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Week Ahead: More US (Headline) Inflation and Consumption, and 75 bp Hike by Bank of Canada

Last month, when the Federal Reserve hiked 75 bp instead of the 50 it had signaled, Chair Powell cited the unexpectedly strong CPI and elevated University…



Last month, when the Federal Reserve hiked 75 bp instead of the 50 it had signaled, Chair Powell cited the unexpectedly strong CPI and elevated University of Michigan consumer inflation expectations. The June CPI will be reported on July 13, and the preliminary July University of Michigan consumer inflation expectations will be reported two days later.  

This may have been a tactical error, though only one Fed official seemed to think so. Kansas City Fed President George, a hawk, favored 50 bp as the Fed had signaled. While inflation did accelerate, the core rate fell. Moreover, the Fed targets the PCE deflator, which is less sensitive to shelter and energy prices. The problem with citing a preliminary report is that the final report may be different, and indeed, it was. Instead of surging to a new high of 3.3% from 3.0% as the preliminary estimate of 5-10 year consumer inflation expectations had it, the final reading stood at 3.1%, matching the January high.  

It may never be known whether a Fed official helped prompt the press story the next day, suggesting a 75 bp hike was likely. Some bank economists had nearly immediately moved in that direction. The implied yield of the June Fed funds futures contract had a 52 bp of tightening priced the day before the CPI data. It firmed to 57 bp by the end of June 10, when the CPI and University of Michigan's surveys were published. After a good weekend think and the press reports, the market moved to price in 72 bp of tightening.  

The "expeditious" effort to bring the Fed funds rate to neutral and beyond means that the central bank will use any opportunity it gets or creates. St. Louis Fed President Bullard was candid about it. The Fed must ratify what the market does based on the central bank's guidance. Even though some pundits will cringe at the notion of any similarity between Powell and Volcker, it may be recalled that Volcker cited money supply growth to justify what he thought the Fed needed to do in any event.  

The Fed funds futures suggest the market is giving the Fed another option to hike by 75 bp when it meets next on July 27, the day before the first estimate of Q2 GDP is released. The market went into the weekend pricing around 95% confidence in a 75 bp hike. While there are clear signs that the economy is slowing, this is what the Fed is trying is achieve. So rather than deter it, the slowing confirms that the Fed is on the right course.  

Still, the fact that Powell cited the CPI gives the report added importance. The monthly increase will be 1% or higher for the third time in four months. The median forecast of a 1.1% month-over-month gain would lift the year-over-year rate to 8.8% from 8.6%. That would bolster confidence that the Fed will take another three-quarter step. It could also boost the perceived chances of a 75 bp hike in September.   The market has about a 1-in-5 chance instead of  75 instead of 50 bp currently discounted.  

Nevertheless, a change is afoot. Despite the talk of a broadening of price increases, the CPI core rate is likely to slow for the third consecutive month. The core rate is important, not because it excludes volatile food and energy prices as some pundits have it, but because, as Powell noted, it is a better predictor of future inflation. That is to say that over time, the headline converges with the core rate, not the other way around. Market-based inflation expectations, measured by the 10-year breakeven, fell to new lows for the year in late June, near 2.3%, and have been consolidating below 2.4% recently. The two-year break even, which had approached 4.5% the day before the FOMC meeting concluded, tumbled to almost 3.05% in early July and finished a little above 3.20% last week. 

A one or two-tenths rise in the 5-10-year inflation forecast in the University of Michigan's survey does not seem as important as the general trend, and it has been flat though elevated 2.9%-3.1% for nearly a year. Instead, what appears more notable is that the reading of consumer sentiment, which was revised in the final June reading to 50, is associated with past recessions. Sentiment is not just a mental state, but that mental state is shaped by what one experiences directly or indirectly.  

The US also reports retail sales, industrial production, and business inventories. Outside of the headline impact, the data points are essential as economists fine-tune estimates for Q2 GDP. This is particularly important because there is a divergence between two historically reasonably good estimates. The first is the Atlanta Fed's GDP tracker, which sees the economy contracting by 1.2%. The other is the median forecast in the Bloomberg survey. This appears slightly closer to the actual first official estimate than the Atlanta Fed's tracker. The median in the Bloomberg survey is 3.0%, but this may overstate the case. What Bloomberg calls a weighted average is at 1.8%, and the mean is 2.8%. The eight forecasts that have been updated this month have an average forecast of 1.55%. Notably, only one of the 60 forecasts projects an economic contraction in Q2. 

On July 15, China will report monthly June data (retail sales, investment, surveyed jobless rate) and Q2 GDP. Bloomberg apparently conducts two surveys. The monthly poll had 24 forecasts, and the median forecast was for a contraction of 1.5% quarter-over-quarter after a 1.3% expansion in Q1. The other survey, whose results are posted on the economic calendar page, has 10 responses has a median forecast of -2.3%. Perhaps the exact print does not matter.  

The takeaway is that the zero-Covid policy means that the official target of around 5.5% growth this year will not be met. The multilaterals (IMF, World Bank, and the OECD) estimate Chinese growth at 4.3%-4.4% this year. The market is less sanguine. That said, the stimulative efforts and the easing of the lockdowns suggest the possibility of a robust recovery in H2. Of course, with a relatively less effective vaccine and less fully vaccinated people (especially 60 and older), there is the risk of further economic disruptions.

China could reduce interest rates or cut reserve requirements, but its revealed preferences show a cut in the medium-term lending facility (set on July 15) is unlikely. It trimmed the rate by 10 bp in January, which was the first cut since the pandemic moves in early 2020 when it cut the rate by 30 bp. No change in the medium-term lending facility means that the loan prime rates, set on July 20, will also be kept steady.  

The UK reports May GDP on July 13. The monthly GDP unexpectedly contracted in March and April (-0.1% and -0.3%, respectively) and was stagnant in February. The economy has not grown since January, and that was after a 0.2% contraction in December. While we have noted that economists do not expect the US economy to have contracted in Q2, they are less sanguine about the UK. The median forecast (Bloomberg) is for a 0.1% contraction. A quarter of 36 projections have not been updated since mid-May. The average of the last five updates (June 30-July 8wir) estimates that the UK economy shrank by 0.4% in Q2.  

Just as the Fed hiked rates while the GDP was falling in Q1, the market is convinced that the Bank of England will also look through the possible contraction. A quarter-point hike at the August 4 meeting is a foregone conclusion, and the swaps market leans heavily toward a 50 bp move instead (~83%). UK politics may make for good theater but have not been much of a market factor. In the foreign exchange market, sterling saw its recent slide against the dollar extended and two-year lows were recorded (~$1.1875). However, as the cabinet resignations mounted in the first half of last week, sterling rose against the euro and reached its best level in nearly three weeks. It regained some footing in the second half of the week against the dollar.  The $1.2100 area may offer the first hurdle. 

Australia reports June employment figures early on July 14. The Australian labor market is robust: record-low unemployment and record-high participation. It has created an average of almost 61.5k full-time jobs a month through May this year. In the same period last year, the average was 45.5k, and in 2019 it was less than 19k.   After the 50 bp hike on July 5, the market leans slightly (~55%) toward another half-point move at the next meeting on August 2.  

While the RBA and the BOE do not meet until next month, the Bank of Canada meets next week. The swaps market has a fully discounted 75 bp hike on July 13. It would lift the target rate to 2.25%. The market favors a 50 bp hike at the following meeting but has about a 1-in-4 chance of another 75 bp move instead. The year-end rate is seen around  3.50%. The treatment of the Canadian dollar as a risk asset (high and reasonably stable correlation in recent months with the S&P 500, ~0.70) remains dominant. However, we note that the two other factors in our informal model, namely commodity (oil as a proxy) and rate differentials (two-year spreads as a proxy), have also increased correlations. The correlation between changes in the exchange rate and the two-year differential is the highest in five months (~0.38). The changes in the exchange rate and WTI prices increased in May and stabilized in June and into July (~0.43).

The Reserve Bank of New Zealand is widely expected to hike its cash target rate by 50 bp on July 13. It will then stand at 2.50%. With three more meetings after it this year, the swaps market has another 140 bp of tightening priced into the curve. According to current pricing, that could prove to be the peak, even though CPI is running near 7%. This year, the New Zealand dollar's 9.4% decline makes it the worst-performing in the dollar bloc. The Australian dollar has fallen almost 5.7%, and the Canadian dollar is off slightly less than 2.5%.  


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How They Convinced Trump To Lock Down

How They Convinced Trump To Lock Down

Authored by Jeffrey A. Tucker via Brownstone Institute,

An enduring mystery for three years is how…



How They Convinced Trump To Lock Down

Authored by Jeffrey A. Tucker via Brownstone Institute,

An enduring mystery for three years is how Donald Trump came to be the president who shut down American society for what turned out to be a manageable respiratory virus, setting off an unspeakable crisis with waves of destructive fallout that continue to this day. 

Let’s review the timeline and offer some well-founded speculations about what happened. 

On March 9, 2020, Trump was still of the opinion that the virus could be handled by normal means. 

Two days later, he changed his tune. He was ready to use the full power of the federal government in a war on the virus. 

What changed? Deborah Birx reports in her book that Trump had a friend die in a New York hospital and this is what shifted his opinion. Jared Kushner reports that he simply listened to reason. Mike Pence says he was persuaded that his staff would respect him more. No question (and based on all existing reports) that he found himself surrounded by “trusted advisors” amounting to about 5 or so people (including Mike Pence and Pfizer board member Scott Gottlieb)

It was only a week later when Trump issued the edict to close all “indoor and outdoor venues where people congregate,” initiating the biggest regime change in US history that flew in the face of all rights and liberties Americans had previously taken for granted. It was the ultimate in political triangulation: as John F. Kennedy cut taxes, Nixon opened China, and Clinton reformed welfare, Trump shut down the economy he promised to revive. This action confounded critics on all sides. 

A month later, Trump said his decision to have “turned off” the economy saved millions of lives, later even claiming to have saved billions. He has yet to admit error. 

Even as late as June 23rd of that year, Trump was demanding credit for having followed all of Fauci’s recommendations. Why do they love him and hate me, he wanted to know. 

Something about this story has never really added up. How could one person have been so persuaded by a handful of others such as Fauci, Birx, Pence, and Kushner and his friends? He surely had other sources of information – some other scenario or intelligence – that fed into his disastrous decision. 

In one version of events, his advisors simply pointed to the supposed success of Xi Jinping in enacting lockdowns in Wuhan, which the World Health Organization claimed had stopped infections and brought the virus under control. Perhaps his advisors flattered Trump with the observation that he is at least as great as the president of China so he should be bold and enact the same policies here. 

One problem with this scenario is timing. The Oval Office meetings that preceded his March 16, 2020, edict took place the weekend of the 14th and 15th, Friday and Saturday. It was already clear by the 11th that Trump was ready for lockdowns. This was the same day as Fauci’s deliberately misleading testimony to the House Oversight Committee in which he rattled the room with predictions of Hollywood-style carnage. 

On the 12th, Trump shut all travel from Europe, the UK, and Australia, causing huge human pile-ups at international airports. On the 13th, the Department of Health and Human Services issued a classified document that transferred control of pandemic policy from the CDC to the National Security Council and eventually the Department of Homeland Security. By the time that Trump met with Fauci and Birx in that legendary weekend, the country was already under quasi-martial law. 

Isolating the date in the trajectory here, it is apparent that whatever happened to change Trump occurred on March 10, 2020, the day after his Tweet saying there should be no shutdowns and one day before Fauci’s testimony. 

That something very likely revolves around the most substantial discovery we’ve made in three years of investigations. It was Debbie Lerman who first cracked the code: Covid policy was forged not by the public-health bureaucracies but by the national-security sector of the administrative state. She has further explained that this occurred because of two critical features of the response: 1) the belief that this virus came from a lab leak, and 2) the vaccine was the biosecurity countermeasure pushed by the same people as the fix. 

Knowing this, we gain greater insight into 1) why Trump changed his mind, 2) why he has never explained this momentous decision and otherwise completely avoids the topic, and 3) why it has been so unbearably difficult to find out any information about these mysterious few days other than the pablum served up in books designed to earn royalties for authors like Birx, Pence, and Kushner. 

Based on a number of second-hand reports, all available clues we have assembled, and the context of the times, the following scenario seems most likely. On March 10, and in response to Trump’s dismissive tweet the day before, some trusted sources within and around the National Security Council (Matthew Pottinger and Michael Callahan, for example), and probably involving some from military command and others, came to Trump to let him know a highly classified secret. 

Imagine a scene from Get Smart with the Cone of Silence, for example. These are the events in the life of statecraft that infuse powerful people with a sense of their personal awesomeness. The fate of all of society rests on their shoulders and the decisions they make at this point. Of course they are sworn to intense secrecy following the great reveal. 

The revelation was that the virus was not a textbook virus but something far more threatening and terrible. It came from a research lab in Wuhan. It might in fact be a bioweapon. This is why Xi had to do extreme things to protect his people. The US should do the same, they said, and there is a fix available too and it is being carefully guarded by the military. 

It seems that the virus had already been mapped in order to make a vaccine to protect the population. Thanks to 20 years of research on mRNA platforms, they told him,  this vaccine can be rolled out in months, not years. That means that Trump can lock down and distribute vaccines to save everyone from the China virus, all in time for the election. Doing this would not only assure his reelection but guarantee that he would go down in history as one of the greatest US presidents of all time. 

This meeting might only have lasted an hour or two – and might have included a parade of people with the highest-level security clearances – but it was enough to convince Trump. After all, he had battled China for two previous years, imposing tariffs and making all sorts of threats. It was easy to believe at that point that China might have initiated biological warfare as retaliation. That’s why he made the decision to use all the power of the presidency to push a lockdown under emergency rule. 

To be sure, the Constitution does not allow him to override the discretion of the states but with the weight of the office complete with enough funding and persuasion, he could make it happen. And thus did he make the fateful decision that not only wrecked his presidency but the country too, imposing harms that will last a generation. 

It only took a few weeks for Trump to become suspicious about what happened. For weeks and months, he toggled between believing that he was tricked and believing that he did the right thing. He had already approved another 30 days of lockdowns and even inveighed against Georgia and later Florida for opening. He went so far as to claim that no state could open without his approval. 

He did not fully change his mind until August, when Scott Atlas revealed the whole con to him. 

There is another fascinating feature to this entirely plausible scenario. Even as Trump’s advisors were telling him that this could be a bioweapon leaked from the lab in China, we had Anthony Fauci and his cronies going to great lengths to deny it was a lab leak (even if they believed that it was). This created an interesting situation. The NIH and those surrounding Fauci were publicly insisting that the virus was of zoonotic origin, even as Trump’s circle was telling the president that it should be regarded as a bioweapon. 

Fauci belonged to both camps, which suggests that Trump very likely knew of Fauci’s deception all along: the “noble lie” to protect the public from knowing the truth. Trump had to be fine with that. 

Gradually following the lockdown edicts and the takeover by the Department of Homeland Security, in cooperation with a very hostile CDC, Trump lost power and influence over his own government, which is why his later Tweets urging a reopening fell on deaf ears. To top it off, the vaccine failed to arrive in time for the election. This is because Fauci himself delayed the rollout until after the election, claiming that the trials were not racially diverse enough. Thus Trump’s gambit completely failed, despite all the promises of those around him that it was a guaranteed way to win reelection.

To be sure, this scenario cannot be proven because the entire event – certainly the most dramatic political move in at least a generation and one with unspeakable costs for the country – remains cloaked in secrecy. Not even Senator Rand Paul can get the information he needs because it remains classified. If anyone thinks the Biden approval of releasing documents will show what we need, that person is naive. Still, the above scenario fits all available facts and it is confirmed by second-hand reports from inside the White House. 

It’s enough for a great movie or a play of Shakespearean levels of tragedy. And to this day, none of the main players are speaking openly about it. 

Jeffrey A. Tucker is Founder and President of the Brownstone Institute. He is also Senior Economics Columnist for Epoch Times, author of 10 books, including Liberty or Lockdown, and thousands of articles in the scholarly and popular press. He speaks widely on topics of economics, technology, social philosophy, and culture.

Tyler Durden Fri, 03/24/2023 - 17:40

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Spread & Containment

Could the common cold give children immunity against COVID? Our research offers clues

Certain immune cells acquired from a coronavirus that causes the common cold appear to react to COVID – but more so in children that adults.

Why children are less likely to become severely ill with COVID compared with adults is not clear. Some have suggested that it might be because children are less likely to have diseases, such as type 2 diabetes and high blood pressure, that are known to be linked to more severe COVID. Others have suggested that it could be because of a difference in ACE2 receptors in children – ACE2 receptors being the route through which the virus enters our cells.

Some scientists have also suggested that children may have a higher level of existing immunity to COVID compared with adults. In particular, this immunity is thought to come from memory T cells (immune cells that help your body remember invading germs and destroy them) generated by common colds – some of which are caused by coronaviruses.

We put this theory to the test in a recent study. We found that T cells previously activated by a coronavirus that causes the common cold recognise SARS-CoV-2 (the virus that causes COVID) in children. And these responses declined with age.

Read more: Does COVID really damage your immune system and make you more vulnerable to infections? The evidence is lacking

Early in the pandemic, scientists observed the presence of memory T cells able to recognise SARS-CoV-2 in people who had never been exposed to the virus. Such cells are often called cross-reactive T cells, as they stem from past infections due to pathogens other than SARS-CoV-2. Research has suggested these cells may provide some protection against COVID, and even enhance responses to COVID vaccines.

What we did

We used blood samples from children, sampled at age two and then again at age six, before the pandemic. We also included adults, none of whom had previously been infected with SARS-CoV-2.

In these blood samples, we looked for T cells specific to one of the coronaviruses that causes the common cold (called OC43) and for T cells that reacted against SARS-CoV-2.

We used an advanced technique called high-dimensional flow cytometry, which enabled us to identify T cells and characterise their state in significant detail. In particular, we looked at T cells’ reactivity against OC43 and SARS-CoV-2.

We found SARS-CoV-2 cross-reactive T cells were closely linked to the frequency of OC43-specific memory T cells, which was higher in children than in adults. The cross-reactive T cell response was evident in two-year-olds, strongest at age six, and then subsequently became weaker with advancing age.

We don’t know for sure if the presence of these T cells translates to protection against COVID, or how much. But this existing immunity, which appears to be especially potent in early life, could go some way to explaining why children tend to fare better than adults with a COVID infection.

A little boy sleeps with a teddy bear.
Children are less likely to get very sick from COVID than adults. Dragana Gordic/Shutterstock

Some limitations

Our study is based on samples from adults (26-83 years old) and children at age two and six. We didn’t analyse samples from children of other ages, which will be important to further understand age differences, especially considering that the mortality rate from COVID in children is lowest from ages five to nine, and higher in younger children. We also didn’t have samples from teenagers or adults younger than 26.

In addition, our study investigated T cells circulating in the blood. But immune cells are also found in other parts of the body. It remains to be determined whether the age differences we observed in our study would be similar in samples from the lower respiratory tract or tonsil tissue, for example, in which T cells reactive against SARS-CoV-2 have also been detected in adults who haven’t been exposed to the virus.

Read more: Colds, flu and COVID: how diet and lifestyle can boost your immune system

Nonetheless, this study provides new insights into T cells in the context of COVID in children and adults. Advancing our understanding of memory T cell development and maturation could help guide future vaccines and therapies.

Marion Humbert received funding from KI Foundation for Virus Research (Karolinsk Institutet, Sweden) and Läkare mot AIDS (Sweden).

Annika Karlsson receives funding from the Swedish Research Council (Dnr 2020-02033), CIMED project grant, senior (Dnr: 20190495), and Karolinska Institutet (Dnr: 2019-00931 and 2020-01599).

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Where there’s smoke, there’s thiocyanate: McMaster researchers find tobacco users in Canada are exposed to higher levels of cyanide than other regions

HAMILTON, ON – Mar 24, 2024 – Tobacco users in Canada are exposed to higher levels of cyanide than smokers in lower-income nations, according to a…



HAMILTON, ON – Mar 24, 2024 Tobacco users in Canada are exposed to higher levels of cyanide than smokers in lower-income nations, according to a large-scale population health study from McMaster University.

Credit: McMaster University

HAMILTON, ON – Mar 24, 2024 Tobacco users in Canada are exposed to higher levels of cyanide than smokers in lower-income nations, according to a large-scale population health study from McMaster University.

Scientists made the discovery while investigating the molecule thiocyanate – a detoxified metabolite excreted by the body after cyanide inhalation. It was measured as a urinary biomarker of tobacco use in a study of self-reported smokers and non-smokers from 14 countries of varying socioeconomic status.

“We expected the urinary thiocyanate levels would be similar across regions and reflect primarily smoking intensity. However, we noticed significant elevation of thiocyanate in smokers from high-income countries even after adjusting for differences in the number of cigarettes smoked per day,” says Philip Britz-McKibbin, co-author of the study and a professor of chemistry and chemical biology at McMaster.

Tobacco-related illness remains the leading cause of preventable illness and premature death in Canada, contributing to approximately 48,000 deaths annually. According to researchers, the findings could be caused by the type of cigarettes smoked in high-income countries like Canada.

“The cigarettes commonly consumed in Canada are highly engineered products with lower tar and nicotine content to imply they’re less harmful. Heavy smokers with nicotine dependence compensate by smoking more aggressively with more frequent and deeper inhalations that may elicit more harm, such as greater exposure to the respiratory and cardiotoxin, cyanide.”

Smoking rates in Canada have declined from 26 per cent in 2001 to 13 per cent in 2020. But participation in smoking cessation programs has declined during the COVID-19 pandemic, leading to concern about a potential uptick in smoking rates, including cannabis use and a plethora of vaping of products popular among young adults.

Researchers say urinary thiocyanate can serve as a robust biomarker of the harms of tobacco smoke that will aid future research on the global tobacco picture, since most smokers now reside in developing countries. As smoking rates have decreased here in Canada, at-risk groups like youth and pregnant women have been prone to underreport their tobacco use when surveyed, making a reliable biomarker more valuable.

“Historically assessing tobacco behaviors have relied on questionnaires that are prone to bias, especially when comparing different countries and local cultures. The idea is to find robust methods that can quantify recent tobacco smoke exposure more reliably and objectively, which may better predict disease risk and prioritize interventions for smoking cessation.” says Britz-Mckibbin.

The study was published in the latest issue of Nicotine and Tobacco Research and received funding from the Natural Sciences and Engineering Research Council of Canada, Genome Canada, the Canada Foundation for Innovation, Hamilton Health Sciences New Investigator Fund, and an internal grant from the Population Health Research Institute.




For more information please contact:

Matt Innes-Leroux

Media Relations

McMaster University

647-921-5461 (c)


Photos of Philip Britz-McKibbin can be found here

Credit: McMaster University

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