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Inflation Hysteria #2 (Slack-edotes)

Macroeconomic slack is such an easy, intuitive concept that only Economists and central bankers (same thing) could possibly mess it up. But mess it up they have. Spending years talking about a labor shortage, and getting the financial media to report…

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Macroeconomic slack is such an easy, intuitive concept that only Economists and central bankers (same thing) could possibly mess it up. But mess it up they have. Spending years talking about a labor shortage, and getting the financial media to report this as fact, those at the Federal Reserve, in particular, pointed to this as proof QE and ZIRP had fulfilled the monetary policy mandates – both of them.

A labor shortage would’ve meant full or maximum employment, the absolute best any economy can imagine. Given the huge economic hole the first Global Financial Crisis had created (How was it global, again? Why did this get so bad in 2008 of all years?), the inflationary pressures presumed from a sizable labor shortage would have been a welcome development.

The end of macro slack, meaning inflation as the definitive sign of full, complete recovery. Employment to its maximum possible. An economy so good, companies would have to robustly compete for workers.

And it never once happened. No matter how many times whichever high Fed official talked like it was a foregone conclusion, it was obvious at those times they were either wrong or being disingenuous (managing sometimes to be both). There never was a labor shortage as you could tell by the fact wages weren’t rising too fast, let alone in any danger of skyrocketing.

Instead, the media was filled with anecdotes about how businesses were being “forced” to “compete” for “scarce” labor using…piddly perks? Huh? Silly and stupid, no logic or rational analysis was behind any of this. It really deserved every last exclamation point in:

LABOR SHORTAGE!!!!

It was, of course, another key cog fitting out Inflation Hysteria #1. I wrote back in early July 2018 how it was never anything other than really desperate rationalizing:

That’s the second and largest problem about these anecdotes. They shouldn’t be necessary at all. If the unemployment rate was even close to a valid measure of the actual economic condition in the labor market, the data would be uniformly corroborating. That’s what would have filled out these stories instead of anecdotes. In the absence of data we are given stories that are blatantly reaching…The result is an explosion not in wages and income but stories about a labor shortage that doesn’t actually exist. Job growth over the last decade hasn’t even kept pace with the population.

As I’d written so many times, there never was any need to get creative to find workers. You want them, really want them because business is truly booming, you pay them. It really is that simple.

At times when labor is easy to come by, because macro slack has made workers widely available since they are otherwise idle and waiting to find work, wages aren’t going to move much therefore deflationary, at the very least disinflationary, pressures predominate. During these same times, companies are stressed to avoid paying the workers they have. Thus, perks not pay.

It’s not really about consumer prices.




Long after the fact, well past the labor-shortage-that-never-was, even the screechers at the Federal Reserve admit that something wasn’t right about the whole thing. They’re still trying to figure these things out when, again, there’s no reason to complicate it.

Macro slack. End of story.

And it’s the same one behind what’s now Inflation Hysteria #2. Supposedly what didn’t happen two and three years ago will happen next year, next week, tomorrow. Some claim it’s already begun.

Phooey.

There’s nary a lick of inflationary pressures evident anywhere. And, like everything else in these two periods, there’s even less of them here in #2 than what little had been uncovered during #1. So much less.

Let’s start with the key component to the deflationary evils: the labor market. Jobless claims – unlike fuzzy anecdotal tales of a labor shortage – haven’t steered us wrong. In 2020, especially since June, they’ve correctly identified what’s become a summer-autumn slowdown. Not just a slowing of the rebound, but done so in a way that makes it all but impossible to lead into inflationary excesses.

Not when so much labor is involuntarily slacking off. According to the Department of Labor, initial jobless claims exploded higher last week, rising to 853,000 from what had been near a recent low of (revised) 716,000. The “excess” weekly claims are literally off the chart when they should be consistently, significantly dropping week after week.

Huge slack.




Even worse, more deflationary still, as you can see above a good chunk of those still unemployed have exhausted their regular state payments and are now dependent upon the federal politics of pandemic claims just to have anything coming in.

The economy at a standstill, one that is described not by ridiculous mainstream media fiction but in one data series after another (after another), stalled out in a hole that for the labor market is significantly greater than its deepest point during the Great “Recession.” And that’s eight months into this latest recession, six months after reopening and supposedly recovery.

Unsurprisingly, the various consumer price indices have joined the slowdown/stall-out chorus singing in dark tones about this very evident and destructive macro slack. The US CPI, despite oil prices rising, its headline rate managed to decelerate a single bip during November 2020. Up just 1.17% year-over-year, it’s less than the 1.18% put up during October.

The core CPI rate was just 1.65% last month, four bips higher than October’s 1.61% but remaining among the lowest rates of the entire series history (and that goes for other “core” measure, like services less rent).




But that’s not what Inflation Hysteria #2 is really about. Like Inflation Hysteria #1, it’s all about tomorrow because there’s no data for tomorrow. You can make next week and next month into pretty much anything you like. What’s at issue is always how plausible your future scenario might ever be.

Thus, when Inflation Hysteria #1 turned to absurd anecdotal stories about a LABOR SHORTAGE!!!! which would, at some always distant forward point, lead to this inflationary recovery stuff you already knew it was bogus. If it had been anywhere close to a realistic chance, there’d have been some corroborating data supporting the unemployment rate setting up that accelerating trajectory.

Now, as we’ve said all week, there isn’t even a fraction of it for Inflation Hysteria #2. Most of all a labor market still experiencing more – not less – slack and destructive tendencies. All the ungodly, massive, inflationary monetary and fiscal “stimulus” so far have done little to bend the summer slowdown back up in the “V” direction.

Trillions of feds and Fed, nary a sniff of inflation. Only ongoing disinflation.

More will suddenly work?

So, Inflation Hysteria #1 leaned heavily on the LABOR SHORTAGE!!!! which didn’t exist. Inflation Hysteria #2, way short of even that, is constructed instead upon STIMULUS SHORTAGE!!!! before it can ever hope to get near a fake labor shortage which hadn’t done it back then. Good luck with that. 


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New ways to protect food crops from climate change and other disruptions

“There’s no doubt we can produce enough food for the world’s population – humanity is strategic enough to achieve that. The question is whether…

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“There’s no doubt we can produce enough food for the world’s population – humanity is strategic enough to achieve that. The question is whether – because of war and conflict and corruption and destabilization – we do,” said World Food Programme leader David Beasley in an interview with Time magazine earlier this year.    

Credit: NMBU

“There’s no doubt we can produce enough food for the world’s population – humanity is strategic enough to achieve that. The question is whether – because of war and conflict and corruption and destabilization – we do,” said World Food Programme leader David Beasley in an interview with Time magazine earlier this year.    

Indeed, projections show that we are not on track to achieve Sustainable Development Goal 2 of Zero Hunger by 2030. As climate and security crises continue to destabilise our food sources, researchers are taking a critical look not just at how we produce food – but at the entire systems behind our food supplies. In this case, the systems behind the seeds that produce our food crops.    

“Whilst adapting crops to climate change and conserving their variation is essential for food security, these measures are meaningless if farmers do not have access to the seeds,” says crop scientist and food system expert Ola Westengen. Westengen leads the team of researchers from the Norwegian University of Life Sciences (NMBU) who recently reviewed the state of seed systems for small-holder farmers in low/middle income countries. Their findings are now published in the Proceedings of the National Academy of Sciences (PNAS).   

What are seed systems?    

Seed systems are the provision, management and distribution of seeds. They cover the entire seed chain, from the conservation of their diversity and variety development, to their production and distribution, and the rules that govern these activities.  In short, they are the structures that make seeds available to farmers so that crops can be sown, harvested and end up on our plates.    

Whilst a well-functioning seed system will ensure seed security for all farmers, the researchers say that, in practice, it is rarely the case that seed systems function as well as they might. Seed systems can be disrupted by conflict and disasters, as well as by problems stemming from social inequality, lack of coordination or inappropriate policies.      

What does this study tell us that we don’t already know?   

“There are recent innovations and investments by governments and donors to improve farmers’ access to diverse crop varieties and quality seeds,” explains Teshome Hunduma, a seed governance researcher and co-author of the study. “For example, there are now more flexible policies and regulations that encourage diversity in the seed systems used by farmers, rather than pushing farmers to switch to commercial seed systems that focus on less diverse commodity crops – which is the norm.” Commodity crops are those grown in large volume and high intensity for the purpose of sale, as opposed to those grown by small-holder farmers for direct processing and consumption.   

“The study highlights emerging initiatives that are helping farmers to secure food supplies, such as participatory plant breeding,” says Teshome. Participatory plant breeding is the development and selection of new crop varieties where the farmers are in control. Farmers, who know the needs of their farms best, work with researchers and others to improve crops and develop plant varieties that are in line with their household needs and culture, and that are resilient to environmental and climate challenges.    

“Farmers prefer and need different types of seeds, based on diverse social, cultural and ecological conditions,” adds ethnobotanist and co-author Sarah Paule Dalle.       

The study discusses various disruptions to farmer’s access to seeds. Social inequality is one such disruption. How so?   

“A seed system that only serves a segment of a farming society contributes to seed insecurity,” replies Teshome. “For example, commercial seed systems deliver high-yielding varieties of quality hybrid seeds. Whilst wealthy farmers can afford such seeds, poor farmers can’t.”    

“Similarly, whilst commercial seed systems that focus on commodity crops may benefit men who might primarily be interested in market value, such systems have little to offer women who want crops that provide household nutrition and meet their cultural preferences.”   

“This means poor farmers and women do not have the same access to seeds that meet their needs. The result is seed, and thus food, insecurity due to social and economic inequality.”     

Political-economic factors have driven the globalization of food systems over the last decades, which also includes seed systems. “Seeds have become big business”, say the researchers. According to studies quoted in the article, the four largest multinational companies in seed trade today control about 60% of the ~50 billion USD global commercial seed market. The large private actors have the power not only to shape markets, but also to influence science and innovation agendas and policy frameworks.     

This can be problematic, say the researchers, when private sector research and development typically focuses on the most profitable crops, such as maize and soy. Crops grown and consumed by subsistence farmers are thus largely neglected, and the potential of crop diversity – the foundation of agriculture – remains largely untapped. Technology that could help develop more robust varieties remains hypothetical.   

How does the ownership of crop diversity threaten food supplies and what can be done?      

The term crop diversity refers both to different crops and different varieties of a crop. According to the Global Crop Diversity Trust (one of the world’s primary international organizations on crop diversity conservation), securing and making available the world’s crop diversity is essential for future food and nutrition security.      

“Plant breeders and scientists use crop diversity to develop new, more resilient and productive varieties that consumers want to eat, that are nutritious and tasty, and that are adapted to local preferences, environments and challenges,” explains Benjamin Kilian, a plant genetics expert at the Global Crop Diversity Trust. The Crop Trust, together with the Norwegian University of Life Sciences, implements the major project from which this study emerged: Biodiversity for Opportunities, Livelihoods and Development (BOLD). Coordinated by Kilian, the project supports the conservation and use of crop diversity to strengthen food and nutrition security on a global scale. It builds on the Crop Wild Relatives project and is funded by the Norwegian government.   

“In the BOLD project, researchers work with genebanks, plant breeders and others in the seed value chain to co-develop seed systems that are both resilient to climate stresses and inclusive of small-holder farmers on the frontline of adaptation,” adds Westengen.     

Will access to seeds in the vulnerable areas that you are studying be improved in time to make a difference?   

“We hope so, if we make the right moves to include small-holder farmers in seed system development,” says Dalle. “A well-functioning seed system should also be resilient. That is, it should withstand shocks such as drought or pandemics and breakdowns or disruptions such as war and conflict.”    

“To do this, the system should promote a diversity of seeds, both local varieties and those improved to better adapt to stresses. It should also involve diverse groups of people such as farmer cooperatives/groups, and both public and private companies to increase the choice of seeds and seed sources. During lockdowns in the COVID-19 pandemic, for example, farmers’ own seed systems enabled access to seeds in developing countries when the activities of private companies and agro-dealers were restricted,” explains Dalle.   

Westengen summarizes: “Our study highlights links between the crucial work of the Global Crop Diversity Trust and the farmers on the frontline of adapting our food systems to climate change. It is an argument for co-designing seed system development in full cooperation with farmers and other actors in the seed system. This way, efforts can meet the needs of various groups of farmers in different agroecological contexts. There is no one-size-fits-all; if there is one natural law in biology, it is that diversity is key to future evolution. That also goes for seed systems – and food system development.”   

Navigating towards resilient and inclusive seed systems by Ola T. Westengen, Sarah Paule Dalle and Teshome Hunduma Mulesa was published in Proceedings of the National Academy of Sciences (PNAS) this week. PNAS is widely considered one of the most prestigious and highly cited multidisciplinary research journals.   


About the Norwegian University of Life Sciences (NMBU)  
NMBU’s research and education enables people all over the world to tackle the big, global challenges regarding the environment, sustainable development, how to improve human and animal health, renewable energy sources, food production, and land- and resource management. 

 About the Crop Trust 
The Crop Trust is an international organization working to conserve crop diversity and thus protect global food and nutrition security. At the core of Crop Trust is an endowment fund dedicated to providing guaranteed long-term financial support to key genebanks worldwide. The Crop Trust supports the Svalbard Global Seed Vault and coordinates large-scale projects worldwide to secure crop diversity and make it available for use. The Crop Trust is recognized as an essential element of the funding strategy of the International Treaty on Plant Genetic Resources for Food and Agriculture.  

About the BOLD Project 
BOLD (Biodiversity for Opportunities, Livelihoods, and Development) is a major 10-year project to strengthen food and nutrition security worldwide by supporting the conservation and use of crop diversity. The project works with national genebanks, pre-breeding and seed system partners globally. Funded by the government of Norway, BOLD is led by the Crop Trust in partnership with the Norwegian University of Life Sciences and the International Plant Treaty. 


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Government

New IRS Report Provides Fascinating Glimpse Into Your “Fair Share”

New IRS Report Provides Fascinating Glimpse Into Your "Fair Share"

Authored by Simon Black via SovereignMan.com,

Every year the IRS publishes…

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New IRS Report Provides Fascinating Glimpse Into Your "Fair Share"

Authored by Simon Black via SovereignMan.com,

Every year the IRS publishes a detailed report on the taxes it collects. And the statistics are REALLY interesting.

A few weeks ago the agency released its most recent report. So this is the most objective, up-to-date information that exists about taxes in America.

This is important, because, these days, it’s common to hear progressive politicians and woke mobsters calling for higher income earners and wealthier Americans to pay their “fair share” of taxes.

But this report, directly from the US agency whose job it is to tax Americans, shows the truth:

The top 1% of US taxpayers paid 48% of total US income taxes.

And that’s just at the federal level, not even counting how much of the the local and state taxes the wealthy paid.

Further, the top 10% paid nearly 72% of total income taxes.

Meanwhile, the bottom 40% of US income tax filers paid no net income tax at all. And the next group, those making between $30-$50,000 per year, paid an effective rate of just 1.9%.

(Again, this is not some wild conspiracy theory; these numbers are directly from IRS data.)

But the fact that 10% of the taxpayers foot nearly three-fourths of the tax bill still isn’t enough for the progressive mob. They want even more.

The guy who shakes hands with thin air, for example, recently announced that he wants to introduce a new law that would create a minimum tax of 25% on the highest income earners.

But the government’s own statistics show that the highest income earners in America— those earning more than $10 million annually— paid an average tax rate of 25.5%. That’s higher than Mr. Biden’s 25% minimum.

So he is essentially proposing an unnecessary solution in search of a problem.

I bring this up because whenever you hear the leftist Bolsheviks in government and media talking about “fair share”, they always leave out what exactly the “fair share” is.

The top 1% already pay nearly half the taxes. Exactly how much more will be enough?

Should the top 1% pay 60% of all taxes? 80%? At what point will it be enough?

They never say. They’ll never commit to a number. They just keep expanding their thinking scope.

Elizabeth Warren, for example, quite famously stopped talking about the “top 1%” and started whining about the “top 5%”. And then the “top 10%”.

She has already decided that the top 5% of wealthy households should not be eligible for student loan forgiveness or Medicare.

And when she talks about “accountable capitalism” on her website, Warren calls out the top 10% for having too much wealth, compared to the rest of households.

Soon enough it will be the “top 25%” who are the real problem…

Honestly this whole way of thinking reminds me of Anthony “the Science” Fauci’s pandemic logic on lockdowns and mask mandates.

You probably remember how reporters always asked “the Science” when life could go back to normal… and he always replied that it was a function of vaccine uptake, i.e. whenever enough Americans were vaccinated.

But then he kept moving the goal posts. 50%. 60%. 70%. It was never enough. And there was never a concrete answer.

This same logic applies to what the “experts” believe is the “fair share” of taxes which the top whatever percent should pay.

They’ll never actually say what the fair share is. But my guess is that they won’t stop until 100% of taxes are paid by the top 10% … and the other 100% of taxes are paid by the other 90%.

Tyler Durden Wed, 03/29/2023 - 11:25

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Financial Stress Continues to Recede

Overview: Financial stress continues to recede. The Topix bank index is up for the second consecutive session and the Stoxx 600 bank index is recovering…

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Overview: Financial stress continues to recede. The Topix bank index is up for the second consecutive session and the Stoxx 600 bank index is recovering for the third session. The AT1 ETF is trying to snap a four-day decline. The KBW US bank index rose for the third consecutive session yesterday. More broadly equity markets are rallying. The advance in the Asia Pacific was led by tech companies following Alibaba's re-organization announcement. The Hang Seng rose by over 2% and the index of mainland shares rose by 2.2%. Europe's Stoxx 600 is up nearly 1% and US index futures are up almost the same. Benchmark 10-year yields are mostly 1-3 bp softer in Europe and the US.

The dollar is mixed. The Swiss franc is leading the advancers (~+0.3%) while euro, sterling and the Canadian dollar are posting small gains. The Japanese yen is the weakest of the majors (~-0.6%). The antipodeans and Scandis are also softer. A larger than expected decline in Australia's monthly CPI underscores the likelihood that central bank joins the Bank of Canada in pausing monetary policy when it meets next week. Most emerging market currencies are also firmer today, and the JP Morgan Emerging Market Currency Index is higher for the third consecutive session. Gold is softer within yesterday's $1949-$1975 range. The unexpectedly large drop in US oil inventories (~6 mln barrels according to report of API's estimate, which if confirmed by the EIA later today would be the largest drawdown in four months) is helping May WTI extend its gains above $74 a barrel. Recall that it had fallen below $65 at the start of last week.

Asia Pacific

The US dollar is knocking on the upper end of its band against the Hong Kong dollar, raising the prospect of intervention by the Hong Kong Monetary Authority. It appears to be driven by the wide rate differential between Hong Kong and dollar rates (~3.20% vs. ~4.85%). Although the HKMA tracks the Fed's rate increases, the key is not official rates but bank rates, and the large banks have not fully passed the increase. Reports suggest some of the global banks operating locally have raised rates a fraction of what HKMA has delivered. The root of the problem is not a weakness but a strength. Hong Kong has seen an inflow of portfolio and speculative capital seeking opportunities to benefit from the mainland's re-opening.  Of course, from time-to-time some speculators short the Hong Kong dollar on ideas that the peg will break. It is an inexpensive wager. In fact, it is the carry trade. One is paid well to be long the US dollar. Pressure will remain until this consideration changes. Eventually, the one-country two-currencies will eventually end, but it does not mean it will today or tomorrow. As recently as last month, the HKMA demonstrated its commitment to the peg by intervening. Pressure on the peg has been experienced since last May and in this bout, the HKMA has spent around HKD280 defending it (~$35 bln).

The US and Japan struck a deal on critical minerals, but the key issue is whether it will be sufficient to satisfy the American congress that the executive agreement is sufficient to benefit from the tax- credits embodied in the Inflation Reduction Act. The Biden administration is negotiating a similar agreement with the EU. The problem is that some lawmakers, including Senator Manchin, have pushed back that it violates the legislature's intent on the restrictions of the tax credit. Manchin previously threatened legislation that would force the issue. The US Trade Representative Office can strike a deal for a specific sector without approval of Congress, but that specific sector deal (critical minerals) cannot then meet the threshold of a free-trade agreement to secure the tax incentives. 

The Japanese yen is the weakest of the major currencies today, dragged lower by the nearly 20 bp rise in US 10-year yields this week and the end of the fiscal year related flows. Some dollar buying may have been related to the expirations of a $615 mln option today at JPY131.75. The greenback tested the JPY130.40 support we identified yesterday and rebounded to briefly trade above JPY132.00 today, a five-day high.  However, the session high may be in place and support now is seen in the JPY131.30-50 band. Softer than expected Australian monthly CPI (6.8% vs. 7.4% in January and 7.2% median forecast in Bloomberg's survey) reinforced ideas that the central bank will pause its rate hike cycle next week. The Australian dollar settled near session highs above $0.6700 in North America yesterday and made a margin new high before being sold. It reached a low slightly ahead of $0.6660 in early European turnover. The immediate selling pressure looks exhausted and a bounce toward $0.6680-90 looks likely. On the downside, note that there are options for A$680 mln that expire today at $0.6650. In line with the developments in the Asia Pacific session today, the US dollar is firmer against the Chinese yuan. However, it held below the high seen on Monday (~CNY6.8935). The dollar's reference rate was set at CNY6.8771, a bit lower than the median projection in Bloomberg's forecast (~CNY6.8788). The sharp decline in the overnight repo to its lowest since early January reflect the liquidity provisions by the central bank into the quarter-end.

Europe

Reports suggest regulators are finding that one roughly 5 mln euro trade on Deutsche Bank's credit-default swaps last Friday, was the likely trigger of the debacle. The bank's market cap fell by1.6 bln euros and billions more off the bank share indices. Then there is the US Treasury market, where the measure of volatility (MOVE) has softened slightly from last week when it rose to the highest level since the Great Financial Crisis. While the wide intraday ranges of the US two-year note have been noted, less appreciated are the large swings in the German two-year yield. Before today, last session with less than a 10 bp range was March 8. In the dozen sessions since, the yield has an average daily range of around 27 bp. The rapid changes and opaque liquidity in some markets leading to dramatic moves challenges the price discovery process. The speed of movement seems to have accelerated, and reports that Silicon Valley Bank lost $40 bln of deposits in a single day.

Italy's Meloni government will tap into a 21 bln euro reserve in the budget to give a three-month extension of help to low-income families cope with higher energy bills but eliminate it for others. It is projected to cost almost 5 billion euros. The energy subsidies have cost about 90 mln euros. Most Italian families are likely to see higher energy bills, though gas will still have a lower VAT. Meloni also intends to adjust corporate taxes to better target them and cost less. Separately, the government is reportedly considering reducing or eliminating the VAT on basic food staples. Meanwhile, the EU is delaying a 19 bln euro distribution to Italy from the pandemic recovery fund. The aid is conditional on meeting certain goals. The EU is extending its assessment phase to review a progress on a couple projects, licensing of port activities, and district heating. These are tied to the disbursement for the end of last year. The EU acknowledged there has been "significant" progress. Italy has received about a third of the 192 bln euros earmarked for it. Despite the volatile swings in the yields, Italy's two-year premium over Germany is within a few basis points of the Q1 average (~46 bp). The same is true of the 10-year differential, which has averaged about 187 bp this year. 

After slipping lower in most of the Asia Pacific session, the euro caught a bid late that carried into the European session and lifted it to session highs near $1.0855. The session low was set slightly below $1.0820 and there are nearly 1.6 bln euros in option expirations today between two strikes ($1.0780 and $1.0800). Recall that on two separate occasions last week, the euro be repulsed from intraday moves above $1.09. A retest today seems unlikely, but the price actions suggest underlying demand. Sterling has also recovered from the slippage seen early in Asia that saw it test initial support near $1.2300. Yesterday, it took out last week's high by a few hundredths of a cent, did so again today rising to slightly above $1.2350. However, here too, the intraday momentum indicators look stretched, cautioning North American participants from looking for strong follow-through buying.

America

What remains striking is the divergence between the market and the Federal Reserve. On rates they are one way. Fed Chair Powell was unequivocal last week. A pause had been considered, but no one was talking about a rate cut this year. The market is pricing in a 4.72% average effective Fed funds rate in July. On the outlook for the economy this year, they are the other way. The median Fed forecast was for the economy to grow by 0.4% this year. The median forecast in Bloomberg's survey anticipated more than twice the growth and projects 1.0% growth this year. As of the end of last week, the Atlanta Fed sees the US expanding by 3.2% this quarter (it will be updated Friday). The median in Bloomberg's survey is half as much. 

The US goods deficit in February was a little more than expected and some of the imports appeared to have gone into wholesale inventories, which unexpectedly rose (0.2% vs. -0.1% median forecast in Bloomberg's survey). Retail inventories jumped 0.8%, well above the 0.2% expected and biggest increase since last August. Given the strength of February retail sales (0.5% for the measure that excludes autos, gasoline, food services and building materials, after a 2.3% rise in January), the increase in retail inventories was likely desired. FHFA houses prices unexpectedly rose in January (first time in three months, leaving them flat over the period). S&P CoreLogic Case-Shiller's measure continued to slump. It has not risen since last June. The Conference Board's measure of consumer confidence rose due to the expectations component. This contrasts with the University of Michigan's preliminary estimate that showed the first decline in four months. Moreover, when its final reading is announced at the end of the week, the risk seems to be on the downside, according to the Bloomberg survey. Meanwhile, surveys have shown that the service sector has been faring better than the manufacturing sector. However, the decline in the Richman Fed's business conditions, while its manufacturing survey improved, coupled with the sharp decline in the Dallas Fed's service activity index may be warning of weakness going into Q2.

The US dollar flirted with CAD1.38 at the end of last week is pushing through CAD1.36 today to reach its lowest level since before the banking stress was seen earlier this month. The five-day moving average has crossed below the 20-day moving average for the first time since mid-February. Canada's budget announced late yesterday boosts the deficit via new green initiatives and health spending, while raising taxes, including a new tax on dividend income for banks and insurance companies from Canadian companies. The market appears to be still digesting the implications. Today's range has thus far been too narrow to read much into it. The greenback has traded between roughly CAD1.3590 and CAD1.3615. On the other hand, the Mexican peso has continued to rebound from the risk-off drop that saw the US dollar surge above MXN19.23 (March 20). The dollar is weaker for fifth consecutive session and seventh of the last nine. It finished last week near MXN18.4450 and fell to about MXN18.1230 today, its lowest level since March 9. However, the intraday momentum indicators are stretched, and the greenback looks poised to recover back into the MXN18.20-25 area. Banxico meets tomorrow and is widely expected to hike its overnight target rate by a quarter-of-a-point to 11.25%.

 


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