Baltic Dry Index. 1233 +67 Brent Crude 83.36
Spot Gold 1894 US 2 Year Yield 4.97 +0.05
John Kenneth Galbraith. The Great Crash: 1929.
Is
the global economy rolling over from boom to bust?
Well
if it isn’t, it’s doing an Oscar winning performance of faking it, led by the
Chinese economy.
China’s
economy has a hopelessly broken property sector that’s in the process of
imploding and probably can’t be fixed.
Too
many rampant Tofu Dreg construction projects will never make it to anywhere
near their supposed 50 year lifetimes. But that gets covered in this weekend’s Special
Update.
China’s
boom since 2008 is now turning into a 2023 bust, I think, with massive negative
implications for grossly overindebted western corporations and consumers.
Another
1929 lies ahead, I think, not another 1987, 2001 or 2008.
Asia markets mixed after Fed officials hint at
higher rates
UPDATED WED, AUG 16 2023 11:20 PM
EDT
Asia-Pacific markets extended their losses on
Thursday after the U.S. Federal Reserve’s July minutes showed inflation
concerns lingered, which could lead to more rate hikes.
“With inflation still well above
the Committee’s longer-run goal and the labor market remaining tight, most
participants continued to see significant upside risks to inflation, which
could require further tightening of monetary policy,” the meeting summary
stated.
The Federal Funds rate currently
stands at 5.25% to 5.5%, the highest in 22 years.
Hong Kong’s Hang Seng index fell
0.7%, while on mainland China, the CSI 300 inched down 0.07%.
In Australia, the S&P/ASX 200 was
down 0.9%, ahead of its unemployment rate for July.
Japan’s Nikkei 225 slid
0.91% and the Topic was 0.94% lower, as the country saw its trade balance slip
into a deficit in July from a surplus in June.
South Korea’ Kospi was down
1.38%, but the Kosdaq bucked the wider trend and gained 0.13%.
Overnight in the U.S., all three major indexes notched a second
straight losing session as the Dow Jones Industrial Average dropped 0.52%, while the S&P 500 dipped 0.76%. Meanwhile, the Nasdaq Composite saw the largest loss, falling 1.15%.
Asia markets mixed
after Fed officials hint at higher rates (cnbc.com)
Mortgage rates
could hit 8%, economists say, citing a worrying sign not seen since the Great
Recession
The 30-year rate is ‘at a
critical stage,’ Lawrence Yun, chief economist at the National Association of
Realtors, told MarketWatch
With mortgage rates firmly above 7%, homeownership
has become much more expensive. But will rates go even higher?
Three experts told MarketWatch that if the economy continues to show signs
of strength, and the U.S. Federal Reserve hikes its benchmark interest rate
once again, rates could go up to 8%.
High
rates have already taken a toll on the U.S. housing market. Even home builders,
who have in recent months experienced strong demand from homebuyers, are reporting a drop in buyer traffic as those
rising rates rattle their customers.
But
experts also stressed that the U.S. economy is showing early signs of cooling,
and that the rate of inflation is easing. That could lead to a slowdown — or
even a drop — in mortgage rates. But such forecasts are not a guarantee, as
Tuesday’s stronger-than-expected U.S. retail sales figures suggested.
Even
though the 30-year fixed mortgage rate was averaging 7.26% as of Tuesday
evening, the highest level since November 2022, economists say rates could go
up further.
The 30-year is “at a critical
stage,” Lawrence Yun, chief economist at the National Association of Realtors,
told MarketWatch.
“If the 30-year-fixed mortgage
rate can hold at a high mark of 7.2% — and the 10-year yield holds at 4.2% —
then this would be the high for mortgage rates before retreating,” Yun said.
“If it breaks this line and easily goes above 7.2%, then the mortgage rate
reaches 8%.”
More
Japan trade data dims growth prospects as
China leads decline in Asia exports
Japan posted its first monthly decline in exports
in more than 2 years, as weaker demand in its biggest trading partners in China
and the rest of Asia dimmed prospects for growth in the world’s third-largest
economy.
Exports fell 0.3% in July from a
year earlier for the first time since February 2021, according to provisional data released Thursday by
Japan’s Ministry of Finance. Exports to Asia plunged almost 37%, while those to
China contracted 13.4% in an eighth consecutive monthly decline, underscoring
the magnitude of the slowdown in the mainland.
“Luckily at this moment, [the weakness
in China exports] is completely offset by increase in exports to U.S. and
Europe, but as you know, there are a lot of uncertainties with regard the U.S.
and European economies,” Sayuri Shirai, an economics professor at Keio
University, told CNBC “Squawk
Box Asia” Thursday.
Japan’s domestic demand showed no
meaningful improvement, underscored by imports that slumped 13.5% in July. Both
export and import numbers were slightly better than expected, though Japan
swung to a trade deficit of 78.7 billion yen (539.6 million dollars), falling
far short of a median estimate for a 24.6 billion yen surplus.
A surge in imports had propelled a
provisional 6%
growth in Japan in the second quarter, though economists are
expecting global demand to weaken in the second half of the year.
“I think for Japan, Japan’s exports to China
counts for 20% of its total and Asia, 50%, so we have to really watch what’s
happening in China,” Shirai said.
Chinese
premier Li Qiang said Wednesday the country would work to
achieve its economic targets for the year. His remarks came on the back of a
slew of economic data that fell short of expectations, which prompted
economists to warn that China
might not be able to achieve its 5% growth target.
---- Separate
data released by the Japanese government showed core machinery orders —
regarded by some as a leading indicator of capital expenditure despite its
volatility — declined 5.8% in July from a year earlier.
Japan
trade data dims growth prospects as China leads decline in Asia exports
(cnbc.com)
China’s downside risks are growing, and its
economy is less likely to reach 5% this year
BEIJING — Without more stimulus, China is
increasingly likely to miss its growth target of around 5% this year,
economists said.
The country on Tuesday suspended
releases of data on youth unemployment, which had recently soared to
records. Other data for July showed a broad slowdown, worsened by the property
market slump.
“Prolonged weakness in property
construction will add to destocking pressures in the industrial space and
depress consumption demand as well,” Tao Wang, head of Asia economics and chief
China economist at UBS Investment Bank, said in a note.
“In such a case,
economic momentum may stay subdued in the rest of the year and China may miss
this year’s growth target of around 5%,” she said. “Deflation pressures could
persist longer in such a scenario. The economy would then warrant much stronger
or unconventional policies to revive.”
China is the world’s
second-largest economy, and accounted for nearly 18% of global GDP in 2022,
according to World Bank data.
“In our view, Beijing
should play the role of lender of last resort to support some major developers
and financial institutions in trouble, and should play the role of spender of
last resort to boost aggregate demand,” Nomura’s Chief China Economist Ting Lu
and a team said in a report Tuesday.
“We also see bigger
downside risk to our 4.9% y-o-y growth forecast for both Q3 and Q4, and it is
increasingly possible that annual GDP growth this year will miss the 5.0%
mark,” the report said.
---- “In
August, contagion fears around property developers and default risk
in the trust industry have also pushed sentiment lower, setting a
higher bar for stimulus to be effective,” said Louise Loo, lead economist at
Oxford Economics.
A firmer policy shift
could come in the fourth quarter, when a top-level meeting known as the “Third
Plenum” is expected to be held, Loo said.
Once-healthy giant
developer Country Garden is now on the brink of default. In other news this
month, Zhongrong International Trust missed payments to three mainland
China-listed companies, according to disclosures accessed via Wind Information.
---- As local government debt remained high, cash levels have
fallen, according to a Rhodium report in June. It noted regional authorities
have spent money to buy land, to fill demand that once came from developers.
“The current weakness of
localities’ finances prevents Beijing from utilizing fiscal policy to
support the economy,” Rhodium analysts said.
For many, especially
overseas investors, prolonged apparent inaction can affirm the Chinese
government has firmly shifted its priorities as well.
“A tepid response to
the cratering housing market would indicate that the top leadership’s reduced
emphasis on economic growth — in favor of priorities like national security and
technological self-sufficiency — is more far-reaching than we anticipated,”
Gabriel Wildau, managing director at consulting firm Teneo, said in a report
Tuesday.
More
China
economy may miss 5% growth amid property, consumption risks (cnbc.com)
Finally,
UK inflation drops again, but with UK inflation still elevated at 6.8 percent, the
BoE is still expected to raise its key interest rate next month. Better, but
must try harder!
With
Australia’s LNG producers about to face a strike, the UK and Europe’s gas
prices could soon be rising again.
Headline
inflation slows again but Bank set for further rate rise
WEDNESDAY 16 AUGUST 2023 7:21 AM
Inflation has slowed again to 6.8 per cent in July
but the Bank of England is still likely to implement a 15th straight interest
rate rise to bring it further down to its target of two per cent.
Latest figures from the Office for National
Statistics this morning show the Consumer Price Inflation index dropped from
7.9 per cent in June to 6.8 per cent, a welcome relief for millions of
cash-strapped Brits.
The rise however may still not be enough to prevent a
fifteenth straight rate hike from Andrew Bailey and his Monetary Policy
Committee when it meets in
mid-September.
Despite dropping to 6.8 per cent, it is still well below
(???) the Bank’s two per cent inflation target, with the fall attributed to
plummeting gas and electricity prices.
Meanwhile, the ONS said the summer tourism bump of
hotels and passenger transport offset some of the gains made from falling
energy prices.
Core inflation, which excludes
energy, food, booze and tobacco, was unchanged from June but rose on an annual
basis.
Despite this, food inflation rose again, by just
0.1 per cent, compared to a spike of 2.3 per cent in the two months a year ago.
This is the slowest annual rate of growth in food inflation since September
2022, and is down from 17.4 per cent in March 2023, which was the highest ever.
The ONS said milk products led the negative
contribution with the price of whole milk falling almost six per cent and low
fat by 3.2 per cent.
The second-largest downward contribution came from
the bread and cereals , where the annual rate eased to 14.4% from 16.7% in
June.
ONS Deputy Director of Prices Matthew Corder said:
“Inflation slowed markedly for the second consecutive month, driven by falls in
the price of gas and electricity as the reduction in the energy price cap came
into effect.
More
Headline inflation slows again but Bank set for further rate rise (cityam.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.
Dutch economy enters
recession as inflation bites
August 16, 20238:58 AM GMT+1
AMSTERDAM, Aug 16 (Reuters) - The Dutch
economy has entered a recession as it shrank 0.3% on a quarterly basis in the
second quarter, a first estimate published by Statistics Netherlands on
Wednesday showed.
The euro zone's fifth largest economy
shrank for the second consecutive quarter, after a 0.4% contraction in the
first three months of the year.
Economic growth in the Netherlands had
been almost 5% per year in 2021 and 2022 in a quick recovery from a COVID-19
slump.
The first recession since the pandemic
was driven by a drop in consumer spending and exports, as surging inflation
drove up food prices and energy bills in the Netherlands and its trading
partners.
Consumer spending fell 1.6%, while
exports were 0.7% lower than in the first three months of the year.
Inflation in the Netherlands has
dropped since hitting a peak of 14.5% in September last year, but was still
relatively high at around 6% in the second quarter of 2023.
Dutch economy enters recession as inflation bites |
Reuters
Higher-for-longer
rates regime pressures US recession trades
By Davide
Barbuscia August 16, 20236:09 AM GMT+
NEW YORK, Aug 16 (Reuters) - Bond
investors who had positioned portfolios defensively in anticipation of a U.S.
recession are adjusting their strategies for a surprisingly resilient economy that
will likely keep interest rates higher, longer than they had expected.
A so-called soft-landing economic path
– in which the Federal Reserve manages to curb inflation without causing output
to contract – has gained more consensus in recent weeks, prompting some
investors to take on more risk or reduce bets that safe-haven assets such as
Treasuries would rally.
Felipe Villarroel, a portfolio manager at TwentyFour Asset Management,
which specializes in fixed income, said he was shifting some allocations from
10-year Treasuries to 10-year U.S. investment-grade corporate bonds. This
reverses a build-up in positions in 10-year U.S. government bonds that started
a year ago when yields were rising on the back of the Fed's interest rate
hikes.
"The tail risk of a hard landing is being priced out, and that
doesn't mean we're too bullish on the economy, but it does mean that the
weighted average scenario has improved," he said.
For investors who had expected more
economic strife, sticking to those calls has become increasingly difficult.
Over the past year the unemployment rate has remained defiantly low, and growth
has run consistently above trend.
"It's going to take longer for
rates to rally," said John Madziyire, senior portfolio manager and head of
U.S. Treasuries and TIPS at Vanguard Fixed Income Group. "As a result, we
have reduced those positions and expect them to happen way later than we
expected previously."
Treasuries generally become more
valuable, which means their yields decline, during periods of economic
weakness, but long-term yields have spiked in recent weeks, with the benchmark
10-year hitting an almost 10-month high on Tuesday.
In addition to pricing for more
economic resilience, bond investors are also factoring in the Bank of Japan's
recent shift in its yield curve control policy, issues around U.S. debt
sustainability as highlighted by Fitch's U.S. downgrade, and the large funding
requirements announced by the Treasury.
"Recession or no recession, we
think the probability of higher-for-longer interest rates is far greater than
the likelihood of near-term cuts," credit investment firm Oaktree Capital
said in a recent note.
More
Higher-for-longer rates regime pressures US recession trades | Reuters
Covid-19 Corner
This section will continue until it becomes unneeded.
Can dogs really detect Covid-19 infections faster and more accurately than a lateral flow test?
August 16, 2023
Dogs
can detect Covid-19 faster
and more accurately than a PCR test, a new study shows.
Researchers looked at the ability of canines to
recognise the virus and its variants, even when they are obscured by other
viruses, like those from common colds and flu.
More than 400 scientists from over 30 countries
contributed to the study as well as 147 scent dogs, according to the findings
published in the Journal of Osteopathic
Medicine.
After
analysing many studies covering both field and clinical experiments, Professor
Dickey and Junqueira found that dogs who are trained to sniff out scents are
“as effective and often more effective” than antigen tests.
A total of 53
dogs were trained to sniff out Covid scents, while 37 were not and scientists
found that the dogs that were not trained were in some cases “slightly
superior” to those that were pre-trained.
“The
previously untrained dogs have the advantage that they are not as prone to
indicating on scents other than the Covid–19 associated scent,” the paper said.
The results
indicated that not only can dogs detect Covid faster, but they can also do so
in a non-intrusive manner. This means you won’t need to put a swab in your
throat or nose.
---- Dogs possess up to 300 million olfactory receptors in their
noses, compared to about six million in humans. And the part of a dog’s brain
that is devoted to analysing smells is about “40 times greater” than humans.
Canines also have ‘neophilia’, which means they are attracted to new and
interesting odours
And so, with
all these enhancements, dogs can detect very low concentrations of odours
associated with Covid infections.
More
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.
Today, another update on Solar Cycle
25.
Solar
Cycle 25 is more active and powerful than predicted
August 16, 2023
----In February 2022, SpaceX launched 49 Starlink
internet satellites into a low-Earth orbit. This was the 36th Starlink launch that SpaceX had
carried out, and one that they anticipated to go off without a hitch, just like
the 35 before.
On launch day, a coronal mass ejection – a large burst of plasma expelled from the sun –
struck Earth. It caused a geomagnetic storm in the atmosphere between around 62
and 310 miles (100 and 500 kilometers) in altitude, the target range for
Starlink.
This event injected an
immense amount of electromagnetic energy straight into Earth’s upper
atmosphere. It produced beautiful auroral displays. But the energy also increased the density of the air. A
higher air density typically isn’t a big deal for satellites in low-Earth
orbit, because it’s already extremely low at usual operational altitudes
(upwards of 248 miles or 400 kilometers).
Starlink, however, was
initially launched into an altitude of 130 miles (210 kilometers). That’s much closer to Earth, with an exponentially
higher air density. Thirty-eight out of those 49 initial launch satellites were
subsequently lost due to atmospheric drag from the dense atmosphere, pulling them back to Earth.
Surprising solar cycle
The sun undergoes a cycle –
an 11-year one, to be exact – from which its activity increases and decreases
periodically. At the peak of a cycle, we see more sunspots on the solar
surface, more radiation emitted, and more solar flares. Geomagnetic storms like
the one that caused the Starlink destruction event are a relatively common
occurrence, especially when the sun reaches the peak of its 11-year cycle of
strengthening and weakening activity.
In the previous cycle, which
ended in 2019 (the 24th tracked cycle since 1755), there were 927 storms classed as moderate or weak alone, an average of one every five or so days.
We’re currently four years
into Solar Cycle 25, but this one has already proven surprising. The maximum
activity of the 25th cycle was predicted to occur in 2025. But solar activity
has already exceeded the expected maximum. This means we’ve been seeing more
geomagnetic storms, more auroral displays (and at lower latitudes than usual)
and, potentially, more hazardous conditions for satellites in low-Earth orbit.
More
Solar Cycle 25 is more active and powerful than
predicted (earthsky.org)
John Kenneth Galbraith.
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