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Futures Rise As ECB Panics And Fed Looms

Futures Rise As ECB Panics And Fed Looms

After five days of non-stop losses, US index futures finally bounced modestly along with stocks…

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Futures Rise As ECB Panics And Fed Looms

After five days of non-stop losses, US index futures finally bounced modestly along with stocks in Europe as the ECB announced it would hold an emergency meeting to undo the damage done by its meeting from last week, and ahead of the Fed which today will hike by 75bps, the most since 1994, and will then scramble to undo the damage from pushing the US into a recession in coming days and weeks.

Contracts on the S&P 500 and Nasdaq 100 posted modest gains, rising 0.8% and 1% respectively, ahead of the Fed, with markets fully pricing in the biggest rate hike since 1994 amid worries about the outlook for the economy. Europe's Stoxx Europe 600 index jumped more than 1%, snapping a six-day losing streak, while the euro strengthened and the region’s bonds advanced as the European Central Bank’s Governing Council started an emergency meeting. Treasury yields dipped and the dollar retreated from a two-year high.

In premarket trading, major technology and internet stocks are higher in premarket trading along with US stock futures ahead of Wednesday’s Federal Reserve announcement, with investors expecting a 75 basis-point increase in rates. Bank stocks were also higher in premarket trading. Here are some other notable premarket movers:

  • Spotify (SPOT US) shares gain 2.2% in premarket trading as Wells Fargo upgraded the stock to equal-weight, saying the music streaming firm’s recent investor day laid out a more profitable company than the brokerage has modeled historically.
  • Chinese tech stocks are mostly higher in US premarket trading, with education shares continuing their winning streak since peer Koolearn’s livestreaming hit went viral. Alibaba (BABA US) +1.9%, Baidu (BIDU US) +3.6%, Pinduoduo (PDD US) +2.3%, New Oriental Education (EDU US) +8.4%, TAL Education (TAL US) +4.5%.
  • iQIYI (IQ US) shares decline 3.9% in US premarket trading as Baidu is in talks to sell its majority stake in the streaming service in a deal that could value all of iQIYI at $7 billion, Reuters reported, citing people with knowledge of the matter.
  • Cryptocurrency-related stocks fell in premarket trading on Wednesday as Bitcoin and Ethereum tumbled. MicroStrategy (MSTR US) -7.6%, Marathon Digital Holdings (MARA US) -7.6%, Riot Blockchain (RIOT US) -7%, Coinbase (COIN US) -6.6%.
  • Apple (AAPL US) and other consumer computer-hardware stocks may be in focus today as Morgan Stanley cut its price targets for such shares due to risks related to a potential slowdown in consumer spending.
  • Moderna’s (MRNA US) shares rose 1.2% in US after-hours trading on Tuesday, while analysts said that the unanimous verdict from an FDA panel, which supported the biotech firm’s Covid vaccine for children, came as no surprise.
  • Qualcomm (QCOM US) stocks could be in focus after the company won a European Union court bid to topple a 997 million-euro antitrust fine for allegedly pressuring Apple to only buy its 4G chips.

Fears of stagflation have driven stocks into a bear market and triggered a stunning selloff in bonds in recent days. Uncertainty is elevated heading into the Fed decision: increments of 50 basis points, 75 basis points and even 100 basis points have all been chewed over by commentators. Parts of the US yield curve remain inverted, signaling concerns that restrictive monetary policy will lead to an economic downturn.

Today's main event is of course the Fed decision which is expected to include a 75bp rate hike, with latest forecasts released at the same time. Swaps market is currently pricing in around 70bp of rate hikes for the meeting with a combined 202bp of additional hikes priced for the June, July and September meetings. From the forecasts, focus will be on revisions to the Fed’s long-term rate; swaps market is currently pricing a rate peak at around 3.90% by the middle of next year (full preview here).

“Markets are poised for aggressive rate hikes, but what of US economic growth?” said Nema Ramkhelawan-Bhana, an economist at Rand Merchant Bank in Johannesburg. “It might not be in recessionary territory just yet, but the landing is not going to be as soft as the Fed predicates. Anything less than 75 basis points or at least a strong willingness to make more significant adjustments will likely turn the market on its head, eroding total returns of global bonds and equities even further.”

European equities trade well but off session highs. FTSE MIB outperforms, rallying as much as 3.3% before stalling. Stoxx 600 rises as much as 1.2% with travel, banks and insurance names doing much of the heavy lifting, while the euro strengthened and the region’s bonds advanced as the European Central Bank’s Governing Council started an emergency meeting. While new stimulus may not be on the agenda, officials will discuss a crisis strategy and the reinvestment of bond purchases conducted under the now-halted pandemic emergency program, Bloomberg reported. Here are the biggest European movers:

Rate-sensitive sectors such as financials and technology gained in Europe as the ECB holds an ad hoc meeting to discuss market conditions and the Fed concludes its two-day policy meeting. Finecobank shares rise as much as 8.4%, Intesa Sanpaolo +7.5%, Assicurazioni Generali +5.3%.

  • Europe auto stocks are among outperforming sectors in the wider equity gauge, led by French part suppliers Faurecia and Valeo, and carmaker Renault. Faurecia shares gain as much as 8.7%, Valeo +6.5%, Renault +5.6%
  • Whitbread shares rise as much as 6.4% after the hotel operator reported quarterly sales, with Barclays noting the company’s “upbeat tone.”
  • Gerresheimer shares rise as much as 17% after a Bloomberg report that the German maker of packaging for drugs and cosmetics rejected an informal takeover approach from Bain Capital in recent weeks.
  • Nordic and European forestry and paper mill companies’ shares rebound, breaking sharp declines triggered after brokers cut their  respective outlooks for the sector in the past week. Smurfit Kappa stock rises as much as 5.3%, BillerudKorsnas +4.8%, Huhtamaki +5.6%
  • H&M shares drop as much as 6.4% with uncertainty about the margin outlook and ongoing cost pressures overshadowing the apparel retailer’s 2Q sales beat.
  • Getinge shares fall as much as 18% after the medical technology firm lowered guidance, projecting flat organic sales growth for the year. Nordea and JPMorgan downgraded their recommendations.
  • Elia Group shares fell as much as 12% after the electricity transmission company laid out plans for a rights offering.
  • Autoneum shares drop as much as 5.2% after the car- parts maker warned on profits. Vontobel analyst Arben Hasanaj noted the firm’s difficulty in passing on higher costs, along with further likely delays in car production recovery.
  • Voltalia slumps as much as 9.1% after Oddo downgrades to neutral in note as it questions what level of growth is possible after 2023.

“The ECB is between rock and a hard place, like most other central banks,” said Marija Veitmane, a senior strategist at State Street Global Markets. “Inflation is very high and shows little signs of quickly declining, while the economy is increasingly fragile, particularly with the war in Europe and ever-rising energy costs. So anything the ECB can announce to reduce systemic risk is very welcome.”

Earlier in the session, Asian stocks posted modest declines as sentiment improved from earlier in the week, with Chinese shares rising after domestic economic data showed pockets of recovery. The MSCI Asia Pacific Index was down 0.4% as of 6:07 p.m. in Singapore, as losses in regional tech hardware shares offset advances in China’s internet giants. South Korea and the Philippines led declines, while Japanese stocks fell ahead of a central bank policy meeting this week. Gains in China and Hong Kong helped offset losses elsewhere as data showed the country’s industrial production unexpectedly increased in May. Meanwhile the nation’s central bank kept a key policy rate unchanged, avoiding further policy divergence as the Federal Reserve tightens.

“A more accommodative policy and fiscal environment together with stronger corporate fundamentals should be positive for Chinese equity assets,” said Jessica Tea, an investment specialist at BNP Paribas Asset Management. The MSCI Asia gauge dropped almost 4% over the previous two sessions as inflation data from the US fueled bets of a 75-basis-point rate hike by the Fed at Wednesday’s meeting. Still, the index has outperformed a measure of global peers this year, with the latter now in a bear market.

Japanese stocks dropped ahead of a Federal Reserve rate decision. A Bank of Japan review on Friday is also on the radar.  The Topix Index fell 1.2% to close at 1,855.93 while the Nikkei gauge declined 1.1% to 26,326.16. Keyence Corp. contributed the most to the Topix Index’s decline, decreasing 3.9%. Out of 2,170 shares in the index, 288 rose and 1,829 fell, while 53 were unchanged. “The sharp decline in JGBs is also contributing to the drop in stock prices as uncertainty mounts ahead of the BOJ meeting,” said Hajime Sakai, chief fund manager at Mito Securities Co

Indian stocks fell after swinging between gains and losses for the most part of the session, as concerns over higher inflation and likely tighter monetary policy measures weighed on sentiment.   The S&P BSE Sensex slipped 0.3% to close at 52,541.39 in Mumbai to its lowest level since July 28. The NSE Nifty 50 Index also slipped by a similar magnitude. Reliance Industries Ltd. posted its longest run of losses in more than a month and was the biggest drag on the Sensex, which had 17 of 30 member stocks trading lower. Ten of the 19 sector sub-indexes compiled by BSE Ltd fell, led by a gauge of power stocks. Retail inflation in India held above the central bank’s target in May, while wholesale prices accelerated for a third-straight month as input costs continue to rise, hurting company earnings.  “Commodity prices continue to remain elevated and despite passing on the costs to consumers, India Inc. is still facing margin pressures,” Mitul Shah, head of research at Reliance Securities wrote in a note.  

Australia's S&P/ASX 200 index fell 1.3% to close at 6,601.00, the fourth straight day of declines. All sectors finished lower, with mining stocks and banks the biggest drags on the index. During early trade, Australia’s industrial relations umpire raised the minimum wage by 5.2% from July 1, a larger-than-expected increase, affirming speculation of faster tightening by the central bank.  Meanwhile, in New Zealand, the S&P/NZX 50 index was little changed at 10,635.92., after entering a bear market Tuesday. The gauge has shed more than 20% from its January 2021 peak.

In FX, the Bloomberg Dollar Spot Index fell as the greenback weakened against all of its Group-of-10 peers apart from the Canadian dollar. Risk-sensitive Scandinavian currencies and the Aussie dollar lead gains. The euro rose by as much as 0.9% to 1.0508, and the yield on 10-year Italian bonds fell as much as 30bps after the ECB announced the Governing Council would hold an ad-hoc meeting on Wednesday “to discuss current market conditions.” ECB officials will be invited to sign off on the reinvestment of bond purchases conducted under the now-halted pandemic emergency program, a crisis response that they flagged in their decision last week, according to people familiar with the matter. Three-month euribor fixes higher by the most in more than two years, climbing to the highest since April 2020 as funding rates seek to mirror ECB rate hike expectations. Japanese bond futures drop most since 2013 as traders ramp up bets BOJ will give in to tweak policy. Australian bonds slumped with three-year yields posting steepest two-day climb since 1994. The Aussie extended an advance after the Fair Work Commission said the minimum wage will be increased by 5.2%. Earlier, the RBA said it “will do what’s necessary” to bring inflation back down to its 2-3% target as Goldman sees three more half-point hikes.

In rates, Treasuries pared a recent drop, with yields falling up to 8bps led by shorter maturities amid a TSY rally in Asia and early European sessions, leaving yields richer by as much as 12.5bp across front-end leading into US session.  Markets are pricing in 73bps worth of hikes from the Fed today. US 10-year yields around 3.36%, richer by 10bp on the day while front-end outperformance steepens 2s10s, 5s30s spreads by 3bp and 6.5bp respectively. Curve steepens as long-end lags front-end rally and some rate hike premium eases out the swaps market ahead of 2pm ET Fed policy decision. European bonds rallied after ECB announces emergency meeting to discuss market conditions, with French and UK outperforming along with Italy and other peripherals.

In commodities, crude futures drop back toward the lows for the week. WTI falls 1.2% near $117.50. Most base metals trade in the green; LME tin rises 2.3%, outperforming peers. Spot gold rises roughly $16 to trade near $1,825/oz

Looking to the day ahead, the main highlight will likely be the aforementioned FOMC decision and Chair Powell’s subsequent press conference. There’s also an array of ECB speakers, including President Lagarde, as well as the ECB’s Holzmann, Nagel, Centeno, Muller, De Cos, Panetta and Knot. Otherwise, data releases include Euro Area industrial production for April, US retail sales for May, the NAHB housing market index for June and the Empire State manufacturing survey for June.

Market Snapshot

  • S&P 500 futures up 0.8% to 3,768.50
  • STOXX Europe 600 up 1.2% to 412.15
  • MXAP down 0.4% to 159.27
  • MXAPJ little changed at 529.71
  • Nikkei down 1.1% to 26,326.16
  • Topix down 1.2% to 1,855.93
  • Hang Seng Index up 1.1% to 21,308.21
  • Shanghai Composite up 0.5% to 3,305.41
  • Sensex up 0.2% to 52,797.58
  • Australia S&P/ASX 200 down 1.3% to 6,601.03
  • Kospi down 1.8% to 2,447.38
  • Brent Futures down 0.2% to $120.90/bbl
  • Gold spot up 0.6% to $1,818.80
  • U.S. Dollar Index down 0.56% to 104.93
  • German 10Y yield little changed at 1.77%
  • Euro up 0.6% to $1.0479
  • Brent Futures down 0.2% to $120.90/bbl

Top Overnight News from Bloomberg

  • Federal Reserve Chair Jerome Powell, who’s carefully telegraphed interest rate hikes over four years, looks likely to abandon gradualism and move more forcefully to stamp out inflation along with growing concerns that it will persist
  • The European Central Bank’s Governing Council is ready to step in if it considers moves in government bond markets to be unjustified, according to Belgium’s Pierre Wunsch, as the ECB prepared for an emergency meeting on recent euro-zone bond turbulence
  • The European Union is restarting infringement proceedings against the UK and will launch two new legal actions after London proposed legislation to override part of the Brexit withdrawal agreement, according to an EU official
  • The first batch of a Chinese offshore yuan sovereign bond sale saw the strongest demand in nearly two years, defying a recent stream of outflows at a time when the global debt market is showing deepening levels of stress
  • Even after central banks recognized they got their inflation calls wrong last year, they’ve continued to flub their policy guidance, threatening greater damage to their credibility, roiling markets and undermining the pandemic recovery

A more detailed look at markets courtesy of Newsquawk

Asia-Pac stocks traded mixed amid cautiousness heading into the FOMC with markets pricing in a more than 90% chance of a 75bps rate hike, while the region also digested better-than-expected Chinese activity data. ASX 200 was led lower by energy, resources and tech, despite a 5.2% national minimum wage increase. Nikkei 225 failed to benefit from strong Machinery Orders data amid the ongoing currency-related jitters. Hang Seng and Shanghai Comp. were positive with encouragement from the latest activity data that showed surprise growth in Industrial Production and a narrower than feared contraction in Retail Sales, while attention was also on the PBoC which rolled over CNY 200bln through its 1-year MLF with the rate unchanged.

Top Asian News

  • PBoC injected CNY 200bln via 1-year MLF vs. CNY 200bln maturing with the rate kept at 2.85%, as expected.
  • China's stats bureau said the main indicators show marginal improvement and the economy shows good recovery momentum, but added that the economic recovery still faces many difficulties and challenges. Furthermore, it said policies to stabilise economic growth gained traction and it expects economic performance to improve further in June due to policy support, but noted recovery is still at an initial stage and main indicators are at low levels, according to Reuters.
  • Hong Kong reports 1047 new COVID cases. Appears to be the first time since early April that cases have surpassed the 1k mark.

European equities are firmer across the board ahead of the impromptu ECB meeting, Euro Stoxx 50 +1.0%; unsurprisingly,  periphery-nation indexes are outperforming, FTSE MIB +3.0%, given upside in banking names. As such, the Banking sector outperforms with most of its peers also in the green, though the Energy sector lags amid benchmark pricing. Stateside, futures are firmer across the board deriving impetus from European performance, but with overall action somewhat more contained ahead of the Fed and uncertainty around 75bp, ES +0.3%. Baidu (BIDU) is in discussions with potential suitors to offload its 53% stake in video-streaming name Iqiyi, according to Reuters sources. +3.8% in the pre-market.

Top European News

  • UK PM Johnson is reportedly determined to reverse Chancellor Sunak's planned GBP 15bln tax raid on business as he tries to firm up support following last week's confidence vote, according to The Times.
  • UK PM Johnson is understood to have told his cabinet to 'de-escalate' the Northern Ireland Protocol stand-off with the EU, according to The Telegraph.
  • UK exports to the EU during H1 of last year fell by 15.6% amid Brexit frictions, according to a study by Aston University cited by FT.
  • Swiss SECO Forecasts (summer): Inflation: 2022 2.5% (prev. 1.9%), 2023 1.4% (prev. 0.7%). GDP: 2022 2.8% (prev. 3.0%), 1.6% (prev. 1.7%)

Central Banks

  • BoJ offers an additional emergency bond buying operation; to buy unlimited amounts of 10yr JGBs on June 16th & 17th at 0.25%.
  • Fall in JGB futures has triggered a circuit breaker at the Tokyo stock exchange, via Japan Exchange Group.
  • Japan's Securities Dealer Association's Morita says the JPY may have weakened too much, via Reuters.
  • 8/9 members (vs. 3/9 at the May meeting) of the Times' shadow MPC believe that the BoE should raise rates by 50bps at its policy meeting tomorrow, according to the Times.

FX

  • Buck backs off from best levels into FOMC and US data awaiting confirmation of the hawkish hype or half point hike signalled pre-hot CPI; DXY slips from 105.650 peak on Tuesday into 105.380-104.700 range.
  • Aussie rebounds on risk grounds and more aggressive RBA tightening calls, AUD/USD reclaims 0.6900+ status.
  • Yen takes note of latest verbal intervention and Hong Kong Dollar supported by more physical HKMA buying to keep it pegged; USD/JPY sub-134.50 vs 135.50+ overnight.
  • Euro extends recovery rally as ECB holds ad hoc meeting to discuss fragmenting debt markets and Wunsch contends that gradualism does not rule out larger than 25 bp moves; EUR/USD pops over 1.0500 from just below 1.0400 yesterday.
  • Yuan gleans impetus from better than expected or feared Chinese industrial production and retail sales, USD/CNH nearer 6.7200 than 6.7600, USD/CNY close to 6.7100 and not far from 21 DMA at 6.6965 today.

Fixed Income

  • Decent bear market retracement in debt approaching the FOMC.
  • Bunds up to 143.79 at best vs new 143.25 cycle low, Gilts towards top of 112.48-111.88 band and 10 year T-note closer to 115-06 than 114-10.
  • BTPs markedly outperform after near 3 full point bounce from Tuesday close in anticipation of an anti-fragmentation tool from the ECB as GC meets for crisis talks.

Commodities

  • Currently, WTI and Brent are lower by circa. USD 1.00bbl but reside within comparably narrow ranges of around USD 2.00bbl vs, for instance, yesterday’s USD +6.00/bbl parameters.
  • Curtailed amid COVID updates from China and Hong Kong alongside Biden's reported push for an explanation from producers over why supply isn't increasing.
  • US President Biden has demanded an explanation from oil companies over why they are refraining from putting additional gasoline on the market and wants concrete ideas as to how they can increase supplied, according to a letter seen by Reuters.
  • US Energy Inventory Data (bbls): Crude +0.7mln (exp. -1.3mln), Cushing -1.1mln, Gasoline -2.2mln (exp. +1.1mln), Distillates +0.2mln (exp. +0.3mln)
  • US DoE announced contract awards and issued the fourth emergency sale of crude oil from SPR (as previously announced), in which contracts were awarded to nine including Chevron (CVX), Exxon (XOM) and Marathon Petroleum (MPC).
  • Kazakhstan has capped wheat exports at 550k tonnes and wheat flour at 370k tonnes until September 30th, according to the Agriculture Ministry, via Reuters.
  • Spot gold derives impetus from the USD’s retreat and is now back above USD 1820/oz but still shy of yesterday’s USD 1831/oz best and the subsequent 200-, 10- & 21-DMAs ahead at USD 1842, 1843 & 1845 respectively.

US Event Calendar

  • 07:00: June MBA Mortgage Applications +6.6%, prior -6.5%
  • 08:30: May Import Price Index YoY, est. 11.9%, prior 12.0%;  MoM, est. 1.1%, prior 0%
    • May Export Price Index YoY, prior 18.0%; MoM, est. 1.3%, prior 0.6%
  • 08:30: May Retail Sales Advance MoM, est. 0.1%, prior 0.9%
    • May Retail Sales Ex Auto MoM, est. 0.7%, prior 0.6%
    • May Retail Sales Control Group, est. 0.3%, prior 1.0%
  • 08:30: June Empire Manufacturing, est. 2.2, prior -11.6
  • 10:00: April Business Inventories, est. 1.2%, prior 2.0%
  • 10:00: June NAHB Housing Market Index, est. 67, prior 69
  • 14:00: June FOMC Rate Decision
  • 16:00: April Total Net TIC Flows, prior $149.2b

DB's Jim Reid concludes the overnight wrap

In these crazy days for markets, I'm willing to stake my reputation that I've done something in the last 24 hours that no-one else reading this did. Yes, after a business trip to Europe yesterday, I watched the original Top Gun on my iPad on the plane ride home for the very first time, some 36 years after it came out. My wife wants to watch the sequel, so I thought I ought to see what all the fuss was about. She's seen it around 20 times and always asks what I was doing in my teenage years that's made me miss all the films of her youth. The truth is I was either studying or playing cricket or golf. Not much else. My review is that it was a decent film, but Mavericks' courting technique doesn't really age very well.

I'm not sure Maverick and Goose would have been able to get out of the tight spot that the Fed are in at the moment very easily. After the astonishing price action over the previous 2 business days, markets have settled somewhat over the last 24 hours, but overall have continued to struggle as they await today’s all-important Federal Reserve decision. Up until the CPI report last Friday, that decision seemed like a lock in favour of a second consecutive 50bp hike, not because that was the right move, but because the Fed had firmly guided us to such an outcome. The CPI report raised doubts as to whether they could hold that line over the summer, but the WSJ article on Monday night broke the levee as a 75bps move tonight is now suddenly pretty much consensus. Our economics team agrees and have now updated their previously street leading view to have a +75bp hike tonight followed by another +75bp increase in July. The team believes fed funds will reach 3.5% by the end of the year, and hit a terminal rate of 4.1% in Q1 2023, sooner than they thought before the WSJ story. See their full updated call, available here.

As we hit this big day, markets now fully price in a 75bps hike today. Indeed, 76.3bps is priced, so that actually incorporates a small risk of 100bps, something former New York Fed President Bill Dudley was openly considering yesterday, which may have contributed to the sentiment that drove the next leg of the selloff in the New York afternoon. A total of 289bps worth of rate hikes by year-end is now priced. So quite the turnaround from a few weeks back when some were even floating the strange idea of a “pause” in September. Clearly the 75bp call is mostly based on a WSJ article so we can't be certain but you would have thought the Fed would have tried to leak out a rebuttal if that wasn't what they wanted to guide the market towards. We will see.

Whilst the size of any rate hike will be the focal point, today also brings the latest dot plot from the FOMC and offers an insight into the potential pace of rate hikes over the months ahead. Our US economists expect that to undergo substantial revisions, with the median dot likely rising to 3.5% and 3.8% for 2022 and 2023 respectively. Meanwhile on the economic projections, they think they’ll also show further movements towards a “softish landing”, with growth revised lower throughout the forecast, albeit stopping short of anticipating a recession.

Ahead of all that, US equities slipped to fresh lows yesterday with the S&P 500 (-0.37%) falling to its lowest closing level since January 2021. Tech stocks outperformed, in contrast to the recent trend, with the NASDAQ (+0.18%) and the FANG+ Index (+1.97%) bouncing off of recent lows. Small-caps fared less well today and the Russell 2000 (-0.39%) fell to its lowest closing level since November 2020. Over in Europe, equities similarly fell to fresh lows and the STOXX 600 (-1.26%) likewise fell to levels unseen since March 2021.

Rates sold off by a smaller magnitude than the previous two sessions (low bar to clear), but an initial rally gave way to a selloff in the European afternoon that continued to gather pace into the New York close. Yields on 10yr Treasuries were up +11.3bps to a fresh post-2011 high of 3.47%, supported by a further rise in the 10yr real yield (+13.7bps) that took it up to a 3-year high of 0.82 The 2s10s curve just about clambered out of inversion territory where it’d closed on Monday, steepening by +3.8bps to end the day at just 3.6bps. But even the Fed’s preferred yield curve measure of the near-term forward spread fell to its flattest level in 3 months, even if it’s still well out of inversion territory for now. This spread will likely collapse in the months ahead. As we go to press, yields on 10yr USTs (-4.63 bps) are moving lower to 3.42% with 2yrs -5.6bps.

Today’s focus may be on the Fed, but over at the ECB we had Isabel Schnabel of the Executive Board give a significant speech last night about policy fragmentation. Recall, one of the key takeaways from last week’s ECB meeting was the apparent lack of progress on anti-fragmentation tools, shining a spotlight on Schnabel’s remarks last night. As our European economists emphasised last week, Schnabel argued that any tool would be reactionary, that is in response to more spread widening. She did not offer new details of any potential tool last night, instead echoing President Lagarde that PEPP purchase flexibility would be used to ensure smooth policy transmission in the interim. However, Schnabel also re-emphasised the ECB’s commitment to ensure smooth policy transmission. That Schnabel, a relative hawk on the committee and one that has expressed trepidation about a new facility in the past, so willingly supported the idea of doing what was needed to support policy implementation was an important shift for the ECB. The language Schnabel used last night may support the notion that the spread widening seen to date may already be approaching levels inconsistent with smooth policy transmission. It may not take much more pressure for the ECB to act but we are still in the dark on how they will.

Earlier in the day, Dutch central bank governor Knot made some incredibly hawkish comments, saying that if “conditions remain the same as today, we will have to raise rates by more than 0.25 points” in September, and that “our options are not necessarily limited” to a 50bps move, so openly floating the potential to move by even more, which hasn’t been something discussed by the ECB to date.

European sovereign bonds sold off significantly against that backdrop, with fresh multi-year highs seen for yields on 10yr bunds (+11.9bps), OATs (+13.7bps) and BTPs (+14.9bps). Peripheral spreads hit new post-Covid highs too, with the gap between Italian and German 10yr yields widening to 241bps. And there were some significant milestones on the credit side as well, with iTraxx Crossover widening +10.4bps to a fresh 10 year high of 544bps outside of 2-months around peak covid, and in North America we saw the CDX IG spread move above 100bps in trading for the first time since April 2020, before settling back at 99.0bps.

In Asia markets are mixed with the Hang Seng (+1.44%) trading up boosted by technology stocks following the Nasdaq's overnight gain. Likewise, stocks in mainland China are also higher in early trade with the Shanghai Composite (+1.41%) and CSI (+1.57%) edging higher as the economy showed a slightly better than expected recovery in May (see below). However, the Nikkei (-0.73%) and the Kospi (-1.54%) are trading lower, extending earlier session losses. Outside of Asia, US equity futures are reversing losses this morning with contracts on the S&P 500 (+0.38%) and NASDAQ 100 (+0.59%) trading up.

Early this morning, data released showed that China’s industrial production unexpectedly rebounded +0.7% y/y in May (v/s -0.9% expected), against a drop of -2.9% in April, whilst retail sales slid -6.7% in the period, less than -7.1% projected decline and slightly better than April’s -11.1% plunge. Meanwhile, Fixed-asset investment grew +6.2% in the first 5 months of the year (v/s +6.0% expected). Elsewhere, Japan’s core machinery orders strongly beat at +10.8% m/m in April, its fastest pace in 18 months (v/s -1.3% market consensus and +7.1% in March).

Yesterday we also heard that the Bank of Japan had bought a record ¥2.2tn in government notes through its fixed-rate operation as they seek to defend their yield curve target and keep 10-year JGB yields beneath their stated limit of 0.25%. This has continued to put pressure on the Yen however, which fell to a closing level of 135.47 per dollar yesterday, thus moving beneath its 2002 closing low of 134.71 and leaving it at levels unseen since 1998. We're at just above 135 this morning after a small rally back. Speaking of currencies under pressure, Bitcoin fell to a 17-month low of $21,966 yesterday, having been trading around $30,000 just prior to the CPI release on Friday. This morning it's at $21,100.

Elsewhere, brent crude and WTI futures reversed mid-day gains of near 2% to close -0.90% and -1.65% lower, respectively, following reports that the Biden Administration may pose a surtax on oil company profit margins, as another sign Biden is looking high and low for potential actions to curb oil gains into this year’s mid-terms. The big moves were seen in natural gas however, where US futures were down -16.5% and European futures were up +16.12% after the operator Freeport LNG said that they aiming for a partial resumption of operations at one of their Texas export terminals in 90 days, and that full operations wouldn’t return until late 2022. That’s a longer delay than was expected, and by keeping gas in the US led to that decline in US futures and the rise in European ones.

Looking at yesterday’s data, the Fed got a fresh reminder about inflation pressures from the PPI release for May, where the monthly headline gain in prices rose to +0.8% in line with expectations, up from +0.4% in April. That left the year-on-year measure at +10.8% (vs. +10.9% expected), which does mark a second consecutive decline in that measure from its peak of +11.5% in March. One positive for the Fed ahead of today’s meeting is that elements that comprise a larger share of core PCE, such as healthcare, showed some softness, but time will tell.

Separately, the UK employment data saw the number of payrolled employees in May grow by +90k (vs. +70k expected), but unemployment ticked up to 3.8% in the three months to April (vs. 3.6% expected). Finally, the ZEW survey from Germany saw an improvement relative to May’s readings, with expectations up to -28.0 (vs. -26.8 expected), and the current situation up to -27.6 (vs. -31.0 expected).

To the day ahead now, and the main highlight will likely be the aforementioned FOMC decision and Chair Powell’s subsequent press conference. There’s also an array of ECB speakers, including President Lagarde, as well as the ECB’s Holzmann, Nagel, Centeno, Muller, De Cos, Panetta and Knot. Otherwise, data releases include Euro Area industrial production for April, US retail sales for May, the NAHB housing market index for June and the Empire State manufacturing survey for June.

Tyler Durden Wed, 06/15/2022 - 07:53

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Government

Vaccine-skeptical mothers say bad health care experiences made them distrust the medical system

Vaccine skepticism, and the broader medical mistrust and far-reaching anxieties it reflects, is not just a fringe position in the 21st century.

Women's own negative medical experiences influence their vaccine decisions for their kids. AP Photo/Ted S. Warren

Why would a mother reject safe, potentially lifesaving vaccines for her child?

Popular writing on vaccine skepticism often denigrates white and middle-class mothers who reject some or all recommended vaccines as hysterical, misinformed, zealous or ignorant. Mainstream media and medical providers increasingly dismiss vaccine refusal as a hallmark of American fringe ideology, far-right radicalization or anti-intellectualism.

But vaccine skepticism, and the broader medical mistrust and far-reaching anxieties it reflects, is not just a fringe position.

Pediatric vaccination rates had already fallen sharply before the COVID-19 pandemic, ushering in the return of measles, mumps and chickenpox to the U.S. in 2019. Four years after the pandemic’s onset, a growing number of Americans doubt the safety, efficacy and necessity of routine vaccines. Childhood vaccination rates have declined substantially across the U.S., which public health officials attribute to a “spillover” effect from pandemic-related vaccine skepticism and blame for the recent measles outbreak. Almost half of American mothers rated the risk of side effects from the MMR vaccine as medium or high in a 2023 survey by Pew Research.

Recommended vaccines go through rigorous testing and evaluation, and the most infamous charges of vaccine-induced injury have been thoroughly debunked. How do so many mothers – primary caregivers and health care decision-makers for their families – become wary of U.S. health care and one of its most proven preventive technologies?

I’m a cultural anthropologist who studies the ways feelings and beliefs circulate in American society. To investigate what’s behind mothers’ vaccine skepticism, I interviewed vaccine-skeptical mothers about their perceptions of existing and novel vaccines. What they told me complicates sweeping and overly simplified portrayals of their misgivings by pointing to the U.S. health care system itself. The medical system’s failures and harms against women gave rise to their pervasive vaccine skepticism and generalized medical mistrust.

The seeds of women’s skepticism

I conducted this ethnographic research in Oregon from 2020 to 2021 with predominantly white mothers between the ages of 25 and 60. My findings reveal new insights about the origins of vaccine skepticism among this demographic. These women traced their distrust of vaccines, and of U.S. health care more generally, to ongoing and repeated instances of medical harm they experienced from childhood through childbirth.

girl sitting on exam table faces a doctor viewer can see from behind
A woman’s own childhood mistreatment by a doctor can shape her health care decisions for the next generation. FatCamera/E+ via Getty Images

As young girls in medical offices, they were touched without consent, yelled at, disbelieved or threatened. One mother, Susan, recalled her pediatrician abruptly lying her down and performing a rectal exam without her consent at the age of 12. Another mother, Luna, shared how a pediatrician once threatened to have her institutionalized when she voiced anxiety at a routine physical.

As women giving birth, they often felt managed, pressured or discounted. One mother, Meryl, told me, “I felt like I was coerced under distress into Pitocin and induction” during labor. Another mother, Hallie, shared, “I really battled with my provider” throughout the childbirth experience.

Together with the convoluted bureaucracy of for-profit health care, experiences of medical harm contributed to “one million little touch points of information,” in one mother’s phrase, that underscored the untrustworthiness and harmful effects of U.S. health care writ large.

A system that doesn’t serve them

Many mothers I interviewed rejected the premise that public health entities such as the Centers for Disease Control and Prevention and the Food and Drug Administration had their children’s best interests at heart. Instead, they tied childhood vaccination and the more recent development of COVID-19 vaccines to a bloated pharmaceutical industry and for-profit health care model. As one mother explained, “The FDA is not looking out for our health. They’re looking out for their wealth.”

After ongoing negative medical encounters, the women I interviewed lost trust not only in providers but the medical system. Frustrating experiences prompted them to “do their own research” in the name of bodily autonomy. Such research often included books, articles and podcasts deeply critical of vaccines, public health care and drug companies.

These materials, which have proliferated since 2020, cast light on past vaccine trials gone awry, broader histories of medical harm and abuse, the rapid growth of the recommended vaccine schedule in the late 20th century and the massive profits reaped from drug development and for-profit health care. They confirmed and hardened women’s suspicions about U.S. health care.

hands point to a handwritten vaccination record
The number of recommended childhood vaccines has increased over time. Mike Adaskaveg/MediaNews Group/Boston Herald via Getty Images

The stories these women told me add nuance to existing academic research into vaccine skepticism. Most studies have considered vaccine skepticism among primarily white and middle-class parents to be an outgrowth of today’s neoliberal parenting and intensive mothering. Researchers have theorized vaccine skepticism among white and well-off mothers to be an outcome of consumer health care and its emphasis on individual choice and risk reduction. Other researchers highlight vaccine skepticism as a collective identity that can provide mothers with a sense of belonging.

Seeing medical care as a threat to health

The perceptions mothers shared are far from isolated or fringe, and they are not unreasonable. Rather, they represent a growing population of Americans who hold the pervasive belief that U.S. health care harms more than it helps.

Data suggests that the number of Americans harmed in the course of treatment remains high, with incidents of medical error in the U.S. outnumbering those in peer countries, despite more money being spent per capita on health care. One 2023 study found that diagnostic error, one kind of medical error, accounted for 371,000 deaths and 424,000 permanent disabilities among Americans every year.

Studies reveal particularly high rates of medical error in the treatment of vulnerable communities, including women, people of color, disabled, poor, LGBTQ+ and gender-nonconforming individuals and the elderly. The number of U.S. women who have died because of pregnancy-related causes has increased substantially in recent years, with maternal death rates doubling between 1999 and 2019.

The prevalence of medical harm points to the relevance of philosopher Ivan Illich’s manifesto against the “disease of medical progress.” In his 1982 book “Medical Nemesis,” he insisted that rather than being incidental, harm flows inevitably from the structure of institutionalized and for-profit health care itself. Illich wrote, “The medical establishment has become a major threat to health,” and has created its own “epidemic” of iatrogenic illness – that is, illness caused by a physician or the health care system itself.

Four decades later, medical mistrust among Americans remains alarmingly high. Only 23% of Americans express high confidence in the medical system. The United States ranks 24th out of 29 peer high-income countries for the level of public trust in medical providers.

For people like the mothers I interviewed, who have experienced real or perceived harm at the hands of medical providers; have felt belittled, dismissed or disbelieved in a doctor’s office; or spent countless hours fighting to pay for, understand or use health benefits, skepticism and distrust are rational responses to lived experience. These attitudes do not emerge solely from ignorance, conspiracy thinking, far-right extremism or hysteria, but rather the historical and ongoing harms endemic to the U.S. health care system itself.

Johanna Richlin does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

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Government

Is the National Guard a solution to school violence?

School board members in one Massachusetts district have called for the National Guard to address student misbehavior. Does their request have merit? A…

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Every now and then, an elected official will suggest bringing in the National Guard to deal with violence that seems out of control.

A city council member in Washington suggested doing so in 2023 to combat the city’s rising violence. So did a Pennsylvania representative concerned about violence in Philadelphia in 2022.

In February 2024, officials in Massachusetts requested the National Guard be deployed to a more unexpected location – to a high school.

Brockton High School has been struggling with student fights, drug use and disrespect toward staff. One school staffer said she was trampled by a crowd rushing to see a fight. Many teachers call in sick to work each day, leaving the school understaffed.

As a researcher who studies school discipline, I know Brockton’s situation is part of a national trend of principals and teachers who have been struggling to deal with perceived increases in student misbehavior since the pandemic.

A review of how the National Guard has been deployed to schools in the past shows the guard can provide service to schools in cases of exceptional need. Yet, doing so does not always end well.

How have schools used the National Guard before?

In 1957, the National Guard blocked nine Black students’ attempts to desegregate Central High School in Little Rock, Arkansas. While the governor claimed this was for safety, the National Guard effectively delayed desegregation of the school – as did the mobs of white individuals outside. Ironically, weeks later, the National Guard and the U.S. Army would enforce integration and the safety of the “Little Rock Nine” on orders from President Dwight Eisenhower.

Three men from the mob around Little Rock’s Central High School are driven from the area at bayonet-point by soldiers of the 101st Airborne Division on Sept. 25, 1957. The presence of the troops permitted the nine Black students to enter the school with only minor background incidents. Bettmann via Getty Images

One of the most tragic cases of the National Guard in an educational setting came in 1970 at Kent State University. The National Guard was brought to campus to respond to protests over American involvement in the Vietnam War. The guardsmen fatally shot four students.

In 2012, then-Sen. Barbara Boxer, a Democrat from California, proposed funding to use the National Guard to provide school security in the wake of the Sandy Hook school shooting. The bill was not passed.

More recently, the National Guard filled teacher shortages in New Mexico’s K-12 schools during the quarantines and sickness of the pandemic. While the idea did not catch on nationally, teachers and school personnel in New Mexico generally reported positive experiences.

Can the National Guard address school discipline?

The National Guard’s mission includes responding to domestic emergencies. Members of the guard are part-time service members who maintain civilian lives. Some are students themselves in colleges and universities. Does this mission and training position the National Guard to respond to incidents of student misbehavior and school violence?

On the one hand, New Mexico’s pandemic experience shows the National Guard could be a stopgap to staffing shortages in unusual circumstances. Similarly, the guards’ eventual role in ensuring student safety during school desegregation in Arkansas demonstrates their potential to address exceptional cases in schools, such as racially motivated mob violence. And, of course, many schools have had military personnel teaching and mentoring through Junior ROTC programs for years.

Those seeking to bring the National Guard to Brockton High School have made similar arguments. They note that staffing shortages have contributed to behavior problems.

One school board member stated: “I know that the first thought that comes to mind when you hear ‘National Guard’ is uniform and arms, and that’s not the case. They’re people like us. They’re educated. They’re trained, and we just need their assistance right now. … We need more staff to support our staff and help the students learn (and) have a safe environment.”

Yet, there are reasons to question whether calls for the National Guard are the best way to address school misconduct and behavior. First, the National Guard is a temporary measure that does little to address the underlying causes of student misbehavior and school violence.

Research has shown that students benefit from effective teaching, meaningful and sustained relationships with school personnel and positive school environments. Such educative and supportive environments have been linked to safer schools. National Guard members are not trained as educators or counselors and, as a temporary measure, would not remain in the school to establish durable relationships with students.

What is more, a military presence – particularly if uniformed or armed – may make students feel less welcome at school or escalate situations.

Schools have already seen an increase in militarization. For example, school police departments have gone so far as to acquire grenade launchers and mine-resistant armored vehicles.

Research has found that school police make students more likely to be suspended and to be arrested. Similarly, while a National Guard presence may address misbehavior temporarily, their presence could similarly result in students experiencing punitive or exclusionary responses to behavior.

Students deserve a solution other than the guard

School violence and disruptions are serious problems that can harm students. Unfortunately, schools and educators have increasingly viewed student misbehavior as a problem to be dealt with through suspensions and police involvement.

A number of people – from the NAACP to the local mayor and other members of the school board – have criticized Brockton’s request for the National Guard. Governor Maura Healey has said she will not deploy the guard to the school.

However, the case of Brockton High School points to real needs. Educators there, like in other schools nationally, are facing a tough situation and perceive a lack of support and resources.

Many schools need more teachers and staff. Students need access to mentors and counselors. With these resources, schools can better ensure educators are able to do their jobs without military intervention.

F. Chris Curran has received funding from the US Department of Justice, the Bureau of Justice Assistance, and the American Civil Liberties Union for work on school safety and discipline.

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Spread & Containment

Chinese migration to US is nothing new – but the reasons for recent surge at Southern border are

A gloomier economic outlook in China and tightening state control have combined with the influence of social media in encouraging migration.

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Chinese migrants wait for a boat after having walked across the Darien Gap from Colombia to Panama. AP Photo/Natacha Pisarenko

The brief closure of the Darien Gap – a perilous 66-mile jungle journey linking South American and Central America – in February 2024 temporarily halted one of the Western Hemisphere’s busiest migration routes. It also highlighted its importance to a small but growing group of people that depend on that pass to make it to the U.S.: Chinese migrants.

While a record 2.5 million migrants were detained at the United States’ southwestern land border in 2023, only about 37,000 were from China.

I’m a scholar of migration and China. What I find most remarkable in these figures is the speed with which the number of Chinese migrants is growing. Nearly 10 times as many Chinese migrants crossed the southern border in 2023 as in 2022. In December 2023 alone, U.S. Border Patrol officials reported encounters with about 6,000 Chinese migrants, in contrast to the 900 they reported a year earlier in December 2022.

The dramatic uptick is the result of a confluence of factors that range from a slowing Chinese economy and tightening political control by President Xi Jinping to the easy access to online information on Chinese social media about how to make the trip.

Middle-class migrants

Journalists reporting from the border have generalized that Chinese migrants come largely from the self-employed middle class. They are not rich enough to use education or work opportunities as a means of entry, but they can afford to fly across the world.

According to a report from Reuters, in many cases those attempting to make the crossing are small-business owners who saw irreparable damage to their primary or sole source of income due to China’s “zero COVID” policies. The migrants are women, men and, in some cases, children accompanying parents from all over China.

Chinese nationals have long made the journey to the United States seeking economic opportunity or political freedom. Based on recent media interviews with migrants coming by way of South America and the U.S.’s southern border, the increase in numbers seems driven by two factors.

First, the most common path for immigration for Chinese nationals is through a student visa or H1-B visa for skilled workers. But travel restrictions during the early months of the pandemic temporarily stalled migration from China. Immigrant visas are out of reach for many Chinese nationals without family or vocation-based preferences, and tourist visas require a personal interview with a U.S. consulate to gauge the likelihood of the traveler returning to China.

Social media tutorials

Second, with the legal routes for immigration difficult to follow, social media accounts have outlined alternatives for Chinese who feel an urgent need to emigrate. Accounts on Douyin, the TikTok clone available in mainland China, document locations open for visa-free travel by Chinese passport holders. On TikTok itself, migrants could find information on where to cross the border, as well as information about transportation and smugglers, commonly known as “snakeheads,” who are experienced with bringing migrants on the journey north.

With virtual private networks, immigrants can also gather information from U.S. apps such as X, YouTube, Facebook and other sites that are otherwise blocked by Chinese censors.

Inspired by social media posts that both offer practical guides and celebrate the journey, thousands of Chinese migrants have been flying to Ecuador, which allows visa-free travel for Chinese citizens, and then making their way over land to the U.S.-Mexican border.

This journey involves trekking through the Darien Gap, which despite its notoriety as a dangerous crossing has become an increasingly common route for migrants from Venezuela, Colombia and all over the world.

In addition to information about crossing the Darien Gap, these social media posts highlight the best places to cross the border. This has led to a large share of Chinese asylum seekers following the same path to Mexico’s Baja California to cross the border near San Diego.

Chinese migration to US is nothing new

The rapid increase in numbers and the ease of accessing information via social media on their smartphones are new innovations. But there is a longer history of Chinese migration to the U.S. over the southern border – and at the hands of smugglers.

From 1882 to 1943, the United States banned all immigration by male Chinese laborers and most Chinese women. A combination of economic competition and racist concerns about Chinese culture and assimilability ensured that the Chinese would be the first ethnic group to enter the United States illegally.

With legal options for arrival eliminated, some Chinese migrants took advantage of the relative ease of movement between the U.S. and Mexico during those years. While some migrants adopted Mexican names and spoke enough Spanish to pass as migrant workers, others used borrowed identities or paperwork from Chinese people with a right of entry, like U.S.-born citizens. Similarly to what we are seeing today, it was middle- and working-class Chinese who more frequently turned to illegal means. Those with money and education were able to circumvent the law by arriving as students or members of the merchant class, both exceptions to the exclusion law.

Though these Chinese exclusion laws officially ended in 1943, restrictions on migration from Asia continued until Congress revised U.S. immigration law in the Hart-Celler Act in 1965. New priorities for immigrant visas that stressed vocational skills as well as family reunification, alongside then Chinese leader Deng Xiaoping’s policies of “reform and opening,” helped many Chinese migrants make their way legally to the U.S. in the 1980s and 1990s.

Even after the restrictive immigration laws ended, Chinese migrants without the education or family connections often needed for U.S. visas continued to take dangerous routes with the help of “snakeheads.”

One notorious incident occurred in 1993, when a ship called the Golden Venture ran aground near New York, resulting in the drowning deaths of 10 Chinese migrants and the arrest and conviction of the snakeheads attempting to smuggle hundreds of Chinese migrants into the United States.

Existing tensions

Though there is plenty of precedent for Chinese migrants arriving without documentation, Chinese asylum seekers have better odds of success than many of the other migrants making the dangerous journey north.

An estimated 55% of Chinese asylum seekers are successful in making their claims, often citing political oppression and lack of religious freedom in China as motivations. By contrast, only 29% of Venezuelans seeking asylum in the U.S. have their claim granted, and the number is even lower for Colombians, at 19%.

The new halt on the migratory highway from the south has affected thousands of new migrants seeking refuge in the U.S. But the mix of push factors from their home country and encouragement on social media means that Chinese migrants will continue to seek routes to America.

And with both migration and the perceived threat from China likely to be features of the upcoming U.S. election, there is a risk that increased Chinese migration could become politicized, leaning further into existing tensions between Washington and Beijing.

Meredith Oyen does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

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