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S&P Futures Jittery, Nasdaq Surge Continues Ahead Of Fed Decision

S&P Futures Jittery, Nasdaq Surge Continues Ahead Of Fed Decision



S&P Futures Jittery, Nasdaq Surge Continues Ahead Of Fed Decision Tyler Durden Wed, 06/10/2020 - 08:13

For the second night in a row, US equity futures peaked overnight then slumped around the time Europe opened, sliding along European stocks as investors were spooked by a grim economic forecast by the OECD (it is unclear why bad news isn't good news in this case) ahead of what is expected to be another very dovish statement by the Fed, which pushed the dollar to the most oversold level since 2007.

The Fed will publish its first economic projections since the coronavirus pandemic set off a recession in February that ended a decade-long expansion. Investors will also look for any hints on yield curve control measures amid a recent surge in U.S. Treasury yields.  Investors will be looking for reassurance on the central bank’s willingness to keep providing extraordinary support for the economy. Policy makers may also comment on potentially targeting yields for some Treasury maturities. Markets are balancing that with the OECD’s assessment that the economic hit from the pandemic may be deeper than anticipated.

The Fed is also expected to mark the first step away from a complete focus on crisis prevention towards more traditional goals of providing accommodation to support the recovery. As part of this, economists expect that the Fed will announce an open-ended QE program consistent with monthly Treasury purchases of between $65bn and $85bn, while the statement should slightly enhance the commitment to keep rates low by stating that the FOMC will keep rates at current levels until the economy is “close to achieving the Fed’s dual mandate goals of full employment and price stability”.

“Markets have been cautious before the Fed meeting and technical indicators are stretched after the recent powerful rally,” Credit Agricole strategist Jean-Francois Paren wrote in a client note. “For now, it sounds like yield-curve control is the necessary condition for markets to further rally, but it may not be sufficient by itself as it also highlights the fragility of the system we are now living in.”

Some speculate that the Fed may even step in to tame the insane retail investor froth that has gripped the market, but we find that unlikely.

Prospects of even more Fed stimulus, together with optimism about a rebound in the economy, have driven stocks higher in recent weeks, with the Nasdaq notching a record closing high for the second straight session on Tuesday and the S&P 500 ending about 5% below its all-time peak. Of course, the untouchable Nasdaq 100 futures traded in the green all morning, with Apple, Facebook and all rising about 0.5% in premarket trading. Meanwhile as the momentum-to-value rotation reverses, oil majors Exxon Mobil and Chevron dropped about 1.5% each, as oil prices weakened after a rise in U.S. crude inventories raised concerns of oversupply. AMC Entertainment Holdings rose about 4% after the world’s largest theater operator said it expected to reopen its theaters globally in July.

Shortly after 5am ET, Europe's STOXX 600 Europe turned negative after climbing as much as 0.9% earlier, with travel and leisure and automakers leading losses among sectors. The Index dropped 0.1%, poised for the third consecutive session of declines. Sub-index tracking travel and leisure shares falls 1.3%, automakers down 1%. On the opposite end, personal and household goods advance 0.6%.

Earlier in the session,  Asian stocks gained, led by health care and communications, after rising in the last session. Markets in the region were mixed, with Taiwan's Taiex Index and India's S&P BSE Sensex Index rising, and Jakarta Composite and Shanghai Composite falling. The Topix declined 0.2%, with Land Co and Besterra falling the most. The Shanghai Composite Index retreated 0.4%, with Shanghai Fengyuzhu Culture and Technology Co Ltd and Beijing Wantai Biological Pharmacy Enterprise posting the biggest slides.

In rates, Treasury futures traded near highs of the day in early US session as stock futures pare gains; the long end was leading, continuing this week’s bull-flattening trend ahead of the FOMC decision, with futures volume about 60% of the 5-day average. Yields are lower by 1bp to 3bp across the curve with 2s10s flatter by 2bp, 5s30s by 0.5bp; 10-year yields richer by 3bp at 0.795%, with bunds cheaper by 2bp ahead of expected syndicated 30- and 20-year deals from Germany and Finland.

In FX, the dollar resumed its recent decline, dropping to the most oversold level since 2007. The Bloomberg Dollar Spot Index fell to a three-month low and the greenback slumped against all of its Group-of-10 peers ahead of the Federal Reserve’s policy meeting.

The euro resumed its March toward $1.14; the Bund curve bull flattened modestly as bunds underperformed Treasuries. The pound continued its lengthy ascent over the dollar thanks to a broad improvement in risk sentiment and plans to raise the pace of reopening the U.K. economy, while short-covering pushed it to modest gains on the euro. The Aussie rose and the yen was set for its biggest three- day gain since March against the dollar into the FOMC meeting.

WTI and Brent futures remain subdued in early mid-week trade as sentiment across the market erodes alongside a number of bearish narratives for the complex. Yesterday’s EIA STEO report cut 2020 world oil demand growth forecast by 120k BPD to 8.34mln BPD but noted it sees US crude output declining 670k BPD (vs. Prev. 540k BPD) this year. In-fitting with the global 2020 contraction viewpoint, OECD forecasts a 2020 contraction of 6.0%, whilst the scenario with a second wave sees global GDP -11.5%. Elsewhere, the weekly Private Inventory data also proved to add to the bearish bias with the headline having printed a surprise build of 8.4mln barrels vs.

Looking at the day ahead, the highlight is the aforementioned Fed decision. Otherwise, data releases include the US CPI reading for May and French industrial production for April. We’ll also hear from the ECB’s de Guindos, Schnabel, Muller and Knot, while the OECD will also be publishing their Economic Outlook.

Market Snapshot

  • S&P 500 futures up 0.5% to 3,221.00
  • STOXX Europe 600 up 0.6% to 371.62
  • MXAP up 0.4% to 162.10
  • MXAPJ up 0.5% to 521.14
  • Nikkei up 0.2% to 23,124.95
  • Topix down 0.2% to 1,624.71
  • Hang Seng Index down 0.03% to 25,049.73
  • Shanghai Composite down 0.4% to 2,943.75
  • Sensex up 0.7% to 34,183.19
  • Australia S&P/ASX 200 up 0.06% to 6,148.43
  • Kospi up 0.3% to 2,195.69
  • German 10Y yield fell 1.0 bps to -0.319%
  • Euro up 0.3% to $1.1372
  • Brent Futures down 1.6% to $40.52/bbl
  • Italian 10Y yield rose 13.8 bps to 1.372%
  • Spanish 10Y yield rose 0.9 bps to 0.646%
  • Brent Futures down 1.6% to $40.52/bbl
  • Gold spot up 0.3% to $1,720.21
  • U.S. Dollar Index down 0.3% to 96.08

Top Overnight News

  • Investors are waiting to see if Fed officials discuss a possible return to the 1940s-era policy of yield-curve control
  • The top U.S. specilaist in infectious diseases called the coronavirus pandemic his “worst nightmare” and warned that the deadly outbreak is far from over
  • The ECB’s first three-month dollar swap allotment for $75.8 billion is set to mature on Thursday, making Wednesday’s operation the time to rollover. This accounts for over half of the total outstanding ECB swap lines
  • U.K. Chancellor of the Exchequer Rishi Sunak is being asked by members of the ruling Conservative party to take decades to pay off the record debt the country is racking up as it tries to weather the coronavirus pandemic
  • The global iron ore market may flip to a deficit if a virus-driven mine halt in Brazil persists and prices are now “on a knife edge,” UBS Group AG said in a warning that reflects a rising tide of concern over the suspension’s potential implications. Futures held above $100 a ton
  • China’s factory deflation deepened in May and consumer price gains slowed, signaling that the recovery isn’t yet strong enough to produce inflation pressures

Asian equity markets traded somewhat indecisively after the mostly negative lead from global peers amid cautiousness heading into the FOMC, which saw all major indices on Wall St stall aside from the Nasdaq as tech resilience boosted it briefly above the historic 10K milestone. ASX 200 (+0.1) declined at the open with Australia dragged by weakness in financials and energy but with the losses gradually pared amid gains in defensives and improved consumer sentiment, while Nikkei 225 (+0.1%) was also initially pressured due to a firmer currency and larger than expected contraction in Machine Orders before staging a rebound to take back the 23K level. Hang Seng (U/C) and Shanghai Comp. (-0.4%) were varied with Hong Kong lifted at the open after the government’s bailout of Cathay Pacific which saw the airline’s shares take-off at the open, while the mainland lagged from the get-go as participants digested a somewhat tepid PBoC liquidity operation and softer than expected Chinese inflation data. Furthermore, tensions also lingered in the background as the Global Times suggested China could restrict the use of Qualcomm chips in government entities and key sectors related to national security, while it may also conduct anti-monopoly investigations and impose tariffs on US firms. Finally, 10yr JGBs were choppy around 152.00 amid similar indecision seen in the regional stock markets and with prices failing to benefit from today’s Rinban announcement in which the BoJ were present in the market for JPY 800bln of JGBs heavily concentrated in the belly.

Top Asian News

  • Indonesian Stocks Slump Most in Five Weeks on Pandemic Concern
  • Architect of Japan’s Virus Strategy Sees Flaw in West’s Approach
  • China Protests Japan’s Plan For a G-7 Statement on Hong Kong

European equities have given up earlier gains and fall deeper into negative territory [Euro Stoxx 50 -0.8%] as stocks market failed to sustain the mostly positive APAC lead as players take some chips off the table ahead of some key risk events including the latest FOMC decision (full preview available on the newsquawk research suite) alongside the Eurogroup meeting later this week. News-flow has been light for the session but nonetheless bourses broadly post mild losses. Sectors are mostly in negative territory with more of an anti-cyclical bias and thus pointing to a more risk averse session. The detailed breakdown paints a picture in a similar vein and sees Travel & Leisure underperforming the region. In terms of individual movers, Spanish giant Inditex (+2.8%) erased earlier earning-induced downside of around 3% amid a jump in online sales. Commerzbank (+0.3%) holds its head above water but has waned off prior highs of c.3% which initially emanated from reports its second largest shareholder Cerberus (5% holding) demanded a fix-up of the group’s board. Shares thereafter drifted lower in tandem with yields. Elsewhere, Julius Baer (-1.5%) extended on losses amid reports the firm is facing another enforcement proceeding by FINMA over proper anti-money-laundering procedures.

Top European News

  • Swedes Finally Learn Who Shot Their Prime Minister Olof Palme
  • Frankie and Benny’s Owner to Close About 125 Restaurants
  • KKR Considers Minority Investment in Italy’s Open Fiber: MF

In FX, the Dollar continues to depreciate amidst increasingly bearish price action as the index falls further from early June recovery highs in a declining pattern of daily ranges. Indeed, after a couple of attempts to revisit 97.000+ post-NFP peaks, the DXY has faded on each occasion, and the latest effort to bounce fell short of 96.500 to leave the index precarious above the round number below and eyeing the FOMC for fresh direction. However, Fed expectations do not suggest much in the way of a reprieve for the Greenback even though the aforementioned US jobs data was encouraging in terms of hopes for a relatively speedy rebound from the deep COVID-19 depths of unemployment, with the economic outlook still shrouded in uncertainty and hardly helped by violent protests or renewed global trade tensions. From a technical perspective, nearest support for the DXY comes in at 95.914 (March 11 low), while resistance remains at 97.069 (Monday’s apex) and the current range is 96.460-057.

  • NZD/CHF/AUD - All vying for top G10 ranking, with the Kiwi firmly back above 0.6500 and not far from Tuesday’s best, while the Aussie is testing 0.7000 amidst reports of bids under the big figure from exporters and leverage accounts. Elsewhere, the Franc has forged more gains towards 0.9450 and 1.0750 vs the Euro, albeit still not cleanly or convincingly through the 200 DMA as the single currency maintains its bullish momentum against the Buck.
  • JPY/GBP/EUR/CAD - The next best majors in descending order, with Usd/Jpy extending its marked retreat from circa 109.85 last Friday through more apparent supports, including the 30 DMA (107.54) to expose the only real downside chart level left before 107.00, at 107.09 (May 29 reaction low). Similarly, if Cable can sustain a break above Fib resistance around 1.2778 then 1.2800 beckons ahead of 1.2849 (March 12 high) and a more meaningful technical trendline at 1.2860, while Eur/Usd is inching closer to its post-NFP pinnacle (1.1384), but may find 1.1400 protected by decent option expiry interest between 1.1390-95 (1.2 bn). Turning to Usd/Cad, 1.3400 is still proving pivotal as crude prices consolidate off post-OPEC+ peaks and the pair looks to US CPI data before the Fed for additional impetus in the absence of anything scheduled on the Canadian front.
  • SCANDI/EM - Waning risk sentiment and softer oil has thwarted another sub-10.5000 Eur/Nok move aided by firmer than expected Norwegian inflation metrics, while Eur/Sek has bounced from just shy of 10.4100 following further declines in Swedish household consumption and awaiting commentary from Riksbank Governor Ingves. Conversely, ongoing Dollar weakness has kept the HKMA active in defence of the currency peg and the Turkish Lira has derived traction from closer FX position monitoring by the CBRT rather than a fall in the jobless rate.

In commodities, WTI and Brent futures remain subdued in early mid-week trade as sentiment across the market erodes alongside a number of bearish narratives for the complex. Yesterday’s EIA STEO report cut 2020 world oil demand growth forecast by 120k BPD to 8.34mln BPD but noted it sees US crude output declining 670k BPD (vs. Prev. 540k BPD) this year. In-fitting with the global 2020 contraction viewpoint, OECD forecasts a 2020 contraction of 6.0%, whilst the scenario with a second wave sees global GDP -11.5%. Elsewhere, the weekly Private Inventory data also proved to add to the bearish bias with the headline having printed a surprise build of 8.4mln barrels vs. Expectations for a draw of 1.7mln. Meanwhile in Libya, production at the El-Sharara oil field (300k BPD) was reportedly shut-off again and the NOC later confirmed the continuation of a force majeure at the Sharara oil field. WTI July extends losses below USD 38/bbl (vs. high) and Brent August moves in tandem below USD 40.50/bbl (vs. high) as traders await the weekly EIA inventory data ahead of the FOMC rate decision. In terms of metals, spot gold ekes mild gains amid the risk-reversal from the APAC session coupled with a softer USD, but price action remains somewhat muted in anticipation of the Fed policy decision. Copper prices are underpinned by a weaker USD despite the deteriorating sentiment – Shanghai copper rose to near 20-week highs amid strong demand from China. Dalian iron meanwhile failed to benefit from the China demand as rising shipments from miners pressure prices.

US Event Calendar

  • 8:30am: US CPI Ex Food and Energy MoM, est. 0.0%, prior -0.4%; CPI Ex Food and Energy YoY, est. 1.3%, prior 1.4%
  • 8:30am: US CPI MoM, est. 0.0%, prior -0.8%; 8:30am: US CPI YoY, est. 0.3%, prior 0.3%
  • 8:30am: Real Avg Hourly Earning YoY, prior 7.5%; Real Avg Weekly Earnings YoY, prior 6.9%
  • 2pm: Monthly Budget Statement, est. $544.0b deficit, prior $207.8b deficit
  • 2pm: FOMC Rate Decision

DB's Jim Reid concludes the overnight wrap

Today’s glance into my mundane world involves nearly being driven mad working from home by a radio station I discovered about 6 weeks ago. It’s an internet only one called “acoustic chill” and plays really nice mellow music to work along to on my Sonos. They don’t have adverts but every hour have a trailer that points you to their twitter page. I’ve got a sense of their potential audience by seeing they have 18 followers (including me). However late morning yesterday one of their songs got stuck and repeated the chorus line over and over again. It was very irritating. To cut a long story short I spent the afternoon repeatedly switching over and then back again to see if it was fixed. By the time I’d logged off at 7pm a small snippet of the chorus had been on a loop for over 7 hours. I suspect I may have been the only person in the world listening but it drove me crazy. Anyway, hopefully this morning it will be fixed and by mentioning the station I can at least double their audience.

I suspect the Fed will have a bigger audience today at the conclusion of their FOMC meeting and let’s hope they aren’t as stuck as acoustic chill radio. In their preview, our US economists write (link here) that they expect today’s meeting to mark the first step away from a complete focus on crisis prevention towards more traditional goals of providing accommodation to support the recovery. As part of this, they expect that the Fed will announce an open-ended QE program consistent with monthly Treasury purchases of between $65bn and $85bn, while the statement should slightly enhance the commitment to keep rates low by stating that the FOMC will keep rates at current levels until the economy is “close to achieving the Fed’s dual mandate goals of full employment and price stability”.

In terms of what else to look out for, the return of the quarterly Summary of Economic Projections will be a key highlight. This wasn’t released in March because of the difficulties in forecasting as the pandemic took hold. It will have the FOMC’s range of views on the path forward for growth, inflation and unemployment. In terms of the dot plot, our economists expect that all participants will project the fed funds target range to remain at its current level through 2021. Beyond that, a few may see lift-off in 2022 but they think the median dot will still be at current levels through the end of the forecast horizon in 2022.

Ahead of the Fed, there was an unwinding of investor risk appetite yesterday and a reversal of the recent catch-up trade that has been dominating over the last 1-2 weeks. By the end of the session, the S&P 500 was down -0.78%, its biggest setback in nearly 3 weeks, while the VIX index of volatility was up +1.76pts to a one-week high. This was in spite of tech stocks outperforming after a week or so of lagging, with the NASDAQ advancing +0.29% to reach a new record high. In fact, Information Technology and Communication Services (headlined by Google, Netflix and Facebook) were the only US sectors positive yesterday. Over in Europe, equities lagged behind the US after a good recent run, with the STOXX 600 down -1.22%. Banks certainly didn’t help, as the STOXX Banks index ended a run of 11 gains in the last 12 sessions to fall by -3.78%.

EU finance ministers met yesterday over video conference at the annual meeting of the EIB Board of Governors. While there was little new information, the meeting did highlight the differing viewpoints that will be negotiated at the European Council meeting later this month. The ministers discussed the overall size of the additional stimulus needed for the bloc, as well as what percent of those funds would be grants vs. loans. The other key topic discussed was whether conditions may be placed on the funds, and what they would be. German Finance Minister Scholz indicated that a €500bn fund would be a good outcome (note that the Commission has proposed €750bn), which would appear disappointing. The original Merkel-Macron announced plan was for €500bn, but it was fully in the form of grants, which is likely a non-starter.

Earlier in the day, Bloomberg reported that EU leaders could hold an emergency summit on the recovery fund on July 9-10. That would be in addition to an already planned European Council video conference on June 19 to discuss the matter. Meanwhile the Austrian finance minister said in a statement that the recovery fund’s size and shape wasn’t acceptable for the country.

Against this backdrop, sovereign debt sold off in Europe yesterday, with yields on 10yr bunds up +1.0bp, as the spread of Italian (+8.7bps) and Spanish (+7.9bps) 10yr yields over bunds saw a noticeable widening. Safe havens outperformed yesterday as equities pulled back, with the Japanese yen (+0.62% vs. USD) and the Swiss franc (+0.72%) the top two G10 currencies yesterday. This trend was seen elsewhere, with gold rallying by +0.99% and yields on 10yr treasuries falling by -5.0bps.

In terms of how Asia is trading this morning, it’s been another fairly mixed session with the Nikkei flat, and Shanghai Comp (-0.50%) down and the Hang Seng (+0.15%) and Kospi (+0.11%) both posting modest gains. Meanwhile, futures on the S&P 500 are up +0.46%. Elsewhere, WTI oil prices are down -1.87% overnight after a report from the American Petroleum Institute said that the US crude stockpiles rose by 8.42 million barrels last week. If confirmed by the EIA this would be the largest build since end of April. In terms of overnight data releases China’s May CPI printed at +2.4% yoy (vs. +2.7% yoy expected) while PPI came in at -3.7% yoy (vs. -3.3% yoy expected).

As mentioned at the top DB has recently become bearish on the dollar and on a related theme one of our FX Strategists, Robin Winkler, put out a report yesterday (link here ) highlighting the lack a of holistic reopening plan across US regions and how this could raise risks of a prolonged infection period. The analysis uses Rt, the effective transmission rate, to judge whether a second wave is imminent. If Rt is above 1, cases can grow exponentially, while when below 1, cases fall and the virus is suppressed. When aggregating state-level Rt estimates up to the national level, reopening since mid-April caused a fairly linear rise in the effective transmission rate with a 0.02 rise in Rt for every 10% reopened. That beta implies that a full reopening of the country from -25% mobility back to normal would take Rt to nearly 1.00, using Google mobility data. The problem with this analysis is that not all states are average, indeed some larger states like Texas and California have transmission rates far closer to 1 already, making their reopening more risky. 40% of the country may be able to get back to normal currently, mostly rural and lower infected regions, while the rest of the country would need to retain some degree of lockdown until transmission rates fall lower. Coordination would help with this issue, but this is unlikely during an election year as the issue of lockdowns has become partisan. According to transmission rates a coordinated response would likely reopen states that voted Democrat in the last Presidential election rather than Republican, and so the federal government may be less inclined to orchestrate. One of the best predictors of any given state's return from lockdown today is how the state voted in the 2016 election. Given the inability to close state borders, a lack of coordination means that reopening plans for some states may be drawn out for longer or alternatively open those states up to a second wave. See the full report for more.

In terms of yesterday’s data, the number of US job openings in April fell to a lower-than-expected 5.046m (vs. 5.750m expected), which is the lowest number since December 2014. Meanwhile the quits rate, which is the number who are voluntarily leaving their job as a share of the labour force, fell to a 9-year low of 1.4%. However, the NFIB small business optimism index for May did rise to 94.4 (vs. 92.5 expected). In German data, April exports fell by -25.0% month/month (vs. -15.6% expected and -11.7% last month), and down -31.1% on a year/year basis. This was the largest one month change in the data series going back to 1950. Finally, there was a slight positive revision to the Euro Area’s economic contraction in Q1, with the decline revised down to -3.6% (vs. -3.8% previously).

To the day ahead now with the aforementioned Federal Reserve decision and Chair Powell’s subsequent press conference likely to be the highlight. Otherwise, data releases include the US CPI reading for May and French industrial production for April. We’ll also hear from the ECB’s de Guindos, Schnabel, Muller and Knot, while the OECD will also be publishing their Economic Outlook.

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New IRS Report Provides Fascinating Glimpse Into Your “Fair Share”

New IRS Report Provides Fascinating Glimpse Into Your "Fair Share"

Authored by Simon Black via,

Every year the IRS publishes…



New IRS Report Provides Fascinating Glimpse Into Your "Fair Share"

Authored by Simon Black via,

Every year the IRS publishes a detailed report on the taxes it collects. And the statistics are REALLY interesting.

A few weeks ago the agency released its most recent report. So this is the most objective, up-to-date information that exists about taxes in America.

This is important, because, these days, it’s common to hear progressive politicians and woke mobsters calling for higher income earners and wealthier Americans to pay their “fair share” of taxes.

But this report, directly from the US agency whose job it is to tax Americans, shows the truth:

The top 1% of US taxpayers paid 48% of total US income taxes.

And that’s just at the federal level, not even counting how much of the the local and state taxes the wealthy paid.

Further, the top 10% paid nearly 72% of total income taxes.

Meanwhile, the bottom 40% of US income tax filers paid no net income tax at all. And the next group, those making between $30-$50,000 per year, paid an effective rate of just 1.9%.

(Again, this is not some wild conspiracy theory; these numbers are directly from IRS data.)

But the fact that 10% of the taxpayers foot nearly three-fourths of the tax bill still isn’t enough for the progressive mob. They want even more.

The guy who shakes hands with thin air, for example, recently announced that he wants to introduce a new law that would create a minimum tax of 25% on the highest income earners.

But the government’s own statistics show that the highest income earners in America— those earning more than $10 million annually— paid an average tax rate of 25.5%. That’s higher than Mr. Biden’s 25% minimum.

So he is essentially proposing an unnecessary solution in search of a problem.

I bring this up because whenever you hear the leftist Bolsheviks in government and media talking about “fair share”, they always leave out what exactly the “fair share” is.

The top 1% already pay nearly half the taxes. Exactly how much more will be enough?

Should the top 1% pay 60% of all taxes? 80%? At what point will it be enough?

They never say. They’ll never commit to a number. They just keep expanding their thinking scope.

Elizabeth Warren, for example, quite famously stopped talking about the “top 1%” and started whining about the “top 5%”. And then the “top 10%”.

She has already decided that the top 5% of wealthy households should not be eligible for student loan forgiveness or Medicare.

And when she talks about “accountable capitalism” on her website, Warren calls out the top 10% for having too much wealth, compared to the rest of households.

Soon enough it will be the “top 25%” who are the real problem…

Honestly this whole way of thinking reminds me of Anthony “the Science” Fauci’s pandemic logic on lockdowns and mask mandates.

You probably remember how reporters always asked “the Science” when life could go back to normal… and he always replied that it was a function of vaccine uptake, i.e. whenever enough Americans were vaccinated.

But then he kept moving the goal posts. 50%. 60%. 70%. It was never enough. And there was never a concrete answer.

This same logic applies to what the “experts” believe is the “fair share” of taxes which the top whatever percent should pay.

They’ll never actually say what the fair share is. But my guess is that they won’t stop until 100% of taxes are paid by the top 10% … and the other 100% of taxes are paid by the other 90%.

Tyler Durden Wed, 03/29/2023 - 11:25

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Financial Stress Continues to Recede

Overview: Financial stress continues to recede. The Topix bank index is up for the second consecutive session and the Stoxx 600 bank index is recovering…



Overview: Financial stress continues to recede. The Topix bank index is up for the second consecutive session and the Stoxx 600 bank index is recovering for the third session. The AT1 ETF is trying to snap a four-day decline. The KBW US bank index rose for the third consecutive session yesterday. More broadly equity markets are rallying. The advance in the Asia Pacific was led by tech companies following Alibaba's re-organization announcement. The Hang Seng rose by over 2% and the index of mainland shares rose by 2.2%. Europe's Stoxx 600 is up nearly 1% and US index futures are up almost the same. Benchmark 10-year yields are mostly 1-3 bp softer in Europe and the US.

The dollar is mixed. The Swiss franc is leading the advancers (~+0.3%) while euro, sterling and the Canadian dollar are posting small gains. The Japanese yen is the weakest of the majors (~-0.6%). The antipodeans and Scandis are also softer. A larger than expected decline in Australia's monthly CPI underscores the likelihood that central bank joins the Bank of Canada in pausing monetary policy when it meets next week. Most emerging market currencies are also firmer today, and the JP Morgan Emerging Market Currency Index is higher for the third consecutive session. Gold is softer within yesterday's $1949-$1975 range. The unexpectedly large drop in US oil inventories (~6 mln barrels according to report of API's estimate, which if confirmed by the EIA later today would be the largest drawdown in four months) is helping May WTI extend its gains above $74 a barrel. Recall that it had fallen below $65 at the start of last week.

Asia Pacific

The US dollar is knocking on the upper end of its band against the Hong Kong dollar, raising the prospect of intervention by the Hong Kong Monetary Authority. It appears to be driven by the wide rate differential between Hong Kong and dollar rates (~3.20% vs. ~4.85%). Although the HKMA tracks the Fed's rate increases, the key is not official rates but bank rates, and the large banks have not fully passed the increase. Reports suggest some of the global banks operating locally have raised rates a fraction of what HKMA has delivered. The root of the problem is not a weakness but a strength. Hong Kong has seen an inflow of portfolio and speculative capital seeking opportunities to benefit from the mainland's re-opening.  Of course, from time-to-time some speculators short the Hong Kong dollar on ideas that the peg will break. It is an inexpensive wager. In fact, it is the carry trade. One is paid well to be long the US dollar. Pressure will remain until this consideration changes. Eventually, the one-country two-currencies will eventually end, but it does not mean it will today or tomorrow. As recently as last month, the HKMA demonstrated its commitment to the peg by intervening. Pressure on the peg has been experienced since last May and in this bout, the HKMA has spent around HKD280 defending it (~$35 bln).

The US and Japan struck a deal on critical minerals, but the key issue is whether it will be sufficient to satisfy the American congress that the executive agreement is sufficient to benefit from the tax- credits embodied in the Inflation Reduction Act. The Biden administration is negotiating a similar agreement with the EU. The problem is that some lawmakers, including Senator Manchin, have pushed back that it violates the legislature's intent on the restrictions of the tax credit. Manchin previously threatened legislation that would force the issue. The US Trade Representative Office can strike a deal for a specific sector without approval of Congress, but that specific sector deal (critical minerals) cannot then meet the threshold of a free-trade agreement to secure the tax incentives. 

The Japanese yen is the weakest of the major currencies today, dragged lower by the nearly 20 bp rise in US 10-year yields this week and the end of the fiscal year related flows. Some dollar buying may have been related to the expirations of a $615 mln option today at JPY131.75. The greenback tested the JPY130.40 support we identified yesterday and rebounded to briefly trade above JPY132.00 today, a five-day high.  However, the session high may be in place and support now is seen in the JPY131.30-50 band. Softer than expected Australian monthly CPI (6.8% vs. 7.4% in January and 7.2% median forecast in Bloomberg's survey) reinforced ideas that the central bank will pause its rate hike cycle next week. The Australian dollar settled near session highs above $0.6700 in North America yesterday and made a margin new high before being sold. It reached a low slightly ahead of $0.6660 in early European turnover. The immediate selling pressure looks exhausted and a bounce toward $0.6680-90 looks likely. On the downside, note that there are options for A$680 mln that expire today at $0.6650. In line with the developments in the Asia Pacific session today, the US dollar is firmer against the Chinese yuan. However, it held below the high seen on Monday (~CNY6.8935). The dollar's reference rate was set at CNY6.8771, a bit lower than the median projection in Bloomberg's forecast (~CNY6.8788). The sharp decline in the overnight repo to its lowest since early January reflect the liquidity provisions by the central bank into the quarter-end.


Reports suggest regulators are finding that one roughly 5 mln euro trade on Deutsche Bank's credit-default swaps last Friday, was the likely trigger of the debacle. The bank's market cap fell by1.6 bln euros and billions more off the bank share indices. Then there is the US Treasury market, where the measure of volatility (MOVE) has softened slightly from last week when it rose to the highest level since the Great Financial Crisis. While the wide intraday ranges of the US two-year note have been noted, less appreciated are the large swings in the German two-year yield. Before today, last session with less than a 10 bp range was March 8. In the dozen sessions since, the yield has an average daily range of around 27 bp. The rapid changes and opaque liquidity in some markets leading to dramatic moves challenges the price discovery process. The speed of movement seems to have accelerated, and reports that Silicon Valley Bank lost $40 bln of deposits in a single day.

Italy's Meloni government will tap into a 21 bln euro reserve in the budget to give a three-month extension of help to low-income families cope with higher energy bills but eliminate it for others. It is projected to cost almost 5 billion euros. The energy subsidies have cost about 90 mln euros. Most Italian families are likely to see higher energy bills, though gas will still have a lower VAT. Meloni also intends to adjust corporate taxes to better target them and cost less. Separately, the government is reportedly considering reducing or eliminating the VAT on basic food staples. Meanwhile, the EU is delaying a 19 bln euro distribution to Italy from the pandemic recovery fund. The aid is conditional on meeting certain goals. The EU is extending its assessment phase to review a progress on a couple projects, licensing of port activities, and district heating. These are tied to the disbursement for the end of last year. The EU acknowledged there has been "significant" progress. Italy has received about a third of the 192 bln euros earmarked for it. Despite the volatile swings in the yields, Italy's two-year premium over Germany is within a few basis points of the Q1 average (~46 bp). The same is true of the 10-year differential, which has averaged about 187 bp this year. 

After slipping lower in most of the Asia Pacific session, the euro caught a bid late that carried into the European session and lifted it to session highs near $1.0855. The session low was set slightly below $1.0820 and there are nearly 1.6 bln euros in option expirations today between two strikes ($1.0780 and $1.0800). Recall that on two separate occasions last week, the euro be repulsed from intraday moves above $1.09. A retest today seems unlikely, but the price actions suggest underlying demand. Sterling has also recovered from the slippage seen early in Asia that saw it test initial support near $1.2300. Yesterday, it took out last week's high by a few hundredths of a cent, did so again today rising to slightly above $1.2350. However, here too, the intraday momentum indicators look stretched, cautioning North American participants from looking for strong follow-through buying.


What remains striking is the divergence between the market and the Federal Reserve. On rates they are one way. Fed Chair Powell was unequivocal last week. A pause had been considered, but no one was talking about a rate cut this year. The market is pricing in a 4.72% average effective Fed funds rate in July. On the outlook for the economy this year, they are the other way. The median Fed forecast was for the economy to grow by 0.4% this year. The median forecast in Bloomberg's survey anticipated more than twice the growth and projects 1.0% growth this year. As of the end of last week, the Atlanta Fed sees the US expanding by 3.2% this quarter (it will be updated Friday). The median in Bloomberg's survey is half as much. 

The US goods deficit in February was a little more than expected and some of the imports appeared to have gone into wholesale inventories, which unexpectedly rose (0.2% vs. -0.1% median forecast in Bloomberg's survey). Retail inventories jumped 0.8%, well above the 0.2% expected and biggest increase since last August. Given the strength of February retail sales (0.5% for the measure that excludes autos, gasoline, food services and building materials, after a 2.3% rise in January), the increase in retail inventories was likely desired. FHFA houses prices unexpectedly rose in January (first time in three months, leaving them flat over the period). S&P CoreLogic Case-Shiller's measure continued to slump. It has not risen since last June. The Conference Board's measure of consumer confidence rose due to the expectations component. This contrasts with the University of Michigan's preliminary estimate that showed the first decline in four months. Moreover, when its final reading is announced at the end of the week, the risk seems to be on the downside, according to the Bloomberg survey. Meanwhile, surveys have shown that the service sector has been faring better than the manufacturing sector. However, the decline in the Richman Fed's business conditions, while its manufacturing survey improved, coupled with the sharp decline in the Dallas Fed's service activity index may be warning of weakness going into Q2.

The US dollar flirted with CAD1.38 at the end of last week is pushing through CAD1.36 today to reach its lowest level since before the banking stress was seen earlier this month. The five-day moving average has crossed below the 20-day moving average for the first time since mid-February. Canada's budget announced late yesterday boosts the deficit via new green initiatives and health spending, while raising taxes, including a new tax on dividend income for banks and insurance companies from Canadian companies. The market appears to be still digesting the implications. Today's range has thus far been too narrow to read much into it. The greenback has traded between roughly CAD1.3590 and CAD1.3615. On the other hand, the Mexican peso has continued to rebound from the risk-off drop that saw the US dollar surge above MXN19.23 (March 20). The dollar is weaker for fifth consecutive session and seventh of the last nine. It finished last week near MXN18.4450 and fell to about MXN18.1230 today, its lowest level since March 9. However, the intraday momentum indicators are stretched, and the greenback looks poised to recover back into the MXN18.20-25 area. Banxico meets tomorrow and is widely expected to hike its overnight target rate by a quarter-of-a-point to 11.25%.



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The ONS has published its final COVID infection survey – here’s why it’s been such a valuable resource

The ONS’ Coronavirus Infection Survey has ceased after three years. Two experts explain why it was a uniquely useful source of data.



March 24 marked the publication of the final bulletin of the Office for National Statistics’ (ONS) Coronavirus Infection Survey after nearly three years of tracking COVID infections in the UK. The first bulletin was published on May 14 2020 and we’ve seen new releases almost every week since.

The survey was based primarily on data from many thousands of people in randomly selected households across the UK who agreed to take regular COVID tests. The ONS used the results to estimate how many people were infected with the virus in any given week.

In the survey’s first six months, we had results from 1.2 million samples taken from 280,000 people. Although the number of people participating each month declined over time, the survey has continued to be a highly valuable tool as we navigate the pandemic.

In particular, because the ONS bulletins were based on surveying a large, random sample of all UK residents, it offered the least biased surveillance system of COVID infections in the UK. We are not aware of any similar study anywhere else in the world. And, while estimating the prevalence of infections was the survey’s main output, it gave us a lot of other useful information about the virus too.

Unbiased surveillance

An important advantage of the ONS survey was its ability to detect COVID infections among many people who had no symptoms, or were not yet displaying symptoms.

Certainly other data sets existed (and some continue to exist) to give a sense of how many people were testing positive. For example, earlier in the pandemic, case numbers were reported at daily national press conferences. Figures continue to be published on the Department of Health and Social Care website.

But these totals have usually only encompassed people who tested because they had reason to suspect they may have been infected (for example because of symptoms or their work). We know many people had such minor symptoms that they had no reason to suspect they had COVID. Further, people who took a home test may or may not have reported the result.

Similarly, case counts from hospital admissions or emergency room attendances only captured a very small percentage of positive cases, even if many of these same people had severe healthcare needs.

Symptom-tracking applications such as the ZOE app or online surveys have been useful but tend to over-represent people who are most technologically competent, engaged and symptom-aware.

Testing wastewater samples to track COVID spread in a community has proved difficult to reliably link to infection numbers.

Read more: The tide of the COVID pandemic is going out – but that doesn't mean big waves still can't catch us

What else the survey told us

Aside from swab samples to test for COVID infections, the ONS survey collected blood samples from some participants to measure antibodies. This was a very useful aspect of the infection survey, providing insights into immunity against the virus in the population and individuals.

Beginning in June 2021, the ONS survey also published reports on the “characteristics of people testing positive”. Arguably these analyses were even more valuable than the simple infection rate estimates.

For example, the ONS data gave practical insights into changing risk factors from November 21 2021 to May 7 2022. In November 2021, living in a house with someone under 16 was a risk factor for testing positive but by the end of that period it seemed to be protective. Travel abroad was not an important risk factor in December 2021 but by April 2022 it was a major risk. Wearing a mask in December 2021 was protective against testing positive but by April 2022 there was no significant association.

We shouldn’t find this changing picture of risk factors particularly surprising when concurrently we had different variants emerging (during that period most notably omicron) and evolving population resistance that came with vaccination programmes and waves of natural infection.

Also, in any pandemic the value of non-pharmaceutical interventions such wearing masks and social distancing declines as the infection becomes endemic. At that point the infection rate is driven more by the rate at which immunity is lost.

A woman wearing a face mask receives a vaccine.
The survey gave us insights into the protection offered by vaccines and non-pharmaceutical interventions. Paul Maguire/Shutterstock

The ONS characteristics analyses also offered evidence about the protective effects of vaccination and prior infection. The bulletin from May 25 2022 showed that vaccination provided protection against infection but probably for not much more than 90 days, whereas a prior infection generally conferred protection for longer.

After May 2022, the focused shifted to reinfections. The analyses confirmed that even in people who had already been infected, vaccination protects against reinfection, but again probably only for about 90 days.

It’s important to note the ONS survey only measured infections and not severe disease. We know from other work that vaccination is much better at protecting against severe disease and death than against infection.

Read more: How will the COVID pandemic end?

A hugely valuable resource

The main shortcoming of the ONS survey was that its reports were always published one to three weeks later than other data sets due to the time needed to collect and test the samples and then model the results.

That said, the value of this infection survey has been enormous. The ONS survey improved understanding and management of the epidemic in the UK on multiple levels. But it’s probably appropriate now to bring it to an end in the fourth year of the pandemic, especially as participation rates have been falling over the past year.

Our one disappointment is that so few of the important findings from the ONS survey have been published in peer-reviewed literature, and so the survey has had less of an impact internationally than it deserves.

Paul Hunter consults for the World Health Organization. He receives funding from National Institute for Health Research, the World Health Organization and the European Regional Development Fund.

Julii Brainard receives funding from the NIHR Health Protection and Research Unit in Emergency Preparedness.

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