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EU To Propose Exempting “Green” Bonds From Deficit And Debt Limit Calculations

EU To Propose Exempting "Green" Bonds From Deficit And Debt Limit Calculations

Yesterday, the ECB announced that in Q4, it would "modestly…

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This article was originally published by Zero Hedge
EU To Propose Exempting "Green" Bonds From Deficit And Debt Limit Calculations

Yesterday, the ECB announced that in Q4, it would "modestly lower the pace of net asset purchases under the PEPP than in the previous two quarters" (even as Lagarde scrambled to convince markets not to call it tapering) with Reuters sources adding that "policymakers set a monthly target of between 60 billion and 70 billion euros" down from 80 billion currently "with flexibility to buy more or less, depending on market conditions." Putting this non-taper taper in context, Nomura calculated that "even if net PEPP is scaled down to €60bn/month the ECB would still buy 85% of the remaining gross supply, strongly supporting EUR rates."

Despite the shrinkage of ECB bond-buying, Lagarde made it clear that the fiscal spice must flow:

  • *LAGARDE: FISCAL SUPPORT HAS TO BE CONTINUED

  • *LAGARDE: FISCAL SUPPORT NEEDS TO BE MORE TARGETED

And to facilitate just that despite periodic loud if mostly theatrical objections from conservative "Northern" European nations, on Friday European Union finance ministers will begin discussing on Friday how to change their budget rules to deal with a huge rise in government debt during the coronavirus pandemic and how to encourage spending needed to arrest climate change.

The most notable proposal is to exempt "green" investments from calculations of deficit and debt limits and temporarily forgetting existing rules that say debt must be cut every year, Reuters reported citing documents prepared for the ministers' talks showed.

"The challenge in coming years will be to consolidate deficits while increasing green investments to achieve the ambitious targets of the EU to cut emissions or any other investments," a note prepared by host Slovenia said.

In other words, the EU will use the "green" strawman of fighting climate change as a loophole to issue debt over and above the EU's self-imposed ceilings.

Sure enough, an analysis commissioned by the ministers from the Bruegel think-tank showed additional public investment to meet the EU's climate goals will have to be 0.5%-1.0% of GDP annually during this decade and that may require flexibility in the rules.

"There are substantial investment needs that will be very difficult to achieve in the current fiscal setting," the Bruegel paper said. "Past consolidation episodes resulted in major public investment cuts, while now there is a need for a major increase in investment."

"A 'green golden rule' (excluding net green investment from the fiscal indicators used to measure fiscal rule compliance) is the most promising option to address this tension," it said.

EU budget rules, created in 1997 and changed three times since then, set limits on government borrowing to protect the value of the euro. They require EU countries to cut debt below 60% of GDP and annual deficits to below 3% of GDP or face fines.

While the rules were "temporarily" suspended in 2020 to give governments more scope to fight the coronavirus pandemic, they are due to be reinstated in 2023. Changes could be made before then to make them better fit the new challenges Europe is facing, the biggest of which is how to issue much more debt permanently without violating budget rules.

Predictably, some EU officials argue the rules reflect past realities when debt was relatively low and interest rates were relatively high, as opposed to the high debt and very low or even negative cost of borrowing now, which makes high debt more sustainable. This is also known as the "MMT" argument. 

Another drawback of these rules according to Europe's profligate spenders, is that they do not give any special treatment to public investment at a time when the 27 countries that form the EU are embarking on their biggest economic transformation to reach zero net CO2 emissions by 2050. A transformation which has already sent the price of nat gas soaring to stratospheric levels and prompted European protests against the hyperinflating price of electricity.

Needless to say, bringing back deficits and debt to within the EU limits of 3% and 60% respectively would be a "major challenge" in Reuters' words - and "impossible" in ours -  and would cripple the recovery, EU officials say.

According to the Commission, the 19 countries that share the euro will have a budget deficit of 8.0% of GDP this year, up from 7.2% last year, while their public debt is set to reach 102.4% of GDP. There is no way this number can ever again drop back to 60%.

"The time frame of eliminating the excessive deficits and achieving structural balance will need to be carefully considered as it is extremely important that fiscal constraints do not hamper growth," the Slovenian presidency's note said.

The EU's €800 billion recovery fund, which will provide cash for all 27 members of the bloc until 2026 for green investment, digitalisation and research and development, will help offset any planned fiscal consolidation, Bruegel said. But to make the "green" transformation a reality, EU budget rules will also have to be applied with maximum flexibility, it said meaning Europe will need much more debt capacity, debt which will be largely monetized by the ECB. Bruegel recommended that the EU forget its rule that every country must cut public debt by 1/20th of the excess above 60% of GDP every year, because with debt so high it is unrealistic.

In short, the original budget rules that shaped the EU are now dead.

"An overly fast pace of fiscal consolidation, such as implemented after the 2007 global financial and subsequent euro crises, can adversely impact potential output and trigger a new recession and should therefore be avoided," Bruegel said.

Discussions on how to change the rules to better fit the changing economic realities are likely to be tough and last well into 2022 as trust between countries of the more frugal north of the EU and what they perceive as the more profligate south is very low following the sovereign debt crisis of 2010-2015.

Tyler Durden Fri, 09/10/2021 - 04:15

Economics

UK Gas Crisis Stuns Poultry Slaughterhouses, May Trigger Higher Chicken Prices

UK Gas Crisis Stuns Poultry Slaughterhouses, May Trigger Higher Chicken Prices

Soaring natural gas prices across the UK have disrupted companies…

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UK Gas Crisis Stuns Poultry Slaughterhouses, May Trigger Higher Chicken Prices

Soaring natural gas prices across the UK have disrupted companies from operating. The latest is slaughterhouses that use carbon dioxide, a byproduct of fertilizer derived from natural gas. 

Richard Griffiths, chief executive officer of the British Poultry Council, told Bloomberg surging natural gas prices is a massive blow for poultry companies, which frequently use a byproduct of fertilizer production -- carbon dioxide -- to incapacitate birds at slaughterhouses.

CO2 supplies are incredibly tight, Griffiths said, adding that any further shortages could create massive headwinds for the industry and hinder chicken production. Already, weekly chicken output has dropped 5-10%, and Christmas turkey production could drop by a fifth. 

The unintended consequences of natural gas shortages are the effects on the food industry and how it may result in rising meat prices if slaughterhouse output continues to decline. 

On Thursday, we outlined how CF Industries Holdings' fertilizer plants, one in Billingham and another in Ince, suspended operations "due to high natural gas prices." 

"I would expect it to be having impacts very quickly," Griffiths said by phone. "At the moment, we've got all the Brexit effects, including labor shortages, all the Covid add-ons. And now, we're seeing these supply-chain problems emerge at a time when we really don't need it." 

Energy inflation could be a company's worse nightmare in the UK -- prices for the fuel have already doubled this year, while power costs are on a record-breaking run thanks to the lack of renewable energy output

More companies could be impacted by soaring natural gas prices and elevated electricity prices. This problem isn't likely to fade anytime soon as gas inventories remain low ahead of the winter season. 

All of this is feeding into inflation across the continent. European Central Bank President Christine Lagarde recently said energy markets are a significant driver in higher inflation. To solve this, Germany has to certify Russia's Nord Stream 2 to begin receiving shipments - but as we recently noted, that could take months and may suggest European inventories won't be resupplied in time for winter. 

    Tyler Durden Sat, 09/18/2021 - 07:35
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    Economics

    US stocks close in a sea of red as tax hike fears grow

    US stocks closed the week in a sea of red on Friday September 17 after technology shares led the broad losses across segments and tax hike fears dragged…

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    US stocks closed the week in a sea of red on Friday, September 17, after technology shares led the broad losses across segments and tax hike fears dragged the benchmark indices down.

    The S&P 500 fell 0.91% to 4,432.99. The Dow Jones fell 0.48% to 34,584.88. The NASDAQ Composite Index declined 0.91% to 15,043.97, and the small-cap Russell 2000 was up 0.18% to 2,236.87.

    Markets have been volatile this week amid mixed global cues. Loses in the Asian markets over worries of slow economic recovery and recent geopolitical developments weighed on investors’ minds. The tech-savvy Nasdaq declined the most.

    In addition, the recent retail sales and unemployment data offered mixed signals about the US economy. While retails sales were up in August, jobless benefits claims rose noticeably last week.

    Meanwhile, lawmakers were considering a proposal to hike corporate tax. The news could be worrisome for some investors as a tax hike may eat into the companies’ profits. Democrats are seeking to increase the corporate tax from the current 21% to 26.5%.

    Investors will now eagerly wait for the Fed’s monthly meeting next week. The central bank officials are expected to discuss the latest economic data as they continue with the stimulus tapering talks.

    All the S&P 500 stock segments stayed in the negative territory. Technology and communications services stocks were the biggest losers, pushing the index down. Stocks of vaccine manufacturers Moderna, Inc. (MRNA) and Pfizer Inc. (PFE) plunged 3.57% and 1.34%, respectively.

    Invesco Ltd. (IVZ) stock rose 5.71% after reports that it is in talks to merge with the asset management unit of State Street Corporation (STT). STT stock declined 2.47% in intraday trading.

    SmileDirectClub, Inc. (SDC) shares surged 12.92% after the stock was discussed on social media.

    AbCellera Biologics Inc. (ABCL) stock rose 2.53%, a day after the US Food and Drug Administration extended the emergency use authorization for its covid drug Bamlanivimab.

    In technology stocks, Apple Inc. (AAPL) fell 1.94%, Microsoft Corporation (MSFT) fell 1.65%, and ASML Holdings N.V. (ASML) declined 3.18%. Adobe Inc. (ADBE) and Cisco Systems, Inc. (CSCO) fell 1.75% and 1.19%, respectively.

    In communication stocks, Alphabet Inc. (GOOG) fell 2.08%, Facebook, Inc. (FB) declined 2.96%, and T-Mobile US, Inc. (TMUS) declined 1.19%. In addition, Sea Limited (SE) dropped 1.23%, and Snap Inc. (SNAP) advanced 3.08%.

    In the material sector, BHP Group (BHP) fell 4.46%, Rio Tinto Group (RIO) fell 3.02%, and Vale S.A. (VALE) fell 2.21%. Ecolab Inc. (ECL) and Freeport-McMoRan Inc. declined 2.01% and 4.10%.

    Also Read: Check these 5 oil and gas stocks with high price-to-earnings ratio

     

    Copyright ©Kalkine Media 2021

    Also Read: ASAN, FORG, & DATS stocks shine on higher demand hopes

    Top Gainers

    Top performers on S&P 500 included Thermo Fisher Scientific Inc (6.49%), Invesco Ltd (5.46%), Centene Corp (4.95%), Diamondback Energy Inc (3.18%). On NASDAQ, top performers were Corvus Pharmaceuticals Inc (135.40%), Helbiz Inc (96.56%), Priority Technology Holdings Inc (47.23%), Innate Pharma SA (40.87%). On Dow Jones, Amgen Inc (0.93%), UnitedHealth Group Inc (0.80%), American Express Co (0.79%), Procter & Gamble Co (0.16%) were the leaders.

    Top Losers

    Top laggards on S&P 500 included Unum Group (-6.04%), International Flavors & Fragrances Inc (-5.53%), Copart Inc (-5.46%), Nucor Corp (-4.49%). On NASDAQ, Protagonist Therapeutics Inc (-62.00%), TCR2 Therapeutics Inc (-36.45%), Eliem Therapeutics Inc (-21.92%), Janux Therapeutics Inc (-20.26%). On Dow Jones, Dow Inc (-2.89%), Caterpillar Inc (-1.89%), Apple Inc (-1.83%), Microsoft Corp (-1.75%) were the laggards.

    Volume Movers

    Top volume movers were Bank of America Corp (43.29M), Nov Inc (41.49M), Apple Inc (40.72M), AT&T Inc (38.62M), Oracle Corp (37.24M), Lucid Group Inc (39.05M), Match Group Inc (36.06M), SoFi Technologies Inc (33.81M), Tellurian Inc (28.37M), Corvus Pharmaceuticals Inc (26.47M).

    Also Read: Top five mid-cap retail stocks with more than 100% YTD gain

    Futures & Commodities

    Gold futures were down 0.22% to US$1,752.85 per ounce. Silver decreased by 1.87% to US$22.367 per ounce, while copper fell 1.15% to US$4.2322.

    Brent oil futures decreased by 0.45% to US$75.33 per barrel and WTI crude was down 0.81% to US$71.97.

    Bond Market

    The 30-year Treasury bond yields was up 1.13% to 1.902, while the 10-year bond yields rose 2.43% to 1.363.

    US Dollar Futures Index increased by 0.33% to US$93.227.

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    Economics

    Victor Davis Hanson: The Death Of Science

    Victor Davis Hanson: The Death Of Science

    Authored by Victor Davis Hanson,

    The scientific method used to govern much of popular American…

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    Victor Davis Hanson: The Death Of Science

    Authored by Victor Davis Hanson,

    The scientific method used to govern much of popular American thinking.

    In empirical fashion, scientists advised us to examine evidence and data, and then by induction come to rational hypotheses. The enemies of "science" were politics, superstition, bias and deduction.

    Yet we are now returning to our version of medieval alchemy and astrology in rejecting a millennium of the scientific method.

    Take the superstitions that now surround COVID-19.

    We now know from data that a prior case of COVID-19 offers immunity as robust as vaccination. Why, then, are Joe Biden's proposed vaccination mandates ignoring that scientific fact? Dr. Anthony Fauci, when asked, seemed at a loss for words.

    Is this yet another of the scientific community's Platonic "noble lies," as when Fauci assured the public last year that there was no need for masks?

    He later claimed he had lied so that medical professionals would not run out of needed supplies.

    Fauci also threw out mythical percentages needed for herd immunity, apparently in an attempt to convince the public that it will never be safe until every American is protected from COVID-19 by vaccination only.

    And why was it that hard for the scientific community to postulate a likely origin of COVID-19 Some of the very scientists engaged in gain-of-function research oversaw an investigation with Chinese authorities. They confirmed the predetermined conclusion that the virus likely had little to do with gain-of-function engineering. And they saw little proof it was birthed in a Wuhan virology lab. Yet scientific opinion, emerging evidence and basic logic have suggested the opposite.

    How can the government hector citizens that they have a moral duty -- and soon a legal obligation -- to be vaccinated when it does not mandate vaccinations for unvetted refugees flying in from Afghanistan?

    How can the government medical community remain largely silent when an anticipated 2 million foreign nationals will cross into the United States in the current fiscal year -- almost none of whom are vaccinated or tested for COVID-19?

    Why do the media and government blame particular races for the delta variant outbreak on grounds that they were insufficiently vaccinated?

    Why wouldn't officials simply urge the Latino and Black communities to be vaccinated as quickly as possible?

    Data shows that both groups have lower vaccination rates than white and Asian populations.

    Are woke political agendas discrediting science and losing public health?

    We saw just that in June 2020, when more than 1,200 "health care professionals" signed a petition demanding exemptions from lockdowns and quarantines for Black Lives Matter protesters marching en masse. And they concocted medical excuses such as "vital to the national public health" to insist that violating quarantines was less unhealthy than not pouring into the streets.

    Why did presidential candidate Joe Biden and his running mate, Kamala Harris, warn the American people on the eve of vaccination rollouts that an inoculation under the Trump administration could be unsafe, thereby undermining confidence in vaccines?

    Why was the medical community largely silent about such dangerous sabotaging of new vaccines, but months later became vociferous in warning the public that any doubts about the safety of these Operation Warp Speed vaccinations were scientifically misplaced? Was there a medical breakthrough on Jan. 20, 2020, to alter their consensus?

    From rewarding wokeness in medical school admissions to the peer reviewing of scientific papers, the anti-scientific mania has polluted scientific endeavors.

    "Critical race theory" would preposterously tell us that we need racism to fight racism.

    "Critical legal theory" ludicrously claims that laws have no rational basis but simply reflect power inequities.

    "Modern monetary theory" defies millennia of evidence and basic logic in stating that governments can simply print money without worrying about balancing expenditures with revenues or inflating the currency to ruination.

    Corporations are now asked to substitute a new woke agenda theory -- "Environmental, Social and Corporate Governance (ESG)" -- in lieu of market realities, rules of investment and economic data.

    Science is dying; superstition disguised as morality is returning. And we'll all soon become poorer, angrier and more divided.

    Tyler Durden Fri, 09/17/2021 - 22:20
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