Researchers from Georgia Tech’s Colleges of Engineering and Computing have completed the first published study on the link between America’s mass transit use and Covid-19 cases at the beginning of the pandemic.
Credit: Georgia Tech
Researchers from Georgia Tech’s Colleges of Engineering and Computing have completed the first published study on the link between America’s mass transit use and Covid-19 cases at the beginning of the pandemic.
Using data from the Federal Highway Administration’s National Household Travel Survey, the team looked at the nation’s 52 largest metropolitan areas and each community’s likelihood of riding buses and trains. They then compared the numbers with the 838,000 confirmed Covid cases on the Johns Hopkins Center for Systems Science and Engineering’s dashboard from Jan. 22 – May 1, 2020.
The timeframe covers the initial days, weeks, and months of the pandemic, before mask mandates were in place and prior to widespread social distancing. Ventilation on public transit had yet to be addressed, along with other public health measures that have since become the norm.
The study found that cities with high-usage public transportation systems displayed higher per capita Covid incidence. This was true when other factors, such as education, poverty levels, and household crowding, were accounted for. The association continued to be statistically significant even when the model was run without data from transit-friendly New York City.
The paper, “Investigating the association between mass transit adoption and COVID-19 infections in US metropolitan areas,” is published in the journal Science of the Total Environment. While the researchers don’t suggest that transit is the sole cause of the high incidence rates, they say it could have been an important factor early in the pandemic.
“This is what we expected, but we wanted to run the models to know for sure. Policymakers shouldn’t make decisions based on what they assume to be true,” said Michael Thomas, one of the study’s co-authors and a Ph.D. student in Georgia Tech’s School of Computational Science and Engineering. “This study is similar to dusting off a dinosaur dig site and finding a leg bone. This isn’t the entire dinosaur. There are many ways of making the argument about Covid spread, and transit is just part of it.”
The team got the idea of tracking transit and Covid cases after watching early reports from Wuhan, China, and reflecting on how differences in public transportation systems may factor into pandemic spread patterns. As assumptions were being made about how American cities should react based on ridership patterns on the other side of the globe, Professor John Taylor thought the pandemic shouldn’t be treated as a “one size fits all” situation.
“In the initial months of the pandemic, models were being developed here at home based on incidence rates in Wuhan. But, in terms of mass transit ridership behavior, China’s may be far different than what we see in American cities,” said Taylor, Frederick Law Olmsted Professor and associate chair for graduate programs and research innovation in the School of Civil and Environmental Engineering. “For instance, people in Chinese urban areas often stand in long, single file lines as they wait for trains and buses. We don’t. Different spread patterns can develop because of differences in mass transit behaviors.”
Taylor’s primary research focuses on the dynamics that can occur at the intersection of human and engineered networks, such as how people change electricity consumption behaviors and changing mobility patterns in natural disasters. Pandemics were on his research radar before Covid became a household name, as Taylor wanted to create better models to forecast the spread of illnesses. His first research effort in this direction was tracking the Ebola virus that reached Texas in 2014.
In the fall of 2019, Thomas was working as a biostatistician at the Georgia Department of Public Health when he spoke with Taylor about pursuing his Ph.D. Thomas submitted his application to Georgia Tech that November — just four months before Covid shut down America.
The two, along with study co-author and senior research engineer Neda Mohammadi, are now creating models to predict the spread of future illnesses among populations. They’re also looking to demonstrate how researchers can modify those models for better accuracy.
“If engineers and scientists can better understand the factors of community spread, policymakers can make faster, more accurate decisions to protect public health,” said Thomas. “In transportation, for example, it could lead to quicker decisions to restrict the number of people on buses. Or policies to stagger vehicle departure times more consistently. Studies like ours provide a basis for those decisions.”
Having more accurate models also takes varying human behavior into account, according to the researchers. Just as people in Wuhan wait for public transportation differently than those here in America, cities can differ from each other.
“Your pandemic is different than your neighbor’s,” said Mohammadi. “Pandemic spread isn’t the same from city to city, nor is ridership. Decision makers often look to other communities to see how they’re responding to shape their actions. That’s not always accurate. Models need to be customizable because populations don’t react uniformly. It’s our goal to improve decision making to be easier, faster, and more accurate for the next pandemic.”
CITATION: Thomas, M., Mohammadi, N., Taylor, J. Investigating the association between mass transit adoption and COVID-19 infections in US metropolitan areas. Science of the Total Environment Vol 811, 152284 (2022). https://doi.org/10.1016/j.scitotenv.2021.152284
This material is based upon work supported by the National Science Foundation (NSF) under Grant No. 1837021. Any opinions, findings, and conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of the NSF.
About Georgia Institute of Technology
The Georgia Institute of Technology, or Georgia Tech, is a top 10 public research university developing leaders who advance technology and improve the human condition. The Institute offers business, computing, design, engineering, liberal arts, and sciences degrees. Its nearly 40,000 students representing 50 states and 149 countries, study at the main campus in Atlanta, at campuses in France and China, and through distance and online learning. As a leading technological university, Georgia Tech is an engine of economic development for Georgia, the Southeast, and the nation, conducting more than $1 billion in research annually for government, industry, and society.
Science of The Total Environment
Method of Research
Subject of Research
Investigating the association between mass transit adoption and COVID-19 infections in US metropolitan areas
“In the ongoing development of the Pfizer-BioNTech COVID-19 vaccine, Pfizer has not conducted gain of function or directed evolution research,” Pfizer said in a lengthy written statement after days of ignoring queries from The Epoch Times and other outlets.
Pfizer did say that it has conducted research “where the original SARS-CoV-2 virus has been used to express the spike protein from new variants of concern.”
“This work is undertaken once a new variant of concern has been identified by public health authorities. This research provides a way for us to rapidly assess the ability of an existing vaccine to induce antibodies that neutralize a newly identified variant of concern. We then make this data available through peer reviewed scientific journals and use it as one of the steps to determine whether a vaccine update is required,” the company added.
Pfizer did say it has conducted experiments in a level 3 laboratory.
Pfizer said, in its work developing a treatment for COVID-19, it has “engineered” the COVID-19 virus “to enable the assessment of antiviral activity in cells.”
“In addition, in vitro resistance selection experiments are undertaken in cells incubated with SARS-CoV-2 and nirmatrelvir in our secure Biosafety level 3 (BSL3) laboratory to assess whether the main protease can mutate to yield resistant strains of the virus,” Pfizer said. “It is important to note that these studies are required by U.S. and global regulators for all antiviral products and are carried out by many companies and academic institutions in the U.S. and around the world.”
Pfizer produces a COVID-19 treatment called Paxlovid, or nirmatrelvir that is authorized in the United States and some other countries.
In its statement, Pfizer did not dispute that Dr. Jordon Walker, who told a Project Veritas journalist that Pfizer is exploring how to “mutate” the COVID-19 virus, was or is a Pfizer employee.
Professional profiles for Walker, which have since been taken down, listed him as a director of messenger RNA research at the company. Pfizer’s COVID-19 vaccine utilizes messenger RNA. The profiles also listed a Pfizer email address, and an email sent to that address did not bounce back. A receptionist at Pfizer on Thursday also told The Epoch Times that Walker had an internal company profile, but a different receptionist on Friday said there was no listing for the doctor, indicating he might have been terminated after the comments were made public.
Dr. Robert Malone, who helped develop the messenger RNA technology, said that the experiments Pfizer described met the definition of “gain of function.”
“Pfizer is basically acknowledging that they are doing the same type of gain of function research that Boston University was caught doing, but they are denying that it is gain of function or directed evolution,” Malone wrote on Twitter.
1) Pfizer lawyers did not throw their Director of R&D Operations and Scientific Planning under the bus. 2) there is no denial of what he said. 3) No denial that he is Pfizer staff. 4) Swapping new spike sequences into original Wuhan-1 is technically gain of function research.
Malone pointed to Pfizer’s comment about taking the original SARS-CoV-2 virus and using it “to express the spike protein from new variants of concern.”
Gain of function generally describes experiments that aim to increase functions of a virus such as transmissibility and virulence. Walker had said in his comments that the work he was describing was not gain of function, but “directed evolution.”
Researchers with Boston University revealed in 2022 that they had developed a strain of COVID-19 that killed 80 percent of mice infected with it.
The U.S. National Institutes of Health (NIH) is supposed to oversee risky research conducted in or funded by the United States but has faced criticism for only reviewing a handful of projects—none since 2019—under the oversight system.
The NIH funded gain of function experiments at the Wuhan laboratory situated near where the first COVID-19 cases were identified, and officials have promised to keep funding research in China.
Sen. Marco Rubio (R-Fla.) had written a letter to Pfizer CEO Albert Bourla referring to Walker’s remarks and questioning whether the company has or is planning to mutate the COVID-19 virus.
Walker’s comments “are alarming,” Rubio wrote in the Jan. 26 missive.
YouTube Takes Down Video
In a notice sent to Project Veritas, YouTube cited its medical misinformation policy, which bars “claims about COVID-19 vaccination that contradict expert consensus from local health authorities or the World Health Organization (WHO).”
It wasn’t clear which authorities specifically YouTube was relying upon to rebut the video.
YouTube, which is owned by Google, did not respond to a request for comment.
O’Keefe noted that the claims in the video were made by a Pfizer director.
Project Veritas was given a “strike,” which prevents the organization from taking actions like uploading new videos for one week. A second strike would block such actions for two weeks and a third strike in a 90-day period would result in a permanent removal of the group’s account, YouTube warned.
“The risk of over-tightening by the European Central Bank is nothing less than catastrophic” says Prof Kenneth Rogoff .
At Davos he also said:
“Italy is extremely vulnerable. But this could pop anywhere. Global debt has gone up massively since the pandemic: public debt, corporate debt, everything.”
Rogoff believes that it is a miracle that the world averted a financial crisis in 2022, but the odds of a major accident are shortening as the delayed effects of past tightening feed through.
As Rogoff said:
“We were very fortunate that we didn’t have a global systemic event in 2022, and we can count our blessings for that, but rates are still going higher and the risk keeps rising.”
But lurking in the murkiness is also the global financial assets/liabilities which is almost $500 trillion including the shadow banking system at 46% of the total. The shadow banking sector includes pension funds, hedge funds and other financial institutions which are largely unregulated.
Shadow banking is not subject to the normal mark-to-market rules. Thus no one knows what the real position or losses are. This means that central banks are in the dark when it comes to evaluation of the real risks of the system.
Clearly, I am not the only one harping on about the catastrophic global debt/liability situation.
And no one knows the extent of total global derivatives. But if they have grown in line with debt and also with the shadow banking system, they could easily be in excess of $3 quadrillion.
Cultures don’t die overnight, but the US has been in decline since at least the Vietnam war in the 1960s. Interestingly, the US has not had a real Budget surplus since the early 1930s with a handful of years of exception.
But when you, like the US, live on borrowed time and borrowed money, it becomes increasingly difficult to keep up appearances. In 1971, the pressures on the US economy and currency became too great. Thus Nixon closed the Gold Window with the dollar having lost over 98% in real terms since then. This is of course a total catastrophe and a guarantee that the remaining 2% fall to ZERO will come in the near term future, whether it takes 5 or 10 years for the dollar to reach oblivion. Remember that the final 2% is 100% from today!
The US, EU and Japan have now reached the stage when no one wants their debt. So sovereign debt of these nations is no longer a question of “passing the parcel” but keeping the parcel. When every third party holder of these debts is a seller, who will buy?
These three countries will end up holding their own debt. Japan already holds over 50% of its debt. Before the Western Ponzi scheme comes to an end, these three nations will virtually hold 100% of their own debt. At that point, the bonds will be worthless and interest rates will have reached infinity. Not a pretty prospect!
US – PERFECT RECIPE FOR DISASTER
The final phase of all empires always includes excessive deficits and debts, inflation, a collapsing currency, decadence and war. And the US qualifies perfectly in all those categories.
Ernest Hemingway stated it superbly:
The first panacea of a mismanaged nation is inflation of the currency; the second is war. Both bring temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.
The US has failed in every war since the Vietnam war, including the Yugoslav Wars, Afghanistan, Iraq, Syria and Libya. The results have been massive casualties and destruction of the countries, often leading to economic misery, anarchy and terrorism.
The Ukrainian war is not between Ukraine and Russia but between the US and Russia as I discussed in a previous article (Link). The clear proof that there is no desire for peace from the US is that they are sending money and weapons to Ukraine in the $100s of billions and “encouraging” an increasingly suffering Europe to do the same. But they are not sending any peace negotiators to Russia in an attempt to end the war. This is very ominous.
The geopolitical situation is now on a knife edge with two major nuclear powers fighting about a relatively insignificant country. This is how major wars normally start.
Let us hope that the current conflict does not lead to a major nuclear war since that would be the end of the world. Thus not worth to speculate about the outcome of this high risk scenario.
But the economic war and the collapse of the US dominated financial system is not just inevitable but also catastrophic for the Western economies.
A COMMODITY DOMINATED WORLD
As the hegemony of the US is coming to an end, the dominance of the decadent West is moving quickly to the East and South. Commodity based countries like the enlarged BRICS will dominate for the next few decades and probably longer. Oil and gas will form the base of this shift but also many other commodities including gold which is now starting a new era.
It is likely that 2023 will be the first year of many when we will see a strong rise in gold just like 2000 – 2011 which saw a 7.5X gain.
The end of the Western debt based cycle and the rise of the Eastern and Southern commodity cycle is well illustrated in the graph below
OIL, GOLD TO GO UP > 9X AGAINST STOCKS
The S&P Commodity Index relative to Stocks has recently made a 50 year low. Just to return to the mean, the index would need to go up 4X. But when long term cycles turn up from a historical low, they tend to trend higher and longer than anyone expects. So a move past the 1990 high of 9 is very likely. This would mean that commodities, and especially oil and gold, relative to stocks would move up more than 9X!
This 9X move would obviously involve a combination of falling stocks and rising commodity prices.
The expected move of the index confirms the shift from the West, based on an unsound and debt infested system, to the East & South, based on commodities.
Much of this move is based on the fossil fuels of the countries involved – to the chagrin of the climate movement zealots.
In today’s woke world, there is a tendency to believe that we can change all the laws of nature and science. This is the case both in the economy and climate. Bankers and governments are confident that they can create permanent prosperity by printing worthless pieces of paper believing that these represent real and lasting value and wealth.
Well surprise, surprise, these people will soon have the shock of a lifetime as all that printed money returns to its intrinsic value of ZERO.
A debt based economy eventually becomes a self-fulfilling prophecy.
The higher the debt, the more the debt needs to grow in a never ending vicious circle. In the end the debt cycle becomes a perpetual motion Ponzi scheme……. UNTIL IT ALL CRASHES!
The debt feeds on itself and the more that is issued, the more needs to be issued. As inflation rises, the escalating interest cost on the debt leads to more debt. Next is defaults, both private and foreign. Then the $2-3 quadrillion derivatives, a great part of which is in the shadow banking system, comes under pressure. This leads to massive further debt creation by the Fed and other central banks, desperately trying to save the system.
This will eventually lead to what von Mises called: “…. a final and total catastrophe of the currency system involved.”
But remember that we are here talking about the Western financial system. The economic sun in the East will rise strongly and eventually be the guiding light for the world economy.
The debt based US and West will to quote Hemingway decline “first gradually and then suddenly.” So due to the $2+ quadrillion size of the problem, the biggest part of the decline is unlikely to take more than 10 years and it could be a lot faster, especially at the end.
But the climate zealots
will have to wait to 2050 to learn that through their actions they didn’t manage to limit the increase in temperature to 1.5 degrees. But with a lot of luck, climate cycles might be on their side and make the weather much colder.
Personally I believe that cycles determine the climate and not humans.
The climate cycle graph below covering 11,000 years shows that there has been numerous periods with warmer temperatures than currently. At the peak of the Roman Empire 2000 years ago, Rome had a tropical climate.
Fossil fuels produce 83% of the world’s energy today. According to forecasts this percentage is unlikely to come down significantly in the next 50 years.
Partly due to the increased cost of producing energy, fossil fuel production will fall by 26% by 2048. Increases in nuclear and renewables will not compensate for this decline.
If the world stops using fossil fuels, the world economy would totally collapse. Sadly the climate activist movement does not seem to worry about such disastrous consequences.
So it seems fairly clear that for a very long time, the world will be dependent on fossil fuels in order for the economy and population not to collapse.
For the above reasons, the commodity based countries will soon dominate the world and that for a very long time.
The constellations of commodity rich nations are forming rapidly.
Firstly we have the BRICS countries which currently consist of Brazil, Russia, India, China and South Africa. Many countries are in the process of joining BRICS including Saudi Arabia, Iran, Algeria, Argentina and Turkey.
It is the enlarged BRICS aim to bypass the dollar and create their own trading currency.
Many talk about the Petroyuan replacing the Petrodollar but what would everyone do with the Chinese currency since it isn’t freely convertible. Better then to have a currency linked to several commodity countries like Special Drawing Rights. This would create more stability and usability. The Credit Suisse analyst Pozsar calls this Bretton Woods III.
There is also the EAEU or Eurasia Economic Union with Russia leading plus China, India, Iran, Turkey and UAE involved.
The SCO – the Shanghai Cooperation Organisation headquartered in China is also an important force. The SCO is a political, economic, international security and defence organisation. It includes many Eurasian nations like China, Russia, Uzbekistan, Kazakhstan etc.
All the economies involved in this important development are commodity based. For example, commodities are 30% of Russian GDP. Their target is to expand gold mining to 3% of GDP and become the biggest gold producer in the world.
Russia has the world’s largest commodity reserves at $75 trillion and produces 11 million barrels of oil per day. Russian friendly provinces produce another 14M totalling 25M. China produces 5m barrels and the Middle East Oil going through the Strait of Hormuz is 22M barrels. So in a conflict with the US, Russia, China and Iran could decide to close the Strait of Hormuz which means they would have control over 50% of global oil supply. As Goldman Sachs has stated, oil would then be in the $1000s.
If we take Russia, Iran and Venezuela, they control 40% of the global oil supply.
The point I am making is that these various constellations of commodity countries will be the dominant economic power of the future as the US and Europe decline.
So for Russia, gold and oil are two strategic commodities which will play an important role not just for Russia but for all of these Eastern/Southern countries.
And no one should believe that the US and European sanctions are working. Russia and Iran are selling oil and gas to China at a discount. China then exports this, including refined products, to Europe at premium.
So the sanctions are a farce which totally kills the European economy.
Interestingly, the relationship between yellow gold and black gold has been stable for decades as this chart shows:
GOLD / OIL RATIO 1950 – 2023
GOLD – THE VITAL WEALTH PRESERVATION ASSET FOR 2023 AND BEYOND
Gold was the best performing asset class in 2022 but the investment world didn’t notice since it is hanging on to the declining bubble assets of stocks, bonds and property.
Let’s look at gold’s performance in various currencies in 2022:
The chart shows gold up 15% against Swedish Kroner on the right and for example up 11.6% in pounds, 6% in Euros and virtually unchanged in US$.
Bearing in mind that most asset markets, including bonds, have fallen by 20-30%, this is an outstanding performance by gold.
But no one must believe that gold is going up. All gold does it to reflect the total mismanagement of most economies. The chart above should be turned upside down to reflect the loss of purchasing power of all paper money.
As has been the case since 1971, this trend of falling currencies will continue but not at the same steady pace.
With the debt infested Western economies collapsing, their currencies will implode one after the other.
So please firstly acquire as much physical gold as you can afford and then some more.
And when you own your gold, don’t measure the value in collapsing currencies. Just measure your gold in ounces, kilos or grammes.
Also please don’t keep it in the country where you live, especially if that country has a tendency to grab assets. I don’t need to tell you which countries you can’t trust. The problem is, there are not many you can trust.
BEWARE – A GOLD CUSTODIAN DISAPPEARED WITH CLIENTS’ METALS
Also if you store your gold with a gold custodian, ensure that only you can release it by having the Warehouse Receipt in your name. A custodian gold company disappeared last year with the major customer assets in spite of the gold being stored with a major vault company. The weakness was that the gold company could release the gold without the client’s approval. This is not an acceptable way to store your wealth preservation asset.
Finally remember that gold is not just your most important wealth preservation asset but can also be beautiful.
The new year is still young, but the week ahead may be one of the most important weeks of the year. The divergence that the market has been anticipating will materialize. The Federal Reserve will most likely hike by 25 bp on Wednesday, followed by half-point moves by the European Central Bank and the Bank of England the following day. On Friday, February 3, the US will report its January employment situation. It could be the slowest job creation since the end of 2020. The Bureau of Labor Statistics also will release the preliminary estimate of its annual benchmark revisions.
The markets' reaction may be less a function of what is done than what is communicated. The challenge for Fed Chair Powell is to slow the pace of hiking while pushing against the premature easing of financial conditions. In December, ECB President Lagarde pre-committed to a 50 bp hike in February and hinted that another half-point move was possible in March. With the hawks showing their talons in recent days, will she pre-commit again? Amid a historic cost-of-living squeeze that has already kneecapped households, can Bank of England Governor Bailey deliver another 50 bp rate hike and sell the idea that it is for the good of Britain, for which the central bank does not expect growth to return until next year?
United States: The Federal Reserve has a nuanced message to convey. It wants to slow the pace of hikes, as even the hawkish Governor Waller endorsed, but at the same time, persuade the market that tighter financial conditions are necessary to ensure a times convergence of price pressures to the target. Indeed, Fed Chair Powell may warn investors that if it continues to undo the Fed's work, more tightening may be necessary. The market has heard this essentially before and is not impressed. Financial conditions have eased. Consider that the 2-year yield is down 20 bp this year, and the 10-year yield has fallen twice as much. The trade-weighted dollar is off by more than 1.5%. The S&P 500 is up 4.6% after a 7% rally in Q4 22. The Russell 200 has gained nearly 7% this month, on top of the 5.8% in the last three months of 2022.
Last year, Powell drew attention to the 18-month forward of the three-month T-bill yield compared to the cash 3-month bill as a recession tell. It has been inverted for over two months and traded below -100 bp last week, the most inverted since the tech bubble popped over two decades ago. The market seems more convinced that inflation will fall sharply in the coming months. The monetary variables and real economy data, including retail sales, industrial production, and the leading economic indicators, suggest a dramatic weakening of the economy. Yet just like most looked through the contraction in H1 22, seeing it as primarily a quirk of inventory and trade, the 2.9% growth reported in Q4 22 does not change many minds that the US economy is still headed for weaker growth, leaving aside the fuzzy definition of a recession.
The median forecast in Bloomberg's survey is for a 188k rise in January nonfarm payrolls. If accurate, it would be seen as concrete evidence that the jobs market is slowing. This is also clear by looking at averages for this volatile series. For example, in the last three months of 2022, the US created an average of 247k jobs a month. In the first nine months of the year, nonfarm payrolls rose by an average of 418k a month. Average hourly earnings growth also is moderating. A 0.3% rise on the month will see the year-over-year pace slow to 4.3%. That matches the slowest since June 2021. The decline in the work week in December to 34.3 hours spurred narratives about how businesses, hoarding labor, would cut hours before headcount. Yet, we suspect it was partly weather-related, and that the average work week returned to 34.4 hours, which is around where it was pre-Covid.
Benchmark revisions are usually of more interest to economists than the market, but last month's report by the Philadelphia Fed raised the stakes. It looked more closely at the April-June 2022 jobs data. After adjusting for updated data from the Quarterly Census on Employment and Wages, it concluded that job growth was nearly flat in Q2 22. It estimated that only 10,500 net new jobs were created, a far cry from the 1.05 mln jobs estimated by the Bureau of Labor Statistics. The Business Employment Dynamics Summary (released last week) was starker still. It points to a job loss of nearly 290k. Lastly, we note that US auto sales are expected to have recovered from the unexpected almost 6% decline (SAAR) in December. However, the 14.1 mln unit pace would still represent a 6% decline from January 2022, when sales spiked to 15.04 mln.
The Dollar Index continues to hover around 102, corresponding to the (50%) retracement of the rally recorded from January 2021 through September 2022. It has not closed above the 20-day moving average (now ~102.80) since January 3. It remains in the range set on January 18, when it was reported that December retail sales and manufacturing output fell by more than 1%. That range was about 101.50-102.90. Although we are more inclined to see it as a base, the prolonged sideways movement last month saw new lows this month. That said, the next retracement target (61.8%) is near 99.00.
Eurozone: The ECB rarely pre-commits to a policy move, precisely what ECB President Lagarde did last month. Apparently, as part of the compromise with members who at first advocated another 75 bp hike in December, an agreement to raise rates by 50 bp was accompanied by an agreement to hike by another 50 on February 2 and explicitly not rule out another half-point move in March. There was a weak effort to soften the March forward guidance, but the hawks pushed back firmly. The swaps market has about a 70% chance of a 50 bp hike in March rather than a 25 bp move.
The ECB's deposit rate stands at 2.00%, and the swaps market is pricing 125 bp of hikes in the first half of the year. In contrast, the Fed is expected to raise the Fed funds target range by 50 bp. This has been reflected in the two-year interest rate differential between the US and Germany, falling from about 275 bp last August to around 160 bp now. We had anticipated the US premium would peak before the dollar, and there is a lag of almost two months. The direction and change of the interest rate differential often seem more important than the level. In late 2019, before Covid struck, the US premium was near 220 bp, and the euro was a little below $1.12.
There has been a significant shift in sentiment toward the eurozone. The downside risks that seemed so dominant have been reduced. A milder-than-anticipated winter, the drop in natural gas prices, and successful conservation and conversion (to other energy sources) lifted the outlook. Some hopeful economists now think that the recession that seemed inevitable may be avoided. The preliminary January CPI will be published a day before the ECB meets. The monthly pace fell in both November and December. The year-over-year rate is expected to ease to 5.1% from 5.2%, while the core rate slips to 5.1% from 5.2%. The base effect suggests a sharp decline is likely here in Q1, but divergences may become more evident in the euro area. This could see a reversal of the narrowing of core-periphery interest rate spreads.
The EU's ban on refined Russian oil products (e.g., diesel and fuel oil) will be implemented on February 5. It is considering imposing a price cap as it did with crude oil. Diesel trades at a premium to crude, while fuel oil sells at a discount. There have been reports of European utilities boosting purchases from Russia ahead of the embargo. Separately, reports suggest that the EU was still the largest importer of Russian oil in December when pipeline and oil products were included. However, at the end of December, Germany stopped importing Russia's oil delivered through pipelines. This does not count oil and refined producers that first go to a third country, such as India, before being shipped to Europe.
Pullbacks in the euro have been shallow and brief. Most pullbacks since the low was recorded last September, except the first, have mostly been less than two cents. That would suggest a pullback toward the $1.0730 area, but buyers may re-emerge in front of that, maybe around $1.0775. On the top side, the $1.0940 is the (50%) retracement of the euro's losses since January 2021. The euro rose marginally last week, even though it slipped by around 0.2% in the last two session. It has risen in eight of the past 10 weeks.
UK: Without some forward guidance that stopped short of a pre-commitment, the market is nearly as confident that the Bank of England will deliver another half-point hike in the cycle to lift the base rate to 4.0%. The BOE was among the first of the G10 countries to begin the interest rate normalization process and raised the base rate in December 2021 from the 0.10% it had been reduced to during the pandemic. The swaps market projects the peak between 4.25% and 4.50%, with the lower rate seen as slightly more likely.
High inflation readings and strong wage growth appear to outweigh the economic slump. The BOE's forecasts see the economy contracting 1.5% year-over-year this year and output falling another 1% in 2024. The market is not as pessimistic. The monthly Bloomberg survey (51 economists) founds a median forecast for a 0.9% contraction this year and an expansion of the same magnitude next year. The survey now sees only a 0.2% quarterly contraction in Q4 22 rather than -0.4% in the previous survey. The median forecast for the current quarter was unchanged at -0.4%.
Sterling continues to encounter resistance in front of $1.2450, which it first approached in mid-December. Although marginal new highs have been recorded, like the euro, it has been mainly confined to the range set on January 18 (~$1.2255-$1.2435). We are inclined to see this sideways movement as a topping pattern rather than a base, but it likely requires a break of the 1.2225 area to confirm.
Japan: After contracting in Q3 22, the Japanese economy is expected to have rebounded in Q4 (~3.0% annualized pace). Reports on last month's labor market, retail sales, and industrial production will help fine-tune expectations. This month's rise in the flash composite PMI moved back above 50, pointing to some momentum. Still, Tokyo's higher-than-expected January CPI warns of upside risk to the national figure due offers good insight into the national figure, which may draw the most attention. We expect Japanese inflation to peak soon. The combination of government subsidies, the decline in energy prices, including the natural gas it gets from Russia, and the stronger yen (which bottomed in October) will help dampen price pressures. We look for a peak here in Q1 23.
Last week, the dollar moved broadly sideways against the yen as it continued to straddle the JPY130 area. It repeatedly toyed with the 20-day moving average (~130.40) last week but has yet to close above this moving average for more than two months. Rising US and European yields may encourage the market to challenge the 50 bp cap on Japan's 10-year bond. A break of the JPY128.80 area may spur a test on the JPY128.00 area. However, the market seems to lack near-term conviction.
China: Mainland markets re-open after the week-long Lunar New Year holiday. There may be two drivers. The first is catch-up. Equity markets in the region rose. The MSCI Asia Pacific Index rose every session last week and moved higher for the fifth consecutive week. The JP Morgan Emerging Market Currency Index rose about 0.40% last week and is trading near its best level since mid-2022. The euro and yen were little changed last week (+/- <0.20%). The second driver is new news--about Covid and holiday consumption. The PMI is due on January 31, and the median forecast in the Bloomberg survey is for improvement. It has the manufacturing PMI rising to 49.9 from 47.0 and the service PMI jumping to 51.5 from 41.6. The offshore yuan edged up 0.3% last week, suggesting an upside bias to the onshore yuan, against which the dollar settled at CNY6.7845 ahead of the holiday.
Canada: After the Bank of Canada's decision last week, the FOMC meeting, and US employment data in the days ahead, Canada is out of the limelight. It reports November GDP figures and the January manufacturing PMI. Neither are likely to be market movers. The Bank of Canada is the first of the G7 central banks to announce a pause (conditional on the economy evolving like the central bank anticipates) with a target rate of 4.50%. The central bank sees the economy expanding by 1% this year and 1.8% next. It suggests that the underlying inflation rate has peaked and, by the end of the year, may slow to around 2.6%. The swaps market has 50 bp of cut discounted in the second half of the year.
The Canadian dollar held its own last week, rising by about 0.5%, which was second only to the high-flying Australian dollar. The greenback approached CAD1.3300, its lowest level since last November when it traded around CAD1.3225. Quietly, the Canadian dollar has strung together a six-week advance, and since its start in mid-December, it has been the third-best performer in the G10 behind the yen (~6.2%) and the Australian dollar (~6.1%). We are more inclined to see the greenback bounce toward CAD1.3400 before those November lows are re-tested.
Australia: The market's optimism about China recovering from the Covid surge, with the help of government support and attempts to help the property market, has been reflected in the strength of the Australian dollar, which leads the G10 currencies with around a 4.4% gain this year. Yet, changes in the exchange rate and Chinese stocks are not highly correlated in the short- or medium-term. The surge of inflation at the end of last year, reported last week, lent greater credence to our view that the Reserve Bank of Australia will lift the cash target rate by 25 bp when it meets on February 7. In the week ahead, Australia reports December retail sales, private sector credit, and some housing sector data, along with the final PMI readings. The momentum indicators are stretched after a 2.5-cent rally from the low on January 19. It is at risk of a pullback and suggests a break of $0.7080 may be the first indication that it is at hand. We see potential initially toward $0.7000-$0.7040.
Mexico: After falling by nearly 5.25% in the first part of the month against the Mexican peso, the dollar is consolidating. The underlying case for peso exposure remains, but there are two mitigating conditions. First, surveys of real money accounts suggest many are already overweight. Second, the dollar met key target levels in it late-2019 (~MXN18.80), even if not to the February 2020 low (slightly below MXN18.53). On January 31, Mexico reports Q4 GDP. The economy is expected to have expanded by 0.5% after 0.9% quarter-over-quarter growth in Q3 22. Growth is expected to slow further in Q1 23 before grinding to a halt in the middle two quarters. The following day, Mexico reports December worker remittances. These have been a strong source of capital inflows in Mexico. Remittances have a strong seasonal pattern of rising in December from November, which sees remittances slow. However, after surging for the last couple of years, they appear to have begun stabilizing. Also, the optimism around China is understood to be more supportive of Brazil and Chile, for example, than Mexico.
We do not have a very satisfying explanation for the two-day jump in the dollar from about MXN18.5670 to MXN19.11 (January 18-19) outside of market positioning and the possibility of some large hedge working its way through. Still, it seemed like a transaction-related flow rather than a change in the underlying situation. The greenback has trended lower since then and has fallen in five of the last six sessions. It fell to nearly MXN18.7165 ahead of the weekend. Latam currencies, in general, did well, with the top two emerging market currencies coming from there (Brazil and Chile). The Mexican peso rose about 0.4% last week. Last week, the Argentine peso's loss of almost 1.2% gave it the dubious honor of the worst performer among emerging market currencies. It is now off nearly 4.6% for this month. Mexican stocks and bonds extended their rallies. A firmer dollar ahead of the February 1 conclusion of the FOMC meeting may see the peso consolidate its recent gains.