk tolerance is highly complex and is not rational, homogenous, or stable.

4. Present forecasts in terms of probabilities:
   Provide credible information by specifying probabilities or ranges that create the necessary sense of caution without adverse effects. Measuring progress based on a statistical probability enables the investor to make a rational choice among investments based on the reward probability.

When Must Advisors Take Action?

Dalbar’s data shows that the “cycle of loss” starts when investors abandon their investments, followed by remorse as the markets recover (sell low). Unsurprisingly, the investor eventually re-enters the market when their confidence gets restored (buys high).

Preventing this cycle requires having a plan in place beforehand.

When markets decline, investors become fearful of total loss. Those fears compound as the barrage of media outlets “fan the flames” of those fears. Advisors must remain aware of client’s emotional behaviors and substantially reduce portfolio risk during major impact events while repeatedly delivering counter-messaging to keep clients focused on long-term strategies.

Dalbar notes that during impact events, messages delivered to clients should have three characteristics to be effective at calming emotional panic:

• Deliver messages when fear is present. Statements made well before the investor experiences the event will not be effective. On the other hand, if the messages are delivered too long after the fact, investors will already have made decisions and taken actions that are difficult to reverse.

• Messages must relate directly to the event causing the fear. Providing generic messages such as the market has its ups and downs is of little use during a time of anxiety.

• Messages must assure recovery. Qualified statements regarding recovery tend to fuel fear instead of calming it.

Messages must ALSO present evidence that forms the basis for forecasting recovery. Credible and quotable data, analysis, and historical evidence can provide an answer to the investor when the pressure mounts to “just do something.” 

Providing “generic media commentary” with a litany of qualifiers to specific questions will likely fail to calm their fears.

Conclusion

An experienced advisor does more than “invest money in the market.” The professionals’ primary job is providing counsel, planning, and stewardship of the client’s financial capital. In addition, the advisor’s job is to understand how individuals respond to impact events and get in front of them to plan, prepare, and initiate an appropriate response.

Negative behaviors all have one trait in common. They lead individuals to deviate from a sound investment strategy tailored to their goals, risk tolerance, and time horizon. The best way to ward off the aforementioned negative behaviors is to employ an approach that focuses on one’s goals and is not reactive to short-term market conditions.

The data shows that the average investor does not stay invested long enough to reap the market’s rewards for more disciplined investors. The data also shows that investors often make the wrong decision when they react.

But here is the only question that matters in the active/passive debate:

“What’s more important – matching an index during a bull cycle, or protecting capital during a bear cycle?”  

You can’t have both.

If you benchmark an index during the bull cycle, you will lose equally during the bear cycle. However, while an active manager focusing on “risk” may underperform during a bull market, preserving capital during a bear cycle will salvage your investment goals.

Investing is not a competition, and as history shows, treating it as such has horrid consequences. So, do yourself a favor and forget what the benchmark index does from one day to the next. Instead, match your portfolio to your personal goals, objectives, and time frames. 

In the long run, you may not beat the index, but you are likely to achieve your personal investment goals, which is why you invested in the first place.

With Covid-related travel restrictions nothing but a faint memory, travelers are ready to hit the beaches in masses this summer – that is if they can still afford it.

With everyday purchases like food, gas and utilities having become much more expensive over the past two years, many families are forced to to reconsider their holiday plans, if not to scrap them altogether.

As Statista’s Felix Richter reports, according to Deloitte’s 2024 summer travel survey, money and high price are by far the biggest hurdles for American would-be travelers this summer. According to the survey, 42 percent of Americans do not plan to travel this summer season, i.e. between Memorial Day and the end of September, up from 37 percent last year. Among those without travel plans 39 percent said that they simply cannot afford it, while 32 percent said that travel is too expensive right now and 19 percent said they’d rather spend the money on something else.

You will find more infographics at Statista

While money is a big concern this year, health no longer is. Only 7 percent of those planning to stay put said that health risks are among the reasons behind their decision, down from 43 percent in 2021 and 33 percent in 2022.

With money a big factor in people’s travel plans this year, it’s not surprising that fewer people from lower income households will go on holidays this summer.

According to Deloitte, people from households with an income of $50,000 or less make up 19 percent of the traveling public this summer, down from 31 percent last year.

Meanwhile the share of travelers with a household income of $100,000 or more has climbed from 35 to 44 percent, resulting in higher holiday budgets for the average traveler.

Submitted by QTR’s Fringe Finance

I’ve been saying it for months and tonight it has become crystal clear: Joe Biden will not be the Democratic nominee in November.

The prevailing sentiment after tonight’s debate performance — inclusive of Biden opening the bidding by freezing up and making a strange throat noise for 3 straight seconds — is that Joe Biden is unfit to serve another 4 years in office.

Of course, we’ve all known that for years, but the DNC machine, coupled with the mainstream media and operatives operating Biden’s strings for the last 4 years hasn’t been so hurried to come to the same conclusion.

After tonight, they have to. Like with any problem in our country, the first solution is always to kick the can down the road, not risk discomfort amongst the party or country, not to ruffle any feathers and then ignore it and hope it goes away on its own. And as I noted days ago, nothing is off limits for the media to run interference on.

This happened with Covid coming to the U.S., it happened with inflation spiraling out of control and, tonight, it happened when both sides of the aisle were treated to objective reality bludgeoning them in the face in the form of the realization that we just bore witness to Joe Biden’s last debate ever.

How can I make such a bold statement (other than from simply opening my eyes and ears and watching the debate)? When the mainstream media machine turns on you, its already a foregone conclusion that your time is up. John King said about DNC discussions, live on CNN immediately after the debate:

“Right now, it involves party strategists, it involves elected officials, it involves fundraisers, and they’re having conversations about the president’s performance, which they think was dismal…”

“Some of those conversations include, should we go to the White House and ask the president to step aside?”

Similarly, Chuck Todd — the tip of a far-left spear of Marxist idiocy that has defended Biden despite his obviously disastrous tenure as President and obvious mental decline — also took to MSNBC to rail on Biden’s performance.

“Biden looks like the caricature that conservative media has been painting … you saw it before your eyes!” Todd said post-debate.

Even the Trump-hating Matt Drudge 2.0 has thrown in the towel:

We all know Democrats are shameless, but how can the media and the party who have both defended Biden’s mental acuity for the last few weeks not be completely humiliated by tonight’s showing? Hedge fund manager Bill Ackman said it best, post-debate, writing on X:

“Tonight was an indictment of the Democratic Party. How could they? Did they think they could pull one over on the American people? Catastrophic for the party and everyone in charge. How much money has the party and the campaign taken from the American people to put up Joe Biden as the candidate?”

In some respects there’s a cruel irony to the fact that the last coherent point argued by an octogenarian decades long career politician was an obvious lie about being a 6 handicap on the golf course. It’s sad not only because it’s meaningless to the presidency, but because it was to further one last obvious lie: that Biden would ever have a snowball’s chance in hell against Trump on a golf course.

We live in a representative republic where politicians are supposed to be made up of everyday citizens who turn over frequently, so as to allow the soul of the nation to take deep breaths and not get stuck in patterns. But as is the case with career politicians like Mitch McConnell or Dianne Feinstein, they just can’t seem to ever release their wretched liver-spotted talons from the “power” they’ve fought their whole lives to desperately cling to.

As we learned from both of these examples over the last year, the castrated impotent desperation and concern career politicians have with remaining “in power” in their dying days isn’t just depressing from a political standpoint, its a disheartening commentary on human beings and their priorities in life. It’s the opposite of retiring, and dying, with dignity.

And tonight we watched it live with Joe Biden, as he tried to force one last gasp of oxygen into the lungs of his political career and came up short. Instead, he’ll now be subjected to pitchforks and torches from the party he spent his whole life fighting for, and his “career” will become nothing more than another brick in the wall for the argument that politicians of all stripes are just narcissistic, self-absorbed and generally useless pustules.

In case you missed it, last week I detailed who I think will be Biden’s replacement and Trump’s VP heading into the last 100 days leading up to the election: Biden’s Replacement And Trump’s VP Pick

I’d love to hear your thoughts in the comments — you know, to hold me over until Mika Brzezinski gives Joe Scarborough his talking points tomorrow morning.

 

QTR’s Disclaimer: Please read my full legal disclaimer on my About page here. This post represents my opinions only. In addition, please understand I am an idiot and often get things wrong and lose money. I may own or transact in any names mentioned in this piece at any time without warning. Contributor posts and aggregated posts have been hand selected by me, have not been fact checked and are the opinions of their authors. They are either submitted to QTR by their author, reprinted under a Creative Commons license with my best effort to uphold what the license asks, or with the permission of the author. This is not a recommendation to buy or sell any stocks or securities, just my opinions. I often lose money on positions I trade/invest in. I may add any name mentioned in this article and sell any name mentioned in this piece at any time, without further warning. None of this is a solicitation to buy or sell securities. These positions can change immediately as soon as I publish this, with or without notice. You are on your own. Do not make decisions based on my blog. I exist on the fringe. The publisher does not guarantee the accuracy or completeness of the information provided in this page. These are not the opinions of any of my employers, partners, or associates. I did my best to be honest about my disclosures but can’t guarantee I am right; I write these posts after a couple beers sometimes. I edit after my posts are published because I’m impatient and lazy, so if you see a typo, check back in a half hour. Also, I just straight up get shit wrong a lot. I mention it twice because it’s that important.

Authored by Charles Hugh Smith via OfTwoMinds blog,

Perhaps the most apt metaphor to describe the decade ahead is that investors, consumers and taxpayers will all be rafting whitewater rapids with ever-briefer stretches of calm.

Geopolitical / financial risks are proliferating and becoming more difficult to predict or hedge for a very basic reason: the era of global integration and accord has ended and the era of global disintegration and discord is heating up. In historian Peter Turchin’s terminology, when everyone finds reasons to cooperate, the result is an era of accord; when everyone finds reasons not to cooperate, the result is an era of discord.

Beneath the chaotic swirl of complex dynamics and risk, two core drivers emerge: de-globalization and de-financialization.

The 30-year era of increasing globalization has reversed, reducing the influence of markets and increasing the influence of national security. Where the globalization era led to global trade agreements which served at least a few of every participants’ core interests, the de-globalization era will be characterized by fragmentation and deals being cut between nations outside of traditional alliances and ideological camps.

In the neoliberal worldview, markets are solutions to virtually every problem: open up markets and let price discovery and innovations solve all problems. This construct is ideologically appealing, but in the real world, markets generated extremely risky supply-chain dependencies on unreliable offshore sources: yes, these dependencies were efficient and profitable, but when things fall apart, they cause dominoes to fall far beyond what “markets” anticipated or could hedge.

The 50-year era of increasing financialization has also reversed. In a nutshell, financialization optimized capital at the expense of labor / wage earners, and optimized speculation via the vast expansion of credit and leverage, enabling finance to commoditize virtually everything in the global economy: labor, capital, goods, services and yes, even risk.

But commoditized risk that can be hedged only includes the risks that are visible and known. When extremes become more extreme, the potential for risk to escape the neatly fenced corral of hedged risk increases in ways that cannot be quantified and hedged.

I tend to think many observers focus too narrowly on risks arising from financial crises, for example a crisis in the multi-trillion dollar shadowy derivatives market that could cascade as holders of derivative contracts with claims on underlying collateral (for example, the homes underlying mortgages in a mortgage-backed security) start seizing the collateralized assets embedded in the derivatives chain.

While I make no claim to understanding “The Great Taking” scenario and cannot vouch for its accuracy, the basic idea is well-established: derivatives (such as CLOs and CDOs, as well as many even more exotic concoctions) can include claims on the underlying collateral of debt-based assets such as homes or vehicles.

The risk few seem to be discussing is not the seizure itself but the political firestorm any such seizure would ignite. The public has tolerated a stinking mass of self-serving bailouts and insider dealings under the threat of “if we don’t do this, the entire system collapses in a heap” for the past 15 years, but their patience with financier stripmining may run out more quickly than the political elites imagine.

History suggests that social revolutions often start spontaneously from an apparently trivial event: the deadwood of a corrupt system rigged to funnel asymmetric rewards to the few at the expense of the many finally catches fire, and quickly becomes a conflagration.

While many commentators have noted China continues reducing its holdings of US Treasuries (UST) and the general trend of de-dollarization, i.e. offloading Treasuries and seeking payment mechanisms that do not include the US dollar (USD), few seem to ponder what risks might arise in other currency flows, for example, the capital sloshing around the global economy as Direct Foreign Investment (FDI), money that flows into an economy as investments in assets such as manufacturing, mining, housing, tourism, etc.

Just as capital flowing in or out of sovereign bonds reflects the interests of each participating nation, so too do FDI investment flows and the sales and purchases of Strategically Significant Commodities.

I would characterize this vast reshuffling of global capital flows as a direct consequence of two factors:

1. The ascendence of national security over market incentives (i.e. profits, mercantilist exports, etc.)

2. The fragmentation of broad trade agreements in favor of special deals with trading partners that include not just tariffs but access to Strategically Significant Commodities and investment capital flows.

In other words, trade is no longer about opening new markets for mercantilist exports and parking surplus dollars in Treasuries, it’s about securing essential commodities and capital flows in exchange for access to supply chains and financial markets.

The mercantilist era has ended: so-called free trade (there is no such thing) that created critical national-security-related dependencies on frenemies is now something to avoid and reverse at all costs. Mercantilist nations that have depended on increasing exports as the source of their economic growth will find markets restricted as relocalization and glocalisation become priorities. (This includes China, Germany, Japan and other export-dependent economies.)

We can foresee deals that include access to commodities, guarantees to buy sovereign bonds, opening previously closed sectors of mercantilist economies and access to direct investment, not just trade and tariffs. In other words, the fragmentation of global trade opens the door to deals brokered between individual nations, tailored to their own interests, that cover not just interests in trade per se but in securing commodities, essentials and capital flows.

Globalisation is not dead, but it is fading: ‘glocalisation’ is becoming the new mantra.

Risk also rises when established processes break down as multiple crises emerge and reinforce each other–what’s known as polycrisis. When established mechanisms no longer resolve crises or conflicts, then leaders will naturally be tempted to try ever more extreme measures to regain control (or the illusion of control).

Every leader is prone to miscalculation, but authoritarian regimes with highly concentrated nodes of decision-making are more prone to making catastrophically bad decisions because they’ve suppressed dissent and open debate as threats to the regime’s political and narrative control.

The global trend toward authoritarianism concentrates decision-making in the hands of the few, increasing the risks of fatal misjudgments or miscalculations.

Amidst a disconcertingly expanding universe of risks, Richard Bonugli and I discuss these ten which were assembled by the consortium at CedarOwl. CedarOwl’s Table of Geo-Political Investor Risks. This graphic can be understood as a risk matrix. (My own list of 10 risks would be different, of course, but this is a worthy place to start.) Podcast: 10 Geopolitical / Financial Risks to the Global Economy:

1. Financiers Seizing Collateral in a Derivatives Crisis, a.k.a. “The Great Taking”

2. Cyber attacks

3. Tariff wars

4. Confiscation of other nation’s financial assets

5. Selling / Boycott of US Treasuries

6. Imposition of Central Bank Digital Currencies (CBDCs)

7. Russia’s ban of uranium exports to the West

8. Restrictions on Strategically Significant Commodities

9. Private cryptocurrencies forcibly folded into CBDCs

10. Escalation of Ukraine war

Where does our risk assessment take us? Perhaps the most apt metaphor to describe the decade ahead is that investors, consumers and taxpayers will all be rafting whitewater rapids with ever-briefer stretches of calm.

So what do we do as individuals? De-risk our lives as much as possible and focus on increasing our problem-solving skills. This is my definition of Self-Reliance.

*  *  *

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The last month has seen US Macro data collapsing at its fastest rate in years…

Source: Bloomberg

…which, many believe, will also drag down inflation (and it has been)…

Source: Bloomberg

Today, we get to see The Fed’s favorite inflation indicator – Core PCE – which rose 0.1% MoM in May (after a revised +0.3% MoM for April) and in line with expectations. The headline PCE Price Index was unchanged MoM as expected as Durable Goods deflation trumped surging Services costs…

Source: Bloomberg

On a YoY basis, both headline and core PCE declined…

Source: Bloomberg

On a YoY basis, Durable Goods deflation is at its strongest in at least a decade…

Source: Bloomberg

More notably, the so-called SuperCore PCE rose 0.1% MoM, which saw YoY slow to 3.39%… which is awkwardly stagnant at elevated levels…

Source: Bloomberg

That is the 49th straight monthly rise in SuperCore prices with Healthcare costs soaring…

Source: Bloomberg

On a MoM basis, Income grew more than expected (+0.5% vs +0.2% exp) while spending rose less than expected (+0.2% MoM vs +0.3% exp)

Source: Bloomberg

Which accelerated both income and spending on a YoY basis (with the latter outpacing the former, of course)…

Source: Bloomberg

With wage pressures rising once again…

• Government 8.5%, up from 8.4% but below the record high of 8.9%

• Private 4.5% up from 4.2%

 

Source: Bloomberg

And after a series of revisions, the savings rate ticked up to 3.9% of DPI (from 3.7%) – the highest since January…

Source: Bloomberg

All of which takes place against a background of the sixth straight month of rising government handouts (well it is an election year after all)…

Source: Bloomberg

Finally, while acyclical inflationary pressures continue to drift lower, cyclical inflationary pressures remain extremely elevated…

Source: Bloomberg

A very mixed bag but nothing screams ‘automatic’ rate-cuts… and SuperCore refuses to budge.

Authored by Paul Joseph Watson via Modernity.news,

CNN Chief National Correspondent John King says prominent Democrats are set to ask the White House to force Biden to step down as a presidential candidate after his shocking debate performance last night.

Biden went into the debate knowing that he just had to not appear like a human cabbage and scrape through the night.

He failed miserably.

Trump just released a brutal 95 second ad of Joe Biden’s debate lowlights: pic.twitter.com/enusIKHhwN

— End Wokeness (@EndWokeness) June 28, 2024

This prompted widespread alarm and panic amongst the establishment media and top Democrats, who are now set to push to have Biden replaced entirely.

According to CNN’s John King, there will now be a mad last minute scramble to force Biden off the ticket.

King said there was “A deep, a wide, and a very aggressive panic in the Democratic Party, it started minutes into the debate and it continues right now.”

CNN Chief National Correspondent John King says prominent Democrats are talking about going to the White House to ask Biden to step down and/or publicly calling on him to drop out.

pic.twitter.com/K0czlFhJT8

— Robby Starbuck (@robbystarbuck) June 28, 2024

“It involves party strategists, it involves elected officials, it involves fundraisers. And they’re having conversations about the president’s performance which they think was dismal, which they think will hurt other people down the party in the ticket and they’re having conversations about what they should do about it,” he added.

“Some of those conversations include should we go to the White House and ask the president to step aside, other conversations are about should prominent Democrats go public with that call because they feel this debate was so terrible,” said King.

Democrat political analyst Van Jones also suggested that Biden’s awful night should mean he’s replaced before the convention.

“He had a test tonight to restore the confidence of the country and of the base and he failed to do that,” said Jones.

“And I think there’s a lot of people who are going to want to see him consider taking a different course now, we’re still far from our convention and there is time for this party to figure out a different way forward if he will allow us to do that,” he added, saying it was “personally painful” what he witnessed.

Biden is finished.

CNN feels like Biden’s funeral

“It’s not just panic, it’s pain.” pic.twitter.com/h3MKtuiCcu

— KanekoaTheGreat (@KanekoaTheGreat) June 28, 2024

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Futures are higher led by small caps with tech stocks also mostly higher, as markets start pricing in a Trump presidency following what even Bloomberg admitted was a “disastrous” debate performance by Biden which is making Democrats panic. As of 7:45am ET, S&P and Nasdaq 100 futures rose 0.4%, suggesting this week’s rally on Wall Street is set to continue, with both indexes on course for a third quarter of gains amid expectations that signs of more bad economic growth will give the Fed more room to ease policy this year. That said, not even a looming core PCE which will likely show continued easing in prices (May PCE est 0.0% MoM, down from 0.3%, 2.6% YoY, down from 2.7%) is having an impact on bond yields which are notably higher this morning as is the USD as markets take a long, hard look at what inflation will look like under Trump’s tariff-ridden regime (spoiler alert: higher). Commodities are mixed: oil and precious metals are higher; base metals are lower. Today’s macro focus will be the May PCE release to access the Goldilocks narrative. Survey expects a 0.1% MoM print vs. 0.2% prior; on YoY basis, survey sees the number dropping to 2.6% survey vs. 2.8% prior).

In premarket trading, Nike shares tumbled 15% after the sneaker maker’s Q1 sales outlook missed Wall Street expectations. Following the print, UBS downgraded its recommendation on the stock to neutral, saying the fundamental trends were much worse than analysts had realized. Morgan Stanley also moved to the sidelines, seeing the catalyst for their prior overweight thesis on the stock as “out of view.” Megacap tech are mostly outperforming: NVDA +65bp, AMZN +40bp, AAPL +54bp, GOOG/L +48bp.  Here are some other notable premarket movers:

• Infinera shares soar 17% after Nokia agreed to buy the maker of digital optical telecommunications equipment for $2.3 billion.
• Trump Media & Technology Group shares jump 7.9% following Thursday’s presidential debate between President Joe Biden and Donald Trump, with the latter coming away looking stronger.

The elephant in the room, of course, was last night catastrophic debate by Joe Biden who ended his presidential campaign in less than 2 hours because as Bloomberg notes, “Biden failed to ameliorate concern about his age in the presidential debate, offering remarks in a hoarse voice and often misspeaking and meandering. A thousand-yard stare on the split screen didn’t help. Donald Trump won the debate, according to 67% of watchers polled by a CNN flash poll. Democrats expressed alarm about Biden’s candidacy, but the president told reporters he intends to stay on the ticket.”

And now that the debate is in the history books, traders are scrambling to evaluate what the Trump presidency will look like; conveniently we just published a great primer yesterday.

Attention now turns to the week’s final event, the Fed’s preferred inflation print, the core PCE. “The fundamental question behind the PCE print is whether there will be at least one rate cut this year,” said Mabrouk Chetouane, head of global market strategy at Natixis Global Asset Management. “If it goes in a way the consensus and the Fed aren’t anticipating, then it will be problematic for equity and bond markets alike.”

European stocks pared an early gain, weighed down by a decline in France’s equity benchmark ahead of the weekend’s parliamentary election. Investors pulled the most money out of European equity funds in almost four months in the week through Wednesday, according to a Bank of America Corp. note citing EPFR Global data. France’s CAC 40 index dropped 0.5% to a five-month low, and the nation’s bonds underperformed, with the 10-year yield rising to the highest since November. The main concern for investors is that the new French government will drive the country deeper into debt. “We retain a cautious stance on French financial assets due to the high event risks and the slim chances of meaningful fiscal consolidation, regardless of the election result,” Bank J Safra Sarasin strategists led by Karsten Junius said in a note. L’Oreal SA fell after the French beauty-products maker said it expects slower growth in the overall beauty market this year. Puma SE and JD Sports Fashion Plc declined, tracking Nike’s slump. Nokia Oyj shares rose as much as 4.4% after the Finnish mobile-phone company agreed to buy US-listed optical transmission equipment maker Infinera. Here are the other notable European movers:

• Nokia shares rise as much as 4.6% after the Finnish company agrees to buy US-listed optical transmission equipment maker Infinera for $2.3 billion.
• Saab shares rise as much as 5.1% as the defense firm is to join Sweden’s main stock benchmark on July 1, following Nasdaq’s semi-annual changes.
• Keywords Studios shares gain as much as 6.5% to £23.20 after the video game services company said it’s likely to accept an updated offer from EQT Group of £24.50 per share in cash.
• Tyman shares rise as much as 4.6% after the UK construction firm and Quanex agreed on a revised proposal to increase the cash value received by Tyman shareholders through a special interim dividend of 15 pence/share.
• PKO Bank shares gain as much as 1.3% to a record high after shareholders of Poland’s biggest lender approve mgmt’s plan to pay 2.59 zloty/share as dividend from 2023 profit.
• Ercros shares climb as much as 13% to €3.93 after Esseco Industrial launched a voluntary, competing public tender offer for the shares in the industrial company.
• L’Oreal shares fall as much as 3.7%, declining for a second day after CEO Nicolas Hieronimus flagged slower growth for the beauty market this year as China weakness weighs on sales.
• Adidas shares hold steady in the face of Nike’s sales warning, with Warburg analysts citing a pre-close call held late Thursday by the German sportswear maker.
• Teamviewer shares fall as much as 8.2% on Friday. The firm detected an irregularity in the company’s internal corporate IT environment on June 26, according to a statement on Thursday.
• JD Sports shares slide as much as 6.6% after Nike issued a full-year outlook that missed expectations. Sports apparel retailer peer Puma falls as much as 3.4%.
• Air France-KLM shares drop as much as 7%, hitting a record low, after Barclays downgraded the stock to equal-weight from overweight, citing political instability in France.
• Safestore shares falls as much as 4.8% as Morgan Stanley downgrades the UK storage firm to equal-weight, citing cost pressures and delays to development plans.

Earlier, Asian equities rose, on track for a weekly gain, as the lack of hawkish comments in the US presidential debate offered some respite for Chinese stocks, with traders turning their focus to a key inflation data due Friday. The MSCI Asia Pacific Index gained as much as 0.6%, poised to post its first weekly advance in three. Japan’s Topix index reached its highest level since 1990 due to a rally in financial firms courtesy of the latest plunge in th eyen, while tech heavy-markets such as Taiwan and South Korea also advanced. Hong Kong stock benchmarks recouped early losses and edged away from technical correction territory as traders assessed the debate between President Joe Biden and former President Donald Trump.

In FX, the dollar hovered near an eight-month high, on track for a sixth weekly gain. The greenback initially rose as markets assessed Trump was the victor in the debate. It’s a foretaste of how markets might react to a second Trump presidency, and suggests the US currency could be a major beneficiary. Meanwhile, South Africa’s rand soared 1.5% on renewed optimism the country’s two largest parties are moving closer to a power-sharing deal.

“Markets likely extrapolated today’s debate outcome to the actual election outcome in November,” said Carol Kong, a strategist at Commonwealth Bank of Australia in Sydney. “Trump’s policies are likely to add to inflationary pressures and escalate trade tensions, thereby supporting US interest rates and the safe-haven US dollar.”

In rates, Treasuries retreated, paring gains from the prior session, when lackluster US economic data reinforced speculation the Federal Reserve will cut interest rates this year to prevent a bigger slowdown in the economy. Economists expect the Fed’s preferred inflation gauge, the core PCE Price Index, slowed to an annualized rate 2.6% last month from 2.8%. That would be the lowest reading since March 2021, though it remains above the central bank’s goal for 2% inflation. French bonds also drop, underperforming their German counterparts and widening the 10-year yield spread by 2bps to around 84bps. French, Spanish and Italian EU harmonized CPI rose inline with estimates and prompted little reaction.

In commodities, oil prices advance, with WTI rising 1% to trade near $82.60 a barrel. Spot gold is steady around $2,328/oz.

Looking at today’s calendar, the US economic data slate includes May personal income/spending, PCE price index (8:30am), June MNI Chicago PMI (9:45am), University of Michigan sentiment (10am) and Kansas City Fed services activity (11am). Fed speakers scheduled for the session include Daly (8:40am, 12:40pm) and Bowman (12pm

Market Snapshot

• S&P 500 futures up 0.3% to 5,561.00
• STOXX Europe 600 up 0.2% to 513.47
• MXAP up 0.3% to 180.38
• MXAPJ up 0.3% to 566.34
• Nikkei up 0.6% to 39,583.08
• Topix up 0.6% to 2,809.63
• Hang Seng Index little changed at 17,718.61
• Shanghai Composite up 0.7% to 2,967.40
• Sensex up 0.2% to 79,373.31
• Australia S&P/ASX 200 up 0.1% to 7,767.47
• Kospi up 0.5% to 2,797.82
• German 10Y yield little changed at 2.45%
• Euro little changed at $1.0694
• Brent Futures up 0.7% to $86.97/bbl
• Gold spot up 0.1% to $2,329.85
• US Dollar Index up 0.12% to 106.03

Top Overnight News

• The IMF has urged the US to “urgently” address its mounting fiscal burden, as it took aim at the tax plans of both presidential candidates just hours before their first electoral debate. FT
• Japan’s economic data has a (slightly) hawkish bias, with higher industrial production for May (+2.8% M/M vs. the Street +2%) and a slightly firmer core Tokyo CPI for June (+1.8% vs. the Street +1.7%). RTRS
• Apple’s China iPhone shipments rose 40% in May, off the previous month’s pace of growth despite steep discounts. BBG
• NKE down 15% pre mkt reported a miss on FQ4 sales and provided very weak guidance for F25. WSJ
• Argentina’s Congress approved President Javier Milei’s signature pro-business reforms in a final 147 to 107 vote. Lawmakers also approved the return of income taxes, reversing the Senate’s bid to undo the measure and giving the government breathing room to reach its fiscal targets. BBG
• France heads to the polls for its first round of voting on Sunday with Marine Le Pen’s far-right National Rally party continuing to widen its lead. President Emmanuel Macron’s group trails in third place. BBG
• European inflation expectations ticked down according to the latest ECB survey, including over the next 12 months (from 2.9% to 2.8%) and 36 months (from 2.4% to 2.3%). ECB
• Iran has expanded its most sensitive nuclear production site in recent weeks. And for the first time, some leaders are dropping their insistence that the nuclear program is for peaceful purposes. NYT
• The US, Israel and Ukraine are in talks to supply Kyiv with up to eight Patriot air defense systems, dramatically improving its ability to counter Russian air strikes. FT

US Presidential Debate

• US President Biden said during the first presidential debate that the US economy was falling when Trump came out of the presidency and that the Trump economy rewarded the rich and raised the deficit, while he said that Trump exaggerates and lies about border security in which everything he says is a lie.
• Former President Trump said they had the greatest economy in the history of the US under his administration and had the greatest economy in the world but Biden did something disastrous by encouraging illegal immigrants, while he added that immigrants from everywhere flock to the US because of Biden and are killing US citizens. Trump also said he achieved a lot in the field of economics and that inflation is currently killing the US which became a third-world country under the Biden administration, as well as noted that tariffs will reduce deficits and check countries like China. Furthermore, Trump said there was no terror under his administration and that the world is blowing up under Biden, while he added Iran was broke and Hamas would never attack Israel under his administration, as well as claimed that he would have the war between Russia and Ukraine settled before he takes office.
• CNN poll showed about 67% of debate followers saw Trump as the winner; 81% of registered voters who watched the debate said it had no effect on their choice for President, 5% said the debate made them change their mind on whom to vote for.
• Following the debate, Politico reports that some Democrats were so concerned by Biden’s performance that they are discussing replacing him on the ticket; however, the likes of Governor Newsom said that kind of talk is “unhelpful” and “unnecessary”. Additionally, advisors acknowledged that not much is possible unless Biden steps aside.

A more detailed look at global markets courtesy of Newsquawk

APAC stocks were mostly higher heading to month-, quarter-, and half-year end following the positive bias stateside but with gains capped as participants digest a slew of data and await the Fed’s preferred inflation gauge. ASX 200 was led higher by tech strength but with upside limited by weakness in miners and materials. Nikkei 225 benefitted from recent currency weakness, while there was also a slew of data releases including mostly firmer-than-expected Tokyo inflation and a return to growth in Industrial Production. Hang Seng and Shanghai Comp. were positive in tandem with the gains in regional peers with catalysts light although there were comments from President Xi who reaffirmed the China opening up message.

Top Asian News

• Chinese President Xi said China will never leave the road of peaceful development and they will continue to expand the system which will become increasingly market-oriented. Xi added that China continues to expand opening up and its door will never close, while it is willing to discuss FTAs with additional developing countries.
• Japan’s Finance Ministry announced they are to replace its top currency diplomat Kanda with Atsushi Mimura and replace Vice Minister of Finance Chatani with Hirotsugu Shinkawa although the changes were said to be part of a normal personnel rotation, according to Nikkei and Bloomberg.
• Japanese Finance Minister Suzuki said he won’t comment on forex levels and it is important for currencies to move in a stable manner reflecting fundamentals. Suzuki reiterated he is closely watching FX moves with a high sense of urgency and is deeply concerned about excessive, one-sided moves on forex and repeated that rapid FX moves are undesirable.
• Geely Auto (0175 HK) Q1 2024 (CNY): revenue 52.315bln vs. prev. 33.506bln, profit attributable 1.561bln vs. prev. 714mln; Q1 sales volumes +49% Y/Y.
• PBoC says it is to step up the implementation of monetary policies already in place; will keep liquidity reasonably ample. Will guide a reasonable growth of credit.Will keep CNY basically stable. Will keep prices at a reasonable level. Will resolutely prevent overshooting risks. To firmly correct pro-cyclical behavior and prevent the formation and reinforcement of one-sided expectations. Deepen supply-side reform. Remarks which saw USD/CNH drop from 7.2985 to a test of 7.2900, a figure which held. Since, the move has pared marginally back to around 7.2930.

European bourses, Stoxx 600 (+0.3%) are mostly firmer, taking positive leads from a strong APAC session; price action in Europe has been choppy thus far. European sectors are mixed; Energy takes the spot, benefiting from the gains in the underlying crude complex. Consumer Products & Services is the clear laggard, with the likes of Puma (-2.5%) hit following poor Nike results. US Equity Futures (ES +0.2%, NQ +0.4%, RTY +0.6%) are entirely in the green, ahead of US PCE. Nike (-12%) has sunk in the pre-market after it reported a beat on EPS, a miss on Revenue, noted that quarterly sales will fall 10% and warned on weakness in China.

Top European News

• EU leaders agree on the top EU jobs with von der Leyen given a second term as European Commission President, while Portugal’s Antonio Costa is to be the new chairman of EU summits and Estonia’s Kaja Kallas is to be EU’s top diplomat. It was separately reported that French President Macron named Thierry Breton as the French EU commissioner.

FX

• DXY is currently just shy of the 106 mark within a 105.87-106.13 range. Some desks attribute overnight strength in the USD to Trump outperforming Biden in the first tv debate. However, it is likely that ongoing upside in USD/JPY also played a role.
• USD/JPY has printed another multi-decade high at 161.27 with jawboning from Japanese officials and personnel adjustments unable to stop the rot for the currency. Officials in Japan will be hoping for a soft outturn for US PCE data today after Tokyo CPI picked up on a headline and core basis overnight. Currently flat on the session and holds around 160.70.
• EUR/USD is slightly softer and back on a 1.06 handle but within yesterday’s 1.0676-1.0726 range. Asides from the fallout from the US PCE data, attention is increasingly turning towards the weekend risk associated with the French election.
• GBP is flat vs. the USD as the final release of Q1 UK GDP unable to instigate much in the way of price action. For now, Cable is tucked within yesterday’s 1.2612-70 range.
• Antipodeans are both falling victim to the broadly firmer USD. AUD/USD a touch softer but largely in consolidation mode having not strayed from a 0.66 handle since June 17th.
• PBoC set USD/CNY mid-point at 7.1268 vs exp. 7.2727 (prev. 7.1270).

Fixed Income

• USTs came under pressure in APAC hours as the US election debate got underway. A debate which saw Biden perform particularly poorly with the odds of a Trump presidency lifting. Currently trading around 110-05 ahead of US PCE.
• Bunds were initially lower in tandem with broader weakness in Treasuries, and was fairly unreactive to French/Spanish inflation metrics thereafter. Currently lower by around 16 ticks and trading within Thursday’s 131.68-132.19 bounds.
• OATs underperform ahead of Sunday’s legislative first round election which has caused the OAT-Bund yield spread to widen to above 84bps.
• Gilt price action has been following peers, within initial underperformance on the back of the upwardly revised UK Q1 GDP figures.

Commodities

• Crude continues to climb. Upside which is a continuation of Thursday’s marked gains for the complex, which began without clear or fresh fundamental catalysts. Brent higher by just under USD 1/bbl, and sitting above USD 86/bbl.
• Spot gold is flat, in what has been a rangebound and quiet session for the complex awaiting impetus from US PCE. XAU currently sits just under USD 2330/oz, with its 50 DMA at USD 2337/oz.
• Base metals are entirely in the green benefitting from the broadly positive risk tone, though with gains capped as participants await US PCE.

Geopolitics: Middle East

• “US Pentagon is moving military assets near Israel and Lebanon to be ready to evacuate Americans”, via Walla’s Elster citing NBC.
• US is to release part of suspended bomb shipment to Israel with the US and Israel discussing the release of a 500-pound bomb shipment to Israel, while the Biden administration is also reviewing another part of the shipment which includes 1,800 and 2,000-pound bombs, according to Axios.
• US official said the Pentagon is moving US military assets close to Israel and Lebanon as it prepares to evacuate Americans in Israel and Lebanon if the fighting intensifies, according to NBC.

Geopolitics: Other

• US Deputy Secretary of State Campbell raised serious concerns regarding China’s destabilising actions in the South Sea in a call with China’s Executive Vice Foreign Minister Ma Zhaoxu.

US Event Calendar

• 08:30: May PCE Price Index MoM, est. 0%, prior 0.3%
  • May PCE Price Index YoY, est. 2.6%, prior 2.7%
  • May Core PCE Price Index MoM, est. 0.1%, prior 0.2%
  • May Core PCE Price Index YoY, est. 2.6%, prior 2.8%
• 08:30: May Personal Income, est. 0.4%, prior 0.3%
  • May Personal Spending, est. 0.3%, prior 0.2%
  • May Real Personal Spending, est. 0.3%, prior -0.1%
• 09:45: June MNI Chicago PMI, est. 40.0, prior 35.4
• 10:00: June U. of Mich. Sentiment, est. 66.0, prior 65.6
  • June U. of Mich. Current Conditions, est. 64.0, prior 62.5
  • June U. of Mich. Expectations, est. 68.0, prior 67.6
  • June U. of Mich. 1 Yr Inflation, est. 3.2%, prior 3.3%
  • June U. of Mich. 5-10 Yr Inflation, est. 3.1%, prior 3.1%
• 11:00: June Kansas City Fed Services Activ, prior 11

Central Bank Speakers

• 06:00: Fed’s Barkin Gives Keynote Speech
• 08:40: Fed’s Daly on CNBC
• 12:00: Fed’s Bowman Speaks in Moderated Q&A
• 12:40: Fed’s Daly Speaks on AI, Workforce

DB’s Jim Reid concludes the overnight wrap

We go to press this morning just after the first US presidential debate of the election between Joe Biden and Donald Trump. The general consensus among pundits is that Trump had the better performance, and a CNN flash poll of registered voters watching the debate found viewers thought Trump won by a 67%-33% margin. There are just two debates scheduled in this campaign, with the second on September 10, ahead of the election on November 5. Going into the debate, the national polls were neck-and-neck, and Trump only had a 0.2pt lead in FiveThirtyEight’s polling average, so it’ll be interesting to see if the debate affects that.

Staying on politics, it’s going to be an important weekend for markets ahead, as the first round of the French legislative election is taking place on Sunday. Clearly we won’t know the full results until the second round on July 7, but it will offer a better sense of the likely outcomes in terms of who can reach a majority, if anyone. As it stands, the latest Ifop poll yesterday showed Marine Le Pen’s National Rally on 36%, ahead of the left-wing alliance on 29%, and President Macron’s centrist group on 21%. In terms of seats projected in the National Assembly, that poll suggests the National Rally and its allies would end up with 220-260 seats, falling short of the 289 necessary for a majority. Alongside that, the left-wing alliance would get 180-210 seats, and President Macron’s group would be on 75-110. As a reminder, my team published a two-part guide to the French elections running through the situation and the implications for Europe (links here and here).

Ahead of Sunday’s first round vote, French assets have continued to lose ground, with the 10yr Franco-German spread closing above the 80bp mark for the first time since 2012. And in absolute terms, the 10yr French OAT was up +3.8bps to 3.26%, which is its highest level since November. That came as Germany’s finance minister Lindner said that “A strong intervention by the ECB would raise some economic and constitutional questions”. Equities also fell back, with the CAC 40 down -1.03%, meaning it’s now less than 0.4% above its low point a couple of weeks ago.

The French election is likely to be the main focus by Monday, but before we get to that, today will bring several important inflation numbers. In particular, we’ve got the US PCE inflation report for May, which is the measure that the Fed officially target, and hence is closely followed in markets. Our US economists think that core PCE should increase by +0.17%, based on the CPI and PPI data that we’ve already got. In turn, that would cut the year-on-year rate to 2.63%, the lowest in over three years. So that would be very promising news from the Fed’s perspective, but it’s clear they remain cautious given the inflation spike we had back in Q1 of this year. Indeed, that was echoed by Atlanta Fed President Bostic, who said that “It’s going to be a much longer experience and that’s why I’m preaching patience”.

US Treasuries rallied ahead of that release, as we got another batch of underwhelming data, which is increasingly becoming a theme of late. For instance, the continuing jobless claims rose to 1.839m in the week ending June 15 (vs. 1.828m expected), which is their highest level since November 2021. Alongside that, the weekly initial jobless claims over the week ending June 22 came in at 233k (vs. 235k expected). That was a bit lower than last week, but it still pushed the 4-week moving average up to 236k, which is the highest it’s been since September. That adds to several metrics suggesting that the labour market could be weakening, not least given the unemployment rate was up to 4.0% in the May jobs report. So evidence of loosening in the labour market even if there are enough one-offs in the data to give it a pass for the moment. Staying with the weaker data theme, core capital goods orders for May disappointed, falling -0.6% (vs. +0.1% expected), while a gauge of pending home sales fell to its lowest level since the start of the series in 2001. The Atlanta Fed’s GDPNow estimate for Q2 was cut to an annualised rate of +2.7% yesterday, having been at +3.0% previously. This is still decent but US data is increasingly surprising on the downside, so economic momentum still seems to be rolling over a bit, albeit from high levels.

That backdrop cemented investors’ conviction that the Fed would cut rates by the end of the year, with the amount of cuts priced in by the December meeting up +2.0bps to 45bps. In turn, that meant 10yr Treasury yields fell -4.3bps to 4.29%, and the 2yr yield was also down -3.5bps to 4.71%. Over in Europe, yields were steadier for the most part, with the 10yr bund yield down just -0.3bps. However, the consistent theme was wider spreads, with yields on French OATs (+3.8bps) and Italian BTPs (+3.3bps) both seeing larger moves.

For equities, there was a similar divergence on either side of the Atlantic. In the US, that saw the S&P 500 (+0.09%) close just shy of its all-time high, with the Magnificent 7 (+0.41%) closing at a new record. Nvidia (-1.91%) underperformed again, weighed down after underwhelming projections from chipmaker Micron (-7.12%) the previous evening. Elsewhere, the small cap Russell 2000 rose +1.00%, moving back into the green for 2024 with a +0.56% YTD advance (vs. a +14.95% gain for the S&P 500). Meanwhile in Europe, the STOXX 600 (-0.43%) lost ground for a third consecutive session, with more pronounced losses among southern European countries, including the FTSE MIB (-1.06%) and the IBEX 35 (-0.72%).

Overnight in Asia, the Japanese Yen has continued to weaken, and is currently trading at 161.07 per US Dollar, which would be its highest closing level since 1986. In the meantime, equities have continued to advance, with gains for the Nikkei (+0.76%), the CSI 300 (+0.64%), the Shanghai Comp (+0.98%), the Hang Seng (+0.56%) and the KOSPI (+0.26%). In addition, the TOPIX (+0.72%) is currently on course to close at its highest level since 1990. Looking forward, US equity futures are also pointing higher, with those on the S&P 500 up +0.23%.

In other political news, Ursula von der Leyen was nominated by EU leaders for a second term as President of the European Commission. That was part of an agreement that saw former Portuguese PM Antonio Costa chosen as President of the European Council, and Estonia’s PM Kaja Kallas as the EU’s High Representative for Foreign Affairs and Security Policy. However, Von der Leyen will still need to win a majority of votes in the new European Parliament, which is held by secret ballot, and in 2019 she only exceeded that by nine votes. The High Representative also needs agreement from the President-elect of the European Commission, and later on the entire Commission as a whole (including the President, High Representative and other commissioners) face a vote of consent in the European Parliament.

Finally we also saw the third estimate of US Q1 GDP just as we hit the end of Q2 for markets today. This release had a few revisions. On the bright side, the Q1 reading was revised up a tenth, and now shows growth at an annualised +1.4%. However, both headline and core PCE were revised up a tenth as well, with core PCE inflation now seen at an annualised +3.7% in Q1.

To the day ahead now, and data releases from the US PCE inflation reading for May, the Canadian GDP report for April, the flash CPI releases for June from France and Italy, along with German unemployment for June. From central banks, we’ll hear from the Fed’s Barkin, Bowman and Daly, along with the ECB’s Villeroy.

Authored by Paul Joseph Watson via Modernity.news,

A video shows Welsh police visiting a man’s home because he displayed a Reform UK political sign on the wall, despite this being a completely normal sight during election season.

Voice of Wales posted a clip to X showing an officer at the man’s house talking about how “concerns” had been expressed about the sign and that he needed to take a photo of it.

The officer also took a photo of another Lest We Forget Flag that is sometimes displayed outside homes to honor Britain’s war dead.

This needs to be seen by everyone, especially @Nigel_Farage
Today, @swpolice turned up at a friends house regarding his @reformparty_uk general election sign on his house, it gets better..
The complaint came from a charity who has just bought the house next door to move… pic.twitter.com/IIyv12Sthp

— Voice Of Wales (@VoWalesOfficial) June 26, 2024

Apparently, such signs are apparently offensive and worthy of police investigation based on a single complaint, despite the fact that people in the UK routinely display signs of parties they support outside their homes during election season.

Such “concerns” were deemed a potential threat despite the fact that, according to polls, around 15-20 per cent of the British population is set to vote for Reform UK in the national election on July 4th.

According to Voice of Wales, the complaint was made by the charity which who owns the house next door, which is set to be turned into accommodation for asylum seekers (economic migrants).

As part of its manifesto, Reform UK has pledged to drastically cut mass migration and stop the flow of small boats containing illegal immigrants entering Britain.

This is by no means the only example of Brits receiving home visits from police over their political views.

As we highlighted last month, another clip showed a man being visited at home by two police officers and an NHS psychologist after he expressed anger online about the stabbing of a Bishop in Sydney by an Islamist.

The man, Orthodox Christian, received the visit after reportedly posting online, “Christians must stand up.”

The clip shows a female officer explaining how authorities had “a few concerns” about what the man had posted on social media.

British police and a psychologist showed up at this man’s home because he had posted on social media “Christians must stand up” after Islamist attack on bishop in Australia. This usually happens in dictatorships. pic.twitter.com/FljQkb4j8c

— RadioGenoa (@RadioGenoa) April 19, 2024

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