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Enguard Lagarde

Overview: The rally in US shares yesterday, ostensibly fueled by strong earnings reports, is helping to encourage risk appetites today.  The MSCI Asia Pacific Index is posting its biggest gain in around two weeks, though Japan’s markets are closed today..



Overview: The rally in US shares yesterday, ostensibly fueled by strong earnings reports, is helping to encourage risk appetites today.  The MSCI Asia Pacific Index is posting its biggest gain in around two weeks, though Japan's markets are closed today and tomorrow.  The Dow Jones Stoxx 600 is building on yesterday's rally, and with today's ~0.8% gain, it is up on the week.  US equities are also trading with a firmer bias.  The 10-year US yield that spiked to nearly 1.125% on Tuesday is knocking on 1.30% today.  European bond yields are mostly softer, and Italy's benchmark yield has slipped to a new three-month low (~67 bp).  The foreign exchange market is quiet.  The Norwegian krone and Australian dollar lead the majors today, while the euro and Canadian dollar are little changed. The JP Morgan Emerging Market Currency Index is advancing for the third consecutive session, though it is still about 0.3% lower for the week.   Gold is finding support ahead of the two-week low near $1791.  Oil is firm, and the September WTI contract is building on yesterday's 4.6% rally.  Around $70.70, it is still about 1.2% lower on the week.  Copper is rising for the third day.  The wildfires in Canada are raising new concerns about lumber supply, and the possible impact on sawmills sent the September lumber up 7.75% yesterday, the most in a year.  

Asia Pacific

SWIFT reported that China's yuan share rose to 2.46% in June (1.90% in May), just shy of the March high of 2.49%.   It puts the yuan in fifth place overall, the same as last year.  The highest share accounted for by the yuan was 2.79% in August 2015. The US dollar's share rose to about 40.6%, the highest in a year.  The euro's share slipped to 37.9%.  It is not clear that a digital yuan will bolster the use of the yuan.  Separately, we note that the Institute for International Finance estimates that foreign central banks accumulated yuan reserves accounted for nearly a third of the inflows last year and as much as 60% of China's inflows in Q1 21.  

China is stepping up its efforts to ease the pressure on commodities.  It is planning on increasing the sales for copper, aluminum, and zinc from its strategic reserves. In addition, Beijing has announced plans to sell a quarter of its coal reserves or around 10 mln tons.  It has also announced intentions to sell 22 mln barrels of oil to its refiners.  The US reported its first oil build since May as inventories rose by about two million barrels, though storage at Cushing slipped to its lowest level since January 2020.  Gasoline imports are rising and stand at their highest level in a decade, with Saudi and Spanish shipments reported.  

The rise in US yields is helping the greenback recovery against the yen.  The dollar had traded to almost JPY109 at the start of the week and is now flirting with the JPY110.30 area. The 20-day moving average is near JPY110.40, and the US dollar has not closed above this average for two weeks.  Initial support is seen around JPY110.  The Australian dollar is firm and appears to be working through option-related offers.  There are options for almost A$1.6 bln in the $0.7370-$0.7375 area.  Support may be found in the $0.7340-$0.7360 band.  The Chinese yuan has edged higher for the third consecutive session.  The dollar remains in the CNY6.45-CNY6.50 range that has dominated for several weeks.  The reference rate continues to be set tightly in line with expectations (CNY6.4651 vs. CNY6.4648).   Its steady performance against the dollar should not obscure the fact that the yuan is trading at five-year highs against the trade-weighted basket (CEFTS).  


The ECB is center stage today.  The new symmetrical 2% inflation target requires an adjustment in the forward guidance in a somewhat more dovish direction.  Still, this has been well-telegraphed, and the decision on the pace of bond-buying, which, as we have noted, does not seem to be the key to interest rate or exchange rate developments, will be made in September.  Officials have the better part of the next six months to forge a strategy of what will follow the Pandemic Emergency Purchase Program.  The ECB was buying bonds before the pandemic struck and most likely will buy them after the PEPP winds down, currently in March 2022.  The change of the inflation target was said to be a unanimous decision, but the devil is in the details (of implementation), and this is likely to prove more contested terrain.  

There are three areas in which the UK and EU are wrestling. First, the UK is proposing not just a change in how the Northern Ireland protocol is enforced, but even its chief negotiator Frost has acknowledged it seeks changes to the protocol itself.  It now appears that Johnson's strategy was to secure Brexit at any cost and renegotiate the agreement later.  He ran a campaign that was partly predicated on the Northern Ireland configuration (remaining part of the EU common market). Second, the UK is seeking to eliminate many of the checks of goods shipped from the rest of the UK into Northern Ireland.  The UK's behavior put the EU in a poor mood for the second issue, and that is the post-Brexit relationship with Gibraltar, which it has controlled for more than two centuries.  The EC is seeking a negotiating mandate to formally begin talks.  Thirdly, the British are seeking more help from the French to control the migration over the Channel.  It is paying France around GBP54 mln to hire more enforcement officers, but it does not appear a sufficient check. 

The euro has not traded above $1.1805 since Monday.  It has found support today near $1.1780 after testing the $1.1750-level yesterday and Tuesday.  The market seems prepared for a dovish tone from the ECB.  The week's high was set on Monday near $1.1825.  Above there, offers in the $1.1850-$1.1875 may cap it.  The single currency has not traded with a $1.19-handle so far this month.  Sterling snapped a four-day slide yesterday with a 0.6% gain, the most in almost two weeks.  It has marginally extended those gains today and is trying to reestablish the foothold above the 200-day moving average (~$1.3710). Resistance is pegged near $1.3775. 


The surge in US housing starts (6.3% vs. a median forecast for a 1.2% gain) may bode well for today's existing-home sales report.  Existing home sales have softened since January and fell for the four months through May.  Still, the 5.8 mln seasonally adjusted annual pace represents an elevated pace, which is above all but the most recent pace since 2007.  Weekly jobless claims are expected to have slipped to a new pandemic-era low near 350k.  It would be the fourth consecutive week below 400k.  Leading indicators and the KC Fed manufacturing survey tend not to attract much market attention.  Meanwhile, there may be another attempt to proceed with a bipartisan infrastructure bill early next week, according to press reports.   We also note that more industry reports suggest that the used car market, which has been accounting for around a third of the monthly increase in CPI, is normalizing.  Previously, the wholesale market seemed to have peaked, and the most recent reports estimate that inventories have returned to pre-pandemic levels.  

Canada's economic diary remains light ahead of tomorrow's May retail sales report.  A sharp decline (3% after the 5.7% decline in April) is forecast in the Bloomberg survey.  Partly, this needs to be understood in the contact of more than a 10% increase in February and March.  Also, the news seems somewhat dated and, outside of headline reaction, is unlikely to have policy implications.  Next week, Canada reports June CPI and May GDP.  

Mexico reports biweekly CPI figures today.  The year-over-year increase may ease slightly from 5.74% previously.  It would still leave expectations biased toward another rate hike as early as the August 12 Banxico meeting.  Mexico reports May retail sales tomorrow.  A 0.5% increase is expected after a 0.4% decline in April (which followed a bit more than a 6% increase in February and March).  Next week's highlights include unemployment, trade, and Q2 GDP.  

The US dollar fell by nearly 1% against the Canadian dollar yesterday, the most since June 2020.  There has been no follow-through selling so far today as the market appears to be waiting for the North American session.  Key support is seen near CAD1.2500.  A break of it will boost confidence that a top is in place and set the initial sights on CAD1.2400.  Resistance may be encountered in the CAD1.2600-CAD1.2620 area.  The greenback flirted with the 200-day moving average against the Mexican peso yesterday (~MXN20.21) but settled below it and is also confined to a narrow range today (~MXN20.1120-MXN20.1760). Initial support may be found near MXN20.08 and then MXN20.04.  A break of MXN20.00 would encourage ideas that a top has been recorded.  The greenback settled on its lowes against Brazil's real yesterday (BRL5.1880).  Look for a test on the gap from earlier this week between Monday's high near BRL5.1270 and Tuesday's low close to BRL5.1530.  


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Spread & Containment

China Suspends Travel, Ramps Up Testing As Delta Outbreak Hits Wuhan

China Suspends Travel, Ramps Up Testing As Delta Outbreak Hits Wuhan

China’s worst outbreak since COVID first emerged in the city of Wuhan has continued to spread, prompting authorities to intensify their efforts to crush the delta-driven…



China Suspends Travel, Ramps Up Testing As Delta Outbreak Hits Wuhan

China's worst outbreak since COVID first emerged in the city of Wuhan has continued to spread, prompting authorities to intensify their efforts to crush the delta-driven outbreak. However, as the virus continues to elude their grasp, it's looking increasingly likely that Beijing's "zero tolerance" approach might hamstring economic growth, as analysts from Goldman Sachs warned in a recent note to clients.

More than 2 dozen cities have counted more than 300 cases over the past few weeks as the number of cases has quickly multiplied. China now has 144 medium- and high-risk areas - the most since the initial outbreak in early 2020, according to the National Health Commission.

By Monday, all of China's 31 provincial-level jurisdictions had issued notices by Monday advising people not to travel domestically. Some provincial governments singled out only medium- and high-risk regions, while others asked people to avoid all inter-provincial travel. According to the SCMP, Beijing's "zero-tolerance" approach to fighting COVID, which remains minimal compared with China's vast population, has "scared away" the tourists.

China reported 71 new COVID cases from local transmission on Wednesday, more than half of them in coastal Jiangsu province near the epicenter of Nanjiang, AP reported.

The CCP has decided to expand travel restrictions on Wednesday: ride-hailing services and public transit have been suspended in all medium- to high-risk areas. Immigration authorities have promised to "strictly restrict non-urgent, unnecessary cross-boarder travel" including restricting the issuing of passports for Chinese citizens. To try and stifle the virus before it has an opportunity to take hold, the city ordered millions of residents to undergo mandatory testing, leading to lines forming across the city. The city has also closed 17 bus lines and a handful of subway stations. Cases have been confirmed in 17 provinces and some two dozen cities, including Wuhan, which reported a handful of cases this week, per CNN.

Fears of another crushing lockdown - many Wuhan residents still have PTSD from the 70-day+ lockdown in the city that was used to crush the original outbreak, at a tremendous cost to the city's residents mental and physical health. Videos and photos shared on social media have shown empty shelves and long lines at supermarkets, as residents scramble to stock up on supplies.

"Seeing Wuhan people panic buying at supermarkets makes me feel sad. Only those who have experienced it understand how terrible it is, (we) dread a return to the days of staying at home and not knowing where the next meal is," said one Wuhan resident on Weibo.

The present outbreak began a little over a week ago in Nanjing, a city in Jiangsu province in eastern China, where nine airport cleaners were found to be infected on July 20 during a routine test. Chinese authorities have blamed the cluster on workers from Russia, who arrived at the Nanjing Lukou International Airport on July 10.

"It is believed that the cleaners did not strictly follow anti-epidemic guidelines after cleaning Flight CA910 and contracted the virus as a result. The infection further spread to other colleagues, who are also responsible for cleaning and transporting garbage on both international and domestic flights," reported state news agency Xinhua.

Given the provenance of the latest outbreak, Beijing has committed to ramp up testing of transport workers around the country. Workers at ports and borders considered high risk will be tested for the virus every other day said Li Huaqiang, a senior official with Ministry of Transport.

Earlier this week, another COVID-19 hotspot was identified in the city of Zhangjiajie, near a scenic area famous for sandstone cliffs, caves, forests and waterfalls.

Despite only confirming some 19 cases over the past week, the city ordered residential communities sealed Sunday, preventing people from leaving their homes. In a subsequent order on Tuesday, officials said no residents, and no tourists, would be allowed to leave the city. On Wednesday, the city government's Communist Party disciplinary committee issued a list of local officials who "had a negative impact" on pandemic prevention and control work who would be punished.

Far higher numbers were reported in Yangzhou, a city next to Nanjing, which has recorded 126 cases as of Tuesday. As a result, all cross-city ferry services, water tours were suspended in eastern Yangzhou on Wednesday.

But most alarmingly, the outbreak has already touched Beijing, eve though it's thousands of miles removed from the epicenter in Nanjiang. On Wednesday, 7 cases were confirmed in the capital city, prompting authorities to lock down two residential compounds.

As of this wee, China has doled out more than 1.71 billion vaccine doses to its population of 1.4 billion. Officials say 40% of the population is fully vaccinated, but the outbreak is also raising questions about the efficacy of those vaccines.

Tyler Durden Wed, 08/04/2021 - 18:00

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‘A Variant Worse Than Delta’: Fauci Dials Fear To 11 As Emerging ‘Lambda’ Strain Appears More Resistant To Vaccine

‘A Variant Worse Than Delta’: Fauci Dials Fear To 11 As Emerging ‘Lambda’ Strain Appears More Resistant To Vaccine

Dr. Anthony Fauci, the country’s top infectious disease specialist who funded controversial coronavirus research in Wuhan,…



'A Variant Worse Than Delta': Fauci Dials Fear To 11 As Emerging 'Lambda' Strain Appears More Resistant To Vaccine

Dr. Anthony Fauci, the country's top infectious disease specialist who funded controversial coronavirus research in Wuhan, China - and is now managing the coronavirus pandemic response for the US government, says the country could be "in trouble" unless everyone who hasn't been vaccinated gets the jab.

"What we’re seeing, because of this increase in transmissibility, and because we have about 93 million people in this country who are eligible to get vaccinated who don’t get vaccinated — that you have a significant pool of vulnerable people," said Fauci, who added that delta variant cases are rising in a "very steep fashion" and may hit 200,000 cases per day.

"And so when you look at the curve of acceleration of 7-day averages of cases per day, it is going up in a very steep fashion."

No stats from Fauci on who's dying, who's getting hospitalized, or who's the most vaccine 'hesitant' of course.

And while the Biden administration is now framing this as a "pandemic of the unvaccinated," McClatchy notes that "recent data shows that vaccinated people who still get infected with the delta variant also have high viral loads and can spread it to others, even when they aren’t showing symptoms or are experiencing mild disease."

Fauci said that data shows people infected with the delta variant have viral levels “about 1,000 times higher in quantity” than were recorded in people who were infected with the alpha variant, also known as the U.K. variant, which earlier this year became predominant in the United States.

Studies have emerged in recent weeks indicating that vaccinated individuals are at risk of “long COVID” — a series of conditions associated with infection such as fatigue, shortness of breath and loss of smell that can last for weeks or months — even if they are largely protected from severe illness and death, Fauci said.

We already know that people who get breakthrough infections and don’t go on to get advanced disease requiring hospitalization, they too are susceptible to long COVID,” Fauci said. “You’re not exempt from long COVID if you get a breakthrough infection.” -McClatchy

Fauci also said he fears strains which are even scarier than delta!

"If we don’t crush the outbreak to the point of getting the overwhelming proportion of the population vaccinated, then what will happen is the virus will continue to smolder through the fall into the winter, giving it ample chance to get a variant which, quite frankly, we’re very lucky that the vaccines that we have now do very well against the variants — particularly against severe illness," he said, adding "We’re very fortunate that that’s the case. There could be a variant that’s lingering out there that can push aside delta."

"If another one comes along that has an equally high capability of transmitting but also is much more severe, then we could really be in trouble," Fauci continued. "People who are not getting vaccinated mistakenly think it’s only about them. But it isn’t. It’s about everybody else, also."

Lambda evading vaccine?

While the highly infectious Lambda variant of Covid-19 may or may not be deadlier than any of the other strains - meaning the vast majority who contract it won't be hospitalized or die - researchers at the University of Tokyo have warned in a new study that it may be vaccine-resistant, according to Newsweek.

Like the Delta variant, Lambda is highly transmissible but Japanese researchers believe that three mutations in the variant's spike proteins make it more resistant to antibodies induced by vaccination.

Lambda, which is also known as the C.37 variant, is responsible for 1,037 cases of COVID-19 in the U.S., according to data from the GISAID Initiative, which promotes the rapid sharing of information about influenza and coronaviruses.

The variant was first identified in Peru in August, 2020, where it has now become the dominant strain of the virus, and it has been reported in 29 countries including the U.S. -Newsweek

 "...because the Lambda variant is relatively resistant to the vaccine-induced antisera, it might be possible that this variant is feasible to cause breakthrough infection," reads the paper, with "Vaccine-induced antisera" referring to antibodies which arise from vaccination.

Tyler Durden Wed, 08/04/2021 - 21:20

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Broward County Public Schools “Pause” Proposed Mask Mandate After DeSantis Threatens To Cut Funding

Broward County Public Schools "Pause" Proposed Mask Mandate After DeSantis Threatens To Cut Funding

Update: Broward County schools on Aug. 3 again changed course on whether to comply with or defy an executive order by Republican Gov. Ron…



Broward County Public Schools "Pause" Proposed Mask Mandate After DeSantis Threatens To Cut Funding

Update: Broward County schools on Aug. 3 again changed course on whether to comply with or defy an executive order by Republican Gov. Ron DeSantis which prohibited schools from imposing mask mandates on students.

In a written statement to The Epoch Times, the school board has not changed its policy but “paused it.”

“In light of the governor’s executive order, the district is awaiting further guidance before rendering a decision on the mask mandate for the upcoming school year. At this time, the district’s face covering policy, which requires the use of masks in district schools and facilities, remains in place.”

The School Board plans to discuss next steps at a special meeting on August 10.

Dr. Vickie Cartwright, interim superintendent of Broward County schools is looking into the executive order further.

“The school board is reviewing information and looking for language from our executive rules as a result of the governor’s executive order,” Cartwright said in a video statement.

On July 30, the governor signed an executive order that protects parents’ right to make decisions regarding the masking of their children as a means of protecting them from COVID-19. A month earlier, he signed a bill that protected the parents’ “fundamental right” to make decisions for the upbringing, education, health care, or mental health of their minor children.

“Many Florida schoolchildren have suffered under forced masking policies, and it is prudent to protect the ability of parents to make decisions regarding the wearing of masks by their children,” DeSantis said.

*  *  *

As we detailed earlier, Florida Governor Ron DeSantis has had enough of the Covid hysteria.

Aside from going on record and calling the lockdowns a "huge mistake" back in April of his year, DeSantis has done everything he can to try and turn over the power in his state to its citizens, and away from the government.

The latest example of this comes this week, where DeSantis stood down Florida's second largest school district that was attempting to impose a mask mandate. In response, DeSantis threatened to withhold funding from the district. 

"Broward County Public Schools announced last week that it would require mask use after the CDC issued new guidance recommending universal indoor masking for all teachers, staff, students and visitors to K-12 schools this incoming school year, regardless of vaccination status," Axios reported this week.

DeSantis had issued an executive order last Friday barring schools from requiring masks when school re-opens next month. His order read that "if the State Board of Education determines that a district school board is unwilling or unable to comply with the law, the State Board shall have the authority to, among other things, withhold the transfer of state funds, discretionary grant funds ... and declare the school district ineligible for competitive grants."

And that's exactly what DeSantis threatened to do before Broward County Public Schools backed down, releasing a statement on Monday that said: "Broward County Public Schools intends to comply with the governor's latest executive order."

The statement continued: "Safety remains our highest priority. The district will advocate for all eligible students and staff to receive vaccines and strongly encourage masks to be worn by everyone in schools."

DeSantis also spoke at a press conference this week, stating: “Even among a lot of positive tests, you are seeing much less mortality that you did year-over-year. Would I rather have 5,000 cases among 20-year-olds or 500 cases among seniors? I would rather have the younger.”

“We are not shutting down. We are going to have schools open. We are protecting every Floridian’s job in this state. We are protecting people’s small businesses. These interventions have failed time and time again throughout this pandemic, not just in the United States but abroad.”

As we noted back in April, DeSantis told The Epoch Times that the lockdowns were a “huge mistake,” including in his own state.

“We wanted to mitigate the damage. Now, in hindsight, the 15 days to slow the spread and the 30—it didn’t work,” DeSantis said.

“We shouldn’t have gone down that road.”

Florida’s lockdown order was notably less strict than some of the stay-at-home measures imposed in other states. Recreational activities like walking, biking, golf, and beachgoing were exempted while essential businesses were broadly defined.

“Our economy kept going,” DeSantis said. “It was much different than what you saw in some of those lockdown states.”

DeSantis has also opposed vaccine passports in Florida. 

Tyler Durden Wed, 08/04/2021 - 22:40

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