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Verbal Intervention Helps the Yen Steady…for the Moment

Overview:  Chinese markets were the notable exception amid sharp losses in many of the large markets in the Asia Pacific.  A rebound in the Japanese…



Overview:  Chinese markets were the notable exception amid sharp losses in many of the large markets in the Asia Pacific.  A rebound in the Japanese yen, spurred by official comments about the pace of its losses, saw Japanese shares tumble.  South Korea, Australia, and India markets were off more than 1%.  Europe’s Stoxx 600 is also off more than 1% as it the benchmark records the fourth consecutive decline.  US futures are steady to a little higher.  Meanwhile, the US 10-year year yield is hovering around 3.03%.  In Europe, the peripheral bonds are under pressure and the premium over Germany is widening after the ECB did not unveil a new tool to combat “fragmentation.” The dollar is mixed against the major currencies.  The Antipodeans join the yen in modest gains (~0.3%-0.5%) today while sterling and the Canadian dollar lead the decliners (~0.3%).  Emerging market currencies are mostly lower, but the Turkish lira is the top performer with about a 0.25% gain (the central bank doubled to 20% the required reserves on lira loans).   Gold is trading quietly between $1842 and $1848.  July WTI is firm above $122.  US natgas is slightly firmer after rising 3% yesterday.  Europe’s natgas benchmark is off almost 1.5% to pare yesterday’s nearly 10% surge.  Iron ore is pressured for the second day after fresh Covid-related restriction were announced in Shanghai.  With these losses, iron ore prices fell on the week (~2.2%).  July copper is extending yesterday’s losses.  July wheat continues to unwind the 5.1% rally seen at the start of the week.

Asia Pacific

Verbal intervention by Japanese officials saw the yen trade modestly higher.  Coming into today, the yen had fallen in eight of the past nine sessions.  In late April, with the US dollar probing JPY131, Japanese officials warned about the sharp moves, which arguably helped help the yen stabilize.  If intervention is best thought of as an escalation ladder, another small step was taken today.  After Ministry of Finance, Bank of Japan, and Financial Services officials met, a statement was issued expressing concern about the pace of the yen's decline, and threatened to "act appropriately, if needed.".  The yen was trading near seven-year lows against the euro and Australian dollar and 20-year lows against the greenback.  The dollar was around JPY134.50 before the statement and pulled back to almost JPY133.35.  The G7/G20 statements about foreign exchange say that while the markets should determine rates, excessive volatility should be avoided.  The yen's weakness is driven by fundamental considerations (e.g., divergence of monetary policy, terms-of-trade shock).  Perhaps, verbal intervention may be more effective than actual material intervention in dampening volatility.  

China report inflation and lending figures today.  The CPI was unchanged at 2.1% year-over-year.  It declined (0.2%) month-over-month for the first time this year.  Food and transportation gains were not demand driven, and the core rate, which excludes food and energy, was steady at 0.9%.  Pork prices were 21.1% lower than a year ago and shaved 0.34 percentage points from CPI.  On the other hand, fresh vegetable prices were up 11% and fresh fruit prices rose 19%.  Together they added 0.58 percentage points to CPI.  The price of gasoline a little more than 27% year-over-year.  Producer prices fell for the seventh consecutive month.  After peaking last October at 13.5% year-over-year, China's PPI has slowed to more than half, to 6.4% in May.  This was in-line with expectations.  The medium-term lending facility rate will be set next week.  Most do not look for a reduction.  Inflation does not stand in the way, but it hasn't, and Beijing shows a preference to use fiscal levers, while interest rate adjustments have been meager thus far.  Separately, Chinese lending figures showed a larger than expected recovery from depressed April levels.  Overall aggregate financing rose CNY2.79 trillion, which was around 30% more than expected and a three-fold increase from April's CNY910 bln. 

The verbal intervention by Japanese officials steadied the dollar-yen after probing near JPY134.50 in early turnover today.  However, yesterday's low near JPY133.20 was unchallenged.  In order there to be sustained impact, officials need to spur a short squeeze, which is challenging as one is paid to be short the yen, given the rate differentials. Some position adjustments today have also been encouraged by the expiration of options for $570 mln at JPY134 that expire shortly.  The North American session may be skeptical that the verbal intervention can be backed by material intervention as the FOMC is set to deliver a 50 bp hike next week and will likely to continue at that pace in July, and likely September.  The Australian dollar losses were extended to $0.7085 today, a new low for the month, but recovered to $0.7140 in late Asian turnover.  However, it found fresh offers in the European morning. We suspect a durable low is not in place.  The next technical target may be the $0.7055 area.  Only a move above $0.7160 would negate this bearish outlook.  The US dollar is firm against the Chinese yuan but confined to yesterday's range (~CNY6.6650-CNY6.7000). It is up about 0.6% this week, recovering from a loss of a similar magnitude last week.  The PBOC set the dollar's reference rate at CNY6.6994, slightly lower than the expected (CNY6.7017, according to the Bloomberg survey).


One might not know it from downside reversal in the euro that many banks that the market heard a hawkish message from the ECB. The swaps market for the year-end jumped 15 bp to almost 150 bp. There are four meeting left this year. That implies expectations for not one by two 50 bp hikes this year. Many banks concur. That said, ECB President Lagarde was clear about the July move being only 25 bp. The possibility that the pace quickens in September was conditional about prices not stabilizing or deteriorating.

The case for skepticism may begin with an appreciation that interest rates are not waiting for the ECB to move official rates. Consider that since early March, the two-year German yield has surged by more than 160 bp to a little more than 0.8%, its highest level in 11 years. The US two-year yield has risen by less, and this has resulted in the US premium has fallen below 2.0% from over 2.50% as recently as mid-May. It has retraced half of this year increase in the past three weeks. The relationship between the exchange rate and the interest differential seems cyclical with the dollar rising as rates more against it a late-cycle phenomenon.

After a big outside down day yesterday, follow through selling of the euro took the single curerncy below the $1.06 level for the first time since May 23. The next target is $1.0570 and then $1.0520. Still, the decline has stretched intra-day mometnum readings, but the $1.0650 area may cap the bounce. The big outside up day sterling enjoyed on Tuesday did not generate any follow through buying and the $1.26 cap held. It has been gradually unwinding the gains in the subsequent sessions and today's low near $1.2450 is a three-day low. A break of $1.24 would be ominous and suggest at least another two-decline. 


Another month-over-month rise in consumer prices boosts the risk that the year-over-year pace could tick up. Last May, the headline CPI rose by 0.7% and the core rate by 0.6%. The continued rise in gasoline, retail food prices, and shelter costs warns that of sticky prices. However, at the end of the day, the CPI is unlikely to alter views of investors or policymakers. Put simply, the Fed seems to have committed to a 50 bp hike next week and another in July. Officials have been a bit cagey as a whole about September, but the markets are not waiting for them. The Fed funds futures has more than a 90% chance of a 50 bp hike in September too. The first look at June's consumer confidence from the University of Michigan is also due. Sentiment has fallen in four of the past five months, and at 58.4, it is the lowest since 2011. While confidence has deteriorated, inflation expectations have stabilized. The one-year expectation was at 5.4% in March and April and eased to 5.3% in May. The 5-10-year expectation has been at 3.0% since beginning the year at 3.1%.

The May budget statement may be under-appreciated in the current context where monetary policy is center stage. The point is that the Fed could engineer the proverbial soft-landing if it were operating in a policy vacuum, but fiscal policy is also contracting dramatically. As we have noted, the budget deficit is expected to fall from 10.5% of GDP last year to less than 5% this year. In terms of dollar, it means that the budget has been in surplus by an average of $4.4 bln a month in the January-April period. Last year, it recorded an average monthly deficit of $340 bln. In 2019, the average deficit was $53 bln a month.

Canada reports May employment figures. Job growth is expected to have accelerated to 27.5k from 15.3k in April. In the first four months of the year, Canada has created 227k jobs compared with 142k in the same period last year. The unemployment rate fell to a new low of 5.2% in April. Before the pandemic it was 5.8%. At 65.3%, the participation rate slightly below where it was at the end of 2019. The takeaway is the Canadian jobs market is strong and the Bank of Canada will continue to hike rates. The swaps market has 50 bp hikes discounted in the next three meetings this year. There is about a 1-in-3 chance seen of a 75 bp hike in July. With so much already in the market, the Canadian dollar continues to appear sensitive to the general risk appetite, for which we use the S&P 500 as a proxy. That said, yesterday's sharp greenback advance (~1.1%, the biggest this year) coincided with a dramatic narrowing of the Canadian premium over the US on two-year money. The nearly eight basis point narrowing snapped a six-day widening move, but simply brought it back to almost where it settled last week (25 bp). 

The US dollar rallied strongly against the Canadian dollar yesterday. In fact, the 1.1% gain was the most in a session this year. The greenback's gains have been extended to CAD1.2730 today. It finished last week, slightly below CAD1.2600. There are $820 mln in CAD1.2750 options that expire today. With today's upticks, the US dollar is testing the (38.2%) retracement objective of the slide since May 12 high (~CAD1.3075). The next retracement objective (50%) is near CAD1.2800. Mexico's May CPI was a little firmer than expected, and although speculation of a 75 bp hike later this month remains intact, lost ground amid the risk-off mood. The US dollar is making new highs for the week today, near MXN19.75. The high for the month is near MXN19.77. A move above MXN19.82 could spur further dollar gains toward MXN19.95-MXN20.00. Note that Brazil's CPI was a little softer than expected and but the real also soften. It has fallen every session this week coming into today. The four-day streak is the longest decline in nearly three months. The next big technical target is BRL5.0. 


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The investment case for copper miners – elevated prices are firmly supported by supply bottlenecks

A combination of the Covid pandemic disrupting production and supply chains across the globe and Russia’s invasion of Ukraine almost a year…
The post…



A combination of the Covid pandemic disrupting production and supply chains across the globe and Russia’s invasion of Ukraine almost a year ago has led to significant volatility in commodity prices in recent years. Copper prices have been no exception, shooting up 127.66% from a low of $2.17 in mid-March 2020 to an all time record high of $4.94 on February 28 2022.

They subsequently dropped almost 35% between that high and a recent low last July before climbing over 30% against since. It’s been a rollercoaster couple of years for copper, which is used for everything from electronics to equipment manufacturing, building construction, infrastructure and transport.

Copper prices – 10 year chart

Source: MacroTrends

Why are copper prices rising as the economy slows?

Ordinarily, a backdrop of the highest inflation levels in decades, rapidly rising interest rates, geopolitical challenges and a Covid hangover degrading near-term global growth prospects would be expected to weigh on the price of copper and other industrial commodities. But over the past 3 months the price of copper has risen by over 20% as the world economy has deteriorated and demand outlook dwindled.

The recent surge in the price of copper is partly the result of a softer dollar and the end of China’s zero-Covid policy leading to market optimism demand for the metal and other industrial commodities will rise again. However, it’s mainly down to a supply squeeze that has in large part been due to temporary factors such as weather conditions and labour challenges reducing the output of currently active mines.

But while those issues will abate, supply tightness appears baked in for copper for several years to come as a result of underinvestment in new mines and extending current projects. There have been very few significant new copper deposit discoveries in recent years and that is expected to lead to a disconnect between supply and forecast demand over the next several years.

Electric vehicles and renewable energy infrastructure should see demand for copper rise significantly over coming years. Cyclical industries like construction should also bounce back as the global economy recovers from its current downturn, recovering to at least previous levels, on top of new demand resulting from electrification.

Based on current mining output and known new discoveries and miner pipelines, the evidence suggests copper supply will remain tight for years into the future. With that in mind, which copper miners could be worth a closer look from investors?



One of the world’s biggest copper miners, FTSE 100 constituent Antofagasta’s activities are mainly concentrated in Chile. While it also produces gold and silver like most copper miners (the metals are typically found in close proximity to each other), Antofagasta’s valuation is most influenced by copper prices and tracks them relatively closely.

The miner is also expected to increase its copper output over the next several years so will be even more tied to the metal’s price trends than now. Antofagasta published a Q4 production update earlier this month, revealing that it exceeded its revised full-year target of producing 646,200 tonnes of copper. It aims to produce between 670,000-710,000 tonnes in the current year, despite rising global inflation that has increased input costs. The net cash costs per pound, however, are expected to stay similar to last year’s.

If the company goes ahead with a proposed second concentrator at its Centinela operation, its annual production could reach 900,000 tonnes by 2026. In the first half of last year the miner had a net-debt-to-equity ratio of 5% and operating profits 64 times higher than net interest costs. The means the company is in the financial position to expand production as part of its five-year plan and absorb potential disruptions or delays to capital investments.

But after a 53% rise in the Antofagasta share price over the past six months, does it still represent the kind of value that should tempt investors to take a closer look? The Telegraph’s Questor investment column thinks it does based on the miner’s long term prospects and a price-to-earnings ratio of just 15 that offers a good safety margin with the FTSE 100 close to its all time high.

BHP Group

BHP Group

Headquartered in Australia with a dual listing in London BHP is one of the world’s biggest miners and was last year the second largest copper producer behind the Chilean state-owned miner Codelco. It’s not as pure a play on copper prices as Antofagasta because it also produces larges quantities of iron ore, nickel, coking and energy goal and gold amongst its metals and minerals portfolio.

But copper prices are very important to BHP and it is investing in increasing its output. Its dominant market position and the volume of its output means it will benefit if prices do hit record levels in 2023 as some analysts predict. However, with share price gains of 25% in the past 6 months and a potential hit to iron ore demand if the global economy struggles for a period, upside at the current valuation is questionable.

Southern Copper

Southern Copper

NYSE-listed Southern Copper is another relatively pure play on copper, though it does also produce smallish quantities of other metals and minerals. Its mines are located across Central and South America, in Mexico, Peru, Argentina, Ecuador and Chile.

The companies gross profits have have rising in recent years from $3.79 billion in 2019 to $7.15 billion in 2021. That’s expected to have dropped for 2022 when full year accounts are released but due to investment in expanding existing projects which should allow it to increase production, and profits, in the long term.

Basically, if the copper price stays strong over the next several years, Southern Copper could prove a wise investment. But it is very closely tied to copper prices so vulnerable to any negative turn the market for the commodity might take.

Investors convinced of the prospects for copper prices in the medium to long term might also consider copper ETFs, which build in some diversity across miners. The biggest is the U.S.-traded Global X Copper Miners ETF.

The post The investment case for copper miners – elevated prices are firmly supported by supply bottlenecks first appeared on Trading and Investment News.

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Growing Number Of Doctors Say They Won’t Get COVID-19 Booster Shots

Growing Number Of Doctors Say They Won’t Get COVID-19 Booster Shots

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




Growing Number Of Doctors Say They Won’t Get COVID-19 Booster Shots

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

A growing number of doctors say that they will not get COVID-19 vaccine boosters, citing a lack of clinical trial evidence.

I have taken my last COVID vaccine without RCT level evidence it will reduce my risk of severe disease,” Dr. Todd Lee, an infectious disease expert at McGill University, wrote on Twitter.

A vial of the Pfizer-BioNTech COVID-19 vaccine is seen in a file photograph. (Justin Sullivan/Getty Images)

Lee was pointing to the lack of randomized clinical trial (RCT) results for the updated boosters, which were cleared in the United States and Canada in the fall of 2022 primarily based on data from experiments with mice.

Lee, who has received three vaccine doses, noted that he was infected with the Omicron virus variant—the vaccines provide little protection against infection—and described himself as a healthy male in his 40s.

Dr. Vinay Prasad, a professor of epidemiology and biostatics at the University of California, San Francisco, also said he wouldn’t take any additional shots until clinical trial data become available.

“I took at least 1 dose against my will. It was unethical and scientifically bankrupt,” he said.

Allison Krug, an epidemiologist who co-authored a study that found teenage boys were more likely to suffer heart inflammation after COVID-19 vaccination than COVID-19 infection, recounted explaining to her doctor why she was refusing a booster and said her doctor agreed with her position.

She called on people to “join the movement to demand appropriate evidence,” pointing to a blog post from Prasad.

“Pay close attention to note this isn’t anti-vaccine sentiment. This is ‘provide [hard] evidence of benefit to justify ongoing use’ which is very different. It is only fair for a 30 billion dollar a year product given to hundreds of millions,” Lee said.

Dr. Mark Silverberg, who founded the Toronto Immune and Digestive Health Institute; Kevin Bass, a medical student; and Dr. Tracy Høeg, an epidemiologist at the University of California, San Francisco, joined Lee and Prasad in stating their opposition to more boosters, at least for now.

Høeg said she did not need clinical trials to know she’s not getting any boosters after receiving a two-dose primary series, adding that she took the second dose “against my will.”

I also had an adverse reaction to dose 1 moderna and, if I could do it again, I would not have had any covid vaccines,” she said on Twitter. “I was glad my parents in their 70s could get covid vaccinated but have yet to see non-confounded data to advise them about the bivalent booster. I would have liked to see an RCT for the bivalent for people their age and for adults with health conditions that put them at risk.”

The U.S. Food and Drug Administration (FDA) granted emergency use authorization to updated boosters, or bivalent shots, from Pfizer and Moderna in August 2022 despite there being no human data.

Observational data suggests the boosters provide little protection against infection and solid shielding against severe illness, at least initially.

Five months after the authorization was granted, no clinical trial data has been made available for the bivalents, which target the Wuhan strain as well as the BA.4 and BA.5 subvariants of Omicron. Moderna presented efficacy estimates for a different bivalent, which has never been used in the United States, during a recent meeting. The company estimated the booster increased protection against infection by just 10 percent.

The FDA is preparing to order all Pfizer and Moderna COVID-19 vaccines be replaced with the bivalents. The U.S. Centers for Disease Control and Prevention, which issues recommendations on vaccines, continues advising virtually all Americans to get a primary series and multiple boosters.

Professor Calls for Halt to Messenger RNA Vaccines

A professor, meanwhile, became the latest to call for a halt to the Pfizer and Moderna vaccines, which are both based on messenger RNA technology.

At this point in time, all COVID mRNA vaccination program[s] should stop immediately,” Retsef Levi, a professor of operations management at the Massachusetts Institute of Technology, said in a video statement. “They should stop because they completely failed to fulfill any of their advertised promise[s] regarding efficacy. And more importantly, they should stop because of the mounting and indisputable evidence that they cause unprecedented level of harm, including the death of young people and children.”

Levi was referring to post-vaccination heart inflammation, or myocarditis. The condition is one of the few that authorities have acknowledged is caused by the messenger RNA vaccines.

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Tyler Durden Thu, 02/02/2023 - 19:10

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Apple Pares Much Of Drop During Earnings Call

Apple Pares Much Of Drop During Earnings Call

Update 6:00pm:  Apple has staged a remarkable reversal after hours, and erased almost the entire…



Apple Pares Much Of Drop During Earnings Call

Update 6:00pm:  Apple has staged a remarkable reversal after hours, and erased almost the entire loss after the company said that it expects a 5% impact from FX rates in Q2, and also expects iPhone revenue growth to accelerate in Q2. CEO Tim Cook was also asked whether the move to higher ASPs for the iPhone is sustainable in light of the sharp decline in sales, and whether this will continue in a worsening economy. Cook said the 14 Pro and 14 Pro Max did extremely well until the supply-chain constraints. He says this is definitely a “strong Pro cycle” and credits the new features in the device. He says he’s happy that Apple is now shipping to the demand.

Tim Cook also said that AI is critical to Apple and mentions features like crash-and-fall detection and the use of AI in features like EKG on the Apple Watch. He says AI will effect everything the company does, including all products and services.

Apple is quite bullish on India and other emerging markets, with CEO Tim Cook saying the company will soon open its first retail stores in India. He also said Apple saw marked improvement in China in December (versus November) after another round of Covid re-openings.

As Bloomberg notes, the company also stuck to a line that revenue and sales of individual product categories would have been higher if not for supply-chain constraints and issues stemming from the macroeconomic environment.

* * *

With both Amazon and Google sliding after reporting disappointing earnings and mixed guidance, it was all up to the world's biggest company, AAPL, to provide some hail mary for the tech earnings season which for better or worse is concentrated in a one hour stretch this afternoon. Alas, it was not meant to be and after missing on the top and bottom line, AAPL has joined the parade of selling and tumbled after hours due to numbers which the market was clearly not impressed with.

  • EPS $1.88 vs. $2.10 y/y, missing estimate $1.94
  • Gross margin $50.33 billion, -7.2% y/y, missing estimate $52.03 billion
  • Revenue $117.15 billion, -5.5% y/y, missing estimate $121.14 billion
    • Products revenue $96.39 billion, -7.7% y/y, missing estimate $98.98 billion
    • IPhone revenue $65.78 billion, -8.2% y/y, missing estimate $68.3 billion
    • Mac revenue $7.74 billion, -29% y/y, missing estimate $9.72 billion
    • IPad revenue $9.40 billion, +30% y/y, beating estimate $7.78 billion
    • Wearables, home and accessories $13.48 billion, -8.3% y/y, missing estimate $15.32 billion
    • Service revenue $20.77 billion, +6.4% y/y, beating estimate $20.47 billion
    • Greater China rev. $23.91 billion, -7.3% y/y, beating estimate $21.8 billion
  • Cash and cash equivalents $20.54 billion, -45% y/y, estimate $29.91 billion

And here is AAPL's diluted EPS in context: needless to say, could have been better.

Commenting on the quarter, Tim Cook said that “during the December quarter, we achieved a major milestone and are excited to report that we now have more than 2 billion active devices as part of our growing installed base.”

CFO Luca Maester chimed in: “our record September quarter results continue to demonstrate our ability to execute effectively in spite of a challenging and volatile macroeconomic backdrop. We continued to invest in our long-term growth plans, generated over $24 billion in operating cash flow, and returned over $29 billion to our shareholders during the quarter. The strength of our ecosystem, unmatched customer loyalty, and record sales spurred our active installed base of devices to a new all-time high. This quarter capped another record-breaking year for Apple, with revenue growing over $28 billion and operating cash flow up $18 billion versus last year.”

Going back to the results, Apple missed consensus revenue in most product categories, with the exception of iPads, to wit:

  • IPhone revenue $65.78 billion, missing estimate $68.3 billion
  • Mac revenue $7.74 billion, missing estimate $9.72 billion
  • Wearables, home and accessories $13.48 billion, missing estimate $15.32 billion
  • IPad revenue $9.40 billion, beating estimate $7.78 billion

Of note: Apple recorded its first decline in iPhone revenue since the third quarter of 2020; yet in context, the 8% drop was still less than the 20% decrease reported by Samsung. Other major smartphone providers that have yet to report are expecting to see double-digit losses. Ironically, Apple may have fared comparatively well on smartphone revenue.

The silver lining: service revenue $20.77 billion, +6.4% y/y, beating estimates of $20.47 billion...

... and rose 6.5% Y/Y, an improvement from last quarter's 5.0%

One other place where investors were pleasantly surprised was China sales, which at $23.91 billion, beat the estimate of $21.8 billion by more than $2 billion.

None of that changes the fact that AAPL's sales by region were uniformly negative across the board.

And another potential problem: AAPL's gross cash continues to slide, dropping to $165 billion, the lowest since June 2014...

... while cash net of debt rebounded modestly from $49 billion to $54 billion, just above a 12 year low with the company having spent hundreds of billions on stock buybacks. Let's hope that Apple doesn't actually need to use that cash.

Commenting on the results, Bloomberg writes that the results show that Apple hasn’t been able to dodge the tech slowdown afflicting many of its competitors. Demand for smartphones and computers has slumped in the past year, and Covid-19 restrictions in China added to Apple’s woes during the holiday sales period. Timing was another issue: The company didn’t launch new Macs and HomePods until recent weeks, missing the end of the first quarter.

In response to these disappointing earnings, the stock predictably slumped as much as 4% before recouping some losses, although even with the drop it is back to where it was... yesterday.

Tyler Durden Thu, 02/02/2023 - 18:05

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