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Week Ahead – Fed minutes and inflation in focus

A busy week in store Another fascinating week in the markets and there’s little reason to think there isn’t plenty more to come in the final months of the year. Russian President Vladimir Putin calmed investor nerves this week, reassuring everyone…

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A busy week in store

Another fascinating week in the markets and there’s little reason to think there isn’t plenty more to come in the final months of the year. Russian President Vladimir Putin calmed investor nerves this week, reassuring everyone that the country stands ready to stabilise the energy market just as the situation was getting out of control. Of course, that would be far easier if the controversial Nord Stream 2 pipeline’s approval was accelerated. Over to you, Germany.

The debt ceiling threat has been pushed back to December, alleviating mild concerns that lawmakers on both sides may not blink until it’s too late. All eyes remain on Washington though, as we wait to see whether President Biden will renominate Fed Chair Jerome Powell, just as the central bank prepares to taper its pandemic asset purchase program in November following a good enough September jobs report.

Evergrande may have taken a step back from the headlines but the company’s problems are far from over. Missed debt payments won’t be tolerated for much longer and investors will increasingly demand answers. We’re already seeing contagion as other developers miss payments and the situation will get far worse if something doesn’t change very soon.

Fed minutes and inflation data eyed on Wednesday

How much longer does CBRT Governor Sahap Kavcioglu have?

Japanese Prime Minister Fumio Kishida sets election date


Country

US

A weak payrolls report will not derail the Fed, and now markets can fully expect a formal taper announcement at the November 3rd FOMC meeting.  Congress has also punted on making any hard decisions over the debt ceiling, infrastructure, and spending, so the focus on Wall Street will primarily fall on inflation.  The September inflation report is expected to show pricing pressures remain elevated, but any hotter-than-expected readings could unnerve some investors. 

Many traders are closely watching to see what President Biden does regarding renominating Fed Chair Powell.  A decision could happen on or before October 13th, when Randal K. Quarles, Vice Chair for Supervision term expires.  What has complicated Powell’s potential renomination has been the Fed trading scandal that impacted two presidents of Fed reserve banks and Fed Vice Chair Richard Clarida.

The upcoming week is filled with economic data releases and Fed speak.  Many investors will pay close attention to the more dovish members, Evans and Brainard, to see if they are changing their tune about inflation being transitory.   On Monday, Fed’s Evans gives introductory remarks at an award ceremony.  On Tuesday, the NFIB Small Business Optimism report is expected to show some weakness, JOLTS job openings could remain near the 10.9 million level, and Fed’s Bostic will speak on inflation at the Peterson Institute. 

Wednesday is the most important day of the week as Wall Street will closely follow the September US inflation report, the release of FOMC minutes, and what Fed’s Brainard says at the Fed Listen Event.  Thursday contains the release of the weekly jobless claim, September PPI and is filled with Fed speak from Bostic, Logan, Barkin and Harker.  Friday is the second most important day of the week as traders will follow the release of September retail sales, which should show the consumer is weakening.  The Empire manufacturing report, the first regional index for October, is expected to show manufacturing activity slowed, but the primary focus for some might be the comments about supply chain issues.  Fed’s Williams will also participate in a monetary policy panel.  

EU 

A quiet week ahead for the EU, with data releases primarily made up of tier two and three releases. The only exception being the ZEW economic sentiment figures on Tuesday. 

UK

A scattering of economic data throughout the week to come, starting with NIESR GDP estimate on Monday, labour market figures on Tuesday and the official monthly GDP data on Wednesday. Tier two and three releases will also be released throughout the week.

Markets continue to price in three rate hikes by the end of next year, with the first potentially by this December.

Emerging Markets

Russia

Russia has positioned itself right at the centre of the energy crisis, with President Vladimir Putin claiming they’re ready to stabilise the market. It seems what will help with this is the approval of the politically divisive Nord Stream 2 pipeline which will enable more supplies. How fortunate. No data of note next week.

South Africa

Another quiet week on the data side, with business confidence index on Monday, manufacturing production index on Tuesday and retail sales on Wednesday. 

Turkey

Rumours surfaced today that President Erdogan is losing patience with CBRT Governor Sahap Kavcioglu, just seven months after taking charge at the central bank. It would appear the Governor is on borrowed time if both his boss and the markets have lost faith in him. 

With the lira trading at record lows, crossing your fingers and hoping inflation falls as you cut rates is unlikely to end well. Especially if you’re seemingly doing it to appease a President that is reportedly frustrated at it taking so long for the loosening process to begin. We may be about to see the fourth Governor sacking in a little over two and a half years.

Asia Pacific

China

China has another short week ahead, with Friday being a holiday. The data calendar is light with the highlight being inflation on Thursday which is expected to rise by 0.90% YoY. 

China’s energy shortages are grabbing the headlines with the government instructing state energy companies to secure supplies at any cost. That will keep energy prices supported, but any signs that the situation is worsening may again lead to selling on the main indexes. 

President Xi makes a speech on Taiwan this weekend, and depending on the contents, could see some volatility in regional markets on Monday.

Evergrande has slipped from the headlines this past week, but with another China developer defaulting on a foreign debt this week, markets are not far away from sparking another sell-off in Mainland and Hong Kong equity markets.

India

The RBI has left policy rates unchanged, saying that it remains accommodative. That has been despite inflation far outstripping policy settings leading to a stagflationary environment. The Indian Rupee has been under pressure for the past week. INR has immediately sold off after the RBI decision and may test 75.00, even 75.40.

Stagflationary fears could increase with the release of Industrial Production and WPI  on Tuesday and Friday.

With energy prices remaining elevated, particularly coal and natural gas, the pressure will come on India’s current account as a massive net importer of energy. That might explain why the fizz has gone out of India’s stock market over the past week. 

Australia & New Zealand

Data-wise, New Zealand releases Electronic Retail Spending on Monday, while Australia releases Consumer Confidence and Employment on Thursday which usually generates some intra-day volatility.

The RBNZ raised policy rates as expected but  NZD/USD remains acutely vulnerable to the delta-variant which is now spreading outside Auckland to adjacent provinces. A deterioration over the weekend could see NZD/USD marked sharply lower on Monday’s open.

Japan

New Prime Minister Kishida has set a 31st October election and has promised cash payments to citizens affected by the virus and also a new supplementary budget (read fiscal goodie bag) after the election. Japan has a heavy data schedule including PPI, Reuters Tankan, Machinery Orders and Industrial Production. The overall tone is closely tied to US markets right now, so the data will only be useful for intra-session volatility.

Japan equities are maintaining a high correlation to Wall Street this week. Fiscal stimulus announcements are also providing support. USD/JPY has risen to near 112.00 as the US Dollar prices in the Fed taper and US yield remain firm. 


Key Economic Events

Saturday, Oct. 9

Czech Republic elections: Prime Minister Babis expected to win a second term.

German Chancellor Merkel starts her delayed three-day visit to Israel.

Danish Prime Minister Frederiksen begins three-day visit to India  

North Korea marks the anniversary of its ruling Workers’ Party of Korea.

Economic Data/Events

China aggregate financing, money supply, new yuan loans

Sunday, Oct. 10

Taiwan President Ing-wen gives annual address  

Economic Data/Events

New Zealand home sales

China FDI

Monday, Oct. 11

US and Canada Bond markets will be closed for the Columbus Day holiday and Canada’s Thanksgiving Day.

IMF/World Bank annual meetings begin

Fed’s Evans speaks at the Lawrence R. Klein Award virtual ceremony.

Czech politics in focus: Babis to begin coalition negotiations.  

Economic Data/Events

Italy industrial production

Japan machine tool orders

Turkey current account

UK industrial production

South Africa business confidence

Czech Republic CPI

Norway CPI

Denmark CPI

Russia current account

Tuesday, Oct. 12

IMF releases World Economic Outlook and Global Financial Stability Report.

Atlanta Fed President Bostic speaks on inflation to the Peterson Institute for International Economics in Washington.

The Singapore Defense Technology Summit

The EU-Ukraine summit 

The G-20 trade ministers meet in Sorrento, Italy.

Google Cloud Next conference

Economic Data/Events

Australia NAB business conditions, consumer confidence

Germany ZEW survey expectations

India trade, industrial production, CPI

Japan PPI

Mexico international reserves, industrial production

New Zealand ANZ Truckometer Heavy, net migration, card spending

Russia trade

South Africa manufacturing production

Turkey industrial production

UK jobless claims, unemployment

Wednesday, Oct. 13

IMF Managing Director Georgieva and COP26 President Sharma speak during the IMF and World Bank annual meetings.

The G-20 finance ministers and central bank governors meet in Washington.

The Russian Energy Week conference begins

Federal Reserve Vice Chair Randal Quarles’s term expires.

President Biden could decide on renominating Fed Chair Powell

Economic Data/Events

US FOMC minutes, CPI

JP Morgan reports third quarter earnings

Australia Westpac consumer confidence

New Zealand food prices, ANZ activity outlook

China trade, medium-term lending facilities

Japan machinery orders, M2 money stock

Eurozone industrial production

Germany CPI

South Africa retail sales

Russia CPI

UK industrial, manufacturing production, trade

Thursday, Oct. 14

Reserve Bank of Australia Deputy Governor Debelle speaks at two-day CFA Australian Investment Conference

FDA meeting over Moderna and Pfizer booster Covid shots

Japan’s new Prime Minister Fumio Kishida to dissolve parliament ahead of expected October 31st national general election

Economic Data/Events

US initial jobless claims, PPI

India wholesale prices

China PPI, CPI

Australia unemployment, consumer inflation expectations

Singapore GDP

Japan industrial production

Mexico central bank minutes

Spain CPI

Russia gold, forex reserves

Poland current account

U.K. RICS house prices

EIA Crude Oil Inventory Report

Earnings Reports from TSMC, Bank of America, Morgan Stanley, and Citigroup

Friday, Oct. 15

Economic Data/Events

US business inventories, Sept Advance Retail Sales M/M: -0.3%e v +0.7% prior, Oct Empire Manufacturing: 25.0e v 34.3 prior, Oct Prelim University of Michigan consumer sentiment: 73.5e v 72.8 prior

Canada existing home sales

Eurozone new car registrations

New Zealand manufacturing index

Thailand forward contracts, foreign reserves

France CPI

Italy trade, CPI

Poland CPI

Sovereign Rating Updates

– United Kingdom (Moody’s)

– France (DBRS)

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Science

Why letting Medicare negotiate drug prices won’t be the game-changer for health care Democrats hope it will be

A new law will let Medicare bargain for the first time. But a health policy scholar explains why it’s unlikely to make much of a difference in how much…

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Drug prices have been soaring in recent years. stevecoleimages/E+ via Getty Inages

Democrats hope their new health care, tax and climate law begins to rein in soaring prescription drug prices.

One of its most touted provisions allows Medicare, America’s health insurance program for seniors, to negotiate some prescription drug prices for the first time, with some calling it “game-changing” and a significant victory over the pharmaceutical industry. Drug manufacturers had stubbornly opposed any governmental regulation of drug prices for decades and are likely to challenge the measure in court.

As a scholar who has published extensively on the politics of health policy, I’m skeptical that giving Medicare the ability to negotiate prices on a handful of drugs will be as transformative as the law’s backers hope. While a good step, it is unlikely to make a significant difference in how much seniors pay overall for medicine.

Fortunately, there are several other provisions in the law that will do much more to meaningfully help seniors struggling with the high cost of prescription drugs.

Why US drug prices are so high

Pharmaceutical innovation over the past few decades has been tremendous. The quick response to the COVID-19 pandemic in terms of vaccine development and treatments perfectly exemplifies the incredible benefits that drug developers have brought to the world.

Yet these developments have come at a high price, particularly in the United States, where each person spends more than US$1,100 a year on drugs – up from $831 in 2013. Indeed, Americans are paying substantially more than residents of similar countries like Germany, the U.K. and Australia – who pay $825, $285 and $434 per person each year, respectively.

People who need specific high-priced drugs are even more adversely affected.

Dulera, an asthma drug, costs 50 times more in the U.S. than the international average. Januvia, for diabetes, and Combigan, a glaucoma drug, cost about 10 times more. Americans shell out, on average, $98.70 for a vial of insulin, compared with the $6.94 Australians pay.

These costs impose a big burden on Americans1 in 5 of whom skip medications because of the cost. Seniors are particularly affected by these problems.

The reasons for high prices are varied, including the overall complexity of the U.S. health care system and the lack of transparency in the drug supply chain. But as I noted in a 2019 article in The Conversation, the biggest reason Americans pay so much more than people do elsewhere is simple: Pharmaceutical companies face no limits setting prices.

Changing the game – a little

The new law, known as the Inflation Reduction Act and signed into law on Aug. 16, 2022, seeks to change that.

The main mechanism to do it is by allowing Medicare to negotiate prices for some of the most expensive drugs. The act gives Medicare the ability to negotiate with drugmakers for 10 drugs starting in 2026 and 20 by 2029.

The law specifies that the medications Medicare is supposed to select must account for most of its spending on drugs and be name brands with no generic equivalents. Research has found that a relatively small number of drugs are responsible for most spending.

Importantly, pharmaceutical companies may face civil penalties and additional taxes on drug sales if they do not comply with the requirements to establish a “maximum fair price” as laid out in the law.

The provision is expected to save the U.S. government about $102 billion over 10 years by allowing it to pay less on prescription drugs for Americans on Medicare – currently 63 million people. The annual savings amount to about 5% of what Medicare currently spends on drugs.

There’s also a separate provision that requires pharmaceutical companies, under certain conditions, to provide Medicare with rebates if drug prices outpace inflation. That measure takes effect this year and is expected to yield $71 billion in savings over a decade.

While the government savings are meaningful, I believe seniors themselves are likely to see only a minor drop in costs as a result of this provision, mainly through slightly reduced premiums and lower out-of-pocket costs.

A Black female pharmacist shows Black senior woman some prescription meds.
Measures in the law Biden just signed should lower prices for many seniors. Marko Geber/DigitalVision via Getty Images

Where the real savings are

The provisions that will make a much bigger difference for seniors lie elsewhere.

Importantly, the new law limits seniors’ out-of-pocket expenses for prescription drugs to no more than $2,000 annually. Previously, there were some restrictions but no limit. This will directly help 1.4 million seniors who exceeded the $2,000 threshold in 2020.

The law also limits how fast premiums for Medicare Part D, which provides premium-based prescription drug insurance, can rise over the next few years and implements a number of other adjustments.

It also extends the Medicare Part D low-income subsidy to 400,000 seniors who previously earned too much to qualify. This program helps people pay for premiums, deductible and copays and has been valued at $5,100 a year.

The legislation also limits the cost of insulin to no more than $35 per month for Medicare recipients only. This amounts to more than $1 billion in annual savings for seniors. Almost 16 million American seniors have diabetes and are likely to need insulin at some point in their lives.

Lastly, it also eliminates out-of-pocket costs for seniors for vaccines – a move that would have saved money for 4.1 million people in 2020.

Broader impact

There are real benefits in the bill President Biden signed into law. The government will save by negotiating prices. Seniors will save through the insulin cap and other provisions.

But I don’t believe Medicare’s ability to negotiate prices will be a game-changing reform.

Besides affecting prices paid by only a slice of Americans, we do not know how aggressively the federal government will seek savings. This particularly applies to any future administration headed up by a Republican president.

The pharmaceutical industry may still manage to limit the impact of price negotiations, since it will be four years before the changes take effect. The industry has a history of skillfully exploiting loopholes and a vast lobbying apparatus to put into that effort.

As for Americans who aren’t covered under Medicare, drug prices may actually go up. That’s because, if pharmaceutical companies do end up reducing drug prices for seniors, they may shift those costs to everyone else to make up for those lost profits.

Simon F. Haeder 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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Spread & Containment

War, peace and security: The pandemic’s impact on women and girls in Nepal and Sri Lanka

The impacts of COVID-19 must be incorporated into women, peace and security planning in order to improve the lives of women and girls in postwar countries…

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Nepalese girls rest for observation after receiving the Moderna vaccine for COVID-19 in Kathmandu, Nepal. (AP Photo/Niranjan Shrestha)

Attention to the pandemic’s impacts on women has largely focused on the Global North, ignoring countries like Nepal and Sri Lanka, which continue to deal with prolonged effects of war. While the Nepalese Civil War concluded in 2006 and the Sri Lankan Civil War concluded in 2009, internal conflicts continue.

As scholars of gender and war, our work focuses on the United Nations Security Council Resolution 1325 on women, peace and security. And our recently published paper examines COVID-19’s impacts on women and girls in Nepal and Sri Lanka, looking at policy responses and their repercussions on the women, peace and security agenda.

COVID-19 has disproportionately and negatively impacted women in part because most are the primary family caregivers and the pandemic has increased women’s caring duties.

This pattern is even more pronounced in war-affected countries where the compounding factors of war and the pandemic leave women generally more vulnerable. These nations exist at the margins of the international system and suffer from what the World Bank terms “fragility, conflict and violence.”

Women, labour and gender-based violence

Gendered labour precarity is not new to Nepal or Sri Lanka and the pandemic has only eroded women’s already poor economic prospects.

Prior to COVID-19, Tharshani (pseudonym), a Sri Lankan mother of three and head of her household, was able to make ends meet. But when the pandemic hit, lockdowns prevented Tharshani from selling the chickens she raises for market. She was forced to take loans from her neighbours and her family had to skip meals.

Some 1.7 million women in Sri Lanka work in the informal sector, where no state employment protections exist and not working means no wages. COVID-19 is exacerbating women’s struggles with poverty and forcing them to take on debilitating debts.

Although Sri Lankan men also face increased labour precarity, due to gender discrimination and sexism in the job market, women are forced into the informal sector — the jobs hardest hit by the pandemic.

Two women sit in chairs, wearing face masks
Sri Lankan women chat after getting inoculated against the coronavirus in Colombo, Sri Lanka, in August 2021. (AP Photo/Eranga Jayawardena)

The pandemic has also led to women and girls facing increased gender-based violence.

In Nepal, between March 2020 and June 2021, there was an increase in cases of gender-based violence. Over 1,750 incidents were reported in the media, of which rape and sexual assault represented 82 per cent. Pandemic lockdowns also led to new vulnerabilities for women who sought out quarantine shelters — in Lamkichuha, Nepal, a woman was allegedly gang-raped at a quarantine facility.

Gender-based violence is more prevalent among women and girls of low caste in Nepal and the pandemic has made it worse. The Samata Foundation reported 90 cases of gender-based violence faced by women and girls of low caste within the first six months of the pandemic.

What’s next?

While COVID-19 recovery efforts are generally focused on preparing for future pandemics and economic recovery, the women, peace and security agenda can also address the needs of some of those most marginalized when it comes to COVID-19 recovery.

The women, peace and security agenda promotes women’s participation in peace and security matters with a focus on helping women facing violent conflict. By incorporating women’s perspectives, issues and concerns in the context of COVID-19 recovery, policies and activities can help address issues that disproportionately impact most women in war-affected countries.

These issues are: precarious gendered labor market, a surge in care work, the rising feminization of poverty and increased gender-based violence.

A girl in a face mask stares out a window
The women, peace and security agenda can help address the needs of some of those most marginalized. (AP Photo/Niranjan Shrestha)

Policies could include efforts to create living-wage jobs for women that come with state benefits, emergency funding for women heads of household (so they can avoid taking out predatory loans) and increasing the number of resources (like shelters and legal services) for women experiencing domestic gender-based violence.

The impacts of COVID-19 must be incorporated into women, peace and security planning in order to achieve the agenda’s aims of improving the lives of women and girls in postwar countries like Nepal and Sri Lanka.

Luna KC is a Postdoctoral Researcher at the Research Network-Women Peace Security, McGill University. This project is funded by the Government of Canada Mobilizing Insights in Defence and Security (MINDS) program.

Crystal Whetstone 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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Government

CDC Announces Overhaul After Botching Pandemic

CDC Announces Overhaul After Botching Pandemic

After more than two years of missteps and backpedaling over Covid-19 guidance that had a profound…

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CDC Announces Overhaul After Botching Pandemic

After more than two years of missteps and backpedaling over Covid-19 guidance that had a profound effect on Americans' lives, the Centers for Disease Control (CDC) announced on Wednesday that the agency would undergo a complete overhaul - and will revamp everything from its operations to its culture after failing to meet expectations during the pandemic, Bloomberg reports.

Director Rochelle Walensky began telling CDC’s staff Wednesday that the changes are aimed at replacing the agency’s insular, academic culture with one that’s quicker to respond to emergencies. That will mean more rapidly turning research into health recommendations, working better with other parts of government and improving how the CDC communicates with the public. -Bloomberg

"For 75 years, CDC and public health have been preparing for Covid-19, and in our big moment, our performance did not reliably meet expectations," said Director Rochelle Walensky. "I want us all to do better and it starts with CDC leading the way.  My goal is a new, public health action-oriented culture at CDC that emphasizes accountability, collaboration, communication and timeliness."

As Bloomberg further notes, The agency has been faulted for an inadequate testing and surveillance program, for not collecting important data on how the virus was spreading and how vaccines were performing, for being too under the influence of the White House during the Trump administration and for repeated challenges communicating to a politically divided and sometimes skeptical public."

A few examples:

Walensky made the announcement in a Wednesday morning video message to CDC staff, where she said that the US has 'significant work to do' in order to improve the country's public health defenses.

"Prior to this pandemic, our infrastructure within the agency and around the country was too frail to tackle what we confronted with Covid-19," she said. "To be frank, we are responsible for some pretty dramatic, pretty public mistakes — from testing, to data, to communications."

The CDC overhaul comes on the heels of the agency admitting that "unvaccinated people now have the same guidance as vaccinated people" - and that those exposed to COVID-19 are no longer required to quarantine.

Tyler Durden Wed, 08/17/2022 - 12:22

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