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Week Ahead – An encouraging recovery

Are investors correct to be optimistic? Investors appear remarkably calm at the moment given the level of uncertainty we’re facing this year, from inflation…

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Are investors correct to be optimistic?

Investors appear remarkably calm at the moment given the level of uncertainty we’re facing this year, from inflation to interest rates and even Covid, when you consider China is still embracing lockdowns.

Throw soaring commodity prices into the mix and there’s plenty of reason to be pessimistic. But when you look at financial markets, that isn’t what we’re seeing. Equities aren’t far from record highs in many cases and the yield curve isn’t yet inverted in a way that suggests a recession is coming.

Instead, the Fed is warning of a very aggressive tightening cycle, telling us the labor market is too strong and that inflation will be under control again soon enough. For once, the central bank and markets appear on the same page. Which probably makes me feel more uneasy than it should.

Further evidence of “unhealthy” trend in labor market to come?

EU continues to turn its back on Russia

Evergrande back in the headlines

US

The focus on Wall Street remains on geopolitics, but many traders will pay close attention to the economic readings about the US jobs market, consumer, inflation, and manufacturing activity. The Fed is confident that the economy is on solid footing despite surging inflation, but if the economic data tells a different story, that could change the front-loaded approach of supersized rate hikes.    

The nonfarm payroll report will confirm that the labor market remains strong. The consensus estimate for jobs created in March is 450,000 which would be a decrease from the 678,000 gain in February. The unemployment rate is expected to tick lower to 3.7%, while average hourly earnings could rebound to 0.4%, an improvement from the flat reading seen a month ago.

EU 

It goes without saying that the focus next week will continue to be what’s happening in Eastern Europe and what the EU is doing in order to reduce its reliance on Russian energy and allow it to impose more severe sanctions. The latter is unlikely any time soon but the US LNG deal was a step towards it.

Next week offers an abundance of economic data, with the standout being flash inflation indicators. The eurozone flash CPI on Friday will be the one to watch but we could get hints from individual nations earlier in the week.

Central banks have been forced to back down on their transitory message in recent months and the ECB took a step in that direction a couple of weeks ago. Further unexpected inflation spikes will further pile on the pressure and make comments from President Lagarde and her colleagues all the more interesting.

UK

Mostly tier two and three data from the UK next week, with a speech from BoE Governor Andrew Bailey on Monday the highlight. The MPC last week gave the impression that they were slightly softening their hawkish stance after three consecutive hikes but inflation last month accelerated faster than expected which may force them to persevere for a few more meetings yet. Deputy Governor Ben Broadbent also speaks on Wednesday.

Russia

Against the backdrop of Russia’s illegal invasion of Ukraine, sanctions imposed on it by the West, and the Kremlin’s attempts to hit back – for example, the decision this week to insist on purchases of Russian gas to be made in rubles – there’s going to be little hype about the unemployment and manufacturing data next week.

Negotiations are continuing with Ukraine but appear to be making little progress. Meanwhile, sanctions are continuing to be imposed and the EU is slowly severing energy ties which will be damaging in the long run. In the near future, the economy is expected to fall into a two-year recession, with this year’s contraction being particularly sharp at up to 10%.

South Africa

The SARB raised interest rates by 25 basis points this week but two members (out of five) of the MPC voted for a 50 basis point hike. The tightening cycle looks set to continue with inflation running at the upper end of its 3-6% target range and commodity pressures increasing. 

Turkey

A relatively quiet week is in store for Turkey, with the manufacturing PMI the only notable release. 

China

There is a myriad of forces impacting Chinese markets in the week ahead. Evergrande is back in the headlines with foreign bondholders running out of patience. Covid-19 continues spreading in the mainland, raising the threat of lockdowns impacting manufacturing and logistics. US authorities are less positive about the audits of US-listed China companies than the noise from China. Russian support, tacit or official, is a huge risk point from a sanctions point of view.

China also releases its official and Caixin manufacturing and services PMIs. 

All of this provides downside risk to Chinese equities which have quickly run out of steam after government jawboning to support the market last week. China left its LPRs unchanged, disappointing participants who wanted to see concrete action. 

India

India releases its balance of trade on Friday, which could show the impact of higher oil prices. As a huge net energy importer, and with the central bank continuing its reluctance to hike interest rates, the INR remains near the weak end of its range. A sharp rise in oil prices, or US yields next week, could spark more INR weakness which could also see hot money exit the Sensex.

Australia 

The AUD/USD is close to recent highs thanks to the new surge in commodity prices and potentially some haven inflows, although risk sentiment remains better than the previous week. Employment data was strong and the week ahead features retail sales, private sector credit, and manufacturing PMI. AUD and local equities will also be sensitive to the China PMI prints.

There is a lot of good news built into AUD at these levels, helped also by AUD/JPY buying. Weak data, a sharp sentiment swing, or weak China PMIs could cause an abrupt correction lower by AUD, which could also be reflected in equity markets.

New Zealand

The New Zealand Dollar has rebounded sharply on commodity prices and haven inflows as markets prime for a faster RBNZ tightening. There is a lot of good news built into the price like AUD/USD, and that leaves NZD vulnerable to a sharp correction lower.

ANZ business confidence on Tuesday may provide that excuse if confidence slumps due to the Ukraine war and soaring inflation.

Japan

USD/JPY has risen 400 points in the past week as the US/Japan rate differential exploded wider. The BoJ and MoF have tried to talk them down with limited success. Currency markets should now be on alert for more “watching FX closely” comments, which could send USD/JPY sharply lower intraday over the coming weeks.

Japan has a heavy data calendar featuring unemployment, retail sales, and arguably most important industrial production and the Tankan Large Manufacturers Survey. The latter two will give a snapshot into whether the Ukraine disruption and inflation wave are impacting business. Low prints could be a headwind for local equities.

Singapore

Inflation rose this week, setting up a MAS tightening in April. Local markets have been buoyant though as Covid restrictions were dramatically eased. PPI has upside risk this week which could increase the MAS noise and dampen equities. USD/SGD remains content to continue running with the USD/Asia pack, which is moving entirely on Ukraine sentiment swings right now.


Economic Calendar

Sunday, March 27

Economic Data/Events

China industrial profits

Monday, March 28

Economic Data/Events

US wholesale inventories

President Biden to reveal 2023 budget request

South Africa unemployment

Mexico trade

Norway Norges Bank Deputy Governor Borsum speaks to the bank’s regional network

UK Chancellor Sunak appears before Treasury Committee to discuss his Spring Statement

BOE Gov Bailey speaks on the economy at an event organized by European think tank Bruegel

Tuesday, March 29

Economic Data/Events

US consumer confidence

Australian Treasurer Frydenberg presents the annual budget

Philadelphia Fed President Harker discusses the economic outlook at an event hosted by the Center for Financial Stability in New York

Bank of England quarterly bulletin

Japan unemployment

Australia retail sales, consumer confidence

Mexico international reserves

Wednesday, March 30

Economic Data/Events

US Q4 final GDP

Germany CPI

Fed’s Barkin speaks at a conference on investing in rural America hosted by his bank

BOE’s Deputy Governor Broadbent speaks at “The MPC at 25” conference

UK PM Johnson appears before the Liaison Committee

Russia unemployment

Mexico unemployment

New Zealand building permits, business confidence

Thailand rate decision: Expected to keep benchmark interest rate unchanged at 0.50%

Japan retail sales

Eurozone economic confidence, consumer confidence

EIA crude oil inventory report

Thursday, March 31

Economic Data/Events

US consumer income, initial jobless claims

OPEC and non-OPEC ministerial meeting on output

SNB’s Maechler, Moser speak at a money market event in Zurich

Fed’s Williams makes opening remarks at a conference  

Bank of Italy Governor Visco makes an annual address on the state of the economy

France and Italy CPI

UK GDP

Czech Republic GDP

Japan industrial production

South African trade balance

Eurozone and German Unemployment:

China manufacturing PMI, non-manufacturing PMI

Australia job vacancies, building approvals

India fiscal deficit, eight infrastructure industries, BoP

Thailand BoP

Japan housing starts

Singapore money supply

Friday, April 1

Economic Data/Events

US Mar change in nonfarm Payrolls: 450K v 678K prior, construction spending, unemployment,  ISM Manufacturing, vehicle sales

Europe-EU virtual summit with Chinese President Xi and Premier Li Keqiang along with European Council President Michel and European Commission President von der Leyen

Eurozone Manufacturing PMI, CPI

Eurozone ECB’s Schnabel and Knot speak at an event in Cernobbio, Italy

Poland CPI

Germany manufacturing PMI

UK Manufacturing PMI 

New Zealand house prices, consumer confidence

Japan vehicle sales, PMI

Singapore home prices

Australia home loans value, house prices

China Caixin PMI

Thailand PMI, foreign reserves, business sentiment index

Sovereign Rating Updates

– Poland (S&P)

– Turkey (S&P) 

– Italy (Moody’s)

– South Africa(Moody’s)

– France (DBRS)

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Is the National Guard a solution to school violence?

School board members in one Massachusetts district have called for the National Guard to address student misbehavior. Does their request have merit? A…

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Every now and then, an elected official will suggest bringing in the National Guard to deal with violence that seems out of control.

A city council member in Washington suggested doing so in 2023 to combat the city’s rising violence. So did a Pennsylvania representative concerned about violence in Philadelphia in 2022.

In February 2024, officials in Massachusetts requested the National Guard be deployed to a more unexpected location – to a high school.

Brockton High School has been struggling with student fights, drug use and disrespect toward staff. One school staffer said she was trampled by a crowd rushing to see a fight. Many teachers call in sick to work each day, leaving the school understaffed.

As a researcher who studies school discipline, I know Brockton’s situation is part of a national trend of principals and teachers who have been struggling to deal with perceived increases in student misbehavior since the pandemic.

A review of how the National Guard has been deployed to schools in the past shows the guard can provide service to schools in cases of exceptional need. Yet, doing so does not always end well.

How have schools used the National Guard before?

In 1957, the National Guard blocked nine Black students’ attempts to desegregate Central High School in Little Rock, Arkansas. While the governor claimed this was for safety, the National Guard effectively delayed desegregation of the school – as did the mobs of white individuals outside. Ironically, weeks later, the National Guard and the U.S. Army would enforce integration and the safety of the “Little Rock Nine” on orders from President Dwight Eisenhower.

Three men from the mob around Little Rock’s Central High School are driven from the area at bayonet-point by soldiers of the 101st Airborne Division on Sept. 25, 1957. The presence of the troops permitted the nine Black students to enter the school with only minor background incidents. Bettmann via Getty Images

One of the most tragic cases of the National Guard in an educational setting came in 1970 at Kent State University. The National Guard was brought to campus to respond to protests over American involvement in the Vietnam War. The guardsmen fatally shot four students.

In 2012, then-Sen. Barbara Boxer, a Democrat from California, proposed funding to use the National Guard to provide school security in the wake of the Sandy Hook school shooting. The bill was not passed.

More recently, the National Guard filled teacher shortages in New Mexico’s K-12 schools during the quarantines and sickness of the pandemic. While the idea did not catch on nationally, teachers and school personnel in New Mexico generally reported positive experiences.

Can the National Guard address school discipline?

The National Guard’s mission includes responding to domestic emergencies. Members of the guard are part-time service members who maintain civilian lives. Some are students themselves in colleges and universities. Does this mission and training position the National Guard to respond to incidents of student misbehavior and school violence?

On the one hand, New Mexico’s pandemic experience shows the National Guard could be a stopgap to staffing shortages in unusual circumstances. Similarly, the guards’ eventual role in ensuring student safety during school desegregation in Arkansas demonstrates their potential to address exceptional cases in schools, such as racially motivated mob violence. And, of course, many schools have had military personnel teaching and mentoring through Junior ROTC programs for years.

Those seeking to bring the National Guard to Brockton High School have made similar arguments. They note that staffing shortages have contributed to behavior problems.

One school board member stated: “I know that the first thought that comes to mind when you hear ‘National Guard’ is uniform and arms, and that’s not the case. They’re people like us. They’re educated. They’re trained, and we just need their assistance right now. … We need more staff to support our staff and help the students learn (and) have a safe environment.”

Yet, there are reasons to question whether calls for the National Guard are the best way to address school misconduct and behavior. First, the National Guard is a temporary measure that does little to address the underlying causes of student misbehavior and school violence.

Research has shown that students benefit from effective teaching, meaningful and sustained relationships with school personnel and positive school environments. Such educative and supportive environments have been linked to safer schools. National Guard members are not trained as educators or counselors and, as a temporary measure, would not remain in the school to establish durable relationships with students.

What is more, a military presence – particularly if uniformed or armed – may make students feel less welcome at school or escalate situations.

Schools have already seen an increase in militarization. For example, school police departments have gone so far as to acquire grenade launchers and mine-resistant armored vehicles.

Research has found that school police make students more likely to be suspended and to be arrested. Similarly, while a National Guard presence may address misbehavior temporarily, their presence could similarly result in students experiencing punitive or exclusionary responses to behavior.

Students deserve a solution other than the guard

School violence and disruptions are serious problems that can harm students. Unfortunately, schools and educators have increasingly viewed student misbehavior as a problem to be dealt with through suspensions and police involvement.

A number of people – from the NAACP to the local mayor and other members of the school board – have criticized Brockton’s request for the National Guard. Governor Maura Healey has said she will not deploy the guard to the school.

However, the case of Brockton High School points to real needs. Educators there, like in other schools nationally, are facing a tough situation and perceive a lack of support and resources.

Many schools need more teachers and staff. Students need access to mentors and counselors. With these resources, schools can better ensure educators are able to do their jobs without military intervention.

F. Chris Curran has received funding from the US Department of Justice, the Bureau of Justice Assistance, and the American Civil Liberties Union for work on school safety and discipline.

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Chinese migration to US is nothing new – but the reasons for recent surge at Southern border are

A gloomier economic outlook in China and tightening state control have combined with the influence of social media in encouraging migration.

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Chinese migrants wait for a boat after having walked across the Darien Gap from Colombia to Panama. AP Photo/Natacha Pisarenko

The brief closure of the Darien Gap – a perilous 66-mile jungle journey linking South American and Central America – in February 2024 temporarily halted one of the Western Hemisphere’s busiest migration routes. It also highlighted its importance to a small but growing group of people that depend on that pass to make it to the U.S.: Chinese migrants.

While a record 2.5 million migrants were detained at the United States’ southwestern land border in 2023, only about 37,000 were from China.

I’m a scholar of migration and China. What I find most remarkable in these figures is the speed with which the number of Chinese migrants is growing. Nearly 10 times as many Chinese migrants crossed the southern border in 2023 as in 2022. In December 2023 alone, U.S. Border Patrol officials reported encounters with about 6,000 Chinese migrants, in contrast to the 900 they reported a year earlier in December 2022.

The dramatic uptick is the result of a confluence of factors that range from a slowing Chinese economy and tightening political control by President Xi Jinping to the easy access to online information on Chinese social media about how to make the trip.

Middle-class migrants

Journalists reporting from the border have generalized that Chinese migrants come largely from the self-employed middle class. They are not rich enough to use education or work opportunities as a means of entry, but they can afford to fly across the world.

According to a report from Reuters, in many cases those attempting to make the crossing are small-business owners who saw irreparable damage to their primary or sole source of income due to China’s “zero COVID” policies. The migrants are women, men and, in some cases, children accompanying parents from all over China.

Chinese nationals have long made the journey to the United States seeking economic opportunity or political freedom. Based on recent media interviews with migrants coming by way of South America and the U.S.’s southern border, the increase in numbers seems driven by two factors.

First, the most common path for immigration for Chinese nationals is through a student visa or H1-B visa for skilled workers. But travel restrictions during the early months of the pandemic temporarily stalled migration from China. Immigrant visas are out of reach for many Chinese nationals without family or vocation-based preferences, and tourist visas require a personal interview with a U.S. consulate to gauge the likelihood of the traveler returning to China.

Social media tutorials

Second, with the legal routes for immigration difficult to follow, social media accounts have outlined alternatives for Chinese who feel an urgent need to emigrate. Accounts on Douyin, the TikTok clone available in mainland China, document locations open for visa-free travel by Chinese passport holders. On TikTok itself, migrants could find information on where to cross the border, as well as information about transportation and smugglers, commonly known as “snakeheads,” who are experienced with bringing migrants on the journey north.

With virtual private networks, immigrants can also gather information from U.S. apps such as X, YouTube, Facebook and other sites that are otherwise blocked by Chinese censors.

Inspired by social media posts that both offer practical guides and celebrate the journey, thousands of Chinese migrants have been flying to Ecuador, which allows visa-free travel for Chinese citizens, and then making their way over land to the U.S.-Mexican border.

This journey involves trekking through the Darien Gap, which despite its notoriety as a dangerous crossing has become an increasingly common route for migrants from Venezuela, Colombia and all over the world.

In addition to information about crossing the Darien Gap, these social media posts highlight the best places to cross the border. This has led to a large share of Chinese asylum seekers following the same path to Mexico’s Baja California to cross the border near San Diego.

Chinese migration to US is nothing new

The rapid increase in numbers and the ease of accessing information via social media on their smartphones are new innovations. But there is a longer history of Chinese migration to the U.S. over the southern border – and at the hands of smugglers.

From 1882 to 1943, the United States banned all immigration by male Chinese laborers and most Chinese women. A combination of economic competition and racist concerns about Chinese culture and assimilability ensured that the Chinese would be the first ethnic group to enter the United States illegally.

With legal options for arrival eliminated, some Chinese migrants took advantage of the relative ease of movement between the U.S. and Mexico during those years. While some migrants adopted Mexican names and spoke enough Spanish to pass as migrant workers, others used borrowed identities or paperwork from Chinese people with a right of entry, like U.S.-born citizens. Similarly to what we are seeing today, it was middle- and working-class Chinese who more frequently turned to illegal means. Those with money and education were able to circumvent the law by arriving as students or members of the merchant class, both exceptions to the exclusion law.

Though these Chinese exclusion laws officially ended in 1943, restrictions on migration from Asia continued until Congress revised U.S. immigration law in the Hart-Celler Act in 1965. New priorities for immigrant visas that stressed vocational skills as well as family reunification, alongside then Chinese leader Deng Xiaoping’s policies of “reform and opening,” helped many Chinese migrants make their way legally to the U.S. in the 1980s and 1990s.

Even after the restrictive immigration laws ended, Chinese migrants without the education or family connections often needed for U.S. visas continued to take dangerous routes with the help of “snakeheads.”

One notorious incident occurred in 1993, when a ship called the Golden Venture ran aground near New York, resulting in the drowning deaths of 10 Chinese migrants and the arrest and conviction of the snakeheads attempting to smuggle hundreds of Chinese migrants into the United States.

Existing tensions

Though there is plenty of precedent for Chinese migrants arriving without documentation, Chinese asylum seekers have better odds of success than many of the other migrants making the dangerous journey north.

An estimated 55% of Chinese asylum seekers are successful in making their claims, often citing political oppression and lack of religious freedom in China as motivations. By contrast, only 29% of Venezuelans seeking asylum in the U.S. have their claim granted, and the number is even lower for Colombians, at 19%.

The new halt on the migratory highway from the south has affected thousands of new migrants seeking refuge in the U.S. But the mix of push factors from their home country and encouragement on social media means that Chinese migrants will continue to seek routes to America.

And with both migration and the perceived threat from China likely to be features of the upcoming U.S. election, there is a risk that increased Chinese migration could become politicized, leaning further into existing tensions between Washington and Beijing.

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

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Rand Paul Teases Senate GOP Leader Run – Musk Says “I Would Support”

Rand Paul Teases Senate GOP Leader Run – Musk Says "I Would Support"

Republican Kentucky Senator Rand Paul on Friday hinted that he may jump…

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Rand Paul Teases Senate GOP Leader Run - Musk Says "I Would Support"

Republican Kentucky Senator Rand Paul on Friday hinted that he may jump into the race to become the next Senate GOP leader, and Elon Musk was quick to support the idea. Republicans must find a successor for periodically malfunctioning Mitch McConnell, who recently announced he'll step down in November, though intending to keep his Senate seat until his term ends in January 2027, when he'd be within weeks of turning 86. 

So far, the announced field consists of two quintessential establishment types: John Cornyn of Texas and John Thune of South Dakota. While John Barrasso's name had been thrown around as one of "The Three Johns" considered top contenders, the Wyoming senator on Tuesday said he'll instead seek the number two slot as party whip. 

Paul used X to tease his potential bid for the position which -- if the GOP takes back the upper chamber in November -- could graduate from Minority Leader to Majority Leader. He started by telling his 5.1 million followers he'd had lots of people asking him about his interest in running...

...then followed up with a poll in which he predictably annihilated Cornyn and Thune, taking a 96% share as of Friday night, with the other two below 2% each. 

Elon Musk was quick to back the idea of Paul as GOP leader, while daring Cornyn and Thune to follow Paul's lead by throwing their names out for consideration by the Twitter-verse X-verse. 

Paul has been a stalwart opponent of security-state mass surveillance, foreign interventionism -- to include shoveling billions of dollars into the proxy war in Ukraine -- and out-of-control spending in general. He demonstrated the latter passion on the Senate floor this week as he ridiculed the latest kick-the-can spending package:   

In February, Paul used Senate rules to force his colleagues into a grueling Super Bowl weekend of votes, as he worked to derail a $95 billion foreign aid bill. "I think we should stay here as long as it takes,” said Paul. “If it takes a week or a month, I’ll force them to stay here to discuss why they think the border of Ukraine is more important than the US border.”

Don't expect a Majority Leader Paul to ditch the filibuster -- he's been a hardy user of the legislative delay tactic. In 2013, he spoke for 13 hours to fight the nomination of John Brennan as CIA director. In 2015, he orated for 10-and-a-half-hours to oppose extension of the Patriot Act

Rand Paul amid his 10 1/2 hour filibuster in 2015

Among the general public, Paul is probably best known as Capitol Hill's chief tormentor of Dr. Anthony Fauci, who was director of the National Institute of Allergy and Infectious Disease during the Covid-19 pandemic. Paul says the evidence indicates the virus emerged from China's Wuhan Institute of Virology. He's accused Fauci and other members of the US government public health apparatus of evading questions about their funding of the Chinese lab's "gain of function" research, which takes natural viruses and morphs them into something more dangerous. Paul has pointedly said that Fauci committed perjury in congressional hearings and that he belongs in jail "without question."   

Musk is neither the only nor the first noteworthy figure to back Paul for party leader. Just hours after McConnell announced his upcoming step-down from leadership, independent 2024 presidential candidate Robert F. Kennedy, Jr voiced his support: 

In a testament to the extent to which the establishment recoils at the libertarian-minded Paul, mainstream media outlets -- which have been quick to report on other developments in the majority leader race -- pretended not to notice that Paul had signaled his interest in the job. More than 24 hours after Paul's test-the-waters tweet-fest began, not a single major outlet had brought it to the attention of their audience. 

That may be his strongest endorsement yet. 

Tyler Durden Sun, 03/10/2024 - 20:25

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