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A Preview Of The Crazy Week Ahead

A Preview Of The Crazy Week Ahead

Here is just a sample of the events on deck this week: a Fed rate hike, a Russian default, a meeting between…

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A Preview Of The Crazy Week Ahead

Here is just a sample of the events on deck this week: a Fed rate hike, a Russian default, a meeting between the US and China, even more sanctions against Russia, the first double-digit (10%) PPI print in decades, a big drop in retail sales, a freak surge in covid across China, oh and a $3.3 trillion notional option expiration on Friday and all happening with liquidity at record lows. Yes, this week will be insane.

As DB's Jim Reid summarizes what's coming, it's a big central bank week with the Fed the obvious focal point mid-week. The BoE and the BoJ also hold meetings, along with some of their emerging markets counterparts. We'll also see CPI for Japan and Canada and a number of housing market statistics in the US and China. Earnings will include Volkswagen, FedEx and Enel, among others.

Wednesday will also be a landmark day even outside of the Fed as this is the date that two Russian Eurobonds have coupon payments. These are small (c.$120bn out of c.$1.75bn of annual hard currency coupons) but will be hugely symbolic. DB strategists write over the weekend that this would likely mark the start of the 30-day grace period that issuers have before a default is officially triggered. 30-days still gives time for there to be a negotiated end to the war and therefore this probably isn't yet the moment where we see where the full stresses in the financial system might reside. There has already been a huge mark to market loss already anyway with news coming through or write downs. However this is clearly an important story to watch.

Onto the Fed now and the FOMC concludes on Wednesday, with the Fed expected to raise rates for the first time since December 2018. Markets are pricing in a +25bps hike, in line with the rhetoric from Chair Powell at his congressional testimonies a couple of weeks back. Before the invasion we thought a 50bps was likely this week and the problem is that by delaying such a move they may have to do more later. The market seems to agree to some degree as at Friday's close the market was pricing in 6.7 hikes this year, the most seen in this cycle and above the post invasion intra-day lows of 4.45. This morning we are at 6.92.

Goldman agrees, and does not expect the war to knock the Fed off of a 25bp-per-meeting tightening path. With inflation likely to remain uncomfortably high all year, the FOMC will probably only pause if it thinks further tightening risks pushing the economy into recession. They continue to expect seven 25bp hikes this year, followed by four quarterly hikes in 2023, for a terminal rate of 2.75-3%.

The dots are likely to jump again in March, though the FOMC’s forecast is expected to be a bit less hawkish than our own. Goldman expects the median dot to show six hikes in 2022, but the risks are tilted to the downside, especially if FOMC participants view balance sheet reduction as equivalent to multiple rate hikes. The median dot is expected to show four more hikes in 2023 and a terminal rate of 2.5-2.75%, just above the FOMC’s 2.5% neutral rate estimate.

With regards to QT, strategists anticipate that the Fed will use this upcoming meeting to announce caps determining the maximum monthly runoff and, in May, announce QT that would begin in June. They think we will see $800bn of runoff this year and an additional $1.1tn drawdown in 2023, a cumulative reduction which is roughly equal to between three and four rate increases. The fascinating thing is what this does to the yield curve if they are correct: nirvana for the Fed is getting to around neutral, somewhere with a 2 handle on Fed Funds and trying to ensure that 10yr yields rise enough to prevent inversion but not enough to lead to a tightening of financial conditions. So if in 12-18 months time 2 year yields are 2.25-2.5%, 10 year yields are 2.75-3% and inflation is coming back towards trend then the Fed have pulled off a masterstroke. If however, 2yr yields are above 2% and 10yr yields below this level, the inversion will likely bite. On the other hand, if the curve steepens up too much and longer end yields are notably above 3% the risk is that financial conditions tighten too much given the global debt load. So, as Reid concludes, "the Fed are trying to thread a needle and its possible inflation will give them an impossible task." Time will tell.

Ahead of the Fed watch out for US PPI (Tuesday) and Retail Sales (Wednesday). They are highly unlikely to change the equation for this FOMC but will be important for the direction of the economy and inflation thereafter. We also get a plethora of US housing data to end the week with Thursday's housing starts and Friday's existing homes sales. These are going to be important for both activity and the rents component in CPI.

Back to central banks and on Thursday, it will be the BoE's turn. DB economists expect a +25bps hike to 0.75%, the pre-pandemic level. Their projected terminal rate is 1.75%. Finally, on Friday, the Bank of Japan will hold a meeting as well and is expected to hold the key rate steady but there is a chance of economic assessment being downgraded. The Bank of Russia's decision on the same day will be scrutinized for the response to risks to the economy from the ongoing geopolitical turmoil.

Last, and certainly not least, on Friday we see a massive $3.3tln of derivative notional expiring, not only right after the FOMC decision but also in the midst of a complex geopolitical situation.

This represents some 30% of S&P open interest expires on March 18 (full preview of this week's Op-Ex can be found here).

Courtesy of DB, here is a day-by-day calendar of events:

Monday March 14

  • Data: France trade balance
  • Other: annual review of the "shopping basket" in the UK

Tuesday March 15

  • Data: US PPI, China property investment, industrial production, fixed assets ex. rural, retail sales, Germany ZEW survey expectations, UK jobless claims change, ILO unemployment rate 3 months, Eurozone ZEW survey expectations, industrial production, Japan trade balance, Canada housing starts, manufacturing sales
  • Earnings: Volkswagen, RWE, Generali

Wednesday March 16

  • Data: US retail sales, import price index, export price index, business inventories, NAHB Housing Market Index, China new home prices, Japan capacity utilization, core machine orders, Canada CPI, wholesale trade sales
  • Central banks: Fed decision
  • Earnings: Lennar, E.ON, Inditex
  • Other: NATO defense ministers meet

Thursday March 17

  • Data: US housing starts, building permits, initial jobless claims, industrial production, capacity utilisation, Japan CPI
  • Central banks: BoE meeting, ECB's Lagarde, Lane, Schnabel, Visco speak
  • Earnings: Accenture, Enel, FedEx, Dollar General, Verbund

Friday March 18

  • Data: US existing home sales, leading index, Italy trade balance, Eurozone trade balance, labour costs, Canada retail sales
  • Central Banks: BoJ meeting, Bank of Russia meeting
  • Earnings: Vonovia

Finally, when looking at just US macro data, Goldman writes that the key economic data releases this week are PPI inflation on Tuesday, retail sales on Wednesday, and Philly Fed manufacturing index on Thursday. The March FOMC meeting is this week, with the release of the statement at 2:00 PM ET on Wednesday, followed by Chair Powell’s press conference at 2:30 PM. There are several scheduled speaking engagements by Fed officials this week.

Monday, March 14

  • There are no major economic releases scheduled.

Tuesday, March 15

  • 08:30 AM PPI final demand, February (GS +1.0%, consensus +0.9%, last +1.0%); PPI ex-food and energy, February (GS +0.7%, consensus +0.6%, last +0.8%); PPI ex-food, energy, and trade, February (GS +0.7%, consensus +0.6%, last +0.9%): We estimate a 0.7% increase for PPI ex-food and energy and PPI ex-food and energy, and trade, reflecting a continued boost from supply chain bottlenecks, labor shortages, and commodity prices. We estimate that headline PPI increased by 1.0% in February.
  • 08:30 AM Empire State manufacturing survey, March (consensus +7.0, last +3.1)

Wednesday, March 16

  • 08:30 AM Retail sales, February (GS -0.5%, consensus +0.4%, last +3.8%); Retail sales ex-auto, February (GS flat, consensus +0.9%, last +3.3%); Retail sales ex-auto & gas, February (GS -0.3%, consensus +0.4%, last +3.8%); Core retail sales, February (GS -0.6%, consensus +0.3%, last +4.8%): We estimate a 0.6% decline in February core retail sales (ex-autos, gasoline, and building materials; mom sa). January sales were likely boosted by a low seasonal hurdle and by late shipments of some holiday orders, and we look for normalization in February—including in the nonstore category. The lapse of the child tax credit could also weigh on spending in this week’s report. On the positive side, we expect a rebound in restaurant spending as the Omicron wave subsided. We estimate a 0.5% decline in headline retail sales, reflecting lower auto sales but higher gasoline prices.
  • 08:30 AM Import price index, February (consensus +1.6%, last +2.0%)
  • 10:00 AM Business inventories, January (consensus +1.1%, last +2.1%)
  • 10:00 AM NAHB housing market index, March (consensus 81, last 82)
  • 02:00 PM FOMC statement, March 15-16 meeting: This week’s meeting will be watched mostly for clues about the pace of tightening after March in the statement, the dot plot, and the Chair’s comments about the war. We continue to seven 25bp hikes this year, followed by four quarterly hikes in 2023, for a terminal rate of 2.75-3%. We expect the FOMC will finalize and publish its balance sheet plan at the May meeting and then announce the start of balance sheet reduction at the June meeting.

Thursday, March 17

  • 08:30 AM Initial jobless claims, week ended March 12 (GS 210k, consensus 220k, last 227k); Continuing jobless claims, week ended March 5 (consensus 1,480k, last 1,494k); We estimate initial jobless claims fell to 210k in the week ended March 12.
  • 08:30 AM Philadelphia Fed manufacturing index, March (GS 10.0, consensus 15.0, last 16.0): We estimate that the Philadelphia Fed manufacturing index declined by 6.0pt to 10.0 in March, reflecting a sentiment drag from the conflict in Ukraine.
  • 08:30 AM Housing starts, February (GS +5.0%, consensus +3.8%, last -4.1%); Building permits, February (consensus -2.4%, last revised +0.5%): We estimate housing starts increased by 5.0% in February. Our forecast incorporates higher permits, a smaller virus drag, and mean reversion after a decline in January.
  • 09:15 AM Industrial production, February (GS +0.1%, consensus +0.5%, last +1.4%); Manufacturing production, February (GS +0.6%, consensus +1.0%, last +0.2%): Capacity utilization, February (GS 77.6%, consensus 77.9%, last 77.6%): We estimate industrial production rose by 0.1% in February, with strong mining production offsetting weaker auto production. We estimate capacity utilization was flat at 77.6%.

Friday, March 18

  • 10:00 AM Existing home sales, February (GS -5.0%, consensus -6.2%, last +6.7%); We estimate that existing home sales decreased by 5.0% in February, following a 6.7% increase in January.
  • 01:20 PM Richmond Fed President Barkin (FOMC non-voter) speaks: Richmond Fed President Thomas Barkin will discuss the economic outlook during an event hosted by the Maryland Bankers Association. Text and Q&A with both audience and media are expected.
  • 02:00 PM Fed Governor Bowman (FOMC voter) speaks: Fed Governor Michelle Bowman will take part in a virtual Fed Listens event on "Helping Youth Thrive".

Source: DB, Goldman, BofA

Tyler Durden Mon, 03/14/2022 - 09:46

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Survey Shows Declining Concerns Among Americans About COVID-19

Survey Shows Declining Concerns Among Americans About COVID-19

A new survey reveals that only 20% of Americans view covid-19 as "a major threat"…

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Survey Shows Declining Concerns Among Americans About COVID-19

A new survey reveals that only 20% of Americans view covid-19 as "a major threat" to the health of the US population - a sharp decline from a high of 67% in July 2020.

(SARMDY/Shutterstock)

What's more, the Pew Research Center survey conducted from Feb. 7 to Feb. 11 showed that just 10% of Americans are concerned that they will  catch the disease and require hospitalization.

"This data represents a low ebb of public concern about the virus that reached its height in the summer and fall of 2020, when as many as two-thirds of Americans viewed COVID-19 as a major threat to public health," reads the report, which was published March 7.

According to the survey, half of the participants understand the significance of researchers and healthcare providers in understanding and treating long COVID - however 27% of participants consider this issue less important, while 22% of Americans are unaware of long COVID.

What's more, while Democrats were far more worried than Republicans in the past, that gap has narrowed significantly.

"In the pandemic’s first year, Democrats were routinely about 40 points more likely than Republicans to view the coronavirus as a major threat to the health of the U.S. population. This gap has waned as overall levels of concern have fallen," reads the report.

More via the Epoch Times;

The survey found that three in ten Democrats under 50 have received an updated COVID-19 vaccine, compared with 66 percent of Democrats ages 65 and older.

Moreover, 66 percent of Democrats ages 65 and older have received the updated COVID-19 vaccine, while only 24 percent of Republicans ages 65 and older have done so.

“This 42-point partisan gap is much wider now than at other points since the start of the outbreak. For instance, in August 2021, 93 percent of older Democrats and 78 percent of older Republicans said they had received all the shots needed to be fully vaccinated (a 15-point gap),” it noted.

COVID-19 No Longer an Emergency

The U.S. Centers for Disease Control and Prevention (CDC) recently issued its updated recommendations for the virus, which no longer require people to stay home for five days after testing positive for COVID-19.

The updated guidance recommends that people who contracted a respiratory virus stay home, and they can resume normal activities when their symptoms improve overall and their fever subsides for 24 hours without medication.

“We still must use the commonsense solutions we know work to protect ourselves and others from serious illness from respiratory viruses, this includes vaccination, treatment, and staying home when we get sick,” CDC director Dr. Mandy Cohen said in a statement.

The CDC said that while the virus remains a threat, it is now less likely to cause severe illness because of widespread immunity and improved tools to prevent and treat the disease.

Importantly, states and countries that have already adjusted recommended isolation times have not seen increased hospitalizations or deaths related to COVID-19,” it stated.

The federal government suspended its free at-home COVID-19 test program on March 8, according to a website set up by the government, following a decrease in COVID-19-related hospitalizations.

According to the CDC, hospitalization rates for COVID-19 and influenza diseases remain “elevated” but are decreasing in some parts of the United States.

Tyler Durden Sun, 03/10/2024 - 22:45

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Rand Paul Teases Senate GOP Leader Run – Musk Says “I Would Support”

Rand Paul Teases Senate GOP Leader Run – Musk Says "I Would Support"

Republican Kentucky Senator Rand Paul on Friday hinted that he may jump…

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Rand Paul Teases Senate GOP Leader Run - Musk Says "I Would Support"

Republican Kentucky Senator Rand Paul on Friday hinted that he may jump into the race to become the next Senate GOP leader, and Elon Musk was quick to support the idea. Republicans must find a successor for periodically malfunctioning Mitch McConnell, who recently announced he'll step down in November, though intending to keep his Senate seat until his term ends in January 2027, when he'd be within weeks of turning 86. 

So far, the announced field consists of two quintessential establishment types: John Cornyn of Texas and John Thune of South Dakota. While John Barrasso's name had been thrown around as one of "The Three Johns" considered top contenders, the Wyoming senator on Tuesday said he'll instead seek the number two slot as party whip. 

Paul used X to tease his potential bid for the position which -- if the GOP takes back the upper chamber in November -- could graduate from Minority Leader to Majority Leader. He started by telling his 5.1 million followers he'd had lots of people asking him about his interest in running...

...then followed up with a poll in which he predictably annihilated Cornyn and Thune, taking a 96% share as of Friday night, with the other two below 2% each. 

Elon Musk was quick to back the idea of Paul as GOP leader, while daring Cornyn and Thune to follow Paul's lead by throwing their names out for consideration by the Twitter-verse X-verse. 

Paul has been a stalwart opponent of security-state mass surveillance, foreign interventionism -- to include shoveling billions of dollars into the proxy war in Ukraine -- and out-of-control spending in general. He demonstrated the latter passion on the Senate floor this week as he ridiculed the latest kick-the-can spending package:   

In February, Paul used Senate rules to force his colleagues into a grueling Super Bowl weekend of votes, as he worked to derail a $95 billion foreign aid bill. "I think we should stay here as long as it takes,” said Paul. “If it takes a week or a month, I’ll force them to stay here to discuss why they think the border of Ukraine is more important than the US border.”

Don't expect a Majority Leader Paul to ditch the filibuster -- he's been a hardy user of the legislative delay tactic. In 2013, he spoke for 13 hours to fight the nomination of John Brennan as CIA director. In 2015, he orated for 10-and-a-half-hours to oppose extension of the Patriot Act

Rand Paul amid his 10 1/2 hour filibuster in 2015

Among the general public, Paul is probably best known as Capitol Hill's chief tormentor of Dr. Anthony Fauci, who was director of the National Institute of Allergy and Infectious Disease during the Covid-19 pandemic. Paul says the evidence indicates the virus emerged from China's Wuhan Institute of Virology. He's accused Fauci and other members of the US government public health apparatus of evading questions about their funding of the Chinese lab's "gain of function" research, which takes natural viruses and morphs them into something more dangerous. Paul has pointedly said that Fauci committed perjury in congressional hearings and that he belongs in jail "without question."   

Musk is neither the only nor the first noteworthy figure to back Paul for party leader. Just hours after McConnell announced his upcoming step-down from leadership, independent 2024 presidential candidate Robert F. Kennedy, Jr voiced his support: 

In a testament to the extent to which the establishment recoils at the libertarian-minded Paul, mainstream media outlets -- which have been quick to report on other developments in the majority leader race -- pretended not to notice that Paul had signaled his interest in the job. More than 24 hours after Paul's test-the-waters tweet-fest began, not a single major outlet had brought it to the attention of their audience. 

That may be his strongest endorsement yet. 

Tyler Durden Sun, 03/10/2024 - 20:25

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The Great Replacement Loophole: Illegal Immigrants Score 5-Year Work Benefit While “Waiting” For Deporation, Asylum

The Great Replacement Loophole: Illegal Immigrants Score 5-Year Work Benefit While "Waiting" For Deporation, Asylum

Over the past several…

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The Great Replacement Loophole: Illegal Immigrants Score 5-Year Work Benefit While "Waiting" For Deporation, Asylum

Over the past several months we've pointed out that there has  been zero job creation for native-born workers since the summer of 2018...

... and that since Joe Biden was sworn into office, most of the post-pandemic job gains the administration continuously brags about have gone foreign-born (read immigrants, mostly illegal ones) workers.

And while the left might find this data almost as verboten as FBI crime statistics - as it directly supports the so-called "great replacement theory" we're not supposed to discuss - it also coincides with record numbers of illegal crossings into the United States under Biden.

In short, the Biden administration opened the floodgates, 10 million illegal immigrants poured into the country, and most of the post-pandemic "jobs recovery" went to foreign-born workers, of which illegal immigrants represent the largest chunk.

Asylum seekers from Venezuela await work permits on June 28, 2023 (via the Chicago Tribune)

'But Tyler, illegal immigrants can't possibly work in the United States whilst awaiting their asylum hearings,' one might hear from the peanut gallery. On the contrary: ever since Biden reversed a key aspect of Trump's labor policies, all illegal immigrants - even those awaiting deportation proceedings - have been given carte blanche to work while awaiting said proceedings for up to five years...

... something which even Elon Musk was shocked to learn.

Which leads us to another question: recall that the primary concern for the Biden admin for much of 2022 and 2023 was soaring prices, i.e., relentless inflation in general, and rising wages in particular, which in turn prompted even Goldman to admit two years ago that the diabolical wage-price spiral had been unleashed in the US (diabolical, because nothing absent a major economic shock, read recession or depression, can short-circuit it once it is in place).

Well, there is one other thing that can break the wage-price spiral loop: a flood of ultra-cheap illegal immigrant workers. But don't take our word for it: here is Fed Chair Jerome Powell himself during his February 60 Minutes interview:

PELLEY: Why was immigration important?

POWELL: Because, you know, immigrants come in, and they tend to work at a rate that is at or above that for non-immigrants. Immigrants who come to the country tend to be in the workforce at a slightly higher level than native Americans do. But that's largely because of the age difference. They tend to skew younger.

PELLEY: Why is immigration so important to the economy?

POWELL: Well, first of all, immigration policy is not the Fed's job. The immigration policy of the United States is really important and really much under discussion right now, and that's none of our business. We don't set immigration policy. We don't comment on it.

I will say, over time, though, the U.S. economy has benefited from immigration. And, frankly, just in the last, year a big part of the story of the labor market coming back into better balance is immigration returning to levels that were more typical of the pre-pandemic era.

PELLEY: The country needed the workers.

POWELL: It did. And so, that's what's been happening.

Translation: Immigrants work hard, and Americans are lazy. But much more importantly, since illegal immigrants will work for any pay, and since Biden's Department of Homeland Security, via its Citizenship and Immigration Services Agency, has made it so illegal immigrants can work in the US perfectly legally for up to 5 years (if not more), one can argue that the flood of illegals through the southern border has been the primary reason why inflation - or rather mostly wage inflation, that all too critical component of the wage-price spiral  - has moderated in in the past year, when the US labor market suddenly found itself flooded with millions of perfectly eligible workers, who just also happen to be illegal immigrants and thus have zero wage bargaining options.

None of this is to suggest that the relentless flood of immigrants into the US is not also driven by voting and census concerns - something Elon Musk has been pounding the table on in recent weeks, and has gone so far to call it "the biggest corruption of American democracy in the 21st century", but in retrospect, one can also argue that the only modest success the Biden admin has had in the past year - namely bringing inflation down from a torrid 9% annual rate to "only" 3% - has also been due to the millions of illegals he's imported into the country.

We would be remiss if we didn't also note that this so often carries catastrophic short-term consequences for the social fabric of the country (the Laken Riley fiasco being only the latest example), not to mention the far more dire long-term consequences for the future of the US - chief among them the trillions of dollars in debt the US will need to incur to pay for all those new illegal immigrants Democrat voters and low-paid workers. This is on top of the labor revolution that will kick in once AI leads to mass layoffs among high-paying, white-collar jobs, after which all those newly laid off native-born workers hoping to trade down to lower paying (if available) jobs will discover that hardened criminals from Honduras or Guatemala have already taken them, all thanks to Joe Biden.

Tyler Durden Sun, 03/10/2024 - 19:15

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