Connect with us

Consumer Savings Shrink to 2008 Lows

Americans are saving less money than ever as inflation and higher interest rates have impacted their budgets.

Published

on

Americans are saving less money than ever as inflation and higher interest rates have impacted their budgets.

The American consumer is accumulating less money each month and tapping into their savings to pay for basic necessities and bills such as utilties, adding to fears of a recession

The personal savings rate in the U.S. for August was down to 3.5%, which is flat compared to July's rate, according to the Bureau of Economic Analysis that was released on Sept. 30. 

"It’s a natural consequence of high inflation that has been forcing individuals and households to raid their own savings accounts where they have them," Mark Hamrick, Bankrate’s senior economic analyst, told TheStreet. "Not everyone has been so fortunate. Others have had to cut back severely or rely more on credit."

Wage growth in many industries has fallen short as inflation has risen exponentially this year.

"The fact is that wage growth has not been keeping pace with inflation and has had a negative impact on savings," he said.

The savings rate is calculated by the income that is remaining aftter consumers pay for food, rent and energy as well as taxes.

The decline in the savings rate matches the low rate in August 2008. 

"As the economy reopened, consumers rushed to spend more of their past savings and current income," Anthony Chan, former chief economist for JPMorgan Chase, told TheStreet. "The yearly rise in the CPI has been outpacing the growth in average hourly earnings for all workers since April 2021. That has created another incentive for consumers to lower their savings rate to maintain their standard of living as inflation continues to outpace the growth in wages for all workers."

The percentage of disposable personal income was 3.6% in May, but fell to 3% in June as many Americans went on summer vacations. 

Inflation has eroded the amount of income workers have as the core personal consumption expenditures (PCE) Price Index increased by 4.9% in August from last year and by 0.6% on the month, the Bureau of Economic Analysis reported.

This reduced hopes that the Federal Reserve would halt its plans for at least another rate hike since the PCE is the Federal Reserve's preferred measure of inflation.

The headline PCE index rose 0.3% on the month, but fell to 6.3% on the year following the first month-on-month decline which was recorded last month -- since April 2020.

Personal income rose by 0.3%, while personal spending rose by 0.4%, the BEA noted.

Consumers received a slight reprieve when gasoline prices fell for 14 consecutive weeks.

Shutterstock

Gasoline Prices Rising Again

The streak of cheaper gasoline prices ended last week as a string of refinery issues pushed prices up higher slightly

For the second straight week, gas prices moved higher with the average gas price posting a rise of 11 cents from a week ago to $3.78 per gallon today, according to GasBuddy data compiled from over 150,000 stations nationwide. 

The national average is up 4 cents from a month ago and 59 cents higher than a year ago. The national average price of diesel has declined by 29 cents in the last week and stands at $4.86 per gallon.

“With gas prices continuing to surge on the West Coast and Great Lakes, the national average saw its second straight weekly rise," said Patrick De Haan, head of petroleum analysis, GasBuddy, a Boston-based provider of retail fuel pricing information and data. "But at the same time, areas of the Northeast and Gulf Coast have continued to see declines as the nation experiences sharp differences in trends between regions.

Along the West Coast, some states reported prices rose 35 cents to 55 cents a gallon as gasoline supply declined to its lowest level in a decade in the region, resulting in skyrocketing prices. 

Another price spike is possible, he said.

"While I’m hopeful there will eventually be relief, prices could go a bit higher before cooling off," De Haan said. "In addition, OPEC could decide to cut oil production by a million barrels as the global economy slows down, potentially creating a catalyst that could push gas prices up further.”

Consumer Confidence Increases 

The Consumer Confidence Index rebounded and rose to its highest level since April - it has increased by 12 points compared to just two months ago. 

"Falling gasoline prices and a still-tight labor market are the main reasons we have seen a recent rebound in confidence," wrote Tim Quinlan, senior economist at Wells Fargo Securities, and Shannon Seery, an economist at Wells Fargo Securities. "But as inflation persists and the Fed lifts rates to combat it, we are unlikely to see confidence approach pre-pandemic levels."

Optimism from consumers rose with both the Conference Boards Consumer Confidence Index or Consumer Sentiment from the University of Michigan despite higher inflation rates and uncertainty about the outlook on the economy.  

Consumers started cutting back on spending on both discretionary items and and staples earlier this year as retailers have reported a lower demand.

Target  (TGT) - Get Target Corporation Report and Walmart  (WMT) - Get Walmart Inc. Report were among retailers that reported weaker profits while the travel and leisure industries benefitted from pent up demand.

The Fed has raised rates five times this year, starting with a 0.25% hike in March. Its most recent hike was the third consecutive 0.75%.

Consumer confidence levels are not likely to remain at these levels, Quinlan and Seery wrote.

"Still-elevated inflation and the aggressive tightening path from the Federal Reserve to combat it will likely weigh on consumers financial prospects," he said. "The recent gain in confidence may be supportive of spending in the near-term, but as long as inflation persists and risks of recession remain confidence is unlikely to return to pre-pandemic levels."

A United Nations agency is now asking for central banks such as the Federal Reserve to stop its interest rate increases.

Additional tightening would only increase the odds of a global recession, the United Nations Conference on Trade and Development said in its annual report on the global economy. 

The agency estimates that a percentage point increase in the Fed’s key interest rate will decrease the amount of economic output by 0.5% in richer countries while the impact is greater in poor countries by a decline of 0.8% over the next three years.

Action Alerts Plus

The Best Ideas For You To Build Wealth

A members-only investing club that helps you grow your portfolio with real-time trade alerts, analysis of major market events, and key opportunities.

  • Real-Time Trade Alerts
  • 24/7 Access To The Portfolio
  • Portfolio Price Targets

Read More

Continue Reading

Government

Climate-Change Lockdowns? Yup, They Are Actually Going There…

Climate-Change Lockdowns? Yup, They Are Actually Going There…

Authored by Michael Snyder via The End of The American Dream blog,

I suppose…

Published

on

Climate-Change Lockdowns? Yup, They Are Actually Going There...

Authored by Michael Snyder via The End of The American Dream blog,

I suppose that we should have known that this was inevitable.  After establishing a precedent during the pandemic, now the elite apparently intend to impose lockdowns for other reasons as well.  What I have detailed in this article is extremely alarming, and I hope that you will share it with everyone that you can.  Climate change lockdowns are here, and if people don’t respond very strongly to this it is likely that we will soon see similar measures implemented all over the western world.  The elite have always promised to do “whatever it takes” to fight climate change, and now we are finding out that they weren’t kidding.

Over in the UK, residents of Oxfordshire will now need a special permit to go from one “zone” of the city to another.  But even if you have the permit, you will still only be allowed to go from one zone to another “a maximum of 100 days per year”

Oxfordshire County Council yesterday approved plans to lock residents into one of six zones to ‘save the planet’ from global warming. The latest stage in the ’15 minute city’ agenda is to place electronic gates on key roads in and out of the city, confining residents to their own neighbourhoods.

Under the new scheme if residents want to leave their zone they will need permission from the Council who gets to decide who is worthy of freedom and who isn’t. Under the new scheme residents will be allowed to leave their zone a maximum of 100 days per year, but in order to even gain this every resident will have to register their car details with the council who will then track their movements via smart cameras round the city.

Are residents of Oxfordshire actually going to put up with this?

[ZH: Paul Joseph Watson notes that the local authorities in Oxford tried to ‘fact check’ the article claiming they’re imposing de facto ‘climate lockdowns’, but ended basically admitting that’s exactly what they’re doing...]

I never thought that we would actually see this sort of a thing get implemented in the western world, but here we are.

Of course there are a few people that are loudly objecting to this new plan, but one Oxfordshire official is pledging that “the controversial plan would go ahead whether people liked it or not”.

Ouch.

Meanwhile, France has decided to completely ban certain short-haul flights in an attempt to reduce carbon emissions…

France can now make you train rather than plane.

The European Commission (EC) has given French officials the green light to ban select domestic flights if the route in question can be completed via train in under two and a half hours.

The plan was first proposed in 2021 as a means to reduce carbon emissions. It originally called for a ban on eight short-haul flights, but the EC has only agreed to nix three that have quick, easy rail alternatives with several direct connections each way every day.

This is nuts.

But if the French public accepts these new restrictions, similar bans will inevitably be coming to other EU nations.

In the Netherlands, the government is actually going to be buying and shutting down approximately 3,000 farms in order to “reduce its nitrogen pollution”

The Dutch government is planning to purchase and then close down up to 3,000 farms in an effort to comply with a European Union environmental mandate to slash emissions, according to reports.

Farmers in the Netherlands will be offered “well over” the worth of their farm in an effort to take up the offer voluntarily, The Telegraph reported. The country is attempting to reduce its nitrogen pollution and will make the purchases if not enough farmers accept buyouts.

“There is no better offer coming,” Christianne van der Wal, nitrogen minister, told the Dutch parliament on Friday.

This is literally suicidal.

We are in the beginning stages of an unprecedented global food crisis, and the Dutch government has decided that now is the time to shut down thousands of farms?

I don’t even have the words to describe how foolish this is.

Speaking of suicide, Canada has found a way to get people to stop emitting any carbon at all once their usefulness is over.  Assisted suicide has become quite popular among the Canadians, and the number of people choosing that option keeps setting new records year after year

Last year, more than 10,000 people in Canada – astonishingly that’s over three percent of all deaths there – ended their lives via euthanasia, an increase of a third on the previous year. And it’s likely to keep rising: next year, Canada is set to allow people to die exclusively for mental health reasons.

If you are feeling depressed, Canada has a solution for that.

And if you are physically disabled, Canada has a solution for that too

Only last week, a jaw-dropping story emerged of how, five years into an infuriating battle to obtain a stairlift for her home, Canadian army veteran and Paralympian Christine Gauthier was offered an extraordinary alternative.

A Canadian official told her in 2019 that if her life was so difficult and she so ‘desperate’, the government would help her to kill herself. ‘I have a letter saying that if you’re so desperate, madam, we can offer you MAiD, medical assistance in dying,’ the paraplegic ex-army corporal testified to Canadian MPs.

“Medical assistance in dying” sounds so clinical.

But ultimately it is the greatest lockdown of all.

Because once you stop breathing, you won’t be able to commit any more “climate sins”.

All over the western world, authoritarianism is growing at a pace that is absolutely breathtaking.

If they can severely restrict travel and shut down farms today, what sort of tyranny will we see in the future?

Sadly, most people in the general population still do not understand what is happening.

Hopefully they will wake up before it is too late.

*  *  *

It is finally here! Michael’s new book entitled “End Times” is now available in paperback and for the Kindle on Amazon.

Tyler Durden Fri, 12/09/2022 - 06:30

Read More

Continue Reading

Uncategorized

Futures Jump Above Key CTA Trigger Level Ahead Of PPI Data

Futures Jump Above Key CTA Trigger Level Ahead Of PPI Data

After sliding 8 of the previous 9 days, US stock futures extended yesterday’s…

Published

on

Futures Jump Above Key CTA Trigger Level Ahead Of PPI Data

After sliding 8 of the previous 9 days, US stock futures extended yesterday’s gains as investors awaited today's PPI data (ahead of next week's critical CPI print) and the Fed's final meeting for 2022 next week. Contracts on the Nasdaq 100 were up 0.6% as of 7:30 a.m. in New York, while S&P 500 futures rose 0.5%; more importantly spoos were back above the critical and closely watched medium-term CTA trigger of 3976. Treasury yields were little changed, with the 10-year rate just below 3.5%. The Bloomberg dollar index dropped.

And maybe even notable is that in its latest market commentary, Goldman's trading desk warned that "L/Os I speak with telling me they are bumping up against their cash ceilings." Are we about to see a flood of year-end buying as there is just too much cash on the sidelines as funds continue to dump assets. Underlying indexes rallied on Thursday after almost 9 straight days of losses, and are still on track to post a weekly decline amid fears of a hawkish-for-longer central bank and the risk of a recession in 2023.

Among notable moves in premarket trading, Activision Blizzard fell after the US Federal Trade Commission sought to block Microsoft’s $69 billion acquisition of the videogame publisher, saying the deal would harm competition. DocuSign Inc. jumped after the e-signature company reported third-quarter billings that were stronger than expected. Analysts noted that results were boosted by early renewals. Piper Sandler upgraded to neutral from underweight. Here are some other notable premarket movers:

  • Coinbase drops 2.8% in US premarket trading, after Mizuho Securities downgraded its rating on the cryptocurrency exchange to underperform from neutral. Analysts say that consensus expectations are “too optimistic” for the company’s 2023 revenue.
  • Netflix rises 2.3% after the streaming company is upgraded to overweight from equal-weight at Wells Fargo, with analysts seeing a path of positive catalysts in 2023 driven by lower churn and stable subscribers. Separately, Cowen names Netflix as its top large- cap stock pick for 2023.
  • Lululemon slides 6.8% in light volumes as lower-than-expected profitability raised concerns about a pileup of inventory, while the the yogawear maker’s full-year sales forecast disappointed Wall Street.
  • Pharvaris drops 14%, erasing some of yesterday’s gains, when the stock more than quadrupled in price. The surge followed the firm’s announcement that the RAPIDe-1 Phase 2 clinical study of PHVS416, an oral on-demand treatment for angioedema attacks, met primary endpoint and all secondary endpoints.
  • Take-Two Interactive has “bright” long-term prospects through owning iconic IPs such as Grand Theft Auto and a track record of successful releases, though Citi starts coverage on the video game developer on the sidelines on the expectation of consensus FY24 estimates falling.
  • Rally in Chinese stocks listed in the US continued, with major internet stocks making fresh gains in premarket trading on Friday as steps to relax pandemic curbs gain momentum.
  • Apple analysts are trimming their sales estimates for the iPhone maker’s fiscal first quarter as disruptions at its factories in China are expected to hit sales. With delivery times for iPhone recovering over the past week, analysts note that demand for the top-end smartphone models is still holding up and expect the backlog to benefit subsequent quarters. Shares gained about 1%.
  • Broadcom shares are up 4% after the semiconductor device company reported fourth-quarter results that beat expectations and gave a revenue forecast that was ahead of consensus. Analysts were positive about the company’s consistent execution amid a tough macro environment.
  • Carvana Co. slumps 6% after Needham cut its recommendation on the stock to hold from buy saying “confidence is low on the path forward.” The latest downgrade follows similar moves from at least five other brokerages in recent months, including Wedbush, William Blair and Cowen.
  • Chewy’s fiscal 3Q results look strong, though its conservative guidance may disappoint some investors, analysts say. Chewy shares fell 1.1%.
  • Erasca is 2.9% lower after its stock offering priced via JPMorgan and Goldman Sachs.

Focus this morning will be on US producer prices data amid optimism that inflation peaked earlier this year. The Fed has signaled it’s ready to start slowing the pace of rate hikes at its meeting next week, and investors will look for clues about its policy outlook for next year. CMC Markets market analyst Michael Hewson said “the big question” from hereon is whether the trend of cooling prices “can be maintained against a US central bank that doesn’t want to be seen as going soft on inflation, and services and wages data that points to a US economy that is slightly more resilient than originally thought.”

“Traders will be closely watching today’s PPI data, with S&P 500 options markets pricing the largest potential move around any PPI release this year,” said Hugo Bernaldo, senior cross-asset trader at Optiver. “Investors will also be looking for clues in today’s data of how Tuesday’s more important CPI figures will come in.”

A Bloomberg News survey showed fund managers are optimistic about a stock recovery next year, expecting low double-digit gains, although they cite a strong recession and stubborn inflation as the biggest risks. Top market strategists are more cautious, saying equities are likely in for a rough ride in the first half of the year as they price in a possible economic contraction. Bank of America Corp. strategists also warned that investors betting on a rally after the Fed’s last rate hike could be in for disappointment due to the impact of higher inflation. Their note, citing EPFR Global data, showed outflows of $5.7 billion from global equity funds in the week through Dec. 7.

Fed officials are leery of fanning stock rallies that ease financial conditions too much and thwart their inflation-fighting mission. Strategists have lined up to warn investors against piling back into risk on hopes the Fed is getting close to pivoting to easier policy. “Central banks will rather be on the safe side when it comes to future inflation after having underestimated inflationary pressures last year,” Karsten Junius, chief economist at Bank J. Safra Sarasin Ltd., wrote in a note to clients, adding that a pause in rate hikes is some way off.

European stocks also rose: travel, media and construction are the strongest-performing equity sectors. Euro Stoxx 50 rises 0.2%. FTSE MIB is flat but underperforms peers. Here are the most notable European movers:

  • BICO Group shares jump as much as 75% after the Swedish biotech issued shares to Germany’s Sartorius and agreed on a strategic collaboration with the lab-equipment group.
  • Man Group shares rose as much as 6.5% after the UK investment group announced a new share buyback program of up to $125m.
  • ABN Amro shares rise as much as 4.2% after it was upgraded to outperform at Credit Suisse
  • Credit Suisse shares rise 3.7% after the troubled lender completed its 4 billion-franc capital increase, giving the bank the funds needed to go ahead with its restructuring.
  • Pendragon shares drop as much as 28% after the auto dealer says Hedin Group no longer intends to make a bid for the company due to challenging market conditions and the uncertain economic outlook.
  • Carl Zeiss Meditec shares drop as much as 11%, the most intraday since October 2019, after the medical optical manufacturer said its first quarter 2022/23 Ebit margin is expected to fall significantly year-on-year amid higher costs and China’s Covid lockdowns.
  • Ipsen falls as much as 7.0%, the most since Oct. 27, after a phase III trial evaluating its Cabometyx in combination with another drug failed to meet its primary endpoint of overall survival in non-small cell lung cancer.
  • Worldline falls as much as 6.0% after it was cut to neutral from overweight at JPMorgan, with the broker saying a key pillar of its bullish view on the stock is deteriorating.
  • TotalEnergies shares retreated as much as 2.0% after the French energy group said it would take a $3.7 billion impairment hit in its fourth-quarter results following a decision to no longer consolidate its 19.4% stake in Russia’s Novatek.

Asian equities also gained Friday as most regional markets followed US shares higher, while reopening moves in China kept overall sentiment upbeat. The MSCI Asia Pacific Index rose as much as 1.4%, heading for a sixth-straight week of gains, lifted by technology shares. Hong Kong’s Hang Seng Index climbed more than 2%, leading gains in the region, while gauges in Japan and Taiwan advanced more than 1%. Shares of Chinese developers led the advance in Hong Kong as expectations grew for more policy support. Macau casino shares also rallied as the city followed the mainland to relax some of its Covid restrictions.  Read: China Stocks Cap Another Week of Hefty Gains on Reopening Moves

“A significant easing of Covid measures could happen in the second half of the year after gradual, piecemeal measures in the first quarter,” said Iris Pang, chief economist for Greater China at ING Groep NV. Still, “there are likely downside risks associated with the higher number of Covid cases.”  The Asian stock benchmark was on track for its longest weekly run of gains in two years, amid expectations for China’s reopening and the Federal Reserve’s pivot from its aggressive tightening. The gauge has risen more than 18% from its October low, on the cusp of entering a technical bull market. Traders are focusing on US producer prices data due later in the day, which may offer cues on the Fed’s tightening path

Japanese equities climbed, tracking a rebound in the S&P 500 Index, as investors awaited US inflation data for clues on the Federal Reserve’s tightening path.  The Topix rose 1% to 1,961.56 as of the 3 p.m. market close in Tokyo, while the Nikkei 225 advanced 1.2% to 27,901.01. Sony Group contributed the most to the Topix’s gain, increasing 2.3%. Asian gaming stocks rose as the US Federal Trade Commission seeks to block Microsoft’s $69 billion acquisition of Activision Blizzard.  Out of 2,164 stocks in the index, 1,633 rose and 420 fell, while 111 were unchanged. “The immediate focus of market participants is on PPI, CPI and the FOMC,” said Shogo Maekawa, chief global strategist at JPMorgan Asset Management.

Australian stocks gained as miners advance, tracking Asian peers. Australia’s key equity benchmark index rose 0.5%, boosted by miners and consumer staples shares, as regional stocks followed Wall Street higher. The S&P/ASX 200 closed at 7,213.20 on Friday but declined 1.2% for the week In New Zealand, the S&P/NZX 50 index fell 0.2% to 11,596.03.

Indian stocks were an outlier on Friday, among the biggest decliners in Asia on Friday,  with key gauges falling more than 1% as as tech shares dropped and investors booked some profits ahead of the year-end with economic growth expected to be under pressure. The S&P BSE Sensex fell 0.6% to 62,181.67 as of 3:45 p.m. in Mumbai, while the NSE Nifty 50 Index slipped by a similar magnitude. Both gauges fell 1.1% for the week, their biggest declines since late September. Tech shares contributed the most to Friday’s falls after management of HCL Technologies said fiscal 2023’s revenue growth will be at the lower end of the 13.5% to 14.5% band, triggering concerns about the industry’s prospects next year. Infosys was the biggest drag on the Sensex, with the company dropping 3.1%.

In FX, the dollar trims some of its earlier losses, though still lower on the day; CHF and JPY outperform in G-10 FX. The Bloomberg dollar index fell as much as 0.3% before paring much of that drop; it’s closed lower for the past two sessions.

  • The euro was little changed at 1.056 while the pound gained 0.2%, leaving it unchanged on the week at about $1.226
  • USD/JPY fell 0.5% to around 136; spot dollar was sold for the daily Tokyo fixing but Japanese banks continued after the event and in large amounts, according to Asia-based FX traders
  • Asian currencies “are buoyed on the back of overall risk on, a softer USD and China cheer” on re-opening hopes, said Vishnu Varathan, head of economics & strategy at Mizuho Bank Ltd. in Singapore. “This is at least partly owed to the fact that markets as of now are ignoring the ‘for longer’ threat embedded in the Fed’s rate hike dial-back,” he said

In rates, Treasuries outperform bunds and gilts at the 10-year mark. Treasury 10-year little changed around 3.475% with front-end richer and long-end cheaper; bunds lag by additional 5bp on the 10-year sector vs Treasuries, gilts by 3bp. The TSY curve was near steepest levels of the day heading into early US session with 2s10s, 5s30s spreads wider by 3bp and almost 4bp as long-end underperforms. Bigger losses across long-end of the German curve weigh on Treasuries, while US front-end recovered some of Thursday’s losses during Asia session. European bonds fell, led by Italy; 10-year German yield heads 4 basis points higher to 1.86%. Peripheral spreads widen to Germany with 10y BTP/Bund adding 4.3bps to 191.5bps.

In commodities, WTI trades within Thursday’s range, adding 1.4% to near $72.49. Spot gold rises roughly $5 to trade near $1,795/oz. Most base metals trade in the green.

To the day ahead now, and it’s a quiet one on the calendar, although data releases include the US PPI reading for November, as well as the University of Michigan’s preliminary consumer sentiment index for December.

Market Snapshot

  • S&P 500 futures up 0.6% to 3,989.75
  • STOXX Europe 600 up 0.2% to 436.37
  • MXAP up 1.2% to 159.01
  • MXAPJ up 1.2% to 518.83
  • Nikkei up 1.2% to 27,901.01
  • Topix up 1.0% to 1,961.56
  • Hang Seng Index up 2.3% to 19,900.87
  • Shanghai Composite up 0.3% to 3,206.95
  • Sensex down 0.7% to 62,154.01
  • Australia S&P/ASX 200 up 0.5% to 7,213.18
  • Kospi up 0.8% to 2,389.04
  • German 10Y yield up 2.1% to 1.86%
  • Euro little changed at $1.0550
  • Brent Futures up 0.9% to $76.80/bbl
  • Gold spot up 0.1% to $1,791.17
  • US Dollar Index little changed at 104.83

Top Overnight News from Bloomberg

  • The dollar is seen staying in defensive mode versus its major peers next year, according to analysts. Options traders remain bullish on its prospects yet topside bets continue to lose traction.
  • Three-month Euribor extends its advance as traders wager the European Central Bank will raise interest rates for a fourth successive meeting to a 13-year high at 2% next week.
  • The Bank of England said the expectations that British consumers have about where inflation is headed drifted further above its 2% target, and more people were dissatisfied with the way the central bank is doing its job.
  • The Riksbank may be near a peak level for borrowing costs after a string of key rate hikes, Riksbank Deputy Governor Per Jansson said.
  • China faces a daunting task after abruptly giving up on Covid Zero, with infections set to surge and deaths predicted to top 2 million.
  • China will sell 750 billion yuan ($108 billion) worth of special sovereign bonds next Monday to “support economic and social” development, the Ministry of Finance said in a statement late on Friday.

A more detailed summary of markets courtesy of Newsquawk

Asia-Pacific stocks traded mostly higher as the region took impetus from the gains on Wall St where the major indices found some relief during a quiet session ahead of next week's key risk events. ASX 200 was marginally positive with the index led higher by strength in the mining sector, but with gains capped by weakness in defensives and the top-weighted financial industry. Nikkei 225 moved closer to the 28,000 level amid the momentum from the US and after PM Kishida denied they were planning to increase the income tax for defence spending, although a separate report noted that Japan is considering raising corporate tax instead to fund the defence spending. Hang Seng and Shanghai Comp were indecisive in which the Hong Kong benchmark whipsawed and the mainland was lacklustre as participants digested the latest inflation data which showed a slowing pace of CPI growth and slightly narrower-than-expected fall in producer prices, while property names were underpinned on reports that China is mulling further property market easing measures at next week's economic meeting.

Top Asian News

  • Chinese Premier Li said inflation remains high in some countries and that the world economy faces grim challenges with the risk of a global recession increasing. Li also noted that the domestic economy is currently in a stable state after reversing the Q3 economic decline and said China is to further smooth logistics, while he added that China cannot stop opening up and will continue at a high level.
  • Canadian police suspended a contract with a China-linked firm amid concerns regarding potential Chinese access to Canadian police communications, according to SCMP.
  • Japan is considering raising corporate taxes to fund defence spending, according to Yomiuri.
  • Iron Ore Climbs to Four-Month High on Optimism Over China Policy
  • Xi Visit to Saudi Arabia Brings Pledge of More Oil Trade
  • SoftBank Group Cuts SenseTime Stake to 17.97% From 18.02%

Equities in Europe trade with no firm direction in what has been a quiet morning session thus far in holiday-thinned volumes, with little follow-through experienced from the gains in APAC. In Europe, sectors are mostly firmer with no overall bias and again with a narrow market breadth. Stateside, action is in-fitting with European peers as macro catalysts are light ahead of next week's blockbuster docket. China November vehicle sales fell 7.9% Y/YY vs prev. increase of 6.9% in October, according to the industry association, while CAAM suggests an extension of purchase tax cut on combustion engine vehicles to 2023. CAAM forecasts China 2023 vehicles sales +3% YY, large scale COVID infections will have an adverse influence in 2023. Tesla (TSLA) is to suspend Model Y production at Shanghai Plant between December 25th and January 1st; to reduce output in December by around 30% from November for Model Y, according to an internal memo cited by Reuters

Top European News

  • UK Treasury publishes the 'Edinburgh reforms': to reform short selling regulation. To consult on removing rules for capital deduction at banks. To review senior manager certification rules. Click here for more detail.
  • BoE/ Ipsos Inflation Attitudes Survey - November 2022: median public inflation expectation for the coming year at 4.8% in Nov (prev. 4.9% in Aug); 1-2yr inflation 3.4% (prev. 3.2%), 5yr 3.3% (prev. 3.1%).
  • UK Sets Out Post-Brexit Finance Plan to Spur City of London
  • Two More ECB Rate Hikes Seen Before QT Goes Live Early Next Year
  • Arnault’s Son Antoine Takes Wider Role at LVMH Luxury Empire

FX

  • DXY managed to derive some support after losing 104.50 in early trade, currently the index is lower but in proximity to the 104.86 peak.
  • Peers are generally fairly contained with modest outperformance in safe-haven JPY and CHF as US yields slip slightly.
  • Petro-FX continues to lag as the broader complex is once again consolidating with minor gains in the context of recent price action.
  • NOK knocked on soft CPI ahead of the Norges Bank while NZD was underpinned overnight despite mixed domestic data.
  • PBoC set USD/CNY mid-point at 6.9588 vs exp. 6.9604 (prev. 6.9606)

Fixed Income

  • EGBs and USTs continue to diverge, though overall action has been limited given a lack of drivers and thin volumes.
  • EZ periphery is cognisant of the looming TLTRO.III repayment publication, though the impact may not be felt until the January window.
  • Stateside, yields are modestly softer across the curve, with action slightly more evident at the short-end.

Commodities

  • WTI Jan and Brent Feb remain firmer intraday but in the grander scheme are consolidating with modest gains, the former around USD 72.50/bbl (vs low 71.32/bbl), and the latter just above the USD 77/bbl mark (vs low 75.95/bbl).
  • Kuwait set January KEC crude OSP for Asia at Oman/Dubai + USD 2.10/bbl, according to Reuters.
  • Russia is to decide on whether to increase oil production after Q1 following the introduction of the price cap, via Tass citing an official.
  • China's Securities Regulatory Commission is to allow overseas investors in DCE soybean, soybean meal and soybean oil futures and options from December 26th.
  • Canada to review regulatory framework for critical mineral mines and other cleans growth projects to make them faster and more predictable; seeking regulatory harmonization opportunities with the US in a new critical mineral strategy.
  • Spot gold remains capped by USD 1800/oz while base metals are off best levels after deriving modest support overnight.

Geopolitics

  • US is preparing to send a USD 275mln military aid package to Ukraine, according to AJA Breaking.
  • Lithuanian PM Simonyte says Russian President Putin wants a break in the Ukrainian invasion, in order to regroup.
  • US is to sanction entities from China and Russia related to human rights abuses, according to WSJ.

US Event Calendar

  • 08:30: Nov. PPI Final Demand MoM, est. 0.2%, prior 0.2%; YoY, est. 7.2%, prior 8.0%
    • PPI Ex Food, Energy, Trade MoM, est. 0.1%, prior 0.2%; YoY, est. 4.7%, prior 5.4%
    • PPI Ex Food and Energy MoM, est. 0.2%, prior 0%; YoY, est. 5.9%, prior 6.7%
  • 10:00: Oct. Wholesale Trade Sales MoM, est. 0.3%, prior 0.4%
  • 10:00: Dec. U. of Mich. Sentiment, est. 57.0, prior 56.8
    • U. of Mich. Expectations, est. 54.5, prior 55.6
    • U. of Mich. Current Conditions, est. 58.8, prior 58.8
    • U. of Mich. 1 Yr Inflation, est. 4.9%, prior 4.9%
    • U. of Mich. 5-10 Yr Inflation, est. 3.0%, prior 3.0%
  • 10:00: Oct. Wholesale Inventories MoM, est. 0.8%, prior 0.8%
  • 12:00: 3Q US Household Change in Net Wor, prior -$6.1t

DB's Jim Reid concludes the overnight wrap

Risk appetite returned to markets over the last 24 hours, with the S&P 500 snapping a run of 5 consecutive losses to advance +0.75%, whilst bond yields moved higher as well. That came in spite of fresh jitters about the state of the US economy, with the latest data on continuing jobless claims showing a further increase to 1.671m in the week ending November 26 (vs. 1.618m expected). That’s their highest level since early February, and follows a noticeable increase over recent weeks that’s seen them rise by nearly a quarter since mid-September.

With growing concern about a potential recession, attention today will turn to another couple of data points that may give a steer on how aggressively the Fed will lift rates over the coming months. The first is the US PPI inflation reading for November at 13:30 London time. Usually the producer price release gets less market attention compared to consumer prices, but in part that’s because the CPI number is normally out first. This month however, PPI is out first, so should offer a signal on inflation in November ahead of the all-important CPI release on Tuesday. Our economists forecast that both headline and core PPI will come in at +0.2% on a monthly basis, in line with consensus.

The second data point will be the preliminary reading on the University of Michigan’s consumer sentiment index for December. That fell back in November after having risen for the 4 previous months, so the question will be whether that was just a blip or the start of a more pronounced downturn. We’ll also get their measure of longer-term inflation expectations that is closely watched. That’s begun to tick back up over the last couple of months, so any further rises would be concerning from the Fed’s point of view, who thus far have been reassured by the fact that longer-term expectations have remained anchored.

Ahead of those releases, we got some fresh signs of elevated US inflation pressures from the Atlanta Fed’s wage growth tracker, with the main measure of median hourly wage growth remaining unchanged at 6.4% in November. That’s a bit beneath the peak of 6.7% between June and August, but isn’t suggesting a meaningful deceleration in wage inflation as we move deeper into Q4, and this data is normally highly correlated with the Employment Cost Index.

With upcoming data providing the main focus today, markets remained in something of a holding pattern as investors looked forward to the packed calendar of events next week, including the Fed and ECB decisions. For instance, expectations of the Fed’s terminal rate continued to hover around the 5% mark, where they’ve been for nearly a couple of months now. Sovereign bond yields did see a noticeable bounceback yesterday, but that was coming off from their lowest levels in a couple of months, with 10yr Treasury yields up +6.5bps on the day to 3.48%. The 2s10s curve also moved to become slightly less inverted with a +1.3bps move to -83.0bps, but again that was coming off a multi-decade low for the curve the previous day.

Elsewhere yesterday, the downward trajectory in oil prices continued, with Brent crude falling a further -1.32% to $76.15/bbl. That left it at its lowest levels of the year so far, despite a brief surge in prices intraday after the Keystone oil pipeline was shut following a leak. WTI similarly pared back its brief gains to close -0.76% lower at $71.46/bbl. These lower prices are flowing through to the real economy as well, with US gasoline prices now down by just over a third from their peak in mid-June, currently at $3.329/gallon. Furthermore, the energy price declines were seen in European natural gas futures as well, which fell -6.94% on the day to €139 per megawatt-hour.

For US equities, there was a decent bounceback yesterday, with the S&P 500 up +0.75% as technology stocks led the advance. For instance, the NASDAQ was up a larger +1.13%, and the FANG+ index of megacap tech stocks rose +2.51%. Over in Europe, the tone was much more subdued for equities, with the STOXX 600 (-0.17%) losing ground for a 5th consecutive day. However, sovereign bonds traded more in line with their US counterparts, with yields on 10yr bunds (+3.7bps), OATs (+4.5bps) and BTPs (+8.6bps) all moving higher on the day.

Overnight in Asia, the major equity indices have mostly followed the US higher, with gains for the Nikkei (+1.27%), the Hang Seng (+1.64%), the CSI 300 (+0.24%), the Shanghai Comp (+0.05%) and the Kospi (+0.47%). The moves came as Chinese inflation remained subdued in November, with year-on-year CPI down to +1.6% as expected, down from +2.1% in October, which was seen as offering policymakers more space to stimulate the economy if required. That continued to be driven by food prices, which were up +3.7%, compared to non-food prices which only rose +1.1%. Elsewhere, the PPI reading was slightly higher than expected, but was still at a deflationary -1.3% over the last year (vs. -1.5% expected).

To the day ahead now, and it’s a quiet one on the calendar, although data releases include the US PPI reading for November, as well as the University of Michigan’s preliminary consumer sentiment index for December.

Tyler Durden Fri, 12/09/2022 - 08:11

Read More

Continue Reading

Government

Sinema out, Warnock in — Democrats narrowly control the Senate and Republicans the House, but gridlock won’t be the biggest problem for the new Congress

With Democrats running the Senate and the GOP in control of the House, there’s concern that Congress won’t get anything done. Turns out, unified government…

Published

on

Will gridlock mean the new Congress won't get anything done? mathisworks/Getty Images

In the wake of the 2022 U.S. midterm elections, a general sense of the political landscape in the upcoming 118th Congress has taken shape. With Sen. Kyrsten Sinema’s announcement that she is leaving the Democratic Party and Sen. Raphael Warnock’s victory in Georgia’s runoff, Democrats will maintain control in the Senate, while Republicans will take control of the House.

Divided government sparks fears of gridlock, a legislative standstill. At face value, this makes sense. Given the different policy priorities of the two major parties, you might expect to see each party passing legislation out of the chamber it controls that has little chance in the other chamber - and thus no chance of becoming law.

Logically, this means a less productive legislature than one in which a single party with a unified agenda controls both chambers and the presidency.

But as a political scientist who studies partisanship, I believe that divided government - including during the upcoming legislative session - will not produce greatly different legislative results than unified government.

This isn’t exactly a hopeful story, though.

Not much passes

The first reason that divided government isn’t less productive than unified government is because unified government isn’t very productive in the first place. It’s really hard to get things done even when the same party controls both chambers and the presidency.

Most legislation only clears the Senate if it has the 60 votes needed to break a filibuster. Neither party has come close to a so-called “filibuster-proof majority” of 60 seats since 2010, when Democrats briefly held 60 seats prior to Massachusetts Sen. Ted Kennedy’s death and the election of Republican Scott Brown to that seat. Thus, even a unified government is likely only passing measures that have some degree of minority party support.

A bunch of tired-looking men in suits at a meeting.
It can take a lot of talking and listening to get legislation passed in Congress. Here, a meeting of the Senate Foreign Relations Committee on Nov. 30, 2022. Chip Somodevilla/Getty Images

There are ways to force passage of legislation when one party doesn’t want it to pass. A process called budget reconciliation is not subject to filibuster, but it can only be used on provisions that deal directly with changes in revenues or spending. This is what happened with the Inflation Reduction Act of 2022, which Democrats were able to pass via reconciliation, with Vice President Kamala Harris casting the tiebreaking vote.

Further, legislative success under unified government assumes that the majority party is united. There is no guarantee of this, as seen in 2017 when Republican senators John McCain, Lisa Murkowski and Susan Collins joined Democrats in blocking the repeal of the Affordable Care Act.

Between 2011 and 2020 the vast majority of new laws clearing the House - roughly 90% - and the Senate - roughly 75% - did so with a majority of minority party members in support.

Even landmark legislation usually has support from most minority party members in at least one chamber. For example, the substantial 2020 revision of the North American Free Trade Agreement, or NAFTA, passed the House and Senate with overwhelming bipartisan support, as did the defense bill that created the Space Force.

A group of people going down the stairs of the US Capitol building on a sunny day.
While Congress is not that productive, sometimes it passes legislation. Here, lawmakers stream out of the Capitol after passing the Coronavirus Aid, Relief, and Economic Security Act in 2020. Bill Clark/CQ-Roll Call, Inc via Getty Images

Rewards - and risks - in crossing lines

On a more positive note, divided government may still provide opportunities for legislative breakthroughs.

The reason? The local orientation of Congress - lawmakers need to respond to their district’s voters.

In the House, according to a New York Times analysis, Republicans won 10 of the most competitive districts, including five in New York state alone. But the Cook Partisan Voting Index, which measures how strongly a district leans in favor of one party or the other, scores some of these districts as tilting Democratic – potentially giving these Republican members of Congress reason to reach across the aisle. The same goes for Democratic lawmakers whose districts tilt Republican.

But these kinds of mixed districts can also make it hard for sitting lawmakers to vote with their own party. While parties will work to keep a united front, research suggests that voters may punish those members of Congress who toe the party line too closely – providing a potential incentive for crossing party lines. Democratic legislators in Republican-leaning districts who voted for the Affordable Care Act, the Dodd-Frank financial regulation bill, or the stimulus bill, all Democratic Party priorities, suffered electorally in the 2010 midterms, receiving a lower vote share than those who voted against the legislation. In many cases, these lawmakers lost their seats.

Still, defections may be more likely given weak leadership, and currently it’s not certain who will fill the speaker’s role in the next Congress.

More consequential aspects

You don’t have to search for long to see examples of large legislative achievements produced during periods of divided government.

Divided government produced welfare reform in the 1990s and social security reform in the 1980s. The Coronavirus Aid, Relief, and Economic Security (CARES) Act passed a Republican Senate and a Democratic House overwhelmingly in March 2020.

Certainly, there have been times during which unified governments have pushed legislation through with little minority party support. The Affordable Care Act and the Trump tax cuts were among them. But bipartisan legislative victories are much more common.

There are probably more consequential aspects to the GOP’s takeover of the House of Representatives than concerns over legislative gridlock.

House Republicans have already talked about using the investigatory powers of the chamber to investigate everyone from Hunter Biden to Anthony Fauci. A debt ceiling showdown, in which the GOP might use the threat of default on the U.S. government’s debt to force spending cuts, looms for what feels like the dozenth time in the past several years.

Matt Harris 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.

Read More

Continue Reading

Trending