Baltic Dry Index. 1237 -10 Brent Crude 85.32
Spot Gold 1893 US 2 Year Yield 4.92 -0.02
When good Americans die they go to Paris.
Oscar Wilde.
In the stock casinos, a worrying week ahead. Is China’s bout of deflation permanent? If it is, how fast will deflation spread out into the global economy?
In the USA, the immediate focus is of the tropical storm flooding parts of California and Arizona, but by later in the week, what will Fed Chairman Powell and his gang of inflationists have to say about interest rates, the US and global economy, and when the Fed might switch from raising interest rates to easing interest rates.
But mostly, the global focus is on China. If the Chinese economy enters recession, how will the CCP react as unemployment soars. How fast will the other G-20 economies drop into recession.
All in all, a good week to be out of stocks
and in bonds and money market funds.
Asia markets
mixed as China cuts 1-year loan prime rate, but leaves 5-year rate unchanged
UPDATED SUN, AUG 20 2023 10:05 PM EDT
Asia-Pacific markets are mixed as China slashed its one-year loan prime rate,
but kept its five-year rate unchanged on Monday.
The one-year LPR was cut
by 10 basis points from 3.55% to 3.45%, while the five-year LPR
remained at 4.2%. The five year LPR also serves as a peg for mortgages.
Reuters reported that in a poll
of 35 market watchers, all participants predicted cuts to both rates, after
China’s central bank unexpectedly lowered the medium-term lending facility rate
last week.
Hong Kong’s Hang Seng index slipped
0.86%, while mainland Chinese markets were also in negative territory, with the
CSI 300 down 0.28%.
In Australia, the S&P/ASX 200 slipped
0.1%, but other markets were all up.
Japan’s Nikkei 225 climbed
0.32% and the Topix rose 0.24%. South Korea’s Kospi gained
0.61%, while the Kosdaq was up 1.87%.
On Friday in the U.S., the three major indexes
ended mixed, with the Dow
Jones Industrial Average up 0.07%. However, the S&P 500 was
lower by 0.01%, and the Nasdaq
Composite slipped 0.2%.
Both the S&P and Nasdaq
recorded their third straight week of losses, something that has not happened
since February for the S&P, and December for the Nasdaq.
Asia markets mixed as
China cuts 1-year loan prime rate, but leaves 5-year rate unchanged (cnbc.com)
Dollar gains intact
as China disappoints, traders eye Jackson Hole
By Tom
Westbrook August 21, 20233:00 AM GMT+1
SINGAPORE, Aug 21 (Reuters) - The
dollar began on a firm footing on Monday, following five straight weeks of
gains, as investors looked ahead to the Federal Reserve's Jackson Hole
symposium for a guide on where rates might settle when the dust of this hiking
cycle clears.
The dollar made a gain of 0.7% on the
euro last week, inched ahead on the yen and surged by more than 1% on the
Antipodean currencies as U.S. Treasury yields leapt in anticipation of interest
rates staying higher for longer.
In early trade, the Australian dollar ,
at $0.6402, and the New Zealand dollar at $0.5913 were slightly lower and
uncomfortably close to last week's nine-month lows after a rate cut in China
disappointed market expectations.
China cut its one-year benchmark
lending rate by 10 basis points and left its five-year rate unchanged, against
economists' expectations for 15 bp cuts to both.
The yuan slid to the
weak side of 7.3 per dollar despite a firm fixing of its trading range by the
central bank. It last traded at 7.3011, though so far keeping off last week's
lows beyond 7.31, as that had brought state banks into spot markets in
London and New York hours as buyers.
---- Like the yuan, the yen is also on
intervention-watch, having fallen to levels around which authorities stepped in
last year. It was steady at 145.19 per dollar in early trade.
The euro held at $1.0871. Sterling
hovered at $1.2738. The Swiss franc was just above a six-week low made last
week at 0.8817 per dollar.
Apart from waiting for news of
stimulus in China, the upcoming Jackson Hole symposium - where Fed chair Jerome
Powell is due to speak on Friday - is markets' major focus and may set the
direction for U.S. yields.
Ten-year yields rose 14 basis points
for the week and touched a 10-month high of 4.328%, within a whisker of a
15-year high. Thirty-year yields rose nearly 11 bps to their highest in more
than a decade.
The theme this year for the annual
gathering in Wyoming is "structural shifts in the global economy".
"Two things that may come across
are: decades of ultra-low rates backed by ultra-low inflation may be
over," said Vishnu Varathan, head of economics and strategy at Mizuho Bank
in Singapore.
"And global policy-makers may
prefer to maintain restrictive real rates for a while, thereby keeping risks
from volatile inflation alive."
Bitcoin , which was battered to a
two-month low last week as rising U.S. yields and China's slowing economy drove
a wave of selling, nursed those losses at $26,129.
Dollar
gains intact as China disappoints, traders eye Jackson Hole | Reuters
Wall St Week Ahead
Less cash, fewer bears could leave U.S. stocks vulnerable
By David Randall August 19,
20231:20 AM GMT+1
NEW
YORK, Aug 18 (Reuters) - Several indicators that pointed to upside for U.S.
stocks this year have shifted to a more neutral outlook, potentially leaving
equities vulnerable to turbulence from a recent surge in bond yields and worries over China’s economy, investors said.
Some investors
watch so-called contrarian indicators to gauge the market's mood, with extreme
pessimism thought to be a good sign to buy and vice versa. At the start of the
year, measures such as stock positioning and allocations to cash showed extreme
bearishness, reflecting investors' grim outlook following a brutal selloff in
2022 and expectations of a recession in the second half of this year.
But signs of a
resilient economy and cooling inflation drew investors off the sidelines and
bolstered risk appetite in the months that followed, fueling a nearly 14% rise
in the S&P 500 this year. The upshot, some believe, is that there is now
less cash on the sidelines to drive further gains and fewer skeptical investors
to win over.
While bearish
positioning was a “strong tailwind” for risk assets in the first half of 2023,
that’s “not the case” in the second half, strategists at BofA Global Research
wrote in a report earlier this week.
The bank’s survey
of fund managers showed cash allocations dropped to 4.8% in August, the lowest
level in 21 months. That shifted its “cash rule” indicator - which stands at
“buy” when allocations are above 5%, to “neutral.” The survey also showed fund
managers the least bearish since February 2022.
Bearishness among
retail investors, meanwhile, is at half the levels seen in September 2022,
according to the AAII Sentiment Survey.
"There was
plenty of pessimism in the market earlier this year and that shift from
pessimism to optimism was fuel for a rally," said Willie Delwiche,
strategist at Hi Mount Research. "We saw it quickly go from too much
pessimism to excessive optimism, and now we are starting to see that roll
over."
Investors are
looking ahead to the Federal Reserve's annual symposium in Jackson Hole,
Wyoming, at the end of next week for further insight into how long the central
bank intends to leave rates around current levels.
More
Wall St Week Ahead
Less cash, fewer bears could leave U.S. stocks vulnerable | Reuters
In
China news, the bad news just keeps flooding in.
Hong Kong’s Centaline property agency seeking US$137.5 million in unpaid commissions from mainland Chinese developers including troubled Evergrande
The
company’s Shenzhen branch says it is suing to recover the unpaid debts, which
have left it unable to pay employees their commissions
The
case is the latest sign of the crisis in the mainland property market, which
saw Evergrande file for bankruptcy protection in the US this week
August
20, 2023
A number of Chinese real estate developers,
including the troubled Evergrande conglomerate, owe more than 1 billion yuan (US$137.5 million) in commission fees to
the mainland arm of Centaline, Hong Kong’s leading property agency, as
the Chinese housing market crisis deepens.
The overdue payments mean that Centaline’s Shenzhen
subsidiary has been unable to pay its employees their commissions – a major
source of income for those in the industry – according to a leaked document
from the company circulating online.
Country
Garden to drop out of Hang Seng Index as Hong Kong’s stock benchmark adds
Sinopharm in quarterly recalibration
The
number of Hang Seng Index constituents will be unchanged at 80, with the
changes effective from September 4
Trip.com
Group and Zijin Mining Group were among four companies added to the benchmark
in the last review
August
18, 2023
Sinopharm Group will be added to the Hang Seng Index next month after the latest quarterly review of Hong Kong’s stock
benchmark, while property developer Country Garden Holdings will be removed after becoming a penny stock.
That will keep the number of constituents unchanged
at 80, compiler Hang Seng Indexes said in a statement after the market close on Friday. The changes will be effective
from September 4.
The index compiler has added new constituents to
the Hang Seng gauge for a second consecutive quarter after surprising investors
by making no additions in February.
Hang Seng Indexes has fallen behind schedule in
expanding the benchmark since it announced a sweeping plan in 2021 to overhaul
the Hang Seng Index, which will eventually have 100 constituents. In the last rebalancing, four companies, including online travel agency Trip.com Group and gold producer Zijin Mining Group, were added to the index.
After the change, the
Hang Seng Index will cover 64 per cent of the overall value of the Hong Kong
market, compared with 65 per cent currently, according to the statement.
More
Finally,
more food price inflation bad news from India. No or little food price
inflation relief in sight before the end of the northern hemisphere grain
harvests, if then.
Exclusive: India
faces record low August rains, threatening summer crops before the end of the
norther hemisphere grain harvest.
By Rajendra Jadhav August 18, 202311:26 AM GMT+1
MUMBAI, Aug 18
(Reuters) - India is heading for its driest August in more than a century, with
scant rainfall likely to persist across large areas, partly because of the El
Niño weather pattern, two weather department officials told Reuters on Friday.
August
rainfall, expected to be the lowest since records began in 1901, could dent
yields of summer-sown crops, from rice to soybeans, boosting prices and overall
food inflation, which jumped in July to the highest
since January 2020.
The monsoon,
vital for the $3-trillion economy, delivers nearly 70% of the rain India needs
to water farms and refill reservoirs and aquifers.
"The monsoon
is not reviving as we had expected," said a senior official of the India
Meteorological Department (IMD), who sought anonymity as the matter is a
sensitive one.
"We are
going to end the month with a significant deficit in the southern, western, and
central parts."
India is on
course to receive an average of less than 180 mm (7 inches) of rainfall this
month, he added, based on rains so far and expectations for the rest of the
month.
The weather
authorities are expected to announce August totals of rainfall and the forecast
for September on Aug. 31 or Sept. 1.
India received
just 90.7 mm (3.6 inches) in the first 17 days of August, nearly 40% lower than
the normal. The month's normal average is 254.9 mm (10 inches), he said.
Earlier,
the IMD had anticipated a rainfall deficit of up to 8%
in August. The lowest August rainfall on record
was in 2005, with 191.2 mm (7.5 inches).
Monsoon rainfall
is expected to improve over the next two weeks in the northeast and some
central regions, but dry conditions in northwestern and southern states are
likely to persist, said another IMD official.
"Normally,
we experience a dry spell of five to seven days in August," said the
official, who also spoke on condition of anonymity.
"However,
this year the dry spell has been unusually prolonged in southern India. The El
Niño weather pattern has begun to impact the Indian monsoon."
El
Nino, a warming of waters that usually stifles
rainfall over the Indian subcontinent, has emerged in the tropical Pacific for
the first time in seven years.
This monsoon has
been uneven, with June rains 10% below average but July rains rebounding to 13%
above average.
Summer rains are
crucial as nearly half of India's farmland lacks irrigation.
Farmers typically
start planting rice, corn, cotton, soybeans, sugarcane and peanuts, among other
crops, from June 1, when the monsoon begins to lash the southern state of
Kerala.
The lengthy dry
spell has led to extremely low soil moisture, which could inhibit growth of
crops, said Harish Galipelli, director of trading firm ILA Commodities India
Pvt Ltd.
"Crops are
in dire need of rainfall," he added. "Any further delay could lead to
reduced yields."
Exclusive: India faces record low August rains, threatening summer crops | Reuters
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.
Column: Good, bad and
ugly in renewed bond rout
By Mike Dolan August 18,
202311:00 AM GMT+1
LONDON, Aug 18 (Reuters) - A frantic
recalibration of long-term borrowing rates has unnerved financial markets
trying to parse both many of the positive reasons behind the move and worrying
implications of a fresh hit to bond markets.
Almost independently of any new take on
the trajectory of Federal Reserve policy - as the central bank is still not
expected to hike rates again in this cycle - U.S. long-term bond yields have
resumed a steep climb this month and have dragged interest-rate sensitive
stocks lower into the bargain.
The simplest conclusion is the Fed will
not be able to ease again in anything like the way many had assumed or still
think.
Ten-year U.S. Treasury rates topped
4.3% this week for the first time since October, within a whisker of 15-year
highs - sending real, inflation-adjusted equivalents close to 2% for the first
time since the aftermath of the global bank bust in 2009.
The 30-year Treasury yield touched its
highest in 12 years.
While Fitch's Aug. 1 decision to remove
the U.S. AAA credit rating may seem an obvious starting gun for renewed bond
market jitters, most investors doubt this was more than a timing trigger.
More profoundly, the extraordinary
performance of the U.S. economy - even after more than five percentage points
of Fed rate hikes in under 18 months - has led many to examine whether the
post-pandemic reshaping of economies is leading long-term sustainable interest
rates back to pre-2008 crash levels.
Just this week alone, stellar retail
sales, industrial output and housing starts numbers for July have forecasters
scrambling to upgrade U.S. gross domestic product forecasts.
Having started the year with a
consensus that Fed tightening would trigger recession within 12 months, U.S.
growth actually accelerated to 2.4% annualised through the second quarter and
the latest numbers suggest it could be even faster in Q3.
The Atlanta Fed's, admittedly volatile,
real time 'GDPNow' model is tracking a 5.8% rate for the current quarter, twice
what it was a month ago and the fastest since January last year.
And Deutsche Bank, one of the first to
predict a U.S. recession would start as soon as this year, this week more than
doubled its Q3 growth forecast to 3.1%.
---- But there's a more negative take.
A rise in the theoretical long-term real interest rate that sustains both
growth and stable 2% inflation - the fabled 'R-star' variable - may owe more to
rising debt and more pernicious structural shifts.
While the Fed's existing assumption is
that R-star is still about 0.5% - implying a long-term policy rate of 2.5% if
inflation returns to target - Vanguard economists estimate this week that it
may well have risen as high as 1.5%.
"A higher neutral rate of interest
in the U.S. will require the Federal Reserve to tighten monetary policy more
aggressively than presently anticipated, potentially dampening the economic
outlook in the short run and requiring a swift adjustment from private sector
participants," they concluded, adding aging demographics and rising fiscal
deficits were the root cause.
More
Column: Good, bad and ugly in renewed bond rout |
Reuters
US bank credit
contracts, loans drop in latest week: Fed data
August 18, 20239:55 PM GMT+1
Aug 18 (Reuters) - Bank credit at U.S.
commercial banks shrank in the latest week as commercial banks pulled back on
lending to businesses, data published by the Federal Reserve showed on Friday.
Overall bank credit fell to $17.23
trillion in the week ending Aug. 9, down from $17.25 trillion a week earlier
and $17.32 trillion a year earlier, its second straight year-over-year drop.
Loans and leases fell to $12.13
trillion, from $12.15 trillion the week prior; commercial and industrial loans
slipped to $2.74 trillion, from $2.75 trillion in the week ending Aug. 2. From
a year earlier, commercial and industrial (C&I) loan growth slowed sharply
to less than 1%.
The
trends reflect reduced demand from borrowers amid the Fed's rapid
interest-rate hikes,
as well as tightening credit standards and the fallout from the U.S. regional
bank failures this year.
US bank credit contracts, loans drop in latest week:
Fed data | Reuters
It is only by not paying one's bills that one
can hope to live on in the memory of the commercial classes.
Oscar Wilde.
Covid-19 Corner
This section will continue until it becomes unneeded.
New Covid variant causing concern
among scientists detected in London
It
is unclear whether BA.2.86 causes more severe disease but its detection in
several countries has put scientists on alert
August 18, 2023
A new Covid variant that is
causing concern among scientists due to its large number of mutations has been
detected in London.
The variant, named BA.2.86, has
been detected through genetic sequencing, although only a handful of such
sequences have so far been reported. The first was reported in Israel, with the
variant since being detected in Denmark and the US.
The UK Health Security Agency
(UKHSA) confirmed on Friday that the variant had been detected in the UK.
Dr Meera Chand, the deputy
director of UKHSA, said: “We are aware of one confirmed case in the UK. UKHSA
is currently undertaking detailed assessment and will provide further
information in due course.”
According to a risk assessment
published on Friday by UKHSA, the UK case had no recent travel history,
suggesting established international transmission and a degree of community
transmission within the country – with more information on UK transmission expected
in the next week or two.
It said the similarity of the
genetic sequences in different countries implied a relatively recent emergence
and rapid growth, although this remained a tentative analysis given the small
number of sequences. At present, the agency said, there was not enough data to
assess the relative severity or degree of immune escape of BA.2.86 compared
with other variants in circulation.
The World Health Organization
announced on Thursday it was designating BA.2.86 a “variant
under monitoring” – while the US Centers for Disease Control and Prevention
(CDC) has similarly reported it is keeping a close eye on the variant after it
was discovered in Michigan.
As well as outstanding questions
over the severity of the variant, it is unclear whether it will become the
dominant form of the virus.
Its many genetic changes – it has
more than 30 mutations in the spike protein relative to the current predominant
variant – and its detection in several countries have put scientists on alert.
Prof Francois Balloux, director of
the UCL Genetics Institute, said BA.2.86 was the most striking Covid strain the
world has witnessed since the emergence of Omicron.
“The most plausible scenario is
that the lineage acquired its mutations during a long-term infection in an
immunocompromised person over a year ago and then spread back into the
community,” he said.
“BA.2.86 has since then probably
been circulating in a region of the world with poor viral surveillance, and has
now been repeatedly exported to other places in the world.”
Balloux added that how well the
new variant fared relative to other Omicron subvariants would become clearer in
the coming weeks.
More
New Covid variant causing concern among scientists
detected in London | Coronavirus | The Guardian
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.
Scientists design novel nonlinear
circuit to harvest clean power using graphene
AUGUST
18, 2023
Obtaining useful work from random
fluctuations in a system at thermal equilibrium has long been considered
impossible. In fact, in the 1960s eminent American physicist Richard Feynman
effectively shut down further inquiry after he argued in a series of lectures
that Brownian motion, or the thermal motion of atoms, cannot perform useful
work.
Now, a
new study published in Physical Review E titled "Charging
capacitors from thermal fluctuations using diodes" has proven that Feynman
missed something important.
Three of
the paper's five authors are from the University of Arkansas Department of
Physics. According to first author Paul Thibado, their study rigorously proves
that thermal fluctuations of freestanding graphene, when connected to a circuit
with diodes having nonlinear resistance and storage capacitors, does produce
useful work by charging the storage capacitors.
The
authors found that when the storage capacitors have an initial charge of zero,
the circuit draws power from the thermal environment to charge them.
The team
then showed that the system satisfies both the first and second laws of
thermodynamics throughout the charging process. They also found that larger
storage capacitors yield more stored charge and that a smaller graphene
capacitance provides both a higher initial rate of charging and a longer time
to discharge. These characteristics are important because they allow time to
disconnect the storage capacitors from the energy harvesting circuit before the
net charge is lost.
This
latest publication builds on two of the group's previous studies. The first was
published in a 2016 Physical Review Letters. In that study, Thibado
and his co-authors identified the unique vibrational properties of graphene and
its potential for energy harvesting.
The
second was published in a 2020 Physical Review E article in
which they discuss a circuit using graphene that can supply clean, limitless power for small
devices or sensors.
This
latest study progresses even further by establishing mathematically the design
of a circuit capable of gathering energy from the heat of the earth and storing
it in capacitors for later use.
More
Scientists design novel nonlinear circuit to harvest
clean power using graphene (phys.org)
Conversation about the weather is the last
refuge of the unimaginative.
Oscar Wilde. (Unless you live in southern
California or Arizona. Or even in the Caribbean where a hurricane might develop this week.)
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