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BOJ and China PMI Disappoint, While EMU Q2 Growth and October Inflation were Softer than Expected

Overview: The Bank of Japan softened its 1.0% cap on
the 10-year, while lifting its core CPI forecast this fiscal year and next. This
disappointed many…



Overview: The Bank of Japan softened its 1.0% cap on the 10-year, while lifting its core CPI forecast this fiscal year and next. This disappointed many who anticipated a bolder move to exit the extraordinary monetary policy. The yen was sold in disappointment and the dollar has returned to the JPY150.75 area. The eurozone contracted by 0.1% in Q3, while October CPI came in below expectations at 2.9%. The greenback is softer against most of the other G10 currencies. The Chinese yuan is softer but in an exceptionally narrow range following the softer than expected PMI. Most other emerging market currencies are firmer.

Japanese equities rose, but most of the large bourses in the region traded heavier. European stocks are extending yesterday's gains. The Stoxx 600 has practically recouped last week's 0.95% decline. US index futures are narrowly mixed. European and US bonds are rallying. Ten-year yields are mostly off 4-5 bp in Europe, though 10-year Gilts yields are down seven basis points. So is the 10-year US Treasury yield, putting it near 4.82%. Gold is recovering from a dip below $1991 to knock on $2000. December WTI is stabilizing after yesterday's nearly 3.8% slide, the largest drop since October 4. 

Asia Pacific

The Bank of Japan downgraded the 1.0% level of the 10-year JGB to a "reference level" and ended daily fixed rate bond buying but adjusted its forecasts, seeming to suggest that normalization of monetary policy will be forthcoming. The 10-year on-the-run JGB yield jumped to 0.94% and the dollar jumped back from yesterday's low near JPY148.80 to JPY150.50. The BOJ now sees core inflation (excluding fresh food) at 2.8% rather than 2.5% as it did in July. Core CPI for the next fiscal year was raised to 2.8% from 1.9%. However, for fiscal 2025, the CPI was kept below 2.0%, but raise to 1.7% from 1.6%. Growth this year was raised to 2.0% from 1.3%z. But GDP in FY24 was shaved to 1.0% from 1.2% and left alone the 1.0% for FY25. Note that before the outcome of central bank meeting, Japan reported a poor September industrial production gain of 0.2%. The median forecast in Bloomberg's survey was for a 2.5% gain. Retail sales also disappointed, falling by 0.1% instead of rising by 0.2% as expected, though the August series was revised up to 0.2% from 0.1%. September unemployment slipped to 2.6% from 2.7% as expected, while the job-to-applicant ratio was steady at 1.29% as anticipated. The data reinforces the sense that the Japanese economy contracted in Q3. 

China's October PMI disappointed. The long holiday at the start of the month may have dampened activity, and the impact of the increase in this year's central government deficit and increase in lending signaled have yet to have much impact. The manufacturing PMI that was below the 50 boom/bust level from April-August, recovered to 50.2 in September fell back to 49.5 in October. The non-manufacturing PMI has held above 50 this year. It peaked in March at 58.2 and in August recorded the low for the year at 51.0. It recovered to 51.7 in September and fell back to 50.6 in October. The composite PMI fell after rising for the previous two months. It stands at 50.7, down from 52.0. 

Speculation spurred by accounts in the Japanese press that the BOJ was going to adjust policy today dollar lower yesterday. It settled the North American session below the 20-day moving average (~JPY149.50) for the first time since late July. It found support near JPY148.80. Last week's high was near JPY150.80 and that is the immediate target. The upper Bollinger Band is found near JPY150.65 today. Last year's high was closer to JPY152. The prospect of a hike by the Reserve Bank of Australia next week helped lift the Australian dollar to a three-day high near $0.6385 yesterday. It has not closed above $0.6400 since October 11. In fact, yesterday's settlement was the highest close since then. The Aussie pulled back to almost $0.6340 before catching a bid. Options for A$1.12 bln expire at $0.6400 on Thursday. The high for the month was also set on October 11 near $0.6445. The dollar's pullback broadly, and especially against the yen (and euro) helped the yuan recover. It seems like a bit of what bike riders call drafting. In contrast, today, the dollar is in an exceptionally narrow range against the yuan (~CNY7.3160-90). The PBOC set the dollar's reference rate ever so slightly low (CNY7.1779 vs CNY7.1781) and the greenback is allowed to move 2% in either direction, which it rarely does. The average projection in Bloomberg's survey was CNY7.3019 (CNY7.3169 yesterday). 


The eurozone reported its preliminary estimate of October CPI and its first read of Q3 GDP. Headline inflation rose by 2.9% in the year through October down from 4.3% in September. The base effect played a significant role. In October 2022, the CPI surged by 1.5%. That dropped out of the 12-month comparison and was replaced with a 0.1% increase. The median forecast in Bloomberg’s survey was for a 0.3% increase. That means that eurozone CPI rose at an annualized rate of about 3.6% in Q3, up from 0.8% in Q2 and 6% in Q1. The core rate is stickier. It rose 4.2% year-over-year, as expected, down from 4.5% in September and the peak in March at 5.7%.

Eurozone's Q3 GDP contracted by 0.1%. It showed slight growth in Q2 (0.2%, revised from 0.1%) after stagnating in Q4 22 and Q1 23. Growth impulses are weak and the outlook for Q4 does not appear to be much better. Spain is the bright spot among the large eurozone members, with a 0.3% expansion. German contracted by 0.1%. French GDP, reported earlier today, rose 0.1% (0.6% in Q2 from initially 0.5%). Italy's economy stagnated after contracted by 0.4% in Q2. The ECB's September economic forecasts anticipates 0.7% expansion year-over-year this year and 1.0% next year. 

The pullback in the US dollar yesterday, against all the G10 currencies, saw the euro rise to $1.0625, a four-day high. It has risen to about $1.0645 today and spiked to $1.0675 after the data. The intraday momentum indicators are stretched, and this might mark the high. The $1.0630 area was the (61.8%) retracement of the euro's fall from last week's high near $1.0695. Yesterday, sterling traded marginally on both sides of last Friday's range (~$1.2105-$1.2160) and settled above the high. This constitutes a bullish outside day. Sterling has edged slightly higher today to a new five-day high near $1.2195. which is also the (50%) retracement of its loss from last week's high (~$1.2290). The intraday momentum indicators are stretched, and this may limit the gains in early North American activity. Some of sterling's buying may have been related to the GBP500 mln of options at $1.2160 that expire today. Note that are two batch options that expire Friday at $1.2100 (~GBP900 mln) and at $1.2150 (~GBP700 mln).


The market's focus is on tomorrow's Treasury announcement of the quarterly refunding size and the FOMC meeting. Yesterday, Treasury reduced its Q4 borrowing needs to $776 bln, down from $852 bln projected in July. Still, the size of next week's coupon offerings will likely increase for the second consecutive quarter. With the end of the BOJ meeting and the eurozone economic reports, the US is center stage. While house prices and the Conference Board's measure of consumer confidence may draw interest, the Q3 employment cost index may be the most important data point. This is a broad measure of labor compensation that includes direct costs, such as wages and bonuses, but also indirect costs, like social security contributions, medical benefits, taxes, and training. Employment costs rose by more than 1% a quarter from mid-2021 through Q1 23. They slowed to 1% in Q2 and are expected to have maintained that pace in Q3. Note that in the three years through the end of 2019, labor costs rose by a quarterly average of a little less than 0.70%. On Thursday, the US reports Q3 productivity and unit labor costs. Unit labor costs combine labor costs and productivity. ULC is reported as an annualized rate. Over the last four quarters through Q2 23, ULC has risen by an average of 2.55%. After rising by 3.65% in Q1 and 2.55% in Q2, ULC is expected to have slow to a 0.5% annualized rate in Q3. In 2019, ULC rose by an average of 1.55%.

Canada reports August GDP. The June and July monthly GDP prints were disappointing the Canadian dollar was sold as a result. The median forecast in Bloomberg's survey is for a 0.1% expansion after flat July print and a 0.2% contraction in June. As we have noted, there has been an adjustment in interest rate expectations. Canada's two-year yield has fallen by nearly 25 bp this month (the US two-year yield is practically flat). The swaps market is pricing in about a 45% chance of a Bank of Canada rate hike by the end of H1 24. As recently as October 18, the swaps market was pricing a an almost 70% chance of a hike. Mexico reports Q3 GDP today. The market expects it to match Q1 and Q2 increase of 0.8%. The central bank forecasts 3.0% growth this year.

The US dollar recorded an inside day against the Canadian dollar yesterday after setting the high for the year before the weekend near CAD1.3880. The US dollar is a little softer and is slipping toward CAD1.3800. A break of CAD1.3790 is needed to signal anything of note, and even then, there is a band of support around CAD1.3745-CAD1.3770. Canada's two-year yield that fell almost 15 bp last Thursday-Friday rose by six basis points yesterday. This coupled with the risk-on mood may have helped stall the greenback's rally. About $450 mln options struck at CAD1.3823 (~$0.7235) expire today. The dollar recorded an eight-day low against the Mexican peso near MXN17.9655 yesterday. Although it settled back above MXN18.00 it closed below the 20-day moving average (~MXN18.1130) for the first time this month. The daily momentum indicators are pointing lower, and the greenback continues to probe the MXN18.00 area.


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Chinese migration to US is nothing new – but the reasons for recent surge at Southern border are

A gloomier economic outlook in China and tightening state control have combined with the influence of social media in encouraging migration.




Chinese migrants wait for a boat after having walked across the Darien Gap from Colombia to Panama. AP Photo/Natacha Pisarenko

The brief closure of the Darien Gap – a perilous 66-mile jungle journey linking South American and Central America – in February 2024 temporarily halted one of the Western Hemisphere’s busiest migration routes. It also highlighted its importance to a small but growing group of people that depend on that pass to make it to the U.S.: Chinese migrants.

While a record 2.5 million migrants were detained at the United States’ southwestern land border in 2023, only about 37,000 were from China.

I’m a scholar of migration and China. What I find most remarkable in these figures is the speed with which the number of Chinese migrants is growing. Nearly 10 times as many Chinese migrants crossed the southern border in 2023 as in 2022. In December 2023 alone, U.S. Border Patrol officials reported encounters with about 6,000 Chinese migrants, in contrast to the 900 they reported a year earlier in December 2022.

The dramatic uptick is the result of a confluence of factors that range from a slowing Chinese economy and tightening political control by President Xi Jinping to the easy access to online information on Chinese social media about how to make the trip.

Middle-class migrants

Journalists reporting from the border have generalized that Chinese migrants come largely from the self-employed middle class. They are not rich enough to use education or work opportunities as a means of entry, but they can afford to fly across the world.

According to a report from Reuters, in many cases those attempting to make the crossing are small-business owners who saw irreparable damage to their primary or sole source of income due to China’s “zero COVID” policies. The migrants are women, men and, in some cases, children accompanying parents from all over China.

Chinese nationals have long made the journey to the United States seeking economic opportunity or political freedom. Based on recent media interviews with migrants coming by way of South America and the U.S.’s southern border, the increase in numbers seems driven by two factors.

First, the most common path for immigration for Chinese nationals is through a student visa or H1-B visa for skilled workers. But travel restrictions during the early months of the pandemic temporarily stalled migration from China. Immigrant visas are out of reach for many Chinese nationals without family or vocation-based preferences, and tourist visas require a personal interview with a U.S. consulate to gauge the likelihood of the traveler returning to China.

Social media tutorials

Second, with the legal routes for immigration difficult to follow, social media accounts have outlined alternatives for Chinese who feel an urgent need to emigrate. Accounts on Douyin, the TikTok clone available in mainland China, document locations open for visa-free travel by Chinese passport holders. On TikTok itself, migrants could find information on where to cross the border, as well as information about transportation and smugglers, commonly known as “snakeheads,” who are experienced with bringing migrants on the journey north.

With virtual private networks, immigrants can also gather information from U.S. apps such as X, YouTube, Facebook and other sites that are otherwise blocked by Chinese censors.

Inspired by social media posts that both offer practical guides and celebrate the journey, thousands of Chinese migrants have been flying to Ecuador, which allows visa-free travel for Chinese citizens, and then making their way over land to the U.S.-Mexican border.

This journey involves trekking through the Darien Gap, which despite its notoriety as a dangerous crossing has become an increasingly common route for migrants from Venezuela, Colombia and all over the world.

In addition to information about crossing the Darien Gap, these social media posts highlight the best places to cross the border. This has led to a large share of Chinese asylum seekers following the same path to Mexico’s Baja California to cross the border near San Diego.

Chinese migration to US is nothing new

The rapid increase in numbers and the ease of accessing information via social media on their smartphones are new innovations. But there is a longer history of Chinese migration to the U.S. over the southern border – and at the hands of smugglers.

From 1882 to 1943, the United States banned all immigration by male Chinese laborers and most Chinese women. A combination of economic competition and racist concerns about Chinese culture and assimilability ensured that the Chinese would be the first ethnic group to enter the United States illegally.

With legal options for arrival eliminated, some Chinese migrants took advantage of the relative ease of movement between the U.S. and Mexico during those years. While some migrants adopted Mexican names and spoke enough Spanish to pass as migrant workers, others used borrowed identities or paperwork from Chinese people with a right of entry, like U.S.-born citizens. Similarly to what we are seeing today, it was middle- and working-class Chinese who more frequently turned to illegal means. Those with money and education were able to circumvent the law by arriving as students or members of the merchant class, both exceptions to the exclusion law.

Though these Chinese exclusion laws officially ended in 1943, restrictions on migration from Asia continued until Congress revised U.S. immigration law in the Hart-Celler Act in 1965. New priorities for immigrant visas that stressed vocational skills as well as family reunification, alongside then Chinese leader Deng Xiaoping’s policies of “reform and opening,” helped many Chinese migrants make their way legally to the U.S. in the 1980s and 1990s.

Even after the restrictive immigration laws ended, Chinese migrants without the education or family connections often needed for U.S. visas continued to take dangerous routes with the help of “snakeheads.”

One notorious incident occurred in 1993, when a ship called the Golden Venture ran aground near New York, resulting in the drowning deaths of 10 Chinese migrants and the arrest and conviction of the snakeheads attempting to smuggle hundreds of Chinese migrants into the United States.

Existing tensions

Though there is plenty of precedent for Chinese migrants arriving without documentation, Chinese asylum seekers have better odds of success than many of the other migrants making the dangerous journey north.

An estimated 55% of Chinese asylum seekers are successful in making their claims, often citing political oppression and lack of religious freedom in China as motivations. By contrast, only 29% of Venezuelans seeking asylum in the U.S. have their claim granted, and the number is even lower for Colombians, at 19%.

The new halt on the migratory highway from the south has affected thousands of new migrants seeking refuge in the U.S. But the mix of push factors from their home country and encouragement on social media means that Chinese migrants will continue to seek routes to America.

And with both migration and the perceived threat from China likely to be features of the upcoming U.S. election, there is a risk that increased Chinese migration could become politicized, leaning further into existing tensions between Washington and Beijing.

Meredith Oyen does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

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Is the National Guard a solution to school violence?

School board members in one Massachusetts district have called for the National Guard to address student misbehavior. Does their request have merit? A…




Every now and then, an elected official will suggest bringing in the National Guard to deal with violence that seems out of control.

A city council member in Washington suggested doing so in 2023 to combat the city’s rising violence. So did a Pennsylvania representative concerned about violence in Philadelphia in 2022.

In February 2024, officials in Massachusetts requested the National Guard be deployed to a more unexpected location – to a high school.

Brockton High School has been struggling with student fights, drug use and disrespect toward staff. One school staffer said she was trampled by a crowd rushing to see a fight. Many teachers call in sick to work each day, leaving the school understaffed.

As a researcher who studies school discipline, I know Brockton’s situation is part of a national trend of principals and teachers who have been struggling to deal with perceived increases in student misbehavior since the pandemic.

A review of how the National Guard has been deployed to schools in the past shows the guard can provide service to schools in cases of exceptional need. Yet, doing so does not always end well.

How have schools used the National Guard before?

In 1957, the National Guard blocked nine Black students’ attempts to desegregate Central High School in Little Rock, Arkansas. While the governor claimed this was for safety, the National Guard effectively delayed desegregation of the school – as did the mobs of white individuals outside. Ironically, weeks later, the National Guard and the U.S. Army would enforce integration and the safety of the “Little Rock Nine” on orders from President Dwight Eisenhower.

Three men from the mob around Little Rock’s Central High School are driven from the area at bayonet-point by soldiers of the 101st Airborne Division on Sept. 25, 1957. The presence of the troops permitted the nine Black students to enter the school with only minor background incidents. Bettmann via Getty Images

One of the most tragic cases of the National Guard in an educational setting came in 1970 at Kent State University. The National Guard was brought to campus to respond to protests over American involvement in the Vietnam War. The guardsmen fatally shot four students.

In 2012, then-Sen. Barbara Boxer, a Democrat from California, proposed funding to use the National Guard to provide school security in the wake of the Sandy Hook school shooting. The bill was not passed.

More recently, the National Guard filled teacher shortages in New Mexico’s K-12 schools during the quarantines and sickness of the pandemic. While the idea did not catch on nationally, teachers and school personnel in New Mexico generally reported positive experiences.

Can the National Guard address school discipline?

The National Guard’s mission includes responding to domestic emergencies. Members of the guard are part-time service members who maintain civilian lives. Some are students themselves in colleges and universities. Does this mission and training position the National Guard to respond to incidents of student misbehavior and school violence?

On the one hand, New Mexico’s pandemic experience shows the National Guard could be a stopgap to staffing shortages in unusual circumstances. Similarly, the guards’ eventual role in ensuring student safety during school desegregation in Arkansas demonstrates their potential to address exceptional cases in schools, such as racially motivated mob violence. And, of course, many schools have had military personnel teaching and mentoring through Junior ROTC programs for years.

Those seeking to bring the National Guard to Brockton High School have made similar arguments. They note that staffing shortages have contributed to behavior problems.

One school board member stated: “I know that the first thought that comes to mind when you hear ‘National Guard’ is uniform and arms, and that’s not the case. They’re people like us. They’re educated. They’re trained, and we just need their assistance right now. … We need more staff to support our staff and help the students learn (and) have a safe environment.”

Yet, there are reasons to question whether calls for the National Guard are the best way to address school misconduct and behavior. First, the National Guard is a temporary measure that does little to address the underlying causes of student misbehavior and school violence.

Research has shown that students benefit from effective teaching, meaningful and sustained relationships with school personnel and positive school environments. Such educative and supportive environments have been linked to safer schools. National Guard members are not trained as educators or counselors and, as a temporary measure, would not remain in the school to establish durable relationships with students.

What is more, a military presence – particularly if uniformed or armed – may make students feel less welcome at school or escalate situations.

Schools have already seen an increase in militarization. For example, school police departments have gone so far as to acquire grenade launchers and mine-resistant armored vehicles.

Research has found that school police make students more likely to be suspended and to be arrested. Similarly, while a National Guard presence may address misbehavior temporarily, their presence could similarly result in students experiencing punitive or exclusionary responses to behavior.

Students deserve a solution other than the guard

School violence and disruptions are serious problems that can harm students. Unfortunately, schools and educators have increasingly viewed student misbehavior as a problem to be dealt with through suspensions and police involvement.

A number of people – from the NAACP to the local mayor and other members of the school board – have criticized Brockton’s request for the National Guard. Governor Maura Healey has said she will not deploy the guard to the school.

However, the case of Brockton High School points to real needs. Educators there, like in other schools nationally, are facing a tough situation and perceive a lack of support and resources.

Many schools need more teachers and staff. Students need access to mentors and counselors. With these resources, schools can better ensure educators are able to do their jobs without military intervention.

F. Chris Curran has received funding from the US Department of Justice, the Bureau of Justice Assistance, and the American Civil Liberties Union for work on school safety and discipline.

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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…



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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