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Week Ahead – Focus on the US jobs report as the Fed ponders more rate hikes

US There are no prizes for guessing what the highlight next week will be. The US jobs report is widely regarded as being the most important economic report…




There are no prizes for guessing what the highlight next week will be. The US jobs report is widely regarded as being the most important economic report each month, although inflation probably currently just about edges it. The March report is expected to show a slower pace of job growth, albeit still strong at 240,000, and wages growing at a decent rate. That may not be enough to stop the Fed from tightening another 25 basis points in May, although that’s something markets can’t currently make their minds up on. It remains a coin toss. 

ISM manufacturing surveys on Monday will also be eyed, alongside JOLTS job openings on Tuesday, ISM services on Wednesday, and jobless claims on Thursday. 


A shortened week for some in the eurozone due to the Good Friday bank holiday. The rest of the week isn’t looking much more interesting at this point, with final PMI surveys the only highlight and even these may not be overly impactful.


It’s also a shortened week for the UK and much like the euro area, the rest of the week is a little thin on major economic releases or events. The highlight will probably be appearances from BoE policymakers, the most notable of which being Huw Pill and Silvana Tenreyro on Tuesday.


A relatively quiet week with a few pieces of data standing out, notably the PMI surveys on Monday and Wednesday, as well as fourth quarter GDP figures on Friday. 

South Africa

The SARB surprised markets and raised rates by 50 basis points in March, taking the policy rate to 7.75%. This is despite the fact that inflation is currently only a little above target at 7% while core is well within at 5.2%. February’s upside surprise may have caused some concern and inspired a more hawkish outlook but the central bank may still refrain from further rate hikes in the future. There are no major data releases due next week. 


March inflation data will be the core focus next week, with the annual reading seen moderating a little further to 51.33%. That’s still far too high albeit not sufficiently so to discourage the central bank from slashing interest rates should it opt to continue, as we’ve seen over the last year or so. 


Inflation data next week will be eyed for signs of slowing, easing pressure on the central bank to continue tightening. Inflation is only a little above target and is expected to slip back to 3.2% in March but that may not be enough for the SNB, which has promised more if necessary. Markets are currently pricing in a 60% chance of another 25 basis point hike in June, with a 40% chance of that being 50.


China’s house prices rose in most cities in February, signaling the start of an upturn, and the property sector is likely to turn neutral from being a growth drag in the first half of the year and even provide a small boost in the second half.  After the lifting of pandemic restrictions, consumer services experienced a dramatic rebound. Following a year-on-year drop of 14.1% in December last year, catering and retail sales in February surged by 9.2% annually. Suppressed demand was particularly evident during the Spring Festival holiday, with domestic tourism revenue increasing by 30% compared with a year ago.

The Caixin PMIs on Monday and Thursday will be in focus next week, while bank holidays early in the week may mean activity is more muted.


Markets are currently split between a 25 basis point hike and none from the RBI next week. Slightly punchier inflation at the start of the year may swing it in favor of one final hike in the cycle although recent turmoil in the US and European banks could tip the balance the other way. Either way, the end is nigh for rate hikes in India.


Australia’s CPI annual rate for February came in at 6.8%, lower than the previous reading of 7.8%, which may support considering a pause on interest rate hikes at the April meeting. At the same time, Australian retail sales for February initially recorded a monthly rate of 0.2%, exceeding market expectations of 0.1% but showing a significant decline from the 1.8% recorded in January. 

New Zealand

Chief Economist at Reserve Bank of New Zealand Paul Conway stated that high and widespread inflation is due to solid demand exceeding supply. It is determined to bring inflation and inflation expectations back to target levels. The official cash rate (OCR) is currently slightly above the neutral level and has achieved the expected tightening effect. The RBNZ is expected to hike by 25 basis points to 5% on Wednesday.


Next week the focus will be on the Tankan large enterprises’ business conditions and the final PMI readings.


Retail sales and PMI data are the only notable economic releases next week.

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Defense Stocks Fall As Paralyzed House With No Speaker Puts US Ukraine Aid At Risk

Defense Stocks Fall As Paralyzed House With No Speaker Puts US Ukraine Aid At Risk

On Tuesday evening, Kevin McCarthy, a Republican, was voted…



Defense Stocks Fall As Paralyzed House With No Speaker Puts US Ukraine Aid At Risk

On Tuesday evening, Kevin McCarthy, a Republican, was voted out (216-to-210 vote) as the Speaker of the US House of Representatives. Hardline Republicans were angered by McCarthy's willingness to fund Ukraine's war while arguing that the money could have been better spent to protect the southern border and restore law and order in imploding major US cities. The historic ouster of the speaker has weighed on defense stocks as traders anticipate challenges for the new speaker in securing further funding for Ukraine.

"The conservative revolt that ousted McCarthy has left the chamber in a state of paralysis until a new speaker is found. That raises the chances of a US government shutdown next month and a delay in further Ukraine assistance," Bloomberg said. 

In a note to clients, Goldman's Alec Phillips said: 

All other things equal, the leadership change raises the odds of a government shutdown in November, though with several weeks left until the deadline, many outcomes are possible. With many policy disputes remaining and a $120bn difference between the parties on the preferred spending level for FY2024, it is difficult to see how Congress can pass the 12 necessary full-year spending bills before funding expires Nov. 17. The next speaker is likely to be under even more pressure to avoid passing another temporary extension—or additional funding for Ukraine—than former Speaker McCarthy had been.

On Wednesday morning, European defense stocks, such as Rheinmetall, Saab, BAE Systems, and Leonardo, slid in the cash market. Bloomberg said this was because of the oustering of McCarthy. 

German arms manufacturer Rheinmetall dropped as much as 4.8%. 

Swedish aerospace and defense company Saab fell 3%. 

British multinational arms, security, and aerospace company BAE Systems slid 3.5%

And Italian defense contractor Leonardo was down 2%. 

In the US, uncertainty over funding will likely weigh on defense stocks. The S&P 500 Aerospace & Defense Index has been running into resistance for much of this year. 

Washington's endless stream of taxpayer funds to Ukraine has benefited the military-industrial complex. Now, it appears that the pipeline of easy money is in question due to the ouster of McCarthy. 

Tyler Durden Wed, 10/04/2023 - 08:50

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Something “Big & Stupid” Is Coming…

Something "Big & Stupid" Is Coming…

Authored by James Rickards via,

With debt levels reaching all-time highs in…



Something "Big & Stupid" Is Coming...

Authored by James Rickards via,

With debt levels reaching all-time highs in major developed and developing economies, and with debt-to-GDP ratios also in record territory (not including contingent liabilities such as Social Security, health care and other entitlements, which make matters worse), it seems time to consider just how nations will deal with this problem.

The debt crisis may not be imminent, but it is unavoidable. When it happens, it may present the greatest financial disaster of all time. It’s never too soon for investors to consider the fallout.

When you issue debt in a currency you print, there’s no need for default in the sense of non-payment.

You can just have the central bank buy the debt (by printing money). This is the situation today in the U.S., Japan, the U.K. and the European Monetary Union (the countries that use the euro). They all have huge debt burdens, but they all have central banks that can simply buy the debt by printing money to avoid default.

Non-Payment Is Not the Issue

There are many bad consequences to printing money and storing up debt on central bank balance sheets, but non-payment of debt is not one of them. This is the mantra of the Modern Monetary Theorists (MMT) and their thought leader Stephanie Kelton.

In my view, MMT is garbage as economic policy, but the no-default tenet is valid. George Soros says the same thing.

That said, we are well past the point where the debt can be managed with real growth. That threshold is about a 90% debt-to-GDP ratio. A 60% debt-to-GDP ratio is even more comfortable and can be managed.

Unfortunately, the major reserve currency economies are all well past the 90% ratio as are those of many smaller countries. The U.S. ratio is 134%, an all-time high. The U.K. ratio is 102%. France is 111%. Spain is 112%. Italy is 145%.

China reports a figure of 77% but this is highly misleading because it ignores provincial debt for which Beijing is ultimately responsible. China’s actual figure is over 200% when provisional debt is included.

The champion debtor is Japan at 261%. The only major economy with a halfway respectable ratio is Germany at 67%. It’s Germany’s misfortune that they are probably responsible for the rest of Europe through the ECB Target2 system.

All these countries are headed for default. But we must consider the different ways to conduct a default.

There are three basic ways to default: non-payment, inflation and debt restructuring. You can take non-payment off the table for the reason mentioned above — you can always just print the money.

The same goes for restructuring. Inflation is clearly the best way to default. You pay back the money in nominal terms, but it’s worth very little in real terms. The creditor loses and the debtor countries win.

Nice and Easy Does It

The key to inflating away the real value of debt is to go slowly. It’s like stealing money from your mother’s purse. If she has $50 and you take $40, she’ll notice. If you take one dollar, she won’t notice. But a dollar stolen every day adds up over time.

This is what the U.S. did from 1945–1980. At the end of World War II, the U.S. debt-to-GDP ratio was 120% (about where it is now). By 1980, the ratio was 30%, which is entirely manageable.

Of course, nominal debt and GDP soared, but nominal GDP went up faster than nominal debt, so the ratio fell. If you can keep inflation around 3% and interest rates around 2% and exert fiscal discipline (which we did under Eisenhower, Kennedy, Nixon and Ford), the nominal GDP will grow faster than nominal debt (due to the Fed capping rates).

If you improve the ratio by, say, 2% per year and keep it up for 35 years (1945–1980), you can cut the ratio by 70%. That’s what we did.

The key was to do it slowly (like stealing from your mom’s purse). Almost no one noticed the decline in the real value of money until we got to the blow-off stage (1978–1981). But by then it was mission accomplished.

So there are two ways to deal with excessive debt: fiscal discipline and inflation. From 1945–1980, the U.S. did just that. If you run inflation at 3% and interest rates are 2%, you melt the real value of debt. If you exert fiscal discipline relative to GDP, you decrease the nominal debt-to-GDP ratio.

We did both.

The reason the debt-to-GDP ratio is back up to 134% is that Bush45, Obama, Trump and Biden ignored the formula. Since 2000, fiscal policy has been reckless so the formula doesn’t work. The problem isn’t really “money printing” (most of the money the Fed prints just comes back to the Fed as excess reserves, so it doesn’t do anything in the real economy).

The problem is that nominal debt is going up faster than nominal GDP, so the debt-to-GDP ratio goes up. This dynamic will be made much worse by the huge increase in interest rates over the past 18 months.

You can’t borrow your way out of a debt crisis. We have also been unable to generate much inflation. Inflation ran below 2% for almost all of the 2009–2019 recovery.

Japan Writ Large

Looking at the global picture, it’s important to understand that Japan is just a bigger version of the U.S. They don’t have fiscal discipline and they can’t get inflation to save their lives. The only way out for Japan is hyperinflation, which will come but not yet.

Japan can probably keep the debt game going for a while. The crash will come when the currency collapses. When I started in banking, USD/JPY was 400. Those were the days!

A debt crisis is on the way. Something big and stupid (in the words of the brilliant analyst Stephanie Pomboy) is coming from policymakers to address the issue. But the solution won’t be a policy and it won’t be a plan. A crisis will just happen almost overnight and seem to come from nowhere.

But it will come.

Tyler Durden Wed, 10/04/2023 - 09:45

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UK Has Run Out Of Vital Weapons To Give Ukraine

UK Has Run Out Of Vital Weapons To Give Ukraine

The hits just keep coming: a senior British military source has told The Telegraph that…



UK Has Run Out Of Vital Weapons To Give Ukraine

The hits just keep coming: a senior British military source has told The Telegraph that the UK has depleted available military equipment to give to Ukraine. Unlike the US or Poland at this point, it's not a question of funding or political will, but the British military has simply run out of vital arms and ammo to give, apparently.

"We’ve given away just about as much as we can afford," the official told the paper, explaining that all along the UK had encouraged other allies to keep arming Kiev.

Getty Images

"We will continue to source equipment to provide for Ukraine, but what they need now is things like air defense assets and artillery ammunition, and we’ve run dry on all that," the official added.

The shortage was revealed after controversial remarks given by recent Defence Secretary Ben Wallace

The comments come after Ben Wallace revealed that he asked Rishi Sunak to spend £2.3 billion more on support for Ukraine before he resigned as defence secretary last month.

Mr Wallace warned that the UK had been overtaken by Germany as the biggest European military donor to Ukraine as he called for the 50 per cent increase on funding that the UK has committed so far.

And now the public spat is yet another setback for the pro-Ukraine war cause, as The Telegraph underscores in saying, "The Western alliance has suffered a series of blows in recent days, with support for Ukraine dropped from a US stop-gap budget bill, election success for a pro-Russian party in Slovakia and rows between Poland and Kyiv over grain supplies."

These trends suggest NATO support and unity is fracturing, given also the most powerful country in the world is in a severe political fight, with the fate of future billions for Ukraine on the line. Biden still tried to 'assure' allies in phone calls on Tuesday.

And now the UK's resolve could be fracturing too. Prime Minister Rishi Sunak's reaction was that he would not waver:

Last night a senior military source told The Telegraph that the onus should not be on the UK to provide the “billions” Mr Wallace has called for.

“Giving billions more doesn’t mean giving billions of British kit,” they said, adding that the UK had a role to play in “encouraging other nations to give more money and weapons”.

...On Monday Mr Sunak was forced to insist that the UK’s commitment to Ukraine would not “waver” in the light of Mr Wallace’s comments.

The last months have seen Ukraine undertake a series of high-risk major operations against Russian-controlled Crimea, including significant strikes on the naval port of Sevastopol - including docked ships, submarines, and even the headquarters of Russia's Black Sea Fleet.

The latter strike reportedly used UK-made Storm Shadow cruise missiles. They are effective, and yet such an advanced UK-made missile is clearly in short supply, not to mention very expensive, at over $3 million per unit.

Tyler Durden Wed, 10/04/2023 - 09:30

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