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Week Ahead: Q3 US GDP to Underscore Divergence, while ECB and Bank of Canada Stand Pat

The US dollar was mixed last week.
One would have thought, based on the geopolitical tensions, the stronger than
expected US economic data resulted in…



The US dollar was mixed last week. One would have thought, based on the geopolitical tensions, the stronger than expected US economic data resulted in upward revisions to Q3 GDP forecasts and a more than 30 bp surge in US 10-year yields, the greenback would have performed better. The Dollar Index fell by almomst 0.5% last week, its biggest weekly loss in three months. It is down so far this month. On the other hand, gold rallied 2.5% to extend its gain to about 8% since the Hamas attack. December WTI's 2% advance brings its surge to about 8.2% in the same period, or about $6.75 a barrel.

The heightened geopolitical uncertainty provides a fragile backdrop for the global capital markets. The market is on guard for possible Bank of Japan intervention directly in the foreign exchange market for the first time since last October. The surge in interest rates was stemmed ahead of the weekend, helped perhaps by the sharp losses in the largest equity markets and the broad risk-off. In addition to these forces shaping the investment climate, three events that highlight the week ahead. First, the ECB meets on October 26. There is practically no chance of a change in policy, but the press conference often elicits a market response. But shortly before President Lagarde's press conference, the US release its first estimate of Q3 GDP. It is expected to be unusually and unsustainably strong, with the median in Bloomberg's survey creeping up to 4.3%, led by strong gains in consumption. Several hours later, and ahead of the weekend, Japan's October Tokyo CPI will be released. The headline is expected to slip slightly lower, but the core rate, which the Bank of Japan targets, may have held steady at 2.5%.  

United States:  The release of the first estimate of Q3 US GDP on October 26 is the data highlight of the week in the US. Other observers may place more emphasis on the measure of inflation the Fed targets, the PCE deflator, but we think that CPI steals most of its thunder and the personal income and consumption data will be embedded in the GDP estimate. That said, due to different methodologies, the PCE deflator can tick down to 3.4% on the headline year-over-year rate and the core ease to 3.7% from 3.9%. Last September, the headline rate stood at 6.6% and the core was at 5.5%. 

Market estimates for Q3 GDP crept higher in recent weeks, and last week's retail sales, industrial output and business inventory reports were all stronger than expected. and the median forecast in Bloomberg's latest survey is for a 4.3% annualized pace. It is still below the Atlanta's Fed GDP tracker of 5.4% but would still be the largest rise in US output since Q4 21. Growth was likely led by the US consumer, who seemed to have retreated in Q2 (0.8% rise at an annualized rate) and went on a spree in Q3 (~3.9%?). Government spending likely slowed to about half the Q2 pace of 3.3% annualized. Private investment is also expected to have slowed to less than 3% from a little above 5% in Q2. Consumption, government spending and private investment are expected to slow here in Q4. October's preliminary PMI may pose headline risk but there is nothing in the composite output figures in recent months, including September 50.2 reading that gave a hint about the strength of US GDP. Indeed, the (output) composite averaged 50.8 in Q3 and 53.6 in Q2. It was below the 50 boom/bust level in Q3 22-Q1 23. 

Despite the series of stronger economic data and the rise in US yields, the Dollar Index could not find its mojo and fell for the second time in three weeks. The high for the year was set on October 3 near 107.35, but last week struggled near 106.65. The price action and momentum indicators suggest the downside correction may not be over. The five-day moving average (~106.30) slipped below the 20-day moving average (~106.35) for the first time since late July. Still, a break of the recent lows near 105.50 is needed to bolster the chances that a more durable top is in place.

Eurozone:  The European Central Bank meets on October 26. There is practically no chance that it hikes the deposit rate from 4.0% after hiking in September. Although some ECB officials try to convince the market that it might not be done, with poor economic data and softening inflation, the market has not been persuaded. In fact, the swaps market is discounting almost a 90% chance of a hike that the ECB is done. It has almost 2/3 of the first cut discounted by the end of H1 24, which dovetails with Bloomberg's latest monthly survey of economists, where 60% see a cut by the end next June. The flash PMI may draw some attention after the (output) composite snapped a four-month decline in September, rising to 47.2 (from 46.7). It has been below 50 since June's report. Last October, the composite was at 47.3, where it bottomed in 2022. 

The euro fell for 11 consecutive weeks through the end of September but has steadied here in October. It has risen in two of the past three weeks but is net-net little changed having settled last month slightly below $1.0575. The momentum indicators are constructive, and the five-day moving average (~$1.0565) has moved above the 20-day moving average (~$1.0555) for the first time since late July. But there seems to be little enthusiasm for the upside and sideways movement could re-set the momentum indicators. A move above $1.0640-50 is needed to reanimate the euro.

Japan:   One would not know by looking at Japan's (output) composite PMI that the economy is likely to have contracted in Q3. The quarterly average of the composite has been above the 50 boom/bust level since Q1 22. The three-month average was at 52.3 in September. It averaged 50.2 in the quarter through September 2022. Prime Minister Kishida is putting together a supplemental budget, some of which will be funded from previously authorized but unspent funds. Tax cuts to encourage investment in what are regarded as strategic sectors, like chips, AI, and electric batteries are likely to be included. Tokyo's October CPI is the more important data point. Although the weights are slightly different than the national measure, the Tokyo CPI is a robust proxy. Tokyo's headline CPI peaked in January at 4.4% year-over-year. It had fallen to 2.8% in September. Another small decline looks likely. The core rate, which excludes fresh food, has fallen from 4.3% in January to 2.5% in September. Economists expect it to be unchanged in October. The most stubborn measure excludes fresh food and energy. It peaked in July and August at 4.0% and slipped to 3.9% in September. The median forecast tin Bloomberg's survey is for a decline to 3.7%. 

Rather than another adjustment of the upper-end of the JGB band or a change in rates (end of the month meeting), the market is on-guard for unscheduled bond purchases and/or intervention in the foreign exchange market. The dollar could not get closer to the JPY150 level than it did before the weekend (about one ten-thousandth of a cent) away. The combination of speculation that BOJ could defend it in thin trading early Monday, the optionality struck there, the backing off of US rates, and the geopolitical uncertainty headed into the weekend seem to deter operators. Still, when everything is said and done, the dollar remains in the range set on October 3 (~JPY147.45-JPY150.15). One-month implied volatility slipped in the first half of last week, and although it recovered in the last couple of sessions, it finished slightly lower on the week (~8.3%). Actual or historic one-month volatility is near 5.2%, the lowest this year. 

China:  The economic calendar is lightnext week. This past week's data showed somewhat stronger growth than many expected, but more stimulative measures are likely before the year's over. China's 10-year discount to the US widened to nearly 230 bp last week. It finished last year around 105 bp. China's CSI 300 was among the worst performing large markets last week, falling by more than 4% to bring the year-to-date loss to about 9.3%. The Chinese yuan was slightly softer against the dollar. It has fallen in seven of the ten sessions since returning from the extended holiday. The dollar finished last week near CNY7.3170.  Beijing may get some help from Japan if the Bank of Japan intervenes and succeeds in knocking the dollar down. However, we suspect that without improved macro considerations or an escalation of Beijing's efforts, a pullback in the dollar will be bought.

Canada:  The softer than expected September CPI last week takes pressure off the central bank at this week's meeting. The swap market was discounting a nearly 43% chance of a hike at this week's meeting on the eve of the CPI report, which was the most in about two-and-a-half weeks. After the CPI, the odds fell to a little less than 15%. The odds of a hike before the end of year (the last meeting of the year is on December 6) fell to around 45% from nearly 65%. Although it may feel like it to Canadian dollar bulls, but the Canadian dollar is not so much out of favor as the greenback is in favor. In fact, over the past three months, the Canadian dollar has fared the second best against the US dollar. Only the Swiss franc has performed better. The Loonie has depreciated by about 3.9%, while the franc has fallen almost 2.9%. Still, Canada's interest rates are below similar US rates, and the Toronto stock market has under-performed. The greenback traded roughly between CAD1.3605 and CAD1.3740 last week and settled around 0.3% on the week slightly above CAD1.3700. A break of CAD1.3600 and ideally the recent lows near CAD1.3570-80, is needed to boost the chances that a high is in place.

United Kingdom:  The UK's labor market is softening. The number of payrolled employees fell for three consecutive months through September and wage growth is moderating, especially in the private sector. September inflation was a bit sticky, unchanged at 6.7%, but UK's CPI set to fall sharply this month when last October's 2% jump drops out of the 12-month comparison. Inflation, though, is still pinching consumers and September retail sales fell for the second time in Q3. The UK sees more employment data (claimant count and ILO unemployment measure) and the preliminary PMI, but they are unlikely to persuade the market that the Bank of England will hike rates at the November 2 meeting. With the cumulative effect of past tightening not worked its way fully through the British economy, and near stagnant economic conditions, the bar to another hike seems high. The odds in the swaps market have trended gently lower for the past few weeks and now are near 20%, half of what it was in late September.

Sterling was little changed last week, but the trading range became somewhat clearer. The $1.2220 area marks the nearby top and the $1.2090 held after being tested twice. The sideways-to-slightly lower price action saw the five-day moving average whipsaw around the 20-day moving average but finished the week below it (~$1.2170 vs. $1.2180). Even a move above $1.2220 may not be sufficient to signal an important breakout. For that, a move above $1.2240-50 may be required. 

Australia: The new central bank governor Bullock's first speech offered some explanation about the resilience of price pressures. Both the swap and futures market continue price in a bias toward a rate hike, not so much at the November 7 meeting but after that. A quarter point hike is nearly fully discounted by the end of Q1 24. Following last week's disappointing employment report, which revealed a nearly 40k loss of full-time jobs to bring the Q3 drop to around 53k and offsets a rise of a similar magnitude in Q2, Australia reports Q3 CPI. It is expected to slow to 5.2% from 6.0% year-over-year. The underlying measures are also expected to moderate to an average of 5.0% from 5.7% in Q2. The Australian dollar's recovery from successfully testing the year's low set earlier this month near $0.6285 stalled in front of $0.6400. It slipped back through $.6300 where bids continued to lurk. It needs to re-establish a foothold above $0.6400 to remove the downside pressure. A break of the $0.6270 warns to a return to last October's low, another cent lower. 

Mexico: Mexico's inflation has been practically halved since peaking last August near 8.8%. The bi-weekly reading that will be updated on October 24 stood at almost 4.50% at the end of September. Progress to return to below 4% is slowing, but the central bank has clearly signaled its intent to keep the target rate at 11.25% for some time. The economy appears to be growing at around a 3.5%-pace and that is what the IGAE report is a reasonable proxy of, and it will be reported the day before the CPI. The first estimate for Q3 GDP is due on October 31. Mexico will report September trade figures on October 27. Mexico runs a trade deficit, but it is small and manageable. The trade deficit this year through is about $8.6 bln. In the first eight months of last year, the deficit was almost $24.75 bln. Through August, Mexico's exports have risen by about 6%. In this context, the $41.5 bln of worker remittances this year through August are remarkable. The dollar approached the seven-month high set against the peso earlier this month (~MXN18.4860) ahead of the weekend, and it held and hte greenback reversed low to MXN18.18 before stablizing.  Provided MXN18.50 area holds, it can test to the MXN17.75-80 area. Otherwise, the risk is of a move toward MXN18.80 and possibly the MXN19.00 area. Recall that the high set amid the bank stress in March was near MXN19.23. 



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Beloved mall retailer files Chapter 7 bankruptcy, will liquidate

The struggling chain has given up the fight and will close hundreds of stores around the world.



It has been a brutal period for several popular retailers. The fallout from the covid pandemic and a challenging economic environment have pushed numerous chains into bankruptcy with Tuesday Morning, Christmas Tree Shops, and Bed Bath & Beyond all moving from Chapter 11 to Chapter 7 bankruptcy liquidation.

In all three of those cases, the companies faced clear financial pressures that led to inventory problems and vendors demanding faster, or even upfront payment. That creates a sort of inevitability.

Related: Beloved retailer finds life after bankruptcy, new famous owner

When a retailer faces financial pressure it sets off a cycle where vendors become wary of selling them items. That leads to barren shelves and no ability for the chain to sell its way out of its financial problems. 

Once that happens bankruptcy generally becomes the only option. Sometimes that means a Chapter 11 filing which gives the company a chance to negotiate with its creditors. In some cases, deals can be worked out where vendors extend longer terms or even forgive some debts, and banks offer an extension of loan terms.

In other cases, new funding can be secured which assuages vendor concerns or the company might be taken over by its vendors. Sometimes, as was the case with David's Bridal, a new owner steps in, adds new money, and makes deals with creditors in order to give the company a new lease on life.

It's rare that a retailer moves directly into Chapter 7 bankruptcy and decides to liquidate without trying to find a new source of funding.

Mall traffic has varied depending upon the type of mall.

Image source: Getty Images

The Body Shop has bad news for customers  

The Body Shop has been in a very public fight for survival. Fears began when the company closed half of its locations in the United Kingdom. That was followed by a bankruptcy-style filing in Canada and an abrupt closure of its U.S. stores on March 4.

"The Canadian subsidiary of the global beauty and cosmetics brand announced it has started restructuring proceedings by filing a Notice of Intention (NOI) to Make a Proposal pursuant to the Bankruptcy and Insolvency Act (Canada). In the same release, the company said that, as of March 1, 2024, The Body Shop US Limited has ceased operations," Chain Store Age reported.

A message on the company's U.S. website shared a simple message that does not appear to be the entire story.

"We're currently undergoing planned maintenance, but don't worry we're due to be back online soon."

That same message is still on the company's website, but a new filing makes it clear that the site is not down for maintenance, it's down for good.

The Body Shop files for Chapter 7 bankruptcy

While the future appeared bleak for The Body Shop, fans of the brand held out hope that a savior would step in. That's not going to be the case. 

The Body Shop filed for Chapter 7 bankruptcy in the United States.

"The US arm of the ethical cosmetics group has ceased trading at its 50 outlets. On Saturday (March 9), it filed for Chapter 7 insolvency, under which assets are sold off to clear debts, putting about 400 jobs at risk including those in a distribution center that still holds millions of dollars worth of stock," The Guardian reported.

After its closure in the United States, the survival of the brand remains very much in doubt. About half of the chain's stores in the United Kingdom remain open along with its Australian stores. 

The future of those stores remains very much in doubt and the chain has shared that it needs new funding in order for them to continue operating.

The Body Shop did not respond to a request for comment from TheStreet.   

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Are Voters Recoiling Against Disorder?

Are Voters Recoiling Against Disorder?

Authored by Michael Barone via The Epoch Times (emphasis ours),

The headlines coming out of the Super…



Are Voters Recoiling Against Disorder?

Authored by Michael Barone via The Epoch Times (emphasis ours),

The headlines coming out of the Super Tuesday primaries have got it right. Barring cataclysmic changes, Donald Trump and Joe Biden will be the Republican and Democratic nominees for president in 2024.

(Left) President Joe Biden delivers remarks on canceling student debt at Culver City Julian Dixon Library in Culver City, Calif., on Feb. 21, 2024. (Right) Republican presidential candidate and former U.S. President Donald Trump stands on stage during a campaign event at Big League Dreams Las Vegas in Las Vegas, Nev., on Jan. 27, 2024. (Mario Tama/Getty Images; David Becker/Getty Images)

With Nikki Haley’s withdrawal, there will be no more significantly contested primaries or caucuses—the earliest both parties’ races have been over since something like the current primary-dominated system was put in place in 1972.

The primary results have spotlighted some of both nominees’ weaknesses.

Donald Trump lost high-income, high-educated constituencies, including the entire metro area—aka the Swamp. Many but by no means all Haley votes there were cast by Biden Democrats. Mr. Trump can’t afford to lose too many of the others in target states like Pennsylvania and Michigan.

Majorities and large minorities of voters in overwhelmingly Latino counties in Texas’s Rio Grande Valley and some in Houston voted against Joe Biden, and even more against Senate nominee Rep. Colin Allred (D-Texas).

Returns from Hispanic precincts in New Hampshire and Massachusetts show the same thing. Mr. Biden can’t afford to lose too many Latino votes in target states like Arizona and Georgia.

When Mr. Trump rode down that escalator in 2015, commentators assumed he’d repel Latinos. Instead, Latino voters nationally, and especially the closest eyewitnesses of Biden’s open-border policy, have been trending heavily Republican.

High-income liberal Democrats may sport lawn signs proclaiming, “In this house, we believe ... no human is illegal.” The logical consequence of that belief is an open border. But modest-income folks in border counties know that flows of illegal immigrants result in disorder, disease, and crime.

There is plenty of impatience with increased disorder in election returns below the presidential level. Consider Los Angeles County, America’s largest county, with nearly 10 million people, more people than 40 of the 50 states. It voted 71 percent for Mr. Biden in 2020.

Current returns show county District Attorney George Gascon winning only 21 percent of the vote in the nonpartisan primary. He’ll apparently face Republican Nathan Hochman, a critic of his liberal policies, in November.

Gascon, elected after the May 2020 death of counterfeit-passing suspect George Floyd in Minneapolis, is one of many county prosecutors supported by billionaire George Soros. His policies include not charging juveniles as adults, not seeking higher penalties for gang membership or use of firearms, and bringing fewer misdemeanor cases.

The predictable result has been increased car thefts, burglaries, and personal robberies. Some 120 assistant district attorneys have left the office, and there’s a backlog of 10,000 unprosecuted cases.

More than a dozen other Soros-backed and similarly liberal prosecutors have faced strong opposition or have left office.

St. Louis prosecutor Kim Gardner resigned last May amid lawsuits seeking her removal, Milwaukee’s John Chisholm retired in January, and Baltimore’s Marilyn Mosby was defeated in July 2022 and convicted of perjury in September 2023. Last November, Loudoun County, Virginia, voters (62 percent Biden) ousted liberal Buta Biberaj, who declined to prosecute a transgender student for assault, and in June 2022 voters in San Francisco (85 percent Biden) recalled famed radical Chesa Boudin.

Similarly, this Tuesday, voters in San Francisco passed ballot measures strengthening police powers and requiring treatment of drug-addicted welfare recipients.

In retrospect, it appears the Floyd video, appearing after three months of COVID-19 confinement, sparked a frenzied, even crazed reaction, especially among the highly educated and articulate. One fatal incident was seen as proof that America’s “systemic racism” was worse than ever and that police forces should be defunded and perhaps abolished.

2020 was “the year America went crazy,” I wrote in January 2021, a year in which police funding was actually cut by Democrats in New York, Los Angeles, San Francisco, Seattle, and Denver. A year in which young New York Times (NYT) staffers claimed they were endangered by the publication of Sen. Tom Cotton’s (R-Ark.) opinion article advocating calling in military forces if necessary to stop rioting, as had been done in Detroit in 1967 and Los Angeles in 1992. A craven NYT publisher even fired the editorial page editor for running the article.

Evidence of visible and tangible discontent with increasing violence and its consequences—barren and locked shelves in Manhattan chain drugstores, skyrocketing carjackings in Washington, D.C.—is as unmistakable in polls and election results as it is in daily life in large metropolitan areas. Maybe 2024 will turn out to be the year even liberal America stopped acting crazy.

Chaos and disorder work against incumbents, as they did in 1968 when Democrats saw their party’s popular vote fall from 61 percent to 43 percent.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times or ZeroHedge.

Tyler Durden Sat, 03/09/2024 - 23:20

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Veterans Affairs Kept COVID-19 Vaccine Mandate In Place Without Evidence

Veterans Affairs Kept COVID-19 Vaccine Mandate In Place Without Evidence

Authored by Zachary Stieber via The Epoch Times (emphasis ours),




Veterans Affairs Kept COVID-19 Vaccine Mandate In Place Without Evidence

Authored by Zachary Stieber via The Epoch Times (emphasis ours),

The U.S. Department of Veterans Affairs (VA) reviewed no data when deciding in 2023 to keep its COVID-19 vaccine mandate in place.

Doses of a COVID-19 vaccine in Washington in a file image. (Jacquelyn Martin/Pool/AFP via Getty Images)

VA Secretary Denis McDonough said on May 1, 2023, that the end of many other federal mandates “will not impact current policies at the Department of Veterans Affairs.”

He said the mandate was remaining for VA health care personnel “to ensure the safety of veterans and our colleagues.”

Mr. McDonough did not cite any studies or other data. A VA spokesperson declined to provide any data that was reviewed when deciding not to rescind the mandate. The Epoch Times submitted a Freedom of Information Act for “all documents outlining which data was relied upon when establishing the mandate when deciding to keep the mandate in place.”

The agency searched for such data and did not find any.

The VA does not even attempt to justify its policies with science, because it can’t,” Leslie Manookian, president and founder of the Health Freedom Defense Fund, told The Epoch Times.

“The VA just trusts that the process and cost of challenging its unfounded policies is so onerous, most people are dissuaded from even trying,” she added.

The VA’s mandate remains in place to this day.

The VA’s website claims that vaccines “help protect you from getting severe illness” and “offer good protection against most COVID-19 variants,” pointing in part to observational data from the U.S. Centers for Disease Control and Prevention (CDC) that estimate the vaccines provide poor protection against symptomatic infection and transient shielding against hospitalization.

There have also been increasing concerns among outside scientists about confirmed side effects like heart inflammation—the VA hid a safety signal it detected for the inflammation—and possible side effects such as tinnitus, which shift the benefit-risk calculus.

President Joe Biden imposed a slate of COVID-19 vaccine mandates in 2021. The VA was the first federal agency to implement a mandate.

President Biden rescinded the mandates in May 2023, citing a drop in COVID-19 cases and hospitalizations. His administration maintains the choice to require vaccines was the right one and saved lives.

“Our administration’s vaccination requirements helped ensure the safety of workers in critical workforces including those in the healthcare and education sectors, protecting themselves and the populations they serve, and strengthening their ability to provide services without disruptions to operations,” the White House said.

Some experts said requiring vaccination meant many younger people were forced to get a vaccine despite the risks potentially outweighing the benefits, leaving fewer doses for older adults.

By mandating the vaccines to younger people and those with natural immunity from having had COVID, older people in the U.S. and other countries did not have access to them, and many people might have died because of that,” Martin Kulldorff, a professor of medicine on leave from Harvard Medical School, told The Epoch Times previously.

The VA was one of just a handful of agencies to keep its mandate in place following the removal of many federal mandates.

“At this time, the vaccine requirement will remain in effect for VA health care personnel, including VA psychologists, pharmacists, social workers, nursing assistants, physical therapists, respiratory therapists, peer specialists, medical support assistants, engineers, housekeepers, and other clinical, administrative, and infrastructure support employees,” Mr. McDonough wrote to VA employees at the time.

This also includes VA volunteers and contractors. Effectively, this means that any Veterans Health Administration (VHA) employee, volunteer, or contractor who works in VHA facilities, visits VHA facilities, or provides direct care to those we serve will still be subject to the vaccine requirement at this time,” he said. “We continue to monitor and discuss this requirement, and we will provide more information about the vaccination requirements for VA health care employees soon. As always, we will process requests for vaccination exceptions in accordance with applicable laws, regulations, and policies.”

The version of the shots cleared in the fall of 2022, and available through the fall of 2023, did not have any clinical trial data supporting them.

A new version was approved in the fall of 2023 because there were indications that the shots not only offered temporary protection but also that the level of protection was lower than what was observed during earlier stages of the pandemic.

Ms. Manookian, whose group has challenged several of the federal mandates, said that the mandate “illustrates the dangers of the administrative state and how these federal agencies have become a law unto themselves.”

Tyler Durden Sat, 03/09/2024 - 22:10

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