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Key Events This Week: Fed, BOJ, BOE

Key Events This Week: Fed, BOJ, BOE

An event-packed week, with a barrage of central bank announcements on deck, will kick off with a quiet,…

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Key Events This Week: Fed, BOJ, BOE

An event-packed week, with a barrage of central bank announcements on deck, will kick off with a quiet, solemn, start, as the UK is closed for the Queen’s funeral. Japan is also out on holiday. Looking forward, however, DB's Tim Wessel reminds us that the postponed BoE meeting will nudge its way into an already packed central bank meeting schedule which includes the BoJ, SNB, Riksbank, Norgesbank, and of course, the Fed. Needless to say, monetary policy will be in focus this week.

On the Fed, market pricing is now largely a consensus that the Fed will deliver a 75bp hike on Wednesday, having decayed from last week’s peaks after the stronger than expected CPI data (Nomura remains the lone outlier with a 100bps forecast). Much closer to consensus PPI and University of Michigan inflation expectations data helped bring pricing back from the peaks, let alone no press reports seemingly confirming pricing one way or another (finishing the week at 79.8bps priced). Regardless, some premium of a 100bp move will probably stay priced in for Wednesday, either on the off chance of some late blackout-period guidance.

Beyond the rate move itself, the Fed's new Summary of Economic Projections should show unemployment ticking higher, moving farther from a soft-landing forecast; with some expecting to see unemployment rising to 4.5%. The September FOMC also adds another year to the SEP, so we will get figures for 2025, showing how steep a hiking cycle, how deep any recession, and how quick the subsequent recovery policymakers are expecting if their preferred policy path is realized.

On the BoE, economists expect the MPC to vote for a second consecutive 50bp hike, albeit along divisive lines, with dissents favouring both a 25bp and a 75bp move likely surfacing. On the balance sheet, the MPC should confirm the start of gilt sales from later on this month, totaling GBP 10bn per quarter. Economists also expect the BoE’s terminal rate to be 4%, reached in May of next year.

The Bank of Japan also meets, and DB economists expect the BoJ to remain the DM outlier by maintaining an easy policy stance, while agreeing to end their special pandemic funds-supplying operation as scheduled at the end of the month. The policy divergence will continue to weigh on a yen which is around its weakest levels versus the dollar since the early 90s, but DB's economists do not expect that augurs intervention, as fundamentals are driving the weakening and reduce the chance any intervention is effective.

Geopolitical risks will also remain in focus, where the Ukraine war is most front-and-center. Elsewhere, a few conflagrations have broken out in former USSR states which individually may not be macro moving events, but are something to keep an eye on if symptomatic of something broader. Finally, an ever-looming potential issue, President Biden said in an interview with 60 minutes that the US would defend Taiwan if invaded, even as he downplayed the claim as not official US policy.

Here is a detailed weekly summary courtesy of DB:

Monday September 19

  • Data: US September NAHB housing market index, Eurozone July construction output, Canada August industrial product and raw materials prices
  • Central banks: ECB's Guindos and Villeroy speak

Tuesday September 20

  • Data: US August housing starts, building permits, Japan August national CPI, Germany August PPI, Italy July current account balance, July ECB current account, Canada August CPI
  • Central banks: ECB's Muller speaks

Wednesday September 21

  • Data: US August existing home sales, UK August public finances
  • Central banks: Fed's decision, ECB's Guindos speaks
  • Earnings: General Mills, Lennar

Thursday September 22

  • Data: US September Kansas City Fed manufacturing activity, August leading index, Q2 current account balance, initial jobless claims, Japan August nationwide department store sales, France September business and manufacturing confidence, Eurozone September consumer confidence
  • Central banks: BoE and BoJ decision, ECB's Economic Bulletin
  • Earnings: Costco

Friday September 23

  • Data: US, UK, Germany, France and the Eurozone flash September PMIs, UK September GfK consumer confidence, Canada July retail sales
  • Central banks: Fed's Powell, ECB's Kazaks and Nagel speak

* * *

Finally, looking at just the US, Goldman writes that the key event this week is the September FOMC meeting on Wednesday. The post-meeting statement will be released at 2:00 PM ET, followed by Chair Powell’s press conference at 2:30 PM.

Monday, September 19

  • 10:00 AM NAHB housing market index, August (consensus 47, last 49)

Tuesday, September 20

  • 08:30 AM Housing starts, August (GS +0.6%, consensus +0.3%, last -9.6%); Building permits, August (consensus -4.5%, last -1.3%): We estimate housing starts edged up by 0.6% in August.

Wednesday, September 21

  • 10:00 AM Existing home sales, August (GS -3.0%, consensus -2.3%, last -5.9%); We estimate that existing home sales declined 3.0% in August.
  • 02:00 PM FOMC statement, September 20-21 meeting: We expect the FOMC to deliver a third 75bp rate hike at its September meeting, taking the funds rate to 3-3.25%. We expect 50bp hikes in November and December, taking the funds rate to 4-4.25% at yearend. Services inflation will likely remain high, but we expect the FOMC to slow the pace of rate hikes because the funds rate will be at a higher level, concern about overtightening will eventually rise, and the drop in consumer inflation expectations should reduce concern about unanchoring. The FOMC’s new economic projections are likely to show GDP growth more materially below potential this year and next than in June, a slightly larger increase in the unemployment rate in the years ahead, and a bit more inflation this year and next. We expect the median dot to show the funds rate at 4-4.25% at end-2022, an additional hike to a peak of 4.25-4.5% in 2023, one cut in 2024 and two more in 2025, and an unchanged longer-run rate of 2.5%.

Thursday, September 22

  • 08:30 AM Initial jobless claims, week ended September 17 (GS 215k, consensus 218k, last 213k); Continuing jobless claims, week ended September 10 (consensus 1,395k, last 1,403k): We estimate initial jobless claims edged up to 215k in the week ended September 17.
  • 08:30 AM Current account balance, Q2 (consensus -$259.0bn, last -$291.4bn)
  • 11:00 AM Kansas City Fed manufacturing index, September (consensus +5, last +3)

Friday, September 23

  • 09:45 AM S&P Global US manufacturing PMI, September preliminary (consensus 51.3, last 51.5); S&P Global US services PMI, September preliminary (consensus 45.5, last 43.7)
  • 02:00 PM Fed Chair Powell, Fed Vice Chair Brainard, and Fed Governor Bowman speak: Chair Jerome Powell will make opening remarks at a Fed Listens event in Washington and Vice Chair Lael Brainard and Governor Michelle Bowman will moderate conversations from community and business leaders on how the pandemic has reshaped the economy. On September 7th, Vice Chair Brainard noted that while “it will be necessary to see several months of low monthly inflation readings to be confident that inflation is moving back down to 2 percent,” nevertheless “a variety of indicators are showing signs of improvement on delivery times and supplies of some goods,” labor force participation “showed a welcome increase” in August, and “reductions in markups could also make an important contribution to reduced pricing pressures.” On August 6th, Governor Bowman noted that “similarly-sized increases” in the federal funds rate to the FOMC’s 75bp hikes in June and July “should be on the table until we see inflation declining in a consistent, meaningful, and lasting way.”

Source: DB, Goldman, BofA

Tyler Durden Mon, 09/19/2022 - 09:16

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Government

Biden’s Secret Promise To OPEC Backfires: Shellenberger

Biden’s Secret Promise To OPEC Backfires: Shellenberger

Submitted by Michael Shellenberger,

In early September, United States Secretary of…

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Biden's Secret Promise To OPEC Backfires: Shellenberger

Submitted by Michael Shellenberger,

In early September, United States Secretary of Energy, Jennifer Granholm, told Reuters that President Joe Biden was considering extending the release of oil from America’s emergency stockpiles, the Strategic Petroleum Reserve (SPR), through October, and thus beyond the date when the program had been set to end. But then, a few hours later, an official with the Department of Energy called Reuters and contradicted Granholm, saying that the White House was not, in fact, considering more SPR releases. Five days later, the White House said it was considering refilling the SPR, thereby proposing to do the exact opposite of what Granholm had proposed.

The hand of Russia's President Vladimir Putin (right) is now strengthened within the OPEC+ cartel controlled by Saudi Arabia's Crown Prince Mohammed bin Salman (left), which today decided to cut production by 2 million barrels.

The confusion around the Biden administration’s petroleum policy was cleared up yesterday after a senior official revealed that the White House had made a secret offer to buy up to 200 million barrels of OPEC+ oil to replenish the SPR in exchange for OPEC+ not cutting oil production. The official said the White House wanted to reassure OPEC+ that the US “won’t leave them hanging dry.” The fact that this offer was made through the White House, not the Department of Energy, may explain why a representative of the Department called Reuters to take back the remarks of Granholm, who has shown herself to be out-of-the-loop, and at a loss for words, relating to key administration decisions relating to oil and gas production.

The revelation poses political risks for Democrats who, in the spring of 2020, killed a proposal by President Donald Trump to replenish the SPR with oil from American producers, not OPEC+ ones, and at a price of $24 a barrel, not the $80 a barrel that the Biden White House promised to OPEC+. At the time, Trump was seeking to stabilize the American oil industry after the Covid-19 pandemic massively reduced oil demand. Trump and Congressional Republicans proposed spending $3 billion to fill the SPR. Senate Democratic Leader Chuck Schumer successfully defeated the proposal, and later bragged that his party had blocked a “bailout for big oil.”

Even normally strong boosters of the Biden White House viewed the Democrats’ opposition to refilling the SPR as a major blunder. “That decision,” noted Bloomberg, “effectively cost the US billions in potential profits and meant Biden had tens of millions of fewer barrels at his disposal with which to counter price surges.” Moreover, observed Bloomberg, it will take significantly more oil today to fill the SPR than it would have two years ago. In spring 2020, the SPR contained 634 million barrels out of a capacity of 727 million. Now, the reserve is below 442 million barrels, its lowest level in 38 years.

The decision looks even worse in light of the decision by OPEC+ today to cut production, which will increase oil prices. The Biden administration in recent days has been pulling out the stops trying to persuade Saudi Arabia and other OPEC+ members, a group that includes Russia, to maintain today’s levels of oil production. Last Friday, the Biden administration sought a 45-day delay in a civil court proceeding over whether Saudi Arabia’s Crown Prince Mohammed bin Salman should have sovereign immunity for the murder of Washington Post columnist Jamal Khashoggi, for which bin Salman has taken responsibility.

The behavior by the Biden White House displays a willingness to sacrifice America’s commitment to human rights for the president’s short-term political needs. Instead of pleading with OPEC+ to maintain or increase high levels of oil production, the Biden administration could have simply allowed for expanded domestic oil production. Instead, Biden has issued fewer leases for on-shore and off-shore oil production than any president since World War II. As such, the pleadings by Biden and administration officials have backfired. The perception of the U.S. in the minds of OPEC+ members has weakened while the influence of Russian President Vladimir Putin has strengthened.

Why is that? Why did the Biden administration decide to spend so much political capital trying, and failing, to get Saudi Arabia and other OPEC+ members to expand production when it could have simply expanded oil production domestically? What, exactly, is going on?

President Joe Biden greets the Saudi Crown Prince on July 15, 2022.

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Tyler Durden Thu, 10/06/2022 - 22:20

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Government

What Really Divides America

What Really Divides America

Authored by Joel Kotkin via UnHerd.com,

The Midterms aren’t a battle between good and evil…

Reading the…

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What Really Divides America

Authored by Joel Kotkin via UnHerd.com,

The Midterms aren't a battle between good and evil...

Reading the mainstream media, one would be forgiven for believing that the upcoming midterms are part of a Manichaean struggle for the soul of democracy, pitting righteous progressives against the authoritarian “ultra-MAGA” hordes. The truth is nothing of the sort. Even today, the vast majority of Americans are moderate and pragmatic, with fewer than 20% combined for those identifying as either “very conservative” or “very liberal”. The apocalyptic ideological struggle envisioned by the country’s elites has little to do with how most Americans actually live and think. For most people, it is not ideology but the powerful forces of class, race, and geography that determine their political allegiances — and how they will vote come November.

Of course, it is the business of both party elites — and their media allies — to make the country seem more divided than it is. To avoid talking about the lousy economy, Democrats have sought to make the election about abortion and the alleged “threat to democracy” posed by “extremist” Republicans. But recent polls suggest that voters are still more concerned with economic issues than abortion. The warnings about extremism, meanwhile, are tough to take seriously, given that Democrats spent some $53 million to boost far-Right candidates in Republican primaries.

Republicans are contributing to the problem in their own way, too. Rather than offering any substantive governing vision of their own, they assume that voters will be repelled by unpopular progressive policies such as defunding the police, encouraging nearly unlimited illegal immigration, and promoting sexual and gender “fluidity” to schoolchildren. They ignore, of course, the fact that their own embrace of fundamentalist morality on abortion is also widely rejected by the populace. And even Right-leaning voters may doubt the sanity of some of the GOP’s eccentric candidates this November.

In short, both major parties stoke polarisation, the primary beneficiaries of which are those parties’ own political machines. But most Americans broadly want the same things: safety, economic security, a post-pandemic return to normalcy, and an end to dependence on China. Their divisions are based not so much on ideology but on the real circumstances of their everyday life.

The most critical, yet least appreciated, of these circumstances is class. America has long been celebrated as the “land of opportunity”, yet for working and middle-class people in particular, opportunity is increasingly to come by. With inflation elevated and a recession seemingly on the horizon, pocketbook issues are likely to become even more important in the coming months. According to a NBC News poll, for instance, nearly two-thirds of Americans say their pay check is falling behind the cost of living, and the Republicans hold a 19-point advantage over the Democrats on the economy.

A downturn could also benefit the Left eventually. As the American Prospect points out, proletarianised members of the middle class are increasingly shopping at the dollar stores that formerly served working and welfare populations. Labour, a critical component of the Democratic coalition, could be on the verge of a generational surge, with unionisation spreading to fast food retailers, Amazon warehouses, and Starbucks.

To take advantage of a resurgent labour movement, however, Democrats will have to move away from what Democratic strategist James Carville scathingly calls  “faculty lounge politics”: namely, their obsession with gender, race, and especially climate. For instance, by demanding “net zero” emissions on a tight deadline, without developing the natural gas and nuclear production needed to meet the country’s energy needs, progressives run the risk of inadvertently undermining the American economy. Ill-advised green policies will be particularly devastating for the once heavily Democratic workers involved in material production sectors like energy, agriculture, manufacturing, warehousing, and logistics.

To win in the coming election and beyond, Democrats need to focus instead on basic economic concerns such as higher wages, affordable housing, and improved education. They also need to address the roughly half of all small businesses reporting that inflation could force them into bankruptcy. Some progressives believe that climate change will doom the Republicans, but this is wishful thinking. According to Gallup, barely 3% of voters name environmental issues as their top concern.

Racial divides are also important — though not in the way that media hysterics about “white supremacy” would lead you to believe. Florida Governor Ron DeSantis’s decision to fly undocumented immigrants to Martha’s Vineyard was undoubtedly a political stunt, and one arguably in poor taste. But it succeeded in its main goal: highlighting the enormous divide between the border states affected by illegal immigration and the bastions of white progressivism who tend to favour it.

Under Biden, the Democrats have essentially embraced “open borders” — illegal crossings are at record levels, and few of the migrants who make it across the border are ever required to leave. This policy reflects a deep-seated belief among elite Democrats that a more diverse, less white population works to their political favour. Whether they are right to think so, however, is far from clear. Black people still overwhelmingly back the Democrats, but Asians (the fastest-growing minority) and Latinos (the largest) are more evenly divided, and have been drifting toward the Republicans in recent years.

Here, too, class is a key factor. Many middle and upper-class minorities are on board with the Democrats’ anti-racist agenda. But many working-class Hispanics and Asians have more basic concerns. After all,  notes former Democratic Strategist Ruy Teixiera, these are the people most affected by inflation, rising crime, poor schools, and threats to their livelihoods posed by draconian green policies.

Culture too plays a role. Immigrants, according to one recent survey, are twice as conservative in their social views than the general public and much more so than second generation populations of their own ethnicity. Like most Americans, they largely reject the identity politics central to the current Democratic belief system. Immigrants and other minorities also tend to be both more religious than whites; new sex education standards have provoked opposition from the Latino, Asian, African American and Muslim communities.

The final dividing line is geography, always a critical factor in American politics. For decades, the country seemed to become dominated by the great metropolitan areas of the coasts, with their tech and finance-led economies. But even before the pandemic, the coastal centres were losing their demographic and economic momentum and seeing their political influence fade. In 1960, for example, New York boasted more electoral votes than Texas and Florida combined. Today, both have more electoral votes than the Empire State. Last year, New York, California, and Illinois lost more people to outmigration than any other states. The greatest gains were in Florida, Texas, Arizona, and North Carolina. These states are high-growth, fertile, and lean toward the GOP.Likewise, regional trends suggest that elections will be decided in lower density areas; suburbs alone are  home to at least 40% of all House seats. Some of these voters may be refugees from blue areas who still favour the Democrats. But lower-density areas, which also tend to have the highest fertility rates, tend to be dominated by family concerns like inflation, public education and safety, issues that for now favour Republicans.

Put the battle between Good and Evil to one side. It is these three factors — class, race, geography — that will shape the outcome of the midterms, whatever the media says. The endless kabuki theatre pitting Trump and his minions against Democrats may delight and enrage America’s elites — but for the American people, it is still material concerns that matter.

Tyler Durden Thu, 10/06/2022 - 21:40

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International

Switzerland, Not USA, Is The ‘Most Innovative’ Country In The World

Switzerland, Not USA, Is The ‘Most Innovative’ Country In The World

The World Intellectual Property Organization (WIPO) has released its 2022…

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Switzerland, Not USA, Is The 'Most Innovative' Country In The World

The World Intellectual Property Organization (WIPO) has released its 2022 Global Innovation Index. It evaluated innovation levels across 132 economies focusing on a long list of criteria such as human capital, institutions, technology and creative output as well as market and business sophistication, among others.

The 2022 index has found that innovation is still blossoming in some sectors despite the global economic slowdown and coronavirus pandemic, especially in industries to do with public health and the environment.

As Statista's Katharina Buchholz reports, Switzerland topped the rankings with a score of 64.6 out of 100, the 12th time it has been named the world leader in innovation. The United States come second while the Sweden rounds off the top three.

You will find more infographics at Statista

One of the biggest winners of the ranking was South Korea, which climbed up from rank 10 in 2020 to rank 6 in 2022.

China is now the world's 11th most innovative nation, up from rank 14 in 2020 and 2019 and rank 17 in 2018.

China was also named the most innovative upper middle-income country ahead of Bulgaria (overall rank 35), while India (overall rank 40) came first for lower middle-income countries, followed by Vietnam (overall rank 48).

Notably, China is now on a par with the United States in terms of the number of top 100 Science & Technology clusters

Finally, WIPO notes that on the one hand, science and innovation investments continued to surge in 2021, performing strongly even at the height of a once in a century pandemic. On the other hand, even as the pandemic recedes, storm clouds remain overhead, with increasing supply-chain, energy, trade and geopolitical stresses.

Tyler Durden Thu, 10/06/2022 - 20:40

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