Month: August 2024

US new home sales soared by 10.6% MoM in July (the most since Aug 2022), five standard deviations above expectations…

…which pulled sales up 5.6% YoY…

Source: Bloomberg

That unexpectedly massive surge pushed new home sales SAAR up to 739k – its highest since May 2023 (just shy of Feb 2022)…

Source: Bloomberg

Bear in mind that the last three months have seen massive upward revisions for new home sales data (which is very much not the norm of the last few years)…

Source: Bloomberg

…as mortgage rates have tumbled back below 7.00%…

Source: Bloomberg

The pickup in sales allowed builders to make a dent in inventory last month, which fell to the lowest level since the start of the year.

Nonetheless, the 462,000 homes for sale is still near the highest since 2008.

At the current sales rate, that represents 7.5 months of supply, the lowest since September but above pre-pandemic levels.

But  the median price of a new home rose once again (and back higher than used home prices)…

Source: Bloomberg

…and we are sure that Kamala’s new plan to increase homeownership will really help that!

New documents released Thursday reveal that ‘confusion and chaos’ reigned in the company’s Renton factory that built two 737 MAX planes that later crashed, killing 346 people in 2018 and 2019, the Seattle Times reports.

According to a prominent whistleblower Ed Pierson, production issues from back then still affect MAX planes flying today. The new documents reveal multiple electrical issues that were discovered as Boeing assembled the Ethiopian Airlines jet that crashed in 2019.

The Times notes that in 2018, the FAA found that employees in another Boeing facility in Everett, WA – where electrical components for integration – had been pushed to move to fast, and produced defective pieces.

Communications between Boeing and Ethiopian Airlines show the plane that later crashed experienced an in-flight safety incident months before the fatal accident. Boeing told the airline that the December 2018 incident was likely the result of an electrical error, the records show.

The whistleblower, Pierson, said the records and the earlier safety incident bolster his view that the deadly crash of the Ethiopian jet may have been initiated by an electrical problem. That problem traces back to production issues with electrical wire bundles that Pierson has highlighted.

Pierson, who worked at Boeing for more than a decade and served as a senior manager coordinating fixes for assembly problems on the 737 program, released the new documents through an advocacy group he formed after the crashes, the Foundation for Aviation Safety – and said that Boeing withheld the documents from regulatory investigators looking into the two deadly crashes.

Following the deadly incidents, he repeatedly alleged that manufacturing defects played a role.

The FAA, NTSB, and international regulators are in disagreement over the cause.

In both crashes, an error with then-new software — the Maneuvering Characteristics Augmentation System or MCAS — caused the plane to nosedive. Boeing recently pleaded guilty to misleading safety regulators about MCAS and how much training pilots would need to fly safely. 

In the case of the Ethiopian crash, the NTSB and its French counterpart concluded that it wasn’t an electrical error but a bird strike damaging a sensor that likely triggered the MCAS software.

The U.S. agency disputed a report from Ethiopian authorities that said the sensor was triggered by “production quality defects.” 

Pierson sent the newly disclosed records to the NTSB, the FAA and the Department of Justice in July, he said. 

Meanwhile, the FAA and NTSB are playing hot potato over the new documents, and have suggested that questions should be directed to Ethiopian authorities.

Boeing, in a statement, said that it “fully cooperated and provided relevant information to the investigation” regarding the Ethiopian Airlines flight 302 crash, adding “We defer to the investigative agencies for further information.”

The new documents also reveal that from communications between Boeing and Ethiopian Airlines, in December 2018, the airline’s 737 MAX experienced an “uncommanded roll”—a situation where the plane rolls unexpectedly, potentially disorienting the pilot and risking loss of control. This incident occurred just weeks after Ethiopian Airlines took delivery of the aircraft, and only a few months before it tragically crashed, killing all onboard.

Boeing’s communication with the airline at the time indicated that the uncommanded roll was likely caused by an electrical fault. The company advised Ethiopian Airlines to inspect the plane’s wiring for issues, raising questions about the broader electrical integrity of the 737 MAX fleet.

Further complicating matters, the Foundation for Aviation Safety released a copy of Boeing’s Shipside Action Tracker from the 2018 production of the ill-fated Ethiopian Airlines plane. This internal database, used by Boeing to document and resolve issues during aircraft assembly, revealed a series of misinstalled and mislabeled electrical components. The records also pointed to significant miscommunication among Boeing employees regarding the work performed on the aircraft.

In a separate but related matter, a 2018 Federal Aviation Administration (FAA) investigation into Boeing’s Electrical Systems Responsibility Center in Everett, Washington, uncovered additional issues – which include Boeing management having imposed stringent time limits on employees, potentially leading to defective parts passing through the electrical center without proper inspection. Notably, the report highlighted that some parts had only one minute allocated for pre-inspection.

The investigation also criticized Boeing’s “rework” process—where components are disassembled and fixed before being reassembled—pointing out that this critical step was not always verified by quality assurance teams.

The new report reinforces the confusion and disarray reported at Boeing’s Renton factory following a separate incident in January – in which workers failed to secure a panel properly after removing it for repairs, leading to the panel blowing off a 737 MAX mid-flight at 16,000 feet. Boeing later admitted that it had no documented record of the work and rework performed on the panel.

Watch Live (due to start at 10amET):

Tl;dr: Powell confirmed what was in The FOMC Minutes

“The time has come for policy to adjust,” Powell said:

“The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks.”

Labor market fears dominate…

“We do not seek or welcome further cooling in labor market conditions,” Powell said, adding that the slowdown in the labor market was “unmistakable.”

Whatever it takes?

“We will do everything we can to support a strong labor market as we make further progress toward price stability. With an appropriate dialing back of policy restraint, there is good reason to think that the economy will get back to 2 percent inflation while maintaining a strong labor market. The current level of our policy rate gives us ample room to respond to any risks we may face, including the risk of unwelcome further weakening in labor market conditions.“

The Fed chief also acknowledged recent progress on inflation, which has resumed moderating in recent months after stalling earlier in the year:

“My confidence has grown that inflation is on a sustainable path back to 2%,” he said

*  *  *

The market was pricing 30bps of cuts in for September ahead of Powell’s speech (and 97bps of cuts for 2024 in total… way more than the 25bps DOTS)…

… and was basically unchanged after his comments…

But, stocks, gold, and bonds are all bid on the headlines (and the dollar dumped)…

Bitcoin is also breaking out, back above $62 as the short squeeze looms…

*  *  *

Powell’s Full Remarks:

*  *  *

 

The Jackson Hole schedule was released last night, announcing Norges Bank Governor Ida Wolden Bache and Bank of Brazil Governor Roberto Campos Neto will join ECB Board Member Philip Lane on the Saturday overview panel. Both Wolden Bache and Campos Neto have recently had to put a heavy emphasis on exchange rate fluctuations when discussing policy transmission. Wolden Bache has pushed back on some efforts to encourage Norges Bank to control the exchange rate more tightly, and argued FX flexibility is essential for a small, open economy. Krone depreciation features prominently in the Bank’s NEMO model, and is a key reason why they have pledged to hold rates steady. Norges has also shown some concern over how differences in housing market structures can impact monetary policy transmission. And recently they revised their estimate of the neutral rate slightly higher, with an emphasis on global factors. Campos Neto also recently discussed structural factors contributing to a high neutral rate in Brazil in a panel discussion at Sintra, many of which have been exacerbated since Covid including subsidized credit, the debt trajectory, and changes in productivity. Panelists typically give brief speeches at the start of the panel before the broader discussion begins.

Chair Powell will deliver his speech on the economic outlook at 10:00am ET, available via webcast. BoE Governor Bailey will be giving the luncheon address at 3:00pm ET. Text of the papers and speeches will be posted to the website at the time each event is scheduled to begin.

Various Fed speakers will also be giving interviews throughout the day—see the table below for a compilation of what has been announced so far, times may not be exact.

Here is the Fed speaker schedule currently set:

• 8am: Fed’s Bostic Speaks on CNBC
• 9am: Fed’s Bostic Speaks on Bloomberg Television
• 10am: Fed’s Powell Speaks on Economic Outlook
• 11am: Fed’s Harker Speaks on Bloomberg Television
• 12:30pm: Fed’s Goolsbee Speaks on CNBC
• 1:45pm: Fed’s Goolsbee Speaks on Fox Business
• 2:15pm: Fed’s Goolsbee on Bloomberg TV

Yesterday, Collins and Harker gave sideline interviews with Bloomberg, CNBC, MNI, and Fox Business. Harker noted that he thinks the Fed “needs to start a process of moving rates down” in September, but that he needs to see a few more weeks of data to determine whether 25bp or 50bp is appropriate. Collins also said she sees it “soon being appropriate to begin easing policy,” and reiterated that “data will tell us what kind of pace makes sense.”  The ECB’s Martins Kazaks also gave an interview yesterday and expressed that he would be “very much open for a discussion of yet another rate cut in September” given recent data.

Goldman’s US economics team expects Chair Powell to express a bit more confidence in the inflation outlook and to put a bit more emphasis on downside risks in the labor market than in his press conference after the July FOMC meeting, in light of the data released since then. A speech along these lines would be consistent with our economists’ forecast of a string of three consecutive 25bp cuts in September, November, and December.

Taking a closer look at what Powell may say today, the focus will be on any hints about the coming Sept rate cut size, whether it is 25 or 50bps. Here are some thoughts on the matter from NewsSquawk:

The gathering of central bankers, academics and policymakers is often looked to for policy’ steer, with focus on any updated assessments on the state of the US economy, and the trajectory of monetary policy. Powell last month said that if inflation and the labor market continued to cool, a rate cut may be appropriate at the September 18th FOMC meeting. For that meeting, money markets are currently pricing around 34bps of rate cuts, which essentially says a 25bps rate reduction is fully expected, with some incremental probability the Fed could go for a larger 50bps cut. The dovish pricing has pared back in recent weeks as inflation continues to cool, and the labor market continues to look resilient amid its slowdown (at one point, markets were fully expecting a 50bps rate reduction a few weeks ago. when growth jitters stoked concerns the Fed may be behind the curve). Powell will also likely be asked about the size of the rate cut. and traders will be watching to see if he leans back on calls for the larger cut (when he was asked about this in July. Powell said it was not something the Fed was thinking about right now). WSJ Fed watcher Nick Timiraos said many officials are ready to start cutting rates by a traditional quarter-percentage-point next month, but are not sure how fast they should go thereafter, adding that labor market data for August could tip the scales in favour of a larger cut if it is as disappointing as July’s readings.

THEMES:

Bank of America says there is a chance Powell could opt for a straightforward update, taking a similar line to which he did in his post-meeting press conference in July: a shift in language from that July message could suggest the committee is nearing, or is dose to. considering easing measures. BofA said. A further signal could be if Powell is stronger in saying that the committee wants to avoid unexpected weakness’ in the labor market, rather than simply responding to it after it occurs.” it wrote. Powell might refer to the June Summary of Economic Projections, which indicated a gradual removal of policy accommodation due to economic uncertainty. “The Fed s definition of achieving a soft landing is bringing inflation back to target without requiring a deterioration in labor market conditions,’’ BofA says. “the battle on inflation isn’t entirely won, but the message could be that it’s been won enough where the emphasis now will be on preventing undesired weakness in the labor market.”

MARKET REACTION:

Meanwhile, analysts at Barclays note some investor concerns about the Fed being ‘behind the curve’, with the balance of risks now tilted towards the employment mandate. Barclays says investors look for more clarity around the new equilibrium policy rate and the path to that rate.

“Crucially, Jackson Hole has become more of a market moving event in recent history,” it writes, “for instance, across assets the average vol-adjustedmove in the 2017-2022 was 1.7x larger vs. the 2010-2016 period.” The bank notes that S&P options currently appear to be fair, as they are pricing a 75bps move, broadly in line with historical pricing (68bps) and average realized moves (72bps). “However, looking at a universe of 35 ETF with liquid options and spanning four asset classes, options on a number of International equity ETFs (EM & EU equity) currently price-in the cheapest moves vs history.

Looking at futures this morning, risk is sharply higher on expectations of a dovish Powell speech, but two years ago, the Fed chair surprised the market by delivering a hawkish speech that sent the S&P 500 tumbling 3.4%, while 10-year yields swung by 8bps intraday.

Finally, a word of caution from BofA’s Michael Hartnett (full note here for pro subs) who reminds us 5 of 6 Powell Jackson Hole speeches saw the S&P 500 drop 7.5% on average in the next 3 months…

…and he asks “Who’s left to buy?” with BofA private client allocation at 62% (Chart 15), and S&P 500 corp cash just 8.8% of assets (Chart 4), often a bearish tip-off

For those looking for more, here is another JHole preview from Rabobank, but here are the key points:

Rabobank’s Fed strategist recently revised his call from one rate cut per quarter to four consecutive cuts starting in September. He believes a (mild) recession is due to begin – if it hasn’t already. Fed Chair Powell could give the starting sign at the Jackson Hole conference today, but he may also give some hints that the market is pricing too aggressive an easing cycle. Of course, there are limitations to the forward guidance Powell can provide, as he does not want to overcommit to any particular outcome in September.

So what room does he have?

• Powell could indicate that he has gained greater confidence that inflation is moving sustainably toward 2%. The FOMC was not yet ready to alter its formal statement in July to include this message, but Powell certainly was willing to at the press conference. The inflation data since then have been encouraging, so Powell could confirm that his confidence in the disinflationary process is improving.
• Meanwhile, Powell could stress the weakness in labour market data as a second – and more urgent – argument for rate cuts. In the July statement, the FOMC already said that it is attentive to the risks to both sides of its dual mandate.
• Finally, the Fed Chair could indicate whether the baseline is a 25bp or 50bp cut. A full set of data will still be released between Powell’s speech and the September meeting, so it would be premature for him to signal the exact size of the forthcoming rate cut. However, he could signal that the Fed is still leaning towards a 25bp reduction, rather than the 50bp that some market participants are still expecting. For example, Powell could stress that he is confident in the stability of markets, and that he does not believe the Fed is behind the curve.

Authored by David Lassen via Trains.com,

The Canadian government has moved to end Canada’s freight rail work stoppage – the first to shut down both Canadian National and Canadian Pacific Kansas City simultaneously.

However, while the two railroads say they are preparing to resume operations after Labor Minister Steven MacKinnon sent the dispute to binding arbitration, the Teamsters Canada Rail Conference says it will maintain picket lines while it reviews MacKinnon’s action.

And the CBC reports that MacKinnon’s move might not bring an immediate end to the lockouts of TCRC engineers and conductors that began at the two railroads at 12:01 a.m. today (Aug. 22).

Also locked out were rail traffic controllers at CPKC represented by the same union.

“These collective bargaining negotiations belong to CN Rail, CPKC and TCRC alone — but their effects, and the impacts of the current impasse, are being borne by all Canadians,” MacKinnon said.

“As Minister of Labour, it is my assessment that the parties are at a fundamental impasse. Therefore, it is my duty and responsibility to invoke my authorities under the Canada Labour Code to secure industrial peace and deliver the short and long-term solutions that are in the national interest.”

The existing contracts between the TCRC and both railways will be extended until new agreements are signed. Negotiated agreements are always preferable, MacKinnon said, but the needs of the nation outweighed the need for a contract deal reached at the bargaining table.

“Workers, farmers, commuters and businesses rely on Canada’s railways everyday, and will continue to do so. It is the government’s duty and responsibility to ensure industrial peace in this critically vital sector,” MacKinnon said.

“Thus, we will be examining why we experience repeated conflicts in the railway sector and the conditions that led to the parallel work stoppages we are seeing. Canadians can be assured that their government will not allow them to suffer when parties do not fulfill their responsibility. Especially where their livelihoods, worker safety, and communities are at stake.”

CN said in a statement this evening that it had ended its lockout as of 6 p.m. ET and initiated its recovery plan, acting in advance of a formal order from the Canada Industrial Relations Board “to expedite the recovery of the economy.

“While CN is satisfied that this labour conflict has ended and that it can get back to its role of powering the economy,” the railroad said in its statement, “the company is disappointed that a negotiated deal could not be achieved at the bargaining table despite its best efforts.

CPKC said it is preparing to restart operations and will provide further details about the timing once it receives the CIRB’s order.

“The Canadian government has recognized the immense consequences of a railway work stoppage for the Canadian economy, North American supply chains. and all Canadians,” CPKC CEO Keith Creel said in a statement.

“The government has acted to protect Canada’s national interest. We regret that the government had to intervene because we fundamentally believe in and respect collective bargaining; however, given the stakes for all involved, this situation required action.”

The TCRC said it was keeping picket lines in place while it reviewed MacKinnon’s move, the response by the CIRB, and sought legal counsel.

The union’s president, Paul Boucher, said the government’s action “allowed CN and CPKC to sidestep a union determined to protect rail safety. Despite claiming to value and honour the collective bargaining process, the federal government quickly used its authority to suspend it, mere hours after an employer-imposed work stoppage. … The two major railways in Canada manufactured this crisis, took the country hostage, and manipulated the government to once again disregard the rights afforded to working-class Canadians. “

Boucher called the decision “shameful” and said the government had made the decision “only because they knew their minority could not gather the support needed to pass a legislated resolution to appease the railways.”

Meanwhile, Lisa Raitt, labor minister under former prime minister Stephen Harper, told the CBC that the parties still have to agree to arbitration: “Maybe you can write to the CIRB and ask them to impose binding arbitration … but there’s no way a minister can write a letter and say that everyone goes back to work and I’m sending you to binding arbitration.”
MacKinnon said he is “confident” that his move will end the shutdown, but hedged in saying it would definitely do so, noting that the CIRB is an independent body.

“They have a process that requires consultation with the parties,” he said.

“They will be doing that and rendering a decision, I hope very quickly. … I want to be deferential to the process that will unfold.”

CN and CPKC had both sought arbitration to end the dispute, with MacKinnon last week denying a request from CN to require arbitration. At the time, MacKinnon said it was the “shared responsibility” of CN and the union to negotiate in good faith.

Prime Minister Justin Trudeau said in a post on X.com that while collective bargaining is preferred:

“When that is no longer a foreseeable option — when we are facing serious consequences to our supply chains and the workers who depend on it — governments must act.”

Transport Minister Pablo Rodriguez, reacting to MacKinnon’s move, wrote on X.com that the government “is acting to preserve the stability and certainty that our entire economy is renowned for across the world.”

The premiers of two prairie provinces with economies heavily reliant on rail transport — Scott Moe of Saskatchewan and Danielle Smith of Alberta, who had both called for federal action — welcomed the intervention in comments on X.com.

Moe wrote that the government “took the appropriate action … to end the rail stoppage and ensure our Canadian products are moving to market again.”

Smith wrote that she was “pleased to see” that MacKinnon had taken action.

Futures are solidly in the green on the last day of the week ahead of Powell’s Jackson Hole speech, with Tech leading. As of 7:45am S&P futures were up 0.5% while Nasdaq futures gained 0.8% with top MegaCap tech stocks TSLA (+1.5%), NVDA (+1.2%), and AMZN (+69bp). Bond yields are roughly unchanged: the 10Y yield is down 1bp to 3.84% as the USD resumes its slide ahead of what many expect to be another dovish speech by Powell cementing a 25bps Sept rate cut. Commodities are mixed with Oil and Precious Metals higher, while Base Metals are lower. Today, the main focus will be Powell’s speech at Jackson Hole at 10am ET.

In premarket trading, Uber dropped 1% after the company unveiled plans to start offering self-driving Cruise cars to customers on its ride-hailing platform next year. Workday meanwhile surged 13% after the software company said it would increase profitability over the next three years to enable strategic investments. Here are some other notable premarket movers:

• Uber slips 1% after the company unveiled plans to start offering self-driving Cruise cars to customers on its ride-hailing platform next year.
• Workday (WDAY) rises 13% after the software company said it would increase profitability over the next three years to enable strategic investments.
• Cava Group climbs 9% after the fast-casual chain boosted its annual outlook for comparable sales following 2Q results that topped Wall Street expectations.
• Las Vegas Sands falls 1% after UBS cut the recommendation on the casino operator to neutral, noting the slow recovery in the company’s Macau business.
• Red Robin drops 14% after it cut adjusted Ebitda guidance for the full year.
• Roku rises 4% after an upgrade to buy at Guggenheim, which said the company is pivoting toward broadening advertising sales.
• Ross Stores climbs 5% after the off-price retailer boosted its earnings per share forecast for the full year.
• Topgolf Callaway Brands falls 3% after Raymond James downgraded the golf company to underperform, citing the recent deterioration in sales at its namesake chain of high-tech driving ranges.

On to today’s main event, the annual Jackson Hole symposium: Powell’s address, slated for 10 a.m. New York time, has been the main focus for traders all week and markets took a hit on Thursday on concern he would push back on the market’s aggressive easing bets. At the same time, strategists from JPMorgan Chase and Deutsche Bank say they expect moderate bond moves during the conference, while options traders are betting on small swings for stocks in the days ahead.

“For investors, the big question is to what extent Powell validates expectations for a September rate cut, and whether he offers any indication of how big any rate cut might be,” said DB’s Jim Reid, who went on to add that last year Powell said that they intended “to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective”. But over the following 12 months, we’ve seen inflation experience a noticeable decline, along with an increase in unemployment. So from both sides of the Fed’s dual mandate, we’ve moved much closer to a point where the Fed have cut rates in previous cycles.

That said, the annual gathering of policymakers and academics in Wyoming may ultimately prove uneventful. Over the past decade, yields on both two- and 10-year notes moved less than 4 basis points on average, data compiled by Bloomberg show. The S&P 500 Index has been more reactionary, fluctuating around 1.3% on average. Of course, a jolt isn’t out of the question, however. Two years ago, Powell surprised the market by delivering a hawkish speech that sent the S&P 500 tumbling 3.4%, while 10-year yields notched an 8-basis-point intraday swing.

Surprises aside, the market is expecting the Fed to cut next month and preannounce it today with bets on lower Fed rates helping drive a rebound from the slump at the start of August. Investors are pricing in a quarter-point rate cut at the Fed’s Sept. 17-18 gathering, but see almost a full percentage point of reductions by year end, according to futures markets.

“It can be a very high bar for Powell to out-dove markets” said Christopher Wong, FX strategist at Oversea-Chinese Banking Corp. “But at the same time, I doubt many are expecting him to do that — so as long as there is no hawkish surprise from his speech, markets are happy to continue trading the Goldilocks thematic, i.e. fading rallies in the dollar.”

European stocks inch higher, led by auto and bank names, while technology underperforms.

Europe’s main equities benchmark edged up 0.3%. Major markets are higher led by Italy. Thematically, Italian Banks, Macro Recovery and EU Most Shorts are the top performing baskets; Semis lagged. On macro data, France Mfg. confidence prints 99 vs. 96 survey vs. 5 prior. Here are the biggest European movers:

• ALK-Abello shares climb as much as 12% to a record after the Danish allergy-drug maker raised its 2024 guidance for the third time this year, in a second-quarter report that beat estimates on the back of a strong performance in its key European market.
• Royal Unibrew shares rise as much as 5.1%, the most in four months, after the beer brewer raised the bottom end of its full-year guidance range for both net revenue and Ebit growth. Jefferies says this has lifted confidence but notes that consensus is already in line with the new targets.
• Galapagos shares rise as much as 5.2% after the biotech firm said it got US regulatory clearance for an early/mid-stage study evaluating its experimental drug candidate GLPG5101 in patients with relapsed or refractory non-Hodgkin lymphoma.
• Nestle shares fall as much as 4.1% in Zurich, the most in almost a month, after the consumer-goods company said Laurent Freixe will replace Mark Schneider as CEO. Analysts questioned whether the unexpected management change will lead to Nestle walking away from its current financial guidance.
• Dino Polska shares dive as much as 14% to lowest since Oct. 2022 after an earnings miss and softer sales guidance for 2H. Analysts note that Ebitda margin erosion in 2Q is deeper than reported earlier by peer J.Martins. Dino results confirm a difficult situation for food retailers in Poland amid slowing inflation, fast rising wages and fierce competition.
• Melrose Industries slides as much as 5.8% after UBS double-downgraded the stock to sell from buy, saying the market is overstating the size of the UK engineer’s Revenue & Risk Sharing Partnership (RRSP) portfolio.

In FX, the Bloomberg Dollar Spot Index falls 0.2%. The Japanese yen pares an earlier gain to sit 0.2% higher having rallied after Bank of Japan Governor Kazuo Ueda kept rate hikes in play this year. When asked about the market ructions that occurred earlier this month, Ueda played down the significance of the BOJ’s July rate hike in the turmoil. At the same time, he signaled that he doesn’t plan to rush ahead with the next rate hike, saying the BOJ needs to carefully watch the impact of unstable financial markets on the inflation outlook. The pound climbs 0.3% with Bank of England Governor Andrew Bailey also scheduled to speak today.

In rates, treasuries are marginally richer across the curve, keeping yields within 1bp of Thursday’s closing levels, in light trading ahead of Fed Chair Powell’s speech on the economic outlook at the Jackson Hole Economic Policy Symposium, scheduled for 10am New York time. US 10-year yield near 3.84% is about 1bp lower on the day, keeping pace with UK 10-year while outperforming Germany’s; curve spreads also remain within 1bp of Thursday’s closing levels. Ahead of Powell’s Jackson Hole speech, historical analysis has shown that the event has not been a big market mover with a 10-year yield move of less than 4 basis points on average

In commodities, oil prices advance, with WTI rising 1.1% to $73.80 a barrel. Spot gold rises $16 to $2,500/oz.

Bitcoin is incrementally firmer and climbs past USD 61K, whilst Ethereum sees gains to a larger magnitude and holds above USD 2.6k.

Looking at today’s calendar, US economic data calendar includes July new home sales (10am) and August Kansas City Fed services activity (11am). Other Fed speakers scheduled include Bostic (8am, 9am), Harker (11am) and Goolsbee (12:30pm, 1:45pm, 2:15pm)

Market Snapshot

• S&P 500 futures up 0.4% to 5,615.00
• STOXX Europe 600 up 0.1% to 516.49
• MXAP up 0.2% to 185.08
• MXAPJ little changed at 574.49
• Nikkei up 0.4% to 38,364.27
• Topix up 0.5% to 2,684.72
• Hang Seng Index down 0.2% to 17,612.10
• Shanghai Composite up 0.2% to 2,854.37
• Sensex little changed at 81,106.22
• Australia S&P/ASX 200 little changed at 8,023.90
• Kospi down 0.2% to 2,701.69
• German 10Y yield little changed at 2.25%
• Euro little changed at $1.1120
• Brent Futures up 0.6% to $77.67/bbl
• Gold spot up 0.5% to $2,496.74
• US Dollar Index down 0.11% to 101.40

Top Overnight News

• The Bank of Japan is still on a path toward higher interest rates provided inflation and economic data continue in line with its forecasts, Governor Kazuo Ueda said in his first public remarks following a global market rout.
• US equity futures ticked higher in the run-up to Jerome Powell’s Jackson Hole speech, with traders speculating over whether the Federal Reserve Chair will open the door for interest-rate cuts.
• The Federal Reserve Bank of Kansas City’s annual gathering in Jackson Hole, Wyoming kicked off Thursday evening with a dinner filled with central bankers, economists and reporters from the around the world. Here’s what to expect from the three-day conference.
• China’s attempts to cool a record bond rally have stalled a drop in yields, but at the cost of a collapse in trading activity to an extent that may create more headaches for policymakers

A more detailed look at global markets courtesy of Newsuawk

APAC stocks were ultimately mixed amid cautiousness as braced for a slew of global central bank rhetoric including Fed Chair Powell’s speech at the Jackson Hole Symposium. ASX 200 was restricted amid notable weakness across the commodity-related sectors. Nikkei 225 swung between gains and losses after Japanese CPI printed mostly in line with expectations, while there was also a slew of commentary from BoJ Governor Ueda who stood by last month’s BoJ rate hike. Hang Seng and Shanghai Comp. initially diverged with the former pressured by underperformance in NetEase and Baidu due to earnings disappointment, while the mainland was indecisive amid very few fresh catalysts.

Top Asian News

• BoJ Governor Ueda said concerns about a slowing US economy caused the recent market rout and they closely watching market moves with a sense of urgency as uncertainties remain, while there is no change to the stance that they would adjust the degree of monetary easing if the price outlook is likely to be achieved. Ueda said the July rate hike decision was based on their inflation forecast and the risk of inflation overshoot, as well as stated that the BoJ’s policy path to a neutral interest rate remains highly uncertain but noted that Japan’s short-term interest rate is still very low so if the economy performs well, the BoJ will adjust rates to levels deemed neutral to the economy. Ueda said they may conduct operations nimbly if there’s a sharp rise in long-term yields. Says they removed the wording “continue accomodative environment” from the outlook report, as it was said to be interpreted as not increasing rates for the foreseeable future
• Japanese Finance Minister Suzuki said there is a potential risk of Japan’s financial health deterioration from a rate hike as government debt is high and they cannot rule out the possibility of Japan’s economy falling back into deflation. Furthermore, Suzuki said a weak yen has merits and demerits, while he cannot tell if a strong yen has bigger merits or demerits. Suzuki added the FX intervention in July was effective and intervention was conducted to respond to speculative moves and excessive volatility.
• Tenders showed that state-linked Chinese entities use Amazon’s (AMZN) Cloud unit to access restricted AI chips and models including Nvidia (NVDA) chips banned from export to China, according to Reuters.
• China’s Politburo is holding a meeting, via Xinhua, on developing western China. Must promote the upgrading of traditional industries. Strengthen security guarantees capabilities within key areas. Strengthen energy resource guarantees and the construction of clean energy guarantees. Must persist in building a strong sense of community for the nation, safeguarding unity and border stability.
• “China’s Ministry of Commerce met with automakers and industry associations…The meeting adds to a succession of events that clearly shows China is seriously studying calls of tariff rate hikes on imported large-engine cars, industry insiders said”, GT.

European bourses, Stoxx 600 (+0.2%) are generally firmer, having opened on a mostly flat footing. The complex picked up as the morning progressed; ahead Fed Chair Powell at 15:00 BST / 10:00 EDT. European sectors hold a slight positive bias, but with the breadth of the market fairly narrow. Banks top the pile, joined by Energy, whilst Tech lags slightly. US Equity Futures (ES +0.5%, NQ +0.6%, RTY +0.2%) are entirely in the green, paring back some of the hefty losses seen in the prior session.

Top European News

• ECB Consumer Expectations Survey (July): See inflation in next 12 months at 2.8% (prev. 2.8%); 3yrs ahead sees 2.4% (prev. 2.3%)
• ECB’s Kazaks said EZ inflation is consistent with further gradual ECB rate cuts; assume two more rate cuts this year and there is no reason now not to follow through, according to Reuters.
• UK GfK Consumer Confidence (Aug) -13.0 vs. Exp. -12.0 (Prev. -13.0)
• UK’s Ofgem says the energy price cap for October to December 2024 will rise 10% (exp. 9%) to GBP 1717 (prev. 1568) for a typical household

FX

• USD is softer vs. peers by varying degrees. DXY is holding below the 101.50 mark in the run-up to Fed Chair Powell’s appearance at the Jackson Hole Symposium.
• EUR is a touch firmer vs. the USD and steady on a 1.11 handle after briefly slipping to a 1.1098 low on Thursday. ECB speak today and the ECB’s Consumer Expectations Survey have had little follow-through for the EUR.
• Cable is currently holding around Thursday’s 1.3130 peak, which if breached would bring in the 2023 peak at 1.3142 into view.
• JPY is edging mild gains vs. the USD but ultimately remaining within Thursday’s 144.84-146.52 parameters. Comments from BoJ Governor Ueda overnight brought on some appreciation of the JPY with the Governor very much leaving the door open for further rate hikes.
• Antipodeans are both a touch firmer vs. the USD. AUD/USD appears to be in consolidation mode for now after a recent run of gain.
• PBoC set USD/CNY mid-point at 7.1358 vs exp. 7.1480 (prev. 7.1228).

Fixed Income

• USTs are in a holding pattern into Powell, unchanged within a narrow range around the 113-10 mark and at the low-end of Thursday’s 113-05+ to 113-27 band. Ahead of Powell, benchmarks have generally come under some very modest pressure as crude picks up to incremental session highs.
• Bunds are very much contained and holding within Thursday’s 134.11-135.08 range ahead of Fed Chair Powell. ECB SCE and commentary from Kazaks provided little impetus.
• Gilts are flat and around 99.50, waiting Powell and thereafter a text release from Bailey at 16:00BST (speech scheduled for 20:00BST).
• OATs await updates from how the meeting between French President Macron and the left-wing NFP alliance PM candidate goes.

Commodities

• Crude is firmer intraday despite a lack of pertinent catalysts this morning but in a continuation of the strength seen on Thurday. Brent October sits in a USD 77.03-77.64/bbl parameter.
• Firmer trade across precious metals following Thursday’s session of losses, and with today’s gains also facilitated by a softer Dollar and a weekend of potential geopolitical risks. Spot gold remains under USD 2,500/oz in a USD 2,484.41-2,497.61/oz parameter.
• A sea of green across base metals amid the broader optimism across markets coupled with a generally softer Dollar and a session of losses on Thursday.
• China’s Industry Ministry revised steel production capacity replacement measures and stated that from today, all regions will suspend announcements of new steel production capacity replacement plans.

Geopolitics – Middle East

• EU foreign policy chief Borrell said he discussed with the Iranian Foreign Minister the cessation of military cooperation with Russia and defusing regional tensions, according to Al Jazeera.

Geopolitics – Other

• Ukrainian drone attempted to attack Kursk nuclear plant; the drone was shot down near the plant, via Tass citing sources
• Ukraine’s Air Force said it used a US-made GBU-39 bomb to strike a Russian military target in Russia’s Kursk region.
• NATO air base in the German town of Geilenkirchen has raised its security level based on intelligence information indicating a potential threat, according to Reuters.
• China’s Foreign Ministry said in China-Belarus joint communique that both sides support the peaceful settlement of conflicts, constructive bilateral dialogue among countries, and international cooperation based on mutual benefit and mutual respect.

US event calendar

• 10:00: July New Home Sales MoM, est. 1.0%, prior -0.6%
• 10:00: July New Home Sales, est. 623,000, prior 617,000
• 11:00: Aug. Kansas City Fed Services Activ, prior -4

Fed Speakers

• 08:00: Fed’s Bostic Speaks on CNBC
• 09:00: Fed’s Bostic Speaks on Bloomberg Television
• 10:00: Fed’s Powell Speaks on Economic Outlook
• 11:00: Fed’s Harker Speaks on Bloomberg Television
• 12:30: Fed’s Goolsbee Speaks on CNBC
• 13:45: Fed’s Goolsbee Speaks on Fox Business
• 14:15: Fed’s Goolsbee on Bloomberg TV

DB’s Jim Reid concludes the overnight wrap

Markets saw a sizeable pullback over the last 24 hours, with the S&P 500 (-0.89%) posting its worst daily performance in over two weeks, whilst the 10yr Treasury yield (+5.1bps) moved back up to 3.85%. The moves came as investors grew more sceptical about the chances of 50bp rate cuts this year, thanks to more positive data and comments from Fed officials yesterday, which in turn led to a pullback across equities and bonds. But today the focus will now turn to Fed Chair Powell’s Jackson Hole speech, which is in focus given that previous years have often seen noteworthy speeches from the Fed Chair.

In terms of what to expect today, the theme of this year’s Jackson Hole event is “Reassessing the Effectiveness and Transmission of Monetary Policy”, and Powell’s speech simply has the title “Economic Outlook”. For investors, the big question is to what extent Powell validates expectations for a September rate cut, and whether he offers any indication of how big any rate cut might be. Last year, Powell said that they intended “to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective”. But over the following 12 months, we’ve seen inflation experience a noticeable decline, along with an increase in unemployment. So from both sides of the Fed’s dual mandate, we’ve moved much closer to a point where the Fed have cut rates in previous cycles.

Our US economists’ view is that it will be difficult for Powell to pre-commit to a particular trajectory at Jackson Hole. But they do think his comments will imply that the Fed can begin dialling back the degree of restraint soon, opening the door to a rate cut next month. Indeed, the minutes of the July FOMC meeting said that the “vast majority observed that, if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting.” For more details, see their Jackson Hole preview here, where they also look at the case for the Fed starting with a 25bp cut (as per their baseline), and the case for starting with a larger 50bp move.

With the symposium getting underway, yesterday also brought a raft of Federal Reserve speakers, who didn’t lean into the rapid pace of cuts that was being priced by markets. For instance, Boston Fed President Collins said that she didn’t see any “big red flags”, and Philadelphia Fed President Harker said that “I think a slow, methodical approach down is the right way to go”. Meanwhile, Kansas City Fed President Schmid said that he wanted to see more data, saying that “Before we act — at least before I act, or recommend acting — I think we need to see a little bit more.”

That pushback against a 50bp cut got further support yesterday from better-than-expected economic data. In particular, the weekly initial jobless claims were at 232k as expected, which took the 4-week moving average down to 236k. And on top of that, the US flash composite PMI came in above expectations at 54.1 (vs. 53.2 expected), with existing home sales also up to an annualised pace of 3.95m in July (vs. 3.94m expected), marking their first increase in five months.

With all that data in hand, investors moved to dial back their expectations for rate cuts. By the close, they’d cut the chance of a 50bp rate cut in September to 25%, down from 36% the day before. And looking at the year as a whole, the amount of cuts priced by the December meeting came down from 103bps to 97bps. And in turn, there was a meaningful move higher in Treasury yields, with the 2yr yield (+7.3bps) moving up to 4.00%, whilst the 10yr yield (+5.1bps) was up to 3.85%. The rise in US rates helped the dollar index (+0.46%) post its best day in three months, ending a run of four consecutive declines. But overnight we have seen a modest retracement, with the 10yr Treasury (-0.8bps) coming down slightly to 3.84%.

As officials sounded more hawkish than expected, that had an effect on equities too, where the S&P 500 (-0.89%) saw its biggest daily pullback in over two weeks. Tech stocks drove the declines, with the NASDAQ down -1.67%, whilst the Magnificent 7 fell -2.43% on the day, led by losses for Nvidia (-3.70%) and Tesla (-5.65%). The decline was more modest outside of tech as the equal-weighted S&P 500 retreated -0.30%, with financials (+0.48%) and energy (+0.32%) sectors higher on the day. Still, in a sign of a more volatile backdrop, the VIX index (+1.28pts to 17.55) rose for a third consecutive day.

It was a stronger session for equities in Europe, where the STOXX 600 advanced +0.35% on the day to close at a 3-week high. That came as the Euro Area PMIs were notably stronger than expected, with the composite PMI up to 51.2 (vs. 50.1 expected). That was supported by a strong outperformance from France amidst the Olympics, with the French services PMI up to a two-year high of 55.0 in August (vs. 50.3 expected).

Otherwise in Europe, sovereign bonds followed a similar pattern to the US, with yields on 10yr bunds (+5.4bps), OATs (+5.4bps) and BTPs (+5.9bps) all moving higher. That came as investors dialled back their expectations for ECB rate cuts this year, with the amount of cuts priced by the December meeting down -3.7bps on the day to 65bps. Separately, we also had the account of the ECB’s recent meeting in July, which said that the September meeting was widely seen as a good time to re-evaluate the level of monetary policy restriction.”

Overnight in Asia, Bank of Japan Governor Ueda confirmed that it remained their plan to continue hiking rates, saying that “If we are able to confirm a rising certainty that the economy and prices will stay in line with forecasts, there’s no change to our stance that we’ll continue to adjust the degree of easing,” That’s helped the Japanese Yen to strengthen this morning, and it’s currently trading at 145.83 per US Dollar. In the meantime, we’ve also had Japan’s latest CPI inflation data for July overnight, which showed headline CPI coming in a bit stronger than expected at +2.8% (vs. +2.7% expected). That said, the CPI measure excluding fresh food was in line with expectations at +2.7%, whilst CPI excluding fresh food and energy was also in line with consensus with a +1.9% print. All this has helped Japanese government bond yields to move higher overnight, with the 10yr yield up +3.3bps.

Meanwhile for equities in Asia, we’ve seen a more positive performance overnight. For instance, the Nikkei (+0.37%), the CSI 300 (+0.57%) and the Shanghai Comp (+0.28%) have all posted gains, whilst the KOSPI is unchanged. US futures are also pointing to a recovery, with those on the S&P 500 (+0.34%) and the NASDAQ 100 (+0.55%) both seeing solid gains. The main exception to this pattern has been the Hang Seng, which is currently down -0.41%.

To the day ahead now, and the main highlight will be Fed Chair Powell’s speech at Jackson Hole. We’ll also hear from Chicago Fed President Goolsbee and BoE Governor Bailey. Data releases include US new home sales for July, and we’ll also get the ECB’s Consumer Expectations Survey for July.

By Julianne Geiger of Oilprice.com

Oil prices have dipped, with Brent crude hovering around $77 per barrel, leading some market analysts to spot potential short-term buying opportunities. Citi Research, in a note dated August 21, and seen by Investing.com, sees this price pressure as a likely precursor to a rebound despite recent easing in geopolitical tensions.

The recent price decline is primarily driven by two key factors: easing geopolitical risks, particularly in Gaza with a potential ceasefire on the horizon, and China’s economic slowdown.

China’s weakened industrial production and softer oil imports data have weighed heavily on the global demand outlook, contributing to a reduction in the geopolitical risk premium for oil.

However, Citi warns that the market isn’t out of the woods yet.

While the geopolitical landscape appears calmer, risks remain. Hurricane season poses a significant threat to oil supply chains, and ongoing tensions in North Africa and the Middle East could easily reignite volatility. The current market positioning is historically short, which could spur a rebound if Brent dips further, especially as it nears the $75 per barrel support level.

In the U.S., the Energy Information Administration (EIA) reported a significant drop in commercial crude oil inventories, which fell by 4.6 million barrels to 426 million barrels. This draw exceeded expectations and, along with increases in refinery runs and crude exports, adds a bullish tilt to the near-term outlook for crude.

Citi also highlights technical factors influencing the market. Brent’s 200-day moving average at $82.5 per barrel is a strong resistance point, while the $75 per barrel level serves as a key support. This technical setup could encourage buying if prices approach the lower end of this range.

Looking forward, Citi suggests that OPEC+ faces critical decisions. With production cuts set to ease in October—market conditions allowing—any further decline in prices toward the low $70s might prompt the group to reconsider its strategy. As refinery margins remain under pressure, especially from plummeting gasoil cracks, the upcoming winter season may be pivotal in shaping the market’s direction.

Just over three years after taking power in the wake of the disastrously-executed US military withdrawal from Afghanistan, the Taliban government has issued its first formal vice laws, which include many sharp restrictions on the conduct of women, alongside broader societal rules.  

“Inshallah, we assure you that this Islamic law will be of great help in the promotion of virtue and the elimination of vice,” said Ministry for the Propagation of Virtue and the Prevention of Vice spokesman Maulvi Abdul Ghafar Farooq on Thursday. (“Inshallah” translates as “If God wills it.”) The Taliban created the ministry upon taking over the country, and it has the lead responsibility for enforcement via warnings and arrests. 

Spanning 114 pages and comprising 35 articles, the new set of laws was published Wednesday after being approved by Afghanistan’s reclusive Supreme Leader Hibatullah Akhundzada. Focusing on women, Article 13 requires women’s bodies to be veiled whenever they’re in public, to avoid tempting or being tempted. It stipulates that the covering should be thick, loose and long, the Associated Press reported.

Lest women be corrupted, covering is required any time they’re in the presence of non-Muslim men or women. It’s now officially illegal for women to look at men unless they’re married or blood relatives; men are likewise prohibited from looking at non-related women. Women are barred from letting their voices be heard singing or reading aloud in public. In 2022, the Taliban banned girls from attending secondary schools and universities.

Under Article 19, women are not allowed to be transported alone, and traveling, un-related men and women must be segregated. Passengers and their transporters are required to pray at required intervals. It is also illegal to publish images of living beings. In addition to barring practices that conflict with Islamic law, Afghanistan’s virtue and vice ministry is charged with promoting the “five pillars of Islam“: 

• Shahada (Faith)
• Salah (Prayer)
• Zakat (Almsgiving)
• Sawm (Fasting during the Ramadan holy month)
• Hajj (Pilgrimage to Mecca)

Earlier this month, Afghanistan commemorated the three-year anniversary of the US withdrawal with military parades that showcased the enormous arsenal the Taliban inherited, which included Black Hawk helicopters, A-29 Super Tucano attack aircraft, armored Humvees, and 600,000 other weapons such as grenade launchers, machine guns, and rifles. 

NEW: The Taliban held a military parade at Bagram Airfield in Afghanistan with the US military equipment they stole after the disastrous Biden-Harris withdrawal.

The Taliban was celebrating the third anniversary of taking over the former US air base as they trolled the US with… pic.twitter.com/UUuANxX4UO

— Collin Rugg (@CollinRugg) August 14, 2024

With the formal imposition of the new vice laws, Afghanistan’s women are back where they were before the US invasion and decades-long occupation that squandered the lives of 2,448 US service members and an astonishing $2.3 trillion. In addition to more than 150,000 Afghan dead — only about a third of whom were the purported “bad guys”  — the country was left worse off by many measures, such as far higher child malnutrition and poverty levels. 

Meanwhile, as Andrew Korybko noted in his profile of Afghanistan on the third anniversary of the Taliban’s return to power, US sanctions are “imped[ing] the country’s socio-economic recovery...[with] hopes that the difficult living conditions…might one day give rise to a rebellion that could threaten the Taliban’s control.” 

Isn’t there a succinct term for the victimization of civilians to accomplish political goals? In any event, maybe Operation Enduring Freedom should have been called Operation Enduring Misery.

Authored by Norman Rogers via RealClearEnergy,

We are often told that wind and solar, if not cheaper, are at least cost competitive with fossil fuels. Dead wrong! Wind or solar costs around five times more per megawatt hour compared to, for example, natural gas.

We are told that wind and solar will save us from a climate catastrophe. If there is a looming climate catastrophe, the only thing that will save us is nuclear power. Wind and solar are incredibly expensive methods of reducing CO2 emissions. The more wind and solar you build, the cost of removing CO2 increases disproportionately.

The U.S. has wasted $1.5 trillion on wind and solar and for that money only a little more than 10% of our electricity comes from wind and solar.

Fossil fuels are not dirty. Modern natural gas or coal plants are environmentally pristine. CO2 is not a pollutant, but an aerial plant food that is greening the Earth. CO2 makes plants grow faster with less water.

Wind or solar electricity is not worth what it costs to create it. It is worth what someone is willing to pay for it. That is a generally accepted economic principle.

If the government requires a utility to purchase some amount of electricity at some price, that is not a free market.  That is central planning. Central planning has a role, but it rarely works as well as the voluntary exchange of goods and services. Central planning creates unexpected twists and turns and often results in low productivity.

I will first discuss the value of wind and solar electricity in a free market and then discuss the effect of extensive government interventions via subsidies and mandates.

Everywhere when commentators compare the cost of wind or solar electricity with the cost of fossil fuel electricity, they use LCOE, the levelized cost of electricity. It is a logical error to compare LCOE of natural gas with LCOE of wind or solar. The correct comparison is to compare the marginal cost of natural gas with the LCOE of wind or solar. The marginal cost of natural gas electricity is about $20 per megawatt hour in the U.S. The LCOE of wind or solar hovers around $100 per megawatt hour, or about five times more.

LCOE includes amortization of the cost of building the generating plant. The marginal cost is essentially the cost of the fuel to generate the electricity.

Under what circumstances will a utility or grid operator be willing to purchase wind or solar electricity?  For the sake of the discussion, we postulate that the utility is going to replace some of its natural gas electricity with wind or solar electricity. The argument would be the same if coal electricity is being replaced and different if hydroelectricity is being replaced. No one would replace nuclear electricity with wind or solar because nuclear fuel is too cheap.

The utility cannot make a complete replacement, scrapping a natural gas generating plant and replacing it with a wind or solar farm. That is impossible because wind and solar are erratic, providing power subject to the weather and the daily solar cycle. Their erratic nature cannot be fixed at a remotely reasonable cost with batteries or pumped storage.

The utility will be open to reducing output from a gas plant and replacing that electricity with wind or solar electricity, when the sun is shining or the wind is blowing, only If the wind or solar electricity is less expensive then the marginal cost of generating the electricity with the gas plant. Notice that I said marginal cost, not LCOE.

Marginal cost for a gas plant is almost entirely the cost of the fuel. If gas is $3 per MMBtu and the gas plant is a combined cycle plant, the marginal cost of generating electricity is about $20 per megawatt hour. In countries that do not enjoy cheap natural gas the marginal cost will be higher.

If the cost of the wind or solar electricity is greater than $20 it will be a money losing proposition to substitute wind or solar electricity for gas electricity. If it is less, then it will be a profitable endeavor. The value of wind or solar is $20 per megawatt hour under these conditions.

LCOE for a natural gas plant includes an allowance for the amortization of the initial investment. It also depends on the utilization or capacity factor of the plant. The capacity factor is not very relevant to the properties of natural gas generation because real utilities over-provision their generator capacity to account for peak demand and the possibility of plants being under repair.

LCOE for a wind or solar farm is almost entirely capital cost spread over the number of megawatt hours generated with due consideration for the time value of money. The marginal cost is near zero because it costs nothing extra to generate an additional megawatt hour and nothing is saved if fewer megawatt hours are generated. If plant output is curtailed because the grid cannot accept all the wind or solar power available, the cost per megawatt hour is proportionally increased. Overwhelming the grid with wind or solar is an increasingly serious problem.

The Departure From a Free Market

The most important government intervention is state renewable portfolio laws. These laws define renewable energy and set quotas for what proportion of the electricity in the state must be from renewable sources.

Without getting too complicated, renewable energy is usually defined as anything that is not fossil fuel, nuclear energy or hydroelectricity involving dams. Most of the energy that passes that test is too expensive or not scalable. Wind and solar are too expensive and handicapped by intermittency, but they are scalable. The result is that renewable energy is almost always wind or solar. A few states allow hydroelectricity with dams to be considered renewable. Hydro has limited scalability due to the best sites being already developed.

Renewable portfolio laws mandate the purchase of an increasing proportion of renewable electricity. For example, California requires that 60% of the electricity be from renewable sources by 2030.

The second most important government intervention are federal subsidies, tax credits and complicated tax provisions called tax equity financing, that subsidize about 50% of the cost of building a wind or solar farm.

Mandating the purchase of renewable electricity changes the nature of the market for renewable electricity. Without the mandates the owner of a wind or solar farm is doomed to beg utilities to purchase electricity for far less than it costs to generate. The farm would soon be bankrupt. But with mandates the utilities are knocking on his door begging for renewable power that they are mandated to purchase, without regard to the price. Renewable portfolio laws change the market from a buyers’ market to a sellers’ market.

There are a handful of companies with the expertise and financial resources to construct billion-dollar, utility-scale, wind or solar farms. Although they nominally compete by bidding for the sale of electricity, they constitute an oligopoly.  That is to say that the competition will not be as vigorous as it would be if more players were in the market.

The most common deal structure is that the developer constructs a wind farm and sells the electricity to the utility. Because the market is tipped in favor of the big companies, they are able to require a long-term contract, called a power purchase agreement or PPA, usually 20 for years, guaranteeing a market at a set price for all the electricity that the project can produce. That long-term market and price guarantee has tremendous value.

The PPA is a subsidy because by removing market risk, the farm becomes less like a business and more like a treasury bond. The price per megawatt hour can be less because a lower rate of return is viable. Risk has been removed. With the guaranteed market, the farm becomes marketable to conservative investors like infrastructure funds or pension funds. I estimate that the PPA reduces the rate of return needed from 12% to 8% and thus subsidizes the cost of renewable electricity by a third.

That subsidy is not cost free. The utility is assuming massive debt and risk by signing the PPA. There are plenty of possible reasons why utilities might want to get out of PPA’s in five or ten years. For example, lower cost nuclear electricity.

Between renewable portfolio laws and federal subsidies, the wind or solar farm is about 66% subsidized. For example, if the LCOE of the wind or solar electricity is $100 per megawatt hour, after the subsidies are applied it is $33 per megawatt hour. This is still more than the $20 that the electricity is worth. To close the gap the utility must raise its rates to pay for the extra $13 per megawatt hour. The final subsidy comes from the electricity customers.

Justifications for Massive Subsidies

The first justification is that reducing CO2 emissions will prevent a climate catastrophe. This justification fails for several reasons. Reducing American CO2 emissions will have little effect because the emissions problem is in Asia where emissions not only dwarf ours but are skyrocketing due to development of coal powered generation.

The cost of reducing CO2 emissions by wind or solar is very high, more than $300 per metric ton of CO2 removed. The subsidy is the cost of removing CO2. It becomes increasingly difficult to augment the amount of wind or solar above 50% due to their intermittent nature. Carbon offsets can be purchased for as little as $10 per ton, although not enough would be available to neutralize CO2 emissions from the entire power system. Serious reduction of emissions at reasonable cost requires adopting nuclear power, generally prohibited by renewable portfolio laws.

The second justification is that fossil fuel or nuclear fuel will run out. Within the borders of the U.S. is enough fossil fuel for hundreds of years and nuclear fuel for thousands of years. It is not sensible to turn the economy upside down in anticipation of a theoretical event centuries in the future.

A third justification is that fossil fuel plants cause air pollution, and nuclear plants may release harmful radiation. Modern coal or natural gas plants are environmentally clean. Nuclear plants are proven by hundreds of plants running for decades. The worst accidents were easily contained.

Finally, the increase in CO2 in the atmosphere has greened the Earth and substantially increased agricultural production. CO2 is aerial plant food.

When will the nation wake up and stop the bleeding?

Norman Rogers writes about energy and is the author of the book Dumb Energy. More detailed discussion and computational details is at https://windsolarcon.org.

For the first time since the August 6th Kursk incursion, Russian forces claim they have destroyed a US-made Abrams tank used by the Ukrainian army on Russian territory.

TASS cited a top-ranking military commander, Major General Apty Alaudinov, to say Thursday that an Abrams tank was destroyed “today”. Starting a week ago Sky News began reporting on the destruction of UK-supplied Challenger II main battle tanks during the same offensive.

“Everything is very good for us on the frontline so far and everything is under control. The enemy has attempted no active combat operations today while we have destroyed about ten items of equipment, including pickup trucks and also an Abrams tank today,” the Russian general said.

“In addition, we have eliminated several artillery guns of various caliber and also several command posts. That is why, the situation is very good for us in our frontline sector,” he added.

Neither the US nor Ukrainian side have confirmed the loss of an Abrams, and it’s not expected that the Pentagon would comment on it even if true.

If confirmed, it would certainly mark a massive escalation of the war, and strongly suggests that French and German tanks are also crossing the border into Russia (or else soon will). Already the Russian side has confirmed that its aerial forces took out Bradley Fighting Vehicles during the Kursk raid, which has been unfolding for more than a week.

The US has been among a few countries which have greenlighted Kiev forces’ ability to use Western weapons to strike positions inside Russia, but only those areas from which strikes on Ukraine are launched.

The White House and Western allies have been vocal in supporting the Kursk operation, but the US claims it did not have foreknowledge of the invasion. President Biden on Tuesday told reporters, “I’ve spoken with my staff on a regular basis probably every four or five hours for the last six or eight days.”

Various Russian media and independent accounts have claimed to have footage of a US M1 Abrams being disabled or destroyed inside Kursk Oblast…

Biden previously said that “it’s creating a real dilemma for Putin.  And we’ve been in direct contact — constant contact with — with the Ukrainians.”

But by all accounts Russian forces are still advancing in Ukraine’s east, rolling back Ukrainian front lines, amid ongoing severe manpower and artillery shortages for Kiev.

Authored by Martin Armstrong via ArmstrongEconomics.com,

The World Economic Forum (WEF) is a well-funded organization many consider terrorists that is permitted to wreak havoc on the global population with no repercussions.

Klaus Schwab and his “forum” have been proclaiming how they will change the lives of the masses for years but everyone turns a blind eye.

They told us we will eat bugs, they told us we will own nothing, they’ve been warning of their sinister plans for some time.

The WEF infiltrated government cabinets and altered the left side of politics in every single Western nation.

Earlier this week, the WEF recently released an ominous article, warning that we must prepare for “an era of shock events” in the near future.

Power disperses in a post-superpower era

The forum stated years ago that one of its goals was to remove America’s title of global superpower.

“Since the pandemic eased, the reality is we haven’t had enduring global leadership on much, and it’s hard to imagine that changing soon. This is partly because superpowers are terribly burdened with global wars and domestic challenges,” the WEF warned.

A global government is their proposed solution.

A big election year won’t stop our recurrent crisis of political legitimacy

The WEF warns that “disinformation” is threatening “the biggest election year in history,” hence the need for global censorship both on the streets and online.

The forum warns that democracy is declining, largely due to policies it implemented.

Civil unrest is rising and the WEF is prepared for the dissent. Furthermore, they already recognize that no one will accept the results of the election.

“People have fought back in all political systems, driven by a conviction that there must be a better, more effective way to govern. In most countries, even after their vote, citizens will continue to challenge their leaders, questioning whether they have the capacity to tackle our many post-pandemic risks,” the article notes.

In other words, the people have become unruly and are turning on governments. The World Economic Forum is prepared to crush any rebellion before it occurs.

A more complex global mental health crisis

Countless studies show that mental health drastically declined among every nation that implemented lockdowns.

Two years of 24/7 fear mongering, business and school closures, job losses, and isolation have permanently changed our society.

The World Economic Forum now that’s that there is ‘new type of anxiety “leading to a sense of alienation that makes it hard to function and even suicide.”

ECO-ANXIETY and AI.

Those who believe the claims that the world will end every few years have become ill. The climate change hysteria is wreaking havoc, as intended so that governments can continue to spend on an unidentifiable problem without the masses questioning their perpetual spending.

Then we have the claims that 50% of the workforce will be replaced with AI, leaving human being utterly useless and disposable.

Again, both of these fears have been orchestrated by the same organization that wants to ease them.

An era of shock events

Perhaps the most ominous piece in this article is Schwab’s promise that the world is on the cusp of “an era of shock events.”

“Enduring global leadership, democratic ideals, globalization and liberal values have all been notably challenged and superpowers are overstretched,” the forum stated, further adding,

“This period of muddling through means anything can happen in our post-pandemic era. Look for global risks to be further exacerbated by unexpected, destabilizing shock events.”

These are the three major shock wave events that the WEF plans to orchestrate:

1. A new global extremist group emerges

The world will be “distracted with multiple major wars and leadership in decline,” providing the globalist cabal with an opportunity to install a “new extremist group.”

2. A cyber pandemic – that is intentional

The forum believes this group will implement AI in its “new phase of terrorism.”

The massive global IT outage in July 2024 led to $5.4 billion in damages.

Was that a test?

The forum warns that we should expect a “grander scale” of cyber-attacks that will attack BANKS, hospitals, and retailers and lead to a halt in worldwide services.

Flights will be impacted and the people will be forced to stay in place.

3. Climate change claims its first island nation in the post-pandemic era

Last but not least, the forum believes an island nation will soon be lost to climate change.

“The COP28 plan to phase out fossil fuels may take decades and it’s unclear if world leaders will follow through,” the cabal notes.

They are willing to orchestrate an event that will lead to mass death and destruction.

A clear, identifiable tragedy that can be blamed on the changing climate, forcing people to believe that the hysteria surrounding climate change is justifiable. What world leader can question climate change if or when an island nation is lost?

Klaus Schwab’s organization is promising civil unrest, economic collapse, World War III, and the evaporation of a nation.

They will use all of the aforementioned fear tactics to drain the people of their power.

The globalists are willing to batter the masses with a series of attacks that will act as a staunch warning that there is nowhere to run.

The government will come in to save the day from the crises they create.

Which government?

A global government that is capable of assembling to control the entire human population.