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Fed Campaign toward Neutrality and the Difficult Row to Hoe for the ECB

The coming days are eventful. And that is with the known unknown, Russia’s actions in Ukraine, held in abeyance.  It does not seem as if either side…

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The coming days are eventful. And that is with the known unknown, Russia's actions in Ukraine, held in abeyance.  

It does not seem as if either side is truly serious about negotiations. Kyiv's proposal of a security guarantee by Poland or the US is not realistic. It would be tantamount to joining NATO. Ukraine President Zelensky appears to think a military victory may still be had.  

There are many claims about Putin's intentions and state of mind. It seems to be largely speculation and can be consistent with the kind of psych-ops one would expect in the fog of war. Ironically, the mad-man tactic is often associated with US President Nixon, who wanted to convince North Vietnam that he was sufficiently unhinged to do anything, including the use of nuclear weapons. Nixon apparently also wanted the Soviet Union to think that he was dangerously mad. In October 1969, Nixon put the US military forces on full global war readiness, and bombers with nuclear weapons flew patterns near Soviet territory for three days. Machiavelli, the first "realist," appreciated the tactical advantage under certain conditions.  

Putin seems crazy but crazy like a fox. He must be as surprised as everyone at the depth and breadth of the sanctions. After all, Russia invaded Ukraine and annexed Crimea, and the world's response was minimal at best. Who would have thought that into the supposed vacuum left by the end of the Merkel-era, an SPD-led government of Greens and Free Democrats would commit to such a volte-face and make a significant commitment to boosting its military capability? The Economic Minister (from the Green Party) even suggested a willingness to discuss planned closures of the country's last three nuclear plants to reduce reliance on Russian energy. However, Chancellor Scholz insisted on sticking with the shutdowns.  

Putin must be surprised, as are so many Western observers who exaggerated Russia's military prowess. It has cost the head of French military intelligence his job. Some of Russia's military spending may be feathering someone's bed, and the funds that were spent too often acquired shoddy goods. This is all the more reason why Putin is unlikely to negotiate without a significant military victory in hand. It could include securing the territories claimed by Donetsk and Lugansk. Ironically, negotiations, at this stage, seem unlikely to be fruitful until there is a change in the war itself.

The ECB finds itself in a pickle as it meets on April 14! Consumer inflation surged to 7.5% in March (preliminary estimate) from 5.9% in February. In March alone, it rose 2.5%. At the same time, food and energy shock and other economic disruptions from Russia's invasion of Ukraine and the sanction response will hit growth. The key issue is whether an economic contraction can be avoided. 

There may be two mitigating factors. First, many EMU members are cutting taxes on fuel. This will ease one pressure on CPI for as long as it lasts (~six months). Second, military and energy spending look set to increase to move into the space being vacated from the slowing of Covid-related efforts.  

However, the ECB's track record leaves something to be desired. Consider the last two times the ECB hiked rates. First, in 2008, with Brent pushing about $140 a barrel, Trichet led the ECB into hiking rates in July, in between, as it were, Bear Stearns's demise and the epic failure of Lehman Brothers. The recovery from the 08-09 contraction stalled as the sovereign debt crisis phase unfolded. However, prices pressures were evident. The mild bout of deflation in 2009 had given way to higher prices, and CPI was pushing above 2% in early 2011. Trichet again led the ECB to not one but two hikes in 2011 (April and July). Draghi replaced Trichet, and at his first two meetings as President, the ECB unwound both of Trichet's hikes. Nevertheless, the eurozone contracted for six quarters from Q4 11 through Q1 13.  

Can history do more than rhyme? The swaps market has a 25 bp hike discounted by the end of Q3 and another by the end of Q4. The near-term economic risks seem squarely on the downside, though the March composite PMI looked fairly resilient (54.9 vs. 55.5). Even before the war, the eurozone economy was vulnerable. The composite PMI was 52.3 in January, the lowest since February 2021 and the fifth month of slowing activity in six months. German and French industrial output were considerably weaker than expected in February, while Russia's invasion of Ukraine did not take place until late in the month.  

The economic institutes that advise the German chancellor cut this year's growth forecast from 4.6% to 1.8%. Italy reportedly cut this year's GDP projection to 3.1% from 4.7% and 2.4% from 2.8% next year.  The Bank of Italy warns that the economy may contract in Q1. These still seem optimistic. The IMF/World Bank will update their forecasts at the Spring meetings (April 18-24). It seems clear that slower growth in China, Eurozone, and Russia is a foregone conclusion. The World Bank and the IMF have US growth at 3.7% and 4.0% this year. That, too, looks too high. The median Fed forecast in March was 2.8%.  

Without action or updated forecasts, the interest in the ECB meeting will be in its forward guidance about its bond purchases. The ECB needs to have greater flexibility going forward precisely because of the high degree of uncertainty. Like the Federal Reserve, it is committed to ending its bond purchases before lifting rates. That sequence is important, but it also ties the ECB's hands. It needs to finish its bond-buying sooner to give it the freedom to hike rates in Q3. In March, after detailing the monthly purchases in Q2, it said, "The calibration of net purchases for the third quarter will be data-dependent and reflect its evolving assessment of the outlook."  The ECB is unlikely to make a firm commitment, but some guidance in this direction would be helpful.  

In the two days before the ECB meets, the central banks of New Zealand and Canada will hold policy meetings. Both are likely to raise rates. The RBNZ has hiked its official cash rate by 25 bp for three consecutive meetings. It now stands at 1.0%, where it was from August 2019-January 2020 before the pandemic struck. The market expects the RBNZ to get more aggressive. The pricing in the swaps market suggest participants lean toward a 50 bp hike. There are almost 90 bp of tightening discounted by the end of next month and nearly 190 bp of tightening in the next six months.  

The Australian dollar, where the central bank has not hiked yet, is the strongest among the major currencies this year with a 2.7% gain against the US dollar. The New Zealand dollar is next with about a 1.5% gain, and the Canadian dollar is in third place with around a 0.5% gain. The Bank of Canada is also about to ratchet up its tightening cycle, which began last month with a 25 bp rate hike. The swaps market settled last week with a 63 bp of tightening discounted for April 13.  This implies the market is split between a 50 bp and 75 bp hike.  This seems a bit much and warns of the downside risk in the Canadian dollar. The swaps curve has almost 120 bp of tightening discounted over the next three months. In addition, the Bank of Canada is expected to slow the reinvestment of maturing proceeds from its holdings, allowing the balance sheet to begin shrinking. Like the US, the market now sees a terminal policy rate around 3% in Canada.  

The central bank of South Korea and Turkey also hold policy meetings on April 14. Neither one is expected to change policy. However, we suspect that after the 4.1% March CPI print, South Korea's central bank is more likely to surprise than Turkey. South Korea's 7-day repo rate stands a 1.25%. It hiked rates three times in the cycle that began last August. After hiking in both December 2021 and January 2022, the Bank of Korea stood pat in February. With a 2.7% unemployment rate (3.7% at the end of 2019), a strong economy, rising price pressures, and a soft won (-2.4% year-to-date), there may not be a compelling reason not to raise rates.  

Turkey's experiment with non-orthodox economics is failing, and it is poorer because of it. Since the end of 2019, during the Covid-era, the lira is the weakest currency in the world, depreciating by nearly 60%.   The CPI in March had risen by a record 61.1% year-over-year. In March 2021, Turkey's CPI had increased by almost 17% over the previous 12 months. Nor has the currency depreciation boosted the external balance. The average monthly trade deficit was nearly $2.5 bln in 2019 and almost $4.2 bln in 2020. Last year's average was $3.85 bln. The rise in energy and food prices is spurring new deterioration. The January-February 2022 trade deficit stood at about $18.1 bln. In the first two months of 2021, the deficit was $6.4 bln.  

The People's Bank of China does not have regular policy-making meetings. However, officials need to act soon, given the lockdowns, the economic disruptions, and the sub-50 PMI readings. The benchmark 1-year medium-term lending facility will be set next week. It was cut by 10 bp in January to 2.85%. When the pandemic first struck, the 1-year MLF was at 3.25%. A cut is likely, and a move on par with the 20 bp cut in April 2020 would signal the seriousness that policymakers regard the economic slump. A cut in the MLF would also set the stage for a reduction in the loan prime rate, set on the 20th of each month.  

Separately, China will report its March inflation gauges and trade figures. When China's PPI was accelerating last year, some observers tried linking its rise to upward pressure on US CPI. We were skeptical, and few are making such connections now. China's PPI likely declined for the fifth consecutive month in March. It peaked at 13.5% in October 2021. and is expected to have fallen toward 8% in March after finishing last year at 10.3%. China's CPI has not risen since last November when it was at 2.3% year-over-year. It was steady at 0.9% in January and February and is expected to have increased to about 1.4% in March. It finished last year at 1.5%. Unlike in the US, of Beijing's challenges, inflation is not among the most pressing, where Fed Governor Brainard called it the "paramount" challenge.   

China's trade is being disrupted by its shutdowns. The monthly trade surplus hit a record high of $94.4 bln in December 2021 and has fallen sharply. It stood at $30.6 bln in February and likely fell further last month. The median forecast (Bloomberg survey) sees a $22.4 bln surplus, which would be the smallest since March 2021.  

The US reports prices (CPI, PPI, import/export), consumption (retail sales), and a measure of output (industrial and manufacturing production). Inflation likely accelerated from the 7.9% year-over-year pace in February toward something closer to 8.5%. The core rate will edge up to a little more than 6.5%. Producer prices also look like they firmed last month. Meanwhile, industrial output is expected to have increased by 0.4% after a 0.5% gain in February. However, manufacturing cannot maintain the 1.2% surge seen in February. It increased by an average of 0.4% over the past six months. If it comes in there, it is still a solid report. The capacity utilization rate likely rose to a new post-Covid high of almost 78%. At the end of 2019, the capacity utilization rate was about 76.5%.  

The optics of the retail sales report may be better than the details. Higher prices likely flattered this report made in nominal rather than real (inflation-adjusted) terms. What this means is, like February, the more costly gasoline squeezed out other purchases. Excluding autos and gasoline, retail sales are expected to be flat (median, Bloomberg survey) after falling by 0.4% in February. When autos, gasoline, building materials, and food services are excluded, which GDP models do, while picking up the excluded items in other time series, retail sales are expected to fall by 0.2% after February's 1.2% drop.  

The data may help fine-tune the Q1 GDP forecast. The Atlanta Fed GDPNow sees Q1 data tracking a 1.1% annualized pace. The median forecast in the Bloomberg survey is a little more optimistic at 1.5%. There may be some impact for headline traders and momentum players.   However, the high-frequency data points may not impact Fed expectations very much in terms of monetary policy. The market appears to accept that the Federal Reserve has begun a campaign that will bring the Fed funds target rate back to neutral, where it is expected to be in the longer term, ostensibly assuming its policy goals have been achieved. In March, all but three officials saw the neutral rate being between 2.25% and 3.0%. The Fed funds futures imply a 2.55% Fed funds rate at the end of the year.  

Let us conclude with some thoughts about the French election. Even though the polls have tightened, little has changed. No candidate is expected to win in the first round on April 10. The run-off between the top two candidates, expected to be Macron and Le Pen, is thought to most likely result in Macron's re-election. Anything that threatens this scenario, like Le Pen emerging ahead of Macron, rather than the other way around, in the first round, would probably be seen as negative for the euro. 

With Merkel retiring, Macron may have wanted to fill the leadership vacuum, but the SPD-led coalition government in Berlin has risen to the occasion. However, Macron's vulnerability has domestic roots. Macron wants to make it a contest over leadership and values, and Le Pen wants to make it into a referendum about the rising cost of living. The far-right candidate Zemmour's lasting influence may be to have made Le Pen seem more moderate. A Macron-Le Pen contest could discourage voters from the center-left. In 2017, Macron won the second round with 2/3 of the vote. This time he may be lucky to get more than 55%. The implications for Macron's domestic agenda will depend on the legislative elections in June.  


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University of Kentucky researchers develop online portal to show how biases in RNA sequences affect gene expression

LEXINGTON, Ky. (June 29, 2022) — A recent publication from researchers at the University of Kentucky explains the importance of identifying and understanding…

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LEXINGTON, Ky. (June 29, 2022) — A recent publication from researchers at the University of Kentucky explains the importance of identifying and understanding how differences between tissues and cells alter gene expression without changing the underlying genetic code.

Credit: Pete Comparoni | University of Kentucky Photo

LEXINGTON, Ky. (June 29, 2022) — A recent publication from researchers at the University of Kentucky explains the importance of identifying and understanding how differences between tissues and cells alter gene expression without changing the underlying genetic code.

Introductory biology classes teach that DNA is transcribed into RNA, which is then translated into proteins. However, many cellular processes affect how quickly transcription and translation occur. Gene expression looks at the differences in RNA concentrations within a cell, and it can help scientists know which genes are active within that tissue or cell.

“Changes in gene expression can significantly affect various diseases and disease trajectories,” said Justin Miller, Ph.D., assistant professor in the UK College of Medicine’s Department of Pathology and Laboratory Medicine.

Miller, who is also affiliated with the Sanders-Brown Center on Aging and Biomedical Informatics, says he and his colleagues previously developed the first algorithm to identify ramp sequences from a single gene sequence. Through their recent work, Miller and fellow UK co-authors Mark Ebbert, Ph.D., and Matthew Hodgman created an online version of that algorithm and showed that ramp sequences change between tissues and cells without changing the RNA sequence.

A ramp sequence is part of the RNA sequence that slows translation at the beginning of the gene by using codons (sequences of three DNA or RNA nucleotides) that are not easily translated. Ramp sequences counterintuitively increase overall gene expression by evenly spacing the translational machinery and preventing collisions later in translation.

In their recent publication in NAR Genomics and Bioinformatics, the researchers present the first comprehensive analysis of tissue- and cell type-specific ramp sequences and report more than 3,000 genes with ramp sequences that change between tissues and cell types, which correspond with increased gene expression within those tissues and cells.

“This research is the first time that variable ramp sequences have been described. Our comprehensive web interface allows other researchers to creatively explore ramp sequences and gene expression,” said Miller.

The research team says this work is important because while there are multiple ways for our RNA to encode the same proteins, the specific RNA sequence is important to regulate protein and RNA levels.

“Essentially, a ramp sequence works like an on-ramp to a freeway so that ribosomes do not crash into each other, but the length and speed limit of that onramp can change depending on the cell and the available resources within that cell,” Miller explained.

He says he enjoyed working on this project not only with his colleagues at UK but as well as his former colleagues at Brigham Young University and his brother, Kyle Miller, at Utah Valley University. Together, the group created a web interface for people to see how ramp sequences correspond with human and COVID-19 gene expression in different tissues and cells.

Miller says he believes this work will eventually impact patient care. “We created an online interface for researchers to query all human genes and see if a specific gene has a ramp sequence in a given tissue and how that gene is expressed within that tissue,” said Miller. “We also show that various COVID-19 genes and human entry factors for COVID-19 have ramp sequences that change between different tissues. Ramp sequences are much more likely to occur in tissues where the virus is known to proliferate.”

So, the researchers believe that COVID-19 genes have genetic biases (ramp sequences) that allow them to use the available cellular machinery to increase their expression. “Our research may help us better predict which tissues and cells new viruses will infect and also provides a potential therapeutic target to regulate tissue-specific gene expression without changing the translated protein,” said Miller.

Research reported in this publication was supported by the National Institute on Aging of the National Institutes of Health under Award Numbers P30AG072946 and R01AG068331, and the National Institute of General Medical Sciences of the National Institutes of Health under Award Number R35GM138636. The content is solely the responsibility of the authors and does not necessarily represent the official views of the National Institutes of Health.

This work was also funded by the BrightFocus Foundation, under awards A2020118F and A2020161S, and the Alzheimer’s Association, under award 2019-AARG-644082.

The University of Kentucky is increasingly the first choice for students, faculty and staff to pursue their passions and their professional goals. In the last two years, Forbes has named UK among the best employers for diversity, and INSIGHT into Diversity recognized us as a Diversity Champion four years running. UK is ranked among the top 30 campuses in the nation for LGBTQ* inclusion and safety. UK has been judged a “Great College to Work for” three years in a row, and UK is among only 22 universities in the country on Forbes’ list of “America’s Best Employers.”  We are ranked among the top 10 percent of public institutions for research expenditures — a tangible symbol of our breadth and depth as a university focused on discovery that changes lives and communities. And our patients know and appreciate the fact that UK HealthCare has been named the state’s top hospital for five straight years. Accolades and honors are great. But they are more important for what they represent: the idea that creating a community of belonging and commitment to excellence is how we honor our mission to be not simply the University of Kentucky, but the University for Kentucky.


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White House Is Quietly Modeling For $200 Oil “Shock”

White House Is Quietly Modeling For $200 Oil "Shock"

While the Biden administration is hoping and praying that someone – anyone – will watch…

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White House Is Quietly Modeling For $200 Oil "Shock"

While the Biden administration is hoping and praying that someone - anyone - will watch the comical "Jan 6" kangaroo hearsay court taking place in Congress and meant to somehow block Trump from running for president in 2024 while also making hundreds of millions of Americans forget that the current administration could very well be the worst in US history, it is quietly preparing for the worst.

As none other than pro-Biden propaganda spinmaster CNN reports, when it comes to what really matters (at least according to Gallup), namely the economy, and specifically galloping gasoline prices, the White House is in a historic shambles.

For an administration that ended last year forecasting a leveling off of 40-year high inflation and eager to tout a historically rapid recovery from the pandemic-driven economic crisis, there is a level of frustration that comes with an acutely perilous moment. Asked by CNN about progress on a seemingly intractable challenge, another senior White House official responded flatly: "Which one?"

The suspects behind the historic implosion are well known: "soaring prices, teetering poll numbers and congressional majorities that appear to be on the brink have created no shortage of reasons for unease. Gas prices are hovering at or around $5 per gallon, plastered on signs and billboards across the country as a symbolic daily reminder of the reality -- one in which White House officials are extremely aware -- that the country's view of the economy is growing darker and taking Biden's political future with it."

"You don't have to be a very sophisticated person to know how lines of presidential approval and gas prices go historically in the United States," a senior White House official told CNN.

A CNN Poll of Polls average of ratings for Biden's handling of the presidency finds that 39% of Americans approve of the job he's doing. His numbers on the economy, gas prices and inflation specifically are even worse in recent polls. What CNN won't tell you is that Biden is now polling well below Trump at this time in his tenure.

The CNN article then goes into a lengthy analysis of what is behind the current gasoline crisis (those with lots of time to kill can read it here) and also tries to explains, without actually saying it, that the only thing that can fix the problem is more supply, but - as we first explained - this can't and won't happen because green fanatics and socialist environmentalists will never agree to boosting output.

Which brings us to the punchline: as CNN's Phil Mattingly writes, "instead of managing an economy in the midst of a natural rotation away from recovery and into a stable period of growth, economic officials are analyzing and modeling worst-case scenarios like what the shock of gas prices hitting $200 per barrel may mean for the economy."

Well, in an article titled "Give us a plan or give us someone to blame", this seems like both a plan, and someone to blame.

But unfortunately for Biden - and CNN which is hoping to reset expectations - it's only going to get worse, because as we noted moments ago, while nobody was paying attention, Cushing inventories dropped to just 1 million away from operational bottoms at roughly 20MM barrels. This means that the US is officially looking at tank bottoms.

But wait, there's more... or rather, it's even worse, because as even Bloomberg's chief energy guru Javier Blas notes, over the last 2 weeks, the US gov has drained 13.7 million barrels from the SPR, "and yet, commercial oil stockpiles still fell 3 million barrels over the period."

Just imagine, Blas asks rhetorically, "if the SPR wasn't there. Or what would happen post-Oct when sales end."

And here is the punchline: at the current record pace of SPR drainage, one way or another the Biden admin will have to end its artificial attempts to keep the price of oil lower some time in October (or risk entering a war with China over Taiwan with virtually no oil reserve). This means that unless Putin ends his war some time in the next 5 months, there is a non-trivial chance that oil will hit a record price around $200 - precisely the price the White House is bracing for - a few days before the midterms. While translates into $10+ gasoline.

And while one can speculate how much longer Democrats can continue the "Jan 6" dog and pony show as the entire economy implodes around them, how America will vote in November when gas is double digits should not be a mystery to anyone.

Tyler Durden Wed, 06/29/2022 - 13:05

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European Commission says it doesn’t have texts between president Ursula von der Leyen and Pfizer CEO Albert Bourla

Under fire from the European ombudsman, the Commission said on Wednesday that it hasn’t found any text messages between president Ursula von der Leyen…

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Under fire from the European ombudsman, the Commission said on Wednesday that it hasn’t found any text messages between president Ursula von der Leyen and Pfizer chief Albert Bourla regarding the purchase of Covid-19 vaccines.

The messages became of interest last April, when the New York Times reported that a series of texts and calls between von der Leyen and Bourla led to Pfizer’s largest vaccine deal — 900 million doses of the current vaccine and a vaccine adapted to variants, with the option to purchase an additional 900 million doses through 2023.

Emily O’Reilly

Upon a public access request made by a journalist, the EC responded that it had no record of them. However, it was later revealed by ombudsman Emily O’Reilly, the EU’s internal watchdog, that the EC never explicitly asked the cabinet to look for the texts.

Instead, the EC requested other documents that fall under its internal criteria for recording, which doesn’t include text messages.

O’Reilly accused the Commission of “maladministration,” and urged the administration to conduct a more thorough search.

“When it comes to the right of public access to EU documents, it is the content of the document that matters and not the device or form,” she said in a statement back in January. “If text messages concern EU policies and decisions, they should be treated as EU documents.”

On Wednesday, the EC claimed to side with O’Reilly: “The Commission and the Ombudsman agree that what matters is the content of a document,” a spokesperson said in an email to Endpoints News. 

However, the Commission maintained that the texts were not registered as documents “due to their short-lived and ephemeral nature.”

“Text and instant messages in general do not contain important information relating to policies, activities and decisions of the Commission, nor are they in the possession of the institution,” the EC shared in a letter.

The administration added that it intends to issue further guidance on the use of “modern communication tools” such as text and instant messages to clear up any confusion.

“The Ombudsman could equally be invited to participate in those discussions, if she wishes to do so,” the statement said.

Pfizer declined to comment on the content of the text messages.

Stella Kyriakides

The EC struck its third vaccine deal with Pfizer and BioNTech last May, after its other major supplier AstraZeneca ran into production issues and announced it would significantly reduce deliveries.

The contract, which called for up to 1.8 billion doses through 2023, also reserved the EU right to resell or donate doses to countries in need.

“We need to be one step ahead of the virus. This means having access to adapted vaccines to protect us against the threat of variants, booster vaccines to prolong immunity, as well as protecting our younger population,” commissioner for health and food safety Stella Kyriakides said at the time.

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