Monday 29 May 2023

That US Debt Deal, Who Won? Who Lost?

Baltic Dry Index. 1172 -43        Brent Crude 77.47

Spot Gold 1945           US 2 Year Yield 4.54  +0.04

Coronavirus Cases 01/04/20 World 1,000,000

Deaths 53,103

Coronavirus Cases 29/05/23 World 689,428,351

Deaths 6,883,725

Modern money is inherently worthless, but everybody accepts it as real. Paul Seabright, a professor 

of economics, identified two traits that underpin systems of trust including money: the capacity to 

weigh up the costs and benefits of trusting others and the instinct to return favors in kind or seek

revenge when trust is betrayed. When it is working well, the system enables strangers to deal with 

each other safely. When the fragile trust fails, people withdraw their money from banks, and they seek

 the refuge of cash. Ironically, in times of crisis, people seek paper money that has no intrinsic worth,

illustrating the power of the monetary illusion. 

Satyajit Das. Extreme Money. Masters of the Universe and the Cult of Risk.

To no one’s surprise, a US debt deal compromise was announced in Washington on Saturday.

Both President Biden and House Speaker McCarthy claimed victory. One or both are lying, but such is the state of modern 21st century politics.

Now President Biden must sell his victory to Senate Democrats, while House Speaker McCarthy must sell his victory to House Republicans.

While no one really expects this victory not to pass either part of Congress nor make it back to President Biden for signature before June 5th, it’s not yet a 100 percent certainty that this victory for all won’t get amended before getting back to President Biden.  Effectively, there’s only about a week for all this to happen.

Elsewhere, Sultan President Erdogan was re-elected in Turkey Turkiye. It was not good news for the Turkey lira. Not that anyone still uses it in Turkey.

All in all, an iffy start to the coming month-end in the stock casinos and a difficult summer ahead.


Asia markets mixed after U.S. reaches debt ceiling deal; Japan stocks at highest since July 1990

UPDATED MON, MAY 29 2023 12:11 AM EDT

Asia-Pacific markets were mixed after U.S President Joe Biden and congressional leaders reached a tentative deal to raise the debt ceiling over the weekend. The bill is expected to be voted on later this week.

In Japan, the Nikkei 225 continued to push 33-year highs to trade at the highest levels since July 1990 as it jumped 1.54%, with the Topix also gaining 1.11%. In Australia, the S&P/ASX 200 climbed 0.98%, while South Korea was closed Monday for a holiday.

Hong Kong’s Hang Seng index continued sliding to new lows this year, falling 0.12%. Mainland Chinese markets are more mixed, with the Shanghai Composite up 0.23% and the Shenzhen Component down 0.16%.

U.S. futures also traded higher after Wall Street rallied on Friday, with the Nasdaq Composite posting a fifth straight week of wins.

Dow Jones futures gained 45 points of 0.14% while futures tied to S&P 500 and Nasdaq rose 0.22% and 0.4%, respectively. U.S. markets will be closed for Memorial Day.

Asia markets mixed after U.S. reaches debt ceiling deal; Japan stocks at highest since July 1990 (cnbc.com)

 

Debt-Limit Deal Sets Up Tough Battle for Passage in Congress

May 28, 2023

(Bloomberg) -- Getting a US debt-limit deal is one thing. Overcoming entrenched political divisions and time-consuming procedural hurdles to pass the legislation before a June 5 default deadline is another challenge altogether.

The deal struck Saturday night by President Joe Biden and Speaker Kevin McCarthy offers a lot for the two parties not to like, from expanded work requirements for food stamps opposed by Democrats to higher spending levels than conservatives demanded. 

With just over a week until the US risks running out of cash to pay its bills, the two leaders now must convince enough members of their respective parties that the agreement hashed out by a small group of negotiators is a better deal than the global economic consequences of default. 

Biden and McCarthy in separate appearances on Sunday projected confidence they would muster the votes to win Congressional approval. McCarthy claimed 95% of House Republicans are “very excited” by the deal.

Some members of the ultra-conservative House Freedom Caucus ratcheted up criticism of the deal Sunday, though it was unclear whether their hostility would broaden to wider Republican opposition or harden into a campaign to oust the speaker.

Representative Chip Roy of Texas tweeted Sunday that fellow Republicans “haven’t been educated yet on” the deal’s shortcomings. “They will be,” he said. Shortly after the deal was announced Saturday, Ralph Norman of South Carolina called it “insanity” and Dan Bishop of North Carolina responded with an emoji of a face vomiting.

Still, there were early signs of openness to the deal even from some on the GOP’s right flank. Representative Warren Davidson applauded “some impressive wins” but said he would wait to see the bill’s text before making up his mind.

A time-consuming, last-minute revision or a failure on the House floor risks a market dive, as happened when the 2008 bank bailout legislation failed to pass.

McCarthy has said he’d abide by a 72-hour rule to allow lawmakers to review legislation and is planning a House vote on Wednesday. 

In the Senate, any one lawmaker can tie up legislation and force procedural votes. Utah Republican Mike Lee has already said he would do just that if he doesn’t like spending levels in the bill.  

That leaves little room for failure — or time for revisions — if Congress is to pass the legislation before June 5, Treasury Secretary Janet Yellen’s revised X-date. 

More

Debt-Limit Deal Sets Up Tough Battle for Passage in Congress (msn.com)

In other concerning news.


IMF Warns of Prolonged High Interest Rates, Urges Fiscal Tightening to Tackle Inflation

May 27, 2023 Updated: May 27, 2023 

In a recent statement following its comprehensive assessment of U.S. policies, the International Monetary Fund (IMF) emphasized the need for the United States to maintain higher interest rates for an extended period to curb inflation.

Additionally, the IMF urged Washington to adopt stricter fiscal measures to address the country’s mounting federal debt.

Despite the U.S. economy demonstrating resilience in the face of tighter monetary and fiscal policies, the IMF noted that inflation has proved more persistent than initially anticipated.

 The IMF’s evaluation, known as the “Article IV” review, included a growth forecast of 1.7 percent for the entirety of 2023, slightly surpassing the organization’s previous estimate of 1.6 percent in April. On a quarter-to-quarter comparison, output was projected to decline by 1.2 percent in the fourth quarter.

 

The IMF anticipates that the federal funds rate will reach its peak this year at 5.4 percent, exceeding the nominal 5.25 percent Fed rate, before gradually declining to 4.9 percent by 2024.

 

“While both core and headline PCE inflation are expected to decrease throughout 2023, they are predicted to remain significantly above the Federal Reserve’s target of 2 percent throughout the next two years,” the IMF’s May 26 statement read.

“With a large share of household and corporate debt contracted at relatively long duration and fixed rates, household consumption and corporate investment have proven less interest-sensitive than in past tightening cycles.”

The international organization warned that, because of these factors, monetary policy may need to get even tighter than today’s already restrictive levels.

“This creates a material risk that the Federal Reserve will have to raise the policy rate by significantly more than is currently expected to return inflation to 2 percent.”

More

IMF Warns of Prolonged High Interest Rates, Urges Fiscal Tightening to Tackle Inflation (theepochtimes.com)


China’s industrial profits tumble 18% in April as demand sputters

PUBLISHED FRI, MAY 26 2023 11:32 PM EDT

Profits at China’s industrial firms slumped in the first four months of 2023, official data showed on Saturday, as companies continued to struggle with margin pressures and soft demand amid a faltering economic recovery.

Profits fell 20.6% in January-April from a year earlier, compared with a 21.4% decline in the first three months, according to data from the National Bureau of Statistics (NBS).

In April alone, industrial firms posted a 18.2% drop in profit year-on-year, according to the NBS, which only occasionally gives monthly figures. Profits shrank 19.2% in March.

“Overall, today’s data shows that industrial enterprises, especially private and equity-owned enterprises, continue to be affected by a combination of unfavourable factors such as the base effect, short-term pressure on the economic recovery and the downward trend of PPI (producer prices),” said Bruce Pang, chief economist at Jones Lang Lasalle.

Chinese companies are struggling with both weak demand at home and softening demand in the country’s major export markets. Producer deflation deepened in April, with the producer price index (PPI) falling at the fastest clip since May 2020.

Lenovo, the world’s largest PC maker, said this week that quarterly revenue and profit tanked in January-March and it had cut 8% to 9% of its workforce to reduce costs, as global demand for personal computers (PCs) continued to slump.

Producers of steel and other industrial metals are also hurting. Prices for steel reinforcing bars used in construction hit the lowest level in three years this week, and only a third of the country’s mills are currently operating at a profit, according to consultancy Mysteel.

“There is still some pressure felt in May due to the difference between the purchase and sales prices, with steel prices falling in the month because of the slower-than-expected demand recovery,” Baosteel, a subsidiary of the world’s largest steelmaker-China Baowu Steel Group, said in an investor interactive platform on May 22.

Foreign firms saw their profits slide 16.2% in January-April from a year earlier, while private-sector firms recorded a 22.5% plunge, according to a breakdown of the data.

More.

China's industrial profits tumble 18% in April as demand sputters (cnbc.com)

Turkey’s lira sinks to near record low as Erdogan is reelected

The Turkish lira sank Monday as incumbent Recep Tayyip Erdogan secured his victory in the 2023 presidential election, extending his rule into a third decade in power.

The currency was trading at 19.97 against the greenback as of Monday 4 a.m. London time after slipping to 20 to the dollar earlier in the session.

“We have a pretty pessimistic outlook on the Turkish Lira as a result of Erdogan retaining office after the election,” Wells Fargo’s Emerging Markets Economist and FX Strategist Brendan McKenna told CNBC’s “Squawk Box Asia.”

McKenna forecasts that the lira will reach a new record low of 23 against the dollar by end of the second quarter, and then 25 as early as next year. It has lost some 77% of its value against the dollar over the last five years. He expects Turkey’s unorthodox monetary and economic policy frameworks to remain in place going forward.

Turkey’s monetary policy places an emphasis on the pursuit of growth and export competition rather than taming inflation, and Erdogan endorses the unconventional view that raising interest rates increases inflation.

“The current set up is just not sustainable,” said BlueBay Asset Management’s Senior EM Sovereign Strategist Timothy Ash via email.

“With limited FX reserves and massively negative real interest rates the pressure on the lira is heavy,” Ash continued.

More

Turkey's lira sinks to near record low as Erdogan is reelected (cnbc.com)

Global Inflation/Stagflation/Recession Watch.

Given our Magic Money Tree central banksters and our spendthrift politicians, inflation now needs an entire section of its own.

Hmmm? Another red flag and klaxon blaring. Stagflation?

Gross Domestic Income GDI Suggests the US Is in Recession Right Now

Gross Domestic Income (GDI) and Gross Domestic Product (GDP) are two measures of the same thing. But they radically differ in outlook.

May 26, 2023

----The BEA does not release GDI in the advance estimate, but does in the second estimate. 

GDI was -2.3 percent in the first quarter of 2023, and -3.3 percent in the fourth quarter of 2022.

More

Gross Domestic Income GDI Suggests the US Is in Recession Right Now - Mish Talk - Global Economic Trend Analysis

Inflation rose 0.4% in April and 4.7% from a year ago, according to key gauge for the Fed

PUBLISHED FRI, MAY 26 2023 8:36 AM EDT UPDATED FRI, MAY 26 2023 10:37 AM EDT

Inflation stayed stubbornly high in April, potentially reinforcing the chances that interest rates could stay higher for longer, according to a gauge released Friday that the Federal Reserve follows closely.

The personal consumption expenditures price index, which measures a variety of goods and services and adjusts for changes in consumer behavior, rose 0.4% for the month excluding food and energy costs, higher than the 0.3% Dow Jones estimate.

On an annual basis, the gauge increased 4.7%, 0.1 percentage point higher than expected, the Commerce Department reported.

Including food and energy, headline PCE also rose 0.4% and was up 4.4% from a year ago, higher than the 4.2% rate in March.

Despite the higher inflation rate, consumer spending held up well as personal income increased.

The report showed that spending jumped 0.8% for the month, while personal income accelerated 0.4%. Both numbers were expected to increase 0.4%.

Price increases were spread almost evenly, with goods rising 0.3% and services up 0.4%. Food prices fell less than 0.1% while energy prices increased 0.7%. On an annual basis, goods prices increased 2.1% and services rose by 5.5%, a further indication that the U.S. was tilting back toward a services-focused economy.

Food prices rose 6.9% from a year ago while energy fell 6.3%. Both monthly PCE gains were the most since January.

More

Inflation rose 0.4% in April and 4.7% from a year ago, according to key gauge for the Fed (cnbc.com)

Major central banks were expected to pause rate hikes soon. Now it’s not so clear cut

The market has long been pricing in interest rate cuts from major central banks toward the end of 2023, but sticky core inflation, tight labor markets and a surprisingly resilient global economy are leading some economists to reassess.

Stronger-than-expected U.S. jobs figures and gross domestic product data have highlighted a key risk to the Federal Reserve potentially taking its foot off the monetary brake. Economic resilience and persistent labor market tightness could exert upward pressure on wages and inflation, which is in danger of becoming entrenched.

The headline U.S. consumer price index has cooled significantly since its peak above 9% in June 2022, falling to just 4.9% in April, but remains well above the Fed’s 2% target. Crucially, core CPI, which excludes volatile food and energy prices, rose by 5.5% annually in April.

As the Fed earlier this month implemented its 10th increase in interest rates since March 2022, raising the Fed funds rate to a range of 5% to 5.25%, Chairman Jerome Powell hinted that a pause in the hiking cycle is likely at the FOMC’s June meeting.

However, minutes from the last meeting showed some members still see the need for additional rises, while others anticipate a slowdown in growth will remove the need for further tightening.

Fed officials including St. Louis Fed President James Bullard and Minneapolis Fed President Neel Kashkari have in recent weeks indicated that sticky core inflation may keep monetary policy tighter for longer, and and that more hikes could be coming down the pike later in the year.

---- Several economists have told CNBC over the past couple of weeks that the U.S. central bank may be forced to tighten monetary policy more aggressively in order to make a breakthrough on stubborn underlying dynamics.

According to CME Group’s FedWatch tool, the market currently places an almost 35% probability on the target rate ending the year in the 5% to 5.25% range, while the most likely range by November 2024 is 3.75% to 4%.

Patrick Armstrong, chief investment officer at Plurimi Group, told CNBC last week that there was a double-sided risk to current market positioning.

“If Powell cuts, he probably cuts a lot more than the market’s pricing, but I think there is above 50% chance where he just sits on his hands, we get through year-end,” Armstrong said.

“Because services PMI is incredibly strong, the employment backdrop incredibly strong, consumer spending all strong — it’s not the kind of thing where the Fed really needs to pump liquidity out there unless there is a debt crisis.”

More

Major central banks were expected to pause rate hikes soon. Now it's not so clear cut (cnbc.com)

Covid-19 Corner

This section will continue until it becomes unneeded.

FDA Detects Serious Safety Signal for COVID-19 Vaccination Among Children

May 25, 2023  Updated: May 26, 2023

Children of certain ages who received Pfizer’s COVID-19 vaccine face an elevated risk of heart inflammation, according to a new federally funded study.

Vaccinated children aged 12 to 17 face a heightened risk of myocarditis, a form of heart inflammation, and a related condition called pericarditis, U.S. Food and Drug Administration (FDA) researchers found.

The number of myocarditis and pericarditis events in that age group met the threshold for a safety signal, the researchers reported in the Journal of the American Medical Association on May 22.

The elevated risk was present within seven days of vaccination, according to the data.

Researchers identified 89 cases among 12- to 15-year-olds and 64 cases among 16- and 17-year-olds after reviewing records from commercial databases run by CVS Health, HealthCore, and Optum.

The claims were made between Dec. 11, 2020, when Pfizer’s vaccine was cleared by the FDA, and mid-2022.

Researchers looked at data to determine whether any of the 20 health problems were experienced at higher rates by the vaccinated. The problems included myocarditis or pericarditis, Bell’s palsy, appendicitis, and stroke.

Only myocarditis or pericarditis met the criteria for a safety signal, which may be related to vaccination.

U.S. officials have already concluded that the conditions are caused by the Pfizer and Moderna COVID-19 vaccines, although the vaccines didn’t carry a warning for months after authorization. One possible mechanism is excessive immune responses triggered by lipid nanoparticles. Novavax’s vaccine, authorized in 2022, can also cause the heart conditions, authorities say.

More on Study

Researchers looked at health plan members who received a Pfizer vaccination, excluding those who lost their insurance during a certain window of time, which was 365 days for most outcomes.

Researchers then examined the number of each outcome in a different window of time, referred to as a risk window, which varied from a single day to as long as 42 days after vaccination.

The study then took the rates of problems from each database and compared them with expected rates, which are based on pre-pandemic numbers.

More

FDA Detects Serious Safety Signal for COVID-19 Vaccination Among Children (theepochtimes.com)

The World Health Organisation’s power grab via the new International Health Regulations. Approx. 6 minutes.

European concern

European concern - YouTube

Johns Hopkins Coronavirus resource centre

https://coronavirus.jhu.edu/map.html

Centers for Disease Control Coronavirus

https://www.cdc.gov/coronavirus/2019-ncov/index.html

The Spectator Covid-19 data tracker (UK)

https://data.spectator.co.uk/city/national

Technology Update.

With events happening fast in the development of solar power and graphene, among other things, I’ve added this section. Updates as they get reported.

No update today. Normal service is back tomorrow,

At each step of the transition from commodity to paper to credit, money

became more unreal, and detached from the real goods and services that

money can be exchanged for. Money transformed itself from a mechanism

for trade into an object in its own right. Modern technology—digital

money—further stripped money of corporeality. Money exists as pure infor-

mation, with no intrinsic value. It is nothing and everything. Making money,

lending it, borrowing money, and making money from money is central to human existence and activity.

Satyajit Das. Extreme Money. Masters of the Universe and the Cult of Risk.

 

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