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Dollar Surges into the Weekend

Overview: The dollar is surging into the weekend, amid tumbling stocks and rising rates.  The euro has been sold through $1.08 after reversing lower…



Overview: The dollar is surging into the weekend, amid tumbling stocks and rising rates.  The euro has been sold through $1.08 after reversing lower yesterday, despite the stronger than expected flash April PMI.  Poor UK consumer confidence and a sharp drop in retail sales has seen sterling sold to new lows for since November 2020, below $1.2900.  The beleaguered yen is consolidating its recent drop and remains inside the range seen Wednesday for the second consecutive session.  Most Asia Pacific equities fell though China's CSI 300 rose 0.45% to snap a five-day slide.  Europe's Stoxx 600 gapped lower and is now lower on week.  US futures are slipping lower.  European rates are a bit firmer after yesterday's surge that lifted the 10-year Gilt above 2% for the first time since 2015. The German. 2-year trade at almost 0.25%, the highest since 2014. The US 10-year yield is up around four basis points to 2.95% and the 2-year yield is up seven basis points to 2.76%.  It is up about 30 bp this week.  Most emerging market currencies are lower.  The dramatic sell-off of the Chinese yuan gained momentum.  It is about 0.6% lower to bring this week's drop to 1.8%.  It is the largest drop in several years.  Gold is off aorud $10 to almost $1940. It settled last week closer to $1978.  June WTI is consolidating in a $101-$104 range.  US natgas is slightly softer and is set to end a five-week surge.  Europe's natgas benchmark is off 2% after rallying 9% yesterday.  It is up about 3.7% this week after falling more than 14% in the previous two weeks.  Iron ore was firm today but off 3% for the week.  Copper is giving back yesterday's 1% gain and is about 1.5% lower on the week, the first weekly loss in three.  July wheat is falling for the fourth consecutive session and is around 3.5% lower this week after a 12% gain over the past couple of weeks.  

Asia Pacific

Some sensationalized reports played up the intervention angle on talks between Japan's Finance Minister Suzuki and US Treasury Secretary Yellen.   The call out from the meeting suggests the rapid yen moves were discussed, foreign exchange was not the main focus.  They reiterated the boilerplate G7/G20 stance that markets ought to determine exchange rates, but excess volatility is not desirable.  A senior IMF official acknowledged yesterday that the yen's weakness reflects economic fundamentals.  The Fed is tightening.  The BOJ is not. As we have noted central banks want exchange rates to follow monetary policy, otherwise is offsets or blunts official efforts.  

Japan's data showed an economy recovering and energy-led price pressures.  The preliminary April PMI shows slightly slower growth in manufacturing activity (53.4 vs. 54.1) and better services (50.5 vs. 49.4).  The composite rose to 50.9 from 50.3.  The headline March CPI rose to 1.2%, as expected, from 0.9%.  Excluding fresh food, its core rate, edged up to 0.8% from 0.6%.  However, excluding fresh food and energy, Japan is still in deflation (-0.7% vs. -1.0%).  The BOJ meets next week and is expected to lift its inflation forecast from the 1.1% projection in January.  

Australia’s flash April PMI shows the economy gaining momentum.  The manufacturing PMI edged up to 57.8 from 57.7.  The service PMI rose to 56.6 from 55.6.  This translated into a 56.3 composite reading after 55.1 in March.  It is the highest since last June.   After Australia's national elections next month, the central bank is expected to hike rates in June to begin the tightening cycle.  The market is pricing in a 40 bp more that would bring the cash target rate to 0.50%.  

The BOJ will continue its fixed-rate purchases of 10-year government bonds next Monday and Tuesday.  At today's operation it bought about JPY427 bln after not receiving any offers yesterday.  The dollar is consolidating against the yen and remains within the range set Wednesday (~JPY127.45-JPY129.40).  The five-day moving average is slightly above JPY128, and the greenback has not closed below it since April1.  After reversing lower yesterday, the Australian dollar has taken another leg lower today.  It is being sold through $0.7315, the (50%) retracement of the gains since the late January low near $0.6970.  The 200-day moving average is slightly below $0.7300 and the next retracement (61.8%) is closer to $0.7235.  The market may debate about the existence of a Fed put in the stock market, but China seems to have an Xi put.  After the recent slide in Chinese shares, China's Securities Regulatory Commission encouraged large financial firms to boost their allocation to stocks.  The CSI rose today for the first time in six sessions.  However, it offered no reprieve to the slumping yuan.  The sharp sell-off continued for the fourth consecutive session to bring this week's loss to 1.8%. The greenback approached CNY6.50, its highest level since last August.  The PBOC set the dollar's reference rate at CNY6.4596.  The median forecast in Bloomberg's survey was for CNY6.4645.  The sudden breakdown of the yuan has seen turnover in the offshore and options market increase dramatically.  


There has been a sharp rise in the implied yield of the December Euribor futures.  On Wednesday, the implied yield reached about 0.32% and now it is about 0.56%.  ECB President Lagarde warned of downside risks to growth but did not dissuade the market from looking for rate hikes later this year. Some reports played up the push from some hawks for a 50 bp move.  The swaps market is pricing in the first move in July and a total now of 80 bp before the end of the year.  

The eurozone's preliminary PMI defied expectations that the war in Ukraine was undermining activity. Both the manufacturing and service PMI were stronger than expected.  The manufacturing PMI softened a little (55.3 vs. 56.5) but economists had looked for a bigger pullback.  The service PMI rose to 57.7 from 55.6.  Economists had looked for a decline.  The composite rose to 55.8 (from 54.9) and is highest since last September.  German figures showed the manufacturing a little slower than expected (54.1 vs. 56.9 in March and expectations for 54.5).  The service PMI rose to 57.9 from 56.1.  Economists (Bloomberg survey) expected 55.3.  The composite eased to 54.5 from 55.1, a bit better than the 54.1 median forecast.  France more soundly beat expectations.  The manufacturing PMI rose to 55.4 from 54.7 and the service PMI rose to 58.8 from 57.4.  Both were expected to have declined.  The composite rose to 57.5 from 56.3.  It is the highest since before the pandemic.  

The UK is not as fortunate.  Today's data were disappointing beginning with the slump in the GfK consumer confidence (-38 vs. -31) but the real shocker was March retail sales.  Instead of falling 0.3% as the median forecast (Bloomberg's survey) had it, they tumbled 1.4% and the February series was revised to -0.5% from 0.3%.  Excluding gasoline, retail sales fell 1.1% after a revised 0.9% drop in February.  The flash PMI also disappointed.  The manufacturing PMI held up better than expected (edging up to 55.3 from 55.2), but the service PMI dropped to 58.3 from 62.6 (median forecast was for 60).  The composite PMI fell to 57.6 from 60.9. This does not offer a good economic backdrop for the local elections early next month.  Still, after BOE (Bailey and Mann) comments yesterday, the swaps market is pricing a little more than a 1-in-3 chance of a 50 bp hike on May 5. At the end of last week, it was about a 1-in-4 chance. 

The euro reversed lower yesterday after rising to about $1.0925 on the back of some hawkish ECB comments.  It lost a cent from the high, and follow-through selling today saw the single currency slip below $1.08.  The recent lows were around $1.0760.  The low from March 2020 was near $1.06 and a retest may be the most likely scenario.  Sterling has approached the $1.2830 target we have highlighted.  It is the halfway point of the rally since the March 2020 low near $1.14 to last year's high around $1.4250.  A break of that area, signal a test on $1.27, but the important retracement (61.8%) is closer to $1.25.  


Federal Reserve Chair Powell's comments yesterday reaffirmed what the market has already come to know.  The Fed chief endorse the quicker pace of tightening.  He qualified quicker with "a little", implying a 50 bp move and not the 75 bp move that St. Louis Fed Bullard suggested may be needed, though it was not his base case.  The market has fully taken on board Powell's "front-end loading" which is understood to mean now three 50 bp rate hike (May, June, and July).  The market now sees the terminal rate for Fed funds near 3.50% next year.  It is still a dynamic situation.  The implied yield of the December Fed funds futures is rising today for the sixth consecutive session.  It has risen by slightly more than 35 bp this week.  The flash PMI headlines may draw attention but barring a significant downside shock, it may not have much impact.  

Bank of Canada Governor Macklem also appeared to endorse a faster adjustment of monetary policy.  The swaps market has a 50 bp hike at the next four meetings (June, July, September, and October) discounted.  The Governor of Mexico's central bank suggested it may have to move quicker as well.  Today's Mexico reports the bi-weekly CPI through mid-April.  Headline and core readings above 7% will reinforce ideas that it will hike by at least 50 bp at next month's meeting (May 12).  The swaps market has about 200 bp of tightening over the next six months.  

The US dollar initially traded lower to CAD1.2460 yesterday, but as equities reversed lower, the greenback caught a bid.  It reversed higher to around CAD1.2590 and today has reached a new high for the months around CAD1.2680.  The CAD1.2700 is the (61.8%) retracement target of the decline since the March 15 high (~CAD1.2870).  A move above CAD1.2700 could target CAD1.2780 initially. The peso's sell-off is extending too.  The greenback began the week near MXN19.90 and is trading now around MXN20.35 in the European morning. It is at its best level since March 22.  The dollar is approaching the MXN20.39 area, which holds the (38.2%) retracement objective of the slide that began last month.  The potential double bottom pattern and the next retracement target (50%) are near MXN20.60.  


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Royal Caribbean Shares Huge News on Covid Testing, Vaccine Rules

President Michael Bayley gave some straight answers on pre-cruise covid testing and potentially dropping vaccine requirement at a Q&A during the cruise…



President Michael Bayley gave some straight answers on pre-cruise covid testing and potentially dropping vaccine requirement at a Q&A during the cruise line's President's Cruise.

Being on a cruise has largely returned to the same experience it was before the pandemic. Mask requirements have been dropped, capacities have returned to normal, and social distancing requirements have been dropped.

In fact, aside from crew members still having to wear masks and some stray passengers opting to do so in certain indoor situations, there's really no sign of covid rules once you board your cruise.

Before you board, however, the pandemic still has an effect on cruising. Every passenger 12 and older must be vaccinated (and must prove so before getting on board) and all passengers must produce a negative covid test taken no more than two days before getting on the ship.

And, while covid remains a problem, the cruise industry sees some light at the end of the tunnel when it comes to pre-cruise protocols. Executives from the major cruise lines -- Royal Caribbean International (RCL) - Get Royal Caribbean Group Report, Carnival Cruise Lines (CCL) - Get Carnival Corporation Report, and Norwegian Cruise Line (NCLH) - Get Norwegian Cruise Line Holdings Ltd. Report -- have said very little about plans to drop pre-cruise testing and vaccination requirements,

Now, however, Royal Caribbean President Michael Bayley has spoken out on both issues and has given cruise fans some real answers.


When Will Covid Tests and Vaccinations Get Dropped?

The major cruise lines have largely stayed quiet about covid protocols because they remain somewhat beholden to the Centers for Disease Control (CDC). The current CDC rules are voluntary, but voluntary is sort of a relative term when it comes to the power the federal agency has over the cruise industry.

It makes sense that the industry has been cautious in commenting on when covid protocols may change, but with the end at least seeming feasible Bayley answered questions about both the end of pre-cruise testing and potentially dropping vaccination requirements during the 2022 Royal Caribbean President's Cruise on Ovation of the Seas, the Royal Caribbean Blog reported.

"I think pre-cruise testing is going to be around for another couple of months," Bayley said. "We obviously want it to go back to normal, but we're incredibly cognizant of our responsibilities to keep our crew, the communities and our guests safe."

Bayley was less hopeful about the end of vaccinations, according to the blog, which has no connection to Royal Caribbean.

"The no vaccine question is is a huge question that none of us know the answer to," he said. "I'm skeptical that's going to change in the in the real short term. Many and most of the destinations that we visit require a high degree of vaccination, and they expect our crew to be vaccinated."

Cruise Lines Covid Protocols Are Working

Covid has not gone anywhere, but the cruise industry has been very successful at controlling the impact of the virus. Bayley noted that the CDC shares some information with him about the "millions" of people who have sailed from U.S. ports over the past 12 months.

"And the number of people who died from COVID who'd sailed on ships over the past year was two," the Royal Caribbean Blog reported. "Two is terrible. But against the context of everything we've seen, that's it's truly been a remarkable success."

Vaccine requirements remain a touchy issue as some people have chosen not to be vaccinated and that means they cannot cruise. That seems unlikely to change anytime soon given the destinations Royal Caribbean visits and the CDC information which shows that the current protocols are working.

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Trial of potential universal flu vaccine opens at NIH Clinical Center

A Phase 1 clinical trial of a novel influenza vaccine has begun inoculating healthy adult volunteers at the National Institutes of Health Clinical Center…



A Phase 1 clinical trial of a novel influenza vaccine has begun inoculating healthy adult volunteers at the National Institutes of Health Clinical Center in Bethesda, Maryland. The placebo-controlled trial will test the safety of a candidate vaccine, BPL-1357, and its ability to prompt immune responses. The vaccine candidate was developed by researchers at the National Institute of Allergy and Infectious Diseases (NIAID). The single-site trial can enroll up to 100 people aged 18 to 55 years and is led by NIAID investigator Matthew J. Memoli, M.D.

Credit: NIAID

A Phase 1 clinical trial of a novel influenza vaccine has begun inoculating healthy adult volunteers at the National Institutes of Health Clinical Center in Bethesda, Maryland. The placebo-controlled trial will test the safety of a candidate vaccine, BPL-1357, and its ability to prompt immune responses. The vaccine candidate was developed by researchers at the National Institute of Allergy and Infectious Diseases (NIAID). The single-site trial can enroll up to 100 people aged 18 to 55 years and is led by NIAID investigator Matthew J. Memoli, M.D.

“Influenza vaccines that can provide long-lasting protection against a wide range of seasonal influenza viruses as well as those with pandemic potential would be invaluable public health tools,” said NIAID Director Anthony S. Fauci, M.D. “The scientific community is making progress on this pressing global health priority. The BPL-1357 candidate influenza vaccine being tested in this clinical trial performed very well in pre-clinical studies and we look forward to learning how it performs in people.” 

BPL-1357 is a whole-virus vaccine made up of four strains of non-infectious, chemically inactivated, low-pathogenicity avian flu virus. A study in animals, led by NIAID investigator Jeffery K. Taubenberger, M.D., Ph.D., and posted online as a pre-print, found that all mice receiving two doses of BPL-1357 vaccine delivered either intramuscularly or intranasally survived later exposure to lethal doses of each of six different influenza virus strains, including subtypes that were not included in the vaccine. Similar results were obtained in challenge experiments with BPL-1357-vaccinated ferrets. 

In the Phase 1 trial, volunteers will be randomized in a 1:1:1 ratio into three groups and will receive two doses of placebo or vaccine spaced 28 days apart. Group A participants receive BPL-1357 intramuscularly along with intranasal saline placebo; Group B will receive doses of the candidate vaccine intranasally along with intramuscular placebo; volunteers in Group C receive intramuscularly and intranasally delivered placebo at both visits to the clinic. Neither the study clinicians nor the volunteers know the group assignments. Volunteers must not have received any type of flu vaccination in the eight weeks prior to enrollment and must agree to forego seasonal flu vaccination for approximately two months after the second vaccine (or placebo) dose. 

The study duration for each participant is approximately seven months. In addition to the two clinic visits to receive vaccine (or placebo), volunteers will be asked to return to the clinic seven times to provide blood and nasal mucosal samples that will be used by the investigators to detect and characterize immune responses. 

“With the BPL-1357 vaccine, especially when given intranasally, we are attempting to induce a comprehensive immune response that closely mimics immunity gained following a natural influenza infection,” said Dr. Memoli. “This is very different than nearly all other vaccines for influenza or other respiratory viruses, which focus on inducing immunity to a single viral antigen and often do not induce mucosal immunity.” 

“Our study will examine the safety of BPL-1357 and also will allow us to assess the importance of mucosal immunity against flu and whether a strategy of inducing both the cellular and antibody arms of the immune system can provide broader protection against the ever-changing influenza virus,” he added. 

For additional information about the trial, visit and search on the trial identifier NCT05027932. 

NIAID conducts and supports research—at NIH, throughout the United States, and worldwide—to study the causes of infectious and immune-mediated diseases, and to develop better means of preventing, diagnosing and treating these illnesses. News releases, fact sheets and other NIAID-related materials are available on the NIAID website. 

About the National Institutes of Health (NIH): NIH, the nation’s medical research agency, includes 27 Institutes and Centers and is a component of the U.S. Department of Health and Human Services. NIH is the primary federal agency conducting and supporting basic, clinical, and translational medical research, and is investigating the causes, treatments, and cures for both common and rare diseases. For more information about NIH and its programs, visit 

NIH…Turning Discovery Into Health®

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China Stocks Outperform On Unexpected COVID Shift

China Stocks Outperform On Unexpected COVID Shift

Update (0920ET): China’s move to ease quarantine rules for inbound travelers from three…



China Stocks Outperform On Unexpected COVID Shift

Update (0920ET): China's move to ease quarantine rules for inbound travelers from three weeks to just one week has bolstered sentiment for Chinese equities. 

Bullish calls are rising on Chinese stocks as the CSI 300 Index inches near a bull market. 

Fred Hu, the founder of China-based investment firm Primavera Capital Group, told Bloomberg that he believes Chinese tech firms have turned the corner after a $2 trillion rout sparked by Beijing's yearslong technology crackdown. 

NASDAQ Golden Dragon China Index plunged more than 76% since its peak in early 2021, coinciding with Beijing's crackdown start. The index hit a low in March and has since bounced 67% -- because the crackdown fears show signs of softening. 

Hu believes "this could be the beginning of a new era for China tech ... There's a lot of value to be discovered," adding that investors still need to be selective in picking stocks. 

Adding to support is the People's Bank of China's accommodative monetary policy, which is the opposite of global central banks that aggressively tighten interest rates to prevent the surge in inflation from turning into dreaded 1970s-style stagflation. Today's quarantine reduction news, tech crackdown abating, and PBOC easing have produced a more optimistic outlook for Chinese stocks. 

However, a lingering threat of a US slowdown could be problematic for all investors. 

Lorraine Tan, director of equity research at Morningstar, told Bloomberg TV: "Even if we do get some China recovery in 2023, which could be a buffer for this region, it's not going to offset the US or global recession."

* * *

China unexpectedly slashed quarantine times for international travelers, to just one week, which suggests Beijing is easing COVID zero policies. The nationwide relaxation of pandemic restrictions led investors to buy Chinese stocks.

Inbound travelers will only quarantine for ten days, down from three weeks, which shows local authorities are easing draconian curbs on travel and economic activity as they worry about slumping economic growth sparked by restrictive COVID zero policies earlier this year that locked down Beijing and Shanghai for months (Shanghai finally lifted its lockdown measures on May 31). 

"This relaxation sends the signal that the economy comes first ... It is a sign of importance of the economy at this point," Li Changmin, Managing Director at Snowball Wealth in Guangzhou, told Bloomberg

At the peak of the COVID outbreak, many residents in China's largest city, Shanghai, were quarantined in their homes for two months, while international travelers were under "hard quarantines" for three weeks. The strict curbs appear to have suppressed the outbreak, but the tradeoff came at the cost of faltering economic growth. 

The announcement of the shorter quarantine period suggests a potentially more optimistic outlook for the Chinese economy. Bullish price action lifted CSI 300 Index by 1%, led by tourism-related stocks (LVMH shares rose as much as 2.5%, Richemont +3.1%, Kering +3%, Moncler +3%). 

"The reduction of travel restrictions will be positive for the luxury sector, and may boost consumer sentiment and confidence following months of lockdowns in China's biggest cities," Barclays analysts Carole Madjo wrote in a note. 

CSI 300 is up 19% from April's low, nearing bull market territory. 

Jane Foley, a strategist at Rabobank in London, commented that "this news suggests that perhaps the authorities will not be as stringent with Covid controls as has been expected." 

"The news also coincides with reports that the PBOC is pledging to keep monetary policy supportive," Foley pointed out, referring to Governor Yi Gang's latest comment. 

She said, "this suggests a potentially more optimistic outlook for the Chinese economy, which is good news generally for commodity exporters such as Australia and all of China's trading partners." 

Even though the move is the right step in the right direction, Joerg Wuttke, head of the European Chamber of Commerce in China, said, "the country cannot open its borders completely due to relatively low vaccination rates ... This, in conjunction with a slow introduction of mRNA vaccines, means that China may have to maintain a restricted immigration policy beyond the summer of 2023." 

Alvin Tan, head of Asia currency strategy in Singapore for RBC Markets, also said shortening quarantine time for inbound visitors shouldn't be a gamechanger, and "there's nothing to say that it won't be raised tomorrow." 

Tyler Durden Tue, 06/28/2022 - 09:20

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