October Surprise: ADP Employment Report Signals Six-Sigma Beat (A Week Before Elections)

October Surprise: ADP Employment Report Signals Six-Sigma Beat (A Week Before Elections)

With the election right around the corner, we simply can’t imagine a ‘bad’ employment print… and sure enough… ADP’s Employment Report shows the addition of 233k jobs in October (more than double the 111k addition expected) and September was revised higher…

Source: Bloomberg

That is the biggest monthly addition since July 2023… and a six sigma beat of expectations…

Source: Bloomberg

Service-providing jobs surged at their fastest pace since July 2023 while goods-producing job growth slowed…

Source: Bloomberg

“Even amid hurricane recovery, job growth was strong in October. As we round out the year, hiring in the U.S. is proving to be robust and broadly resilient,” says Nela Richardson Chief Economist, ADP.

Year-over-year pay gains for job-stayers dipped to 4.6 percent, continuing a two-year slowdown. For job-changers, pay gains slowed to 6.2 percent.

Source: Bloomberg

Finally, as a reminder, ADP has underestimated the official BLS data for 12 of the last 14 months…

Source: Bloomberg

This is not what The Fed doves wants to see…

Source: Bloomberg

…but will they cut under Trump?

Tyler Durden
Wed, 10/30/2024 – 08:24

via ZeroHedge News https://ift.tt/uZctsE2 Tyler Durden

Futures Flat Even As Surging Alphabet Leads Tech Higher, Gold Hits New Record

Futures Flat Even As Surging Alphabet Leads Tech Higher, Gold Hits New Record

US equity futures are flat, reversing modest overnight gains ahead of the next batch of earnings. As of 8:00am ET, S&P futures were flat while Nasdaq 100 futures are up 0.1%; GOOG was the second of the Mag7 to beat earnings, and the stock is +5.4% pre-mkt after beating across the board on strong cloud growth. AMZN, META, MSFT are all trading up at least 1.7% pre-market. Semis are lower with AMD -8.5% and NVDA -80bps. Bond yields are lower as the curve bull steepens ahead of ADP numbers and US Q3 GDP/Price releases. A Bloomberg gauge of the dollar snapped a three-day advance, and the commodity bid returned led by Energy. META and MSFT are the next Mag7 earnings today. Today’s macro US economic data calendar includes October ADP employment change (8:15am), 3Q advance GDP (8:30am) and September pending home sales (10am).

In premarket trading, Alphabet gains 6%, showing an expensive foray into artificial intelligence is starting to pay off, delivering better-than-expected sales for its cloud-computing business. On the other end, AMD tumbled 8% after the chipmaker’s revenue outlook fell below Wall Street’s expectations, signaling that its artificial intelligence sales are growing slower than some had anticipated. Eli Lilly tumbled 11% after the Mounjaro and Zepound maker lowered its full-year guidance as sales of its blockbuster weight-loss drug fell short of expectations, which the company blamed on inventory issues. Translation: the fat bubble is finally over. Qorvo, whose biggest customer is Apple, tumbled 19% after forecasting revenue and profit far short of estimates. Here are some other notable premarket movers:

  • Chipotle (CMG) drops 5% after reporting third-quarter sales that fell just short of Wall Street’s expectations, highlighting the high bar to which investors are holding the chain after it’s outpaced many peers this year.
  • Eli Lilly & Co. (LLY) sinks 9% after the company lowered its full-year guidance after sales of its blockbuster weight-loss drug fell short of expectations.
  • First Solar (FSLR) falls 7% on a lowered full-year guidance partly due to India market headwinds.
  • NerdWallet (NRDS) surges 27% after the consumer finance firm’s third-quarter revenue beat estimates.
  • Reddit (RDDT) rises 20% after the company’s sales and forecast beat analyst expectations.
  • Visa (V) gains 2% after the payments company’s fiscal fourth-quarter earnings surpassed expectations.

Just about a week away from the Fed’s decision, and less than a week from the presidential election, investors are turning their focus to three high-profile reports in the US that look set to show underlying resilience in the economy and a temporary hiccup in job growth. They’re also positioning for a too-close-to-call US presidential election on Nov. 5.

“The mood in the market today feels more like the calm before the next storm,” said Hebe Chen, a market analyst at IG Markets Ltd. “Traders are on edge, bracing for the incoming tide of uncertainties from multiple sources,” including the US election and major tech earnings.

European stocks decline on another day packed with earnings reports, with all eyes on the UK budget later Wednesday. The euro area’s economy expanded more strongly than expected in the third quarter, data showed Wednesday — with even Germany avoiding the recession it was widely tipped to endure. A measure of economic confidence, however, unexpectedly declined. The Stoxx 600 fell 1% to 512.4 with all 20 sectors in the red but consumer and technology sectors were the worst performers. Here are some of the biggest movers on Wednesday:

  • ASM International shares rise as much as 8.1% after the Dutch firm raised the lower end of next year’s sales guidance, seeing continued strength in demand for equipment used to make the next-generation logic and memory chips.
  • Puig shares jumped as much as 15%, most on record, after the Spanish luxury beauty company reported 3Q net revenue that rose 11.1% to €1.257b from the same period a year earlier, according to a regulatory filing.
  • Aston Martin shares rise as much as 6.2% as analysts highlighted an extended order book and hopes of improving cash flow generation in the UK carmaker’s third-quarter results.
  • Georg Fischer shares jump as much as 16% as the Swiss maker of flow-control equipment said it is divesting its machining business to focus on its water unit, which is less cyclical.
  • Kion gains as much as 10% following results which generally pleased analysts, especially on the warehouse equipment firm’s Ebit performance.
  • Volkswagen shares rally from recent lows after the German carmaker reported third-quarter earnings that Stifel analysts say were “better than feared.”
  • Campari shares slide as much as 17% after the Italian beverage maker saw a significant miss in the third quarter, with negative organic sales growth.
  • Grenke slumps as much as 29%, the most since Feb. 2021, following a cut to the German leasing finance provider’s guidance for the full year.
  • Capgemini shares fall as much as 8.1% after the French IT provider reduced revenue growth guidance for a second consecutive quarter, dragged by a decline in its North America market and weaker client demand in areas including manufacturing.
  • Amundi shares drop 5.8% as analysts at Morgan Stanley warned a negative flow mix and an exceptional tax surcharge in France could weigh on forward estimates, overshadowing an otherwise in-line set of results.

Traders have pared their ECB interest-rate cut bets after the euro-area economy grew more than expected – with even Germany avoiding the recession it was widely tipped to endure – and German state inflation readings suggested the national print will top estimates. A measure of economic confidence, however, unexpectedly declined.The German yield curve has flattened as a result, with two-year yields reversing course and rising 2 bps to 2.15%. The euro also got a boost, climbing 0.2% against the greenback. Gilt yields drop across the curve ahead of the budget while the pound falls 0.3%.

A key gauge of Asian equities traded in a narrow range, as gains in Japan were countered by losses in Chinese markets. The MSCI Asia Pacific Index slipped 0.1%, erasing an earlier rise of as much as 0.4%. The biggest contributors to the  measure’s advance included Hitachi, Disco and Keyence, while TSMC and Tencent ranked among the major drags. Japanese benchmarks led gains as tech shares tracked advances in their US peers. Local exporters are also expected to benefit from the continued weakness in the yen, while an improved outlook for nuclear power is supporting utility shares. The Bank of Japan is widely expected to stand pat Thursday, having paused its path toward higher interest rates. Key gauges in Hong Kong and mainland China dropped on continued volatility as traders await more decisive moves from Beijing to support the ailing economy and markets. The nation is weighing a package of more than 10 trillion yuan ($1.4 trillion).

In FX, the Bloomberg Dollar Spot Index dropped 0.2%, snapping three days of gains. US 10-year Treasury yield fell 3 basis points to 4.22%. EUR/USD heads for a third daily advance, gains as much as 0.4% to 1.0859, highest since Oct. 21, before halving gains

In rates, treasuries advance across the curve as 10-year note futures extend through to fresh weekly highs into early US session. Long-end leads gains on the day, flattening 2s10s and 5s30s close to Tuesday’s lows. US long-end yields are richer by nearly 4bp, flattening 2s10s, 5s30s spreads flatter by 2bp and 1.5bp on the day; 10-year is around 4.22% with gilts outperforming by 5.5bp in the sector. Gilts bull-flatten ahead of the revised gilt remit, which may skew more debt issuance away from the long-end. German short-dated maturities lag after regional inflation and GDP data saw ECB rate-cut pricing fade. US session includes October ADP employment change and first estimate of 3Q GDP.

In commodities, oil steadied after a two-day decline on the prospect for a further easing of hostilities in the Middle East. WTI rose 1% to $67.90 a barrel.  Gold hit a fresh record early on Wednesday rising $11 to $2,786/oz as traders weighed potential market disruption ahead of the election. Bitcoin, seen as a Trump trade, held above $72,000, on the cusp of topping its March high.  

Looking at today’s US economic data, the calendar includes October ADP employment change (8:15am), 3Q advance GDP (8:30am) and September pending home sales (10am). Fed officials are in self-imposed quiet period ahead of Nov. 7 policy announcement

Market Snapshot

  • S&P 500 futures up 0.2% to 5,884.75
  • STOXX Europe 600 down 0.5% to 515.42
  • MXAP down 0.1% to 187.04
  • MXAPJ down 0.7% to 594.78
  • Nikkei up 1.0% to 39,277.39
  • Topix up 0.8% to 2,703.72
  • Hang Seng Index down 1.5% to 20,380.64
  • Shanghai Composite down 0.6% to 3,266.24
  • Sensex down 0.5% to 79,966.37
  • Australia S&P/ASX 200 down 0.8% to 8,180.36
  • Kospi down 0.9% to 2,593.79
  • German 10Y yield little changed at 2.30%
  • Euro up 0.2% to $1.0839
  • Brent Futures up 1.2% to $72.00/bbl
  • Gold spot up 0.3% to $2,784.22
  • US Dollar Index down 0.20% to 104.11

Top Overnight News

  • China’s ~$1.4T fiscal stimulus plan might just stabilize (rather than materially boost) the country’s growth trajectory. RTRS
  • Xi Jinping urges Chinese officials to make all-out effort to hit annual growth targets. Beijing has already unveiled a series of stimulus measures, with more expected amid a final push to reach this year’s ‘around 5 per cent’ target. SCMP
  • Australia’s CPI cooled in Q3 and Sept (the Sept CPI tumbled to +2.1%, down from +2.7% in Aug and below the consensus forecast of +2.3%), although it’s likely the RBA will hold off on immediately cutting rates. WSJ
  • Ukraine and Russia are in preliminary discussions about halting strikes on each other’s energy infrastructure, according to people familiar with the matter. FT
  • UBS profit almost doubled estimates, equity trading gains outperformed peers and wealth management saw net new assets of $25 billion. The stock climbed to a 16-year high. European banking needs consolidation and “national interests” shouldn’t get in the way, CEO Sergio Ermotti said. BBG
  • The euro-area economy grew more than expected last quarter, with Germany unexpectedly dodging recession. Momentum accelerated in France while Italy was the weak point. The euro ticked up. US GDP, due later, probably slowed to 2.9%. BBG
  • John Paulson, a potential Treasury Sec candidate if Trump wins, said he would work w/Musk to slash gov’t spending. WSJ
  • Musk warns Trump’s economic agenda will cause “temporary hardship” in the country (Musk said there would be an “initial severe overreaction in the economy” and that the “market will tumble” if Trump wins and enacts his plan). NYT

A more detailed look at global markets courtesy of Newsquawk

APAC stocks were mostly lower after the mixed performance stateside and as participants braced for this week’s key risk events including mega-cap earnings in the US and a deluge of data releases. ASX 200 was pressured by notable weakness in the consumer sectors after Woolworths flagged a challenging fiscal year. Nikkei 225 bucked the trend and extended above the 39,000 status with the BoJ widely expected to refrain from further policy normalisation when it concludes its 2-day policy meeting tomorrow. Hang Seng and Shanghai Comp declined with the former dragged lower by weakness in tech and automakers owing to trade-related headwinds from the threat of higher US tariffs in the event of a Trump election victory next week and after the EU imposed duties on subsidised EVs from China, while the losses in the mainland were initially cushioned following prior reports of a potential fresh fiscal package before eventually succumbing to the broad risk aversion.

Top Asian News

  • China responded to US finalised restrictions on Chinese technology in which it called on the US to end the politicisation of economic affairs and hopes the US respects market economy rules, while it sees the US action as damaging to Chinese and American business collaboration.
  • MOFCOM said China does not agree with or accept the ruling regarding EU tariffs on Chinese EVs and opened proceedings at the WTO, while it noted the EU’s indication it will continue to consult with China on a price commitment plan.
  • EU imposed duties on unfairly subsidised EVs from China while discussions on price undertakings continue with duties of 17% imposed on BYD, 18.8% on Geely and 35.3% on SAIC. Furthermore, Tesla will be assigned a duty of 7.8% and all other non-cooperating companies will have a duty of 35.3%.
  • Japanese opposition CDP leader Noda will submit a no-confidence motion against the Cabinet and asked the Japan Innovation Party to vote for him to become PM, although Noda reportedly declined to respond to a request by the Japan Innovation Party.
  • Japan Exchange Group announced the Tokyo Stock Exchange will extend trading hours by 30 minutes from November 5th with the new close to be at 15:30 local time (06:30GMT/02:30EDT).

European bourses, Stoxx 600 (-0.8%) began the session entirely in negative territory and continued to gradually trundle lower as the morning progressed. European sectors hold a strong negative bias. Retail just about holds afloat, lifted by post-earning strength in Next. Financial Services was initially propped up by gains in UBS, but has since edged towards the middle of the pile. Tech is found at the foot of the pile, with strong ASM International (+4.3%) results ultimately outmuscled by the dim mood across chip-names after AMD’s Q4 outlook disappointed. US Equity Futures (ES +0.2% NQ +0.2% RTY -0.1%) are mixed and ultimately trading on either side of the unchanged mark ahead of a very busy docket, which includes; US ADP, PCE Prices/GDP Advance and a very busy data docket. In terms of pre-market movers; Alphabet (+5.5%) gains after it beat on Q3 and amid continued optimism surrounding AI which has boosted its cloud business. AMD (-8.5%) reported a mixed set of results, but its Q4 outlook was soft.

Top European News

  • UK Chancellor Reeves is to provide armed forces a boost of nearly GBP 3bln in the Budget, according to The Telegraph.

Notable Earnings

  • Alphabet Inc (GOOGL) Q3 2024 (USD): Adj. EPS 2.12 (exp. 1.84), Revenue 88.27bln (exp. 86.31bln). Google advertising revenue: 65.85bln (exp. 65.5bln), Google Search & Other revenue: 49.39bln (exp. 49.08bln), Google Cloud revenue: 11.35bln (exp. 10.79bln), YouTube ads revenue: 8.92bln (exp. 8.89bln) Co. shares were higher by 5.9% after-hours
  • Advanced Micro Devices (AMD) Q3 2024 (USD): adj. EPS 0.92 (exp. 0.92), Revenue 6.82bln (exp. 6.71bln) Co. shares were lower by 7.6% after-hours
  • Snap Inc (SNAP) Q3 2024 (USD): EPS 0.08 (exp. 0.05), Revenue 1.37bln (exp. 1.36bln). Co. shares were higher by 10.6% after-hours
  • Visa (V) Q4 2024 (USD): Adj. EPS 2.71 (exp. 2.58), Revenue 9.6bln (exp. 9.49bln). Co. shares were higher by 1.8% after-hours
  • Caterpillar Inc (CAT) Q3 2024 (USD): Adj. EPS 5.17 (exp. 5.34), Revenue 16.11bln (exp. 16.08bln).

FX

  • USD is marginally softer vs. most peers in what will be a session set to endure a raft of US data including GDP, quarterly core PCE and ADP with the latter (rightly or wrongly) set be used to gauge expectations for Friday’s NFP print.
  • EUR is firmer vs. the USD with some support garnered from better growth outturns in Germany and the Eurozone. This matters because the ECB is seemingly increasingly focused on growth dynamics. Albeit, markets are still awaiting inflation metrics tomorrow. The next upside target for EUR/USD comes via the 200DMA at 1.0868.
  • GBP flat vs. the USD in the run up to today’s UK budget. As mentioned in our commentary throughout the week, the budget is meant to be expansionary on a headline basis despite a potential squeeze on an individual basis. ING expects the event to not be a game-changer for the GBP, however, if there is to be a negative risk, it stems from the Gilt supply remit. For now, Cable is tucked within yesterday’s 1.2959-1.3058 range and above its 100DMA at 1.2974.
  • JPY is ever so slightly softer vs. the USD. Updates out of Japan have seen reports that opposition CDP leader Noda will submit a no-confidence motion against the Cabinet and asked the Japan Innovation Party to vote for him to become PM. USD/JPY is currently caged within yesterday’s 152.75-153.86 range ahead of a busy session of US data.
  • Despite a sluggish start to the session, both antipodes have managed to pick themselves up. AUD/USD printed another multi-month low overnight at 0.6538 before moving back into the green.
  • SNB Chairman Schlegel says the CHF is a safe haven, which appreciates in times of uncertainty; ready to react to pressure and intervene in FX markets.

Fixed Income

  • Bunds were initially firmer going into German GDP/State inflation metrics, but dipped into negative territory following stronger-than-expected Q3 GDP and hotter than the mainland implied state CPIs for October. Thereafter, EZ growth metrics also came in higher than expected but sparked no real reaction as this echoed the lead from Spain & Germany earlier in the session. Bunds currently trading around 132.70.
  • Gilts outperform and hold near session highs at around 96.05. Focus for the complex is entirely on the upcoming UK budget, where the reaction will depend on just how much headroom Reeves gives herself and then, more pertinently, how much she utilises; for reference, the Reuters survey looks for the 2024/25 Gilt remit to increase by 17bln from 278bln to 295bln.
  • USTs are modestly firmer but ultimately awaiting data and refunding. Q3 GDP is forecast at the 3.0% mark which would be in-fitting with the prior but above the final AtlantaFed GDP Nowcast of 2.8%. Thereafter, we turn to Quarterly Refunding which is largely expected to reiterate the last outing though attention is on any change to their guidance for no increase to coupon or FRN sizes for the next several quarters. Currently sitting at session highs at around 111-04+.
  • Italy sells EUR 5.5bln vs exp. EUR 4.75-5.5bln 3.00% 2029 & 3.85% 2035 BTP & EUR 3.5bln vs exp. EUR 3-3.5bln 2033 CCTeu.

Commodities

  • Crude benchmarks are in the green, deriving support from the firmer US tone though have faded from best amid the soft European start. Upside which came after a surprise draw in the headline inventory measures last night. Brent’Jan 25 currently sits around USD 71.30/bbl.
  • Spot gold is a touch firmer benefitting from the softer yield environment and accompanying USD pressure; a narrative which could well change on upcoming key US data and the latest refunding announcement. Just off a USD 2789/oz peak, which marked yet another ATH.
  • Base metals are largely contained, with specifics somewhat light after a busy session yesterday where reporting of Chinese stimulus drove upside in the European morning.
  • Private Inventory Data (bbls): Crude -0.6mln (exp. +2.2mln), Cushing +0.3mln, Distillate -1.5mln (exp. -1.4mln), Gasoline -0.3mln (exp. +0.5mln).
  • Kazakhstan is to cut its 2024 oil output target from the current 90.3mln tons, according to the Energy Minister.
  • India’s gold consumption rose 18% Y/Y in Q3, as investment and jewellery demand jumps, via World Gold Council.

Geopolitics

  • Iran’s Defense Minister says “there has been no disruption to missile production since the Israeli attack”.
  • Israeli army issues bombing notice to the entire eastern city of Baalbeck and surrounding areas, according to Reuters citing IDF spokesperson.
  • Israeli officials cited by Axios noted that Hezbollah is ready to distance itself from Hamas in Gaza and the IDF is close to ending the ground operation in villages in Lebanon that border with Israel, while the army reportedly recommended to PM Netanyahu that the time is right to end the fighting in Lebanon. Furthermore, Haaretz reported the security establishment is unanimous regarding exploiting military achievements in southern Lebanon and Gaza to reach agreements to end the war
  • US President Biden’s advisers are to visit Israel to try to seal a deal to end the war in Lebanon, according to Axios.
  • Sirens sounded in several areas of Israel after the launch of surface-to-surface missiles from Lebanon, according to Al Arabiya.
  • Russia’s Kremlin dismisses FT report that Russia and Ukraine “are in early talks about stopping striking energy infrastructure”.
  • Ukraine and Russia are in talks about halting strikes on energy plants, according to FT.
  • US confirmed a small number of North Korean troops are already in Russia’s Kursk region, according to Yonhap. It was also reported that South Korea’s defence intelligence agency said it is possible some North Korean troops have been deployed on the battlefield in the Ukraine-Russia war and stated that North Korean troops are not ready for drone warfare in the Ukraine-Russia war.

US event calendar

  • 07:00: Oct. MBA Mortgage Applications, prior -6.7%
  • 08:15: Oct. ADP Employment Change, est. 111,000, prior 143,000
  • 08:30: 3Q GDP Annualized QoQ, est. 2.9%, prior 3.0%
    • 3Q GDP Price Index, est. 1.9%, prior 2.5%
    • 3Q Personal Consumption, est. 3.3%, prior 2.8%
    • 3Q Core PCE Price Index QoQ, est. 2.1%, prior 2.8%
  • 10:00: Sept. Pending Home Sales YoY, est. -1.1%, prior -4.3%
    • Sept. Pending Home Sales (MoM), est. 1.9%, prior 0.6%

DB’s Jim Reid concludes the overnight wrap

Just when the US Treasury sell-off was starting to gather fresh momentum yesterday, with 10yr yields close to 4.34% as Europe went home, along came a better auction which seemed to help turn things around in a volatile session, leaving it -2.8bp lower on the day at 4.255% with 2yr yields rallying c.8bps off the session highs to close -4.3bps lower. Still, in a sign of the heightened volatility going into the US election, the MOVE index ended the day at its highest level since October 2023.

The 7yr auction saw the highest bid-to-cover ratio since 2020, with bonds issued -2.0bps below the when-issued yield. So an encouraging sign on the demand for Treasuries after lacklustre 2yr and 5yr auctions the previous day. The move lower in yields saw one failed attempt after a weaker JOLTS report which contradicted last month’s bumper payroll release.

Job openings fell to their lowest level since January 2021, at 7.443m (vs. 8m expected). And the report also showed the quits rate of those voluntarily leaving their roles decline from 2.0% to 1.9%, which is the lowest since mid-2015 if you exclude the Covid months of March-June 2020. Although the JOLTS data is always a month behind other data, it is a very good guide to the labour markets so there should be some concern here. We’ll see if we can derive much signal from payrolls on Friday given all the recent storms and strikes.

On the plus side though, the Conference Board’s consumer confidence indicator surged to its highest level since January, at 108.7 (vs. 99.5 expected). Moreover, the difference between those saying jobs were “plentiful” and “hard to get” finally rose after 8 consecutive monthly declines, ticking up to a net +18.3%. So those on the extreme sides of the US employment debate at the moment could find something to cling to in the data.

Even though Treasuries reversed from their recent “Trump trade” association, other such trades continued to be strong. The Trump Media & Technology Group continues to be most correlated with his prospects, and they were up another +8.76% yesterday to their highest level since May. In the meantime, Bitcoin (+5.45%) closed at its highest level since March, at $72,700.
Even with the big moves of late, especially in yields, one view that hasn’t been much in doubt over the last couple of weeks has been the prospects that the Fed will cut rates 25bps next week. The likelihood has predominantly been in the 90-100% range since mid-October. On this Matt Luzzetti put out a note yesterday here explaining why policy rules would support the Fed cutting next week. They also discuss how the case for pausing or skipping will build in 2025, for various reasons which could include the election results. Staying with Matt’s US team, they’ve just published a good use case for AI by plugging in all Powell’s prepared FOMC press conference speeches into our chatDBT model and asking it to score each on a 1-10 hawkometer. They then correlated this to 2yr yields, amongst other variables, and get a good match. They are going to build on this work but if you want to see it please see here for more.

Moving onto equities, they had a mixed day. The S&P 500 (+0.16%) inched closer to its all-time high from a couple of weeks ago even as nearly 70% of its constituents were down on the day. The gain was rather driven by tech stocks, with the NASDAQ (+0.78%) reaching a record high of its own and with the Mag-7 outperforming (+0.88%). After the close we heard from Alphabet, whose results delivered a solid sales and earnings beat, amid strong cloud computing growth. Its shares rose by more than +5% in post-market trading. Those Mag 7 earnings will continue today, with both Meta and Microsoft reporting after the close.
Here in Europe, attention is now turning to the UK’s Budget today, which is the first of the new Labour government that came to office in July. Ahead of that, the 10yr gilt yield (+6.2bps) moved up to 4.31%, which is their highest closing level since June.

Moreover, the spread of 10yr gilts over bunds widened another +1.1bps to 198bps, which is their widest since August 2023. So from a market point of view, the main focus today will be on how much additional borrowing there is, particularly given it was just over two years ago that the mini-budget under Liz Truss sent UK markets into turmoil.

In terms of what to expect, an important focus will be on the new fiscal rules, and Chancellor Rachel Reeves has confirmed that the government is planning to change the way it measures debt in order to fund extra investment. In the meantime, tax rises have also been signalled, and discussions in the press have centered around an increase in national insurance contributions by employers, higher capital gains tax rates, and an extension to the existing freeze on income tax thresholds beyond 2028. See our economists’ preview of it here.

Elsewhere in Europe, markets struggled yesterday. Yields on 10yr bunds (+5.1bps), OATs (+6.7bps) and BTPs (+7.1bps) all moved higher, albeit with trading coming to a close before the rally in the latter part of the US session. Yesterday’s underperformance in Europe should also be viewed in the context of the outperformance over the past few weeks, with 10yr bund yields +21bps higher since the end of September, compared to a +47bp rise for 10yr Treasuries. Also unlike in the US, equities struggled, with the STOXX 600 (-0.57%) closing at a 3-week low. Maybe that’s a mini Trump trade in itself.

Asian equity markets are mostly lower this morning with the Hang Seng (-1.86%) leading losses followed by the CSI (-1.09%) and the Shanghai Composite (-0.86%). Elsewhere, the KOSPI (-1.07%) is also trading noticeably lower with the S&P/ASX 200 (-0.89%) also in the red, ending a three-day winning streak. On the other side of the ledger, the Nikkei (+1.09%) is bucking the regional trend and extending gains for the third consecutive session. S&P 500 (+0.15%) and NASDAQ 100 (+0.15%) futures are seeing small gains with US Treasury yields another basis point lower across the curve.

Coming back to Australia, the headline inflation sank to its lowest level in more than three years in the September quarter, mainly due to softer electricity and fuel prices. The CPI rose +0.2% q/q (v/s +0.3% expected) and slowing substantially from the +1% increase in the prior quarter. Trimmed mean CPI, which is closely watched by the RBA, rose +0.8% q/q, slightly down from +0.9% gain in the previous quarter but around consensus. The labour market in Australia remains strong and inflation is stickier than its DM peers so the data confirms no imminent rate cuts for now.

To the day ahead now, and US data releases include Q3 GDP, the ADP’s report of private payrolls for October, and pending home sales for September. Meanwhile in Europe, we’ll get Euro Area GDP for Q3, the Spanish CPI along with the German CPI and unemployment readings for October. From central banks, we’ll hear from the ECB’s Schnabel, Villeroy and Nagel, along with Bank of Canada Governor Macklem. Earnings releases include Microsoft, Meta, Caterpillar and Starbucks. Finally in the UK, the government will be announcing their Budget.

Tyler Durden
Wed, 10/30/2024 – 08:11

via ZeroHedge News https://ift.tt/6BQJMvi Tyler Durden

The Golden Rule Is Real

The Golden Rule Is Real

Authored by James Rickards via DailyReckoning.com,

There’s so much to discuss right now, from the upcoming election to geopolitical instability. But today I want to talk about gold. I call it the once — and future — money.

The use of gold as money existed from antiquity until gold backing broke down entirely in 1971. Still, central banks and finance ministries hold over 37,000 metric tonnes of gold in reserve.

Why? The answer is that gold is still at the base of global monetary systems. It’s simply the case that no government wants to admit this because the shortage of gold relative to bank notes would be exposed if they did.

But gold is coming to the fore of the monetary system again. Central banks are buying gold as fast as they can. Let’s look at some pertinent data before turning to the key geo-economic trends that will drive the dollar price of gold much higher in the near future.

The dollar price of gold today is $2,754 per ounce (subject to the usual daily fluctuations). As recently as Nov. 3, 2022, gold was $1,630. That’s a 69% gain in under two years. Gold was $1,375 per ounce in early June 2019.

That means the dollar price of gold has doubled in just over five years.

Most of the gains over that period have occurred in the past year. Gold was still $1,845 in October 2023. Whether we consider a multiyear trend or a more recent trend, gold has moved steadily higher with dramatic momentum lately.

There’s a simple but important bit of math behind these price moves that investors should understand. It’s the key to making huge profits in gold in the months ahead.

Investors tend to focus on the dollar price of gold and to analyze the price in round numbers. That makes sense.

If gold goes up $100 per ounce and you own 500 ounces, that’s a $50,000 profit. Another $100 per ounce gain means another $50,000 profit. That’s real money for you.

What investors may not realize at first is that each $100 gain (and $50,000 profit) is easier than the one before.

That’s because each gain is measured in constant $100 increments, but the measurement begins from a higher base. A constant dollar gain is a smaller percentage of an expanding base so it’s easier to achieve in percentage terms.

For example, if the price goes from $2,500 to $2,600 per ounce, that’s a 4% gain. But if the price goes from $2,900 to $3,000 per ounce (same $100 gain), that’s a 3.5% gain. Obviously, a 3.5% gain is easier to pick up than a 4.0% gain, but it’s the same $100 gain and $50,000 profit in your pocket.

This dynamic is even more dramatic if we look at $1,000 price increases. (That means $500,000 in profits if you own 500 ounces). When the price moves from $2,000 per ounce to $3,000 per ounce, that’s a 50% gain.

But when the price moves from $9,000 per ounce to $10,000, that’s only an 11% gain. Same $1,000 per ounce gain and same $500,000 in profit, but a much easier hurdle to move 11% compared with 50%.

The math is obvious, but the psychology is not. And investor psychology is the engine that will drive gold prices to much higher levels faster than most investors can imagine.

Below, I show you why gold is poised to blast off. Read on.

Gold Is on the Launchpad

The last time gold was taken seriously as a monetary asset was in the mid-1970s. The last time that retail investors had much appetite for gold investing was in the early 1980s. Gold hit $800 in January 1980. That was the all-time high at the time. Gold was flat to down from 1981–1999, hitting $250 per ounce in 1999 at the end of a 20-year bear market.

From there, gold reached a new high of $1,900 per ounce in August 2011, a 670% gain in 12 years. Then gold fell into a second bear market, falling $850 to $1,050 per ounce in December 2015. That was a 45% crash from the 2011 high.

If you treat the 1999 low of $250 per ounce as a baseline, the 2011–2015 crash was actually 51.5%: (850 / 1650 = 51.5%). That calculation is important. Jim Rogers, the greatest commodity trader of all time, told me that no commodity goes to the moon without a 50% correction along the way. Gold had its 50% correction in 2015. Now it’s off to the moon.

The point is that despite two bull markets (1971–1980 and 1999–2011) and two bear markets (1981–1999 and 2011–2015), gold investing never captured the popular imagination in the way that housing did in the early 2000s or that stocks have today.

Individual investors have been in and out of the market and investors from the early 2000s have done quite well. Hedge funds trade momentum but get out at the first speed bump. They don’t think of gold any differently than they do soybeans or oil. It’s just a trade.

The institutional investor footprint in the gold market is almost non-existent. From an investment perspective, gold has been an orphan asset with a few supporters but not many. That’s all about to change radically. Here’s why:

The first key to gold’s coming surge is the role of central banks. Retail and institutional investors may not be that interested in gold, but central banks definitely are. In recent years, central bank holdings of gold have surged from 33,000 metric tonnes to over 37,000 metric tonnes, a 12.0% gain measured by weight.

This increase has been heavily concentrated in two countries — Russia and China. Russian gold reserves have risen from 600 metric tonnes in 2008 to 2,335 metric tonnes today, a gain of 1,735 metric tonnes or nearly 200% from the 2008 base.

China also had about 600 metric tonnes in 2008 and today has 2,264 metric tonnes, a 275% gain. (There is good reason to conclude that China has undisclosed gold reserves, which would make those total and percentage gains ever higher).

Source: TalkMarkets

The Big 10 holders of gold include the usual suspects — The U.S., Germany, Italy, France, Switzerland and Japan. But the list also includes some newcomers such as Russia, China and India.

Other important countries are vying for a place in the global gold club. In the second quarter of 2024 (most recent available data), Poland added 18.7 tonnes, India added 18.7 tonnes, Turkey added 14.7 tonnes, Uzbekistan added 7.5 tonnes and the Czech Republic added 5.89 tonnes.

Why the large gold holdings and why the rapid additions to gold reserves if gold is not a monetary asset? The question answers itself. Gold is a monetary asset.

Central bank net buying is equivalent to about 20% of annual gold mining output. That doesn’t indicate a gold shortage, but it does put a firm floor under the dollar price of gold. That creates what we call an asymmetric trade.

On the upside, the sky’s the limit, but on the downside, the central banks have your back to some extent because they will definitely buy the dips to increase their gold hoards. That’s the best type of trade to be in.

So the stage is set. The simple math of easier percentage gains for constant dollar gains is the dynamic that can set off a buying frenzy and lead to super-spikes in the dollar price of gold. Central bank buying causes a relentless increase in the dollar price of gold and offers limited downside because they will buy the dips. All that is needed to set off the super-spike is an unexpected development that is not already priced in.

Now we have it. The BRICS met in Kazan, Russian Federation last week. The BRICS have a rotating presidency and this year Putin is president of the BRICS. The world is waiting for the announcement of a new BRICS currency. That may come in time, but not yet. The new currency may be 10 years away.

What happened instead was that Putin and the BRICS announced a new blockchain-based digital ledger to record trade payments using existing currencies of the BRICS members. The significance of this system (tentatively named “BRICS Clear”) is that there are no dollars involved and the secure payment channels are relatively safe from U.S. and EU sanctions.

Russia will sell oil to China for rubles, Brazil will sell aircraft to China for reais and India will sell technology to China for rupees and so on. (Alternatively, any BRICS member can elect to take the currency of any other BRICS member, all to be recorded on BRICS Clear).

Payments can be settled on a net basis instead of a gross basis. This means, for example, that Russia and China can trade goods and record payments. There will be “due to” and “due from” on the ledgers.

Those can be netted out with only the net amount changing hands. And this does not have to be done in real-time; it can be done monthly or quarterly. This greatly reduces the amount of payments and message traffic.

The central bank or commercial banks in each country can provide payments to local sellers in local currency while recording a due from the BRICS Clear ledger on its books.

That system can work well, but it leaves two issues unresolved compared to a single currency system. The first is stability in exchange rates while balances are left unsettled. The second is the overaccumulation of a certain currency by one party that may have limited use for that currency.

If you don’t want to take exchange rate risk, you can take your counterparty currency balances and buy gold. And if you have too much of a certain currency standing on your accounts, you can reduce the balance by buying gold.

The implications of this have not yet sunk into market pricing. It’s tantamount to an informal gold standard without fixed exchange rates. It relies on market forces (mostly denominated in U.S. dollars for now) and does not rely on huge hoards of freely convertible gold in central banks.

Still, it works. It positions gold as an anchor in a new international monetary system without the strictures of the classical gold standard.

The picture is now complete. Gold is on an upward path driven by central bank buying. Gold is poised to go much higher because the BRICS will use physical gold as their anchor instead of U.S. dollars. And investor psychology will cause a super-spike once the big dollar gains become a daily occurrence.

It’s a powder keg and the BRICS have just struck a match. The smartest move for everyday investors is to buy gold now before the fun really begins.

Tyler Durden
Wed, 10/30/2024 – 07:45

via ZeroHedge News https://ift.tt/Luyfr7C Tyler Durden

Campari Shares Crash With Cash-Strapped Consumers Denting Profit 

Campari Shares Crash With Cash-Strapped Consumers Denting Profit 

Shares of Italian beverage giant Davide Campari-Milano crashed on Wednesday following a disappointing third-quarter report that underscored the deepening global luxury slowdown. The company reported negative organic sales growth, attributing the decline to “pressure on disposable income from inflation and consumer and distributors reduced confidence.” 

Campari’s portfolio includes over 50 brands, including Aperol, Appleton, Cinzano, SKYY vodka, Espolón, Wild Turkey, Grand Marnier, and Forty Creek whisky. It reported adjusted earnings before interest and taxes that tumbled 13% in the third quarter compared with the same period one year ago to 139.4 million euros, missing the Bloomberg-compiled consensus estimate of 178.5 million euros. 

Here’s a snapshot of third-quarter results (courtesy of Bloomberg): 

  • Adjusted Ebitda EU171.8 million, -9.7% y/y, estimate EU209 million (Bloomberg Consensus)

  • Adjusted Ebit EU139.4 million, -13% y/y, estimate EU178.5 million

  • Sales EU753.6 million, +1.4% y/y, estimate EU820.3 million

  • Adjusted pretax profit EU114.4 million, -23% y/y

  • Pretax profit EU107.9 million, -20% y/y

And financial results for the nine months of the year. 

  • Adjusted Ebitda EU590.7 million, -1.8% y/y

  • Adjusted Ebit EU499.4 million, -4.1% y/y

  • Sales EU2.28 billion, +3.4% y/y

  • Americas rev. EU1.03 billion

  • Asia Pacific rev. EU147.6 million

  • EMEA rev. EU1.10 billion

Shedding more color on the earnings report, Goldman analysts Olivier Nicolaï and Aron Adamski wrote in a note to clients this morning that quarterly earnings were very weak and missed across all geographies… 

Campari reported weak Q3 results with -1.4% in organic sales, significantly below +9.3% Visible Alpha Consensus Data. EMEA sales declined -2.4% (vs +9% cons) with a -7% decline in Italy due to wholesaler de-stocking and customer de-listing, while sell-out was down -1%. Americas sales grew +1% (vs +8.7% cons) with a drag from Jamaica (-20%) caused by product availability constraints following a hurricane. USA sales were flat, with strong growth of Aperol and Campari offset by weak performance of SKYY as well as soft trends in Wild Turkey and Grand Marnier. APAC sales were -8.1% (vs +9% cons) due to a challenging macro in China and route-to-market change in India, while the competitive environment stepped-up in Australia (-4%) particularly in Wild Turkey. EBIT margin was 18.5% leading to a -23% miss on reported EBIT.

Guidance downgrade and share buyback €40m; Campari expects low-single digit organic sales growth in FY24 (+2% GSe), implying return to some growth in Q4. The company thinks US consumption will remain soft, while Jamaica should see the tail-end impact of the hurricane. While Italy de-stocking is done, EMEA should see further inventory reduction, ongoing competition & low consumer confidence in select markets. Management expects EBIT margin (-150bps GSe) to be negatively affected by adverse mix and operating de-leverage, despite a raw materials tailwind. While Q1 25 will likely remain soft, Campari is confident in a gradual return to mid-to-high single digit sales growth in the medium term with EBIT margin progression. The company also announced a €40m share buyback by November 2025.

Cut EPS FY24/25 estimate by -9%/-7%; At 23x CY25E P/E and 14x EV/EBITDA, we remain Neutral rated on Campari in light of limited visibility into FY25 amid ongoing weakness in US Spirits consumption and increased competition there and in Europe.

We highlight key developments during Q3 below…

Americas (44% of FY23) delivered +1% OSG in 3Q, driven by strength in Espolòn, Aperol and Campari, partially offset by SKYY, Wild Turkey and the hurricane in Jamaica. In the US, Q3 sales were flat, with consumer confidence subdued in both the on and off-trade. The July hurricane in Jamaica impacted distilling and bottling capacity, leading to supply shortages in the local Jamaican market as well as in the UK and US. Management highlighted that the disruption will end in Q4 albeit outlining longer-term issues in reaching full distilling capacity.

EMEA (48% of FY23 sales) sales declined -2.4% in Q3 on an organic basis. In Italy sales were down -7.0% in the third quarter impacted by unfavourable weather conditions in Spring/Summer and September which was exaggerated by aggressive destocking. The region also saw a retailer dispute, which resulted in a €1m sales impact in Q3. Germany declined -6.2%, against a high-base, while France saw a soft sector backdrop. In the UK, sales declined -9.7%, impacted by poor weather and supply shortages in Jamaican Rums and Magnum Tonic Wine linked to the Jamaican hurricane. Management expects no recovery of the shortfall in Q3 sales, due to the seasonality of Aperitifs. They expect to see a continuation of the impact from destocking, as well as low consumer demand and competition in selected markets.

APAC (8% of FY23 sales) declined -8.1% organically, driven by a particularly soft Australia and China. Australia declined -4% on an organic basis, with Aperol and Campari delivering double-digit growth momentum despite a challenging macro and competitive environment. Excluding the co-packaging segment, the country would have grown +8% in Q3, with the Espolòn RTD gaining traction. The rest of APAC saw a -12% organic decline, with India, South Korea and China offsetting growth in Japan.

In markets, shares crashed as much as 15% in Italy – the biggest one-day decline since early 2020. 

Is the party over? 

Back to the earnings report, Campari blamed weak disposable income on the inflation storm across the West, with consumers dialing back on expensive liquor. Then, of course, weak consumers in China as the property market and economic turmoil show no signs of abating anytime soon, despite Beijing offering another round of stimulus on Tuesday.

One week ago, the world’s largest luxury goods company, LVMH, missed earnings estimates for third-quarter organic sales amid a worsening slowdown in China. Analysts at Goldman called LVMH’s earnings report a “clear negative” for the global luxury industry. 

Tyler Durden
Wed, 10/30/2024 – 07:20

via ZeroHedge News https://ift.tt/RQBL8U5 Tyler Durden

AI Sucks Up A Growing Chunk Of VC Funding In The US

AI Sucks Up A Growing Chunk Of VC Funding In The US

Even more so than usual, San Francisco will be the epicenter of the world’s startup scene this week, as founders, investors and other industry insiders come together at TechCrunch Disrupt, one of the leading events of the startup scene.

Unsurprisingly, AI will take center stage at this year’s conference, as investors are looking for opportunities to invest in the booming, yet still nascent field and founders of AI-related companies will do everything to profit from the AI boom and secure fresh capital for their ventures.

As Statista’s Felix Richter shows in the chart below, AI has sucked up an increasingly large chunk of VC funding in the United States in recent years.

Infographic: AI Sucks Up a Growing Chunk of VC Funding in the U.S. | Statista

You will find more infographics at Statista

In the first nine months of 2024, AI-related investments accounted for 33 percent of total investments into VC-backed companies headquartered in the U.S. That’s up from 14 percent in 2020 and could go even higher in the years ahead.

According to Crunchbase data analyzed by EY, AI deals accounted for 37 percent of the $38 billion raised by VC-backed companies in Q3 2024, with four of the 10 largest deals involving AI-related companies.

The latest increase in AI-related investments is still expected to be just the beginning of a longer-term trend.

As EY notes in its latest report on VC investments, most of the funds funneled into the field are currently focused on building the foundation for the technology, e.g. developing and training AI models.

Once this wave of investment ebbs, entrepreneurs will need to figure out ways to actually utilize the potential of AI, which will likely kick off a second wave of AI investments.

Tyler Durden
Wed, 10/30/2024 – 06:55

via ZeroHedge News https://ift.tt/suMS0py Tyler Durden

Building A Better City: Why Markets Are Our Best Architect

Building A Better City: Why Markets Are Our Best Architect

Via SchiffGold.com,

What if the key to solving our urban crises, such as housing shortages, traffic congestion, and wealth inequality, lies not in more government intervention, but in the principles of free-market economics? Market urbanism offers a bold vision for our cities, one that harnesses competition and individual choice to create livable, thriving environments. As traditional planning methods falter, it’s time to utilize market-driven solutions to reshape our urban landscapes for the better.

At its core, market urbanism posits that cities work best through bottom-up, private sector activity rather than centralized government planning.

This concept, rooted in classical liberal economic principles, offers a compelling alternative to the status quo of urban development.

One of the most pressing urban issues today is the shortage of affordable housing. Conventional wisdom often blames developers and market forces for rising home prices. However, a closer examination reveals that government regulations, particularly restrictive zoning laws, are the primary culprits behind housing unaffordability. These regulations limit housing supply, driving up costs and exacerbating inequality.

Market urbanism calls for a significant relaxation or even abolition of these restrictive zoning laws. By allowing developers to build more densely and flexibly, cities can increase housing supply and naturally bring down prices. This isn’t just theory – real-world data supports this approach. Metros known for their more permissive building regulations consistently show lower median home prices compared to heavily regulated markets.

For instance, Houston, known for its relatively lax zoning laws, issued 88.3 building permits per 10,000 residents in 2019. In contrast, New York City issued only 30.4 permits per 10,000 residents. Unsurprisingly, Houston’s median home price remains far more affordable than New York’s. This pattern holds true across multiple metro areas, demonstrating a clear correlation between building freedom and housing affordability.

Transportation is another area in dire need of overhaul. Instead of relying solely on government-planned and operated transit systems, market urbanists advocate for a more diverse, competitive transportation landscape. This could include private bus services, ride-sharing platforms, and market-priced road usage to reduce congestion.

The success of such approaches is evident in areas that have embraced market-oriented transportation policies. Cities that have implemented congestion pricing, such as London and Singapore, have seen reduced traffic and improved air quality.

Opponents of market urbanism typically raise concerns about equity and displacement. They argue that market-driven development could lead to gentrification and the displacement of low-income residents. However, the root cause of these issues is the artificial scarcity created by restrictive regulations. By allowing more housing to be built across all neighborhoods, cities can relieve pressure on existing affordable areas and provide more options for residents at all income levels.

Market urbanism doesn’t call for a complete absence of government involvement in urban development. Rather, it advocates for a shift in the role of government from top-down planner to a simple facilitator of market processes. Governing bodies should ensure the system runs smoothly through external controls, instead of inefficiently dictating every minute internal detail.

As we look to the future, the need for new approaches to urban development becomes more apparent. The United Nations projects that by 2050, 68% of the world’s population will live in urban areas. This urban growth will require cities to adapt quickly and efficiently to meet the needs of their residents.

Market urbanism offers a promising path forward. By harnessing the power of markets and individual choice, cities can become more responsive to the needs and preferences of their residents. This approach has the potential to create more affordable housing, efficient transportation systems, and better overall urban spaces.

As we grapple with the urban challenges of the 21st century, it’s clear that the old ways of centralized planning and restrictive regulations are no longer sufficient. However, implementing market urbanist policies will require overcoming entrenched interests and long-held beliefs about urban development. It will take politicians cutting long-held ties to companies and lobbyists in favor of seeing their cities thrive. By embracing this approach, we can create urban environments that truly serve the needs of all residents and form cities with a prosperous future.

Tyler Durden
Wed, 10/30/2024 – 06:30

via ZeroHedge News https://ift.tt/02P14dm Tyler Durden

Stellantis Pausing Production Of Durango And Grand Cherokee Due To “Slow Sales”

Stellantis Pausing Production Of Durango And Grand Cherokee Due To “Slow Sales”

Signs from the auto industry continue to look grim. Yesterday it was Ford guiding expectations below Wall Street’s estimates and today it’s Stellantis announcing it is pausing production of its Durango and Grand Cherokee models due to “slow sales”.

Manufacturing facilities at FCA’s large Detroit Assembly Complex – Jefferson will be paused for a week, Motor 1 reported. Stellantis told its workers there would be a ‘temporary shutdown’ and ‘subsequent layoffs’ as a result.

Mopar Insiders first posted the “Important Notice of Layoff” memo, which said: “There will be no scheduled production at Detroit Assembly Complex Jefferson” for the dates of October 28 to November 1. 

The Motor 1 report said that in 2022, the Jefferson complex employed over 5,000 people, but about 200 workers faced permanent layoffs in September. 

Stellantis told Motor 1: “Stellantis continues to take the necessary actions to align production with sales. This includes making production adjustments at the Detroit Assembly Complex – Jefferson. The Company will continue to monitor the situation to assess whether further action is required.”

Recall, operations at Stellantis have been nothing short of a nightmare this year, as we have been reporting. Early this month we wrote that Stellantis Chief Financial Officer Natalie Knight informed her team of white collar workers about the need to take “drastic measures” to shore up the Jeep and Ram parent’s finances. 

Knight told her team, “The Doghouse is back!” As she explained, this belt-tightening initiative involves heavily scrutinizing requests for purchases from outside vendors to ensure maximum cost savings. 

She said the doghouse “is the name for much stricter attention and control around purchase requisitions,” adding, “If we apply more discipline, we can ensure big savings for the company.”

The following Monday, Stellantis reduced its margin forecast for the entire year.

Back in September, the company’s dealer network wrote a letter to then CEO Carlos Tavares accusing him of the “rapid degradation” of the automaker’s brands. 

US dealer network leaders said Tavares had engaged in “short-term decision making” that boosted last year’s profits and increased his compensation but hurt the Jeep, Ram, Dodge, and Chrysler brands.

And it looks like they may have been right…

Tyler Durden
Wed, 10/30/2024 – 05:45

via ZeroHedge News https://ift.tt/3ebCSqP Tyler Durden

Why Does The EU Want To Become More Like The US?

Why Does The EU Want To Become More Like The US?

Authored by Conor Gallagher via NakedCapitalism.com,

Economist Mario Draghi has held a lot of roles: Goldman Sachs executive, the European Central Bank president, and unelected prime minister of Italy. He’s now continuing his decades-long mission to remake Europe into a neoliberal paradise for the financial class as a sidekick to European Commission President Ursula von der Leyen.

That’s the best way to read his much-anticipated September report titled “EU Competitiveness: Looking Ahead,” which was requested by von der Leyen and coincidentally gave an economist’s stamp of approval to all of Ursula’s goals as commission president. It’s also why the roadmap laid out by Draghi is so important: it reveals much of the policy goals of the EU, which have long been underway and are set to continue. And it’s not pretty.

I wrote about the nonsensical energy policy contained in the report and alluded to Draghi’s ideas on productivity in a recent review of Ursula’s China “de-risking” strategy. Here I want to focus on the central theme contained in the title: competitiveness.

What are Draghi and company talking about when they talk about competitiveness? More local production, better quality of life for citizens, more competition? Of course not. It’s the opposite. And it promotes the doubling down on self-created crises like energy policy and looking to create new ones via a trade war with China. While tariffs on Chinese products aren’t necessarily a bad idea, it’s difficult to argue that the EU is really trying to protect industry for three reasons:

  1. If they were, they would be trying to get Russian gas flowing again. The lack of it has made EU manufacturing uncompetitive.

  2. They cannot simultaneously pursue neoliberal policies like austerity and an industrial policy. They’re certainly doing the former while saying they want to do the latter.

  3. They are escalating a trade war with China while being wholly unprepared as many products they rely on from China like certain drugs, chemicals and materials have no substitutes.

What Ursula, Draghi, and the European financial-political class are after isn’t more competitiveness at all; they’re seeking to complete the makeover of the EU into a neoliberal paradise (or hellhole depending on your viewpoint), which means less democracy, the further destruction of labor, and looking a lot more like — if not outright owned by — the US.

Let’s look at some key points of Draghi’s prescription for more competitiveness.

More Concentration

The EU says it needs a ton of money for investment. Indeed that is what Ursula’s Commission has been calling for, that’s what the big report from Mario Draghi called for, and what hundreds of other similar reports want too, but it does not appear to be forthcoming.

So what they turn to next is a walling off from the East and a wholesale selloff to the US in order to help create the large firms they argue are necessary to build technological supremacy. How is this strategy already playing out?

The EU-US Trade and Technology Council is currently hard at work getting EU regulations in line with American interests. The EU is already dominated by US IT companies that supply software, processors, computers, and cloud technologies and we can expect more of that as Draghi and Ursula call for more mergers and acquisitions and more US private equity and venture capital.

US Secretary of State Antony Blinken calls the United States’ allies and partners “force multipliers” and “a unique asset.”

Assets, indeed. As more European companies struggle due to high energy costs and long-stagnant economies driven in large part by the EU’s obsession with austerity, they’re increasingly becoming the focus of merger and acquisition specialists from the US. CDI Global reports the following:

In recent years, a marked increase in cross-border mergers and acquisitions (M&A) by US companies in Europe has emerged as a notable trend. This surge in transatlantic investment signifies a strategic shift by American firms, grounded in the USA, aiming to harness the diverse advantages and lucrative opportunities presented by European markets. From established corporate giants seeking expansion to agile start-ups on the lookout for innovative growth pathways, numerous compelling factors drive US businesses to explore European bargain-hunting ventures…

A significant allure for US companies investing in Europe is the potential for acquiring assets at bargain prices. Economic uncertainties, geopolitical fluctuations, and evolving market dynamics have led to decreased valuations of European companies in recent years. This creates a favorable environment for US investors, allowing them to purchase valuable assets at more attractive prices than those typically found in the US market.

In addition to favorable valuations, Europe offers relatively lower costs associated with labor, research and development (R&D), and operational expenses. European countries often provide substantial subsidies, tax incentives, and grants aimed at fostering innovation and business development, reducing the financial burden on US firms.

US private equity giant Clayton Dubilier & Rice destroyed the UK’s fourth largest supermarket chain in a few short years. Warburg Pincus joined a consortium to snatch up T-Mobile Netherlands a couple years ago. US-based Parker Hannifin is taking private the UK aerospace and defence group Meggitt. Gores Guggenheim grabbed Swedish electric carmaker Polestar.

The private equity firm KKR, which includes former CIA director David Petraeus as a partner, took home the fixed-line network of TIM, Italy’s largest telecommunications provider.  German energy service provider Techem was just sold off to the US asset manager TPG, and Germany’s awful economy is increasingly making its companies more likely targets for takeovers. The spooky Silicon Valley company Palantir is already making itself at home in the UK National Health Services, and it’s knocking on the door in Italy. Meera Shah, a senior corporate finance manager at Buzzacott and member of the Corporate Finance Faculty’s board, explains:

“Selling assets into the US has always been a fairly chunky part of what we do, but even with that track record, we’ve seen a significant increase in inbound interest from the US. There have been months where up to one third of the businesses we’ve sold have gone to US buyers.”

Guarding against China and Russia while the US strip-mines Europe is apparently a good thing because letting the US take over Europe means a successful “de-risk” from China and Russia.

Well, except for the people who live in the EU.

Take the example of TIM in Italy. As mentioned it already sold off its fixed line network and plans to unload even more assets soon. Telecom is one sector Draghi focuses on, lamenting the lack of concentration. Europeans have too many options, he says, but this idea that the EU needs consolidation (led by US firms as it so happens) in order to be more competitive begs the question: competitive for whom?

Italy has one of the world’s most competitive telecom markets, with monthly subscriptions for full-fiber landline services, which usually include unlimited Internet, priced as low as €20 to €25, about a quarter of what most US consumers pay.

So could a telecom behemoth that has a monopoly in the US and Europe feasibly be more competitive with Chinese companies? Maybe in profits or company value.

Would it help lead to technological supremacy as the other part of the argument goes? There are reasons to doubt that.

The story of TIM is instructive. The company used to employ 120,000 people compared to 40,000 (and dwindling) today and had “a strong innovative capacity” boosted by cutting-edge subsidiaries such as the Torino-based Centro Studi e Laboratori Telecomunicazioni. The company’s downfall began three decades ago when Italy came under EU control and Telecom Italia was privatized. As journalist Marco Palombi writes at Il Fatto Quotidiano (translation):

However, this disaster began thirty years ago when “the mother of all privatizations” was deemed necessary for Italy to respect the parameters of the Maastricht Treaty. There was no industrial plan, just the requirement to raise cash. It is the first of many financial choices that destroyed an industrial giant.

So the EU helped soften the target up before the US swooped it for the kill. It’s a process that continues today, and upcoming austerity in the EU will do so again:

Here I’m going to rattle off some quotes from the Draghi report with limited comment as I think they’re self-explanatory and to keep this post from going too long. One thing to keep in mind when reading Draghi’s wisdom, however, is that automation is considered productivity growth and therefore equals competitiveness.

Less Labor Law for “Innovative” Companies

…the EU should support rapid growth within the European market by giving innovative start-ups the opportunity to adopt a new EU-wide legal statute (the “Innovative European Company”).

This status would provide companies with a single digital identity valid throughout the EU and recognised by all Member States. These companies would have access to harmonised legislation concerning corporate law and insolvency, as well as a few key aspects of labour law and taxation, to be made progressively more ambitious, and they would be entitled to establish subsidiaries across the EU without incorporating separately in each Member State.

Free Rein to AI and Tech Start Ups

Regulatory barriers to scaling up are particularly onerous in the tech sector, especially for young companies [see the chapters on innovation, and digitalisation and advanced technologies]. Regulatory barriers constrain growth in several ways.

First, complex and costly procedures across fragmented national systems discourage inventors from filing Intellectual Property Rights (IPRs), hindering young companies from leveraging the Single Market.

Second, the EU’s regulatory stance towards tech companies hampers innovation: the EU now has around 100 tech-focused laws and over 270 regulators active in digital networks across all Member States. Many EU laws take a precautionary approach, dictating specific business practices ex ante to avert potential risks ex post. For example, the AI Act imposes additional regulatory requirements on general purpose AI models that exceed a pre-defined threshold of computational power – a threshold which some state-of-the-art models already exceed.

Third, digital companies are deterred from doing business across the EU via subsidiaries, as they face heterogeneous requirements, a proliferation of regulatory agencies and “gold plating”04 of EU legislation by national authorities.

Fourth, limitations on data storing and processing create high compliance costs and hinder the creation of large, integrated data sets for training AI models. This fragmentation puts EU companies at a disadvantage relative to the US, which relies on the private sector to build vast data sets, and China, which can leverage its central institutions for data aggregation. This problem is compounded by EU competition enforcement possibly inhibiting intra-industry cooperation.

Finally, multiple different national rules in public procurement generate high ongoing costs for cloud providers. The net effect of this burden of regulation is that only larger companies – which are often non-EU based – have the financial capacity and incentive to bear the costs of complying. Young innovative tech companies may choose not to operate in the EU at all.

Less Sovereignty

The lack of a true Single Market also prevents enough companies in the wider economy from reaching sufficient size to accelerate adoption of advanced technologies. There are many barriers that lead to companies in Europe to “stay small” and neglect the opportunities of the Single Market. These include the high cost of adhering to heterogenous national regulations, the high cost of tax compliance, and the high cost of complying with regulations that apply once companies reach a particular size. As a result, the EU has proportionally fewer small and

medium-sized companies than the US and proportionally more micro companies [see Figure 7]. However, there is a close link between the size of companies and technology adoption. Evidence from the US show that adoption rises with firm size for all advanced technologiesxii. Likewise, while in 2023 30% of large businesses in the EU had adopted AI, only 7% of SMEs had done the samexiii. Size enables adoption because larger companies can spread the high fixed costs of AI investment over greater revenues, they can count on more skilled management to make the necessary organisational changes, and they can deploy AI more productively owing to larger data sets. In other words, a fragmented Single Market puts EU companies at a disadvantage in terms of the speed of adoption…

More “Disruption”

A better financing environment for disruptive innovation, start-ups and scale-ups is needed as barriers to growth within the European markets are removed [see the chapters on innovation, and investment]. While high-growth companies can typically obtain finance from international investors, there are good reasons to further develop the financing ecosystem within Europe. Very early-stage innovation would benefit from a deeper pool of angel investors. Ensuring sufficient local capital to fund scale-ups would concentrate the spillovers of innovation within Europe. Increasing the appeal of European stock markets for IPOs would improve funding options for founders, encouraging more start-up activity in the EU. To generate a significant increase in equity and debt funding available to start-ups and scale-up, the report proposes the following measures. First, expanding incentives for business “angels” and seed capital investors. Second, assessing whether further changes to capital requirements under Solvency II are warranted, which establishes capital adequacy rules for insurance companies, and issuing guidelines for EU Pension Plans, with the aim of stimulating institutional investment in innovative companies in selected sub-sectors. Third, increasing the budget of the European Investment Fund (EIF), which is part of the EIB Group and provides finance to SMEs, improving coordination between the EIF and the EIC, and eventually rationalising the VC funding environment in Europe. Finally, enlarging the mandate of the EIB Group to enable co-investment in ventures requiring larger volumes of capital, while also enabling it to take on more risk to help “crowd in” private investors.

Learn from Hyper-globalization which Decimated Labor by Embracing AI which Could Decimate Labor.

The key driver of the rising productivity gap between the EU and the US has been digital technology (“tech”) – and Europe currently looks set to fall further behind. The main reason EU productivity diverged from the US in the mid-1990s was Europe’s failure to capitalise on the first digital revolution led by the internet – both in terms of generating new tech companies and diffusing digital tech into the economy. In fact, if we exclude the tech sector, EU productivity growth over the past twenty years would be broadly at par with the US. Europe is lagging in the breakthrough digital technologies that will drive growth in the future. Around 70% of foundational AI models have been developed in the US since 2017 and just three US “hyperscalers” account for over 65% of the global as well as of the European cloud market. The largest European cloud operator accounts for just 2% of the EU market. Quantum computing is poised to be the next major innovation, but five of the top ten tech companies globally in terms of quantum investment are based in the US and four in China. None are based in the EU.

Overhaul Education “Skills Investment” With a Focus on Training Workers to Become Productive Tools for Capital:

The EU should overhaul its approach to skills, making it more strategic, future-oriented and focused on emerging skill shortages. The report recommends that, first, the EU and Members States enhance their use of skills intelligence by making much more intense use of data to understand and act on existing skills gaps. Second, education and training systems need to become more responsive to the changing skill needs and skill gaps identified by the skills intelligence. Curricula need to be revised accordingly, also involving employers and other stakeholders. Third, to maximise employability, a common system of certification should be introduced to make the skills acquired through training programmes easily understandable by prospective employers throughout the EU. Fourth, the EU programmes dedicated to education and skills should be redesigned, so that the funding allocated can achieve a much greater impact. To improve the efficiency and scalability of skills investments, the disbursement of EU funds should be coupled with stricter accountability and impact evaluation. In parallel, it is proposed to adopt specific interventions to address the most acute skills shortages in technical and STEM skills. A particular focus is needed on adult learning, which will be key to update worker’s skills throughout their lives. Linked to this, vocational training also needs a broad reform across the EU. Specific sectors (strategic value chains) or specific skills (both worker and managerial capabilities) will require complementary targeted interventions. For example, it is proposed to launch a new Tech Skills Acquisition Programme to attract tech talent from outside of EU, adopted EU-wide and co-funded by the Commission and Member States. This programme would combine a new EU-level visa programme for students,graduates and researchers in relevant fields to stimulate inflow, a large number of EU academic scholarships, in particular in STEM subjects, and student internships…

While the Draghi report was almost comical for its refusal to address the reasons behind the EU energy crisis, it was also an incredibly sad read. That’s because it ignores the disadvantages of chasing Draghi and Ursula’s brand of competitiveness and productivity.

The transatlantic crowd doesn’t have to look far for what all these policy prescriptions would mean for Europe: it would become more like the US. And there are plenty of downsides for all the workers who form the backbone of  “competitiveness” of such a change.

Draghi actually mentions the healthcare sector as an example of where the US outcompetes the EU. How is that competitiveness measured? By things like productivity and profit. And not, of course, by data like this:

How about wealth inequality?

That graph there is probably as good an explanation as any to answer the question of why the EU elite want to follow the US model. For Ursula, Draghi and capital these are signs of being uncompetitive, and their solutions are coming: lower wages, a more flexible workforce (preferably machine), more private equity, more privatization, more asset-price bubbles, and more over-indebtedness for the bottom 90 percent.

In certain places in the EU, such as Italy, this process has been ongoing for decades dismantling what the communist party and trade unions helped build out of the rubble of WWII.

The good news is that’s typically a long tear down process (although the crises are coming more frequently nowadays). The EU moves methodically through the byzantine layers of bureaucracy and push and pull with national governments dealing with what’s left of the unions. That means there’s time to halt the march of financialization and reverse course. The bad news is it’s like boiling a frog who fails to notice the slow deterioration of quality of life until it’s too late.

Tyler Durden
Wed, 10/30/2024 – 05:00

via ZeroHedge News https://ift.tt/l5CraQ2 Tyler Durden

Pentagon Warns No Limits On Ukraine Support If North Korea Joins War

Pentagon Warns No Limits On Ukraine Support If North Korea Joins War

The United States is warning that it is ready to escalate NATO involvement in Ukraine if North Korean troops join Russia’s war in Ukraine. The Zelensky government has long been lobbying for the US to provide long-range missiles and authorize their use against Russian territory. Kiev might soon gets its wish granted…

“The U.S. will not impose new limits on Ukraine’s use of American weapons if North Korea joins Russia’s war, the Pentagon said on Monday, as NATO said North Korean military units had been deployed to the Kursk region in Russia,” Reuters reports.

Pentagon spokesperson Sabrina Singh on Monday issued a fresh update on the situation. Speaking of a detachment of North Korean troops, she said: “A portion of those soldiers have already moved closer to Ukraine, and we are increasingly concerned that Russia intends to use these soldiers in combat or to support combat operations against Ukrainian forces in Russia’s Kursk Oblast near the border with Ukraine.”

KCNA via KNS, AFP

NATO Secretary General Mark Rutte in separate comments from Europe had claimed that North Koreans are helping Russia regain its territory in southwest Kursk region, following Ukraine’s incursion there which began in early August.

“The deepening military cooperation between Russia and North Korea is a threat to both the Indo-Pacific and Euro-Atlantic security,” Rutte said at the press conference. “The deployment [of] North Korean troops to Kursk is also a sign of Putin’s growing desperation.” Butte urged: “NATO calls on Russia and the DPRK to cease these actions immediately.”

Ukraine, South Korea, and the United States all say that Pyongyang has sent between 10,000 and 12,000 of its troops to Russia for readiness to fight in Ukraine.

Zelensky’s office has again this week used these reports to call for more immediate military help from Western allies. “This is an escalation. Sanctions alone are not enough. We need weapons and a clear plan to prevent North Korea’s expanded involvement in the war in Europe,” Zelensky’s chief of staff Andriy Yermak has said.

“Today, Russia brings in North Korea; next, it could broaden their engagement, and then other autocratic regimes may see that they can get away with this and come to fight against NATO,” Yermak added. “The enemy understands strength. Our allies have this strength.”

Currently, North Korea’s Foreign Minister Choe Son Hui is in Russia on a state visit. Choe arrived in Russia’s far eastern city of Vladivostok on Tuesday, and is expected to travel to Moscow Wednesday. It’s as yet unclear which leaders in the Russian government she’ll meet with.

In June, Russian President Putin and North Korea’s Kim Jong Un signed a security and defense treaty in Pyongyang. The Kremlin says this is the basis for troop sharing, but has not said whether North Korean troops are actually in Ukraine at this point.

Over the last several weeks, Ukraine has been warning the West of the presence of North Korean troops in eastern Ukraine, and has claimed that already they’ve suffered casualties. But little of this alleged on the ground battlefield presence has been confirmed.

Tyler Durden
Wed, 10/30/2024 – 04:15

via ZeroHedge News https://ift.tt/VtUwngP Tyler Durden

Shocking Rise In Whale, Dolphin, & Porpoise Strandings As Wind Farms Proliferate Around British Coast

Shocking Rise In Whale, Dolphin, & Porpoise Strandings As Wind Farms Proliferate Around British Coast

Authored by Chris Morrison via DailySceptic.org,

Over the last decade as offshore wind farms proliferated around the U.K., there has been a disturbing rise in coastline strandings of whales, dolphins and porpoises. Since the turn of the century, strandings have more than doubled and are now running at over 1,000 animals a year. The slaughter has been largely ignored by the mainstream media that runs with the agreed narrative that offshore wind is environmentally friendly and is the key to achieving Net Zero by 2050.

In fact, wind turbines, whether on or off the shore, are a clear danger to many endangered species and concerns are mounting about their widespread and harmful effects on the natural world. Years ago, the great cause in environmentalism was to save the whales, but these concerns seem to have abated of late, while the slaughter of millions of onshore bats, along with the destruction of many types of large raptors, is simply ignored.

Andrew Montford of Net Zero Watch has updated his graph on the stranding of U.K. cetaceans and compared it to the rise of offshore wind capacity.

Both totals have soared in recent years. Is there a causal link? Perhaps not one that would inconvenience Net Zero fanatics, but Montford says the suggestion of a causal relationship “remains very strong”.

The Daily Sceptic has reported in the past about the mounting casualties of whales stranded off the north eastern coast of the United States in the wake of massive offshore windfarm construction. There have been around 300 fatalities in the last five years, and many suggest the extensive sonar soundings, pile driving and heavy concentrated vessel traffic is causing havoc with aquatic feeding, breeding and migration up and down the coast.

The latest U.K. stranding figures have been reported to Ascobans, a UN environmental conservation body for cetaceans in the NE Atlantic. Commenting on the “shocking” figures, the environmental writer and campaigner Jason Endfield called them “a wake-up call to those planning to further industrialise our seas in the name of renewable energy, and especially offshore wind farms”. In his view, it made no sense to increase ocean noise to levels that are “literally unbearable for marine mammals”.

The great cover-up of this environmental disaster continues with massive industrial parks being erected around the coasts of many countries. In the U.K., the incoming Labour government is committed to a massive expansion with the Mad Miliband spraying around billions of pounds in additional subsidies to boost an industry that would not exist in a free market.

To the fore in blowing smoke over the issue is Greenpeace USA’s senior oceans campaigner Arlo Hemphill who claims there is “no evidence whatsoever” connecting wind turbines to whale deaths. “It’s just a cynical disinformation campaign,” says another Greenpeace spokesman. The mainstream media often goes along with this narrative as shown by recent tweets from Agence France-Presse reporter Manon Jacob. He dismissed the focus on wind farms as a red herring “when offshore wind remains thus far marginal in the U.S. and scientific evidence of large marine mammal deaths is lacking”. This is the same Jacob who wrote a recent ‘fact check’ of the Daily Sceptic that was so bad and misleading it should feature in future journalism schools as an example of how not to criticise well-sourced material.

The investigative science journalist Jo Nova has a different take on the matter:

“Researchers have known since at least 2013 that pile drivers were permanently deafening porpoises, leaving them presumably to die miserable deaths wandering blindly through dark or murky seas. Where were all the professors of marine science, paid by the public to know these things, and where was the BBC?”

Spread the word, she continued.

Fifty years ago, environmentalists would have raised hell about a thousand dead whales and dolphins. Now they are part of the cover-up. “They don’t want to draw attention to the blubber on the beach in case people start asking hard questions,” she observed.

There are however some signs that the ‘nothing to see here, guv’ line is starting to crack. recent essay in Watts Up With That? suggested that an impact statement from the U.S. Bureau of Ocean Energy Management (BOEM) had finally acknowledged the harm caused by offshore wind farms. Examining leases off the New Jersey and New York coast covering over 488,000 acres, the BOEM hints that these developments are not entirely benign “despite being repeatedly framed as environmentally friendly solutions to the climate crisis”. Marine mammals, sea turtles, birds and fish could suffer due to noise, habitat displacement and changes in migration patterns, it is said. Even bats, says WUWT?, which are not typically associated with offshore environments, could be affected.

The essay noted that this latest BOEM work may signal a more cautious approach, “perhaps influenced by increasing legal challenges, public backlash, and even emerging scientific research indicating that wind turbines are not as harmless as once believed”.

Tyler Durden
Wed, 10/30/2024 – 03:30

via ZeroHedge News https://ift.tt/GlKOMCX Tyler Durden