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Pendulum of Sentiment Swings Back against Imminent Recession Fears Despite Curve Inversion

High political drama in recent days included the assassination of former Japanese Prime Minister Abe and the resignation of UK Prime Minister Johnson. Yet,…

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High political drama in recent days included the assassination of former Japanese Prime Minister Abe and the resignation of UK Prime Minister Johnson. Yet, the capital markets in general, and the currency market in particular, were not roiled. This is because investors have their sights elsewhere.  

The dollar surged. It is partly a function of bad news elsewhere. Japan's easy monetary policy stance sticks out like a sore thumb, and the May data showed the economic recovery from the contraction in Q1 is faltering. Industrial output slumped by a stunning 7.2% in the month, and household spending unexpectedly fell. The euro has been driven to new 20-year lows as short-term interest rate differentials move against it. The energy shock is intensifying. Arguably, unreasonable expectations about a new ECB tool to minimize the divergence of interest rates have been deflated. The US economic news stream was somewhat better, with the flash PMI composite revised higher and the increase of nonfarm payrolls stronger than expected. 

Still, economists cut US Q2 GDP forecasts, and the Atlanta Fed GDPNow tracker stands at -1.2%. The market continues to price in not only a 75 bp hike at the FOMC meeting later this month but another 100 bp in the last three meetings of the year. The employment report showed the labor market remains strong, even if not quite as strong as before. The next series of data will also push the pendulum of market sentiment away from recession talk: headline consumer prices are expected to have accelerated, retail sales likely snapped back after falling 0.3% in May, and industrial output is expected to have edged a little higher. The leading hawks at the Fed may have preferred a different path (though there has been only one dissent for a larger hike), but the year-end rate of 3.25%-3.50% in the Fed funds futures is very much in line with what they advocate. The asymmetry of the Fed's path is evident in its unconditional commitment to restore price stability while hoping not too much economic harm is done in the process.  

Dollar Index:  A new 20-year high (~107.80) was set ahead of the weekend and before the US jobs report. Since the end of the first quarter, the Dollar Index has fallen in only three weeks and only once in the past six weeks. The next important technical area is seen in the 109.25-110.00 range. The MACD and Slow Stochastics are still increasing, but the rapid rise, almost 3% over the past two weeks, lifted DXY above its upper Bollinger Band (~107.15) over the past four sessions, though it finished last week inside it. A pullback into the 105.85-106.20 area may be a better opportunity for bulls.  

Euro: The selling has been intense. The immediate pressure subsided after it could not make new lows following the US jobs report. A bout of short-covering lifted it a little more than a cent off its lows. It had slid from the July 4 high near $1.0465 to almost $1.0070 ahead of the weekend.   Initial resistance is now seen in the $1.0200-$1.0220 area. The precipitous decline takes more than a small bounce to turn the momentum indicators, which are still headed lower even if stretched. It has spent most of the last three sessions below the lower Bollinger Band, which will begin the new week slightly above $1.0170. Another indication of the near-term over-extended condition is the euro's distance from the downtrend line connecting the February, March, and June highs. It is found slightly below $1.06 at the start of the new week. In this year's downtrend, the euro rarely trades more than five or six cents below the trend.  

Japanese Yen: Despite intense volatility in the US bond market, the dollar-yen exchange rate traded relatively narrowly in the past week (~JPY134.80-JPY136.60). In fact, the dollar has settled in between JPY135.85 and JPY136.05 for the past four sessions. The greenback has frayed the 20-day moving average (~JPY135.40) on an intraday basis but has not settled below it since late May. The sideways price action is seeing the momentum indicators gently drift lower. If the US 10-year yield continues to move higher after pulling back around 75 bp from mid-June's FOMC meeting, the dollar could be bid to new highs against the yen.  

British Pound: Sterling recorded a new two-year low in the middle of last week, near $1.1875. It recovered to set a three-day high ahead of the weekend by $1.2055. The stalling of its downside momentum is seen in the fact that higher lows and higher highs have been recorded for the past two sessions. The MACD has flatlined, while the decline in the Slow Stochastic has begun leveling off. There may be initial scope toward $1.2100, but it requires a move above the $1.2150-60 area that houses retracement objectives and the 20-day moving average to signal anything of note. Despite the UK political drama, the euro fell to almost GBP0.8440, its lowest level in about five weeks. It frayed the 200-day moving average by a handful of ticks ahead of the weekend. Although the euro bounced a little, it could not re-enter the Bollinger Band (~GBP08480).  

Canadian Dollar:  As part of the broad US dollar rally, the drop in WTI below $100 a barrel, and softer commodity prices in general, the Canadian dollar made marginal new lows for the year on July 5 (~CAD1.3085) before recovering. The takeaway from the Canadian employment report was that there has been little net new job creation in the past two months, but full-time employment increased (~131k) as much as part-time work fell (~135k). While US average hourly earnings slowed for the third consecutive month, Canada's hourly wage rate for permanent workers continued to accelerate. Investors became more aggressive last week. The swaps shifted from a 60% chance of a 75 bp hike at the July 13 central to entirely discounting it. The US dollar found support ahead of the weekend near CAD1.2935, a (61.8%) retracement of the week's rally and the 20-day moving average. A break of that area could signal a return to the CAD1.2840-60 area.  

Australian Dollar: All last week, the Australian dollar traded in the July 1 range (~$0.6765-$0.6905). Still, last week, it was the only major currency to rise against the greenback. The momentum indicators have flatlined in their troughs. The 20-day moving average is near the upper end of the range and has closed above it in a month. A convincing move above this area would lift the technical tone. We have highlighted the technical significance of the lower end of the range: It is the halfway point of the Aussie's rally from the pandemic panic low near $0.5500. The next retracement (61.8%) is around $0.6465. Australia reports June employment data on July 14. Full-time job growth has averaged nearly 61.5k a month this year through May, which is about a third higher than in the same period last year. The unemployment rate is at a record low of 3.9% but may have slipped lower. The market is pricing around a 60% chance of another 50 bp hike when the central bank meets again on August 2. 

Mexican Peso: The greenback rose to almost four-month highs in the middle of last week near MXN20.7860. It pulled back in the subsequent two sessions, reaching MXN20.3650 before the weekend. The momentum indicators are giving contradictory signals. The MACD may turn lower from overbought territory, while the Slow Stochastic is headed higher. Provided that the MXN20.19 area holds, the bias may be to a higher dollar. That said, the dollar has not closed above the MXN20.68 area, which is the (61.8%) retracement of the decline from the year's high set in March near MXN21.4675. The JP Morgan Emerging Market Currency Index fell by almost 2.7% last week after a 1.3% decline in the prior week. Over the past two weeks, the peso has fallen by nearly 2.8%. Brazil has performed the best in the region, with BRL gaining about 1%. The Colombian peso has depreciated by 6.4%, the most in the region, and among emerging markets, only the South African rand (-6.5%) and the Russian rouble (-16.1%) have done worse.  

Chinese Yuan: Last week, the dollar was little changed against the Chinese yuan, slipping by 0.1%. The week before, it rose slightly more than 0.15%. For the better part of the past two months, the dollar has been forming a large wedge/triangle pattern. However, it is getting too close to the apex to be meaningful technically. Still, the takeaway is that the exchange rate is trending sideways, not up or down. The momentum indicators are not generating strong signals, and continued range trading may be the most likely scenario, perhaps between CNY6.6750 and CNY6.7250. By so tightly shadowing the dollar, Chinese officials are accepting a marked appreciation of the yuan against the euro, yen, and most other currencies.  

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Zelensky Departs Washington Mostly Empty-Handed Amid Mood Shift In West

Zelensky Departs Washington Mostly Empty-Handed Amid Mood Shift In West

By all accounts, Zelensky came away from his Washington visit with…

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Zelensky Departs Washington Mostly Empty-Handed Amid Mood Shift In West

By all accounts, Zelensky came away from his Washington visit with nothing new. Biden did announce a fresh $325 million aid package for Ukraine from already committed funds, but the hoped-for long range missile approval never came (however, more cluster bombs are being sent). And as we detailed Thursday, House Republican leadership once again failed to move forward on a mere procedural vote for the Pentagon funding bill, due in large part to GOP members rejecting Biden's proposed $24 billion more in Ukraine aid.

Thursday's package announced by Biden, as Zelensky visited the White House and Capitol Hill, was run-of-the-mill and entirely to be expected. "Today I approved the next tranche of U.S. security assistance to Ukraine including more artillery, more ammunition, more anti-tank weapons and next week, the first U.S. Abrams tanks will be delivered to Ukraine," Biden said.

As for the earlier in the day (Thurs.) meeting with Congressional leaders, House Speaker Kevin McCarthy explained when asked why the Ukrainian leader's request to address Congress was denied, "Zelensky asked for a joint session, we just didn't have time. He's already given a joint session."

Via AFP

Instead in a closed-door meeting, Zelensky later acknowledged he discussed with lawmakers "the battlefield situation and priority defense needs."

But if there is any level of consolation for Kiev, it's seen in the Pentagon announcement which came late in the day Thursday. Facing potential US government shutdown on Oct.1st, given at this point Congress is not expected to pass the 12 appropriations bills needed to fund government operations before next fiscal year, the Pentagon has said it will exempt its operations supporting Ukraine from a shutdown. 

The military typically suspends any activities not deemed vital to national security during government shutdowns, thus the DoD is in effect saying Ukraine aid remains "vital to national security". 

"Operation Atlantic Resolve is an excepted activity under a government lapse in appropriations," Pentagon spokesman Chris Sherwood told Politico, in reference to the operational name still used for actions supporting Kiev.

But Politico points out a potential shutdown would still negatively impact US support to Ukraine:

Sherwood noted that while DOD’s activities related to Ukraine will continue, furloughs and other activities halted under the shutdown could still have a negative impact.

"Training would happen, but depending on whether or not there were certain personnel that were not able to report for duty, for example, that could have an impact," said Pentagon spokesperson Brig. Gen. Patrick Ryder on Thursday.

This Pentagon exemption to keep Ukraine-related support active during a government shutdown seems to be the only significant thing Zelensky came away with. 

It appears to have been the main object of discussion when Zelensky met with Secretary of Defense Lloyd Austin in Washington during the trip. The Pentagon said this was "to reaffirm the steadfast US support for Ukraine."

Meanwhile, Bloomberg takes note of Zelensky "showing the strain" amid increasing divisions among allies:

The Ukrainian president allowed a dispute with one of his biggest allies to spin out of control at the United Nations General Assembly this week, and that’s just a hint of the tensions building behind the scenes.

Zelenskiy has been leading his country through Russia’s brutal assault for 19 months, all the time fighting on another front to wring the weapons and finance he needs from his US and European supporters. Now he suspects that President Joe Biden’s commitment is wavering and other leaders may be taking their cue from the US, according to a person who met with him recently.

He grew very emotional at times during that discussion, the person said, and was scathing in his criticism of nations that he said weren’t delivering weapons quickly enough.

Washington's lackluster greeting of Zelensky this week (compared to how he was received in December 2022) came simultaneous to Poland declaring it will no longer arm Ukraine, amid a fierce diplomatic spat over blockage of Ukraine grain imports by Warsaw, to protect Polish farmers.

The Economist is also taking note of the significant mood shift among Western allies...

A "long war" indeed... given a G7 leader from a European country has told reporters this week that the West is prepared for a years-long war, something likely to last some six or seven years, according to the quote.

"A senior official from one European G-7 country said the war may last as much as six or seven more years and that allies need to plan financially to continue support for Kyiv for such a long conflict," Bloomberg wrote.

Tyler Durden Fri, 09/22/2023 - 10:15

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International

Michael Bloomberg puts up $500M to shut down this controversial industry

The businessman and former New York City mayor is investing big money for a high-powered campaign.

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Years ago, a rich person or company would indicate wealth by donating libraries and orphanages or traverse the world in bespoke yachts or aircraft.

You may commission a boat to extract an enemy submarine off the depths of the ocean floor. Perhaps you'd get an ivy league school of public policy and government named in your honor. If you were really industrious, you might even gather a bunch of your high-powered banker friends in a locked room on a distant island off the coast of Georgia to establish what we now call the Federal Reserve. 

DON'T MISS: China is no longer the leading exporter to U.S. (here's who is)

Nowadays, however, it's quite in vogue to gather large stockpiles of your cash and put it to work not for your people or your country. Billionaires think much bigger than that. If you're really rich, you put your money to work for the good of planet Earth. 

Take, for example, Microsoft  (MSFT) - Get Free Report and Amazon  (AMZN) - Get Free Report, who both recently pledged hundreds of millions of dollars between the two to capture carbon out of the atmosphere and dispose of it where it may no longer be accessed. 

Businessman and former New York City Mayor Michael Bloomberg is the latest billionaire to take a stab at the seemingly unsolvable climate crisis – and he's putting a vast sum of his money up to the challenge. 

Aerial view of Jon Amos Power plant shows smoke stacks and cooling, Coal, Poca, West Virginia. (Photo by: Visions of America/Joseph Sohm/Universal Images Group via Getty Images)

Joe Sohm/Visions of America/Getty Images

Michael Bloomberg pledges millions to fight coal

Bloomberg's charitable organization, Bloomberg Philanthropies, announced on Wednesday that it would front $500 million to shut down all existing coal plants in the U.S. and prevent future natural gas plants from being constructed. 

The pledge may sound anti-industrialist, but Bloomberg's "Beyond Carbon" initiative claims it will "turbocharge," environmental progress. 

The initiative includes the following bullet points: 

  • Finish the job on coal. With 372 of 530 coal plants announced to retire or closed to date – more than 70 percent of the country’s coal fleet – this next phase will shut down every last U.S. coal plant.
  • Slash gas plant capacity in half, and block all new gas plants.
  • Increase U.S. clean energy four-fold. Accelerate the clean energy transition to reach the goal of 80 percent of total electricity generation.

"Bloomberg Philanthropies has helped retire more than 70 percent of all U.S. coal plants, which accounts for more than 80 percent of all emissions reductions in the United States since 2010," Bloomberg, who's a special envoy on climate ambition and solutions to the U.N. proudly announced on Wednesday. 

Beyond Carbon will also fund the following organizations as a part of its mission toward progress: 

  • Earthjustice
  • Hip Hop Caucus
  • Sierra Club
  • RMI
  • League of Conservation Voters
  • Advanced Energy United
  • Coalfield Development

No stranger to controversy, Bloomberg has supported a number of divisive policies during his tenure in the public eye, including calls for banning polystyrene foam that is commercially known as Styrofoam, smoking, trans fats, and restricting sugary drinks in some public businesses. 

Now, it seems the billionaire is more concerned about climate change as a threat to public health than fat or soda. 

"This work has helped achieve more than 80 percent of all U.S. emissions reductions since 2010 and plant closures from the campaigns are estimated to have saved 49,900 lives, prevented nearly 77,500 heart attacks, and saved billions in healthcare costs," Bloomberg Philanthropies writes.

"But the U.S. is now at a pivotal moment — without rapid progress on clean energy, we will fail to meet our U.S. climate targets, and public health risks will skyrocket. Beyond Carbon’s next phase will ensure the U.S. delivers on our global climate commitments by retiring the last remaining coal plants, stopping the expansion of natural gas, and quadrupling clean energy capacity while continuing to prioritize environmental justice and workforce transition."

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New findings on hair loss in men

A receding hairline, a total loss of hair from the crown, and ultimately, the classical horseshoe-shaped pattern of baldness: Previous research into male…

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A receding hairline, a total loss of hair from the crown, and ultimately, the classical horseshoe-shaped pattern of baldness: Previous research into male pattern hair loss, also termed androgenetic alopecia, has implicated multiple common genetic variants. Human geneticists from the University Hospital of Bonn (UKB) and by the Transdisciplinary Research Unit “Life & Health” of the University of Bonn have now performed a systematic investigation of the extent to which rare genetic variants may also contribute to this disorder. For this purpose, they analyzed the genetic sequences of 72,469 male participants from the UK Biobank project. The analyses identified five significantly associated genes, and further corroborated genes implicated in previous research. The results have now been published in the prestigious scientific journal Nature Communications.

Credit: University Hospital Bonn / Katharina Wislsperger

A receding hairline, a total loss of hair from the crown, and ultimately, the classical horseshoe-shaped pattern of baldness: Previous research into male pattern hair loss, also termed androgenetic alopecia, has implicated multiple common genetic variants. Human geneticists from the University Hospital of Bonn (UKB) and by the Transdisciplinary Research Unit “Life & Health” of the University of Bonn have now performed a systematic investigation of the extent to which rare genetic variants may also contribute to this disorder. For this purpose, they analyzed the genetic sequences of 72,469 male participants from the UK Biobank project. The analyses identified five significantly associated genes, and further corroborated genes implicated in previous research. The results have now been published in the prestigious scientific journal Nature Communications.

Male-pattern hair loss is the most common form of hair loss in men, and is largely attributable to hereditary factors. Current treatment options and risk prediction are suboptimal, thus necessitating research into the genetic underpinnings of the condition. To date, studies worldwide have focused primarily on common genetic variants, and have implicated more than 350 genetic loci, in particular the androgen receptor gene, which is located on the maternally inherited X chromosome. In contrast, the contribution to this common condition of rare genetic variants has traditionally been assumed to be low. However, systematic analyses of rare variants have been lacking. “Such analyses are more challenging as they require large cohorts, and the genetic sequences must be captured base by base, e.g., through genome or exome sequencing of affected individuals,” explained first author Sabrina Henne, who is a doctoral student at the Institute of Human Genetics at the UKB and the University of Bonn. The statistical challenge lies in the fact that these rare genetic variants may be carried by very few, or even single, individuals. “That is why we apply gene-based analyses that first collapse variants on the basis of the genes in which they are located,” explained corresponding author PD Dr. Stefanie Heilmann-Heimbach, who is a research group leader at the Institute of Human Genetics at the UKB at the University of Bonn. Among other methods, the Bonn researchers used a type of sequence kernel association test (SKAT), which is a popular method for detecting associations with rare variants, as well as GenRisk, which is a method developed at the Institute of Genomic Statistics and Bioinformatics (IGSB) at the UKB and the University of Bonn.

Possible relevance of rare variants in male-pattern hair loss

The research involved the analysis of genetic sequences from 72,469 male UK Biobank participants. Within this extensive data set, Bonn geneticists, together with researchers from the IGSB and the Center for Human Genetics at the University Hospital Marburg, examined rare gene variants that occur in less than one percent of the population. Using modern bioinformatic and statistical methods, they found associations between male-pattern hair loss and rare genetic variants in the following five genes: EDA2R, WNT10A, HEPH, CEPT1, and EIF3F.

Prior to the analyses, EDA2R and WNT10A were already considered candidate genes, as based on previous analyses of common variants. “Our study provides further evidence that these two genes play a role, and that this occurs through both common and rare variants,” explained Dr. Stefanie Heilmann-Heimbach. Similarly, HEPH is located in a genetic region that has already been implicated by common variants, namely the EDA2R/Androgen receptor, which is a region that has consistently shown the strongest association with male-pattern hair loss in past association studies. “However, HEPH itself has never been considered as a candidate gene. Our study suggests that it may also play a role,” explained Sabrina Henne. “The genes CEPT1 and EIF3F are located in genetic regions that have not yet been associated with male-pattern hair loss. They are thus entirely new candidate genes, and we hypothesize that rare variants within these genes contribute to the genetic predisposition. HEPH, CEPT1, and EIF3F represent highly plausible new candidate genes, given their previously described role in hair development and growth.” Furthermore, the results of the study suggest that genes that are known to cause rare inherited diseases affecting both skin and hair (such as the ectodermal dysplasias) may also play a role in the development of male-pattern hair loss. The researchers hope that the puzzle pieces they have discovered will improve understanding of the causes of hair loss, and thus facilitate reliable risk prediction and improved treatment strategies.

The research was supported by funding from the Medical Faculty of the University of Bonn. Prof. Dr. Markus Nöthen, Director of the Institute of Human Genetics at UKB and co-author of the study, is a member of the Transdisciplinary Research Area (TRA) “Life and Health” at the University of Bonn. The publication costs in open access format were funded by the DEAL project of the University of Bonn.


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