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Monday Blues

Overview:  The US dollar is bid against most currencies today, encouraged not just by good news in the US and poor news out of China, where Covid is flaring…



Overview:  The US dollar is bid against most currencies today, encouraged not just by good news in the US and poor news out of China, where Covid is flaring up and new social restrictions are fared, while Macau has been lockdown for a week. The energy crisis in Europe is fanning fears of a recession before the ECB lift rates above zero. Japanese markets bucked the global move and advanced, which it often does after the government wins an upper house election. The Hang Seng, where many Chinese tech companies are listed fell nearly 2.8% to lead the losses. Europe’s Stoxx 600 is snapping a three-day advance and is off almost 0.5% near midday. The S&P 500 futures are off about 0.6%, while the NASDAQ futures warn that the four-day rally is at risk. It is off around 0.75%. The US 10-year yield is a little softer at 3.06%, while European benchmarks are 2-5 bp lower and peripheral premiums are edging wider. Gold is near last week’s low (~$1732). The next chart support may be nearer $1720. August WTI met sellers around $105. A break of the $10150 area could signal a test on last week’s lows by $95. US natgas has recouped the pre-weekend loss of about 4.2%. A heatwave is spreading across much of the west and Midwest. Europe’s benchmark is 1% lower but appears to be consolidating after rising 15.3% last week. Iron ore is off 2.7% after falling 1.5% last week. September copper has fallen for the past five weeks and is off another 1.8% today. September wheat rallied more than 10% in the past two session and is extending its gains another 1.7% today. 

Asia Pacific

Japan's governing alliance increased its majority in the upper house of the Diet. Of the 125 seats that were at stake, the LDP and Komeito Party took 76 seats. They had 69 of these seats previously. Voter turnout was slightly higher than the last upper house election three years ago (~51.6% v 48.8%). Prime Minister Kishida, a protege of Abe, will stick with the traditional LDP policy thrust of easy monetary and fiscal policy. Kishida's contribution is recognizing the importance of distributional issues. He will also push ahead with a more activist defense policy, and military spending will rise. LDP leaders have long advocated changing the pacifist constitution but also moved cautiously. The rise of China is giving more impetus to it now. 

China's inflation report over the weekend had a little bit of everything. The CPI accelerated to 2.5% in June from 2.1% in May. It was slightly above the median forecast in Reuters and Dow Jones surveys. Month-over-month, China's CPI was flat after having fallen by 0.2% previously. Food and energy are the main drivers; without them, China's CPI was 1% year-over-year. Gasoline and vehicle fuel prices were up nearly 33% over the past year. Food prices rose 2.9% (from 2.1%), and the risk is on the upside as pork prices are rebounding. On the other hand, producer price inflation slowed to 6.1% from 6.4% in May. It was the eighth consecutive monthly deceleration and is at its slowest pace in 15 months. 

China's inflation news was overshadowed by other developments. Alibaba and Tencent were hit with regulatory fines. Bondholders in Evergrande's onshore entity (Hengda Real Estate) rejected a proposal for another extension of its debt payment. Also, a flare up of Covid has led to a weeklong shut down of Macau and Shanghai reported the most cases since late May. The CSI 300 snapped a five-week 11.5% rally last week with 0.85% loss. It fell by about 1.65% today, its largest loss in almost two months. Separately, after the mainland markets closed, China reported stronger than expected June lending figures. Aggregate financing jumped to CNY5.17 trillion in June, up from CNY2.79 trillion in May. The record was set in January (~CNY6.18 trillion)

The dollar rose to new 22-year highs against the Japanese yen, slightly above JPY137.25. Initial support now is in the JPY136.50-JPY136.70 area. It had been consolidating this month after reaching JPY137.00 on June 29. The yen's weakness is in line with the euro and sterling today, where the cross rates are little changed. The Australian dollar gained around 1.1% over the past two sessions but is giving a chunk of it back today (~-0.7%). The roughly A$420 mln expiring option at $0.6825 may be back in play. The Aussie is holding just inside the pre-weekend range when a low of almost $0.6790 was recorded. It looks to be finding support in the European morning but needs to resurface above $0.6725 to stabilize the tone. The greenback edged higher against the Chinese yuan, but for the fourth-consecutive session it remained within the range set on July 5 (~CNY6.6845-CNY6.7235). Today's dollar fix was tight to expectations (CNY6.6960 vs. CNY6.6965).


Greece's central bank governor is on to something. In a weekend interview, Stournaras recognized that the need for a new tool to combat fragmentation grows out of the absence of EU reforms, with an incomplete economic and monetary union. Indeed, the current debate over the "Transmission Protection Mechanism" seems to offer more proof that the common EU bonds during the pandemic were the game-changer that some argued. They could ultimately prove to be scaffolding for a new fiscal framework, but they could also prove to be a Potemkin exercise.

There seems to be two other talking points today in addition to next week's ECB meeting. First, the contest to replace Johnson as UK Prime Minister has intensified with nearly a dozen candidates declaring. The timetable for the leadership context is expected to be announced later today. The ostensible goal it to get it down to two candidates before Parliament's summer recess in ten days. Second, is the energy crisis in Europe. A key pipeline (Nord Stream) for Russian gas to Europe is down for regular maintenance for ten days starting today. This is on top of the 30-day stoppage orders by Russian courts last week of a key conduit at a Black Sea port for Kazakhstan oil. Separately, but related, power prices in German surged today to the highest level in four months as weak winds made for weak power generation. Canada's announcement that it would return a turbine for the Nord Stream pipeline, a source of tension with Moscow, helped ease natural gas prices. The heatwave in parts of Europe, including Germany and Italy is boosting the demand for electricity. Some rationing is being reported.

After recording new 20-year lows near $1.0070 ahead of the weekend, the euro recovered and traded to almost $1.02. It has come back offered today and fell to almost $1.01. The risk of a recession, while such fears in the US may have eased a little after the composite PMI was revised higher and the jobs report before the weekend was stronger than expected. Initial resistance is now seen near $1.0140. Many have their sights set on parity. Sterling is also trading heavily within the pre-weekend range (~$1.1920-$1.2055). A two-year low was recorded last week near $1.1875. A close above $1.20 would be constructive.


The US quarterly refunding kicks off today with the sale of $43 bln three-year notes. Tomorrow, Treasury will sell $33 bln 10-year notes, followed by $19 bln of 30-year bonds on Wednesday. Under its balance sheet roll-off operations, the Federal Reserve will allow $30 bln of Treasuries to drop off this month and next before increasing to $60 bln starting in September. Some estimate that the Fed may buy $5-$6 bln of the three-year note.

A late-June poll by CivicScience cited by Bloomberg found that 35% of Americans thought the US was already in recession, and another 36% thought it would be by the end of the year. An Economist/YouGov poll in the middle of June found that 56% believe the US is in a recession and another 22% are unsure. That left 22% who did not think a recession had begun. Partisanship is an important consideration. The poll found that 70% of those identified as Republicans believed the US has entered a recession compared with 45% of Democrats.

Although Canada's employment report before the weekend was disappointing, the market continues to expect the Bank of Canada to deliver a 75 bp hike when it meets on Wednesday. Canada job growth in the past two months is negligible, but what is happening is that part-time jobs are being replaced with fulltime positions. The former has fallen by 135k while the latter increased by 131k. The swaps market has 75 bp fully discounted for this week and is nearly evenly divided between 50 bp and 75 bp for the next meeting on September 7.

The two-day recovery in the Canadian dollar is being challenged today amid the risk-off mood. The US dollar's pullback found support ahead of the weekend and earlier today near the 20-day moving average (~CAD1.2940) and the (61.8%) retracement of the leg up that began on July 4 near CAD1.2840. Between tomorrow and Wednesday, there are options for $1.7 bln at CAD1.30. Last week's CAD1.3085 was the highest the greenback has been since November 2020. The US dollar is bid against the Mexican peso and briefly edged above the pre-weekend high near MXN20.5880. Last week's high was near MXN20.7860, its highest level in almost four months. Initial support is seen around MXN20.45.



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Yom Kippur is coming soon – what does Judaism actually say about forgiveness?

Many religions value forgiveness, but the details of their teachings differ. A psychologist of religion explains how Christian and Jewish attitudes co…




Two women embrace before a Yom Kippur service held outdoors during the COVID-19 pandemic in Los Angeles. Al Seib/Los Angeles Times via Getty Images

The Jewish High Holidays are fast approaching: Rosh Hashana and Yom Kippur. While the first really commemorates the creation of the world, Jews view both holidays as a chance to reflect on our shortcomings, make amends and seek forgiveness, both from other people and from the Almighty.

Jews pray and fast on Yom Kippur to demonstrate their remorse and to focus on reconciliation. According to Jewish tradition, it is at the end of this solemn period that God seals his decision about each person’s fate for the coming year. Congregations recite a prayer called the “Unetanah Tokef,” which recalls God’s power to decide “who shall live and who shall die, who shall reach the ends of his days and who shall not” – an ancient text that Leonard Cohen popularized with his song “Who by Fire.”

Forgiveness and related concepts, such as compassion, are central virtues in many religions. What’s more, research has shown that it is psychologically beneficial.

But each religious tradition has its own particular views about forgiveness, as well, including Judaism. As a psychologist of religion, I have done research on these similarities and differences when it comes to forgiveness.

Person to person

Several specific attitudes about forgiveness are reflected in the liturgy of the Jewish High Holidays, so those who go to services are likely to be aware of them – even if they skip out for a snack.

In Jewish theology, only the victim has the right to forgive an offense against another person, and an offender should repent toward the victim before forgiveness can take place. Someone who has hurt another person must sincerely apologize three times. If the victim still withholds forgiveness, the offender is considered forgiven, and the victim now shares the blame.

The 10-day period known as the “Days of Awe” – Rosh Hashana, Yom Kippur and the days between – is a popular time for forgiveness. Observant Jews reach out to friends and family they have wronged over the past year so that they can enter Yom Kippur services with a clean conscience and hope they have done all they can to mitigate God’s judgment.

The teaching that only a victim can forgive someone implies that God cannot forgive offenses between people until the relevant people have forgiven each other. It also means that some offenses, such as the Holocaust, can never be forgiven, because those martyred are dead and unable to forgive.

Many people dressed in black and white stand in a courtyard between ancient walls.
Thousands of Jewish pilgrims attend penitential prayers at the Western Wall in Jerusalem ahead of the Jewish High Holiday of Rosh Hashana. Menahem Kahana/AFP via Getty Images

To forgive or not to forgive?

In psychological research, I have found that most Jewish and Christian participants endorse the views of forgiveness espoused by their religions.

As in Judaism, most Christian teachings encourage people to ask and give forgiveness for harms done to one another. But they tend to teach that more sins should be forgiven – and can be, by God, because Jesus’ death atoned vicariously for people’s sins.

Even in Christianity, not all offenses are forgivable. The New Testament describes blaspheming against the Holy Spirit as an unforgivable sin. And Catholicism teaches that there is a category called “mortal sins,” which cut off sinners from God’s grace unless they repent.

One of my research papers, consisting of three studies, shows that a majority of Jewish participants believe that some offenses are too severe to forgive; that it doesn’t make sense to ask someone other than the victim about forgiveness; and that forgiveness is not offered unconditionally, but after the offender has tried to make things right.

Take this specific example: In one of my research studies I asked Jewish and Christian participants if they thought a Jew should forgive a dying Nazi soldier who requested forgiveness for killing Jews. This scenario is described in “The Sunflower” by Simon Wiesenthal, a writer and Holocaust survivor famous for his efforts to prosecute German war criminals.

A color photograph of an older, balding man in a blue shirt and striped tie.
Simon Wiesenthal at the White House during the Reagan administration. Diana Walker/The Chronicle Collection via Getty Images

Jewish participants often didn’t think the question made sense: How could someone else – someone living – forgive the murder of another person? The Christian participants, on the other hand, who were all Protestants, usually said to forgive. They agreed more often with statements like “Mr. Wiesenthal should have forgiven the SS soldier” and “Mr. Wiesenthal would have done the virtuous thing if he forgave the soldier.”

It’s not just about the Holocaust. We also asked about a more everyday scenario – imagining that a student plagiarized a paper that participants’ friends had written, and then asked the participants for forgiveness – and saw similar results.

Jewish people have a wide variety of opinions on these topics, though, as they do in all things. “Two Jews, three opinions!” as the old saying goes. In other studies with my co-researchers, we showed that Holocaust survivors, as well as Jewish American college students born well after the Holocaust, vary widely in how tolerant they are of German people and products. Some are perfectly fine with traveling to Germany and having German friends, and others are unwilling to even listen to Beethoven.

In these studies, the key variable that seems to distinguish Jewish people who are OK with Germans and Germany from those who are not is to what extent they associate all Germans with Nazism. Among the Holocaust survivors, for example, survivors who had been born in Germany – and would have known German people before the war – were more tolerant than those whose first, perhaps only, exposure to Germans had been in the camps.

Forgiveness is good for you – or is it?

American society – where about 7 in 10 people identify as Christian – generally views forgiveness as a positive virtue. What’s more, research has found there are emotional and physical benefits to letting go of grudges.

But does this mean forgiveness is always the answer? To me, it’s an open question.

For example, future research could explore whether forgiveness is always psychologically beneficial, or only when it aligns with the would-be forgiver’s religious views.

If you are observing Yom Kippur, remember that – as with every topic – Judaism has a wide and, well, forgiving view of what is acceptable when it comes to forgiveness.

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

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EasyJet share price has collapsed by 53% in 2022. Is it a buy?

The EasyJet (LON: EZJ) share price has hit turbulence as concerns about demand and soaring costs remain. It dropped to a low of 293p, which was the lowest…



The EasyJet (LON: EZJ) share price has hit turbulence as concerns about demand and soaring costs remain. It dropped to a low of 293p, which was the lowest level since November 2011. It has plummeted by more than 82% from its all-time high, giving it a market cap of more than 2.5 billion pounds.

Is EasyJet a good buy?

EasyJet is a leading regional airline that operates mostly in Europe. It has hundreds of aircraft and thousands of employees. In 2021, the firm’s revenue jumped to more than 1.49 billion pounds, which was a strong recovery from what it made in the previous year.

EasyJet’s business is doing well as demand for flights rises. In the most recent results, the firm said that forward bookings for Q3 were 76% sold and 36% sold for Q4. For some destinations, bookings have been much higher than before the pandemic.

EasyJet’s business made more than 1.75 billion in revenue in the first half of the year. This happened as passenger revenue rose to 1.15 billion while ancillary revenue jumped to 603 million pounds. The firm managed to make a loss before tax of more than 114 million pounds. It attributed that loss to higher costs and forex conversions.

As I wrote on this article on IAG, EasyJet share price has collapsed as investors worry about the soaring cost of doing business. Besides, jet fuel and wages have jumped sharply in the past few months. Also, analysts and investors are concerned about flight cancellations in its key markets.

Still, there is are two key catalysts for EasyJet. For one, as the stock collapses, it could become a viable acquisition target. In 2021, the management rejected a relatively attractive bid from Wizz Air. Another bid could happen if the stock continues tumbling.

Further, the company could do well as the aviation industry stabilizes in the coming months. A key challenge is that confidence in Europe and the UK.

EasyJet share price forecast

EasyJet share price

The daily chart shows that the EasyJet stock price has been in a strong bearish trend in the past few months. During this time, the stock has tumbled below all moving averages. It has also formed what looks like a falling wedge pattern, which is usually a bullish sign.

The Relative Strength Index (RSI) has dropped below the oversold level while the Awesome Oscillator has moved below the neutral point.

Therefore, in the near term, the stock will likely continue falling as sellers target the support at 270p. In the long-term, however, the shares will likely rebound as the falling wedge reaches its confluence level.

The post EasyJet share price has collapsed by 53% in 2022. Is it a buy? appeared first on Invezz.

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August data shows UK automotive sector heading for a “cliff-edge” in 2023

With an all-out macroeconomic storm brewing in the UK, the Bank of England (BoE) has been forced to intervene in the tumultuous gilt markets, particularly…



With an all-out macroeconomic storm brewing in the UK, the Bank of England (BoE) has been forced to intervene in the tumultuous gilt markets, particularly towards the tail end of the yield curve (details of which were reported on Invezz here).

Car manufacturing is a key industry in the UK. Recently, it registered a turnover of roughly £67 billion, provided direct employment to 182,000 people, and a total of nearly 800,000 jobs across the entire automotive supply chain, while contributing to 10% of exports.

Just after midnight GMT, data on fresh car production for the month of August was released by the Society of Motor Manufacturers and Traders Limited (SMMT).

Strong annual growth but monthly decline

Car production in the UK surged 34% year-over-year settling at just under 50,000 units. This marked the fourth consecutive month of positive growth on an annual basis.

However, twelve months ago, production was heavily dampened by a plethora of supply chain bottlenecks, work stoppages on account of the pandemic, and a worldwide shortage of microchips. The August 2021 output of 37,246 units was the lowest recorded August volume since way back in 1956.

Although the improvement in output is a good sign, equally it is on the back of a heavily depressed performance.

Source: SMMT

To place the latest data in its proper context, production is still 45.9% below August 2019 levels of 92,158 units, showing just how far adrift the industry is from the pre-pandemic period.

Since July, production in the sector fell 14%.

The fact that the UK is facing a deep economic malaise becomes even more evident when we look at full-year numbers for 2020 and 2021.

In 2020, total output came in at 920,928 units, while 2021 was even lower at 859,575. The last time that the UK automotive sector produced less than one million cars in a calendar year was 1986.  

Unfortunately, 2022 has seen only 511,106 units produced thus far, a 13.3% decline compared to January to August 2021.

In contrast, the 5-year pre-pandemic average for January to August output from 2014 – 2019 stands well above this mark at 1,030,527 units.

With car manufacturers tending to pass price rises on to consumers, demand was dampened by surging costs of semiconductors, logistics and raw materials.

The SMMT noted,

The sector is now on course to produce fewer than a million cars for the third consecutive year.

Ian Henry, managing director of AutoAnalysis concurred with the SMMT’s analysis,

It is expected that by the end of this year car production will reach 825,000, compared to 850,000 a year ago, but that’s 35% down on 2019 and a whopping 50% on the high figure of 2017.

Sector challenges

Other than the obvious fact that the UK’s economic atmosphere is in hot water, the automotive industry (including component manufacturers) has been struggling to stave off the high energy costs of doing business.

In a survey, 69% of respondents flagged energy costs as a key concern. Estimates suggest that the sector’s collective energy expenditure has gone up by 33% in the last 12 months reaching over £300 million, forcing several operations to become unviable.

Although the government enacted measures to cap the price of energy and ease obstacles to additional production, Mike Hawes, the CEO of SMMT, said,

This is a short-term fix, however, and to avoid a cliff-edge in six months’ time, it must be backed by a full package of measures that will sustain the sector.

Due to the meteoric rise in costs across the automotive supply chain, 13% of respondents were cutting shifts, 9% chose to downsize their workforce and 41% postponed further investments.

Bleak outlook

Uncertainties around Brexit and the EU trade deal are yet to be resolved.

Moreover, the energy crisis is poised to get even more acute unless Russia withdraws from the conflict, or international leaders ease restrictions on Moscow. Last week, I discussed the evolving energy crisis here

With global central banks expected to tighten till at least the end of the year, demand is likely to be squeezed further pressurizing British car manufacturers.

Electric vehicles made up 71% of car exports from the UK in August, but robust growth in the sector looks challenging in the near term, in the absence of widespread charging infrastructure, high electricity prices and globally low consumer confidence.

Although energy subsidies could provide some relief in the immediate future, the industry will remain in dire straits while investments stay low and the shortage in human capital persists, particularly amid the push for EVs.

Given the prevailing macroeconomic environment, and severe market backlash to Truss’s mini-budget (which I discussed in an earlier article), the sector is unlikely to turn the corner any time soon.

The post August data shows UK automotive sector heading for a “cliff-edge” in 2023 appeared first on Invezz.

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