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Nothing to laugh about: What happened to humor in pharma advertising?

When Bruno Abner and his creative team started working up campaign ideas for a new hormone-free contraceptive for women called Phexxi, they knew they wanted…

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When Bruno Abner and his creative team started working up campaign ideas for a new hormone-free contraceptive for women called Phexxi, they knew they wanted the message to be bold and unapologetic.

Then along came actress Annie Murphy. Best known for her comedic turn as Alexis Rose on the hit show “Schitt’s Creek,” Murphy opened the door to humor when McCann Health’s client Evofem Biosciences suggested her as a spokesperson.

Abner, the chief creative officer at McCann Health New Jersey, had already assembled an all-women creative team who were working on groundbreaking ways to stand out in the “stuck in the past” contraception category. The team had already settled on a “House Rules” frank-talking theme, but the addition of Murphy presented the opportunity to add humor to the evolving work.

“I didn’t want it to look like an ‘ad ad’ or a functional ad. I wanted people to watch it and have joy and a little bit of fun,” Abner said. The humor was purposeful in “making a message appealing and creating contrast in the pharma category. We tried to make it fun, entertaining, very bold and balanced. The humor helped balance the bold and punchiness of the ad.”

The result? A confident sex-positive humorous ad for Evofem and Phexxi that grabbed media headlines and consumer attention, while piling up ad industry creative awards and boosting bottom line sales.

It may not be a coincidence that Phexxi’s much-lauded campaign debuted at a time when Americans hadn’t had much to laugh about over the past few years. The Covid-19 pandemic, political turmoil, renewed social justice efforts to fight racism and raise health equity, climate change disasters piling up and a rollercoaster economy all added up to a pretty bleak backdrop.

Yet it may be just the right time. People still want humor from brands and marketing. Nine out of 10 people (91%) prefer brands to be funny, and 72% would choose a brand that uses humor over a competitor that doesn’t, according to Oracle’s recent Happiness Report.

So what’s stopping them? The bosses apparently — 95% of business leaders surveyed in the report said they are afraid of using humor in messages to customers.

Polly Wyn Jones

Whether it’s C-suite management or just resistance to trying something new, the decline of funny in advertising is apparent.

Only about one-third of all ads today use humor, the culminating effect of a long slow decline in funny trends in marketing over the past 20 years, said Polly Wyn Jones, global knowledge manager, creative, at Kantar marketing and data analytics company. And it’s even lower in healthcare where only about 20% of the ads are humorous.

Kantar research finds that about 7% of all advertising is considered very funny — versus just lighthearted or mildy humorous — but that percentage in healthcare again tracks much lower at just 3% falling into the very funny category.

Jones lamented not only the loss of levity, but also the potential to make stronger, better connections with consumers. Humor ranks as the top characteristic that makes people pay attention to ads, followed by music, storytelling and celebrities, in Kantar analytics.

“With so many different issues coming to the fore, people are a bit nervous about using humor,” she said. “It’s easier not to do it because then you don’t get it wrong. But what we’re suggesting is that you’re really missing a trick if you don’t do it because it’s the thing that’s most likely to make people receptive to your advertising.”

Still, pharma advertising is different, right? Maybe humor doesn’t have a place in pharma marketing as it might for consumer products like laundry detergent, car insurance and snack food brands. After all, many health conditions are serious and even non-life-threatening conditions carry emotional weight for the people living with them.

That’s not necessarily true, experts said. No category is absolutely off limits when it comes to humor in advertising, although the experts interviewed for this story did agree that judicious use and case-by-case consideration are important in healthcare and pharma marketing.

Adam Hessel, chief creative officer at Ogilvy Health, said humor in pharma can be a differentiator for pharma companies and brands and “it’s there for the taking” for agencies and brands bold enough to try.

“To me, comedy and entertainment make you sit back, take you for a little ride and say ‘ok, that was a great little moment,’” he said. “And it’s doable anywhere, right? It’s just about having the right brief, the right creative, and the right clients that understand this is really going to move the needle for your product in a good way.”

No one is arguing of course that all pharma advertising should be funny. Yet the appropriate time, place and message can strike funny bones and bolster brand recognition.

For FCB Health New York creatives working on a campaign for OTC stool softener Colace last year, humor became the emotional connection to consumers and patients.

“If you’re not triggering emotions and feelings through your communications, you’re probably not being heard by your audience,” said Melissa Jean Ludwig, VP and creative director at the agency. “With humor specifically, we really feel that it helps people broach topics that are sometimes difficult to talk about — in this case, pooping.”

Melissa Jean Ludwig

“There’s a right place and a right time for using humor, and if we can check both of those boxes, that opens the door for us to go for it,” she added.

The Colace campaign, anchored by a 30-second video ad, featured animated animals and objects such as pineapples and a watermelon acting out the upbeat original jingle that related difficulty pooping to humorous analogies — and drove a big response. It’s racked up almost 1.5 million combined video views across social media including YouTube, Ludwig said.

Erica Thwaites, FCB Health VP and creative director and co-creator on the Colace campaign, said humor through icons, imagery and songs can create more memorable work.

Erica Thwaites

“People don’t often want to remember the heavy stuff. So I think with humorous advertising there is a hope that people can hold onto and remember,” she said. “… I’m optimistic that the pendulum is swinging to the lighter side of things — or maybe I should say the non-pharma-y side of things? We’ve been hearing from clients who are saying ‘I don’t want this to feel like pharma.’”

Humor though is subjective. What may be funny to one person — or even 10,000 people — may not be funny to others. That means “doing the homework” to make sure the humor is on target and resonates appropriately, said Michelle Ziekert, Eversana Intouch executive creative director said.

Target audiences though will determine the level of acceptable humor, she said, for instance, the oncology category where disease may be incurable would seem to not be an appropriate place. And that may be true for pharma marketers, but as Ziekert noticed when doing research for oncology products, she found “tons of humor” from patients themselves on social media.

“The audience is allowed to do a lot of humor, but we as marketers are not able to encroach in that space,” she said. “There’s a line of respectability. If I myself have a condition, I may be able to make fun of that condition … There was one in cancer specifically with a person (on social media) talking about how much weight she lost as a side benefit that nobody talked about, and that may be funny when a person with cancer says it, but if we were to say that on TV, we’d be crossing a line that would show a lack of respect.”

Even treading carefully with humor though, pharma brands still need to be prepared for possible backlash.

“As a content creator, you need to be ready for all manner of responses and handle them respectfully. ‘We appreciate your feedback.’ …  But having done the homework is the entry fee,” Ziekert said.

The homework is testing, testing and more testing — with real people, patients, physicians, caregivers and more and in real-world channels as well before launching a campaign. Consultants such as Kantar have developed scientific methods to track reactions to humor at detailed level.

Facial coding, for instance, records the changing expressions on peoples’ faces as they’re watching an ad. Kantar also asks the viewers questions about the humor and emotions felt and syncs the data.

“We can check at which point, if you’ve made a joke, at what point are people actually finding it funny — and sometimes that may be a completely wrong point,” Jones said. “The idea is that the point where you see the rising and the bit where they find it funny that kind of needs to be around the brand. If you can get your brand in at those points as well, you’ve got a winning ad.”

Despite overall dropoffs in humor in general advertising and in pharma, there is some hope for the future and a return to more lightheartedness.

“The mood of the pandemic affected the mood of how creative was being evaluated both internally at agencies and by clients. It definitely put a certain kind of tone on the work that I think is going away,” Hessel said.

And considering the 20-year humor ad slide, it wasn’t just the pandemic that pushed more serious themes and tones.

“Even before the pandemic, we had a phase where there was a lot of heartfelt, purposeful advertising which became known as ‘sadvertising,’ It was all very emotional but sad at the same time, and I think people were beginning to reach a point where they really would like humor to come back,” Jones said.

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Government

Washington Gave $28M To Chinese Entities For Joint Research Since 2015: Report

Washington Gave $28M To Chinese Entities For Joint Research Since 2015: Report

Authored by Rita Li via The Epoch Times (emphasis ours),

Recently…

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Washington Gave $28M To Chinese Entities For Joint Research Since 2015: Report

Authored by Rita Li via The Epoch Times (emphasis ours),

Recently released findings show U.S. government agencies sent over $28 million in taxpayers’ dollars “directly to Chinese entities” for joint research over a five-year period ending 2021.

A technician works at a DNA tech lab in Beijing on Aug. 22, 2018. (Greg Baker/AFP/Getty Images)

From fiscal years 2015 through 2021, “the CDC [Centers for Disease Control and Prevention], NIH [National Institutes of Health], and DOD [Department of Defense] provided 22 awards totaling $28.9 million directly to Chinese entities including universities and other research institutions,” the Government Accountability Office (GAO) said on Sept. 29 following a trove of analyses.

Researchers found the federal funding focused on “multiple scientific disciplines,” aiding Chinese entities in conducting research on “disease surveillance, vaccination studies, and the development of new drugs,” as well as “alternative technologies to propel vehicles such as drones.”

The release of its 38-page report (pdf) follows a January request from House Republican Conference Chairwoman Elise Stefanik (R-N.Y.) and Michael McCaul (R-Texas), the top Republican on the House Foreign Affairs Committee. They asked GAO to review federal funds provided to China or entities controlled by the Chinese Communist Party (CCP) for collaborative research, and U.S. contributions to multilateral institutions.

Stefanik described such funding as “troubling.”

“China’s deception and stonewalling of the truth behind the origins of COVID-19 has led to millions of senseless deaths and trillions of dollars in economic destruction across the globe,” the congresswoman said in a statement to The Epoch Times.

The three agencies awarded a total of 13 Chinese entities for joint publications, information sharing, and workshops, while 84 percent of the direct funding went to the University of Hong Kong, Peking University, and the Chinese Center for Disease Control and Prevention, known as the Chinese CDC.

Receiving almost $5 million from the NIH and the CDC over the past years, the Chinese CDC had been suppressing information about the outbreak domestically and snubbed U.S. offers of assistance, despite how any health data would have been crucial to formulate a more effective COVID-19 containment strategy and minimize the disease’s global spread.

Health workers wearing personal protective equipment walk on a street in a neighborhood during a COVID-19 lockdown in the Jing’an district in Shanghai on April 8, 2022. (Hector Retamal/AFP via Getty Images)

“Even more frightening,” Stefanik continued, “we still have no idea how much total money has been sent to China due to lax reporting requirements. Make no mistake, the Chinese Communist Party’s deception throughout the pandemic confirmed that China is not a reliable partner.”

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Tyler Durden Thu, 10/06/2022 - 17:40

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Meet Florence, WHO’s AI-powered digital health worker

An artificial intelligence-powered digital health worker has been unveiled by the World Health Organisation (WHO) as its latest
The post Meet Florence,…

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An artificial intelligence-powered digital health worker has been unveiled by the World Health Organisation (WHO) as its latest tool for disseminating reliable health information to the public.

Originally developed by New Zealand tech company Soul Machines with support of the Qatar Ministry of Health, the first version of the virtual health worker was used to combat misinformation about the pandemic.

The new version – dubbed Florence 2.0 – covers a broader range of topics. Along with advice on COVID-19 vaccines and treatments it can also share advice on mental health, give tips to de-stress, provide guidance on how to eat healthily and be more active, and quit tobacco and e-cigarettes, according to the WHO.

The chatbot can currently converse in English, with Arabic, French, Spanish, Chinese, Hindi and Russian to follow.

It’s an interesting move for the WHO, which hasn’t been on the front lines of the digital health revolution, and an indicator of the growing acceptance of AI to help support health.

The topics chosen for Florence are some of those that have the greatest burden on health around the world, and according to her developers she could help support healthcare workers in areas where there are shortages in healthcare staff.

It is estimated that one in every eight people globally lives with a mental disorder while tobacco use and unhealthy diets kill 16 million people every year, and physical inactivity plays a role in another 830,000 preventable deaths from cancer, heart disease, lung disease, and diabetes.

“Digital technology plays a critical role in helping people worldwide lead healthier lives,” said Andy Pattison, WHO’s Team Lead for Digital Channels.

“The AI health worker Florence is a shining example of the potential to harness technology to promote and protect people’s physical and mental health,” he added.  “AI can help fill gaps in health information that exist in many communities around the world.”

The WHO said it plans to continue to develop the digital health worker to help meet major health issues facing the world today.

Soul Machines co-founder and chief executive Greg Cross said the challenge with this kind of project is to bring an avatar to life that is empathetic, informative, and understanding.

“Our digital people operate and respond in real time, providing users with a unique and emotionally engaging experience,” added Cross. “We look forward to continuing our work on Florence as we aim to positively reshape and transform the healthcare industry.”

The latest version of Florence joins a growing list of chatbots that aim to deliver first-line primary care, currently within fairly limited health categories although their capabilities are expected to grow in the next decade.

Apps like Ada Health, Healthily and Sensely combine symptom checkers with information while some such as Woebot and OneRemission provide psychological and behavioural support to patients with specific health concerns,

Others are going even further, providing functions such as medication and appointment management, or connecting patients remotely with clinicians for diagnosis and treatment. Examples of these include Babylon Health‘s platform and Gyant.

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Futures Slide As OPEC+ Cut Sparks Gas Inflation Fears And “Tighter For Longer” Fed

Futures Slide As OPEC+ Cut Sparks Gas Inflation Fears And "Tighter For Longer" Fed

Two days ago, when stocks were melting up even as oil was…

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Futures Slide As OPEC+ Cut Sparks Gas Inflation Fears And "Tighter For Longer" Fed

Two days ago, when stocks were melting up even as oil was storming higher and threatened to rerate inflation expectations sharply higher, we mused that algos were clearly ignoring this potentially ominously convergence.

And while yesterday we saw the first cracks developing in the meltup narrative as oil extended gains following OPEC's stark slap on the face of the dementia patient in the White House, it was only today that the "oil is about to push inflation sharply higher" discussion entered the broader financial sphere, with JPM writing this morning that "OPEC+ presents inflation risk", Bloomberg echoing JPM that "OPEC+ alliance’s plan to cut oil supply stoked inflation fears and as traders awaited labor-market data to gauge the risk of recession" and Saxo Bank also jumping on the bandwagon, warning that OPEC+ supply cut will worsen global inflation which "raises the risk of inflation staying higher for longer” and “sends the wrong signal to the US Federal Reserve... It could send a signal that they have to keep on their foot on the brake for longer.”

And sure enough, with oil rising above its 50DMA for the first time since Aug 30, futures have slumped overnight as oil kept its gains, with S&P and Nasdaq 100 futures both sliding 0.5% as of 730am, while Europe’s Stoxx 600 erased an advance and traded near session lows. US crude futures held on to weekly gains of about 11% after the oil cartel said it would cut daily output by 2 million barrels. Treasuries were steady, the 10Y trading around 3.77%, with the 2Y rate hovering about the 4.15% level.

In pre-market trading, Credit Suisse jumped as much as 5.2% after JPMorgan upgraded to neutral from underweight, saying it sees $15bn as a minimum value for the lender, in-line with the estimated value of the Swiss legal entity. Shares were 2% higher by 13:20pm CET in Zurich, after Bloomberg News reported that the lender is trying to bring in an outside investor to inject money into a spinoff of its advisory and investment banking businesses, citing people with knowledge of the deliberations. Other banks did not do as well, and slumped in premarket trading Thursday, putting them on track to fall for a second straight day. Twitter shares fell as much as 1.1% to $50.75, trading nearly 7% below Elon Musk’s offer price of $54.20 as investors await progress in the revived deal. Here are the other notable premarket movers:

  • Pinterest (PINS US) shares jump as much as 5.8% in US premarket trading after Goldman Sachs upgraded the social networking site to buy from neutral on improving user growth and better engagement trends, even as the backdrop for digital advertising remains uncertain.
  • Biohaven Ltd. (BHVN US) shares rise 9.7% in US premarket trading, set to extend a 75% gain over the past two days as regular trading in the newly constituted drug developer began following an unusual deal with Pfizer Inc.
  • SurgePays (SURG US) shares soar as much as 11% in premarket trading after the company gave an update on subscriber numbers for its subsidiary SurgePhone Wireless.
  • Flutter (FLTR LN) gained 3.3% in premarket trading as it was initiated at outperform at Exane as the best-placed online gambling name, while Entain also at outperform and DraftKings started at underperform.
  • Richardson Electronics (RELL US) rose 8.2% in extended trading after reporting year-over-year growth in net sales and earnings per share for the fiscal first quarter.

While higher energy prices could stoke inflation, some have speculated that this will also divert discretionary income from core items thus pushing core inflation lower and hit company earnings -- potentially encouraging the Federal Reserve to slow monetary tightening.

While such expectations fueled equity gains this week, several money managers are cautioning that the economic path to a less aggressive Fed could be painful: “If you want to preempt the Fed, you are playing a very high-stakes game,” said Kenneth Broux, a strategist at Societe Generale SA. “The Fed do not want financial conditions to loosen; they don’t want equity markets to take off and get too comfortable.”

That said, investors are wary of placing large-scale equity bets as they await a report on US initial jobless claims later Thursday and the official nonfarm payrolls data Friday. A Bloomberg survey shows the US economy will have added 260,000 jobs last month; a higher-than-anticipated number may spook markets.

In Europe, the Stoxx 50 dropped -0.3% to session lows. Stoxx 600 outperforms peers, adding 0.2%, FTSE MIB lags, dropping 0.5%. Energy and insurance underperform while real estate and travel lead gains. Here are all the notable European movers:

  • Imperial Brands shares rise as much as 4.7% after the tobacco company said it will buy back up to £1b worth of stock. The move was welcomed by analysts, with RBC calling it a “big deal” and Citigroup saying the announcement was earlier than expected.
  • Home24 SE gains as much as 126% to EU7.53 after XXXLutz offered to buy all outstanding shares in the German online furniture retailer for EU7.50 apiece. The bid is generous and the deal is straightforward from a regulatory perspective, according to Tradition.
  • Credit Suisse jumps as much as 5.2% after JPMorgan upgraded to neutral from underweight, saying it sees $15b as a minimum value for the lender, in-line with the estimated value of the Swiss legal entity.
  • CMC Markets climbs as much as 6.5% after the online trading firm said it sees first- half net operating income up 21% y/y, with market volatility in August and September boosting the results. Numis upgraded the stock to add from hold following the report.
  • Shell drops as much as 5% as analysts say the oil and gas major’s trading update looks “weak” and may mean that FY consensus proves too ambitious.
  • Kloeckner falls as much as 12% as the company faces a “high likelihood” of an imminent profit warning, Bankhaus Metzler says, double-downgrading the stock to sell from buy.
  • Swiss Re is among the weakest members of the Stoxx 600 insurance index on Thursday, declining as much as 4.0%, as Morgan Stanley lowers its price target ahead of third-quarter earnings.
  • Accor drops as much as 2.5% after the hotel chain owner was downgraded to underweight from equal-weight at Barclays, which sees short-term risks as bigger for the company compared with peers and feels investors are looking more at potential negative factors heading into FY23 than 2022 upgrades.

Earlier in the session, Asian stocks rose for a third day as hardware technology stocks in South Korea and Japan advanced on views they may have reached a bottom. The MSCI Asia Pacific Index climbed as much as 0.9%, lifted by TSMC, SoftBank and Sony. The benchmark trimmed gains later in the day, but remains on track to advance for the week, following a seven-week losing streak that was the longest since 2015.Korea’s Kospi Index was the region’s best-performing major benchmark, jumping about 1%. The advance was helped by chipmakers extending their gains amid Morgan Stanley’s bullish view on the sector. Hong Kong stocks retreated after Wednesday’s catch-up rally.

Trading volume in the region was light as mainland China remains closed for the Golden Week holiday. The MSCI’s Asian benchmark has rebounded this week from its lowest in more than two years. The move tracked a nascent revival in global equities on bets that the Federal Reserve may turn less aggressive in its tightening. In a potential harbinger of shifting market views, Morgan Stanley strategists upgraded emerging-market and Asia ex-Japan stocks to overweight from equal-weight.   Investors are also optimistic that monetary policies in China and Japan, which have bucked the global wave of tightening to remain loose, could provide further support to the nations’ equities.  “While the rest of the world is tightening, Japan and China are still easing, especially China where we are going to see more easing policies going forward,” Chi Lo, senior investment strategist for Asia Pacific at BNP Paribas Asset Management, said in an interview with Bloomberg TV. “That makes us more positive on EM Asia.”

Japanese equities gained for a fourth day as investors awaited domestic corporate earnings coming out later this month.  The Topix rose 0.5% to 1,922.47 as of the market close in Tokyo, while the Nikkei 225 advanced 0.7% to 27,311.30. Sony Group contributed the most to the Topix’s gain, increasing 1.7%. Out of 2,168 stocks in the index, 1,564 rose and 490 fell, while 114 were unchanged. “There is relatively little concern about corporate earnings for Japanese stocks with the economy restarting and the yen weakening,” said Shogo Maekawa, a strategist at JPMorgan Asset Management.

In FX, the Bloomberg Dollar Spot Index consolidated within the recent day’s ranges, while Britain’s pound slipped 0.4% and gilt yields rose after Fitch Ratings lowered its outlook on the nation to negative. The greenback advanced against most of its G-10 peers. The euro steadied just below $0.99. Euro hedging costs are on the rise again as traders position ahead of Friday’s payrolls print and next week’s US inflation report. Commodity currencies were the worst performers along with the pound. Australian and New Zealand dollars gave up an Asia-session advance. The yen traded in a narrow range.

In rates, Treasuries were slightly cheaper across the curve after paring declines led by gilts in London trading after a Bank of England survey found expectations for higher prices. Focal points of US session include several Fed speakers and potential for risk-reduction ahead of Friday’s September jobs report Friday. US yields cheaper by less than 2bp across the curve in bear- flattening move, 10-year by 2bp vs 17bp for UK 10-year, the downside leader in developed market sovereign bonds.  German and Italian bond curves flattened modestly as yields on shorter-dated notes rose, while those further out fell.

In commodities, West Texas Intermediate futures traded near $88 a barrel, while Brent crude held near $93.30. The output-cut plan drew a warning from the White House about negative effects on the global economy. Goldman Sachs Group Inc. increased its fourth-quarter price target for Brent to $110 a barrel.

To the day ahead now, and data releases include German factory orders for August, the German and UK construction PMIs for September, Euro Area retail sales for August, and the weekly initial jobless claims from the US. Meanwhile from central banks, we’ll get the ECB’s account of their September meeting, as well as remarks from the Fed’s Evans, Cook, Kashkari, Waller and Mester, and the BoE’s Haskel.

Market Snapshot

  • S&P 500 futures down 0.3% to 3,783.50
  • STOXX Europe 600 up 0.3% to 400.25
  • MXAP up 0.4% to 145.05
  • MXAPJ up 0.3% to 471.37
  • Nikkei up 0.7% to 27,311.30
  • Topix up 0.5% to 1,922.47
  • Hang Seng Index down 0.4% to 18,012.15
  • Shanghai Composite down 0.6% to 3,024.39
  • Sensex up 0.6% to 58,403.02
  • Australia S&P/ASX 200 little changed at 6,817.52
  • Kospi up 1.0% to 2,237.86
  • German 10Y yield little changed at 2.05%
  • Euro little changed at $0.9886
  • Brent Futures up 0.3% to $93.62/bbl
  • Gold spot up 0.0% to $1,716.69
  • U.S. Dollar Index little changed at 111.24

Top Overnight News from Bloomberg

  • UK bond markets face a potential “cliff edge” when the Bank of England exits the market at the end of next week, leaving traders to navigate a turbulent backdrop without the support of a buyer of last resort
  • Millions more Britons will be dragged into higher rates of income tax over the next three years, costing twice as much as Prime Minister Liz Truss’s personal tax cuts, according to calculations by the Institute for Fiscal Studies
  • Britain’s construction industry turned more pessimistic in September after rising interest rates and the risk of recession held back new orders
  • The European Union plans to examine whether Germany’s massive plan to shelter companies and households from surging energy costs respects the bloc’s rules on public subsidies, EU Commissioner Thierry Breton said
  • German factory orders dropped in August after the previous month was revised to show an increase, hinting at a lack of momentum as the economy stands on the brink of a recession
  • Societe Generale SA cut its exposure to counterparties on trades in China by about $80 million in the past few weeks as global banks seek to guard against any potential fallout from rising geopolitical risks in the world’s second-largest economy

A more detailed look at global markets courtesy of Newsquawk

Asia-Pac stocks traded mixed as the region partially shrugged off the lacklustre lead from the US where the major indices snapped a firm two-day rally and finished the somewhat choppy session with mild losses amid higher yields and as Fed rhetoric essentially pushed back against a policy pivot. ASX 200 lacked direction amid underperformance in the Real Estate and the Consumer sectors, although the downside was also limited by strength in energy after oil prices were lifted by the OPEC+ output cut. Nikkei 225 was positive with notable gains in exporter names and with Rakuten leading the advances as Mizuho looks to acquire a 20% stake in Rakuten Securities for USD 555mln. Hang Seng was lacklustre and took a breather after the prior day’s more than 5% jump with the mood also not helped after Hong Kong PMI slipped into contraction territory for the first time in 6 months.

Top Asian News

  • Haikou city in China's Hainan imposed a COVID lockdown for Thursday, according to Bloomberg.
  • Malaysia PM May Propose Parliament Dissolution, Bernama Reports
  • Why Polio, Once Nearly Eradicated, Is Rebounding: QuickTake
  • Legoland Korea’s Default Flags Risks for Nation’s Developers
  • Paris Club Seeks China Collaboration in Sri Lanka Debt Talks
  • Yen Rout Is Over on Peak US Rate Hike Bets, Says Top Forecaster

European bourses are under modest pressure as sentiment broadly takes a slight turn for the worst amid limited newsflow as participants look to Friday's NFP. Currently, European benchmarks are lower by 0.1-0.3% while US futures are posting slightly larger losses of circa 0.7 ahead of Fed speak.

Top European News

  • Fitch affirmed the UK at AA-; Outlook revised to Negative from Stable, while it stated that the fiscal package announced as part of the new UK government's growth plan could lead to a significant increase in deficits over the medium-term, according to Reuters.
  • The UK Treasury is set to impose GBP 21bln of additional income taxes despite the "tax-cutting mini-budget", according to a study by the Institute for Fiscal Studies. (Times)
  • BoE Monthly Decision Maker Panel data - September 2022; looking ahead, DMP members expected CPI inflation to be 9.5% one-year ahead, up from 8.4% in the August survey, and 4.8% in three years’ time.
  • BoE's Cunliffe says the FPC will publish its next financial policy statement and record on October 12th, liquidity conditions in the run up to the BoE gilt intervention were "very poor", MPC will make a full assessment of recent developments at its November 3rd meeting.
  • UK government has proposed easing the fee cap for illiquid assets in pensions, according to a rule consultation publication by the government.
  • Swedish Economy Shrinks More Than Estimated on Weak Industry
  • UK Tech M&A Spree Pauses as Buyers Pull Out Amid Chaotic Markets

FX

  • USD benefits from the mentioned risk tone, with the DXY extending to a 111.35 peak to the modest detriment of peers.
  • However, EUR is relatively resilient and holding around 0.99 vs the USD as we await the ECB Minutes account for near-term guidance.
  • Cable faded sub-1.1400 and reversed through 1.1300 again amid the USD's move and prior to a letter exchange from the BoE to Treasury re. the Gilt Intervention.
  • Antipodeans under pressure given the USD move and associated action in metals, while the Yuan initially lent a helping hand but this has since dissipated.
  • Given the broader tone, the traditional havens are holding near unchanged levels though yield dynamics are a hinderance.

Fixed Income

  • Gilts are once again the standout laggard following rating agency action and the BoE DMP showing inflation pressures were already elevated MM before the fiscal update.
  • As such, the UK yield has extended back above 4.10%; in the US, yields are also bid though to a much lesser extent before Fed speak and Friday's jobs.
  • Back to Europe, Bunds are pressured though only modestly so vs UK counterparts awaiting the ECB's September account

Commodities

  • Crude benchmarks are modestly firmer at present, extending marginally above yesterday’s best levels with fresh newsflow limited as participants digest yesterday’s OPEC+ action.
  • WTI and Brent are towards the mid-point of circa. USD 1/bbl ranges, though Brent Dec’22 briefly surpassed the 200-DMA at USD 94.11/bbl before moving back below the figure.
  • Acting Kuwaiti Oil Minister said the OPEC+ decision to cut output will have positive ramifications for oil markets, while they understand consumers' concerns about prices increasing but added that the main motive in OPEC+ is balancing supply and demand, according to Reuters.
  • US National Security official stated the US sanctions policy on Venezuela remains unchanged and there are no plans to change the sanctions policy without constructive steps from Maduro, according to Reuters.
  • Norway's Budget proposes changing the temporary tax rules for the petroleum sector, entails that the uplift is reduced to 12.40% (prev. 17.69%), via Reuters.
  • Saudi sets the November Arab Light OSP to N.W Europe at Ice Brent +USD 0.90/bbl; to the US at ASCI +USD 6.35/bbl, via Reuters citing a document; to Asia at Oman/Dubai +USD 5.85 (Unch.), via Reuters sources.

Geopolitics

  • North Korea launched two short-range ballistic missiles which were fired from Pyongyang and landed outside of Japan's exclusive economic zone, according to the South Korean military cited by Yonhap. Furthermore, North Korea said that its missile launches are counteraction measures against the US and South Korean military drills.
  • North Korean jets and bombers have been seen flying in an exercise, according to Yonhap; South Korean jets take off in response, via Reuters.
  • US State Department condemned North Korea's ballistic missile launch and said North Korea's missile launches pose a threat to regional neighbours and the international community, while it added that the US remains committed to a diplomatic approach to North Korea and called on North Korea to engage in dialogue, according to Reuters.
  • The EU has approved the 8th round of Russian sanctions; as expected.

US Event Calendar

  • 08:30: Sept. Continuing Claims, est. 1.35m, prior 1.35m
  • 08:30: Oct. Initial Jobless Claims, est. 204,000, prior 193,000

Central bank Speakers

  • 08:50: Fed’s Mester Makes Opening Remarks
  • 09:15: Fed’s Kashkari Takes Part in Moderated Q&A
  • 13:00: Fed’s Evans Takes Part in Moderated Q&A
  • 13:00: Fed’s Cook Speaks on the Economic Outlook
  • 13:00: Fed’s Kashkari Discusses Cyber Risk and Financial Stability
  • 17:00: Fed’s Waller Discusses the Economic Outlook
  • 18:30: Fed’s Mester Discusses the Economic Outlook

DB's Henry Allen concludes the overnight wrap

After an astonishing rally at the beginning of Q4, markets reversed course yesterday as investors became much more sceptical that we’ll actually get a dovish pivot from central banks after all. The idea of a pivot has been a prominent theme over recent days, particularly after the financial turmoil during the last couple of weeks, thus sparking the biggest 2-day rally in the S&P 500 since April 2020 as the week began. But over the last 24 hours, solid US data releases have created a pushback against that narrative, since they were seen as giving the Fed more space to keep hiking rates over the coming months. And if markets had any further doubt about the Fed’s intentions, San Francisco Fed President Daly explicitly said yesterday that she didn’t expect there to be rate cuts next year, in direct contrast to futures that are still pricing in rate cuts from Q2. Indeed for a sense of just how volatile the reaction has been, 10yr bund yields were up by +16.3bps yesterday, which is their largest daily rise since March 2020 during the initial wave of the pandemic.

Looking at the details of those releases, it was evident that markets are still treating good news as bad news at the minute, since they sold off even as data pointed to a more resilient performance from the US economy than had been thought. For example, the ISM services index came in above expectations at 56.7 (vs. 56.0 expected), and the employment component moved up to a 6-month high of 53.0. So that’s a noticeably different picture to the manufacturing print on Monday, when there was a surprise contraction in the employment component. Furthermore, there was another sign of labour market strength from the ADP’s report of private payrolls, which came in at +208k in September (vs. +200k expected), and the previous month’s reading was also revised upwards. We’ll see if that picture is echoed in the US jobs report tomorrow, but there was a clear reaction to the ISM print in markets, as investors moved to upgrade the amount of Fed hikes they were expecting whilst the equity selloff accelerated.

Those expectations of a more hawkish Fed were given significant support by comments from Fed officials themselves. The most obvious came from San Francisco Fed President Daly, who was asked about the fact that futures were pricing in rate cuts, and said “I don’t see that happening at all”. In fact when it came to rates, she not only said that they were raising them into restrictive territory, but that they would be “holding it there” until inflation fell. Atlanta Fed President Bostic struck a similar tone, emphasising rate cuts in 2023 were not likely and that “I am not advocating a quick turn toward accommodation. On the contrary.” He said he wanted fed funds rates between 4% and 4.5% by the end of this year, “and then hold at that level and see how the economy and prices react.”

That backdrop led to a sizeable cross-asset selloff yesterday on both sides of the Atlantic. The effects on the rates side were particularly prominent, with 10yr US Treasury yields bouncing back +12.0bps to 3.75%. And that move was entirely driven by real yields, which rose +15.1bps as investors moved to price in a more hawkish Fed over the months ahead. You could see that taking place in Fed funds futures too, with the rate priced in for December 2023 up by +8.9bps to 4.19%, thus partially reversing the -22.2bps move lower over the previous two sessions. This morning, 10yr yields are only down -1.0 bps, so far from unwinding those moves.

The hawkish tones also proved bad news for equities, with the S&P 500 taking a breather following its blistering start to the week, retreating -0.20% after being as low as -1.80% in the New York morning. European equities did not enjoy the benefits of a New York afternoon rally, leading to a transatlantic divergence, and the STOXX 600 was down -1.02% on a broad-based decline. The energy sector outperformed in both the S&P 500 and STOXX 600 following a rally in crude oil which saw both Brent crude (+2.81%) and WTI (+2.53%) oil prices hit a 3-week high. That followed a decision from the OPEC+ group, who cut output by 2 million barrels per day. Those gains have continued in overnight trading as well, with Brent Crude now at $93.48/bbl.

In Europe, the performance of sovereign bonds echoed that for US Treasuries, as yields on 10yr bunds (+16.3bps), OATs (+17.6bps) and BTPs (+29.0bps) all saw their largest daily increases since March 2020. As in the US, that reflected growing scepticism about a dovish pivot from the ECB, but another factor not helping matters was the rebound in energy prices, with natural gas futures up +7.25% on the day to close at €174 per megawatt-hour, alongside the oil rebound mentioned above. That’s been reflected in inflation expectations too, with the 10yr German breakeven up another +8.0bps yesterday to 2.15%, after having closed beneath 2% on Monday for the first time since Russia’s invasion of Ukraine began.

Here in the UK, we also saw several key assets lose ground once again following their rally over the last week. For instance, sterling ended a run of 6 consecutive daily gains against the US Dollar to close -1.31% lower, closing back at $1.13. And that wasn’t simply a story of dollar strength, as the pound weakened against every other G10 currency as well. Gilts were another asset to struggle, with real yields in particular seeing significant daily rises of at least +30bps across most of the yield curve, including a +33.0bps rise for the 10yr real yield, and a +36.7bps rise for the 30yr real yield. That came as the Bank of England said they didn’t buy any gilts under their emergency operation for a second day running. In the meantime, there were fresh signs that the turmoil after the fiscal announcement was impacting the mortgage market, with Moneyfacts saying that the average 2yr fixed-rate mortgage had risen to 6.07%, which is the highest since November 2008. Last night that was then followed up by the news that Fitch had downgraded the UK’s outlook from stable to negative.

Overnight in Asia there’s been a mixed performance from the major equity indices. Both the Nikkei (+0.94%) and the Kospi (+1.25%) have recorded solid advances, which continues their run of having risen every day this week. In addition, futures in the US and Europe are both pointing higher, with those on the S&P 500 up +0.49%. However, the Hang Seng is down -0.43% and Australia’s S&P/ASX 200 is down -0.05%, whilst markets in mainland China remain closed for a holiday. The dollar index has also lost ground overnight, falling -0.25%, which comes in spite of those hawkish comments from Fed officials pushing back against rate cuts next year.

Looking at yesterday’s other data, the final services and composite PMIs mostly echoed the data from the flash readings. The composite PMI for the Euro Area was revised down a tenth to 48.1, and the US composite PMI was revised up two-tenths to 49.5. There was a bigger rise in the UK however, where the composite PMI was revised up seven-tenths to 49.1.

To the day ahead now, and data releases include German factory orders for August, the German and UK construction PMIs for September, Euro Area retail sales for August, and the weekly initial jobless claims from the US. Meanwhile from central banks, we’ll get the ECB’s account of their September meeting, as well as remarks from the Fed’s Evans, Cook, Kashkari, Waller and Mester, and the BoE’s Haskel.

Tyler Durden Thu, 10/06/2022 - 08:02

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