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Macro Dynamic Remains the Same but the Calendar gets Busy

Macro Dynamic Remains the Same but the Calendar gets Busy



The economic calendar and central bank meeting diaries are busier in the week ahead.  The highlights include three G7 central bank meetings (the Bank of Japan, the Bank Canada, and the European Central Bank), Chinese Q2 GDP, and the first look at US July survey data (Empire and Philadelphia Fed).  The US also reports June retail sales and industrial production figures.  The Fed's Beige Book may offer some anecdotal insight into economic activity where the virus has jumped and re-openings stalled or reversed.

The underlying macro backdrop is unchanged.  Concerns about the pandemic's growth and the possibility that the antibodies offer only a short-lived reprieve from vulnerability encourage a cautious attitude by businesses and investors.  On the other hand, officials in most major countries seem prepared to provide more assistance and for longer, which underpins the flow of savings into risk assets.  Moreover, the convergence of real and nominal interest rates,  the apparently lagging US response to the health crisis, add to the dollar bear case that has been simmering for some time.

Let's begin with the central bank meetings.  The Bank of Japan's two-day meeting ends on July 15, the same day as the Bank of Canada's.  Neither one seems to have a strong sense of urgency act. The markets have been stable.  Japanese stocks have underperformed over the past month, and it is interesting that the Topix, which is base for the ETFs the BOJ buys, has fallen by about 2.25% over the past month while the narrower Nikkei is virtually flat.  Over the same period, the MSCI Asia Pacific Index, excluding Japan was up nearly 6.5%.

Of interest, the Bank of Japan will provide updated economic forecasts and, reportedly, there is some debate whether to revert back to showing point after providing ranges in April, given the degree of uncertainty.  The BOJ estimated that the world's third-largest economy would contract by 3.0% to 5.0% in the fiscal year through next March.  Both consumption and exports remain weak, and that undermines the case for capex.  There appears to be little upside momentum as the quarter wound down. More fiscal support may be needed, but might not be delivered until after the fiscal half-year in October.

The new Bank of Canada Governor Macklem can be content too with the monetary settings.  Market rates are steady to lower over the past month.  Profit-taking in equities has been limited. The Canadian dollar is around 0.75% weaker against the US dollar since the last meeting and the only major currency not to have risen against the greenback.   Implied currency volatility (three-month) is a little less than 6%, and the 200-day moving averages a little above 6%.  Commodity prices, including oil, have continued to recover from the March-April plunge.  The CRB Index, for example, has retraced roughly half of that drop.  Domestically, the labor market is improving  (about a third more jobs--~963K--than were expected in June after a 290k increase in May), and underlying measures of inflation (Canada has three) are holding up considerably better than the headline, which was below zero in May (most recent data).

The ECB meets on July 16.  It can be pleased that the challenge presented by the German Constitutional Court ruling has been addressed and that the Bundesbank can continue to participate in Public Sector Purchase Program (PSPP).  That said, we wonder if the broader issue of judicial review has been addressed and suspect the principle underlying the German court ruling may be claimed as precedent in the future. There is scope for some technical tweaks, but buying sub-investment grade corporate bonds, like the Federal Reserve is willing to do, is unlikely to be one of them. The more than 1 trillion euro of loans at minus 100 bp also removes the immediate urgency to exclude more reserves from the minus 50 bp deposit rate. 

A key talking point that someone has succeeded in planting with the media centers around the issue of the ECB's flexibility to deviate from the capital key in its bond purchases under the Pandemic Emergency Purchase Program.  The capital key is the share of the ECB's capitalization, and it is based on the size of a member (GDP and population).  With flexibility around it, the capital key has generally conditioned the bond purchases by the Eurosystem.  This sometimes reduced the options officials faced trying to ensure that the transmission mechanism of monetary policy, which meant, influencing yield levels and spreads.

At the same time, the capital key allowed the ECB to stay within its mandate, according to the European Court of Justice, when it has been challenged.  The strict constructionists apparently want to rein in the ECB's discretion as soon as possible and ostensibly keep it on more solid legal footing.  ECB President Lagarde will likely be questioned about this issue at her press conference.  Yet,  it seems that it was someone in that camp that leaked the story, and experience suggests and realpolitik considerations point to someone who lost the issue that often takes their case to the press.  The winning camp has no reason or need.

Turning to the economic data on tap, there are two highlights.  China is the first major country to report Q2 GDP figures.  It is not so much the accuracy of Chinese data that is questioned, after all, the US revises its estimate several times over a couple of years before settling on the right number.  Being able to estimate the output of the world's second-largest economy two weeks after the quarter ends is a feat, and for the speed, some trade-off in terms of accuracy is not unreasonable.  Still, the problem is that China's data is thought, like nearly everything else, to be subservient to the desires of the leaders of the Communist Party.

Nevertheless, there is little doubt that the Chinese economy is, in fact, recovering from the 9.8% contraction in Q1.  The real question is over the pace.  Retail sales and industrial output were likely still contracting on a year-over-year basis in June. Exports and imports are also lower, but the median forecast calls for China's economy to have grown about 2.5% from a year ago in Q2.  That would follow a 6.8% contraction in Q1.  On the quarter-over-quarter basis, China is expected to report growth of around 9.6% after a 9.8% decline in output in Q1.  It seems a bit too good.

At the same time, the dramatic moves in the Chinese markets continue.  Stocks are on fire, seemingly encouraged by official media. The Shanghai Composite is up more than 13% here in July and up 11% for the year. The Shenzhen Composite has gained nearly 31% this year through last week.  While the US and European 10-year benchmark yields have moved lower by 20-25 bp over the past month, China's 10-year yield has risen by as much to push above the 3.0% threshold for the first time since January.  Over the past month, the Chinese yuan has been the second strongest emerging market currency, rising 0.8% against the dollar (the Colombian peso is up 1.4%).

The other economic data highlight comes from the US.  Several high-frequency reports, but because of the new surge in virus cases, and rising hospitalizations, the data, like arguably we saw with the response to the jobs report, maybe too dated to have much impact outside of headline risk.    The June retail sales are likely to show more modest but still substantial gains in retail sales than seen in May.  The median forecast in the Bloomberg survey calls for a 5.6% increase after May's 17.7% surge.  Industrial output likely picked up momentum after the 1.4% rise in May, which included a 2.8% increase in manufacturing output.  The survey showed a median forecast for a 4.4% rise in June, led by a 5.5% jump in manufacturing output.  Housing starts and permits are expected to have accelerated in June, and the market may be sensitive to the geographic breakdown that is provided.

There are few doubts that general price pressures in the US remain muted.  The headline CPI in May was 0.1%.  It is expected to rise to 0.6%.  Core CPI is likely still moving lower as the minor rises are not sufficient to counter the base effect.  The challenge may be with inflation expectations.  Both the University of Michigan's survey (July 17 preliminary) and the market-based breakevens (the difference between the inflation-linked and conventional security) have been steadily increasing.  The former is approaching levels that prevailed before the crisis, while the latter is at its highest levels since late February (~1.40% 10-year breakeven).

Yet, investors seem to be hungriest for data that captures the economic impact of the new growth of the virus.  The July Empire State and Philadelphia Fed manufacturing surveys, albeit narrowly focused, may draw more attention than usual.  They enjoy strong correlations with other survey data.

After hitting -78.2 in April, the Empire State survey has been getting less worse, rising to -48.5 in May and -.0.2 in June.   The Bloomberg survey shows a median forecast of 5.5 for July. It finished 2019 at 3.3 after averaging 4.8 for the entire year.  The Philly Fed had its surge in June, jumping to 27.5 from -43.1 in May.  The median projection shows a milder reading of 17.5 in July.  The devil will be in the details but note that it averaged below 6 in Q4 2019 and below 10 for all of 2019.  Owing to an appreciation that things on the ground could be changing faster than data can capture, for businesses and investors, the anecdotal nature of the Beige Book may be of special interest

At the very end of the week, event risk takes the shape of the EU summit that is supposed to resolve the dispute over the Recovery Fund (560 bln euros), and a separate debt issuance (190 bln euros) and, more broadly, the seven-year budget.  If it is a Hamiltonian Moment, as some have argued, it is not hotly contested.  The so-called Frugal Four do not object to the common bond. Their objection is how the proceeds should be distributed.  They are opposed to giving it away and are more inclined to make the lending conditional. The focus has turned to the Dutch, there will be several bilateral meetings with Prime Minister Rutte next week.  Rutte is insisting that the strategic interests of Europe are secured, and that requires more Europe, which means conditionality.  

At the same time, the defeat of the candidate that Germany, France, Italy, and Spain backed for Eurogroup President warns of the risk of a different challenge, and the budget decision requires unanimity. The potential, given short-term market positioning (see speculative positioning in the futures market and the skew in the options market), is for a larger sell-off on disappointment than a rally on news of an agreement. 


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“The Real President Is Whoever Controls The Teleprompter”: Musk Delivers Scathing Criticism Of Biden

"The Real President Is Whoever Controls The Teleprompter": Musk Delivers Scathing Criticism Of Biden

Authored by Jack Phillips via The Epoch…



"The Real President Is Whoever Controls The Teleprompter": Musk Delivers Scathing Criticism Of Biden

Authored by Jack Phillips via The Epoch Times,

Tech billionaire Elon Musk this week warned that the United States must take steps to address inflation or it will end up like socialist Venezuela.

Musk, who is currently in the process of acquiring Twitter, told a virtual conference that he believes the government has printed too much money in recent years.

“I mean, the obvious reason for inflation is that the government printed a zillion amount of more money than it had, obviously,” Musk said, likely referring to COVID-19 relief stimulus packages worth trillions of dollars that were passed in recent years.

U.S. inflation rose by 8.3 percent in April, compared with the previous year. That’s slightly lower than the 8.5 percent spike in March, but it’s still near the 40-year high.

“So it’s like the government can’t … issue checks far in excess of revenue without there being inflation, you know, velocity of money held constant,” the Tesla CEO said.

“If the federal government writes checks, they never bounce. So that is effectively creation of more dollars. And if there are more dollars created, then the increase in the goods and services across the economy, then you have inflation, again, velocity of money held constant.”

If governments could merely “issue massive amounts of money and deficits didn’t matter, then, well, why don’t we just make the deficit 100 times bigger,” Musk asked. “The answer is, you can’t because it will basically turn the dollar into something that is worthless.”

“Various countries have tried this experiment multiple times,” Musk said.

“Have you seen Venezuela? Like the poor, poor people of Venezuela are, you know, have been just run roughshod by their government.”

In 2018, Venezuela, a country with significant reserves of oil and gas, saw its inflation rise more than 65,000 percent amid an economic crash that included plummeting oil prices and government price controls. The regime of Nicolas Maduro then started printing money, thereby devaluing its currency, which caused prices to rapidly increase.

During the conference, Musk also said the Biden administration “doesn’t seem to get a lot done” and questioned who is actually in charge. 

“The real president is whoever controls the teleprompter,” he said.

“The path to power is the path to the teleprompter.”

“The Trump administration, leaving Trump aside, there were a lot of people in the administration who were effective at getting things done,” he remarked.

Musk’s comment about the White House comes as Jeff Bezos, also one of the richest people in the world, has increasingly started to target the administration’s economic policies. Bezos, in a series of Twitter posts, said the rapid increase in federal spending is the reason why inflation is as high as it is.

“Remember the Administration tried their best to add another $3.5 TRILLION to federal spending,” Bezos wrote on Monday, drawing rebuke from several White House officials. “They failed, but if they had succeeded, inflation would be even higher than it is today, and inflation today is at a 40-year high.”

Tyler Durden Tue, 05/17/2022 - 15:05

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Type-I interferon stops immune system ‘going rogue’ during viral infections

Hamilton, ON (May 17, 2022) – McMaster University researchers have found not only how some viral infections cause severe tissue damage, but also how…



Hamilton, ON (May 17, 2022) – McMaster University researchers have found not only how some viral infections cause severe tissue damage, but also how to reduce that damage.

Credit: Georgia Kirkos/McMaster University

Hamilton, ON (May 17, 2022) – McMaster University researchers have found not only how some viral infections cause severe tissue damage, but also how to reduce that damage.


They have discovered how Type I interferon (IFN) stops the immune system ‘going rogue’ and attacking the body’s own tissues when fighting viral infections, including COVID-19.


Their paper was published in the journal PLOS Pathogens today.


Senior author Ali Ashkar said IFN is a well-known anti-viral signalling molecule released by the body’s cells that can trigger a powerful immune response against harmful viruses.


“What we have found is that it is also critical to stop white blood cells from releasing protease enzymes, which can damage organ tissue. It has this unique dual function to kick start an immune response against a viral infection on the one hand, as well as restrain that same response to prevent significant bystander tissue damage on the other,” he said.


The research team investigated IFN’s ability to regulate a potentially dangerous immune response by testing it on both flu and the HSV-2 virus, a highly prevalent sexually transmitted pathogen, using mice. Data from COVID-19 patients in Germany, including post-mortem lung samples, was also used in the study.


“For many viral infections, it is not actually the virus that causes most of the tissue damage, it is our heightened immune activation towards the virus,” said Ashkar, a professor of medicine at McMaster.


First co-author of the study and PhD student Emily Feng said: “Our body’s immune response is trying to fight off the virus infection, but there’s a risk of damaging innocent healthy tissue in the process. IFNs regulates the immune response to only target tissues that are infected.


“By discovering the mechanisms the immune system uses that can inadvertently cause tissue damage, we can intervene during infection to prevent this damage and not necessarily have to wait until vaccines are developed to develop life-saving treatments,” she added.


“This applies not just to COVID-19, but also other highly infectious viruses such as flu and Ebola, which can cause tremendous and often life-threatening damage to the body’s organs,” said first study co-author Amanda Lee, a family medicine resident. 


Ashkar said the release of harmful proteases is the result of a ‘cytokine storm’, which is life-threatening inflammation sometimes triggered by viral infections. It has been a common cause of death in patients with COVID-19, but treatment has been developed to prevent and suppress the cytokine storm.


Ashkar said that steroids like dexamethasone are already used to rein in an extreme immune response to viral infections. The authors used doxycycline in their study, an antibiotic used for bacterial infections and as an anti-inflammatory agent, inhibits the function of proteases causing the bystander tissue damage.


Lee added: “This has the potential in the future to be used to alleviate virus-induced life-threatening inflammation and warrants further research.” 


The study was funded by the Canadian Institutes of Health Research.





Pictures of Ali Ashkar and Emily Feng may be found at




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mRNA vaccines like Pfizer and Moderna fare better against COVID-19 variants of concern

A comparison of four COVID-19 vaccinations shows that messenger RNA (mRNA) vaccines — Pfizer-BioNTech and Moderna — perform better against the World…



A comparison of four COVID-19 vaccinations shows that messenger RNA (mRNA) vaccines — Pfizer-BioNTech and Moderna — perform better against the World Health Organization’s variants of concern (VOCs) than viral vector vaccines — AstraZeneca and J&J/Janssen. Although they all effectively prevent severe disease by VOCs, the research, publishing May 17th in the open access journal PLOS Medicine, suggests that people receiving a viral vector vaccine are more vulnerable to infection by new variants.

Credit: Carlos Reusser Monsalvez, Flickr (CC0,

A comparison of four COVID-19 vaccinations shows that messenger RNA (mRNA) vaccines — Pfizer-BioNTech and Moderna — perform better against the World Health Organization’s variants of concern (VOCs) than viral vector vaccines — AstraZeneca and J&J/Janssen. Although they all effectively prevent severe disease by VOCs, the research, publishing May 17th in the open access journal PLOS Medicine, suggests that people receiving a viral vector vaccine are more vulnerable to infection by new variants.

By March 2022, COVID-19 had caused over 450 million confirmed infections and six million reported deaths. The first vaccines approved in the US and Europe that protect against serious infection are Pfizer-BioNTech and Moderna, which deliver genetic code, known as mRNA, to the bodies’ cells, whereas Oxford/AstraZeneca and J&J/Janssen are viral vector vaccines that use a modified version of a different virus — a vector — to deliver instructions to our cells. Three vaccines are delivered as two separate injections a few weeks apart, and J&J/Janssen as a single dose.

Marit J. van Gils at the University of Amsterdam, Netherlands, and colleagues, took blood samples from 165 healthcare workers, three and four weeks after first and second vaccination respectively, and for J&J/Janssen at four to five and eight weeks after vaccination. Samples were collected before, and four weeks after a Pfizer-BioNTech booster.

Four weeks after the initial two doses, antibody responses to the original SARS-CoV-2 viral strain were highest in recipients of Moderna, followed closely by Pfizer-BioNTech, and were substantially lower in those who received viral vector vaccines. Tested against the VOCs – Alpha, Beta, Gamma, Delta and Omicron – neutralizing antibodies were higher in the mRNA vaccine recipients compared to those who had viral vector vaccines. The ability to neutralize VOCs was reduced in all vaccine groups, with the greatest reduction against Omicron. The Pfizer-BioNTech booster increased antibody responses in all groups with substantial improvement against VOCs, including Omicron.

The researchers caution that their AstraZeneca group was significantly older, because of safety concerns for the vaccine in younger age groups. As immune responses tend to weaken with age, this could affect the results. This group was also smaller because the Dutch government halted use for a period.

van Gils concludes, “Four COVID-19 vaccines induce substantially different antibody responses.”


In your coverage, please use this URL to provide access to the freely available paper in PLOS Medicine:

Citation: van Gils MJ, Lavell A, van der Straten K, Appelman B, Bontjer I, Poniman M, et al. (2022) Antibody responses against SARS-CoV-2 variants induced by four different SARS-CoV-2 vaccines in health care workers in the Netherlands: A prospective cohort study. PLoS Med 19(5): e1003991.


Author Countries: The Netherlands, United States


Funding: This work was supported by the Netherlands Organization for Scientific Research (NWO) ZonMw (Vici grant no. 91818627 to R.W.S., S3 study, grant agreement no. 10430022010023 to M.K.B.; RECoVERED, grant agreement no. 10150062010002 to M.D.d.J.), by the Bill & Melinda Gates Foundation (grant no. INV002022 and INV008818 to R.W.S. and INV-024617 to M.J.v.G.), by Amsterdam UMC through the AMC Fellowship (to M.J.v.G.) and the Corona Research Fund (to M.K.B.), and by the European Union’s Horizon 2020 program (RECoVER, grant no. 101003589 to M.D.d.J). The funders had no role in study design, data collection and analysis, decision to publish, or preparation of the manuscript.

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