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The Dollar Remains Bid, while Sterling Shrugs Off Johnson’s Political Woes

Overview: The dollar jumped yesterday making new highs against most of the major currencies, including the euro, sterling, the dollar-bloc and the Scandis….

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Overview: The dollar jumped yesterday making new highs against most of the major currencies, including the euro, sterling, the dollar-bloc and the Scandis. The yen and Swiss franc held in better, but the greenback still closed firmly against the yen despite a six-basis point decline in the 10-year yield. The Swiss franc rose it its highest level against the euro since the lifting of the cap in early 2015. After opening sharply lower, the S&P 500 and NASDAQ chopped higher. The former eked out negligible gain while the latter rose 1.75%. The greenback is still bid against most of the currencies, but the Japanese yen and Chinese yuan. US equity futures are softer. The large Asia Pacific bourses fell. India is an exception, rising around 1%. European equities have stabilized. The Stoxx 600 fell 2.1% yesterday and has recouped over half the loss today. Asia Pacific bond yields fell in a catch-up move, while European and US 10-year benchmark yields are steady to slightly firmer today. Gold tumbled to new lows for the year yesterday near $1763 and stays trapped near the lows today. August WTI had a big outside down day yesterday, settling below $100 for the first time since mid-May. Ahead of the US open, it is near the middle of its roughly $99-$102 range seen today. US natgas is recouping about half of yesterday’s 3.6% decline. Europe’s benchmark is softer following an agreement in Norway to turn the labor dispute over a compulsory wage board, ending the strike. Iron ore is off 1.2% after rallying 3.5% yesterday. September copper initially extended yesterday’s sharp sell-off (5.25%) but has bounced back and is off about 0.5%. September wheat is trying to snap a four-day slide. Corn and soy fell 3% and nearly 4.8% respectively yesterday. Corn and soy are both softer today. 

Asia Pacific

The Bank of Japan conducts a quarterly survey of household inflation expectations. The results of the latest survey were reported earlier today. One-year expectations rose to 8.3% from 6.4% in the previous survey. The average five-year forecast was 6.7%, up from 5.1%. Market-based expectations are not nearly as extreme. The five-year breakeven peaked in the middle of last month near 1.34% and now is at 1.14%. The 10-year breakeven has traded above 1.0% a couple of times in Q2 but is now around 0.90%. The median forecast in Bloomberg's survey sees headline CPI at 1.9% this year and 1.2% next before slipping below 1% in 2024. Separately, a press report suggest Prime Minister Kishida will call a three-day extraordinary parliament session on August 3, following the upper house elections this weekend, and a cabinet reshuffle after the Diet session.

A new flare-up in Covid is being reported. In Tokyo, the number of cases is at their highest level in almost three months after doubling over the past week. Cases in Shanghai are at a three-week high. Mass testing is being ramped up again. Nine of districts and parts of three others (out of 16 districts in all) will be conducting two PCR tests over the next three days. The western city of Xi'an has ordered the closure entertainment venues, restaurants have suspended dining in for a week, and schools start summer vacation early. Macau shut one of its casinos due to a cluster of the infection.

As a consequence of Russia's invasion of Ukraine, we have suggested that Europe will be reliant on the US on defense and energy going forward. The question that someone in Beijing is probably asking is can the US these closer ties to its advantage in the competition with China. The first answer may be in the US pressure to get a Dutch company to stop selling Beijing equipment to produce semiconductor chips (e.g., deep ultraviolet lithography). While not cutting edge is still speaks to the gap between the advanced producers and China. The most advanced machines in this space have already been banned. The Dutch Prime Minister did not appear very sympathetic to the US position, at least initially.

Given the roughly 70 bp decline in the US 10-year yield over the past three weeks, the dollar is holding up against the yen better than one would have expected. The yen is the strongest major currency over the past 10-days but has risen by an inconsequential 0.15%. The dollar is off by about 0.5% today but is still holding above JPY135.00, where there is a $615 mln option expiring today. Monday's low was around JPY134.80 and last week's low was closer to JPY134.50 and the week before, about JPY134.35. A break of these levels would likely confirm a topping pattern. The Australian dollar fell to almost $0.6760 yesterday, the (50%) retracement of the rally from the pandemic low in March 2020. It has stabilized today and is in a roughly 20-point range on either side of $0.6800. The $0.6820-$0.6840 needs to be overcome to lift the technical tone. The greenback rose to CNY6.7235 in late dealings yesterday but steadied today in a narrow range above CNY6.7020 (to about CNY6.7165). Chinese officials seem comfortable with the broadly sideways range that has dominated in recent weeks. Today's reference rate was set tightly against the median projection in Bloomberg's survey (CNY6.7246 vs. CNY6.7248). Lastly, note that Malaysia delivered a 25 bp hike (to 2.25%) after initiating the cycle in May.

Europe

Sterling had recorded the session lows yesterday toward the end of business in London. It slipped slightly below $1.19, the lowest in more than two years. By the time the political bombshells hit, sterling has steadied around $1.1920 as the dollar's broad gains were pared. The first bombshell was the resignation of Health Secretary Javid over the prime minister's handling of the latest sex scandal that forced the Deputy Whip to resign last week. Within minutes, the Chancellor of the Exchequer Sunak resigned, saying that his and Johnson's approaches were fundamentally different. Several Tory MPs withdrew support for Johnson. The Vice Chair of the Tory Party resigned as did a few other junior ministers. Quickly Johnson appointed Steve Barclay to replace Javid, and Nadhim Zahawi, the education secretary succeeded Sunak. 

The Question Time may prove lively today and then Johnson appears before the Liaison Committee. Another hurdle looms for Johnson: the 1922 Committee election, the date of which is expected to be announced today. It is the rules committee for party in parliament and includes the rule about the frequency of confidence votes. Will members win who want to change the rules and allow another vote of confidence?  A local press report says that it had been considered too after Johnson's predecessor May survived a confidence vote and by more than Johnson did recently. Sunak and Truss are thought to be possible candidates to replace Johnson. A snap YouGov poll found that most Tories and about 2/3 of the country what Johnson to resign. However, after narrowing to almost even money late yesterday, PredictIt.Org shows the "betting" now is 4-1 that Johnson survives through the end of next month. Labour could force a vote of confidence, but tactically it may be better to let the Tories stew for the time being.

German factory orders unexpectedly rose in May. The 0.1% increase contrasts with expectations of a 0.5% decline. And April's 2.7% drop was revised to only -1.8%. The increase was fueled by large ticket items, without which orders would have fallen by 0.9%. Domestic orders are in a sawtooth pattern for the past eight months, alternating between gains and losses. Domestic orders fell 1.5% in May after rising 0.5% in April. Foreign orders rose 1.3%. It was the first gain since January. Germany reports industrial output figures tomorrow. A 0.4% increase is expected after a 0.7% rise in April. Spain reported its industrial production figures earlier today. The 0.2% decline is half of what economists expected. Lastly, EMU retail sales rose by 0.2% in May, half of what was expected, after falling a revised 1.4% in April (initially -1.3%).

Yesterday's sharp euro losses have been extended today as the single currency approached $1.0225. It barely rose 10 ticks from the close before drawing the sellers. The $1.0275 area offers the nearby cap. Note that the euro closed below its lower Bollinger Band and remains below it today (~$1.0285). Sentiment is poor and many see Europe recession bound. While short-term US rates have fallen, European rates have fallen quicker. The result, for example, is that the US two-year premium has risen to nearly two-month near 245 bp after briefly dipping below 200 bp in mid-June. The longer-end of the US curve has outperformed Germany. The US 10-year premium peaked in April and May a little more than 200 bp. It fell below 150 bp in mid-June before recovering to around 170 bp. Today it is pushing back below 160 bp. Sterling is faring a bit better than the euro and has thus far held above yesterday's low (slightly below $1.19). Sellers reemerged in front of $1.20 today. Sterling is flirting with its lower Bollinger Band (~$1.1930).

America

The 10-year US yield peaked the day before the Fed hiked by 75 bp near 3.50%. The Fed seemed hawkish in word and deed, including the adjustment of the dot plot. Precisely because the Fed has credibility, the market took its message to heart and yesterday the yield was near 2.77% the lowest since the end of May. Around 50 bp of the decline might be explained by lower inflation expectations. The 10-year breakeven (the difference between the inflation-linked security and the conventional bond) has fallen from 2.80% to 2.30% over same time. There has also been a dramatic shift in where the Fed funds is going. Consider that when the 10-year yield peaked, the implied yield of the June 2023 Fed funds peaked at 4.15% and now is about 100 bp lower.

The US has a busy economic agenda today. First up are the weekly mortgage index. It has risen for the past three week, the longest advance in two years. Next are the final services and composite PMI. The preliminary composite reading of 51.2 was the lowest since January and was the third consecutive decline. Then comes the ISM services and the JOLTS report. ISM services have fallen in four of the first five months of the year and are expected to continue to decline. The 54.0 reading expected would be the lowest since May 2020. Job openings likely fell for the second consecutive month for the first time since the pandemic first struck. The numbers remain elevated but are moderating. Toward the end of the session, the FOMC minutes from last month's meeting will be published. KC Fed President George's dissent in favor of 50 bp may draw attention. The Fed funds futures is pricing in about a 75% chance of another 75 bp move rather than 50 bp for this month's meeting.

Canada and Mexico have light economic calendars today. Tomorrow Canada reports trade and IVEY PMI and Mexico reports CPI figures. The US dollar set a marginal new high for year yesterday near CAD1.3085. Although US equities recovered the Canadian dollar did not. The greenback is still firm above CAD1.30 today. The upper Bollinger Band is slightly above CAD1.3075 today. A break of CAD1.2990 would take some of the wind from the US dollar's sails. The dollar jumped above MXN20.50 yesterday and is advancing further today. It is approaching last month's highs in the MXN21.69-MXN20.70 area, where the upper Bollinger Band is found today. If this area breaks, there is little on the charts to prevent a move toward MXN21.00-MXN21.06.

 



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There will soon be one million seats on this popular Amtrak route

“More people are taking the train than ever before,” says Amtrak’s Executive Vice President.

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While the size of the United States makes it hard for it to compete with the inter-city train access available in places like Japan and many European countries, Amtrak trains are a very popular transportation option in certain pockets of the country — so much so that the country’s national railway company is expanding its Northeast Corridor by more than one million seats.

Related: This is what it's like to take a 19-hour train from New York to Chicago

Running from Boston all the way south to Washington, D.C., the route is one of the most popular as it passes through the most densely populated part of the country and serves as a commuter train for those who need to go between East Coast cities such as New York and Philadelphia for business.

Veronika Bondarenko captured this photo of New York’s Moynihan Train Hall. 

Veronika Bondarenko

Amtrak launches new routes, promises travelers ‘additional travel options’

Earlier this month, Amtrak announced that it was adding four additional Northeastern routes to its schedule — two more routes between New York’s Penn Station and Union Station in Washington, D.C. on the weekend, a new early-morning weekday route between New York and Philadelphia’s William H. Gray III 30th Street Station and a weekend route between Philadelphia and Boston’s South Station.

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According to Amtrak, these additions will increase Northeast Corridor’s service by 20% on the weekdays and 10% on the weekends for a total of one million additional seats when counted by how many will ride the corridor over the year.

“More people are taking the train than ever before and we’re proud to offer our customers additional travel options when they ride with us on the Northeast Regional,” Amtrak Executive Vice President and Chief Commercial Officer Eliot Hamlisch said in a statement on the new routes. “The Northeast Regional gets you where you want to go comfortably, conveniently and sustainably as you breeze past traffic on I-95 for a more enjoyable travel experience.”

Here are some of the other Amtrak changes you can expect to see

Amtrak also said that, in the 2023 financial year, the Northeast Corridor had nearly 9.2 million riders — 8% more than it had pre-pandemic and a 29% increase from 2022. The higher demand, particularly during both off-peak hours and the time when many business travelers use to get to work, is pushing Amtrak to invest into this corridor in particular.

To reach more customers, Amtrak has also made several changes to both its routes and pricing system. In the fall of 2023, it introduced a type of new “Night Owl Fare” — if traveling during very late or very early hours, one can go between cities like New York and Philadelphia or Philadelphia and Washington. D.C. for $5 to $15.

As travel on the same routes during peak hours can reach as much as $300, this was a deliberate move to reach those who have the flexibility of time and might have otherwise preferred more affordable methods of transportation such as the bus. After seeing strong uptake, Amtrak added this type of fare to more Boston routes.

The largest distances, such as the ones between Boston and New York or New York and Washington, are available at the lowest rate for $20.

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The next pandemic? It’s already here for Earth’s wildlife

Bird flu is decimating species already threatened by climate change and habitat loss.

I am a conservation biologist who studies emerging infectious diseases. When people ask me what I think the next pandemic will be I often say that we are in the midst of one – it’s just afflicting a great many species more than ours.

I am referring to the highly pathogenic strain of avian influenza H5N1 (HPAI H5N1), otherwise known as bird flu, which has killed millions of birds and unknown numbers of mammals, particularly during the past three years.

This is the strain that emerged in domestic geese in China in 1997 and quickly jumped to humans in south-east Asia with a mortality rate of around 40-50%. My research group encountered the virus when it killed a mammal, an endangered Owston’s palm civet, in a captive breeding programme in Cuc Phuong National Park Vietnam in 2005.

How these animals caught bird flu was never confirmed. Their diet is mainly earthworms, so they had not been infected by eating diseased poultry like many captive tigers in the region.

This discovery prompted us to collate all confirmed reports of fatal infection with bird flu to assess just how broad a threat to wildlife this virus might pose.

This is how a newly discovered virus in Chinese poultry came to threaten so much of the world’s biodiversity.

H5N1 originated on a Chinese poultry farm in 1997. ChameleonsEye/Shutterstock

The first signs

Until December 2005, most confirmed infections had been found in a few zoos and rescue centres in Thailand and Cambodia. Our analysis in 2006 showed that nearly half (48%) of all the different groups of birds (known to taxonomists as “orders”) contained a species in which a fatal infection of bird flu had been reported. These 13 orders comprised 84% of all bird species.

We reasoned 20 years ago that the strains of H5N1 circulating were probably highly pathogenic to all bird orders. We also showed that the list of confirmed infected species included those that were globally threatened and that important habitats, such as Vietnam’s Mekong delta, lay close to reported poultry outbreaks.

Mammals known to be susceptible to bird flu during the early 2000s included primates, rodents, pigs and rabbits. Large carnivores such as Bengal tigers and clouded leopards were reported to have been killed, as well as domestic cats.

Our 2006 paper showed the ease with which this virus crossed species barriers and suggested it might one day produce a pandemic-scale threat to global biodiversity.

Unfortunately, our warnings were correct.

A roving sickness

Two decades on, bird flu is killing species from the high Arctic to mainland Antarctica.

In the past couple of years, bird flu has spread rapidly across Europe and infiltrated North and South America, killing millions of poultry and a variety of bird and mammal species. A recent paper found that 26 countries have reported at least 48 mammal species that have died from the virus since 2020, when the latest increase in reported infections started.

Not even the ocean is safe. Since 2020, 13 species of aquatic mammal have succumbed, including American sea lions, porpoises and dolphins, often dying in their thousands in South America. A wide range of scavenging and predatory mammals that live on land are now also confirmed to be susceptible, including mountain lions, lynx, brown, black and polar bears.

The UK alone has lost over 75% of its great skuas and seen a 25% decline in northern gannets. Recent declines in sandwich terns (35%) and common terns (42%) were also largely driven by the virus.

Scientists haven’t managed to completely sequence the virus in all affected species. Research and continuous surveillance could tell us how adaptable it ultimately becomes, and whether it can jump to even more species. We know it can already infect humans – one or more genetic mutations may make it more infectious.

At the crossroads

Between January 1 2003 and December 21 2023, 882 cases of human infection with the H5N1 virus were reported from 23 countries, of which 461 (52%) were fatal.

Of these fatal cases, more than half were in Vietnam, China, Cambodia and Laos. Poultry-to-human infections were first recorded in Cambodia in December 2003. Intermittent cases were reported until 2014, followed by a gap until 2023, yielding 41 deaths from 64 cases. The subtype of H5N1 virus responsible has been detected in poultry in Cambodia since 2014. In the early 2000s, the H5N1 virus circulating had a high human mortality rate, so it is worrying that we are now starting to see people dying after contact with poultry again.

It’s not just H5 subtypes of bird flu that concern humans. The H10N1 virus was originally isolated from wild birds in South Korea, but has also been reported in samples from China and Mongolia.

Recent research found that these particular virus subtypes may be able to jump to humans after they were found to be pathogenic in laboratory mice and ferrets. The first person who was confirmed to be infected with H10N5 died in China on January 27 2024, but this patient was also suffering from seasonal flu (H3N2). They had been exposed to live poultry which also tested positive for H10N5.

Species already threatened with extinction are among those which have died due to bird flu in the past three years. The first deaths from the virus in mainland Antarctica have just been confirmed in skuas, highlighting a looming threat to penguin colonies whose eggs and chicks skuas prey on. Humboldt penguins have already been killed by the virus in Chile.

A colony of king penguins.
Remote penguin colonies are already threatened by climate change. AndreAnita/Shutterstock

How can we stem this tsunami of H5N1 and other avian influenzas? Completely overhaul poultry production on a global scale. Make farms self-sufficient in rearing eggs and chicks instead of exporting them internationally. The trend towards megafarms containing over a million birds must be stopped in its tracks.

To prevent the worst outcomes for this virus, we must revisit its primary source: the incubator of intensive poultry farms.

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

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This is the biggest money mistake you’re making during travel

A retail expert talks of some common money mistakes travelers make on their trips.

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Travel is expensive. Despite the explosion of travel demand in the two years since the world opened up from the pandemic, survey after survey shows that financial reasons are the biggest factor keeping some from taking their desired trips.

Airfare, accommodation as well as food and entertainment during the trip have all outpaced inflation over the last four years.

Related: This is why we're still spending an insane amount of money on travel

But while there are multiple tricks and “travel hacks” for finding cheaper plane tickets and accommodation, the biggest financial mistake that leads to blown travel budgets is much smaller and more insidious.

A traveler watches a plane takeoff at an airport gate.

Jeshoots on Unsplash

This is what you should (and shouldn’t) spend your money on while abroad

“When it comes to traveling, it's hard to resist buying items so you can have a piece of that memory at home,” Kristen Gall, a retail expert who heads the financial planning section at points-back platform Rakuten, told Travel + Leisure in an interview. “However, it's important to remember that you don't need every souvenir that catches your eye.”

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According to Gall, souvenirs not only have a tendency to add up in price but also weight which can in turn require one to pay for extra weight or even another suitcase at the airport — over the last two months, airlines like Delta  (DAL) , American Airlines  (AAL)  and JetBlue Airways  (JBLU)  have all followed each other in increasing baggage prices to in some cases as much as $60 for a first bag and $100 for a second one.

While such extras may not seem like a lot compared to the thousands one might have spent on the hotel and ticket, they all have what is sometimes known as a “coffee” or “takeout effect” in which small expenses can lead one to overspend by a large amount.

‘Save up for one special thing rather than a bunch of trinkets…’

“When traveling abroad, I recommend only purchasing items that you can't get back at home, or that are small enough to not impact your luggage weight,” Gall said. “If you’re set on bringing home a souvenir, save up for one special thing, rather than wasting your money on a bunch of trinkets you may not think twice about once you return home.”

Along with the immediate costs, there is also the risk of purchasing things that go to waste when returning home from an international vacation. Alcohol is subject to airlines’ liquid rules while certain types of foods, particularly meat and other animal products, can be confiscated by customs. 

While one incident of losing an expensive bottle of liquor or cheese brought back from a country like France will often make travelers forever careful, those who travel internationally less frequently will often be unaware of specific rules and be forced to part with something they spent money on at the airport.

“It's important to keep in mind that you're going to have to travel back with everything you purchased,” Gall continued. “[…] Be careful when buying food or wine, as it may not make it through customs. Foods like chocolate are typically fine, but items like meat and produce are likely prohibited to come back into the country.

Related: Veteran fund manager picks favorite stocks for 2024

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