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Week Ahead: Bank of Canada to reduce purchases; Global Economic Recovery to pickup

The global economic recovery is gaining momentum as the world’s two largest economies continue to deliver robust economic readings.  China’s economy grew 18.3% in the first quarter, a record rate that sets the example of what we can expect as the…



The global economic recovery is gaining momentum as the world’s two largest economies continue to deliver robust economic readings.  China’s economy grew 18.3% in the first quarter, a record rate that sets the example of what we can expect as the rest of the world recovers from COVID-19.  The US saw weekly jobless fall to a pandemic low and retail sales explode after Americans put their $1,400 stimulus checks to work.  US stocks are steadily making fresh record highs and that could continue if Treasury yields take their time in recapturing the highs made at the end of March.

The taper tantrum might seem to be far away for the US, but it is already here for Canada.  The Bank of Canada is positioned to reduce weekly bond purchases at the April 21st policy decision.  The economic situation is much more optimistic than it was in the January meeting and Wall Street is now expecting the first BOC rate increase in the second half of 2022, with five total hikes through the end of 2023.

It is a busy week, with rate decisions, flash PMIs , and a wrath of CPI releases that could tilt some central banks into tightening a lot sooner.  Financial markets will continue to track developments over the J&J vaccine as that will have an impact on the short-term outlook with vaccine distributions across Europe and emerging markets.  The ECB will try not to commit to anything and maintain a wait-and-see approach regarding inflation rates and bond yields.  ECB President Lagarde will likely focus on the risks and uncertainty over vaccine rollouts and reopenings.  The June 10th meeting will be key for them.

BOC expected to reduce weekly asset purchases.

ECB to provide minor hints over how the pace of asset purchases will change in the summer.

Russian Central Bank to raise interest rates.



The dollar fell to a fresh four-week low as bond market volatility took the 10-year Treasury yield below the 1.60% level, a key level that had a lot of options tied to it.  The slide in Treasury yields surprised many traders and if sustained could keep the pressure on the greenback despite a steady wave of better-than expected data.

The economic boom for the US is here after jobless claims fell to a pandemic low, retail sales surged and all regional surveys all confirmed a robust outlook.  Wall Street also got its first dose of inflation as the economy strengthened and energy prices climbed higher.  The inflation debate will go on for months, but for now it seems the Fed’s call for it to be transitory will hold.

The upcoming week could show weekly jobless claims increase by 62,000 to 638K and existing home sales soften slightly to 6.20 million in March.  On Friday, the flash Markit PMI readings should see strong gains in both manufacturing and service sectors with new home sales rebounding from 775,000 to 875,000.


Canada will release its first budget in two years. Prime Minister Justin Trudeau’s government is expected to pledge tens of billions of dollars in spending to boost the economic recovery. Trudeau has a minority government and has hinted at a federal election later this year.

The Bank of Canada meets on Wednesday and is expected to start tightening policy by announcing that it will taper its purchase of government bonds. This would make the BoC the first of the G-7 central banks to tighten policy since the Covid-19 pandemic. The BoC is expected to make this move in response to the economy’s recovery, which has been more robust than anticipated.


The ECB holds its policy meeting on Thursday. The central bank is expected to maintain current policy and hold the Main Refinancing Rate at 0.00%. The bank will likely confirm that its asset purchases under its pandemic programme (PEPP) will run at a faster pace until June. ECB President Christine Lagarde has committed to continue the asset purchases until March 2022.

In Germany, the manufacturing sector remains a bright spot with strong growth, but services has been lagging due to the repeated lockdowns which has reduced business activity. German Manufacturing and Services PMIs will be released on Friday, with a forecast of 65.7 and 51.4, respectively. The 50-level separates contraction from expansion.


The upcoming week will be heavy on UK data, which could mean an eventful week for the British pound. On Tuesday, the UK releases key employment numbers (March Jobless Claims Change and Claimant Count Rate), with the ILO unemployment (rolling three months) for February projected to rise to 5.1%, up from 5.0%. This will be followed on Wednesday with the inflation report. March CPI (YoY) is expected to jump from 0.9%, up from the current 0.4%. Friday wraps up with an expected softer retail sales report for March and improving flash PMI data for the April. The Manufacturing and Services PMIs estimates both stand at 59.0, pointing to strong growth.

Emerging Markets


The Turkish Central Bank kept interest rates on hold last week, at 19%. The rate decision was the first for the new central bank governor, Sahap Kavcioglu. The governor bowed to market conditions, in particular inflation of 16.2% in March, and did not cut rates. However, the bank removed its tightening bias and scrapped the end-2021 inflation target, which was a dovish move. There is strong political pressure on the bank to lower rates, and this could mean a rate cut in the third quarter or earlier.

The Turkish lira has plunged about 11% since Naci Agbal was fired as the central bank governor in March. This means that inflation is likely to rise further in the coming months.


Russia’s central bank meets on Friday. The bank is expected to hike rates by 0.25%, which would bring the key rate to 4.75%. The bank raised rates by 0.25% in March, commencing its tightening cycle in response to rising inflation.

U.S. financial institutions will be barred from entry to Russia’s primary market for new, ruble-denominated sovereign debt, beginning June 14.

Ruble volatility could ease if investors continue to believe that Russian sanctions will have a limited impact.


China equity markets were dealt a blow after the PBOC tightened liquidity and after a mixed round of key economic data.  China’s record growth of 18.3% in the first quarter will be the peak and now start to trend lower.  The domestic outlook is improving following a better-than-expected retail sales reading, but the Huarong debt issues and tighter liquidity could remain a drag for Chinese stocks.

The Yuan has slowly appreciated against the dollar on the break of the 6.5500 level.  The bond market rally could continue and that should support some further yuan strength.

The big release of the week will be China’s loan prime rates, which are expected to stay anchored.  The 1-year and 5-year loan prime rates should stay at 3.85% and 4.65% respectively.


India’s outlook continues to deteriorate as Covid-19 cases continue a chaotic surge.  India’s two largest cities shut down after new virus cases jumped over 200,000.  The rupee is Asia’s worst performing currency and that could remain the case until the current COVID wave eases.

The focus for India will primarily be on the COVID situation, with some traders eyeing the upcoming bills auction. Indian sovereign bond yields jumped higher after the RBI’s first QE debt purchases.  If anemic demand hits these next rounds of auctions, yields could continue to rise.

No economic releases are expected next week.

Australia & New Zealand

The New Zealand dollar has been strengthening after the RBNZ policy mostly went as expected with no changes with interest rates or its large-scale asset purchases. The bank is prepared to lower the benchmark interest rate if required, but the risks to the economic outlook remain balanced.  Stop loss buying sent the kiwi higher, but that could continue if Treasury yields remain depressed.

A wrath of Australian economic data should show the economic recovery is improving.  On Wednesday, the March retail sales reading is expected to improve on a monthly basis from -0.8% to +1.0%.  A close eye will be kept on the flash PMI readings, which should see manufacturing and services remain in expansionary territory.  The minutes of the April policy meeting will provide more clarity over concerns over the frothy housing market and low wages.


Japan’s trade data is expected to swing back from a deficit to a surplus.  Exports should continue to improve given the strong recoveries from the world’s two largest economies.  The domestic situation is still depressed, and imports should lag the gains seen in the prior month.   It seems the latest virus spread will trigger another round of restrictions that should continue to be a headwind for equities.

On Friday, Japan’s national CPI readings should show deflationary pressures remain.

USD/JPY has declined for two consecutive weeks following the recent weakness with Treasury yields.  BOJ could start to decrease purchases and that should thwart some yen strength.  The 108.00 level should remain massive support for dollar-yen as long as Treasury yields start to stabilize.



Crude prices are rallying on an improved demand outlook now that the pace of vaccinations is improving dramatically across Western Europe.  Concerns over both the J&J and AstraZeneca COVID vaccines are waning as Pfizer, Moderna, Sputnik, and other vaccines ramp up supplies.  If the UK reopening of non-essential retail and outdoor hospitality is successful, crude demand forecasts could get massively upgraded on hopes that the rest of Europe will just be a couple months behind them.

Global stockpiles are continuing to decline and that should also support the bullish case for oil prices.  The dollar outlook has shifted quickly and if further weakness continues, the super commodity cycle could provide an additional level of underlying support for crude prices.


Gold bulls are rejoicing a strong trading week as weaker bond yields are keeping the dollar vulnerable to further losses.  Gold’s primary driver is real yields and now that the 10-year real yield is back at the March lows, investors had to reset their expectations over the path of bond yields.  Treasury yields will end the year significantly higher, but the short-term likely supports an extended consolidation that could see further downward pressure for Treasury yields.

Gold’s bullish streak could see further momentum now that China has given banks permission to import bullion.  Gold has massive support at the $1750 level and tentative resistance at the $1800 region, followed by the $1858 level.


Coinbase, the largest US crypto exchange successfully went public and triggered a new wave of retail and institutional interest for cryptocurrencies.  Bitcoin surged but that came to a tentative end on accelerated profit-taking after news hit that Turkey bans crypto payments.

The biggest fear for many crypto traders has always been that big governments might impose harsh restrictions on cryptocurrencies.  The situation Turkey is rather unique given the government is doing everything in their power to stabilize their currency.  Many on Wall Street believe that the lira is poised to fall over 10% in the short-term and that is forcing Turkey to impose capital controls and now also prevent lira’s going into Bitcoin.

Bitcoin volatility will remain elevated and the recent Dogecoin bubble could trigger a massive risk-off environment for all cryptocurrencies.

Key Economic Events

Monday, April 19

– Canadian Prime Minister Trudeau’s government releases its first budget in two years.

– U.K. Fintech Week starts with a keynote speech by Chancellor of the Exchequer Sunak.

– Riksbank Deputy Governor Breman gives speaks on the economic risks of climate change.

Economic Data/Events:

  • Japan industrial production, trade, capacity utilization
  • UK Rightmove house prices

Tuesday, April 20

Economic Data/Events:

  • Japan tertiary industry index, machine tool orders
  • UK Unemployment
  • Russia unemployment, retail sales, real wages
  • Australia RBA minutes of April policy meeting
  • Germany PPI
  • Czech PPI
  • Apple’s Spring Loaded Event (new iPad Pro line, AirTags, and a new iMac are expected
  • Netflix reports after the close

Wednesday, April 21

– Russian President Putin delivers his annual address to the nation.

– BOE Governor Bailey speaks on “Diversity and Market Intelligence”

– BOE Deputy Governor Ramsden gives Wednesday’s keynote speech at U.K. Fintech Week.

Economic Data/Events:

  • Bank of Canada (BOC) Interest Rate Decision: Expected to taper its weekly bond purchases
  • BOC Gov Macklem press conference
  • Australia retail sales, Westpac leading index
  • Japan supermarket sales
  • South Korea PPI
  • Canada CPI
  • South Africa CPI
  • New Zealand CPI
  • Russia CPI
  • UK CPI, retail price index
  • Poland average wages, employment, PPI
  • EIA crude oil inventory report

Thursday, April 22

– Earth Day 2021. The theme this year is “Restore Our Earth.”

– President Biden Invites 40 World Leaders to Leaders Summit on Climate

Economic Data/Events:

  • European Central Bank rate decision: Expected to keep policy unchanged, affirming that asset purchases will run at a faster clip until June.
  • ECB rate decisions presser with President Christine Lagarde
  • US initial jobless claims, leading index, existing home sales Mar: 6.21M estimate v 6.22 prior
  • Eurozone Apr Advance consumer confidence: -11.5 estimate v -10.8 prior
  • Thailand trade
  • Australia NAB business confidence
  • Mexico Unemployment
  • France manufacturing confidence
  • Poland retail sales
  • Russia gold and forex reserves
  • Netherlands unemployment, consumer spending
  • Switzerland imports/exports
  • Ireland PPI

Friday, April 23

Economic Data/Events:

  • US Apr Prelim Markit manufacturing PMI: 60.0 estimate v 59.1 prior, new home sales
  • Eurozone Apr Prelim Manufacturing PMI: 62.2 estimate v 62.5 prior
  • Germany Apr Prelim Manufacturing PMI: 65.7 estimate v 66.6 prior
  • UK Manufacturing PMI
  • Australia Manufacturing PMI
  • Russian Central Bank (CBR) Interest rate decision: expected to raise Key Rate 25bps to 4.75%
  • Russian rate decision press conference with Governor Nabiullina
  • Japan CPI
  • Singapore CPI
  • Japan manufacturing PMI, department store sales
  • Taiwan industrial production
  • Thailand foreign reserves
  • Mexico retail sales
  • UK retail sales, GfK consumer confidence, public sector net borrowing
  • Baker Hughes rig count

Sovereign Rating Updates

– Finland (Fitch)

– Netherlands (Fitch)

– EFSF (S&P)

– Greece (S&P)

– Italy (S&P)

– U.K. (S&P)

– Finland (DBRS)


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Argonne’s Jordi Roglans-Ribas claims second Secretary’s Honor Award

Jordi Roglans-Ribas, a former director of the Nuclear Science and Engineering division at the U.S. Department of Energy’s (DOE) Argonne National Laboratory,…



Jordi Roglans-Ribas, a former director of the Nuclear Science and Engineering division at the U.S. Department of Energy’s (DOE) Argonne National Laboratory, received his second 2022 U.S. Secretary of Energy Achievement team award for participating in the team that completed the Versatile Test Reactor (VTR) Environmental Impact Statement (EIS).

Credit: (Image by Argonne National Laboratory.)

Jordi Roglans-Ribas, a former director of the Nuclear Science and Engineering division at the U.S. Department of Energy’s (DOE) Argonne National Laboratory, received his second 2022 U.S. Secretary of Energy Achievement team award for participating in the team that completed the Versatile Test Reactor (VTR) Environmental Impact Statement (EIS).

Roglans-Ribas was also recognized with a 2022 team award for work with the National Nuclear Security Administration’s (NNSA) Kazakhstan Reactor Conversion Team to make nuclear research reactors safer from proliferation risk. The Secretary’s Honor Awards are considered one of DOE’s highest honors.

“The award for the completion of the VTR EIS recognizes the successful effort of the entire team and the significance of DOE completing the first reactor EIS.” — Jordi Roglans-Ribas, Argonne

An EIS is a government document that outlines the impact of a proposed project on its surrounding environment. It helps policymakers and community leaders make key decisions.

“The award for the completion of the VTR EIS recognizes the successful effort of the entire team and the significance of DOE completing the first reactor EIS,” said Roglans-Ribas.

Roglans-Ribas worked closely on the VTR EIS with a multidisciplinary group from government departments, national laboratories and contractor offices beginning in August 2019 and throughout the COVID-19 pandemic. As a result, DOE published its first EIS for design and construction of a nuclear reactor since establishment of the National Environmental Policy Act in 1970. Now in the Federal Register, the VTR EIS has helped accelerate release of the Department of Defense’s Strategic Capabilities Office’s EIS for building and demonstrating the Project Pele mobile microreactor. The U.S. Nuclear Regulatory Commission will reference both statements as it prepares its own versions for commercial advanced reactors currently under development.

“Jordi had an integral, long-term role on a professional team with immense collective expertise, keen attention to detail and enduring commitment,” said Temitope Taiwo, director of Argonne’s Nuclear Science and Engineering division. ​“As a result, the team completed a high-quality, complex and publicly visible analysis in a difficult pandemic environment.”

The VTR EIS team’s efforts were specifically praised for helping DOE advance its own efforts to provide a fast-reactor-based neutron source and testing capability. This capability has been missing from nuclear energy research and development infrastructure for nearly three decades. It is a critical capability needed to enhance and accelerate the innovative nuclear technologies that will advance U.S. objective to reach net-zero emissions by 2050.   

Argonne National Laboratory seeks solutions to pressing national problems in science and technology. The nation’s first national laboratory, Argonne conducts leading-edge basic and applied scientific research in virtually every scientific discipline. Argonne researchers work closely with researchers from hundreds of companies, universities, and federal, state and municipal agencies to help them solve their specific problems, advance America’s scientific leadership and prepare the nation for a better future. With employees from more than 60 nations, Argonne is managed by UChicago Argonne, LLC for the U.S. Department of Energy’s Office of Science.

The U.S. Department of Energy’s Office of Science is the single largest supporter of basic research in the physical sciences in the United States and is working to address some of the most pressing challenges of our time. For more information, visit https://​ener​gy​.gov/​s​c​ience.

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Watch Yield Curve For When Stocks Begin To Price Recession Risk

Watch Yield Curve For When Stocks Begin To Price Recession Risk

Authored by Simon White, Bloomberg macro strategist,

US large-cap indices…



Watch Yield Curve For When Stocks Begin To Price Recession Risk

Authored by Simon White, Bloomberg macro strategist,

US large-cap indices are currently diverging from recessionary leading economic data. However, a decisive steepening in the yield curve leaves growth stocks and therefore the overall index facing lower prices.

Leading economic data has been signalling a recession for several months. Typically stocks closely follow the ratio between leading and coincident economic data.

As the chart below shows, equities have recently emphatically diverged from the ratio, indicating they are supremely indifferent to very high US recession risk.

What gives? Much of the recent outperformance of the S&P has been driven by a tiny number of tech stocks. The top five S&P stocks’ mean return this year is over 60% versus 0% for the average return of the remaining 498 stocks.

The belief that generative AI is imminently about to radically change the economy and that Nvidia especially is positioned to benefit from this has been behind much of this narrow leadership.

Regardless on your views whether this is overdone or not, it has re-established growth’s dominance over value. Energy had been spearheading the value trade up until around March, but since then tech –- the vessel for many of the largest growth stocks –- has been leading the S&P higher.

The yield curve’s behaviour will be key to watch for a reversion of this trend, and therefore a heightened risk of S&P 500 underperformance. Growth stocks tend to outperform value stocks when the curve flattens. This is because growth companies often have a relative advantage over typically smaller value firms by being able to borrow for longer terms. And vice-versa when the curve steepens, growth firms lose this relative advantage and tend to underperform.

The chart below shows the relationship, which was disrupted through the pandemic. Nonetheless, if it re-establishes itself then the curve beginning to durably re-steepen would be a sign growth stocks will start to underperform again, taking the index lower in the process.

Equivalently, a re-acceleration in US inflation (whose timing depends on China’s halting recovery) is more likely to put steepening pressure on the curve as the Fed has to balance economic growth more with inflation risks. Given the growth segment’s outperformance is an indication of the market’s intensely relaxed attitude to inflation, its resurgence would be a high risk for sending growth stocks lower.

Tyler Durden Wed, 05/31/2023 - 13:20

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US Job Openings Unexpectedly Soar Above Highest Estimate Even As Number Of Quits Tumble

US Job Openings Unexpectedly Soar Above Highest Estimate Even As Number Of Quits Tumble

For those following the recent sharp drop in job openings,…



US Job Openings Unexpectedly Soar Above Highest Estimate Even As Number Of Quits Tumble

For those following the recent sharp drop in job openings, or perhaps merely fascinated by the narrative that AI will cause a margin-busting corporate revolution as millions of mid-level employees are replaced by a cheap "bullshitting" AI algorithm, then today's latest bizarro JOLTS report will come as a shock. That's because after three months of sharp declines, the BLS reported that in April the number of job openings soared by 358K from an upward revised 9.7 million to 10.1 million, the biggest increase since Dec 2022...

.... and printing not only above the median consensus which expected the trend to continue with 9.4 million job openings this month, but came higher than the highest Wall Street estimate! As shown in the chart below, the delta to median consensus print was a whopping 703K.

According to the BLS, the biggest increase in job openings was in retail trade (+209,000); health care and social assistance (+185,000); and transportation, warehousing, and utilities (+154,000)

The sudden, bizarre reversal in the job openings trend, meant that after falling to the lowest level since Sept 2021, in April the number of job openings was 4.446 million more than the number of unemployed workers, the highest since January.

Said otherwise, after dropping to just 1.64 job openings for every unemployed worker, the lowest since Nov 2021, in April there were 1.79 openings for every worker, a sharp spike back to levels that the Fed does not want to see.

To be sure, none of the above data are credible for reasons we have discussed before but the simplest one is because the response rate of the JOLTS survey is stuck at a record low 31%. Which means that only those who actually have job openings to report do so, while two-thirds of employers are either non-responsive or their mail is quietly lost in the mail.

Another reason why today's data is meaningless is that even as employers allegedly put up many more job wanted signs, the number of workers actually quitting their jobs - a proxy for those who believe they can get a better-paying job elsewhere, and thus strength of the overall job market - tumbled by 129K to 3.8 million, the lowest number since May 2021.

Even the Fed's WSJ mouthpiece Nick Timiraos ignored the stellar headline print, and instead focused on the plunge in quits, writing that the "rate of workers who are voluntarily leaving their jobs (including leisure and hospitality) is returning closer to pre-pandemic levels, a possible sign of less tight labor markets. Quits tend to rise when workers think they can receive better pay by changing jobs."

And the biggest paradox: as pointed out by Peter Tchir of Academy Securities, the seasonally adjusted JOLTS quits rate was 2.4 (we reached a "peak" of 2.4 in July 2019), while the Hires rate (also seasonally adjusted) was 3.9% just like it was 3.9 in July 2019. So allegedly there are 3,000,000 more jobs available now than then.

So what to make of this bizarro, conflicting report?

Well, after three months of drops in job openings, at a time when it is especially critical for Biden to still maintain the illusion that at least the labor market remains strong when everything else in the senile president's economy is crashing and burning, it appears that the BLS got a tap on the shoulder once again, especially when considering that the one category that will be most impacted by ChatGPT and which according to Indeed is seeing a collapse in job postings was also the one category that had the highest number of job openings.

Tyler Durden Wed, 05/31/2023 - 10:35

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