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Chinese Officials Calm Markets

Overview:  More constructive signals from Chinese officials and a Federal Reserve that is gradually moving toward slowing its bond purchases have had a beneficial impact on the risk-appetites.  Led by a 3% recovery in the Hang Seng, the large equity…

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Overview:  More constructive signals from Chinese officials and a Federal Reserve that is gradually moving toward slowing its bond purchases have had a beneficial impact on the risk-appetites.  Led by a 3% recovery in the Hang Seng, the large equity markets in the Asia Pacific region advanced after the MSCI benchmark recorded the lows for the year yesterday.  Europe's Dow Jones Stoxx 600 is posting modest gains that were sufficient to lift the benchmark to new record highs.  US equity futures are firm.   US and European 10-year yields are little changed.  The US is firm around 1.26%.  European yields are also 1-2 bp higher. The biggest reaction in the capital markets is the setback in the dollar, which is softer against nearly all currencies through the European morning.  Among the majors, the New Zealand and Canadian dollars and the Norwegian krone are the strongest.  The yen and Swiss franc are the laggards.  Among emerging market currencies, the South African rand and Hungarian forint are the strongest.  The JP Morgan Emerging Market Currency Index extended yesterday's gains and is poised for its best two days this month.  Meanwhile, the decline in real yields and a weaker dollar appear to be helping lift gold above its 200-day moving average near $1821.  Falling oil inventories in the US are helping to lift crude prices.  The September WTI contract is up by more than 1% for the second day as prices push above $73 a barrel.  After falling on Tuesday, the CRB rose yesterday, its sixth gain in the past seven sessions.  

Asia Pacific

Chinese officials moved to calm markets.  They did so by the regulators meeting with banks and trying to isolate the crackdown on private education while signaling that IPOs in the US are not banned.  State funds may have been deployed to support equities.  The PBOC provided additional liquidity.  The CNY30 bln (~$4.6 bln) via seven-day repo was the largest such operation this month.  Even if Chinese officials succeed in stabilizing the market, the damage to sentiment and confidence among foreign investors will take some time to heal.  First, outside of some general narrative, it is not clear what is Beijing's end game.  Second, what appears to be capriciousness and clumsiness did not just begin in recent days but is part of a sequence of events that goes back to the intended Ant IPO last year.  Third, the opaqueness and activist state approach does not attract foreign investment.  Fourth, these recent events show why integrating China into the world's capital markets is a gradual process that is not simply moving in one direction.  The main challenge is not technology, which means that a digital yuan may not be the game-changer that some have suggested.  

After buying a record among Japanese bonds in the week through July 16 (JPY2.57 trillion), foreign investors pared their holdings last week by JPY223 bln.  The most interesting development last week with Japanese portfolio flows was the continued divestment of foreign bonds.  Japanese investors sold JPY1.09 trillion of foreign bonds.  It was the fourth liquidation in the past five weeks. Indeed, the average weekly sales over this run have been JPY544 bln, the most in a five-week period since March as the fiscal year was drawing to a close.   

The dollar is hovering near this week's lows against the yen set on Tuesday near JPY109.60. There is little support below there until last week's low closer to JPY109.  There is an option for about $380 mln at JPY109.30 that expires today.  On the upside, the greenback has not been able to poke above JPY110.00 today.  The Australian dollar is bid, and it is straddling $0.7400 near midday in Europe.  It has not closed above $0.7400 since July 15.  It appears to be absorbing offers that may be related to the A$1.1 bln in options expiring today between $0.7385 and $0.7400.  The $0.7425 area holds the 20-day moving average, and the Aussie has not closed above it since mid-June.  The dollar had broken out of the recent range against the Chinese yuan and reached its best level in three months on Tuesday (~CNY6.5125).  It has since surrendered the gains and moved back to the lower end of the previous trading range (~CNY6.45).  It is on track for its biggest two-day drop against the yuan in six months.  The dollar's reference rate was set at CNY6.4942, nearly spot-on the median projection (CNY6.4944) in the Bloomberg survey.  

Europe

Germany reported a larger than expected decline in unemployment and what appears to be an upside surprise on inflation.  The unemployment queues fell by an impressive 91k in July after a 39k decline in June.  It was the largest drop since late 2006.  The median forecast called for a 29k decline.  The unemployment rate fell to 5.7% from 5.9%.  It was at 5% before the pandemic struck.  The German states have reported their CPI figures, and the national figures will be out shortly.  The states reported a monthly rise of 0.8%-1.0%, which poses an upside risk to the median forecast expecting a 0.6% rise in the national calculation, which would lift the year-over-year rate to 3.2% from 2.3%.  The EU harmonized measure was expected to rise by 0.4% for a 2.9% year-over-year pace (up from 2.1% in June).  

Spain is the other large EMU country reporting unemployment and inflation figures today.  The Q2 unemployment rate eased even if not as much as expected, falling to 15.26% from nearly 16% in Q1.  The EU harmonized inflation measure fell 1.2% on the month, which due to the base effect saw the year-over-year rate rise to 2.9% from 2.5%.  

Tomorrow is a big day of releases for the eurozone.  It reports the June unemployment rate (seen steady at 7.9%, though the risk is on the downside), CPI (seen at 2% but the risk is on the upside), and the first estimate for Q2 GDP ( a 1.5% quarterly gain, which would be the first expansion in three quarters and only the second quarterly expansion since Q3 19 (it was stagnant in Q4 19).  

The euro is extending its rally for the fourth consecutive session.  It has forged a base around the $1.1750-$1.1760 area and tested it at the start of the week.  Today it is pushing against $1.1880, a three-week high.  It closed above the 20-day moving average yesterday for the first time since June 7, and the five-day moving average is crossing above the 20-day moving average for the first time since then as well.  It has not traded above $1.19 this month, and there is an 800 mln euro option struck there that expires today.  Sterling is also advancing for the fourth consecutive session. It settled last week slightly below $1.3750 and reached $1.3970 today, its highest level since June 23.  Recall that sterling peaking on June 1 is near $1.4250.  It is moving above the (50%) retracement level (~$1.3910) today, and the next retracement (61.8%) is just shy of $1.40.  

America

There are two main takeaways from yesterday's FOMC statement and press conference.  First, the Fed is still on track to make a formal tapering announcement in a couple of months.  The actual tapering could begin before year-end, depending on the economy.  Powell seemed relatively calm about the prospects that the new Delta variant will cause a major economic disruption.  The Jackson Hole-September FOMC meeting timeframe still seems reasonable, especially if the upcoming employment data is as strong as anticipated, and there are several forecasts for non-farm payrolls to rise by a million when announced at the end of next week. Second, the Fed continues to argue that elevated price pressure is temporary.  Powell has argued that a relatively small basket of goods in the CPI basket accounts for the prices.  We have noted that only about a third of the components are rising faster than 2%.  Powell pointed to cars (new, used, and rental), airfare, and hospitality as significant contributors.  The Fed Chair continued to push back against linking house price increases to its MBS purchases and seemed to suggest early tapering off those purchases did not have wide support.  The minutes will shed light on this debate.  

More than a month after President Biden said a deal was struck, the Senate appears to be on the verge of approving a bipartisan physical infrastructure bill.  It will be around $550 bln in new spending, and almost another $500 bln is anticipated in federal money for highways that are part of the regular cycle.  It will be partly paid for by reallocated unspent covid relief funds and tapping the Strategic Oil Reserves and a few other more gimmicky measures like counting revenue for future growth and boosting the reporting for crypto trades to capture more tax revenues.  

The US reports its preliminary estimate for Q2 GDP.  The median forecast in Bloomberg's survey calls for an 8.5% annualized pace after 6.4% in Q1.  Personal consumption is expected to have risen by double digits for the second consecutive quarter. The GDP deflator is projected to rise to 5.4% from 4.3%.  We suspect US economic growth is peaking, and the slowing will be gradual, but by H2 22, the sub 3% pace will return.  Separately, the US reported weekly jobless claims. They unexpectedly rose by 50k in the previous week, which was the second increase in three weeks and the first back above the 400k-mark since mid-June.  Unperturbed, economists in the Bloomberg survey are looking for 385k claims last week.

The US dollar is breaking down against the Canadian dollar.  It is convincingly falling through the 20-day moving average (~CAD1.2525) for the first time since mid-June.  The greenback is trading near two and a half week lows against the Canadian dollar to test CAD1.2450.  Recall it peaked near CAD1.28 on July 19.  The next target is near CAD1.24, the halfway mark of the US dollar's recovery from the five-year low set on June 1 near CAD1.20.  The Mexican peso shrugged off Moody's downgrade of Pemex deeper below investment grade (Ba3 and retained a negative outlook).  Of the main rating agencies, only S&P sees Pemex as an investment-grade risk.  The dollar has approached MXN19.85 to take out last week's low.  The next area of support is seen near MXN19.80.  It should be capped in front of MXN19.97.  


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Mathematicians use AI to identify emerging COVID-19 variants

Scientists at The Universities of Manchester and Oxford have developed an AI framework that can identify and track new and concerning COVID-19 variants…

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Scientists at The Universities of Manchester and Oxford have developed an AI framework that can identify and track new and concerning COVID-19 variants and could help with other infections in the future.

Credit: source: https://phil.cdc.gov/Details.aspx?pid=23312

Scientists at The Universities of Manchester and Oxford have developed an AI framework that can identify and track new and concerning COVID-19 variants and could help with other infections in the future.

The framework combines dimension reduction techniques and a new explainable clustering algorithm called CLASSIX, developed by mathematicians at The University of Manchester. This enables the quick identification of groups of viral genomes that might present a risk in the future from huge volumes of data.

The study, presented this week in the journal PNAS, could support traditional methods of tracking viral evolution, such as phylogenetic analysis, which currently require extensive manual curation.

Roberto Cahuantzi, a researcher at The University of Manchester and first and corresponding author of the paper, said: “Since the emergence of COVID-19, we have seen multiple waves of new variants, heightened transmissibility, evasion of immune responses, and increased severity of illness.

“Scientists are now intensifying efforts to pinpoint these worrying new variants, such as alpha, delta and omicron, at the earliest stages of their emergence. If we can find a way to do this quickly and efficiently, it will enable us to be more proactive in our response, such as tailored vaccine development and may even enable us to eliminate the variants before they become established.”

Like many other RNA viruses, COVID-19 has a high mutation rate and short time between generations meaning it evolves extremely rapidly. This means identifying new strains that are likely to be problematic in the future requires considerable effort.

Currently, there are almost 16 million sequences available on the GISAID database (the Global Initiative on Sharing All Influenza Data), which provides access to genomic data of influenza viruses.

Mapping the evolution and history of all COVID-19 genomes from this data is currently done using extremely large amounts of computer and human time.

The described method allows automation of such tasks. The researchers processed 5.7 million high-coverage sequences in only one to two days on a standard modern laptop; this would not be possible for existing methods, putting identification of concerning pathogen strains in the hands of more researchers due to reduced resource needs.

Thomas House, Professor of Mathematical Sciences at The University of Manchester, said: “The unprecedented amount of genetic data generated during the pandemic demands improvements to our methods to analyse it thoroughly. The data is continuing to grow rapidly but without showing a benefit to curating this data, there is a risk that it will be removed or deleted.

“We know that human expert time is limited, so our approach should not replace the work of humans all together but work alongside them to enable the job to be done much quicker and free our experts for other vital developments.”

The proposed method works by breaking down genetic sequences of the COVID-19 virus into smaller “words” (called 3-mers) represented as numbers by counting them. Then, it groups similar sequences together based on their word patterns using machine learning techniques.

Stefan Güttel, Professor of Applied Mathematics at the University of Manchester, said: “The clustering algorithm CLASSIX we developed is much less computationally demanding than traditional methods and is fully explainable, meaning that it provides textual and visual explanations of the computed clusters.”

Roberto Cahuantzi added: “Our analysis serves as a proof of concept, demonstrating the potential use of machine learning methods as an alert tool for the early discovery of emerging major variants without relying on the need to generate phylogenies.

“Whilst phylogenetics remains the ‘gold standard’ for understanding the viral ancestry, these machine learning methods can accommodate several orders of magnitude more sequences than the current phylogenetic methods and at a low computational cost.”


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There will soon be one million seats on this popular Amtrak route

“More people are taking the train than ever before,” says Amtrak’s Executive Vice President.

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While the size of the United States makes it hard for it to compete with the inter-city train access available in places like Japan and many European countries, Amtrak trains are a very popular transportation option in certain pockets of the country — so much so that the country’s national railway company is expanding its Northeast Corridor by more than one million seats.

Related: This is what it's like to take a 19-hour train from New York to Chicago

Running from Boston all the way south to Washington, D.C., the route is one of the most popular as it passes through the most densely populated part of the country and serves as a commuter train for those who need to go between East Coast cities such as New York and Philadelphia for business.

Veronika Bondarenko captured this photo of New York’s Moynihan Train Hall. 

Veronika Bondarenko

Amtrak launches new routes, promises travelers ‘additional travel options’

Earlier this month, Amtrak announced that it was adding four additional Northeastern routes to its schedule — two more routes between New York’s Penn Station and Union Station in Washington, D.C. on the weekend, a new early-morning weekday route between New York and Philadelphia’s William H. Gray III 30th Street Station and a weekend route between Philadelphia and Boston’s South Station.

More Travel:

According to Amtrak, these additions will increase Northeast Corridor’s service by 20% on the weekdays and 10% on the weekends for a total of one million additional seats when counted by how many will ride the corridor over the year.

“More people are taking the train than ever before and we’re proud to offer our customers additional travel options when they ride with us on the Northeast Regional,” Amtrak Executive Vice President and Chief Commercial Officer Eliot Hamlisch said in a statement on the new routes. “The Northeast Regional gets you where you want to go comfortably, conveniently and sustainably as you breeze past traffic on I-95 for a more enjoyable travel experience.”

Here are some of the other Amtrak changes you can expect to see

Amtrak also said that, in the 2023 financial year, the Northeast Corridor had nearly 9.2 million riders — 8% more than it had pre-pandemic and a 29% increase from 2022. The higher demand, particularly during both off-peak hours and the time when many business travelers use to get to work, is pushing Amtrak to invest into this corridor in particular.

To reach more customers, Amtrak has also made several changes to both its routes and pricing system. In the fall of 2023, it introduced a type of new “Night Owl Fare” — if traveling during very late or very early hours, one can go between cities like New York and Philadelphia or Philadelphia and Washington. D.C. for $5 to $15.

As travel on the same routes during peak hours can reach as much as $300, this was a deliberate move to reach those who have the flexibility of time and might have otherwise preferred more affordable methods of transportation such as the bus. After seeing strong uptake, Amtrak added this type of fare to more Boston routes.

The largest distances, such as the ones between Boston and New York or New York and Washington, are available at the lowest rate for $20.

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International

The next pandemic? It’s already here for Earth’s wildlife

Bird flu is decimating species already threatened by climate change and habitat loss.

I am a conservation biologist who studies emerging infectious diseases. When people ask me what I think the next pandemic will be I often say that we are in the midst of one – it’s just afflicting a great many species more than ours.

I am referring to the highly pathogenic strain of avian influenza H5N1 (HPAI H5N1), otherwise known as bird flu, which has killed millions of birds and unknown numbers of mammals, particularly during the past three years.

This is the strain that emerged in domestic geese in China in 1997 and quickly jumped to humans in south-east Asia with a mortality rate of around 40-50%. My research group encountered the virus when it killed a mammal, an endangered Owston’s palm civet, in a captive breeding programme in Cuc Phuong National Park Vietnam in 2005.

How these animals caught bird flu was never confirmed. Their diet is mainly earthworms, so they had not been infected by eating diseased poultry like many captive tigers in the region.

This discovery prompted us to collate all confirmed reports of fatal infection with bird flu to assess just how broad a threat to wildlife this virus might pose.

This is how a newly discovered virus in Chinese poultry came to threaten so much of the world’s biodiversity.

H5N1 originated on a Chinese poultry farm in 1997. ChameleonsEye/Shutterstock

The first signs

Until December 2005, most confirmed infections had been found in a few zoos and rescue centres in Thailand and Cambodia. Our analysis in 2006 showed that nearly half (48%) of all the different groups of birds (known to taxonomists as “orders”) contained a species in which a fatal infection of bird flu had been reported. These 13 orders comprised 84% of all bird species.

We reasoned 20 years ago that the strains of H5N1 circulating were probably highly pathogenic to all bird orders. We also showed that the list of confirmed infected species included those that were globally threatened and that important habitats, such as Vietnam’s Mekong delta, lay close to reported poultry outbreaks.

Mammals known to be susceptible to bird flu during the early 2000s included primates, rodents, pigs and rabbits. Large carnivores such as Bengal tigers and clouded leopards were reported to have been killed, as well as domestic cats.

Our 2006 paper showed the ease with which this virus crossed species barriers and suggested it might one day produce a pandemic-scale threat to global biodiversity.

Unfortunately, our warnings were correct.

A roving sickness

Two decades on, bird flu is killing species from the high Arctic to mainland Antarctica.

In the past couple of years, bird flu has spread rapidly across Europe and infiltrated North and South America, killing millions of poultry and a variety of bird and mammal species. A recent paper found that 26 countries have reported at least 48 mammal species that have died from the virus since 2020, when the latest increase in reported infections started.

Not even the ocean is safe. Since 2020, 13 species of aquatic mammal have succumbed, including American sea lions, porpoises and dolphins, often dying in their thousands in South America. A wide range of scavenging and predatory mammals that live on land are now also confirmed to be susceptible, including mountain lions, lynx, brown, black and polar bears.

The UK alone has lost over 75% of its great skuas and seen a 25% decline in northern gannets. Recent declines in sandwich terns (35%) and common terns (42%) were also largely driven by the virus.

Scientists haven’t managed to completely sequence the virus in all affected species. Research and continuous surveillance could tell us how adaptable it ultimately becomes, and whether it can jump to even more species. We know it can already infect humans – one or more genetic mutations may make it more infectious.

At the crossroads

Between January 1 2003 and December 21 2023, 882 cases of human infection with the H5N1 virus were reported from 23 countries, of which 461 (52%) were fatal.

Of these fatal cases, more than half were in Vietnam, China, Cambodia and Laos. Poultry-to-human infections were first recorded in Cambodia in December 2003. Intermittent cases were reported until 2014, followed by a gap until 2023, yielding 41 deaths from 64 cases. The subtype of H5N1 virus responsible has been detected in poultry in Cambodia since 2014. In the early 2000s, the H5N1 virus circulating had a high human mortality rate, so it is worrying that we are now starting to see people dying after contact with poultry again.

It’s not just H5 subtypes of bird flu that concern humans. The H10N1 virus was originally isolated from wild birds in South Korea, but has also been reported in samples from China and Mongolia.

Recent research found that these particular virus subtypes may be able to jump to humans after they were found to be pathogenic in laboratory mice and ferrets. The first person who was confirmed to be infected with H10N5 died in China on January 27 2024, but this patient was also suffering from seasonal flu (H3N2). They had been exposed to live poultry which also tested positive for H10N5.

Species already threatened with extinction are among those which have died due to bird flu in the past three years. The first deaths from the virus in mainland Antarctica have just been confirmed in skuas, highlighting a looming threat to penguin colonies whose eggs and chicks skuas prey on. Humboldt penguins have already been killed by the virus in Chile.

A colony of king penguins.
Remote penguin colonies are already threatened by climate change. AndreAnita/Shutterstock

How can we stem this tsunami of H5N1 and other avian influenzas? Completely overhaul poultry production on a global scale. Make farms self-sufficient in rearing eggs and chicks instead of exporting them internationally. The trend towards megafarms containing over a million birds must be stopped in its tracks.

To prevent the worst outcomes for this virus, we must revisit its primary source: the incubator of intensive poultry farms.

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

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