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Contagion Growth and Calendar-Effect Saps Investor Enthusiasm

Contagion Growth and Calendar-Effect Saps Investor Enthusiasm

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3 years ago

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Overview: Given the huge run-up in risk assets this quarter, and the technical indicators warning of corrective forces, concerns over the new infections is pushing on an open door.  The S&P 500 gapped lower yesterday and fell 2.6%, led by energy and airlines.  The NASDAQ snapped an eight-day rally.  Follow-through selling in the Asia Pacific region saw most markets fall at least 1%, with Korea and Australia seeing losses in excess of 2%.  China, Hong Kong, and Taiwan markets were closed for national holidays.  European shares opened lower but have steadied after dropping about 2.8% yesterday.  US shares are trading with a downside bias.  Bonds are mostly little changed, while peripheral spreads in Europe are a little wider.  The US 10-year yield is about 67 bp, the lower-end of a two-week range.  The foreign exchange market is subdued.  The New Zealand dollar, which was hit the hardest yesterday (-1.25%), is leading the majors higher today with around a 0.4% gain.  The dollar-bloc currencies and the Swedish krona, along with sterling, are firmer, while the euro, yen, and Swiss franc are nursing small losses.  Emerging market currencies are mostly lower.   Gold reached only $1780 yesterday before reversing lower.  It found support above $1755 today.  Oil is stabilizing after yesterday's slide.  The August WTI contract fell 5.8% yesterday and eased further today to almost $37 a barrel before returning to the $38-area.  

Asia Pacific

Japan reported its All-Industries Activity Index plummeted 6.4% in April after a revised 3.4% decline in March (initially -3.8%).  Japan's economy contracted in Q4 19 and Q1 20, and a third quarterly decline is likely before a recovery in the second half.  

The Philippines' central bank surprised the market with a 50 bp rate cut.  The overnight deposit rate sits at 1.75%, and the overnight borrowing rate is 2.25%.  The market seemed to have been split between no change and a 25 bp cut.  Monetary policy is bearing the brunt as the fiscal response has been limited.  The central bank has cut rates by 150 bp in the past three meetings, cut reserve ratios, and provided liquidity.   With inflation near 2%, the central bank may be hesitant to cut rates further.

After falling to almost JPY106 on June 23, perhaps linked to yen-demand related to Softbank divestiture of T-Mobile, the dollar recovered yesterday and extended those gains today to almost JPY107.30, its highest level since the middle of last week.  There is an option for about $500 mln at JPY107.40 that expires today, and another one at JPY107.00 for around $475 mln.  The JPY107.50-JPY107.65 area may offer formidable near-term resistance.  Australia reported its largest single-day increase in infects in a couple of months, but Aussie found support near $0.6850 after peaking earlier this week around $0.6975.  Look for offers in the $0.6880-$0.6900 to cap it today.  

Europe

French President Macron has proposed a new furlough program that could cover a large share of lost income for up to two years starting next month.   If employers and unions agree on fewer hours to protect job security, the government will pay 85% of the costs for up to two years.  The government would cover 80% of the deals struck after October 1. The government will also foot 80% of the bill for re-training. 

The ECB took a fresh initiative today that caught the market by surprise and is helping lift the European financial shares today.  The central bank will establish a new precautionary facility to provide euros to central banks outside of EMU to help address liquidity issues that may arise from the crisis.   The new backstop, EUREP, will be available until the middle of next year.  It will lend euros against collateral of euro-denominated paper from eurozone governments and supranationals.  This is an important initiative.  The ECB had been criticized during the Great Financial Crisis for not doing enough to help ease the liquidity crisis in eastern and central Europe.  

The ECB will reportedly give the Bundesbank documents that it had previously shared with the European Court of Justice regarding its considerations of proportionality.  The Bundesbank will then share with the German parliament.   While this all seems very rational, the problem is that it still allows the German court ruling to impinge on the European Court of Justice ruling, and leaves open the challenge to the primacy of EU law.  Separately, note that Macron and Merkel will meet on June 27, apparently to talk about German taking over the rotating EU presidency in H2 and the EU Recovery Fund.  Lastly, despite cries that the US decision to remove troops from Germany was an "abandonment" of Europe, there are reports today suggesting a redeployment, like we suggested, to Poland.  

The euro peaked Tuesday near $1.1350 and fell to about $1.1250 yesterday and a little below $1.1220 today, where a 775 mln euro option expires today.  The $1.1200 area itself may be more formidable.  There is a 1.6 mln euro option there today that rolls off and an expiring 1.9 bln euro option there tomorrow.  Initial resistance is now seen near $1.1240 and then $1.1260.  Sterling found support ahead of $1.24 in Asia and early European activity today after peaking this week near $1.2550.  However, the buying interest faded around $1.2465, and another try at $1.2400 looks likely.  Note that Turkey's central bank decision on rates is still awaited.  It is expected to announce a 25 bp rate cut to bring the one-week repo rate to 8%.  The lira is slightly weaker for the third consecutive session.  

America

Fitch took away Canada's AAA rating yesterday, citing the pandemic-inspired increase in the country's deficit and debt.  The other two major rating agencies see Canada as a triple-A credit.  Fitch says almost, but not quite at AA+.  This year's deficit of around 12.5% this year (~1% in 2019) will lift Canada's debt to about 115% of GDP.  It leaves Germany as the only AAA-rated sovereign by the three main agencies in the G7.  The market may not have been surprised as much as some media outlets suggest.  As investors and economists thought through the implications of Canada's fiscal response, it was not so far-fetched.  We had highlighted the risk in our May monthly.  If anything, after the announcement, the pullback in the Canadian dollar accelerated.  The 10-year yield finished unchanged a little below 55 bp. Owing to a rise in the consumer staple sector, the S&P/Toronto Stock Composite Index fell by around 1.75% (S&P 500 fell by about 2.6%).

The US reports weekly jobless claims, which have been stickier than many expect. More than 1.3 mln new filings are expected after 1.5 mln previously.  May durable goods orders are expected to have jumped back in May (~10%) after collapsing by 17.7% in April. Also, the May trade balance will be reported.  The deficit is expected to be around $68 bln.  The GDP estimate for Q1 is unlikely to change much from the 5% previously reported. Mexico reports April retail sales (median forecast in the Bloomberg survey is for an 18% decline (-0.8% in March). However, the highlight for Mexico today will be the Banxico rate decision.  Most expect a 50 bp cut to bring the overnight target to 5.0%.  

The US dollar bottomed near CAD1.3485 two days ago and rose to CAD1.3640 yesterday.  It edged up to CAD1.3665 in Asia before pulling back to almost CAD1.3600 in Europe. It could ease a little more, but the upside may be the path of least resistance, especially if equities remain soft.  The greenback made a marginal new high for the month against the Mexican peso, reaching almost MXN22.9750.  A break of MXN23.00 would initially target the MXN23.25 area. Support is seen around MXN22.70.   The S&P 500 approached its 200-day moving average (~3020) yesterday, and a break targets the month's low set on June 15 around 2965.50.  On the upside, the gap created by yesterday's sharply lower opening (~3115 to 3127) offers important resistance. 





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International

Von Der Leyen Speech Suggests Russia Dropped Nuke On Hiroshima 

Von Der Leyen Speech Suggests Russia Dropped Nuke On Hiroshima 

Von der Leyen just said what?…

This past Wednesday, President of the European…

Published

3 hours ago

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September 24, 2023

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Von Der Leyen Speech Suggests Russia Dropped Nuke On Hiroshima 

Von der Leyen just said what?...

This past Wednesday, President of the European Commission Ursula von der Leyen delivered a speech before the 2023 Atlantic Council Awards in New York, where she sounded the alarm over the specter of nuclear war centered on the Russia-Ukraine conflict. But while invoking remembrance of the some 78,000 civilians killed instantly by the atomic bomb dropped on Hiroshima at the end of WWII, she said her warning comes "especially at a time when Russia threatens to use nuclear weapons once again". She  actually framed the atomic atrocity in a way that made it sound like the Russians did it. Watch:

There was not one single acknowledgement in Von der Leyen's speech that it was in fact the United States which incinerated and maimed hundreds of thousands when it dropped no less that two atomic bombs on Japanese cities.

Here were her precise words, according to an Atlantic Council transcript...

You, dear Prime Minister, showed me the meaning of this proverb during the G7 summit in Japan last year. You brought us to your hometown of Hiroshima, the place where you have your roots and which has deeply shaped your life and leadership. Many of your relatives lost their life when the atomic bomb razed Hiroshima to the ground. You have grown up with the stories of the survivors. And you wanted us to listen to the same stories, to face the past, and learn something about the future.

It was a sobering start to the G7, and one that I will not forget, especially at a time when Russia threatens to use nuclear weapons once again. It is heinous. It is dangerous. And in the shadow of Hiroshima, it is unforgivable. 

The above video of that segment of the speech gives a better idea of the subtle way she closely associated in her rhetoric the words "once again" with the phrase "shadow of Hiroshima" while focusing on what Russia is doing, to make it sound like it was Moscow behind the past atrocities.

Via dpa

Russian media not only picked up on the woefully misleading comments, but the Kremlin issued a formal rebuke of Von der Leyen's speech as well:

In response to von der Leynen's remarks, Russian Foreign Ministry spokeswoman Maria Zakharova accused the European Commission president of making "no mention whatsoever of the US and its executioners who dropped the bombs on populated Japanese cities."

Zakharova responded on social media, arguing that von der Leyen's assertions on Moscow's supposed intentions to employ nuclear weapons "is despicable and dangerous" and "lies."

Some Russian embassies in various parts of the globe also highlighted the speech on social media, denouncing the "empire of lies" and those Western leaders issuing 'shameful' propaganda and historical revisionism.

Tyler Durden Sun, 09/24/2023 - 13:15

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International

Saudi Arabia Sentences Schoolgirl To 18 Years In Prison Over Tweets

Saudi Arabia Sentences Schoolgirl To 18 Years In Prison Over Tweets

Via Middle East Eye,

Saudi Arabia has sentenced a secondary schoolgirl…

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4 hours ago

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September 24, 2023

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Saudi Arabia Sentences Schoolgirl To 18 Years In Prison Over Tweets

Via Middle East Eye,

Saudi Arabia has sentenced a secondary schoolgirl to 18 years in jail and a travel ban for posting tweets in support of political prisoners, according to a rights group.

On Friday, ALQST rights group, which documents human rights abuses in Saudi Arabia, revealed that the Saudi Specialised Criminal Court handed out the sentence in August to 18-year-old Manal al-Gafiri, who was only 17 at the time of her arrest.

Via Reuters

The Saudi judiciary, under the de facto rule of Crown Prince Mohammed bin Salman, has issued several extreme prison sentences over cyber activism and the use of social media for criticising the government.

They include the recent death penalty against Mohammed al-Ghamdi, a retired teacher, for comments made on Twitter and YouTube, and the 34-year sentence of Leeds University doctoral candidate Salma al-Shehab over tweets last year.

The crown prince confirmed Ghamdi's sentence during a wide-ranging interview with Fox News on Wednesday. He blamed it on "bad laws" that he cannot change. 

"We are not happy with that. We are ashamed of that. But [under] the jury system, you have to follow the laws, and I cannot tell a judge [to] do that and ignore the law, because... that's against the rule of law," he said.

Saudi human rights defenders and lawyers, however, disputed Mohammed bin Salman's allegations and said the crackdown on social media users is correlated with his ascent to power and the introduction of new judicial bodies that have since overseen a crackdown on his critics. 

"He is able, with one word or the stroke of a pen, in seconds, to change the laws if he wants," Taha al-Hajji, a Saudi lawyer and legal consultant with the European Saudi Organisation for Human Rights, told Middle East Eye this week.

According to Joey Shea, Saudi Arabia researcher at Human Rights Watch, Ghamdi was sentenced under a counterterrorism law passed in 2017, shortly after Mohammed bin Salman became crown prince. The law has been criticised for its broad definition of terrorism.

Similarly, two new bodies - the Presidency of State Security and the Public Prosecution Office - were established by royal decrees in the same year.

Rights groups have said that the 2017 overhaul of the kingdom's security apparatus has significantly enabled the repression of Saudi opposition voices, including those of women rights defenders and opposition activists. 

"These violations are new under MBS, and it's ridiculous that he is blaming this on the prosecution when he and senior Saudi authorities wield so much power over the prosecution services and the political apparatus more broadly," Shea said, using a common term for the prince.

Tyler Durden Sun, 09/24/2023 - 11:30

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Biden To Join UAW Picket Line As Strike Expands, Good Luck Getting Repairs

Biden To Join UAW Picket Line As Strike Expands, Good Luck Getting Repairs

Authored by Mike Shedlock via MishTalk.com,

In a symbolic, photo-op…

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5 hours ago

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September 24, 2023

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Biden To Join UAW Picket Line As Strike Expands, Good Luck Getting Repairs

Authored by Mike Shedlock via MishTalk.com,

In a symbolic, photo-op gesture to win union votes, Biden will head to Michigan for a token visit.

Biden to Walk the Picket Line

Taking Sides

CNN had some Interesting comments on Biden Talking Sides.

Jeremi Suri, a presidential historian and professor at University of Texas at Austin, said he doesn’t believe any president has ever visited a picket line during a strike.

Presidents, including Biden, have previously declined to wade into union disputes to avoid the perception of taking sides on issues where the negotiating parties are often engaged in litigation.

On September 15, the day the strike started, Biden said that the automakers “should go further to ensure record corporate profits mean record contracts for the UAW.”

Some Democratic politicians have been urging Biden to do more. California Rep. Ro Khanna on Monday told CNN’s Vanessa Yurkevich that Biden and other Democrats should join him on the picket line.

“I’d love to see the president out here,” he said, arguing the Democratic Party needs to demonstrate it’s “the party of the working class.”

UAW Announces New Strike Locations

As the strike enters a second week, UAW Announces New Strike Locations

UAW President Shawn Fain called for union members to strike at noon ET Friday at 38 General Motors and Stellantis facilities across 20 states. He said the strike call covers all of GM and Stellantis’ parts distribution facilities.

The strike call notably excludes Ford, the third member of Detroit’s Big Three, suggesting the UAW is more satisfied with the progress it has made on a new contract with that company.

General Motors plants being told to strike are in Pontiac, Belleville, Ypsilanti, Burton, Swartz Creek and Lansing, Michigan; West Chester, Ohio; Aurora, Colorado; Hudson, Wisconsin; Bolingbrook, Illinois; Reno, Nevada; Rancho Cucamonga, California; Roanoke, Texas; Martinsburg, West Virginia; Brandon, Mississippi; Charlotte, North Carolina; Memphis, Tennessee; and Lang Horne, Pennsylvania.

The Stellantis facilities going on strike are in Marysville, Center Line, Warren, Auburn Hills, Romulus and Streetsboro, Michigan; Milwaukee, Wisconsin; Plymouth, Minnesota; Commerce City, Colorado; Naperville, Illinois; Ontario, California; Beaverton, Oregon; Morrow, Georgia; Winchester, Virginia; Carrollton, Texas; Tappan, New York; and Mansfield, Massachusetts.

Contract Negotiations Are Not Close

Good Luck Getting Repairs

Party of the Working Cass, Really?

Let’s discuss the nonsensical notion that Democrats are the party of the “working class”.

Unnecessary stimulus, reckless expansion of social services, student debt cancellation, eviction moratoriums, earned income credits, immigration policy, and forcing higher prices for all, to benefit the few, are geared towards the “unworking class”.

On top of it, Biden wants to take away your gas stove, end charter schools to protect incompetent union teachers, and force you into an EV that you do not want and for which infrastructure is not in place.

All of this increases inflation across the board as do sanctions and clean energy madness.

Exploring the Working Class Idea

If you don’t work and have no income, Biden may make your healthcare cheaper. If you do work, he seeks to take your healthcare options away.

If you want to pay higher prices for cars, give up your gas stove, be forced into an EV, subsidize wind energy then pay more for electricity on top of it, you have a clear choice. If you support those efforts, by all means, please join him on the picket line for a token photo-op (not that you will be able to get within miles for the staged charade).

But if you can think at all, you understand Biden does not support the working class, he supports the unworking class.

Tyler Durden Sun, 09/24/2023 - 10:30

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