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The Yen and Yuan Continue to Weaken

Overview: While the US dollar appears to be consolidating its recent gains, the Japanese yen and Chinese yuan remain under pressure. Officials seem more…

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Overview: While the US dollar appears to be consolidating its recent gains, the Japanese yen and Chinese yuan remain under pressure. Officials seem more concerned about the pace of the move than the level it has reached. New and large fiscal initiatives that the new UK government has floated has failed to change sentiment toward sterling, which is the second weakest major currency today after the Japanese yen. The yen’s weakness did not prevent new losses in Japanese equities, and most equities in the Asia Pacific region fell, except China. Europe’s Stoxx 600 is lower, giving back yesterday’s 0.25% gain and more. US futures are steady to firm. Meanwhile, benchmark 10-year yields played catch-up in Asia, while they have come back softer in Europe and are 6-8 bp lower. The 10-year US Treasury is off nearly four basis points to 3.31%. Emerging market currencies are mixed. Central European currencies and the Mexican peso lead the advancers. The Polish zloty is bid ahead of what is expected to a be 25 bp rate hike later today. Gold held $1690 and is recovering to $1706 in the European morning. Yesterday’s high was almost $1727. October WTI is recovering after slipping to almost $85, a new six-month low earlier today. Record production is weighing on US natgas prices. It fell 5.1% before the weekend and 7.3% yesterday. Today, it is fractionally lower and at its lowest level in a month. Europe’s natgas benchmark is also trading heavily. Between yesterday and today, it is off 6%. Iron ore slipped lower for the second day after rising nearly 3.6% on Monday. December copper is paring yesterday’s 1.4% gain. December wheat is up 3.4% after a 0.75% gain yesterday. It rose 4.4% last week amid concerns about weather and war limiting new supply. 

Asia Pacific

Japanese official expressions of concern about the yen's slide escalated. Finance Minister Suzuki cautioned that it is not desirable for such rapid movements, while Cabinet Secretary Matsuno threatened "action" if one-sided moves continued. The market barely flinched at the news. The threat of intervention is not seen as particularly credible. Even if Japanese officials wanted to intervene, it seems clear that it would be alone and fighting not simply a weak yen but a strong dollar. The last time the Ministry of Finance ordered intervention to support the yen was in 1998. The dollar reached about JPY147.65 before then. This area is best seen as a target now and the dollar reached nearly JPY144.40 today. Separately, but not totally unrelated, the 10-year JGB approached the 0.25% cap. The BOJ announced it would increase its monthly set purchases to JPY550 bln from JPY500 bln. 

China reported a smaller than expected August trade surplus. The $79.4 bln surplus compares with July's $101.3 bln and forecasts (median Bloomberg survey) of $92.7 bln. Exports stalled. After rising 18% year-over-year in July, they slowed to 7.1% in August, a little more than half the projected pace. It is the weakest shipments since April. Imports slowed to 0.3% year-over-year from 2.3% in July and weaker than the 1.1% projection. Energy imports (oil, coal, and natural gas) fell. Exports volumes of cellphones home appliances and semiconductors fell by about a tenth in the Jan-Aug period. Auto exports remain strong but flattered by higher prices. The geographic mix was notable. Exports to the US fell 3.8% year-over-year, the first decline since May 2020. Exports to EU fared better and are up 11% from a year ago. Given the cost of energy, it is not surprising that the EU imported energy-intensive products, like aluminum. Still, the pace of growth was halved from July. Exports to Russia jumped 26.5%. Exports to Taiwan fell for the first time since January 2020 as Beijing punished Taiwan after US Pelosi's visit. Note that another group from the US Congress is visiting Taipei today. 

Australia, where the central bank delivered its fourth consecutive 50 bp hike yesterday (bringing the cash rate target to 2.35%) reported that the economy expanded by 0.9% in Q2, which was in line with expectations. It has grown by 0.7% in Q1. The year-over-year pace accelerated to 3.6% from 3.3%. Its July trade figures are out first thing tomorrow and RBA Governor Lowe will provide more color on the outlook for monetary policy. Next week' s labor market report may be the next key data point for rate expectations. The futures market sees about an 80% chance that it hikes by 25 bp instead of 50 bp when it meets early next month.

The dollar settled last week at JPY140.20 and reached nearly JPY144.40 in the first part of the local session before consolidating. The market seems to be calling the Japanese officials’ bluff. Note that there has been a dramatic bout of short covering in the currency futures market. In April, the next speculative position reached 112k contracts (JPY12.5 mln per contract) and had fallen to about 25k by mid-August. It increased for the past three reporting periods to stand at roughly 41.5k contracts on August 30. Support now is seen in JPY142.70-JPY143.00 area. The RBA's rate hike did not prevent the Australian dollar's sell-off. A big, bearish outside day was recorded yesterday and follow-through selling today pushed the Aussie briefly below $0.6700. While this is the first technical target we suggested based on the head and shoulders pattern, it held the mid-July two-year low set closer to $0.6680. It bounced to almost $0.6735 and met new offers. Like the BOJ, the PBOC is resisting market forces that are taking the yuan lower. Today's reference rate was set at CNY6.9160 compared with the Bloomberg survey median of CNY6.9614. The gap is the largest since the Bloomberg survey began. Like the BOJ, the PBOC seems more concerned about the pace than the level. The greenback reached almost CNY6.98.

Europe

UK rates are jumping. Over the past 16 sessions, the 10-year yield has risen in all but two. The surge has lifted the yield from about 2.02% to 3.10% yesterday. Some of this increase was due to increased inflation expectations. The 10-year breakeven has risen from around 3.90% to about 4.30%. Part of the increase in the nominal 10-year yield reflect the anticipation of a higher overnight rate. Indeed, the terminal rate in the swaps market has risen from around 3.20% to over 4.5%. There is some thought that if PM Truss goes ahead with the freezing over current household energy rates, with the government borrowing funds to keep the power companies whole, then inflation may have peaked, but this seems a bit incomplete analysis. The BOE meets next week, and the swaps market continues to see the target rate doubling from 1.75% now to over 3.50% by year-end. The market is pricing in about a 65% chance of a 75 bp hike next week's meeting. Later today, BOE officials, including Governor Bailey are speaking before Parliament.

Meanwhile, in what is one of the most seemingly diversified cabinet in UK history, many seen it as among the most conservative governments. Still, ironically, it looks set to launch among the largest fiscal initiatives outside of the Great Financial Crisis and pandemic and could boost the UK's debt by 10%. Separately, we note reports suggesting that rather than an immediate confrontation with the EU over the Northern Ireland protocol, PM Truss may seek an extension of the current workaround.

After Germany reported a larger-than-expected drop in July factory orders, the fear was an outsized falling industrial output figures today. However, the 0.3% decline was half as large as the median forecast in Bloomberg's survey and revisions doubled the June increase to 0.8%. Separately, the Lufthansa pilot strike that was planned for today and tomorrow was called off as a new wage offer was made. The full details are not yet available, but the pilots were seeking a 5.5% pay increase retroactive to July 1 and an 8.2% increase next year. Separately, Italy reported a 1.3% jump in July retail sales, well above the 0.2% expected (median in Bloomberg's survey). The ECB meets tomorrow. The swaps market is pricing in about a 63% chance of a 75 bp hike.

The euro has mostly traded in a quarter-cent range on either side of $0.9900. The low was set in Asia, as the dollar peaked against the yen, and the euro's high was set in early European turnover. The single currency is consolidating within yesterday's range. While it still looks fragile, the proximity of the ECB meeting may be deterring interest today. Sterling failed to sustain the upside momentum that had lifted it to almost $1.1610 and it recorded session lows as Europe was closing yesterday below $1.15. Follow-through selling today took it to almost $1.1450, just above the 2.5-year lows set on Monday near $1.1440. Today's high, slightly below $1.1525 was seen in early Europe and is better offered ahead of the North American open.

America

The US reports the July trade balance, and later in the say, the Fed releases its Beige Book ahead of the September 20-21 FOMC meeting. Several Fed officials speak today as well:  Barkin, Mester, Brainard, and Barr. Powell speaks tomorrow. We suspect the takeaway is that the reaching what the Summary of Economic Projections (dot plot) regarded as neutral is not sufficient and there is a consensus that policy needs to be restrictive. The Fed funds futures are discounting a 70% chance of a 75 bp hike. The recent string of data has shown the resilience of the economy including the labor market. Note that the Atlanta Fed's GDPNow tracker will be updated later today for the first time since September 1, when it was Q3 was lifted to 2.6%.

The US goods balance drives the overall trade balance. The advance report on the goods balance showed the smallest deficit since last October. Despite the greenback's strength, monthly goods exports reached a record of $181.3 bln in June and slipped slightly in July ($180.98 bln). Yes, some companies said that the translation of foreign earnings back into dollars weighed on earnings, but in aggregate US earnings growth was strong as price increases more than covered rising input costs. Typically, the strong dollar, especially against the yen spurs protectionist noises form some parts of US industry. However, now, there is hardly anything. Imports declined for the fourth consecutive month in July. At $270 bln, they are off by about 8.3% since the March peak. The 10% decline in consumer goods imports in July was the largest drop in 30 years, which is not typically what one expects in a strong dollar environment. The soft imports are often a symptom of weaker domestic demand, but retailer ae struggling to manage inventories. In July, retail inventories rose 1.1% to a record of nearly $731 bln. Wholesale inventories edged up by 0.8%, to almost $903 bln. The overall July trade deficit is expected to fall toward $70 bln from $79.6 bln in June. In July 2021, the imbalance was $69.4 bln. The change in net exports, in real terms, may contribute to Q3 GDP.

Canada will report is July merchandise trade figures ninety minutes before the Bank of Canada's rate decision. As is widely recognized, Canada is experiencing a positive terms-of-trade shock. Canada was running a deficit before Covid and now is reporting the largest merchandise surplus since 2008. Since the start of 2020, the Canadian dollar is the strongest of the major currencies, falling only 1.25% against the dollar. The Japanese yen is on the other extreme, depreciating by almost 24% against the greenback. Canada's economic outperformance has seen its better days. Like in the US, the interest rate sensitive housing market is contracting. The August manufacturing PMI fell below 50 (48.7), its lowest since June 2020. The labor market improvement is stalling. It has lost full-time jobs in both June and July. The August report is due at the end of the week. The Bank of Canada's surprise 100 bp hike in July has kept the swaps market jumpy about a repeat. We have consistently suggested 75 bp was more likely now. That would lift the target rate to 3.25%. The swaps market sees the terminal rate close to 3.75%.

The US dollar continues to absorb offers around CAD1.3200. It has probed this area but has not closed above it. There are options there that expire tomorrow for about $540 mln. Initial support is seen around CAD1.3160. The two-year high was set in mid-July near CAD1.3225. The next key chart area above there is seen around CAD1.3300-40. The greenback remains in a broad sideways range against the Mexican peso. Trendline support is seen near MXN19.92, while the upper end is in the MXN20.26-MXN20.29 area. Mexico reports August CPI figures tomorrow. The central bank meets on September 29 and is expected to match the Fed's move. Chile surprised the markets yesterday by delivering a 100 bp hike instead of 75 bp. Its overnight target rate is now 10.75%. August CPI will be reported tomorrow. It is expected to rise to 13.8% from 13.1%. After rallying ahead of last weekend's referendum, which the government lost (and a cabinet reshuffle was announced), the peso is off almost 2% this week. 



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Fuel poverty in England is probably 2.5 times higher than government statistics show

The top 40% most energy efficient homes aren’t counted as being in fuel poverty, no matter what their bills or income are.

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Julian Hochgesang|Unsplash

The cap set on how much UK energy suppliers can charge for domestic gas and electricity is set to fall by 15% from April 1 2024. Despite this, prices remain shockingly high. The average household energy bill in 2023 was £2,592 a year, dwarfing the pre-pandemic average of £1,308 in 2019.

The term “fuel poverty” refers to a household’s ability to afford the energy required to maintain adequate warmth and the use of other essential appliances. Quite how it is measured varies from country to country. In England, the government uses what is known as the low income low energy efficiency (Lilee) indicator.

Since energy costs started rising sharply in 2021, UK households’ spending powers have plummeted. It would be reasonable to assume that these increasingly hostile economic conditions have caused fuel poverty rates to rise.

However, according to the Lilee fuel poverty metric, in England there have only been modest changes in fuel poverty incidence year on year. In fact, government statistics show a slight decrease in the nationwide rate, from 13.2% in 2020 to 13.0% in 2023.

Our recent study suggests that these figures are incorrect. We estimate the rate of fuel poverty in England to be around 2.5 times higher than what the government’s statistics show, because the criteria underpinning the Lilee estimation process leaves out a large number of financially vulnerable households which, in reality, are unable to afford and maintain adequate warmth.

Blocks of flats in London.
Household fuel poverty in England is calculated on the basis of the energy efficiency of the home. Igor Sporynin|Unsplash

Energy security

In 2022, we undertook an in-depth analysis of Lilee fuel poverty in Greater London. First, we combined fuel poverty, housing and employment data to provide an estimate of vulnerable homes which are omitted from Lilee statistics.

We also surveyed 2,886 residents of Greater London about their experiences of fuel poverty during the winter of 2022. We wanted to gauge energy security, which refers to a type of self-reported fuel poverty. Both parts of the study aimed to demonstrate the potential flaws of the Lilee definition.

Introduced in 2019, the Lilee metric considers a household to be “fuel poor” if it meets two criteria. First, after accounting for energy expenses, its income must fall below the poverty line (which is 60% of median income).

Second, the property must have an energy performance certificate (EPC) rating of D–G (the lowest four ratings). The government’s apparent logic for the Lilee metric is to quicken the net-zero transition of the housing sector.

In Sustainable Warmth, the policy paper that defined the Lilee approach, the government says that EPC A–C-rated homes “will not significantly benefit from energy-efficiency measures”. Hence, the focus on fuel poverty in D–G-rated properties.

Generally speaking, EPC A–C-rated homes (those with the highest three ratings) are considered energy efficient, while D–G-rated homes are deemed inefficient. The problem with how Lilee fuel poverty is measured is that the process assumes that EPC A–C-rated homes are too “energy efficient” to be considered fuel poor: the main focus of the fuel poverty assessment is a characteristic of the property, not the occupant’s financial situation.

In other words, by this metric, anyone living in an energy-efficient home cannot be considered to be in fuel poverty, no matter their financial situation. There is an obvious flaw here.

Around 40% of homes in England have an EPC rating of A–C. According to the Lilee definition, none of these homes can or ever will be classed as fuel poor. Even though energy prices are going through the roof, a single-parent household with dependent children whose only income is universal credit (or some other form of benefits) will still not be considered to be living in fuel poverty if their home is rated A-C.

The lack of protection afforded to these households against an extremely volatile energy market is highly concerning.

In our study, we estimate that 4.4% of London’s homes are rated A-C and also financially vulnerable. That is around 171,091 households, which are currently omitted by the Lilee metric but remain highly likely to be unable to afford adequate energy.

In most other European nations, what is known as the 10% indicator is used to gauge fuel poverty. This metric, which was also used in England from the 1990s until the mid 2010s, considers a home to be fuel poor if more than 10% of income is spent on energy. Here, the main focus of the fuel poverty assessment is the occupant’s financial situation, not the property.

Were such alternative fuel poverty metrics to be employed, a significant portion of those 171,091 households in London would almost certainly qualify as fuel poor.

This is confirmed by the findings of our survey. Our data shows that 28.2% of the 2,886 people who responded were “energy insecure”. This includes being unable to afford energy, making involuntary spending trade-offs between food and energy, and falling behind on energy payments.

Worryingly, we found that the rate of energy insecurity in the survey sample is around 2.5 times higher than the official rate of fuel poverty in London (11.5%), as assessed according to the Lilee metric.

It is likely that this figure can be extrapolated for the rest of England. If anything, energy insecurity may be even higher in other regions, given that Londoners tend to have higher-than-average household income.

The UK government is wrongly omitting hundreds of thousands of English households from fuel poverty statistics. Without a more accurate measure, vulnerable households will continue to be overlooked and not get the assistance they desperately need to stay warm.

The Conversation

Torran Semple receives funding from Engineering and Physical Sciences Research Council (EPSRC) grant EP/S023305/1.

John Harvey 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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Looking Back At COVID’s Authoritarian Regimes

After having moved from Canada to the United States, partly to be wealthier and partly to be freer (those two are connected, by the way), I was shocked,…

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After having moved from Canada to the United States, partly to be wealthier and partly to be freer (those two are connected, by the way), I was shocked, in March 2020, when President Trump and most US governors imposed heavy restrictions on people’s freedom. The purpose, said Trump and his COVID-19 advisers, was to “flatten the curve”: shut down people’s mobility for two weeks so that hospitals could catch up with the expected demand from COVID patients. In her book Silent Invasion, Dr. Deborah Birx, the coordinator of the White House Coronavirus Task Force, admitted that she was scrambling during those two weeks to come up with a reason to extend the lockdowns for much longer. As she put it, “I didn’t have the numbers in front of me yet to make the case for extending it longer, but I had two weeks to get them.” In short, she chose the goal and then tried to find the data to justify the goal. This, by the way, was from someone who, along with her task force colleague Dr. Anthony Fauci, kept talking about the importance of the scientific method. By the end of April 2020, the term “flatten the curve” had all but disappeared from public discussion.

Now that we are four years past that awful time, it makes sense to look back and see whether those heavy restrictions on the lives of people of all ages made sense. I’ll save you the suspense. They didn’t. The damage to the economy was huge. Remember that “the economy” is not a term used to describe a big machine; it’s a shorthand for the trillions of interactions among hundreds of millions of people. The lockdowns and the subsequent federal spending ballooned the budget deficit and consequent federal debt. The effect on children’s learning, not just in school but outside of school, was huge. These effects will be with us for a long time. It’s not as if there wasn’t another way to go. The people who came up with the idea of lockdowns did so on the basis of abstract models that had not been tested. They ignored a model of human behavior, which I’ll call Hayekian, that is tested every day.

These are the opening two paragraphs of my latest Defining Ideas article, “Looking Back at COVID’s Authoritarian Regimes,” Defining Ideas, March 14, 2024.

Another excerpt:

That wasn’t the only uncertainty. My daughter Karen lived in San Francisco and made her living teaching Pilates. San Francisco mayor London Breed shut down all the gyms, and so there went my daughter’s business. (The good news was that she quickly got online and shifted many of her clients to virtual Pilates. But that’s another story.) We tried to see her every six weeks or so, whether that meant our driving up to San Fran or her driving down to Monterey. But were we allowed to drive to see her? In that first month and a half, we simply didn’t know.

Read the whole thing, which is longer than usual.

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Problems After COVID-19 Vaccination More Prevalent Among Naturally Immune: Study

Problems After COVID-19 Vaccination More Prevalent Among Naturally Immune: Study

Authored by Zachary Stieber via The Epoch Times (emphasis…

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Problems After COVID-19 Vaccination More Prevalent Among Naturally Immune: Study

Authored by Zachary Stieber via The Epoch Times (emphasis ours),

People who recovered from COVID-19 and received a COVID-19 shot were more likely to suffer adverse reactions, researchers in Europe are reporting.

A medical worker administers a dose of the Pfizer-BioNTech COVID-19 vaccine to a patient at a vaccination center in Ancenis-Saint-Gereon, France, on Nov. 17, 2021. (Stephane Mahe//Reuters)

Participants in the study were more likely to experience an adverse reaction after vaccination regardless of the type of shot, with one exception, the researchers found.

Across all vaccine brands, people with prior COVID-19 were 2.6 times as likely after dose one to suffer an adverse reaction, according to the new study. Such people are commonly known as having a type of protection known as natural immunity after recovery.

People with previous COVID-19 were also 1.25 times as likely after dose 2 to experience an adverse reaction.

The findings held true across all vaccine types following dose one.

Of the female participants who received the Pfizer-BioNTech vaccine, for instance, 82 percent who had COVID-19 previously experienced an adverse reaction after their first dose, compared to 59 percent of females who did not have prior COVID-19.

The only exception to the trend was among males who received a second AstraZeneca dose. The percentage of males who suffered an adverse reaction was higher, 33 percent to 24 percent, among those without a COVID-19 history.

Participants who had a prior SARS-CoV-2 infection (confirmed with a positive test) experienced at least one adverse reaction more often after the 1st dose compared to participants who did not have prior COVID-19. This pattern was observed in both men and women and across vaccine brands,” Florence van Hunsel, an epidemiologist with the Netherlands Pharmacovigilance Centre Lareb, and her co-authors wrote.

There were only slightly higher odds of the naturally immune suffering an adverse reaction following receipt of a Pfizer or Moderna booster, the researchers also found.

The researchers performed what’s known as a cohort event monitoring study, following 29,387 participants as they received at least one dose of a COVID-19 vaccine. The participants live in a European country such as Belgium, France, or Slovakia.

Overall, three-quarters of the participants reported at least one adverse reaction, although some were minor such as injection site pain.

Adverse reactions described as serious were reported by 0.24 percent of people who received a first or second dose and 0.26 percent for people who received a booster. Different examples of serious reactions were not listed in the study.

Participants were only specifically asked to record a range of minor adverse reactions (ADRs). They could provide details of other reactions in free text form.

“The unsolicited events were manually assessed and coded, and the seriousness was classified based on international criteria,” researchers said.

The free text answers were not provided by researchers in the paper.

The authors note, ‘In this manuscript, the focus was not on serious ADRs and adverse events of special interest.’” Yet, in their highlights section they state, “The percentage of serious ADRs in the study is low for 1st and 2nd vaccination and booster.”

Dr. Joel Wallskog, co-chair of the group React19, which advocates for people who were injured by vaccines, told The Epoch Times: “It is intellectually dishonest to set out to study minor adverse events after COVID-19 vaccination then make conclusions about the frequency of serious adverse events. They also fail to provide the free text data.” He added that the paper showed “yet another study that is in my opinion, deficient by design.”

Ms. Hunsel did not respond to a request for comment.

She and other researchers listed limitations in the paper, including how they did not provide data broken down by country.

The paper was published by the journal Vaccine on March 6.

The study was funded by the European Medicines Agency and the Dutch government.

No authors declared conflicts of interest.

Some previous papers have also found that people with prior COVID-19 infection had more adverse events following COVID-19 vaccination, including a 2021 paper from French researchers. A U.S. study identified prior COVID-19 as a predictor of the severity of side effects.

Some other studies have determined COVID-19 vaccines confer little or no benefit to people with a history of infection, including those who had received a primary series.

The U.S. Centers for Disease Control and Prevention still recommends people who recovered from COVID-19 receive a COVID-19 vaccine, although a number of other health authorities have stopped recommending the shot for people who have prior COVID-19.

Another New Study

In another new paper, South Korean researchers outlined how they found people were more likely to report certain adverse reactions after COVID-19 vaccination than after receipt of another vaccine.

The reporting of myocarditis, a form of heart inflammation, or pericarditis, a related condition, was nearly 20 times as high among children as the reporting odds following receipt of all other vaccines, the researchers found.

The reporting odds were also much higher for multisystem inflammatory syndrome or Kawasaki disease among adolescent COVID-19 recipients.

Researchers analyzed reports made to VigiBase, which is run by the World Health Organization.

Based on our results, close monitoring for these rare but serious inflammatory reactions after COVID-19 vaccination among adolescents until definitive causal relationship can be established,” the researchers wrote.

The study was published by the Journal of Korean Medical Science in its March edition.

Limitations include VigiBase receiving reports of problems, with some reports going unconfirmed.

Funding came from the South Korean government. One author reported receiving grants from pharmaceutical companies, including Pfizer.

Tyler Durden Fri, 03/15/2024 - 05:00

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