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90% of surveyed central banks are exploring CBDCs — BIS

“Globally, more than two-thirds of central banks consider that they are likely to or might possibly issue a retail CBDC in either the short- or medium-term,”…

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“Globally, more than two-thirds of central banks consider that they are likely to or might possibly issue a retail CBDC in either the short- or medium-term,” said the BIS.

A survey conducted by the Bank for International Settlements, or BIS, suggested that many central banks around the world are looking into rolling out a central bank digital currency, or CBDC.

In a paper released on Friday, the BIS Monetary and Economic Department said 90% of 81 central banks surveyed from October to December 2021 were “engaged in some form of CBDC work,” with 26% running pilots on CBDCs and more than 60% doing experiments or proofs-of-concept related to a digital currency. According to the BIS, the increase in interest around CBDCs — up from roughly 83% in 2020 — may have been driven by a shift to digital solutions amid the COVID-19 pandemic as well as the growth in stablecoins and other cryptocurrencies.

“Globally, more than two-thirds of central banks consider that they are likely to or might possibly issue a retail CBDC in either the short or medium term,” said the BIS. “Work on wholesale CBDCs is increasingly driven by reasons related to cross-border payments efficiency. Central banks consider CBDCs as capable of alleviating key pain points such as the limited operating hours of current payment systems and the length of current transaction chains.”

The paper cited the emergence of several CBDCs, beginning with the launch of the Bahamian Sand Dollar in October 2020 and Nigeria’s eNaira one year later as well as the development of the Eastern Caribbean DCash and China’s digital yuan in 2021. According to the BIS survey, more than 70% of central banks are also exploring CBDCs with “private sector collaboration and interoperability” for existing payment systems.

“If well-designed, a CBDC could offer access to a safe, instant and efficient digital means of payment for all population groups, including less digitally savvy groups of society,” said Deutsche Bundesbank executive board member Burkhard Balz on Wednesday. “It would also be beneficial if CBDC could support offline payments. People would benefit from a digital and cost-effective cash alternative to choose from.”

Among the 81 countries surveyed — representing 76% of the world’s population — 25 were considered to have “advanced economies” including the United States and Japan, the majority of which said stablecoins pegged to and backed by fiat currency had “some potential” as a means of payment. In contrast, more than 60% of overall respondents said cryptocurrencies had “trivial or no use” around domestic payments, and roughly 40% responded the same for crypto’s use around cross-border payments.

Related: BIS Innovation Hub partners with Fed to support analysis of digital assets

The BIS released a paper in April detailing how some central banks saw CBDCs as a catalyst for innovation and development while others expected the digital currency to work as a complement to existing systems. In March, the international institution completed a pilot program for international settlements using CBDCs with the central banks of Australia, Malaysia, Singapore and South Africa.

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Commodities

The Case For Bitcoin To Separate Money From The State

By separating money from the government, Bitcoin takes the control of money out of the hands of politicians and gives it back to the citizens.

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By separating money from the government, Bitcoin takes the control of money out of the hands of politicians and gives it back to the citizens.

This is an opinion editorial by Ryan Bansal, a professional software engineer and author of a Bitcoin newsletter.

“The computer can be used as a tool to liberate and protect people, rather than to control them.” — Hal Finney

Technologies are just amplifiers, not arbiters of morality. By extrapolating from the above quote, it is within reason to claim that any technology can be both a tool for either tyranny or for freedom depending on whose hands are on the power lever.

The principle of checks and balances shows that in any kind of system that relies on concentrated power, that central institution becomes the honeypot for malicious actors. Also, keep in mind the democratic principle that more distributed decision-making is more robust and fair for any society. So it sounds like a no-brainer that the best way moving forward is to develop and adopt technologies with no single ultimate power lever?

Having said that, let’s now talk about one of the most important technologies of all: money. In the evolution of monetary technology from barter systems to seashells to metal coins to gold-backed banknotes and now a central-bank-controlled fiat digital currency, the power distribution has gone from being more decentralized to being more centralized to the point where governments have managed to establish a coercive monopoly on money.

Now, I think it is a fairly non-controversial statement to say: Government corrupts anything it touches. Sure, the convenience of digital money is unmatched, but it is also important to understand the other side of it, i.e., the counterparty risk, which means needing to trust a custody provider to secure your assets — along with the fact that the historical track record of keeping this trust is not great.

However fortunately or unfortunately, recently this breach in the contract has started to happen more widely and openly. Take for example a developed democratic country like Canada, freezing the bank accounts of its citizens for protesting against COVID-19 restrictions or a country like Russia putting restrictions on its people trying to withdraw their funds after the country invaded its neighbor. In a world run purely on physical cash, this kind of power to unconstitutionally violate private property rights would be impossible to execute.

(Source)

Apart from the worsening financial censorship and geopolitical sanctions — which are a relatively recent phenomenon now that money has become almost fully digital — the corruption arising from the advent of fiat money and its problems goes further back to 1971. What do I mean? The plethora of metrics one can use to measure the health of an economy like index funds price-earnings ratios, Gini index for wealth inequality, consumer price index for inflation and cost of living, the ratio of income growth versus productivity growth, individual homeownership rates and many others have all gone haywire since the then President Richard Nixon decided to move away from the gold standard.

If you haven’t guessed the next move of governments by now, allow me to introduce you to central bank digital currencies (CBDCs). Think today’s digital money is bad enough as is? Now imagine what if it was also programmable?

You can say goodbye to any last sliver of financial autonomy. Before we know it, we’ll be living in a surveillance state with social credit scores, just like the Chinese citizens. If you’ve seen politicians trying to put a positive spin on them by randomly throwing around buzzwords, like “blockchain,” go back to the top of this article and read the first line again.

The problems that the government creates can be spoken of at great lengths, but let us move on to the solution: How to take the control of money out of the hands of politicians and give it back to the citizens?

“I don’t believe we shall ever have good money again before we take it out of the hands of governments.” — Friedrich Hayek

Imagine if our monetary system had the privacy and autonomy of cash; the convenience of being instantly and digitally transferrable all over the globe; all the while also retaining the properties of gold, i.e., nobody can steal your purchasing power over time by arbitrarily manipulating its supply only to serve their perverse political incentives?

Moreover, what if it was also running on an open-source codebase and used a public database making it globally accessible, completely transparent and fully auditable by anyone? Plus, what if it also allowed anyone with an internet connection and a computer the ability to weigh in on its monetary policy?

Finally, what if the proposed system was also decentralized in a way that it becomes impossible to stop, controlled or corrupted by anyone due to the lack of a single point of failure or by any central authority?

Sounds like a monetary technology on steroids, doesn’t it? Well, in 2008, a solution to these problems was proposed by someone using the pseudonym of Satoshi Nakamoto. I’d also like to highlight that it didn’t just come out of the blue, it has been in the making ever since the central bankers established control over the money. More precisely, it took almost 40 years of research and multiple failed attempts to engineer this masterpiece. The following visual is more tangible:

(Source)

I’d like to close by reiterating that the notion of separation of the money from the State may seem radical to you at first, but it is actually not. As I mentioned before, the monetary technologies we’ve used throughout most of our history were way more outside of the state control than current fiat money. In one way or another, the State managed to capture them. Gold is the best example of such a non-sovereign asset that people used as money for the longest time, but it had obvious attack vectors in the form of various physical limitations, i.e., hard to store, hard to secure and hard to move.

Historically speaking, there has been a tug-of-war between fiat and non-government monies. Therefore, the real issue at hand is not one of “if” money will separate from government control, but of “when.” With Bitcoin, I think the moment is finally here.

Now obviously if this article has not managed to fully convince you how Bitcoin was designed to be a truly democratic and inclusive monetary system and if you still insist on calling it a scam, I hope you’ll at least consider it is something worth taking a harder look at.

This is a guest post by Ryan Bansal. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.

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Bonds

Futures Rise In Morbid Volumes With All Eyes On 50% Fib Retracement Level

Futures Rise In Morbid Volumes With All Eyes On 50% Fib Retracement Level

European stocks and US futures rallied on the last day of the week,…

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Futures Rise In Morbid Volumes With All Eyes On 50% Fib Retracement Level

European stocks and US futures rallied on the last day of the week, however traded well off session highs in extremely low-volume trading and tracked the sudden drop in oil, as investors pressed bets that easing inflation will allow the Fed to pivot to less aggressive rate hiking (if not ease outright). S&P 500 and Nasdaq 100 contracts rose about 0.3%, with both underlying indexes set to post their longest sequence of weekly gains since November. Treasury yields were steady at 2.87% and the US dollar rose but was set for the worst week since May. Crude oil fell, reducing its biggest weekly gain in about four months. Gold headed for a fourth weekly gain and Bitcoin was summarily smacked down below the $24,000 level yet again as crypto bears fight to preserve the upper hand.

For the second day in a row an attempt to void the bear market rally narrative by pushing spoos above the 50% fib retracement level is being defended by bears, with futures trading at 4222, or right on top of the critical level, which also doubles as the 100DMA. If broken through it could lead to substantial upside gains as even more bears throw in the towel.

In premarket trading, Alibaba led a premarket decline in US-listed China stocks after some of the nation’s largest state-owned companies announced plans to delist from American exchanges. Bank stocks traded higher, set to gain for a fourth straight day as investors continue to pile into stocks amid signs that inflation is cooling. In corporate news, Huobi Group founder Leon Li is in talks with a clutch of investors to sell his majority stake in the crypto-exchange at a valuation of as much as $3 billion. Here are some of the other notable premarket movers:

  • Rivian (RIVN US) shares fall 1.4% in premarket trading after the electric vehicle-maker forecast a bigger adjusted Ebitda loss for the full year than previously expected.
  • Expensify (EXFY US) shares fall 14% in premarket trading after the software company’s second-quarter revenue missed the average analyst estimate.
  • Toast (TOST US) shares soar 15% in premarket trading after the company boosted its revenue guidance for the full year and beat analyst estimates.
  • Chinese stocks in US slip in premarket trading after China Life Insurance (LFC US), PetroChina (PTR US) and Sinopec (SNP US) announced plans to delist American depository shares from the NYSE.
  • Ciena (CIEN US) gains 2.9% in premarket trading as Morgan Stanley upgrades its rating on to overweight with strong quarters seen ahead for the telecoms and networking equipment firm.
  • Co-Diagnostics (CODX US) shares plunge as much as 40% in US premarket trading, after the molecular diagnostics firm flagged lower volumes for its Covid-19 test.
  • Olo (OLO US) falls 31% in premarket trading, after the restaurant delivery platform cut revenue guidance.
  • Phunware (PHUN US) falls almost 7% in premarket trading after the enterprise cloud platform posted revenue and Ebitda that missed the average estimate.
  • Poshmark (POSH US) gave a weaker-than- expected quarterly revenue forecast as the online marketplace for second-hand goods sees sales growth being held back by macro pressures. The stock fell about 5% in postmarket trading on Thursday.
  • SmartRent’s (SMRT US) lowered full-year guidance represents a more attainable earnings outlook for the smart-home automation company, Cantor Fitzgerald said. Shares fell 16% in postmarket trading.

Traders pared back bets on Fed rate hikes after a report on Thursday showed US producer prices fell in July from a month earlier for the first time in over two years. That added to Wednesday’s data on slower increases in consumer prices to provide signs of cooling but still troubling inflation. Swaps referencing the Fed’s September meeting point to some uncertainty over whether a half-point or another 75 basis-point rate hike is on the cards.

Working hard to prevent stocks from rising even more, in the latest US central banker comments, San Francisco Fed President Mary Daly said inflation is too high, adding she anticipates more restrictive monetary policy in 2023. Her baseline is a half-point September hike but she’s open to another 75 basis-point move if necessary, Daly said in a Bloomberg Television interview.

“The macroeconomic environment may be starting to improve a little bit, with a peak in US CPI calling into question the need to hike rates aggressively,” economists at Rand Merchant Bank in Johannesburg said. “Inflation is still high and the Fed will still need to increase rates, but the situation is not as bad as many had feared.”

European stocks erased early gains as energy stocks fell with crude oil futures and investors weighed the impact of recent macroeconomic data on central bank policy. The Stoxx Europe 600 index fell 0.1% by 12:03 p.m. in London after gaining as much as 0.5% earlier. Health care giant GSK Plc was among outperformers, trimming a rout this week that was driven by worries about Zantac litigation, with some analysts suggesting the selloff may have been extreme. Elsewhere, travel and leisure was lifted by gains for Flutter Entertainment Plc following earnings, while consumer staples and miners declined. The region’s main stocks benchmark has risen about 10% since early July, with gains this week spurred by softer-than-expected US inflation data. Still, many investors are skeptical over the impact the report will have on monetary policy.

“We’re having another moment where the market is not listening to central banks,” said Tatjana Greil Castro, co-head of public markets at Muzinich & Co. “Marginally, investors are very reluctant to sell anything and want to buy,” she told Bloomberg Television.

Paradoxically, at the same time, data from Bank of America showed outflows from European equity funds continued for a 26th week at $4.8 billion. The recent bounce for the region’s benchmark is likely to fizzle out in the absence of a pickup in economic growth, BofA’s strategists said.

Here are the biggest European movers:

  • Flutter shares rise as much as much as 13% after the gambling firm reported 1H earnings that beat estimates. The strong update was led by the US and Australia, according to Goodbody.
  • GSK shares rise as much as 5% after its worst two-day rout on Zantac litigation worries. In response to the selloff on Zantac, GSK downplayed cancer risks from ranitidine and said it will vigorously defend all claims. Sanofi, also caught up in the Zantac-related selloff, rises as much as 3.2%, while Haleon edges up as much as 2%.
  • Telecom Italia gains as much as 9.1% following a Bloomberg News report that Italy’s far-right Brothers of Italy party is promoting a plan to take the phone company private and sell off its in a bid to cut its debt pile by more than half.
  • Nexi shares surge as much as 7.4% amid a Reuters report that the payment firm has received several unsolicited approaches from private equity firms, including Silver Lake, to take the company private.
  • Boozt shares rise as much as 18%, the most since October 2020, with DNB (buy) highlighting a strong beat on the bottom line for the Swedish ecommerce retailer.
  • Argenx shares rise as much as 3.7% after KBC reiterates its buy recommendation, saying the biotech is executing on schedule after yesterday’s European approval for Vyvgart, and with regulatory filing submitted in China.
  • Kingfisher shares drop as much as 4.2% after UBS cut its recommendation on the stock to sell from neutral, citing a softening outlook for the UK do-it-yourself (DIY) and do-it-for- me (DIFM) categories.
  • 888 Holdings shares drop as much as 16%, the most since February 2015, after the gambling company reported results and forecast 2H revenue will be in line with 1H.
  • Galenica shares fall as much as 2.5%, with Credit Suisse recommending staying put due to “demanding” valuation.

Asian stocks rose to a two-month high as Japan lifted the region higher in a catch-up rally, with traders digesting another downside surprise in US inflation. The MSCI Asia Pacific Index rose as much as 0.7%, poised for a third day of gains. Japan’s Topix Index added 2% after traders returned from a holiday, while markets in the rest of the region were mixed. Chinese shares fluctuated in a narrow range. Concerns on US inflation eased further after an unexpected month-on-month fall in July’s producer price index, which came a day after slower-than-expected US consumer prices. Stocks were initially strong overnight, before the rally faltered on concerns it may have gone to far. Gains in Asia were more modest on Friday, following hawkish commentary from a Fed speaker. 

Some optimism has emerged across Asia this week as traders bet on slower interest-rate increases by the Fed amid easing price pressures. The regional stock benchmark headed for a fourth weekly gain, the longest streak since January 2021. Still, the gauge is down more than 15% this year, trailing other equity benchmarks in the US and Europe. “Clearly in the last month and a half, people sort of moved from that inflationary fear to the Goldilocks scenario. And I think that gives a bit of time for reflection,” Joshua Crabb, head of Asia Pacific equities at Robeco, said in a Bloomberg TV interview. The current earnings season is critical because “we’re also gonna see how much demand destruction that inflation is gonna put forward.”

Australia's S&P/ASX 200 index fell 0.5% to close at 7,032.50, dragged by losses in mining and health shares. Still, the benchmark climbed 0.2% for the week in its fourth straight week of gains.  The materials sub-gauge contributed most to the gauge’s decline on Friday after iron ore fell, as a report showed stockpiles of the steel-making ingredient are still rising. In New Zealand, the S&P/NZX 50 index fell 0.3% to 11,730.52. The nation’s food prices surged 7.4% from a year earlier in July, the largest increase in four months, according to data released by Statistics New Zealand

Indian stocks clocked their longest stretch of weekly gains since the middle of January as a pickup in foreign buying pushed key indexes higher.  The S&P BSE Sensex rose 0.2% to 59,462.78 in Mumbai, taking its weekly gains to almost 2%. This was the fourth week of advance for the key index. The NSE Nifty 50 Index also climbed 0.2% on Friday. Of the 30 stocks in the Sensex, half fell and the rest climbed. Reliance Industries offered the biggest boost to the key gauge.  Thirteen of 19 sectoral sub-indexes compiled by BSE Ltd. rose, led by a gauge of oil and gas companies.  Foreign investors have bought a net $3.2 billion of Indian shares since the end of June through Aug. 10. That’s after dumping about $33 billion in the previous nine months as concerns over the Federal Reserve’s aggressive tightening boosted the dollar and spurred outflows from emerging market assets. “FPIs flows were positive this week. With results season coming towards a close, market focus will shift towards macro factors that includes inflation, central bank rate action, oil prices and recession concerns in key economies globally,” Shrikant Chouhan, head of equity research at Kotak Securities wrote in a note.

In FX, Bloomberg dollar spot index is in a holding pattern, up about 0.1%. NZD and AUD are the strongest performers in G-10 FX, SEK and GBP underperform. The Swedish krona led losses after weaker-than-expected inflation data, with the pound also lagging after stronger-than-expected data showed the UK economy shrank in the second quarter. The yen also underperformed. The Canadian dollar and Norwegian krone led gains, with NOK/SEK hitting the highest since April

In rates, Treasuries were slightly richer across the curve with gains led by long-end, although futures remain near bottom of Thursday’s range. Curve mildly flatter, but spreads broadly hold Thursday’s steepening move. Gilts underperform after raft of UK data including 2Q GDP which contracted less than expected. US yields richer by as much as 4bp across long-end of the curve with 5s30s spreads steeper by more than 2bp on the day; 10-year yields around 2.865%, richer by 2bp on the day and outperforming bunds, gilts by 3.5bp and 5.5bp in the sector. Gilts underperform bunds and Treasuries, trading about 3-4bps higher across the yield curve after UK 2Q GDP contracted less than expected, with traders raising BOE tightening bets. German 10-year yield briefly rose above 1%, now up about 2bps to 0.99%. Peripheral spreads widen to Germany. Treasuries 10-year yield down 1 bps to 2.87%.

In commodities, WTI crude is trading slightly lower at ~$94, within Thursday’s range, and gold is down close to $3 at ~$1,787

Looking to the day ahead now, and data releases include the UK’s GDP reading for Q2, Euro Area industrial production for June, and in the US there’s the University of Michigan’s preliminary consumer sentiment index for August.

Market Snapshot

  • S&P 500 futures up 0.6% to 4,234.25
  • STOXX Europe 600 up 0.4% to 442.02
  • MXAP up 0.6% to 163.27
  • MXAPJ up 0.2% to 531.44
  • Nikkei up 2.6% to 28,546.98
  • Topix up 2.0% to 1,973.18
  • Hang Seng Index up 0.5% to 20,175.62
  • Shanghai Composite down 0.1% to 3,276.89
  • Sensex up 0.3% to 59,482.94
  • Australia S&P/ASX 200 down 0.5% to 7,032.51
  • Kospi up 0.2% to 2,527.94
  • German 10Y yield little changed at 1.00%
  • Euro down 0.2% to $1.0295
  • Brent Futures up 0.3% to $99.90/bbl
  • Brent Futures up 0.3% to $99.87/bbl
  • Gold spot down 0.1% to $1,787.09
  • U.S. Dollar Index up 0.25% to 105.35

Top Overnight News from Bloomberg

  • Three of China’s largest state-owned companies announced plans to delist from US exchanges as the two countries struggle to come to an agreement allowing American regulators to inspect audits of Chinese businesses
  • The cooler inflation reading for July is welcome news and may mean it’s appropriate for the Federal Reserve to slow its interest-rate increase to 50 basis points at its September meeting, but the fight against fast price growth is far from over, San Francisco Fed President Mary Daly said.
  • China may be ready to curb some of the excess liquidity sloshing in the banking system as it turns its focus to mitigating risks in the financial industry.
  • In the fight against pandemic inflation, Latin America led the world into a new age of tight money. Eighteen months later, there’s not much sign that being first in will help the region to become first out
  • The UK economy shrank in the second quarter for the first time since the pandemic, driven by a decline in spending by households and on fighting the coronavirus

A more detailed look at global markets courtesy of Newsquawk

Asia-Pc stocks were mixed following a similar indecisive lead from Wall Street where stocks and treasuries faded the initial gains from the softer-than-expected PPI data, although Japan outperformed on return from holiday. ASX 200 was dragged lower by losses across nearly all sectors including the top-weighted financial industry despite the confirmation of a return to profit for IAG, while energy bucked the trend after a recent rebound in oil. Nikkei 225 notched firm gains as it played catch-up to global peers and took its first opportunity to react to the softer inflationary signals from the US, while Softbank was among the top performers as it expects to gain USD 34bln from reducing its stake in Alibaba. Hang Seng and Shanghai Comp were both subdued in early trade amid weakness in property stocks and ongoing COVID-related headwinds, although the Hong Kong benchmark gradually recovered with earnings releases also in the limelight.

Top Asian News

  • Japanese PM Kishida plans to hold a meeting on August 15th to address rising goods prices, wages and daily life, while he called for additional measures on dealing with rising food and energy prices, according to Reuters.
  • Jardine Matheson Slumps 9.6% as MSCI Cuts Co. Weight in Indexes
  • Baltic States Abandon East European Cooperation With China
  • Gold Set for Fourth Weekly Gain on Signs Fed to Ease Rate Hikes
  • Asian Gas Prices Rally on Rush by Japan to Secure Winter Supply

European bourses are firmer, but action has been relatively contained with newsflow slim, Euro Stoxx 50 +0.2%; however, benchmarks waned alongside US futures following China ADS updates. Currently, ES +0.4% but similarly off best levels amid Chinese stocks announcing intentions to delist their ADSs and reports that Germany is being looked at as a banking base. China Life (2628 HK), PetroChina (857 HK), Sinopec (386 HK) plan to delist ADSs from NYSE; last trading day for China Life expected to be on or after 1st September. Subsequently, China's Securities Regulator says it is normal within capital markets for companies to list and delist. Chinese brokers are reportedly looking at Germany as a banking base amid tensions with the US, via Bloomberg citing sources. SMIC (0981 HK) CEO says increasing geopolitical tensions, elevated inflation and a cyclical downturn in demand for chips has resulted in "some panic" within the industry, via FT. Huawei - H1 2022 (CNY): Revenue -5.9% Y/Y to 301.6bln. Net Profit 15.08bln (prev. 31.39bln Y/Y). Device Business Revenue -25.3% Y/Y. 2022 will probably be the most challenging year historically for our devices business Chinese and Hong Kong regulators are to announce adjustments to the trading calendar for the stock connect

Top European News

  • Union Leaders Kick Off Rallies Across UK in Living Cost Protest
  • Baltic States Abandon East European Cooperation With China
  • Swedish Core Inflation Surge Fuels Bets of Faster Rate Hikes
  • JPMorgan Strategists Say US 2Q Earnings Fall 3% Excluding Energy
  • Ukraine Latest: Putin’s Economy in Focus; More Grain on the Move

FX

  • DXY attempts to recover from its post-CPI lows as it eyes yesterday’s 105.46 high.
  • EUR, JPY, and GBP are under pressure from the firmer Dollar; EUR/USD eyes some notable OpEx for the NY cut.
  • The non-US Dollars are resilient this morning on the back of the general risk tone across stocks and the rise in commodities.
  • Fleeting SEK upside was seen in wake of inflation data, with the metrics being in-line/below expectations.

Fixed Income

  • Core benchmarks are little changed overall on the session and particularly when compared to price action seen earlier in the week.
  • Further pressure seen following the Gilt open in wake of UK GDP metrics.
  • USTs in-fitting with peers and the yield curve, currently, does not exhibit any overt bias

Commodities

  • WTI and Brent hold an upside bias in Europe amid the broader risk tone.
  • Spot gold is relatively uneventful as the firming Dollar keeps the yellow metal capped under USD 1,800/oz.
  • Base metals markets are relatively mixed with the market breadth shallow, although LME copper extends on gains above USD 8k/t.

US Event Calendar

  • 08:30: July Import Price Index YoY, est. 9.4%, prior 10.7%; MoM, est. -0.9%, prior 0.2%
    • July Export Price Index YoY, prior 18.2%; MoM, est. -1.0%, prior 0.7%
  • 10:00: Aug. U. of Mich. Sentiment, est. 52.5, prior 51.5
    • Aug. U. of Mich. Current Conditions, est. 57.8, prior 58.1
    • Aug. U. of Mich. Expectations, est. 48.5, prior 47.3
    • Aug. U. of Mich. 1 Yr Inflation, est. 5.1%, prior 5.2%; 5-10 Yr Inflation, est. 2.8%, prior 2.9%

DB's Jim Reid concludes the overnight wrap

This will be the last EMR from me for a couple of weeks as I'm off on holiday. We're going to Cornwall rather than our usual France trip this summer as transporting a child in a wheelchair around a beach was seen as mildly easier than doing the same up and down a mountain. Hopefully this time next year we'll be back in the invigorating mountain air. If you're reading this having originated from Cornwall please don't take offence! However I've never liked beach holidays and I think I'm too old to change my mind. The kids on the other hand can't contain their excitement. So expect me to spend most of my time in an uncomfortable wetsuit trying desperately to ensure that they don't get washed away. Give me the stress of payrolls or CPI any day over that. I'll be gazing longingly from the sea at the golf course next door.

Life's been quite a beach for markets of late but the last 24 hours have been a bit strange, as a second successive weaker-than-expected US inflation reading (PPI) actually left longer dated yields notably higher than where they were before the better than expected CPI on Wednesday, and at one point they were +23bps above where they were immediately after the first of these two dovish prints. The S&P 500 also reversed earlier gains of more than +1% to finish lower at -0.07%. Maybe we shouldn't read too much into summer illiquidity but the moves have been a bit all over the place of late.

While the combination of below-expectations inflation and worsening labour data (see below) initially drove a dovish-Fed interpretation, the price action reverted throughout the day, and we closed with still around even odds between a 50bp or 75bp hike at the September FOMC meeting (61.8bps implied).

When it came to Treasuries, despite the selloff, there was a decent amount of curve steepening, with the 2yr yield climbing +0.4bps whilst the 10yr yield rose by +10.6bps to 2.89%, the highest since July 20th. This helped the 2s10s curve to see its biggest daily steepening move in over 3 months and closing at -33bps, but still having closed inverted 29 for days running. 30yr Treasuries (+14.2bps) hit the highest since July 8 after receiving a lukewarm reception at auction. Maybe the longer end yield rises actually reflect a view that the Fed will be less likely to need to choke the recovery off now inflation is cooling. So maybe yields would have been lower this week with stronger inflation prints? Or is that just the silly season getting to me? To add to the ups and downs, this morning in Asia, 10yr UST yields (-2.73 bps) are edging lower, trading at 2.86% with the 2yr yield down -1.86 bps at 3.20% thus flattening the curve a tad as we go to press.

Over in equities, the S&P 500 (-0.07%) was marginally lower last night after increasing more than +1% in the New York morning. Small caps were a big outperformer, with the Russell 2000 index up by +0.31% to reach its highest level since April as the near-term growth outlook still looks OK, whereas the NASDAQ bore the brunt of the gradual duration selloff throughout the day, falling -0.58%. Overnight, contracts on the S&P 500 (+0.14%) and NASDAQ 100 (+0.22%) are moving slightly higher again.

In terms of the details of that inflation print, US producer prices fell by -0.5% in July, which was some way beneath expectations for a +0.2% rise, and marks the biggest monthly decline since April 2020 when the economy was experiencing Covid lockdowns. As with the CPI release the previous day, the PPI was dragged down by a sharp fall in energy prices, which fell by -9.0% on the month, and that helped the annual headline measure fall from +11.3% in June down to +9.8% in July. Even if you just looked at core PPI however, the reading was still softer than expected, with the monthly gain excluding food and energy at +0.2% (vs. +0.4% expected), which sent the annual gain down to +7.6%.

The prospect that the Fed would be more cautious in hiking rates was given a slight bit of extra support thanks to additional signs that the labour market was softening. The weekly initial jobless claims for the week through August 6 came in at 262k (vs. 265k expected), which is their highest level since November, and the smoother 4-week moving average also rose to a post-November high of 252k. Continuing claims climbed to 1428k, above expectations. Recall, our US economics team has showed that once the 4-week average of continuing claims increases 11% over recent lows near-term recession alarms start sounding. We’re at 1399k on the 4-week moving average on claims, still a reasonable distance from this 11% increase of 1465k. Overall, although the weekly claims data is slowly getting worse, it's still happening in a sea of huge job openings and generally big job growth. Perhaps the labour market is behaving slightly different from usual in that you can have both big job openings but claims edging up because of a sudden skills mismatch post Covid. If so it makes traditional clues to the future direction of the economy more difficult to decipher. For us the US jobs market is still healthy for now. I suspect it won't be in 12 months time but that's a story for another day.

For Europe, the newsflow continued to be much more downbeat than in the US of late, as concerns mounted across the continent about the energy situation this winter. Natural gas futures rose a further +1.34% yesterday to €208 per megawatt-hour, putting them at their highest levels since early March just after Russia’s invasion of Ukraine began. Power prices also soared to fresh records, with German prices for next year up +5.24% to €449 per megawatt-hour, whilst French prices were up +6.62% to €615 per megawatt-hour. Governments are coming under increasing pressure to do something about this, and German Chancellor Scholz said yesterday that there would be further relief measures for consumers.

Growing concerns about an imminent recession meant that European equities also had a lacklustre day, with the STOXX 600 only up +0.06%. Sovereign bonds also lost ground, with yields on 10yr bunds (+8.2bps), OATs (+8.3bps) and BTPs (+3.8bps) all moving higher on the day, although gilts were the biggest underperformer on this side of the Atlantic with yields up by +10.8bps.

Asian equity markets are relatively quiet this morning with the exception of the Nikkei (+2.37%) which is surging and catching-up up after a holiday on Thursday, whilst the Hang Seng (+0.09%), the Shanghai Composite (+0.16%), the CSI (+0.08%) and the Kospi (+0.02%) are all edging up.

Elsewhere, the San Francisco Fed President Mary Daly in her overnight remarks indicated that a 50 bps interest rate hike in September “makes sense” following two back-to-back 75-basis-point hikes in June and July given recent economic data including on inflation. However, she added that she is open for a bigger rate hike if the data showed it was needed.

To the day ahead now, and data releases include the UK’s GDP reading for Q2, Euro Area industrial production for June, and in the US there’s the University of Michigan’s preliminary consumer sentiment index for August.

Tyler Durden Fri, 08/12/2022 - 08:08

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Modern American Policy: Stupid Or Sinister?

Modern American Policy: Stupid Or Sinister?

Authored by Matthew Piepenburg via GoldSwitzerland.com,

American policy has been acting in ways…

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Modern American Policy: Stupid Or Sinister?

Authored by Matthew Piepenburg via GoldSwitzerland.com,

American policy has been acting in ways which suggest either a desperate ignorance or a sinister restructuring of the national narrative.

Surveying the Senseless

The USA is now staring down the barrel of four-decade high inflation, an inverted yield curve and the highest debt levels in its history as Wall Street recently enjoyed the strongest relief rally since 2020 on the bad news of yet another Fed rate hike (75bp) into a percolating liquidity crisis.

Huh?

In a Fed-led dystopia marked by years of printed rather than earned liquidity, bad news is now good news to markets who nervously seek pretexts for central bank stimulus rather than actual earnings or GDP.

In such distorted landscapes, positive jobs data creates sell offs and crippling rate hikes induce rising stocks.

For almost 2 years, while we and other candid market observers were warning of crippling inflation, our central bankers were describing it as “transitory” with a dishonesty similar to the current recession is not a recession meme.

Huh?

Meanwhile in DC, we see growing signs of a political culture less about public service and more about self-service.

Wealth disparity in the home of the brave has passed the highest levels ever recorded and points directly to the slow and empirical death of the American middle class.

The suburbs around DC are growing richer with lobbyist and polo-playing defense contractors buying concessions and second homes from politicians who openly sell votes for reelection in a democracy that more resembles an auction house than a house of representation.

A former tobacco tsar at the FDA, for example, recently took an executive role at Phillip Morris while an executive at Raytheon (America’s second largest defense contractor) just took a key post at the Department of Defense.

Alas, the foxes not only guard the hen house, they run it.

The Land of the Free?

If fascism is defined as “the perfect merger of the state and corporate powers” (See Mussolini circa 1936), then the USA may still be the land of the brave, but it no longer resembles the land of the free.

JP Morgan, led by a $35M/year Jamie Dimon, just paid a $96M “fine” for a $20B profit garnered from openly manipulating the gold market.

Huh?

At the same time, once great (and now police-defunded) cities like Chicago, NYC, and San Francisco are seeing tumbleweeds blowing past office vacancy rates as high as 40% following an historically disastrous COVID lockdown policy which did far more psychological, criminal and financial damage ($7T and counting) to America than a flu with less than a 1% Case Fatality Rate.

Huh?

Turning to foreign policies, having failed to deliver “freedom and democracy” to Vietnam, Iraq, Libya, Syria, and Afghanistan at the cost of America’s best sons and daughters, one wonders why the US has spent another $60B to bring “freedom” to the Ukraine when millions of US children live in poverty.

All Americans hate to see civilians suffer in needless wars. But many who blindly wave Ukrainian flags in moments of ad-water, instant-virtue signaling from a government-led media can’t place Ukraine on a map nor bother to examine the complex history of its Russian tensions which date back to the 1750s.

Furthermore, sending an IQ, history and geography challenged Kamila Harris to pre-war Ukraine with a NATO narrative only accelerated the February drums of war (and the financially disastrous sanctions that followed) in the same way that Pelosi’s recent trip to Taiwan seems to be more about flaming rather than cooling the war hawks.

Does the US, with over 800 military bases in 70 countries actively seek war, or does it seek peace? Thousands are dying in the East for what many professional US statesmen believe was an easily avoidable war.

Has the military industrial complex, against which Eisenhower (no stranger to war) warned in January of 1961, hi-jacked American politics?

Meanwhile, as American monetary and fiscal policy reached new levels of open insanity in the seemingly deliberate fear-campaign led by “experts” like Fauci in the dramatically-described “war against COVID,” the latest boogieman out of DC is an equally unaffordable war against an equally-hyped climate change.

If passed, “The Inflation Adjustment Act of 2022,” now sitting on Biden’s desk (or pillow), seeks further dollars that America does not earn yet which the White House assures won’t be inflationary.

Huh?

Do the foregoing samples of questionable policy failures evidence open stupidity, or is there something more systemic at play?

The Fed: “Advancing the Few at the Expense of the Many”

My take on the Fed is only that: My take. It is based upon the premise (and bias) that the Fed is driven, as Andrew Jackson warned, to serve the few and not the many.

This presumption comes not only from personal observations, but a careful study of the Fed’s illegitimate practices and origins, far too complex to unpack here but detailed in Gold Matters.

The Ongoing Inflation Lie

As I’ve been writing and saying for months, the Fed’s current inflation narrative as well as “solution” is as openly bogus as a 42nd Street Rolex.

There is little about the current inflation narrative that compares to the 1970’s, and hence little about Powell’s current policies which remotely compare to the so-called Volcker era of 1980, which ended, by the way, in a recession.

Nevertheless, I am fascinated by the extensive time, brain-power and pundit attention given to explaining current inflation.

Fancy concepts from “demand-pull” to “supply shocks,” or “extraneous shocks” and “accelerants” to even “black swans” are used to explain a 9.1% CPI inflation scale (which, if DC truly wishes to be “Volcker-like,” is closer to 18% using the metrics of his era…).

The Simple Inflation Truth

Inflation, which was already steadily rising pre-Putin and percolating pre-COVID, is nothing more than the direct consequence of USD debasement driven by: 1) years of openly addictive mouse-click money (>10X since 2008) from the Eccles Building and, 2) fatal fiscal spending from the White House, be it red or blue.

In just the last 24 months, the Fed created 50% more mouse-click money than all the money that ever existed in the 256 years of its national existence.

Such numbers are a tad “inflationary,” no? Alas, costs are rising because our grotesquely inflated/de-valued dollar is tanking.

Between 1776 and the un-immaculate conception of the Fed in 1913, a USD was once a USD.

Since 1913, however, a USD is really (worth) nothing more than a Nickle.

Why?

Broken Faith vs. Store of Value

Because when a central bank creates trillions of those dollars out of thin air with no link to an underlying real asset or an equivalent exchange for a good or service (as Germans like Alfred Lansburgh, Austrians like von Mises and Americans like Andrew Dickson White argued), that dollar is nothing more than a symbol of broken faith rather than a store of genuine value.

Like a glass of wine filled with a swimming pool of water, the dollar is diluted; it’s flavor, color and value ruined. Since 1971, and when measured against a single milligram of gold, the USD, like all other fiat currencies, has lost greater than 95% of its value.

The Fed: Blaming vs. Accountability

Rather than confess the toxic reality (and complicity) of the fatal and inflationary expansion of the broad money supply, the DC elites first tried to call it “transitory,” and when that failed, they tried to call it “Putin’s inflation.”

Really?

There’s no doubt that the sanctions against Putin sent gas prices and the CPI higher—especially in Europe. And there’s also no doubt that the trillions of fiscal and monetary dollars used to “fight” COVID were CPI tailwinds.

But a tailwind does not mean a cause.

Take the “war on COVID” and the $7T+ in combined fiscal and monetary dollars used to combat it.

I’m not here to end the COVID debate with medicine or science, of which I’m clearly no expert. But many of us (including Rand Paul or Christine Anderson) would agree that neither was Fauci, the CDC, the WHO or the NIH.

Almost everyone (vaxed or un-vaxed, masked or un-masked) has already caught the virus; it’s fairly clear that locking the country down for well over a year did nothing but cost money and freedoms while destroying businesses who deserved to choose for themselves whether to stay open or shut.

There will be others who disagree, but in my legally, historically and financially educated mind, not since the oxy-moronic Patriot Act have I seen a greater crime (or psy op) against a nation’s own citizens and their once inalienable rights and civil liberties as that which was embodied by the 2020 lockdowns.

As Ben Franklin warned, a nation which surrenders its freedoms in the name of security deserves neither.

Critical Thinking Locked Down

As a kid who won athletic scholarships to some of the finest schools (from Choate to Harvard) in America, I learned the trade of critical thinking, which any of us can acquire, with or without a shiny diploma.

What particularly sickened me, however, was that the very schools (prep to grad level) who taught me the history, laws and methods of thinking critically, independently and openly, were the same knee-bending schools who collectively insulted those same principals by shutting their doors to the un-vaxed and censoring alternative views from professors and students who thought differently.

Were these lockdowns proof of humanitarian concern or were they test-drives for increasingly centralized control over national and international markets, currencies and populations?

From the very beginning of the pandemic, expert virologists, physicians and even vaccine creators (as evidenced by the meetings at the AIER in Great Barrington) with equal if not far superior credentials than Dr. Fauci, were openly censored, gas-lighted and criminalized by the media as flat-earth “conspiracy theorists”—the now favorite term of art for anyone who disagrees with DC’s often comically official narrative on anything from WMD to the current definition of a recession.

Thus, when considering the current inflation narrative and its causes, was the US merely stupid in imposing financially crippling lockdowns or were there sinister forces engineering fear as a means of pushing the masses into dependency while the Fed printed more dollars for the repo and bond markets (a hidden “bailout’) than for Main Street?

Saudi Did It?

Others may want to blame the Saudis and the high oil prices for the inflation we see today.

It’s worth reminding, however, that today’s oil price is roughly the same as it was in April of 2020.

The Solution Narrative

As far as combatting inflation, that too creates a great deal of space for debate, error and comedy.

Many, including the Fed’s James Bullard, Lael Brainard or Neel Kashkari have been arguing for aggressive rate hikes to kill inflation.

But with inflation already at 9.1%, such “above-neutral” would require the Fed to follow the IMF’s recommendation that interest rates be at least 1% above inflation rates. In an honest world, that would require a 10.1% interest rate policy, which would immediately bankrupt Uncle Sam.

Instead, Powell is boasting of an “aggressive” 2.25-50% Fed Fund Rates to fight 9.1% inflation, the policy equivalent of storming the beaches of Normandy with squirt-guns.

Meanwhile, the Cleveland Fed, as per my recent articles, is using dishonest math to publicly claim positive 1% real rates despite the fact that when measuring even a 3% yield on the 10Y UST against a 9.1% inflation rate, the USA is in fact living in a world of at least -6% rather than +1% real rates.

Like the CPI scale itself, the Fed is openly lying about negative real rates.

Sadly, such clever math is now the new DC normal. The Fed won’t say what the rest of us know, namely: The only tool to fight Fed-made inflation is a Fed-made recession, which they will deny in plain sight.

The Recession Narrative

The latest lie from on high, of course, is the valiant attempt by Powell, Biden and Yellen to downplay 2 consecutive quarters of negative GDP as a non-recessionary “transition” despite such data effectively confirming the very definition of a recession.

Instead, DC would now have us believe that positive labor and unemployment data is non-recessionary.

In particular, the BLS is boasting 528,000 newly created jobs in July (and 2M year-to-date), which places US unemployment at an admirable 3.5%, the lowest level seen in 50 years.

Unfortunately, a little bit of honest math indicates that those “new jobs” don’t represent new folks finding work, but sadly, just folks already-employed who are taking on second or third jobs to survive rising inflation costs.

The July labor force participation rate actually went down, which means there are less not more people in the work force.

In April of 2019, I did a more extensive report on the DC math used to artificially puff US labor data (U3 and U6) which is far worse than officially reported.

But who needs real math or honest data when DC’s comforting words feel so much better?

Such consistent trends of sanctioned dishonesty, however, force us to question the intelligence and desperation of our so-called “leadership.”

From Fake Math to Real Wars

I’ve written and spoken extensively about the avoid-ability of the war in Ukraine as well as the foreseeable stupidity of the Western sanctions against Putin, all of which have empirically backfired at every level– from the slow collapse of the petrodollar (and hence USD) to the slow rise of a stronger, Eastern-lead trading block among the BRICS.

The petrodollar is no laughing matter. Since de-coupling from the gold standard, the US relies on the forced global purchase of oil in US Dollars to prevent this already debased currency from losing even more demand, and hence value and power.

Only two global leaders have since tried to stand up to the petrodollar power in the past. Saddam Hussein wanted to buy oil in euros and Khaddaffi wanted to buy oil in gold; and just look what happened to them…

Unfortunately for the US, both China and Russia have nuclear weapons. Hence, the US playbook of fighting wars or indirectly eliminating leaders to keep its financial interests secure got a little bit messier this February when poking at Putin.

The Dollar Fairytale: Another Open Lie from On High

Despite openly objective evidence of an increasingly unloved USD, DC continues to boast of the relative strength of the USD on the DXY.

What DC won’t say, however, is that this “strength” is only measured against a tanking yen and euro, two debt-soaked currencies who don’t have enough reserve currency clout to afford a currency-boosting rate hike.

Against the Chinese Yuan, however, the US has less of which to boast…

In short, the USD is anything but strong.

As discussed above, its inherent purchasing power has been neutered by over a century of devaluation and is little more than the best horse in the Western glue factory.

Profitable War Drums

Given the failings and open lies above, from inflation realism and recessionary word-smithing to dying currencies and rising, unpayable debts, why on earth would the US now be saber rattling over the Ukraine or pinching the Chinese bear over Taiwan?

Is it to spread democracy and freedom by helping the underdog, whatever the sacrifice?

Well, one of our most famous underdogs, military generals and presidents, George Washington, warned over 2 centuries ago to precisely avoid such foreign entanglements. “Truly enlightened and independent patriots,” he argued, focused on prosperity within their borders not peripheral wars outside them.

Despite such warnings, the US has spent a lot of time fighting outside its borders rather building unity within them.

Why?

One sad but empirically proven argument is that war is historically good for tanking GDP and struggling stock markets.

In March of 2018, I penned an eerily prescient analysis of how US stocks love global war, and warned of escalations against Russia and China.

In particular, I addressed the historical data of the “war dividend,” which tracked US markets reacting favorably to de-stabilization outside its borders.

Thus, even if Generals Washington and Eisenhower warned against such conflicts, Wall Street and the defense contractors who lobby DC love a good war.

Why?

Because war feeds US markets. Conflicts overseas create massive capital flows into the relative safety of the US.

During the Iraq War, hundreds of billions in Middle Eastern assets rushed into US markets while NATO bombs landed in Iraq. Between 2003 and 2008, the Dow rose steadily upwards.

During the Vietnam War (which killed 58,000 Americans and 1.2 million Vietnamese), the Dow gained 53%. When the war ended, the markets promptly fell, and fell hard.

During the Great War of 1914-1918, the Dow nearly doubled. As for WW2, the Dow rose by 164% between Pearl Harbor in 1941 and VJ day in 1945.

Given such numbers, was the recent idea of sending a kindergarten-level intellect like Kamila Harris to negotiate peace (?) with Putin in early 2022 deliberately set up to fail?

Was Pelosi’s recent flight to Taiwan a commitment to ensure freedom? Or is there a more sinister, yet hidden, motive to push for war in a time of economic disaster at home?

Is America Heading in the Opposite Direction of Its Founding Fathers?

History confirms that every debt crisis leads to a financial crisis, a market crisis, a currency crisis, social unrest, a political crisis, and ultimately extreme authoritarian and centralized control from the far political left of right.

Given how increasingly centralized our openly broken yet centrally controlled markets, economies and politics have become, and given the acceleration and scope of the open lies, backfiring polices and unpayable costs and debts which have emerged in the post-COVID and post-sanction new normal, is it possible that the USA is headed toward a similarly authoritarian fate?

Is it possible that the by ignoring the clear warnings of figures like George Washington, Thomas Jefferson, Andrew Jackson, Benjamin Franklin and Dwight Eisenhower, that America is heading in the opposite direction of its founding principles?

Is it possible that the openly failing inflation, recessionary, domestic and foreign polices listed above are more than just a list of stupid mistakes, but indicators of a set-up for something more sinister?

Are our markets, economies, currencies and individual freedoms being sacrificed to the altar of order, control, safety and security?

Is DC creating an intentional class of American lords and serfs, in which the former hand out stimulus checks to prevent the later from reaching for pitch forks?

As we learned in the Europe of the 1930’s or the lockdowns of the 2020’s, fear (be it viral, militant or economic) is a potent tool of control—it turns revolutionary anger into malleable subservience.

Just a thought.

Tyler Durden Thu, 08/11/2022 - 23:00

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