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Investors are Skeptical that the Fed can Achieve a Soft-Landing. Can the BOE do Better?

Overview:  The markets continue to digest the implications of yesterday’s Fed move and Beijing’s signals of more economic supportive efforts as the Bank…

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Overview:  The markets continue to digest the implications of yesterday's Fed move and Beijing's signals of more economic supportive efforts as the Bank of England's move awaited.  The US 5–10-year curve is straddling inversion and the 2-10 curve has flattened as the Fed moves from one horn of the dilemma (behind the inflation curve) to the other horn (recession fears).  Asia Pacific equities extended yesterday's surge.  The Hang Seng led the charge with a 6.7% gain.  Taiwan's benchmark rose 3% and the Nikkei gained 2.5%.  Europe's Stoxx 600 is posting small gains and US futures are paring yesterday's late gains.  The US 10-year yield is near 2.11% after poking briefly above 2.2% yesterday.  European bond yields are mostly 2-3 bp lower.  The Hong Kong Monetary Authority and Saudi Arabia hiked 25 bp too as their currency pegs required.  The dollar initially rallied on the Fed statement but unwound the gains during the Chair Powell's press conference.  It is lower against most currencies today.  The Australian dollar is the strongest of the majors, helped by better-than-expected jobs report.  The emerging market currencies are led today by the South Korean won, whose gains appeared to be fueled by strong demand for its bonds today.  Gold traded below $1900 yesterday before recovering.  That recovery is being extended today and the yellow metal is near $1944. There may be potential toward $1962 in the next day or two.  April WTI appears to have forged a base around $93-$94 and is trying to test $100.  US natgas is firm after yesterday's 4% gain.  Europe's natgas benchmark is recouping half of yesterday's 6.7% decline.  Iron ore eased after jumping 8.5% yesterday.  Copper is extending yesterday's gains and is up about 1.4%.  May wheat is consolidating after falling near 7.5% yesterday. 

Asia Pacific

China has underscored the shift from structural reforms to growth, which many market observers had already detected.  However, investors now need to see the proof of the pudding, so to speak, which is to say policy adjustments.  It could happen with the setting of the loan prime rates on Monday in Beijing, but more observers are talking about a cut in reserve requirements in the coming weeks.  

Australia employment rose 77.4k, more than twice the median forecast in Bloomberg's survey.  The details were even stronger.  Full-time positions rose by nearly 122k last month after a revised 6.1k decline in January (originally it fell by 17k).  The unemployment rate fell to 4.0% from 4.2%, even though the participation rate rose to 66.4% from 66.2%.  Australia’s short-term bond yields rose 3-4 bp as the data brought forward an RBA rate hike.  The odds of a move at the end of Q2 has increased.  

The BOJ meeting concludes tomorrow and standing pat will underscore the growing divergence with the US and others' monetary policy.  The fiscal year end is approaching, and Japanese purchases/sales of foreign bonds and stocks remains subdued, but foreign investors for the second week have been significant sellers of Japanese stocks and buyers of Japanese bonds. 

The dollar rose slightly through JPY119.10 yesterday and is consolidating below that today.  The JPY118.60, which we targeted last week, now offers support. Note that the upper Bollinger Band comes in today near JPY118.70. The Australian dollar jumped 1.35% yesterday, its largest rise since early November 2020.  It is extending the gains today and is approaching the (61.8%) retracement objective of the decline since it reached $0.7440 earlier this month.  That retracement objective is near $0.7335. and above there, last week's high near $0.7375 may draw attention. Recall that the greenback gapped higher against the Chinese yuan on Monday and Tuesday.  It filled Tuesday's gap yesterday and entered Monday's gap today without filling it.  The bottom of the gap is just below CNY6.34. The PBOC set the dollar's reference rate at CNY6.3406. The median projection in Bloomberg's survey was for CNY6.3360.  

Europe

The Bank of England is awaited. The swaps market has about a 1-in-4 chance that it delivers a 50 bp move today, with odds-on favorite scenario of a 25 bp move.  The BOE is likely to raise its inflation outlook, and this will serve to underscore the policy path.  Today's move will be the third hike in a row and will bring the base rate up to where it was before the pandemic struck.  A 25 bp increase will bring the base rate to 0.75%.  When it reaches 1.0% (May), the BOE has said it could (but not will) reduce its balance sheet more actively by selling securities rather than just passively through not re-investing maturing proceeds.  

The Governor of Sweden's Riksbank indicated that its first rate hike will likely be delivered before the second half of 2024, which it had previously anticipated.  Ingves warned that inflation was too high.  Using fixed mortgage rates, the underlying inflation stood at 4.3% in February, and the core underlying rate, which excludes energy is at 3.4%. The next Riksbank meeting is late next month, but the focus of the first hike is now in September.  

The US says that the sanctions on Russia do not prohibit Moscow from servicing its dollar debt until May. Russia, trying to conserve its hard currency reserves that it has access to, has also made this more difficult and many expect a default in Q2.  Separately, note that India, which abstained in the UN vote condemning the Russian invasion, appears to be exercising an option in an earlier agreement to buy more Russian oil.   Russian oil is trading, as one would imagine, as a deep discount, and Russia covers shipping and insurance costs. The White House press secretary indicated that India's purchases are not violating US sanctions.  

The euro reached a five-day high in early European turnover today, slightly above $1.1065.  Last week's high was near $1.1120.  Ahead of that is the 20-day moving average around $1.1095.  Recall that in response to the Fed's statement yesterday, the euro recorded session lows by $1.0950 before recovering to new session highs.   We suspect the high for the day may have been approached, with initial support now pegged in the $1.1000-$1.1020 band.  When the euro was on its lows yesterday, sterling dipped below $1.3050 and then reversed higher to rally a cent.  Those gains were extended today to $1.3190.  Sterling also looks poised for a buy the rumor sell the fact type of trading like the dollar did yesterday in response to the Fed.  Initial support is seen near $1.3150 and then $1.3100. 

America

The dollar typically rallies ahead of the first Fed hike in recent cycles and then weakens as tightening phase progresses.  Research from the Bank of International Settlements finds an average decline of a little more than 4%.  Part of the reason may stem from the Fed's inability to achieve the proverbial "soft-landing" to bring down inflation without inducing a recession.  Many are skeptical that a soft-landing can be achieved now, in part because the Fed waited too long to halt the asset purchases.  And despite the drama when "transitory" was jettisoned from Fed-speak about inflation, the Fed's new forecasts show that is still the median case.  The PCE deflator stood at 6.1% in January, and the median Fed forecast sees it at 4.3% at the end of this year and 2.7% next year, and 2.3% in 2024.  Moreover, many observers are also finding it hard to reckon the Fed's tightening pace and slower GDP with the median dot seeing unemployment at 3.5% this year and next.  

The Fed meeting probably reduces the focus on today's high-frequency data, which includes industrial production, housing starts and permits, weekly jobless claims and the March Philadelphia Fed survey.  Note that after yesterday's retail sales data, the Atlanta Fed's GDPNow tracker increased its Q1 estimate to 1.2% from 0.5% (from March 8).  For many, like ourselves, that see the odds high of a recession, we do not see the contraction as imminent, but perhaps beginning late this year or, more likely a 2023 story.  

Canada's February CPI reported yesterday was stronger than expected at 5.7% (median forecast was for 5.55) after 5.1% in January.  The average of the underlying measures also rose. The Bank of Canada meets next on April 13. The swaps market is pricing in almost a 68% chance of a 50 bp move.  The balance sheet could begin shrinking in May. 

As widely anticipated Brazil's central bank hiked the Selic Rate by 100 bp to 11.75%.  It has now hiked rates 975 bp over the past 12 months. Inflation is running above 10%.  Petrobras lifted diesel prices by 25% and this warns of more upside inflation risk. Still, a survey by the central bank found expectations for inflation to fall back to 6.45% at the end of this year and 3.7% next year. Mexico and Chile also expected to hike rates later this month (March 24 and March 29 respectively).  

The US dollar peaked on Tuesday near CAD1.2870 before reversing lower.  It continued to give back its recent gains yesterday, falling to CAD1.2675.  It continues to trade heavily and approached CAD1.2650 in the European morning. There is an option for about $325 mln at CAD1.2635 that expires today. The low from earlier this month was set near CAD1.2585 and the 200-day moving average is found slightly above CAD1.2600. The greenback's high for the month was set on March 8 against the Mexican peso a little below MXN21.47. It slipped below MXN20.60 yesterday and is in a tight range in near there today.  The month's low was recorded close to MXN20.39, a little below the 200-day moving average (~MXN20.42). The US dollar was turned back earlier this week after approaching BRL5.17.  It looks poised to rechallenge the BRL5.00 area.

*Note due to business travel, there will be no commentary tomorrow


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Spread & Containment

War, peace and security: The pandemic’s impact on women and girls in Nepal and Sri Lanka

The impacts of COVID-19 must be incorporated into women, peace and security planning in order to improve the lives of women and girls in postwar countries…

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Nepalese girls rest for observation after receiving the Moderna vaccine for COVID-19 in Kathmandu, Nepal. (AP Photo/Niranjan Shrestha)

Attention to the pandemic’s impacts on women has largely focused on the Global North, ignoring countries like Nepal and Sri Lanka, which continue to deal with prolonged effects of war. While the Nepalese Civil War concluded in 2006 and the Sri Lankan Civil War concluded in 2009, internal conflicts continue.

As scholars of gender and war, our work focuses on the United Nations Security Council Resolution 1325 on women, peace and security. And our recently published paper examines COVID-19’s impacts on women and girls in Nepal and Sri Lanka, looking at policy responses and their repercussions on the women, peace and security agenda.

COVID-19 has disproportionately and negatively impacted women in part because most are the primary family caregivers and the pandemic has increased women’s caring duties.

This pattern is even more pronounced in war-affected countries where the compounding factors of war and the pandemic leave women generally more vulnerable. These nations exist at the margins of the international system and suffer from what the World Bank terms “fragility, conflict and violence.”

Women, labour and gender-based violence

Gendered labour precarity is not new to Nepal or Sri Lanka and the pandemic has only eroded women’s already poor economic prospects.

Prior to COVID-19, Tharshani (pseudonym), a Sri Lankan mother of three and head of her household, was able to make ends meet. But when the pandemic hit, lockdowns prevented Tharshani from selling the chickens she raises for market. She was forced to take loans from her neighbours and her family had to skip meals.

Some 1.7 million women in Sri Lanka work in the informal sector, where no state employment protections exist and not working means no wages. COVID-19 is exacerbating women’s struggles with poverty and forcing them to take on debilitating debts.

Although Sri Lankan men also face increased labour precarity, due to gender discrimination and sexism in the job market, women are forced into the informal sector — the jobs hardest hit by the pandemic.

Two women sit in chairs, wearing face masks
Sri Lankan women chat after getting inoculated against the coronavirus in Colombo, Sri Lanka, in August 2021. (AP Photo/Eranga Jayawardena)

The pandemic has also led to women and girls facing increased gender-based violence.

In Nepal, between March 2020 and June 2021, there was an increase in cases of gender-based violence. Over 1,750 incidents were reported in the media, of which rape and sexual assault represented 82 per cent. Pandemic lockdowns also led to new vulnerabilities for women who sought out quarantine shelters — in Lamkichuha, Nepal, a woman was allegedly gang-raped at a quarantine facility.

Gender-based violence is more prevalent among women and girls of low caste in Nepal and the pandemic has made it worse. The Samata Foundation reported 90 cases of gender-based violence faced by women and girls of low caste within the first six months of the pandemic.

What’s next?

While COVID-19 recovery efforts are generally focused on preparing for future pandemics and economic recovery, the women, peace and security agenda can also address the needs of some of those most marginalized when it comes to COVID-19 recovery.

The women, peace and security agenda promotes women’s participation in peace and security matters with a focus on helping women facing violent conflict. By incorporating women’s perspectives, issues and concerns in the context of COVID-19 recovery, policies and activities can help address issues that disproportionately impact most women in war-affected countries.

These issues are: precarious gendered labor market, a surge in care work, the rising feminization of poverty and increased gender-based violence.

A girl in a face mask stares out a window
The women, peace and security agenda can help address the needs of some of those most marginalized. (AP Photo/Niranjan Shrestha)

Policies could include efforts to create living-wage jobs for women that come with state benefits, emergency funding for women heads of household (so they can avoid taking out predatory loans) and increasing the number of resources (like shelters and legal services) for women experiencing domestic gender-based violence.

The impacts of COVID-19 must be incorporated into women, peace and security planning in order to achieve the agenda’s aims of improving the lives of women and girls in postwar countries like Nepal and Sri Lanka.

Luna KC is a Postdoctoral Researcher at the Research Network-Women Peace Security, McGill University. This project is funded by the Government of Canada Mobilizing Insights in Defence and Security (MINDS) program.

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

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Government

CDC Announces Overhaul After Botching Pandemic

CDC Announces Overhaul After Botching Pandemic

After more than two years of missteps and backpedaling over Covid-19 guidance that had a profound…

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CDC Announces Overhaul After Botching Pandemic

After more than two years of missteps and backpedaling over Covid-19 guidance that had a profound effect on Americans' lives, the Centers for Disease Control (CDC) announced on Wednesday that the agency would undergo a complete overhaul - and will revamp everything from its operations to its culture after failing to meet expectations during the pandemic, Bloomberg reports.

Director Rochelle Walensky began telling CDC’s staff Wednesday that the changes are aimed at replacing the agency’s insular, academic culture with one that’s quicker to respond to emergencies. That will mean more rapidly turning research into health recommendations, working better with other parts of government and improving how the CDC communicates with the public. -Bloomberg

"For 75 years, CDC and public health have been preparing for Covid-19, and in our big moment, our performance did not reliably meet expectations," said Director Rochelle Walensky. "I want us all to do better and it starts with CDC leading the way.  My goal is a new, public health action-oriented culture at CDC that emphasizes accountability, collaboration, communication and timeliness."

As Bloomberg further notes, The agency has been faulted for an inadequate testing and surveillance program, for not collecting important data on how the virus was spreading and how vaccines were performing, for being too under the influence of the White House during the Trump administration and for repeated challenges communicating to a politically divided and sometimes skeptical public."

A few examples:

Walensky made the announcement in a Wednesday morning video message to CDC staff, where she said that the US has 'significant work to do' in order to improve the country's public health defenses.

"Prior to this pandemic, our infrastructure within the agency and around the country was too frail to tackle what we confronted with Covid-19," she said. "To be frank, we are responsible for some pretty dramatic, pretty public mistakes — from testing, to data, to communications."

The CDC overhaul comes on the heels of the agency admitting that "unvaccinated people now have the same guidance as vaccinated people" - and that those exposed to COVID-19 are no longer required to quarantine.

Tyler Durden Wed, 08/17/2022 - 12:22

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Economics

Why Is No One at Nike Working This Week?

And will the move gain broader acceptance among American employers?

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And will the move gain broader acceptance among American employers?

You go into an office, pull at the door and find that it doesn't give and nobody's there. 

It may sound like the start of the common rushing-to-the-office-on-a-Saturday nightmare but, more and more, collective time off is being embraced by employees as part of a push for a better work culture.

While professional social media platform LinkedIn  (MSFT) - Get Microsoft Corporation Report and dating app Bumble  (BMBL) - Get Bumble Inc. Report had already experimented with collective time off for workers, the corporate ripples truly began with Nike  (NKE) - Get Nike Inc. Report.

In August 2021, the activewear giant announced that it was giving the 11,000-plus employees at its Oregon headquarters the week off to "power down" and "destress" from stress brought on by the covid-19 pandemic.

"In a year (or two) unlike any other, taking time for rest and recovery is key to performing well and staying sane," Matt Marrazzos, Nike's senior manager of global marketing science, wrote to employees at the time.

Nike Is On Vacation Right Now

The experiment was, not exactly unexpectedly, very well-received — a year later, the company instituted its second annual "Well-Being Week." Both the corporate headquarters in Beaverton, Ore., and three Air Manufacturing design labs with over 1,500 employees are closed for a collective paid vacation from Aug. 15 to 19.

"We knew it would be impactful, but I was blown away by the feedback from our teammates [...]," Nike's Chief Human Resources Officer Monique Matheson wrote in a LinkedIn post.

"Because everyone was away at the same time, teammates said they could unplug – really unplug, without worrying about what was happening back at the office or getting anxiety about the emails piling up."

Shutterstock/TheStreet

Of course, the time off only applies to corporate employees. To keep the stores running and online orders fulfilled but not exacerbate the differences between blue and white collar workers, Nike gave its retail and distribution employees a week's worth of paid days off that they can use as they see fit.

Nike has tied the change to its commitment to prioritize mental health. In the last year, it launched everything from a "marathon of mental health" to a podcast that discusses how exercise can be used to manage anxiety and depression.

Rippling Through the Corporate World?

But as corporations are often criticized for turning mental health into positive PR without actually doing much for employees, the collective week off was perhaps the most significant thing the company did for workers' mental health.

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The practice of set office closures has long been common practice in many European countries. In France, not only corporate offices but even restaurants and retail stores empty out over the month of August for what is culturally considered sacred vacation time. 

But as American work culture prioritizes individual choice and "keeping business going" above all else, the practice has been seen as radical by many corporate heads and particularly small businesses that may find it more difficult to have such a prolonged drop in business. 

But in many ways, the conversations mirror some companies' resistance to remote work despite the fact that one-fourth of white-collar jobs in the U.S. are expected to be fully remote by 2023

"This is the kind of perk that makes employees want to stay," industry analyst Shep Hyken wrote in a comment for RetailWire. "And knowing they can’t completely shut the entire company down, I like the way they are compensating the distribution and retail store employees."

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