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Markets, Treasury Yields Extend Gains, Bitcoin Storms Back Over $31,000

US markets, European bourses and Treasury yields rose for a…

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Futures, Treasury Yields Extend Gains, Bitcoin Storms Back Over $31,000

US equity futures, European bourses and Treasury yields rose for a second day clawing back much of the week's losses that were sparked by fears over spiking COVID-19 cases, as well as the "peak growth" and "peak inflation" narratives, as bargain hunters helped the S&P 500 to all but erase Monday’s slide in a rally led by cyclicals such as industrial stocks even though the dollar notched further gains on concerns over the impact of a fast-spreading coronavirus variant.

“The correction we had is healthy to clear some of the excess out of the market and to get better balancing between growth and value,” Katie Koch, Goldman Sachs Asset Management’s co-head of fundamental equity, said on Bloomberg Television. “From a long-term perspective we are really still very constructive on equity markets, so we’d encourage clients to be overweight risk assets.”

At 7:00am, emini S&P futures were up 11.50 points or 0.26% to 4,326; Dow Jones futures rose 176 or 0.51% and Nasdaq futures were up 4.5% or 0.03%. Bitcoin recovered from its drop below 30,000 jumping back over $31,000 ahead of a conference that sees Elon Musk, Jack Dorsey and Cathie Wood speak on cryptos.

Futures extended on Tuesday's gains, when the S&P 500 rose by the most since March, led by cyclicals, as traders shrugged off concerns that the coronavirus resurgence would curtail an economic recovery.  Here are some of the biggest U.S. movers today:

  • Cryptocurrency-related stocks jump in premarket trading, tracking a rebound for Bitcoin back above the $30,000 level. Marathon Digital (MARA) rises 6.9% and Riot Blockchain (RIOT) gains 6.3%.
  • Moderna (MRNA) slips 1.5% ahead of its inclusion into the S&P 500 Index.
  • Netflix (NFLX) gains 0.3% in premarket trading with most analysts maintaining a positive view on the stock despite second-quarter results and forecast for subscriber growth that came in below expectations.

"While some of the world is shrugging off rising infections as vaccination rates limit the severity of any symptoms of new cases, there are few parts of the world that can totally ignore this," said Rob Carnell, Asia-Pacific chief economist at ING.

Perhaps, but on Wednesday Europe was happy to ignore this, with Europe's Stoxx 600 index on track for the biggest jump since early May, as travel and leisure stocks lead a broad-based advance. ASML Holding NVand Novartis AG rose after positive earnings reports. SAP SE and Daimler AG declined, with the latter cutting sales forecasts due to the global chip shortage. The Stoxx 600 Travel & Leisure index rose as much as 4.6%, its biggest intraday increase since Dec. 3 and recovering the losses seen earlier in the week driven by surging delta-variant infections and fears of fresh restrictions imposed on international travel. Airlines led the travel stock surge, with Ryanair up as much as 4.1%, IAG climbing 3.3% and Easyjet rising as much as 5.2%. Here are some of the biggest European movers today:

  • Next shares surge as much as 11%, the most since April 2020, after the U.K. retailer raised its profit forecast again as shoppers returned to stores after the end of lockdowns. RBC sees consensus estimates being increased by mid-to-high single digits.
  • Thule rises as much as 11% in its steepest intraday gain since Feb. 10 as the maker of bike racks and bags beats the highest profit estimate in the consensus range.
  • ASML shares rise as much as 4.6%, the most intraday since May 5, after the company reported record orders that Oddo BHF (outperform) says were “slightly above expectations.”
  • SAP’s shares fall more than 5.1% after earnings, with analysts underwhelmed by the software giant’s slightly raised outlook for cloud revenue.
  • Ubisoft shares drop as much as 4.3% to a two-month low after giving a sales update. Jefferies notes the video game maker’s guidance remains a wide range.
  • Daimler shares fall as much as 4% in Frankfurt after lowering the sales outlook for its Mercedes-Benz division amid a chip shortage. Warburg says the reduction “is clearly negative” while noting that the margin target corridor for Mercedes-Benz Cars and Vans was confirmed.

Earlier in the session, Asian stocks notched their first rise in four sessions, as shares in cyclical-heavy Japan and Australia benefited from an investor focus on economically sensitive shares. MSCI's index of Asia-Pacific shares outside Japan was up 0.17%, trimming its losses for the week to around 2%, while Japan's Nikkei rose 0.90% after touching six-month lows a day earlier and entering a technical correction.

The materials sector led gains in the MSCI Asia Pacific Index, which advanced as much as 0.8% in early trading. The regional benchmark later pared much of that advance as Hong Kong stocks dropped and Asean shares extended losses after entering a correction on Tuesday. The U.S. and Asian benchmarks each lost 2.7% over their previous three sessions as the spread of the delta variant hurt investor sentiment.

“The sharp bounce of deep cyclicals has confirmed the global profits cycle bottom,” Satya Pradhuman, director of research at Cirrus Research, wrote in a note. “The next stage will become less broad based as investors will shift from a pure recovery trade to a reopening trade with interest rate risks coupled with Covid variant complications.” Meanwhile, the Hang Seng Index fell 0.1% after an early tumble of as much as 1.1%, with Tencent and Meituan among the biggest drags. Lawmakers are set to debate legal changes giving the government greater power to punish so-called doxxing offenses that a coalition of large tech companies says could hurt their ability to provide services. The Philippines’ main equity gauge was the region’s biggest decliner after President Rodrigo Duterte said stricter movement restrictions may be needed amid cases of delta variant. Indian markets were closed for a holiday.

Overnight, Japanese data showed solid exports to the United States and China. It's supporting hopes of an export-led recovery in the world's third-largest economy and allowed Japanese shares to snap a five-day losing streak with a 0.6% gain. Japanese equities climbed, following U.S. peers higher and ending a five-day losing streak ahead of a long weekend. Electronics and auto makers were the biggest boosts to the Topix, which rose 0.8%. Tokyo Electron and Recruit were the largest contributors to a 0.6% advance in the Nikkei 225, which rebounded after entering a correction on Tuesday. Mitsushige Akino, a senior executive officer at Ichiyoshi Asset Management, said investors might cover short positions ahead of the four-day weekend but was cautious over the longer term outlook. “Share prices have been performing poorly because of concern that the economic recovery will peak out and lose momentum due to the spread of the delta variant, so there is still uncertainty ahead,” he said. Japan markets will be closed Thursday and Friday, with the Tokyo Olympics starting this weekend.

In Australia, the S&P/ASX 200 index rose 0.8% to close at 7,308.70 in a rally led by health and materials stocks. BHP contributed the most to the benchmark’s gain after a report that the miner is considering getting out of oil and gas. Cimic was among the top performers after reporting 1H results. Altium was the worst performer, after Autodesk said it terminated acquisition talks with the software company. In New Zealand, the S&P/NZX 50 index rose 0.5% to 12,709.15

"The level of volumes, the level of sporadic whip-saw price action I think is telling you that there's not a lot of conviction one way or another," said Kay Van-Petersen, global macro strategist at Saxo Capital Markets in Singapore. But while he said peak global growth had likely passed, easy central bank policies continue to provide strong support for global asset prices even as they begin to flag the tapering of asset purchases. "The G4 central banks' balance sheets have been compounding by 15% since 2008. And my point is that's not going to stop. It's not going to get shut off."

Treasury 10-year yields rose further above 1.2% though it remains to be seen if the recovery in yields has legs amid lingering concerns about the delta virus variant that led traders to pare back bets on a Federal Reserve rate hike. Treasuries bear-steepened with long-end yields cheaper by 3bp-4bp as U.S. stock futures rise to weekly highs, with focus turning to corporate earnings. Treasury 10-year yields 1.243%, were cheaper by ~2bp on the day and mildly underperforming bunds and gilts; long-end-led losses steepen 2s10s and 5s30s by ~2bp. The Asian session produced gains for Treasuries, led by Aussie bonds, that began to erode during European morning helped by 10-year futures block sale. U.S. session’s main event is 20-year bond reopening.

In FX, the dollar index edged up 0.07% to 93.030, with the euro down 0.07% to $1.1771. The Bloomberg dollar index advanced to its highest since early April and risk-sensitive currencies rallied as a slew of corporate earnings took the focus off the coronavirus. The Aussie headed for its longest run of losses since September amid stricter virus curbs and a weaker-than-expected retail sales print. The Norwegian krone and New Zealand dollar led G-10 gains while the yen underperformed.

In commodities, Brent crude oil climbed back above $70 a barrel. The precious metals complex moved in tandem with yields, with spot gold in a tight range just above USD 1,800/oz (1,803-13/oz) and spot silver north of USD 25/oz (24.76-25.12/oz). Base metals have nursed overnight losses as the risk appetite across the markets offers base metals with some solace from China’s NDRC resuming its jawboning. Chinese state media noted that China is to auction 30k tonnes of copper, 90k tonnes of aluminium, and 50k tonnes of zinc from state reserves later this month, whilst the NDRC urged stepping up supervision on commodity prices and ensure overall price level targets this year.

On day after sliding below $30,000, a key support level which many said has to hold, it did just that with bitcoin storming higher and back over $31,000.

Looking at the day ahead now, and there isn’t a massive amount on the calendar, but data releases include the UK public finances for June, while from central banks we’ll hear from the ECB’s Visco. Finally, earnings releases include Johnson & Johnson, Coca-Cola and Verizon.

Market Snapshot

  • S&P 500 futures up 0.5% to 4,337.00
  • STOXX Europe 600 up 1.4% to 452.80
  • MXAP up 0.1% to 200.74
  • MXAPJ little changed at 669.92
  • Nikkei up 0.6% to 27,548.00
  • Topix up 0.8% to 1,904.41
  • Hang Seng Index down 0.1% to 27,224.58
  • Shanghai Composite up 0.7% to 3,562.66
  • Sensex down 0.7% to 52,198.51
  • Australia S&P/ASX 200 up 0.8% to 7,308.72
  • Kospi down 0.5% to 3,215.91
  • Brent Futures up 1.4% to $70.29/bbl
  • Gold spot down 0.3% to $1,804.55
  • U.S. Dollar Index little changed at 93.06
  • German 10Y yield rose 1.0 bps to -0.400%
  • Euro little changed at $1.1771

Top Overnight News from Bloomberg

  • The imminent return of the U.S. debt ceiling is causing angst for money-market traders once again
  • Investors are poised for a “big shift” in bond investing that will see them take larger positions tracking indexes, boosting the appeal of exchange- traded funds, according to a survey by State Street Global Advisors
  • The U.K. is heading for yet another round of quarreling with the European Union over its post-Brexit future, with Boris Johnson’s government preparing to set out key demands on Northern Ireland and the two sides at loggerheads on the status of Gibraltar

A more detailed look at global markets courtesy of Newsquawk

Asia-Pac stocks traded with a positive bias as the region partially took impetus from the rebound on Wall St where the COVID-triggered risk aversion abated to help the major indices retrace Monday's declines and with the recovery spearheaded by outperformance in cyclicals. ASX 200 (+0.8%) was underpinned by strength across most commodity-related industries, led by energy and with quarterly updates in focus including CIMIC which was among the biggest gainers despite posting weaker half-year net, as its revenue jumped and it also maintained full-year net profit guidance. This helped the index ignore a continued rise in domestic COVID-19 infections and disappointing Retail Sales data to reclaim the 7,300 level and briefly move to about 50+ points from all-time highs. Nikkei 225 (+0.6%) surged at the open following better than expected trade data including a 48.6% jump in Exports and reports that the government is to extend the employment subsidy program through end-December, but with gains then capped amid further infections of athletes as the first events of Tokyo 2020 got underway. Hang Seng (-0.1%) and Shanghai Comp. (+0.7%) were mixed with Hong Kong dragged lower after plans to ease rules on arrivals were delayed, while notable pressure was seen in cyclicals and WuXi Biologics suffered heavily due to its parent offloading 80mln shares. The mainland was positive amid conflicting views on the PBoC with some analysts suggesting that the PBoC may further reduce financing costs in H2, although attention was on the deadly flooding in Henan which has led to dam collapses in the region, mass evacuations and at least a dozen casualties with many more trapped in a flooded subway. Finally, 10yr JGBs were lacklustre amid the positive mood in Japanese stocks and recent whipsawing in USTs, although downside for Japanese bonds are also limited amid the BoJ’s presence in the market for almost JPY 1.4tln of JGBs with mostly 1yr-10yr maturities.

Top Asian News

  • China Raises Metal Sales Volume From Reserves to Cool Market
  • Thailand Reports Record 13,002 New Covid Cases, 108 Deaths
  • Iron Ore Tumbles as China Push to Cut Steel Output Hurts Demand
  • Asia Stocks Edge Up as Japan, Australia Gain on Cyclical Focus

Stocks in Europe have extended on the gains seen at the cash open (+1.3%) after a sentiment picked up following a somewhat mixed APAC session. This optimism has also seeped across the pond, with the US equity future all higher but the NQ (+0.1%) the laggard as yields rebound. Macro news flow has been quiet throughout the morning with today’s calendar also on the lighter side ahead of tomorrow’s ECB Policy Decision (Full preview available on the headline feed), although earnings have started picking up. Germany’s DAX (+0.6%) lags the region on the back of SAP’s (-2.4%) post-earnings losses, despite raising guidance, as the Co. missed on revenue expectations whilst operating profits also declined. Further, Daimler (-0.9%) is pressured in-spite of stellar earnings as it noted that the chip shortage will impact H2 (albeit not as bad as H1), whilst cutting its Mercedes-Benz forecast. SAP and Daimler together account for just under 15% of the DAX. The AEX (+1.6%) meanwhile resides as one of the top performers, in part supported by ASML (+3.5%) who announced a new share buyback programme and saw its guidance exceed analyst forecasts. ASML hold a 17.6% weight in the Dutch index and the stock has also lifted peers in tandem, with Infineon (3.0%), Micro Focus (+5.9%) and STM (+2.9%) all on the firmer footing. Sectors are firmer across the board and clearly portray a cyclical picture and a risk-on bias. Travel & Leisure tops the charts after the Delta-related decline earlier this week. The gains can mostly be attributed to Evolution Gaming (+5.0%), who hold a 19% weighting for the sector. Retail follows a close second aided by Next (+7.7%) as sales during the last seven weeks were materially above forecast, whilst the Co. plans to distribute its surplus cash as a special dividend. However, Next does not expect these exceptionally strong sales to continue. Other earnings-related movers include Iberdrola (+0.3%), Novartis (+0.9%), Julius Baer (-1.0%), Nordea (+2.6%) and Telia (-3.3%).

Top European News

  • Italy’s Caltagirone Boosts Mediobanca Stake, Eyeing 5% Share
  • Next Raises Forecast as Post-Lockdown Demand Fuels Sales
  • JPMorgan Recommends to Buy the Dip in Europe With Derivatives
  • London Staff Want Pay Rises to Return to Office, Survey Says

In FX, as Westpac aptly puts it, the Dollar is effectively in a win-win situation, as it retains a firm underlying bid when sentiment turns bearish due to heightened concerns about the adverse impacts of the Delta variant, but also during periods of less anxiety and when attention switches back to the more hawkish-leaning FOMC alongside risks that inflation may not be transitory. Hence, Buck bulls are eager to buy into any dips and apparently getting increasingly impatient given ascending lows and highs in the index to 93.194 so far off a 92.951 base compared to 93.172-92.799 and 93.041-92.627 ranges yesterday and on Monday respectively. Looking ahead, only weekly MBA mortgage applications are scheduled on the US data front, but Usd 24 bn 20 year issuance seems to be in focus as Treasury yields back up pretty sharply and the curve flips into re-steepening mode. Elsewhere, the Aussie has regained a degree of composure after briefly relinquishing 0.7300+ status in wake of appreciably weaker than anticipated retail sales data overnight and the ongoing COVID-19 lockdowns, but the Yen is now relenting and relying on 1 bn option expiry interest between 110.00-15 along with sentimental support to contain declines having reversed further from best levels seen so far this week to circa 110.18.

  • NZD - The Kiwi is taking advantage of the situation and supportive external factors after its recent sharp retracement from post-RBNZ peaks, but Nzd/Usd still looks tentative on the 0.6900 handle in contrast to the Aud/Nzd cross that has reversed more emphatically through 1.0600 on the aforementioned bearish Aussie factors.
  • GBP/CAD/EUR/CHF - All narrowly mixed against their US peer and relatively rangebound, as Sterling tries to secure a firmer grip of the 1.3600 handle following a scrape with the 50 WMA on Tuesday, while the Loonie is gleaning traction from a recovery in oil and risk sentiment between 1.2730-1.2670 parameters, the Euro is holding within a 1.1783-52 band and Franc is hovering under 0.9200.
  • SCANDI/EM - Much needed respite for the Nok via Brent reclaiming Usd 70+/brl terrain vs sub-Usd 67.50 at one point yesterday, but little solace for the Zar as Gold slips back towards Usd 1800/oz again to offset fractionally firmer than forecast SA inflation data. Meanwhile, more diplomatic angst for the Try as France’s Foreign Minister laments Turkey's attitude regarding Cyprus, and will raise the matter with the UN, not to mention the fairly pronounced rebound in crude prices.

In commodities, WTI and Brent front month futures have been tracking sentiment higher throughout the session following the recent correction in the crude complex emanating from COVID-related woes. Prices were pressured overnight after the surprise build in the headline private inventories (+0.8mln bbls vs exp. -4.5mln bbls), alongside gasoline (+3.1mln vs exp. -1.0mln). However, sentiment improved throughout the European morning despite news flow being scarce. As such, WTI Sep has managed to reclaim USD 68/bbl (vs low USD 66.44) whilst its Brent counterpart topped USD 70/bbl (vs low 68.63/bbl). Elsewhere, the precious metals complex moves in tandem with yields, with spot gold in a tight range just above USD 1,800/oz (1,803-13/oz) and spot silver north of USD 25/oz (24.76-25.12/oz). Looking ahead, prices are likely to follow sentiment ahead of the weekly DoE release. Base metals have nursed overnight losses as the risk appetite across the markets offers base metals with some solace from China’s NDRC resuming its jawboning. Chinese state media noted that China is to auction 30k tonnes of copper, 90k tonnes of aluminium, and 50k tonnes of zinc from state reserves later this month, whilst the NDRC urged stepping up supervision on commodity prices and ensure overall price level targets this year.

US Event Calendar

  • 7am: July MBA Mortgage Applications -4.0%, prior 16.0%

DB's Jim Reid concludes the overnight wrap

This morning we’ve launched our latest monthly survey, link here. This month we ask a number of questions about covid restrictions to judge how you feel about how life is progressing and will progress over the coming months. We also ask whether the UK has done the right or wrong thing by lifting all legal covid restrictions. In addition, we ask all the normal regular and market directional questions. All responses gratefully received. It should only take 3-4 minutes to complete and is totally anonymous.

I should have asked whether those responding in the U.K. had been boiled alive working from home in the heat without aircon yet. It’s been exceptionally hot here over the last few days and this week I’ve taken 3 cold showers each day to cool down. My wife is suspicious given my normal bathing habits but given I’ve not left my house for 3 days I think she’s relatively comfortable that it’s just the heat.

Markets yesterday showed a big thawing of the recent mini ice age, with the S&P 500 (+1.52%) putting in its best daily performance since March and recovering ground following 3 successive declines, whilst longer-dated Treasury yields moved higher in a big intra-day swing. But in spite of the mood music being a lot more positive as risk assets staged a decent recovery, there’s no denying that investors are still pretty jittery about the prospects for economic growth later this year given the delta variant and the plethora of other risks on the horizon. Indeed, those dampening prospects for growth saw them push back the likely timing of future rate hikes from the Fed once again, even as risk appetite was returning to multiple asset classes. Perhaps that’s partly why risk recovered.

In terms of the moves yesterday, equity indices recovered a fair amount of ground, particularly in the US as cyclicals led the moves higher. It was a broad-based advance, with 451 companies moving higher in the S&P, which is the seventh-highest number so far this year with cyclicals such as capital goods (+3.23%), consumer services (+2.72%) and banks (+2.59%) the strongest industry groups in the index. Small-cap stocks were another outperformer, with the Russell 2000 up +2.99%, beating the S&P for only the third time this month.

Megacap tech stocks traded just behind the broad index with the FANG+ index seeing a +1.18% rise. Shortly after trading closed, Netflix fell over -5% after the company reported fewer new subscribers than expected and said its content production was behind schedule due to the pandemic. However the stock ended the extended session up +0.67% as investors turned more positive during the earnings call. The company’s management asked investors to use 2019 as a comparison for user growth rather than 2020 to avoid base effects, which inflation watchers can sympathise with.

Whereas equities were in the green across the board, it was a more topsy-turvy day for sovereign bond markets. At one point, yields on 10yr Treasuries were down -6.3bps as they hit an intraday low of 1.126% (which would have been the lowest since 11 February), before recovering to close up +3.3bps at 1.222%. That brought an end to a run of 4 consecutive declines, though a further decline in short-end rates meant we also saw yield curves steepen including the 2s10s (+4.7bps) and the 5s30s (+7.7bps). On the other side of the Atlantic, European yields also pared back their losses later in the session, but 10yr yields on German bunds (-2.4bps), OATs (-1.7bps) and BTPs (-2.2bps) all closed at their lowest yield levels in at least 3 months.

Sentiment has again turned a touch weaker in the Asian session this morning as the markets in the region are mixed. The Nikkei (+0.65%) and Shanghai Comp (+0.60%) are posting gains but are off their intraday highs while the Hang Seng (-0.37%) and Kospi (-0.39%) are down after erasing early gains. Futures on the S&P 500 (-0.02%) are broadly flat but those on the Nasdaq are down -0.16% while yields on 10y treasuries are down -1.3bps to 1.211%. Crude oil prices are also down c. -0.70% this morning.

Turning to politics, we saw the first poll in Germany after the devastating floods that ravaged large swathes of the country last week and it showed that support slipped for the CDU led bloc. The Forsa poll had the CDU dipping by 2pp to 28% while support for the Green’s was unchanged at 19%. Support improved by 1pp for the SPD to 16% and the FDP was flat at 12%. The AfD also gained 1% point to 10%. Our German economist Marion Mühlberger doesn’t expect the floods to give the Greens a major boost. All in all, they see some minor gains for the Greens, Liberals and SPD but only small losses for CDU.

Staying with politics, further fiscal stimulus in the US will take a little more time with Senate Majority Leader Schumer unlikely to be able to begin floor debate on the bipartisan infrastructure bill later today as was hoped. Last night Republican Senator Portman said unequivocally that the group of Senators were “not going to have a product ready tomorrow for consideration.” Some Republicans, notably Mitt Romney and Bill Cassidy indicated they hoped a deal would be reached by the end of the week, allowing for a vote to begin debate on Monday.

Elsewhere in US politics, White House officials yesterday announced that they are starting to get signals that the chip shortages may be easing, including commitments from some auto and semiconductor manufacturers. US Commerce Secretary Raimondo has been working with the semiconductor manufacturers and their suppliers to increase transparency on production and shipments, and yesterday she noted that CEOs from Ford and GM have told her that the situation is getting “a little bit better.” The chip shortage has been a large driver of the inflation story due to its impact on used car prices, and so this dynamic will be worth watching over the next few months.

Elsewhere in markets yesterday, commodities recovered some of their losses from Monday, with WTI (+1.51%) and Brent Crude (+1.06%) managing to claw back a bit of ground after the losses following the OPEC+ agreement. As we saw above they’ve given up half these gains overnight. It was a similar story for industrial metals yesterday, with copper up +1.50%, though precious metals had a weaker session as investors moved out of safe havens again, with gold (-0.13%) and silver (-0.96%) both losing ground. Separately in FX markets, the continued strengthening of the US dollar (+0.09%), saw it close at its highest level since early April, which in turn meant that the euro was down -0.16% to its lowest closing level since early April, whilst sterling was down -0.34% to its lowest level since January. Bitcoin was another that continued to suffer, closing beneath $30,000 for the first time since January as it remained on track for its 4th consecutive monthly loss. It is now up just +2.5% YTD, compared to +118.7% in mid-April. Having said that it’s up another 2.5% in Asian trading so far.

Turning to the pandemic, there were further signs that normality still remained some way away as Singapore moved to tighten restrictions with the suspension of indoor dining and limits on group gatherings cut to 2 people. Meanwhile here in the UK, case numbers continue to rise against the backdrop of a further easing of restrictions, with the country reporting a fresh 46,558 yesterday, which leaves the total number over the last week up +41% over the previous 7-day period even if we’re off the weekend peaks at the moment. Elsewhere daily new cases are continuing to remain high in a number of Asian countries with South Korea and Thailand reporting record infections while Japan’s top Covid-19 adviser said new cases in Tokyo could hit a record in early August. Cases have also continued to climb in Australia’s two largest cities despite the implementation of strict lockdown orders that impact almost half of the country’s population. The exit strategy for Australia looks one of the most confusing in the world with the lowest vaccination rate in the OECD at the moment.

Over in the US, the CDC announced that 83% of all sequenced Covid-19 cases in the country are due to the delta variant, after being 50% at the start of the month. Vaccination efforts have plateaued in the US over the last few weeks, with just under 60% of the adult population fully vaccinated and just over 68% with at least one shot. Meanwhile, France yesterday announced that their vaccination rollout has seen a sharp acceleration in response to President Macron’s announcement that “health passes” would be required to go out to bars and restaurants – this would require proof of either a negative test or vaccination. In fact, Friday saw a record 880,000 jabs in arms in France as the rate of vaccination is now twice as fast in France as it is in either Germany or Italy.

Lastly on the virus, Bloomberg reported that a yet to be peer reviewed study has highlighted that J&J’s single dose vaccine produced relatively low levels of antibodies against the delta variant. The study added that Pfizer/ BioNTech and Moderna vaccine also produced fewer antibodies against the variant but the decline was less severe.

It was another light day on the data front, though we did get the latest US housing starts for June, which came in at a higher-than-expected annualised rate of 1.643m (vs. 1.590m expected). However, the more forward looking building permits fell to an 8-month low of 1.598m (vs. 1.696m expected).

To the day ahead now, and there isn’t a massive amount on the calendar, but data releases include the UK public finances for June, while from central banks we’ll hear from the ECB’s Visco. Finally, earnings releases include Johnson & Johnson, Coca-Cola and Verizon.

Tyler Durden Wed, 07/21/2021 - 07:42

Economics

How Science Becomes Religion

How Science Becomes Religion

Authored by Sheldon Richman via The Libertarian Insititute, 

The popular slogan today is "Believe in science."…

Share this article:

How Science Becomes Religion

Authored by Sheldon Richman via The Libertarian Insititute, 

The popular slogan today is "Believe in science." It’s often used as a weapon against people who reject not science in principle but rather one or another prominent scientific proposition, whether it be about the COVID-19 vaccine, climate change, nutrition (low-fat versus low-carb eating), to mention a few. My purpose here is not to defend or deny any particular scientific position but to question the model of science that the loudest self-declared believers in science seem to work from. Their model makes science seem almost identical to what they mean by, and attack as, religion. If that’s the case, we ought not to listen to them when they lecture the rest of us about heeding science.

The clearest problem with the admonition to "believe in science" is that it is of no help whatsoever when well-credentialed scientists–that is, bona fide experts–are found on both (or all) sides of a given empirical question. Dominant parts of the intelligentsia may prefer we not know this, but dissenting experts exist on many scientific questions that some blithely pronounce as "settled" by a "consensus," that is, beyond debate. This is true regarding the precise nature and likely consequences of climate change and aspects of the coronavirus and its vaccine. Without real evidence, credentialed mavericks are often maligned as having been corrupted by industry, with the tacit faith that scientists who voice the established position are pure and incorruptible. It’s as though the quest for government money could not in themselves bias scientific research. Moreover, no one, not even scientists, are immune from group-think and confirmation bias.

So the "believe the science" chorus gives the credentialed mavericks no notice unless it’s to defame them. Apparently, under the believers' model of science, truth comes down from a secular Mount Sinai (Mount Science?) thanks to a set of anointed scientists, and those declarations are not to be questioned. The dissenters can be ignored because they are outside the elect. How did the elect achieve its exalted station? Often, but not always, it was through the political process: for example, appointment to a government agency or the awarding of prestigious grants. It may be that a scientist simply has won the adoration of the progressive intelligentsia because his or her views align easily with a particular policy agenda.

But that’s not science; it’s religion, or at least it’s the stereotype of religion that the "science believers" oppose in the name of enlightenment. What it yields is dogma and, in effect, accusations of heresy.

In real science no elect and no Mount Science exists. Real science is a rough-and-tumble process of hypothesizing, public testing, attempted replication, theory formation, dissent and rebuttal, refutation (perhaps), revision (perhaps), and confirmation (perhaps). It’s an unending process, as it obviously must be. Who knows what’s around the next corner? No empirical question can be declared settled by consensus once and for all, even if with time a theory has withstood enough competent challenges to warrant a high degree of confidence. (In a world of scarce resources, including time, not all questions can be pursued, so choices must be made.) The institutional power to declare matters settled by consensus opens the door to all kinds of mischief that violate the spirit of science and potentially harm the public financially and otherwise.

The weird thing is that "believers in science" sometimes show that they understand science correctly. Some celebrity atheists, for example, use a correct model of science when they insist to religious people that we can never achieve "absolute truth," by which they mean infallibility is beyond reach. But they soon forget this principle when it comes to their pet scientific propositions. Then suddenly they sound like the people they were attacking in the previous hour.

Another problem with the dogmatic "believers in science" is that they assume that proper government policy, which is a normative matter, flows seamlessly from "the science," which is a positive matter. If one knows the science, then one knows what everyone ought to do–or so the scientific dogmatists think. It’s as though scientists were uniquely qualified by virtue of their expertise to prescribe the best public-policy response.

But that is utterly false. Public policy is about moral judgment, trade-offs, and the justifiable use of coercion. Natural scientists are neither uniquely knowledgeable about those matters nor uniquely capable of making the right decisions for everyone. When medical scientists advised a lockdown of economic activity because of the pandemic, they were not speaking as scientists but as moralists (in scientists’ clothing). What are their special qualifications for that role? How could those scientists possibly have taken into account all of the serious consequences of a lockdown–psychological, domestic, social, economic, etc.–for the diverse individual human beings who would be subject to the policy? What qualifies natural scientists to decide that people who need screening for cancer or heart disease must wait indefinitely while people with an officially designated disease need not? (Politicians issue the formal prohibitions, but their scientific advisers provide apparent credibility.)

Here’s the relevant distinction: while we ought to favor science, we ought to reject scientism, the mistaken belief that the only questions worth asking are those amenable to the methods of the natural sciences and therefore all questions must either be recast appropriately or dismissed as gibberish. F. A. Hayek, in The Counter-Revolution of Science, defined scientism as the "slavish imitation of the method and language of Science."

I like how the philosopher Gilbert Ryle put it in The Concept of Mind: "Physicists may one day have found the answers to all physical questions, but not all questions are physical questions. The laws they have found and will find may, in one sense of the metaphorical verb, govern everything that happens, but they do not ordain everything that happens. Indeed they do not ordain anything that happens. Laws of nature are not fiats."

"How should we live?" is not one of those questions which natural scientists are specially qualified to answer, but it is certainly worth asking. Likewise, "What risks should you or I take or avoid?" There is a world of difference between a medical expert’s saying, "Vaccine X is generally safe and effective" and "Vaccination should be mandatory." (One of the great critics of scientism was Thomas Szasz, M.D., who devoted his life to battling the medical profession’s, and especially psychiatry’s, crusade to recast moral issues as medical issues and thereby control people in the name of disinterested science.)

Most people are unqualified to judge most scientific conclusions, but they are qualified to live their lives reasonably. I’m highly confident the earth is a sphere and that a water molecule is two parts hydrogen and one part oxygen. But I do not know how to confirm those propositions. So we all need to rely on scientific and medical authorities–not in the sense of power but in the sense of expertise and reputation. (Even authorities in one area rely on authorities in others.)

But we must also remember that those authorities’ empirical claims are defeasible; that is, they are in principle open to rebuttal and perhaps refutation, that is, the scientific process. Aside from the indispensable and self-validating axioms of logic, all claims are open in this sense. That process is what gets us to the truth. As John Stuart Mill pointed out in On Liberty, even a dissenter who holds a demonstrably wrong view on a question might know something important on that very question that has been overlooked. To our peril do we shut people up or shout them down as heretics. That’s dogma, not science.

Tyler Durden Sat, 07/31/2021 - 13:00
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Precious Metals

Constant Inflation Doubletalk from Fed Erodes Confidence

The summer doldrums in precious metals markets have tested the patience of bulls. The silver market has been hit especially hard…

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Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.

The summer doldrums in precious metals markets have tested the patience of bulls. The silver market has been hit especially hard in recent weeks, but price stayed above the $24 level and avoided dipping to new lows for the year.

Nervous and frustrated investors who bailed out this summer may have made a huge mistake. Gold and silver markets appear to now be catching a break on the upside.

On Thursday, gold gained 2% to record its best close since mid-June. As of this Friday recording, the monetary metal trades at $1,830 an ounce and is up 1.1% for the week.

Turning to silver, prices are advancing by 1.4% this week to check in at $25.62 per ounce. Platinum, which was basically flat through Thursday, now shows a weekly loss of 1.8% to trade at $1,056. And finally, palladium is drifting slightly lower by 0.9% to come in at $2,682 per ounce.

Metals markets stand to benefit from renewed weakness in the dollar.

Since late May, U.S. dollar strength versus foreign currencies had put downward pressure on hard assets. The U.S. Dollar Index rallied from about 89.50 to just over 93 before momentum waned in recent days.

The Index failed to make a new high for the year on its summer rally, setting the stage for a potential bearish reversal. That reversal appears to have taken place this week, with the Dollar Index breaking down below 92 yesterday.

Currency traders were unimpressed by the Federal Reserve’s latest policy briefing. On Wednesday, the Fed announced it would leave its benchmark Funds rate unchanged and continue its $120 billion in monthly asset purchases.

No tapering was on the table, though there was some taper talk. It amounted to vague indications of future tightening after the U.S. economy attains "substantial further progress."

Fed Chairman Jerome Powell tried to quell inflation concerns. He reverted again to his “transitory” claims, but in remarks to the media he seemed confused about what his own definition of transitory inflation means.

Jerome Powell: The increases will happen. We're not saying they will reverse. That's not what transitory means. It means that the increases in prices will happen. So, there will be inflation, but that the process of inflation will stop, so that there won't be ...

When we think of inflation, we really think of inflation going up year, upon year, upon year, upon year. That's inflation. When you have inflation for 12 months, or whatever it might be, I'm just taking an example, I'm not making an estimate, then you have a price increase but you don't have an inflation process. And so, part of that just is that if it doesn't affect longer term inflation expectations, then it's very likely not to affect the process of inflation going forward.

So, what I mean by transitory is just something that doesn't leave a permanent mark on the inflation process. Again, I don't mean that producers are going to take those price increases back; that's not the idea. It's just that they won't go on indefinitely. We have two mandates, maximum employment and price stability. Price stability for us means inflation average of 2% over time. And so, we've got to be very careful about that, but I think it's a good point that it's a term, what it really means is "temporary." But then you've got to understand that it doesn't mean that the increases will be taken back. Some of them will be, but that's not really what it means.

Well, anyone wants to make sense out of all that would need a degree in Fedspeak. We are supposed to believe that stable prices actually means prices rising at a 2% average rate – except when the Fed wants inflation to run higher. But when it does, it’s only transitory – except when it affects the inflation process, which happens when long-term inflation expectations rise, which the Fed says won’t happen but at the same time doesn’t really know what will happen in the future.

Maybe what the Fed says matters less than what economic realities say. Investors would be better served focusing on fundamentals than trying to decipher central bankers’ forecasts.

Unfortunately, investors can’t ignore the Fed entirely. Since its monetary policy decisions can and do drive financial markets, it is necessary to pay attention to what the Fed is actually doing.

Right now it is still stimulating rather than fighting inflation, still holding interest rates artificially low, and still offloading negative real yields upon savers and investors.

That puts both the bond and stock markets in precarious positions. If inflation expectations were to shift to rising prices being a long-term rather than a transitory problem, a dramatic downside readjustment in interest-rate sensitive financial assets would commence.

There would also likely be a dramatic upside revaluation of hard assets including precious metals.

Whether investor psychology shifts suddenly or gradually toward an inflation-protection mindset remains to be seen. Metals markets tend to move slowly at the beginning of bull markets, then rapidly and even violently toward the end.

Market timing is an impossible task given the unpredictable nature of people and circumstances. What is possible is to capitalize on opportunities when markets are over-pricing financial assets and under-pricing hard assets.

The opportunity exists now, but it won’t last forever. There may even come a day when the opposite is true – hard assets are overpriced with inflation expectations running way ahead of actual inflation realities and financial assets offering tremendous value as a result.

Yes, that could happen. It did in the early 1980s.

But the early 2020s look more like the start of a new inflationary cycle rather than the unwinding of one.

Well, that will do it for this week. Be sure to check back next week for our next Weekly Market Wrap Podcast. Until then this has been Mike Gleason with Money Metals Exchange, thanks for listening and have a weekend everybody.

      

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Economics

Michael “Big Short” Burry: This Is The Greatest Bubble Of All Time In All Things “By Two Orders Of Magnitude”

Michael "Big Short" Burry: This Is The Greatest Bubble Of All Time In All Things "By Two Orders Of Magnitude"

Earlier this year, none other…

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Michael "Big Short" Burry: This Is The Greatest Bubble Of All Time In All Things "By Two Orders Of Magnitude"

Earlier this year, none other than Michael 'Big Short' Burry confirmed BofA's greatest fears, as he picked up on the theme of Weimar Germany and specifically its hyperinflation, as the blueprint for what comes next in a lengthy tweetstorm cribbing generously from Parsson's seminal work, warning that:

"The US government is inviting inflation with its MMT-tinged policies. Brisk Debt/GDP, M2 increases while retail sales, PMI stage V recovery. Trillions more stimulus & re-opening to boost demand as employee and supply chain costs skyrocket."

#ParadigmShift

 "The life of the inflation in its ripening stage was a paradox which had its own unmistakable characteristics. One was the great wealth, at least of those favored by the boom..Many great fortunes sprang up overnight...The cities, had an aimless and wanton youth"

"Prices in Germany were steady, and both business and the stock market were booming. The exchange rate of the mark against the dollar and other currencies actually rose for a time, and the mark was momentarily the strongest currency in the world" on inflation's eve.

"Side by side with the wealth were the pockets of poverty. Greater numbers of people remained on the outside of the easy money, looking in but not able to enter. The crime rate soared."

"Accounts of the time tell of a progressive demoralization which crept over the common people, compounded of their weariness with the breakneck pace, to no visible purpose, and their fears from watching their own precarious positions slip while others grew so conspicuously rich."

"Almost any kind of business could make money. Business failures and bankruptcies became few. The boom suspended the normal processes of natural selection by which the nonessential and ineffective otherwise would have been culled out."

"Speculation alone, while adding nothing to Germany's wealth, became one of its largest activities. The fever to join in turning a quick mark infected nearly all classes..Everyone from the elevator operator up was playing the market."

"The volumes of turnover in securities on the Berlin Bourse became so high that the financial industry could not keep up with the paperwork...and the Bourse was obliged to close several days a week to work off the backlog" #robinhooddown

"all the marks that existed in the world in the summer of 1922 were not worth enough, by November of 1923, to buy a single  newspaper or a tram ticket. That was the spectacular part of the collapse, but most of the real loss in money wealth had been suffered much earlier."

 "Throughout these years the structure was quietly building itself up for the blow. Germany's #inflationcycle ran not for a year but for nine years, representing eight years of gestation and only one year of #collapse."

His punchline: the above was "written in 1974 re: 1914-1923" and then makes the ominous extrapolation that "2010-2021: Gestation" adding that "when dollars might as well be falling from the sky...management teams get creative and ultimately take more risk.. paying out debt-financed dividends to investors or investing in risky growth opportunities has beaten a frugal mentality hands down."

And, as if reading from the same playbook, Paul Tudor Jones warned yesterday that things are "bat shit crazy" and if Jay Powell

“The idea that inflation is transitory, to me ... that one just doesn’t work the way I see the world."

All of which led to Burry's latest tweet warning this morning...

"People always ask me what is going on in the markets. It is simple. Greatest Speculative Bubble of All Time in All Things. By two orders of magnitude. #FlyingPigs360"

In other words: "Brace!"

So what are you going to do about it?

Tudor Jones had some simple advice: "buy commodities, buy crypto, buy gold."

Tyler Durden Tue, 06/15/2021 - 11:10

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