Zero Hedge

Spring, Summers, Nuclear Fall(out), Or Winter?

Spring, Summers, Nuclear Fall(out), Or Winter?

By Michael Every of Rabobank

Yesterday’s US CPI was radioactive. Headline and core were both 0.4% m-o-m, and 3.5% and 3.8% y-o-y. Energy prices were higher, which is bad. Shelter inflation was stuck at 5.7%, which is worse. But worst of all, services excluding shelter were 0.8% m-o-m and 4.8% y-o-y. In short, this is ammo for those who warned inflation risked getting stuck at 3-4%, especially against the backdrop of other data, including the small business survey earlier this week where inflation was seen as the #1 problem again.

Market reactions were extreme because it has been so very wrong this year - again. US 2-year yields shot up 23bp, and this morning are 4.97%. US 10-year yields soared 21bp, not helped by an ugly auction, and are 4.56% at time of writing. Stocks fell, and the dollar soared, with USD/JPY over 153 for the first time since 1990. Commodities were generally hit.

Then the Fed minutes’ tone, and that of President Biden, remained that rates are going to fall anyway at some point soon: I like the Seinfeld meme about that.

Our Fed-watcher Philip Marey has now shifted his first expected Fed cut from June to September, with only two cuts seen in 2024. Moreover, if Trump wins the US election and introduces tariffs, Philip sees only another two cuts before the Fed has to stop. In other words, the Fed Funds floor would be 4.50%, where the US 10-year is trading, implying no term premium.

For markets drinking their own saliva for rate cuts in January, then spring, then summer, the prospect of having to wait until fall/autumn is awful: it’s almost a nuclear fallout for some. But it can be worse, as a cacophony of jaw-dropping rates commentary shows.

We just saw a call for a 50bp Fed cut in June, suggesting economic collapse; that shelter inflation can’t come down unless the Fed cut rates to free up the US housing market (Turkish President Erdogan will be feeling proud); Larry Summers warns the Fed should hike; and Mohammad El-Erian says it should raise its CPI target to 2-3% in a supply-constrained world.

Two years ago, I argued if we couldn’t keep past levels of goods deflation in a de/re-globalising world at war, which looked hard, more disinflation would have to come from services, which nobody would want to see when it actually had to happen, so very hard choices would loom. That’s very much the dynamic we appear to be facing, even if not all of us are facing up to it.

Will that stop other central banks from cutting, as their economies underperform the US? The Bank of Canada left rates at 5%, as expected, and Christian Lawrence notes they are still minded to start cuts in June or July. Today it’s the ECB, where Elwin de Groot and Bas van Geffen expect no change, and President Lagarde’s comments are seen keeping the door open to begin cuts in June. The BOE will follow: Stefan Koopman says in August. (Please also see his fantastic Bank of England review preview: the points he raises about how policy decisions are made apply to all central banks.) Then again, the BOJ are now predicting 2% CPI ahead, so they should presumably be hiking much more than just another 10bps.

Obviously, that rates dynamic favours USD vs. EUR, CAD, and GBP: and one also wonders how far any divergence can be pushed before G7 FX crosses start looking like JPY. On which, the Japanese authorities are not ruling out intervention: but what can that really do?   

Meanwhile, the real-world backdrop I was warning is not inflation-friendly risks getting far worse.

Both US and Israeli officials expect an imminent Iranian attack on Israel, which has made clear will see it retaliate directly against Iran; and there are suggestions the US might join Israel in a counterstrike as the US CENTCOM commander heads to Israel to coordinate. US President Biden, critical of Israel’s war in Gaza, has stressed an “ironclad” promise to stand behind Jerusalem if Tehran attacks it. Also, recall Iran is also a threshold nuclear state. Understandably, Brent oil, after dipping post-CPI, went straight back up again to $91. If we get escalation, where does one place US CPI? And Fed Funds? Or other central banks’ rates?

On another geopolitical front, the US is to deepen its defence pact with Japan. For one example, US Navy vessels will now be repaired in Japanese shipyards. Japan, a leading middle-power advocate for the “rules-based order”, is now part of “Team US”, and so stands behind the Philippines in its continued tense stand-off against China in the South China Sea. Bloomberg today refers to this pact, plus Australia (where the PM says, “Make more things here”), as NATO 2.0 for the Indo-Pacific: meanwhile, Russia and China warn NATO 1.0 to stay out of it. If you want a reason for the US to provide FX support for JPY, it would be this realpolitik – not the recent market dynamic.

China set CNY fixing at 7.0968, a record 1,579 pip spread to expectations. Clearly, Beijing doesn’t want to get into competitive FX devaluation under US CPI-related pressure. *If* it is going to act on the currency, expect it to happen when everyone is focused on something else. Yet as Chinese CPI rose only 0.1% y-o-y vs. 0.4% expected, and PPI was -2.8%, there seems to be a need to do something – and real stimulus has so far been ruled out despite Yellen telling China that’s what they should do when she was there: stimulate consumer demand, while the US stimulates its own supply. If only the world economy was coordinated like that, and the way the Chinese FX market clearly is!

Relatedly, Europe made a geopolitical splash in a bureaucratic way via a 703-page tome that shows China is not a market-based, but a state-capitalist economy: as 2/3rds of German firms in China complain they face unfair competition from locals. The report will likely open the door to far more EU trade actions against China, and subsidies to counteract it; that’s as the European Commission, the top EU competition regulator, approved a €2.2bn German state aid scheme for industry. So, yes, industrial policy and protectionism are here to stay; and they are both inflationary long before they are deflationary.

To conclude, the US CPI data were a shock; the flurry of wild rates commentary we have seen since underlines how tricky the path forward is for traditional thinkers and central banks alike; and geopolitics risks going from bad to much worse.

Spring – Summers – Nuclear Fall(out) – or Winter?

Tyler Durden Thu, 04/11/2024 - 12:00

"Literally Gas Lighting": The Hilarious Reason For Today's PPI Miss: Seasonally Adjusted Gas Prices

"Literally Gas Lighting": The Hilarious Reason For Today's PPI Miss: Seasonally Adjusted Gas Prices

There was something glaringly odd in today's PPI print.

But first, some background: as we detailed in our PPI post-mortem earlier, one day after CPI came in red hot, today's PPI unexpectedly missed expectations on the headline level, coming in at 2.1%, which despite being the hottest since April 2023..

... was below the 2.2% estimate. The miss - the smallest possible - proved to be so important to the market starved for any dovish news, that algos instantly ignored the fact that core CPI came in at 2.4%, hotter than the 2.3% expected.

Which bring us to the "odd" part.

Looking at the core number (excluding food and energy), we find that according to the BLS, the only reason PPI was even positive in March is because of services, where the biggest source of upside was the "index for securities brokerage, dealing, investment advice, and related services, which rose 3.1 percent." In other words, everyone was rushing to open a brokerage account so they can trade Jeo Boden or some other shitcoin.

But what about what really increased in March, which as we have shown previously, was gas prices which rose just over 6% based on, well, how much the average gas price rose across the US in March!

Here things get hilarious, because according to the BLS in March, while PPI Services rose by 0.3%, prices for final demand goods was actually negative, dropping by 0.1% MoM.

And then, reading a little further into the BLS press release we find this surprise: "the decline is attributable to the index for final demand energy, which moved down 1.6 percent."

Which then brings us to the absolute punchline, because in the very next sentence, Biden's Bureau of Gaslighting Services writes that "leading the March decline in the index for final demand goods, prices for gasoline decreased 3.6 percent."

Hold on a second, didn't we just show that gas prices - actual, real gas prices, which everyone across the country has to pay - rose by 6% in March?

Yes we did, but what we didn't anticipate is the amount of BS Biden's henchmen are willing to shove down our throats. And indeed, to understand how gasoline could possibly drop by 3.6% in a month where it rose over 6% we have to look at the category description, where we find the little trick beloved by propaganda ministries everywhere: "seasonally adjusted."

That's right, as shown in the chart below, according to the BLS, the seasonally-adjusted gas price in March magically dropped by 3.6% even though the unadjusted, as in real, gas price rose by 6.3%, exactly what the AAA also reported in its daily summary of what gas prices across the US truly are.

Now, for those wondering "did I pay 3.6% less or 6.3% more for gas in March", we have the answer and unfortunately it is the one that leaves less money in your pocket (it always is). But for the BLS, the seasonal adjustment in this one category which actually soared, meant all the difference in the world because - you see - if Biden's propaganda ministers had used the real gas price, PPI would have been 0.4% higher and risen 2.4% YoY, both blowing away estimates, sending stocks tumbling, and making it impossible to manipulate the OER and shelter inflation data in next month's CPI to come up with a big miss (the current plan).

And that, ladies and gentlemen, is literally "gas-lighting."

Finally, for those asking if you can pay seasonally adjusted taxes (lower of course) using your seasonally adjusted checking account balance (higher of course), we suggest you try it. Just make sure you first have a good plan how to survive Bubba's nightly foreplay for all the years you will spend in prison right after.

Tyler Durden Thu, 04/11/2024 - 11:48

First Texas, Now Iowa: State, Local Cops To Start Arresting Illegal Migrants In July

First Texas, Now Iowa: State, Local Cops To Start Arresting Illegal Migrants In July

Following a path blazed by the once and future Republic of Texas, Iowa Gov. Kim Reynolds on Wednesday signed into law a measure making it a state crime to enter the Hawkeye State after being deported or denied entry into the country. As an "aggravated misdemeanor," it would subject illegal immigrants to imprisonment for up to two years. 

Reynolds raced to sign the bill just one day after it cleared the state legislature. In a statement issued after the signing, she said President Biden's neglect of border security made it imperative for Iowa to step up and fill the void: 

“The Biden Administration has failed to enforce our nation’s immigration laws, putting the protection and safety of Iowans at risk. Those who come into our country illegally have broken the law, yet Biden refuses to deport them. This bill gives Iowa law enforcement the power to do what he is unwilling to do: enforce immigration laws already on the books.”

Texas Gov. Greg Abbott watches Iowa Gov. Kim Reynolds speak at a 2021 press conference along the Rio Grande (AP/Eric Gay via The Gazette)

In December, Texas Gov. Greg Abbott signed a law making it a state crime to illegally enter the Lone Star State from a foreign nation. Under that law, illegal border crossings are now a Class B misdemeanor punishable by up to six months in jail. Repeat offenses will be a second-degree felony subject to prison sentences from two to 20 years. Judges can kill the charges if an arrested immigrant agrees to go back to Mexico. 

Iowa's law is slated to take effect on July 1, but will certainly be challenged for allegedly exceeding state authority. The Texas law been on a litigation rollercoaster. In the latest move, the 5th US Circuit Court of Appeals reinstated a lower court's injunction against enforcement of the law. While all that has been going on, nobody has been arrested under its authority.  

Via the New York Times, here are the specifics on Iowa's particular assertion of state authority:

The law makes it a misdemeanor for a person to enter Iowa if they were previously deported from the United States, denied entry to the country, or left the country while facing a deportation order. In some cases, including people with certain prior convictions, the state crime would become a felony. To enforce the new law, Iowa police officers would be allowed to make arrests in most places, but not in schools, places of worship or health care facilities.

The ACLU's Mark Stringer condemned Iowa's new law, saying it "tells Iowa judges to order someone to be deported or jailed before they have an opportunity to seek humanitarian protection that they are entitled to."

The new Iowa law isn't the only way the state has aligned with Texas. Joining at least 13 other states, Iowa has deployed 115 National Guard soldiers to Texas in support of Operation Lone Star, a combined Texas National Guard and Texas Department of Public Safety operation aimed at repelling illegal immigrants at the border and arresting human smugglers and drug traffickers.  

In support of that operation, Texas has begun building "Forward Operating Base Eagle" in the border city of Eagle Pass. It will house upwards of 1,800 soldiers, and will include a 700-seat dining facility, workout equipment, a recreation center and laundries, vehicle maintenance bays, weapons storage rooms and a helipad.  

 

Tyler Durden Thu, 04/11/2024 - 11:40

O.J. Simpson Dead At 76 After Cancer Battle

O.J. Simpson Dead At 76 After Cancer Battle

OJ Simpson, the once-celebrated football star who was famously acquitted in the 1994 murder case of his ex-wife and her friend, is dead after a multi-year cancer battle. He was 76yo. 

"On April 10th, our father, Orenthal James Simpson, succumbed to his battle with cancer. He was surrounded by his children and grandchildren. During this time of transition, his family asks that you please respect their wishes for privacy and grace," a statement from the family read, which was posted on X. 

In May 2023, OJ posted a video on X detailing how he recently "caught cancer" and "had to do the whole chemo thing." 

According to TMZ News, "OJ had reportedly been battling prostate cancer in recent years, and his health took a turn for the worse of late -- with him landing in hospice care within the past few months." 

Back in the mid-90s, Baby boomers, GenX, and some older millennials remember days after the killings, Simpson was with longtime friend Al Cowlings in a white Ford Bronco in a low-speed televised chase through Los Angeles. Simpson was in the back seat with a handgun, threatening to kill himself. 

*Developing... 

Tyler Durden Thu, 04/11/2024 - 10:57

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