Retatrutide’s performance seems to come from its unique way of tinkering with the hormones that control our appetite. Like Wegovy, retatrutide mimics a hormone called GLP-1, which helps to control blood sugar levels by signaling the secretion of insulin after eating. And like tirzepatide, the drug also potently mimics a second hormone involved with insulin secretion called GIP. But retatrutide also stimulates a third hormone, the glucagon receptor, which unlike GLP-1 and GIP is found in the liver — an addition that could be driving some of the drug’s benefits.

Indeed, significant weight loss isn’t the only reason people are excited about the drug’s early data. As I’ve written in the past, obesity medicines still need to prove they can have a positive impact on patients’ health. On that front, Lilly’s drug is already hitting some key metrics. For example, treatment with retatrutide led to a 20% reduction in LDL, or “bad” cholesterol, double the improvement typically seen with other GLP-1 drugs.

And higher doses of retatrutide lowered levels of fat in the liver by over 80%. Liver disease is so common in people with Type 2 diabetes that the American Diabetes Association recently recommended that all Type 2 diabetics be screened for it. And a small portion of people with nonalcoholic fatty liver disease go on to develop a more serious condition called NASH, where accumulation of scar tissue eventually prevents the liver from properly functioning.

The hope is that the right weight-loss drug could tackle obesity, diabetes and liver disease all at once. While larger studies still need to be run, it’s looking a lot like retatrutide might be the one to take on that triple threat.

This article from the Nature may be also be of interest. 

Obesity is a major productivity inhibitor as well as a major cost centre of the health care sector. Moreover, the promise of a pill that can help one lose 25% of body weight in a year is going to be a hit with anyone who has ever struggled keeping off the pounds.

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Some of the topics discussed include: CEO shenanigans and tech very overbought, Renminbi weakens with Chinese stocks, Vietnam rebounds on easing policy, gold and oil steady on Russia news, bitcoin eases, 

Wagner mercenary group chief Yevgeny Prigozhin released an audio recording in which he discussed the past weekend’s events and said his group didn’t plan to overthrow the Russian government.

March toward Moscow showed serious security problems in the country, he said in a recording released on Telegram that didn’t specify from where he was speaking.

Prigozhin said he launched march because he wanted to preserve Wagner as a military group and not come under the command of the Defense Ministry.

Belarusian President Alexander Lukashenko helped find a negotiated solution to the weekend’s events, he confirms.

Belarusian President Alexander Lukashenko earlier brokered a deal in which Prigozhin ended the revolt in return for Putin letting him travel to Belarus and dropping criminal mutiny charges, the Kremlin earlier said.

Wars are full of surprises. Over the weekend, the spectacle of an armoured column, intermixing with civilian traffic, on the way to Moscow is something the whole world is pondering the implications of. At a minimum it raises questions about the control Putin has over his warlords and generals. It is also yet another example of how mercenary armies are loyal to themselves and eventually have to be put down. 

Vietnam was one of Asia’s fastest-developing economies last year, expanding more than 8 per cent, its highest growth rate since 1997. But growth slowed in the first quarter of 2023 to 3.3 per cent, down from 5.9 per cent in the fourth quarter of last year, as a grim global economic picture and high inflation cut into demand for the country’s exports.

“We rely on the world’s demand for our products, which is facing a lot of difficulties,” Ho Duc Phoc told the Financial Times, adding that the war in Ukraine had raised petroleum and consumer prices, putting pressure on manufacturing input and trade costs and depressing buyers’ appetite. “Our orders from international partners have reduced drastically.”

He said the government was targeting full-year growth of 6 to 6.5 per cent, following anticipated first-half growth of about 4 per cent. “In the next six months, we will probably have [to take] aggressive steps to achieve that target,” he said, citing an extension of deadlines for tax payments, the reduction of value added tax and petrol levies amid proposals to help lower costs and boost demand.

Vietnam’s central bank this month cut interest rates by 50 basis points, its fourth reduction this year.

Vietnam is a major exporter but not of semiconductors. Since that is a major business for regional economies like South Korea and Taiwan, Vietnam offers a more complete picture of how global demand is shaping up. The slowdown in container pricing offers an additional insight into the trajectory of global demand. It has completely unwound the pandemic spike and is trading back inside the prior range. 

China’s consumer-driven recovery is showing more signs of losing momentum as spending slows on everything from holiday travel to cars and homes, adding to expectations for more stimulus to support the economy. 

Domestic travel spending during the recent holiday for the dragon-boat festival was lower than pre-pandemic levels, according to official data released this weekend. Home sales figures are below the level in previous years, while estimates for June car sales showed a drop from a year ago.

The rebound in consumption after China shed its Covid controls has propelled growth so far this year, but confidence is weak and evidence is mounting that the economy may need more help. After the central bank cut policy rates earlier this month, economists raised their expectations for more monetary and fiscal stimulus, and state-run media outlets have also published a series of articles in recent days highlighting possible avenues of support.

Consumer spending in China is falling but the other side of that equation is savings are approaching record highs. If Chinese consumers are refusing to buy properties, durable goods, and trinkets that points towards a deflationary outcome. The knock-on impact would be lower demand for commodities and the goods many emerging markets export.

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The Nasdaq price action seems to indicate that the top reached on March 29th 2022 (+/- the high of February 2nd) is of significance since on the 16th of June the close was below despite the intraday spike and has been trading below for the past couple of days : is it a short or just a consolidation phase after some short term overbought condition before it roars again? Rates are pausing but QT resumed after the regional bank scare and its liquidity injection - which is equivalent to rate hiking - as well as M2 continuing to decline (I am not sure that the surge in velocity of money is offsetting it). Your thoughts are welcomed.

Thank you for this question, which is relevant today because monetary conditions are tightening, but from extraordinarily loose conditions. For example M2 is contracting for the first time on a year over year basis.

However, that is occurring following an historic surge. Valuations were flattered by that surge and the largest companies have not yet seen any evidence of a reality check.

Velocity of Money has turned upwards which is consistent with an inflationary bias as consumers accelerate buying decisions. The figures are reported quarterly with a one quarter lag so the data reported at the end of Q1 looks at Q4 2022. The simplest logic is the Fed has to continue to reduce the volume of cash available as the velocity of money rises. To combat inflation it will have to remove it faster than velocity is rising. 

“China is more likely to be a headwind than a tailwind for demand over the next decade,” they said. The China super cycle, driven by urbanization and industrialization, is over, and the energy transition and decarbonization cycle has just begun, the analysts said.

Asia’s largest economy has been a crucial support for metals markets over the last two to three decades as the country went on an infrastructure-building binge. However, China’s plodding post-virus recovery shows it may lack the horsepower required to buoy global demand as it transitions to a more service-oriented economy.

That dynamic has been reflected in markets this year, with most metals falling even after Beijing abandoned its Covid Zero policy at the end of last year.

Iron ore declined 0.7% at 12:46 p.m. Singapore time to $110.85 on Friday and was down 2.3% for the week. The steel-making staple has now wiped out all of its gains from earlier in the year as optimism about China’s recovery faded.

I have been to more than a few talks over the last couple of years where the speakers predict supply of copper, nickel, cobalt and iron-ore will need to at least double over the next decade to meet demand from the energy transition. The point I have laboured to make in the videos is demand is less volatile than supply, but it is not a constant. 

Major institutional owners including Blackstone, Brookfield and Pimco have already chosen to stop payments on some buildings because they have better uses for their cash and resources. “There’s significant stress,” says Harold Bordwin, a principal in New York at Keen-Summit Capital Partners LLC, which specializes in renegotiating distressed real estate. “People don’t give up assets so easily unless they just don’t see any hope and they recognize that they’re pretty well underwater.”

The number of transactions is plunging—and when deals do happen, the price declines are stark. In the US, where return-to-office rates have been lower than in Asia and Europe, values for institutional-quality offices are down 27% since March 2022, when interest rates started going up, according to data analytics company Green Street. Apartment building prices have declined 21%, and malls are off 18%. Office prices are expected to fall more than 25% in Europe and almost 13% in the Asia-Pacific region before hitting a trough, PGIM Real Estate, a unit of Prudential Financial Inc., forecasts.

The work from home trend coupled with sharply higher interest rates is a bad recipe for the commercial real estate sector. It is true that all property markets are local and trophy properties are more likely to thrive than others. However, the bigger question is who owns commercial properties? 

One of the questions subscribers ask most often is how to find details of my open trades. To make it easier I will simply repost the latest summary on a daily basis until there is a change.

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Some of the topics discussed include: UK yields up, stocks down and Pound eases, Australia weaker on contagion from China, oil and gold weak, dollar steady, Nasdaq-100 firm. 

Workers must stop demanding higher wages and businesses refrain from repairing profit margins if inflation is to come down from current “completely unsustainable” levels, Bank of England Governor Andrew Bailey said.

In a pooled broadcast clip, Bailey also signalled that rate setters were prepared to push the country into a recession if necessary to curb soaring prices.

He was speaking shortly after the BOE took markets, businesses and economists by surprise with a half-point increase in interest rates to 5%. A quarter-point rise was expected but the vote was overwhelmingly in favor of moving faster. Seven of the nine members of the Monetary Policy Committee backed it.

“We’ve got to get inflation and we will get inflation back to its target,” Bailey said. “To do that we cannot continue to have the current level on wage increases and we can’t have companies seeking to rebuild profit margins, which means prices continue to go up at current rates.”

“What I would say is we expect inflation to come down and it’s important that price setting and wage setting reflects that because the current levels are absolutely unsustainable.”

Central banks invariably end up overshooting. The panicky 50-basis point hike today comes at exactly the wrong time for mortgage holders that took advantage of the stamp duty holiday in July of 2021. They will now be offered the highest rates in more than a decade for a 2-year fix. That will siphon more cash out of the economy, create economic pain and put even greater upward pressure on wages. 

Turkey’s central bank delivered a significantly smaller interest-rate increase than anticipated, as policy makers embark on what they said will be a gradual transition from an era of ultra-cheap money.

The Turkish lira slumped as much as 4.3% after the first rate-setting meeting since Governor Hafize Gaye Erkan took over this month. The Monetary Policy Committee increased its policy rate of one-week repo to 15% from 8.5%. 

It appears the market was looking for a jump to 20% to show conviction the central bank is willing to do what is necessary to get inflation under control. Rather than fuss about the absolute value, the near doubling of the rate in one fell swoop is a meaningful development following years of denials that money printing causes inflation. 

Zambia reached an agreement in principle to restructure $6.3 billion of debt with bilateral lenders and will announce a deal Thursday, according to a French official, setting a precedent for countries struggling to service their liabilities.

The accord marks the first major relief won by a developing country under the Group of 20 nation’s Common Framework that brings the traditional creditor nations of the Paris Club around the same negotiating table with China and India. Details are still unclear, beyond that the creditors led by China and France agreed to extend the maturities on their loans over some 20 years, with a three year grace period. 

The parties will sign the memorandum of understanding in coming weeks, the official said.

This could lead the way for other nations — including Ghana, Sri Lanka and Ethiopia — locked in negotiations with creditors from China, the Paris Club and bondholders. More than 70 low-income nations face a collective $326 billion burden, with more than half of them already in or near debt distress, according to the International Monetary Fund. 

Slowing demand in China, the end of low rates and the jump in the dollar over the last couple of years have represented a triple waterfall negative surprise for many low-income countries. That has resulted in several countries defaulting on their sovereign debt and turning to creditors for debt relief. 

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Some of the topics discussed include: crypto resurgent, Wall Street pause, China stimulus underwhelming so far, Japanese yen weakness supports the nominal value of the stock market, UK homebuilders breaking lower amid jump in inflation, grain and bean prices continue to firm. 

Powell described the labor market as “very tight,” though the unemployment rate rose in May to 3.7%. “There are some signs that supply and demand in the labor market are coming into better balance,” he said.

Powell cited the Fed’s characterization in its semi-annual report to Congress released Friday of tighter US credit conditions following bank failures in March.

“The economy is facing headwinds from tighter credit conditions for households and businesses, which are likely to weigh on economic activity, hiring, and inflation,” he said. “The extent of these effects remains uncertain.”

Veteran market observers will remember the taper tantrum in 2013. Yields surged when the Fed announced they would begin gradually reducing their purchases of Treasuries. The current market condition is one where the pace of quantitative tightening remains on track but the Fed is tapering their interest rate hikes. 

Revenue among Taiwan’s major Apple Inc. suppliers fell for a fourth straight month in May, as high
living costs keep a lid on consumer discretionary spending.

The group of device assemblers like Hon Hai Precision Industry Co. and components makers like Taiwan Semiconductor Manufacturing Co. reported overall sales of NT$944.10 billion ($30.5 billion) in May, 7.8% lower than a year ago and worse than April’s 2.1% drop, according to data compiled by Bloomberg.

Before announcing its long-awaited Vision Pro headset alongside upgraded Macs this month, Apple weathered a tough first quarter where sales of its hardware either slumped or stagnated. A small gain in iPhone revenue was greeted as a positive surprise by the market, which expected an even worse slump.

Global rates have jumped higher over the last year and that is having an impact on consumer demand. Moreover, the global handset market is highly cyclical because most people do not change their model until the battery degrades. Mobile batteries have approximately 1000 charging cycles so that acts like a built in redundancy. 

WisdomTree is trying again for permission to start a spot US Bitcoin ETF after being rebuffed in the past. BlackRock made its filing on June 15. The SEC has resisted allowing such spot funds but BlackRock’s attempt carries the heft of the world’s largest asset manager and its track record of winning approvals.

“The BlackRock filing changed everything, that reignited the race,” said Eric Balchunas, senior ETF analyst at Bloomberg Intelligence.

BlackRock’s application landed amid Grayscale Investments LLC’s legal battle with the SEC to convert the Grayscale Bitcoin Trust into a physically backed ETF. The trust’s discount to net asset value has narrowed sharply on speculation BlackRock’s step could end up bolstering Grayscale’s case.

The evolution of an ETF market for bitcoin would have several knock-on effects. The first is it would confirm the assets are securities and that would increase the potential for some form of regulation. The second is it would create what is effectively a derivative contract on the price. Because ETFs offer instant liquidity there will inevitably be mismatches because during times of high volume, the bitcoin network slows down. 

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Some of the topics discussed include: bitcoin surges on insitutional interest, gold and silver contract on positive real rates, stocks pause, China cuts rates but not enough to satisfy markets. airlines breaking higher, variability in performance of the shipping sector. 

An expectation among regulators that crypto exchanges should be separated from broker-dealer functions, similar to the structure of traditional financial markets, will create opportunities for EDX, Nazarali said. 

“We believe crypto is here to stay, but for it to evolve as an asset class it needs to adopt the rules and investor protections that exist in traditional finance,” Nazarali said in an interview. “The message we’ve got from our investors is that this creates an even bigger space for us.”

Already backed by companies including Paradigm, Sequoia Capital and Virtu Financial Inc., EDX raised new funding through additional investors including Miami International Holdings, GTS, GSR Markets, and HRT Technology. It plans to launch EDX Clearing to settle trades later this year. 

The US Securities and Exchange Commission recently widened its crackdown on the crypto industry through lawsuits against two of the biggest firms, Binance and Coinbase, alleging that they acted as unregistered securities exchanges, broker-dealers and clearinghouses. The firms have denied the allegations. 

This smells of cronyism. Two weeks ago the SEC sued both Binance and Coinbase for running unregistered securities exchanges. That is despite repeated efforts by both companies to engage with regulators. Binance alleges the SEC chair of offering his services as a consultant to the firm immediately before the case was announced.

Buy-now-pay-later loans have become increasingly popular, especially among younger consumers, as a way to split up larger purchases and pay them off in instalments. PayPal joined the fray in 2020 and has since issued more than 200 million of the loans to more than 30 million customers around the world. 

With the new deal, KKR’s private credit funds and accounts will acquire “substantially” all of PayPal’s existing European buy-now-pay-later loan portfolio and eligible future loans, according to the statement. PayPal will remain responsible for customer-facing activities such as underwriting and servicing. 

PayPal has said for months that it’s been looking to offload a significant portion of its receivables. The deal allows the company to continue offering buy-now-pay-later loans, which it has said entice users to use its services more, without using up large portions of its balance sheet.

Credit has become KKR’s biggest business by assets. The firm just last month elevated Dan Pietrzak to become global head of private credit as it looks to compete in the increasingly heated market where rivals have doubled down.

“Having the ability to work exclusively with a scaled and high-quality strategic partner like PayPal is a testament to the strength and maturity of our asset-based finance business,” Pietrzak said in the statement. 

There are two themes converging in this development. The first is buy-now-pay-later (BNPL) grew at an exponential rate during the low interest rate era and exploded during the modern monetary theory experiment. The second is the willingness of private equity groups to expand rapidly in the private credit space. 

Airbus secured the biggest aircraft order in aviation history, notching a 500-plane deal with India’s dominant airline, IndiGo. The mammoth accord for Airbus’s top-selling A320 family of single-aisle jets brings IndiGo’s order backlog to close to 1,000 planes as extends its lead in the world’s fastest-growing large market for aviation.

“No one has ever ordered an order of this magnitude,” IndiGo Chief Executive Officer Pieter Elbers said from the podium. “It speaks to the potential of Indian aviation and the ambitions which Indigo is having.”

An Indian airline placing the world’s largest airplane order is not something most investors would have predicted a decade ago. It is a clear vote of confidence in Indian consumers’ appetite and ability to pay for domestic and international travel. Greater access to travel will also enhance the ease of doing business and help to spread opportunity to more regions of the country. 

One of the questions subscribers ask most often is how to find details of my open trades. To make it easier I will simply repost the latest summary on a daily basis until there is a change.

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The three-month outlook hints toward an extended period of warm and dry weather across major parts of the Midwest, the US Climate Prediction Center said June 15.

June to August is usually a critical development period for corn and soybeans crops in the US, market analysts said. So, while June was relatively dry, the Midwest will need sufficient rainfall in the upcoming months for crop development.

The current situation across major soybean and corn producing states does not look promising.

According to the US Drought Monitor report released June 15, about 49% of Iowa was suffering from drought in the week ended June 17, while 65% of Illinois and 75% of Nebraska were also under drought conditions.

Commodity analysts see sharp cuts in output potential for both corn and soybeans if the dryness persists in the upper Midwest and eastern Corn Belt, and to some extent in the southern plains.

The torrential rains that resulted in a record snowpack in the Sierra Nevada mountains did not make it over the Rockies. That has resulted in late planting and below par yield expectations. One of the main contributors to falling CPI figures has been the decline in food prices. That’s likely to be prove transitory considering the rebound underway from deep short-term oversold conditions in the grain complex. 

Chinese President Xi Jinping told Secretary of State Antony Blinken it was “very good” the two sides had made progress in steadying ties between the world’s two largest economies during his trip to China.

“I hope that through this visit, Mr. Secretary, you will make more positive contributions to stabilizing China-US relations,” Xi told the US diplomat in Beijing on Monday, according to a Chinese Foreign Ministry statement. 

“The two sides have also made progress and reached agreements on some specific issues. This is very good,” he said in a video clip of the meeting posted by state broadcaster China Central Television, without elaborating.

The exchange of views between US and Chinese diplomats has been described in several outlets as candid. This interview of Rahm Emanuel, former White House chief of staff and current ambassador to Japan, is a good example of just what candid means. 

The UK housing market is under particular pressure from a triple whammy of pricey borrowing, economic uncertainty and high inflation. While the average two-year fixed-rate home loan surpassed 6%, the five-year fixed-rate deal climbed to 5.67% after breaching 5.5% for the first time since January last week.

When my parents bought their first home in the mid-1970s they secured a fixed interest rate for the term of the loan. By the time they sold that house twenty years later, the repayment cost was negligible, and the availability of fixed rate mortgages has evaporated. That was a happy circumstance for my parents, but it was funded by government efforts to support home ownership that were unsustainable. Today prices are high, rates are floating higher, government debt is already problematic and young people are being squeezed. It’s a combustible mix. 

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"Will AI take over the world? No, this is a projection of human nature on machines" he said. It would be a huge mistake to keep AI research "under lock and key", he added.

What is AI and what risks does it pose?
Warning using AI for loans and mortgages is big risk

People who worried that AI might pose a risk to humans did so because they couldn't imagine how it could be made safe, Prof LeCun argued.

"It's as if you asked in 1930 to someone how are you going to make a turbo-jet safe? Turbo-jets were not invented yet in 1930, same as human level AI has not been invented yet."

"Turbo jets were eventually made incredibly reliable and safe," and the same would happen with AI he said.

Meta Platforms made the decision several years ago to open source their AI data. In the aftermath of the Cambridge Analytica debacle the company probably reached the conclusion a hands off approach would defray risk. That decision helped to seed the AI industry of today. 

Last year, the yen weakening toward 146 per dollar triggered Japan’s first intervention to prop up the currency since 1998, though in the build up to that there were repeated official warnings about direct action. The Japanese currency has fallen more than 6% this year.

The question I believe is most useful in thinking about Japan’s deflation is whether it was possible to ignite an inflationary bias during a generation of global disinflation? Now that inflation is higher than it has been in decades, they are not about to pass up the chance to begin inflating away the debt mountain. 

But though the nearshoring story remains plausible, the data so far do not quite justify the exuberant optimism that North America can pull Mexico into the developed world.

Recent government trade data confirm that the US is moving away from China. Last year Chinese exports accounted for only 17% of US imports, down from 22% during President Trump’s first year in office. In 2023 they have cratered, accounting for only 13% of what the US bought from abroad in the first four months of the year.

But Mexico is not taking over. Its 15% share of US imports this year is only 1.3 percentage points higher than it was in 2017. Indeed, other Asian exporters are taking a larger chunk.

Moreover, the nearshoring boom is hard to detect in the investment numbers. Foreign direct investment into Mexico has been stronger in the last ten years than in the prior decade, but the data show no recent upsurge. Indeed, new investment — excluding reinvested earnings — seems somewhat lower.

To date the bulk of inward investment to Mexico has been focused on utilities. That’s a bet on a growing population and increasing demand water, electricity and gas. That’s now, it does not speak to the future. The continued strength of the Peso suggests more than a few institutional investors are more than happy to bet on the nearshoring theme. 

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Some of the topics discussed include: levers of global liquidity improve with China stimulus, Stocks firm, Dollar weak,  gold rebounds, oil firms

President Christine Lagarde said the ECB still has ground to cover on borrowing costs and is “very likely” to raise again on July 27. Highlighting policymakers’ commitment to data-dependency, she avoided giving guidance on what may happen beyond that as investors ramped up bets on a hike at that meeting too.

The primary issue for the ECB is Germany’s economy is contracting. Raising rates when the region’s largest economy is struggling is a hawkish move. Draining €500 billion from the banking sector by calling in TLTRO loans is an additional hawkish move. That is aimed at actively removing the excess liquidity that is fuelling speculative activity and inflationary pressures. 

Microsoft didn’t rate in the public AI discourse one short year ago, when we were all watching Top Gun: Maverick and listening to Sam Bankman-Fried. Back then most of the hand-waving on the subject was aimed in the general direction of Google, where researchers first developed the technologies behind ChatGPT and its peers. But while Google initially kept its research away from commercial products, especially its flagship search engine, Microsoft is focused on using OpenAI’s innovations to make a buttload of money ASAP.

The company’s GitHub Copilot tool, which suggests new lines of code to computer programmers, was its first paid offering and has attracted more than 10,000 companies as customers. Bing, Microsoft’s also-ran search engine, came next, with a chatbot search engine that can create vacation itineraries and shopping lists. Over the past several months, Chief Executive Officer Satya Nadella has announced plans to incorporate other Copilots into Windows (where they’ll rewrite, summarize and explain content) and its Microsoft 365 office suite (where they’ll create slide decks in PowerPoint, sift through emails in Outlook and make charts based on Excel data). “There’s no point in hyping technology for technology’s sake,” Nadella says. “All of these technology shifts are only useful if they do something in the real world.”

Microsoft has adopted the Silicon Valley model of move fast and break things. For now, the company is being given the benefit of the doubt that by embracing the big new thing it will reap benefits in future. The share is back testing its all-time peak and is short-term overbought. 

“The focus will be if the Chinese authorities deliver, and whether what is delivered surpass expectations or not,” said Redmond Wong of Saxo Capital Markets HK Ltd. “Investors have become impatient with incremental measures and want a more expansive and aggressive package in one go.”

The government is finally starting to act — there are the rate cuts, and Beijing is said to be preparing a host of measures to boost the economy and the struggling property sector. The key, though, is that investors and companies want a comprehensive package rather than piecemeal measures.

Strategists and investors are already guessing as to the nature of the measures. Bets are mounting that loan prime rates will be cut next Tuesday. Macquarie Group Ltd. expects a 10-basis-point reduction in the one-year rate and a 15-basis point decline in the five-year. 

China is one of the major levers of global liquidity. The extent to which they are willing to support their economy will play a significant role in speculative interest globally.

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Some of the topics discussed include: Fed pauses rates but sounds hawkish on further hikes, Wall Street pauses, Nigeria stocks surge, India new high, Japan extends advance, NVidia pushes above $1 trillion valuation, Pound firms. 

Here are key takeaways from the Federal Reserve's interest-rate decision and statement on Wednesday:

Federal Open Market Committee unanimously holds benchmark rate in target range of 5%- 5.25%, as expected, in first pause since starting cycle of increases in early 2022, to “assess additional information and its implications for monetary policy”
New projections show policymakers favor a half-point of additional increases this year, which would push borrowing costs to about 5.6% -- higher than most economists and investors have been expecting
FOMC statement gives clear signal that policymakers will resume tightening by referring to the “extent of additional policy firming that may be appropriate”; prior statement, in May, gave more leeway on whether to hike
Forecasts for economic growth and core inflation rose for 2023, while unemployment projections fell
Fed says economy has expanded at modest pace with robust job gains and low unemployment; inflation remains “elevated”

At Jerome Powell’s press conference he said two important things. The first is they will do whatever is necessary to bring inflation back to 2% on the PCE. The second is that some “below trend growth and higher unemployment” will be required to achieve that goal. The best of all possible worlds is that can be achieved without causing a recession. Unfortunately, that is not a likely scenario given the history of such attempts. 

“This is absolutely the right decision and a reality check that the country needs, highlighting how the new leadership means business,” said Simon Quijano-Evans, chief economist at Gemcorp Capital Management in London.

Nigeria’s government bonds extended gains, having already surged earlier this week after the surprise weekend ouster of central bank Governor Godwin Emefiele. Emefiele’s removal was adding to signs that Tinubu is moving quickly to reset policies blamed for crippling the economy. The notes maturing in 2051 gained 2 cents on the dollar to 74, compared with around 70 last week. 

Nigeria’s benchmark stock index rallied more than 3%. The potential changes in economic policy should help boost output in the longer term by freeing up budgetary resources and making the economy run smoother, Quijano-Evans wrote in a note.

Black Market
“Mid-term, the increase in efficiency should also help revive growth if the government is able to tackle corruption,” Quijano-Evans said.

Liberalization of the naira under a new presidential administration was expected, but the depth of the drop on Wednesday was surprising, said Mark Bohlund, a senior credit research analyst at REDD Intelligence. 

“My expectation was for a smaller downward shift now and for the naira to end up closer to NGN750/USD by the end of the year,” Bohlund said. “The devaluation will help the federal government to better balance its books as it is still highly dependent on USD-linked oil revenue while spending is in naira.”

The jury is out on what Tinubu will do to improve standards of governance in Nigeria. For pessimists he is a political insider who made his fortune beyond the sight of the public or media. He was also accused of being complicit in trafficking heroin several years ago and had $460,000 confiscated by the US authorities. 

“Over the last 30 years, while China specialized in becoming the world’s factory, India specialized in becoming the world’s back office,” said Duvvuri Subbarao, a former governor of the Reserve Bank of India. “Over the years, India moved up the value chain,” he said. But it can’t “take its comparative advantage for granted.”

India has roughly 1,600 of the centers, more than 40% of the number worldwide, according to Nasscom, a trade body for the country’s technology industry. Dotted around Bengaluru, formerly known as Bangalore, are the offices of luxury retailer Saks Fifth Avenue Inc., aircraft-engine maker Rolls-Royce Holdings Plc, US bank Wells Fargo & Co. and Japanese e-commerce firm Rakuten Group Inc. Some 66 global companies set up their first GCC in India in 2022. Even the lingerie brand Victoria’s Secret & Co. has a Bengaluru GCC.

The Siemens Healthineers GCC in Bengaluru. India has roughly 1,600 of GCCs, more than 40% of the number worldwide, according to Nasscom.

The offices generated about $46 billion in combined revenue in the fiscal year ended March, more than the output of Nepal. 

The qualities that turned India into the world’s back office starting decades ago are propelling GCCs’ metamorphosis: a vast pool of young people, an education system that emphasizes science and technology, and the lower staffing costs that made India attractive in the first place. Add an unforeseen catalyst: the pandemic, which convinced decision-makers jobs can be done anywhere, including far-flung shores.

“India’s story starts with its demographics and its talent,” said Gunjan Samtani, the country head of Goldman Sachs Services Pvt, the entity that operates the bank’s GCCs in India. A software engineer by trade, he still codes from time to time. “What brought us here even two decades back was our ability to get access to technology and talent.”

The Chindia theme between 2003 and 2010 was aimed at highlighting the fact that two countries account for more than a third of the global population and are among its strongest growth engines.

China had what India did not and vice versa. China excelled at infrastructure development, commodity refining and manufacturing. India had a large domestic consumer market and highly developed value-added services businesses to cater to demand for offshoring. 

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: China stimulus chances improving, Yen devalues further, Pound firming as Gilt yields hit new closing highs, Wall Street firm. 

The new stimulus package under consideration has been drafted by multiple government agencies and includes at least a dozen measures designed to support areas such as real estate and domestic demand, according to people familiar with the matter. 

A key component is support for the real estate market. Regulators are seeking to lower costs on outstanding residential mortgages and boosting relending through the nation’s policy banks to ensure homes are delivered, one of the people said.

The State Council may discuss the policies as soon as this Friday but it’s unclear when they will be announced or implemented, the people said.

“The aim of stimulus this time is to keep growth ticking over, consistent with the relatively conservative ‘about 5%’ gross domestic product growth goal, rather than to spur a round of robust growth,” said Duncan Wrigley, chief China economist at Pantheon Macroeconomics. “Policymakers are still wary of repeating the kind of debt hangover that the Global Financial Crisis stimulus produced and they spent the decade up to the pandemic trying to sort out.”

Property Woes
The weak property market remains a major drag on China’s economy, although policymakers appear reluctant to use its old playbook of driving up investment in real estate as a way to boost growth. Goldman analysts said in a recent report they don’t expect a repeat of the 2015-2018 shantytown renovation program that pumped central bank money into the property sector and sent home price surging.

Beijing is seeking to reduce the economic and fiscal reliance on the housing market, Goldman said, which suggests an L-shaped recovery in coming years.

The old playbook is whenever a problem arises, governments and central banks will open the sluice gates of liquidity to make it go away. In the 15 years since the global financial crisis that has been the mantra every investor has learned to live by. The belief nothing has really changed is the primary reason for bullishness on Wall Street today. 

The data on Tuesday showed faster-than-anticipated wage growth and lower unemployment. Hours later, new BOE rate setter Megan Greene joined policymaker Catherine Mann in warning of the risks of persistent inflation and the difficulty of getting back to the 2% target. 

The surprise April wage figures were partly driven by an increase in the national minimum wage, which won’t be repeated in later months. Still, according to Goldman Sachs analysts including Isabella Rosenberg, “we don’t think they can be ignored.”

“The BOE has much further to go than other central banks,” they said.

There are several factors conspiring to keep UK inflationary pressures at uncomfortably high levels. The first is the obvious one. Islands have more complicated supply chains, which push up inflation relative to continental peers. 

The US plans to purchase about 12 million barrels of oil this year as it begins to refill its depleted emergency reserve amid falling crude prices, according to two people familiar with the matter. 

The figure includes 3 million barrels already scheduled for delivery in August and an additional 3 million barrels from a solicitation the Biden administration issued on Friday, according to the people. 

An Energy Department spokesperson said they will continue to “seek opportunities for additional repurchases as market conditions and the constraints of SPR operations allow.”

The big question we need to consider is why does the USA need a petroleum reserve when it is the world’s largest producers and an exporter? Perhaps even more relevant is why make purchases now when supply is tight. 

A link to today's video commentary is posted in the Subscriber's Area.

Some of the topics discussed include: oil prices test lower side of the range on slower global growth, Nasdaq pops on the upside for the same reason. Treasury yields stable ahead of the Fed meeting. Japan extends breakout, Yen on the cusp of breaking lower against the Euro, gold stable, CNY approaching potential support. 

Still, officials aren’t confident enough to say achievement of the BOJ’s 2% price target is in sight, pointing to the need for continued monetary stimulus, the people said.

The yen fell and bonds rose after the report. The yield on 10-year Japanese government bonds fell 1 basis point, while bond futures ticked higher.

Governor Kazuo Ueda and his fellow board members will conclude a two-day policy meeting on June 16. Speaking in parliament Friday, Ueda said that recent data appear to show inflation deviating upward from the BOJ’s base case.  

The final policy decision next week will be made after assessing economic data and developments in financial markets up until the last moment, the people said. 

As the last anchor of global low interest rates, whether the BOJ will decide to pivot away from easing is a key factor that could cause ripples across global financial markets. 

T. Rowe Price, BlackRock Inc. and the European Central Bank are among those warning that any policy normalization from the BOJ may send a wave of Japanese cash flowing out of global markets and surging back home.

Japan’s consumer prices might still be experiencing upward pressure but producer prices have fallen enough to approach the upper side of the underlying range. With slowing global economic activity, and a slow Chinese recovery the likelihood of deflationary forces triumphing has increased. That suggests the BoJ is unlikely to back away from yield curve control in the near term since their primary objective is sustained inflation. 

Oil extended losses as Goldman Sachs Group Inc. cut its price forecast again, adding to a drumbeat of concerns about the outlook for demand.

West Texas Intermediate slumped below $68 a barrel after Goldman — which has had one of the more bullish forecasts for crude — made its third downward price revision for the global benchmark in six months, trimming its estimate to $86 for the end of the year on rising supplies and waning demand.

“Beyond the fact that a vocal crude bull cut their crude forecast again, physical market indicators also are shaking confidence of bulls expecting the market to shift from a surplus to a deficit in the coming months,” said Rebecca Babin, a senior energy trader at CIBC Private Wealth. “Time spreads, which are the holy grail for traders assessing supply and demand dynamics, continue to deteriorate, fueling a massive risk aversion and prompting shorts to maintain pressure on prices.”

Most commodity research focuses on supply because that is where the most volatility happens most of the time. Demand, by comparison, is more predictable and increases annually most of the time. It is when volatility creeps into demand projections that prices tend to swing around most because now two variables are present so outcomes are much more uncertain. 

Combining the two will create a trader big enough to take on the industry’s elite: Minneapolis-based Cargill Inc. and Chicago’s Archer-Daniels-Midland Co. The deal is the culmination of Bunge Chief Executive Officer Greg Heckman’s transformation of the once troubled St. Louis-based crop trader into a cash-rich oilseeds champion.

The size and influence of large soft commodity traders means they have a great deal of power to shape the market to their liking. That implies creating new markets for the commodities they trade, like ethanol or biofuels, and ensuring there are ready markets for those products through lobbying efforts. That’s the definition of an oligopoly. 

A link to this week's big Picture Long-Term video is posted in the Subscriber's Area.

The widening disconnect between stocks and bonds suggests a 20% downside risk for equities if bonds are proved correct in pricing inflation volatility, according to modeling by JPMorgan Chase & Co. strategists.

“Bond markets are still pricing in a sustained period of elevated macroeconomic uncertainty, even if there has been some modest decline over the past three months,” strategists including Nikolaos Panigirtzoglou and Mika Inkinen wrote in a note. “By contrast, equity markets look ‘priced for perfection’ with the S&P now above a fair value estimate looking through the rise in macroeconomic volatility since the pandemic.”

Credit tends to lead the stock market. High yield spreads remain locked in a range around the pivotal 500 basis point level. The inert trading environment belies the underlying weakness in the corporate sector where the number of bankruptcies is rising. The big question for the bond market is which companies successfully refinanced during the pandemic and which missed that opportunity. 

itself, meaning patience is more than just a virtue here. Tesla built its proprietary network essentially as a loss leader to stoke demand for its EVs, and it could do that in part because of Musk’s rarified knack for persuading investors to cover his losses. The three charging companies mentioned above have a combined market cap of about $5 billion, cash on hand of $550 million and expected cash burn across this year and next of more than $600 million. Their life is complicated enough. And now this.

The path to turning a profit on public chargers is like any piece of industrial hardware: Get more people to use it so it doesn’t sit idle. The threshold for profitability with charging depends on many factors, though I’ve seen one useful estimate of 30%, or roughly seven hours of charging every day (see this). As it stands, EVgo, which is weighted more to fast-charging, said on its last earnings call that the top fifth of its charging stalls enjoyed utilization above 20%.

The argument for expanding EV charging networks is complicated. That already suggests the companies wishing to dominate the sector will need to have bigger margins. Most people who currently own EVs recharge the vehicle at home. That also means EVs are a niche product for homeowners who can afford the premium over internal combustion engine vehicles. To go mainstream, chargers need to be available in every parking spot in high traffic areas. That’s extraordinarily expensive and the sector probably only has room for one or two big plays. Tesla is one of those. 

This means the 2023 El Niño is elevating global average temperatures from a higher starting point, making it easier to set records.

This is like a basketball player playing on a court with a steadily higher floor, making it easier to dunk the basketball.

This may be why 2023 has already seen record ocean temperatures surpassing 2016’s numbers, and why this trend may be here to stay throughout the duration of the projected El Niño.

What they're saying: "2023 is off to an alarming start, even before El Niño conditions fully develop later this year," Kim Cobb, a climate scientist at Brown University, told Axios via email. She noted that even a moderate El Niño is likely to lead to a new global temperature record.

"Given the current pace of warming, however, even a new record will likely be surpassed in a matter of years. The planet is warming so fast now, even a natural cycle as strong as the El Niño-Southern Oscillation is beginning to be lost in the noise," Cobb said.

El Nino weather events generally cause droughts in Asia and excess moisture events in the Americas. That’s not great news when soft commodity prices are already at elevated levels and the global supply chain for key food commodities is impacted by the war in Ukraine. 

Financial History Timeline

One of the questions subscribers ask most often is how to find details of my open trades. To make it easier I will simply repost the latest summary on a daily basis until there is a change.

A link to today's video commentary is posted in the Subscriber's Area.

Some of the topics discussed include: wildfires stoke interest in renewables, jobless figures breakout, bond yields compress and tech stocks steady, gold up on weak dollar. oil reverses loss on denial of negotiations with Iran. 

It will likely be Monday or Tuesday before the larger weather pattern that is pumping the smoke south from Canada starts to break up, according to Zack Taylor, a senior branch forecaster with the US Weather Prediction Center. There could be some minor improvement in New York Thursday as the worst of the smoke drifts more to the west. 

The plume itself covers most of North America. In the long-term, the only real solution will be if the fires in Canada are brought under control. 

In my time living in Los Angeles we were mostly lucky that the smoke from wildfires mostly blew out to sea. There was one occasion when a fire in the San Fernando valley blew smoke in our direction for a few days. I was left coughing for months afterwards.

It’s an inconvenience to cancel plans to go outdoors, but when the air is that bad it is really better to stay inside with an air purifier or at least having the air conditioning on. Having a good quality mask on when going outside is a very good idea. 

OUR TAKE: The surge in jobless claims — to the highest level since October 2021 — is in line with our analysis of WARN notices, which suggested layoffs were set to spike. It’s increasingly feasible for the unemployment rate to reach the median FOMC participant’s 4.5% projection by year-end.

Initial jobless claims for the week ended June 3 increased 28k to 261k. The reading was above the consensus (235k) and Bloomberg Economics’ projection (240k).

The surge came from Ohio (6.3k), California (5.2k), Minnesota (2.7k) and Pennsylvania (2.0k).

Given recent fraudulent applications in Massachusetts, it’s possible that other states are experiencing similar issues. However, the four-week moving average also increased by 7.5k to 237k, well above the 218k pre-pandemic average from 2019. That suggests labor-market conditions are continuing to cool.

Continuing claims declined 37k to 1,757k for the week ended May 27, remaining above the pre-pandemic average of 1,699k. The insured unemployment rate — the number of people currently receiving unemployment insurance as a percentage of the labor force — remained at 1.2%.
We expect continuing claims to move higher given the surge in initial claims and tracking of WARN notices.

The pandemic introduced a massive spike into jobless data so the only way to get a viable chart is to cut it out. The most important historical fact is a move above 250,000 was a breakout in 2020 and is a base formation completion now too. Ahead of a decade of QE, a break above 400,000 was required to signal trouble. That also helps to highlight how the economy has been running with little spare labour margin for most of the last decade.

Biogen stock bounded higher Wednesday after the Food and Drug Administration posted "relatively benign" documents, suggesting the agency likely plans to approve the company's Alzheimer's treatment.

A panel of advisors to the FDA will meet Friday to discuss the drug, Leqembi, which won accelerated approval in January. Now, the FDA will consider converting that to a traditional approval based on the results of a confirmatory study called Clarity-AD.

"Overall, the briefing documents appear relatively benign, and we think the most likely outcome is a positive vote, followed by full approval," Wedbush analyst Laura Chico said in a note to clients.

On the stock market today, Biogen stock rose 1.7% to close at 304.90. Shares bounced off their 50-day moving average, according to MarketSmith.com.

Biogen and its partner, Eisai, have a long and storied history in Alzheimer's treatment, and analysts were quick to make comparisons to the companies' first approved drug, Aduhelm.

Alzheimer's disease is one of the biggest chronic conditions that does not have a clear clinical treatment plan. As tests for early indications of developing the disease improve the case for early action in prescribing anything that could slow the onset are clear. 

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: how sticky is inflation, megacaps begin to unwind overbought condition, Russell 2000 rebounds, Treasury yield jump, gold pulls back and oil steady, Brazil and Mexico outperforming. 

The Treasury market briefly restored the full pricing of Federal Reserve tightening by July, which would be the last interest-rate hike in 2023.

The latest shift in expectations for Fed policy was accompanied by a slide bonds, with the yields on five-year Treasuries up at least 11 basis points. Selling picked up after the Bank of Canada cited stubborn inflation pressures for delivering a quarter-point hike Wednesday. 

The rate on swap contracts linked to the July gathering climbed to a peak of 5.33% on Wednesday, or 25 basis points above the current effective fed funds rate of 5.08%, before easing back late in New York. The June swap showed eight basis points of tightening ahead of next week’s Fed meeting, suggesting that traders are leaning in favor of a tightening pause.

The cost of servicing an average mortgage has jumped from $1500 to $3000 since 2020. Where is the average family going to come up with that extra $1500 a month? That’s one of the primary drivers of inflation and it is far from the only one. Insurance costs have also been rising by double digits over the last couple of years. 

Brazil’s annual inflation slowed much more than expected in May, hitting the lowest level in two and a half years and piling pressure on the central bank to ease monetary policy in coming months.

Official data released Wednesday showed consumer prices rose 3.94% from a year earlier, less than all forecasts in a Bloomberg survey of analysts that had a 4.04% median estimate. Monthly inflation stood at 0.23%.

Brazil was more aggressive in raising rates than just about anywhere else. With inflation at 3.94% they have close to a 10% positive real rate. The central bank has been adamant they would not cut rates if the government embarks on irresponsible spending. That resulted in the da Silva administration agreeing to cap public sector wages. 

President Recep Tayyip Erdogan, who won reelection to a five-year term, has long championed an unorthodox economic policy based on ultra-low interest rates. The costs of that policy piled up in the form of depleted foreign-currency reserves, an inflationary spike, and an exodus of foreign capital, leading markets to price in a large depreciation after the vote as investors bet that it was unsustainable. 

Minister Simsek
Erdogan’s appointment of Simsek, a former Merrill Lynch strategist, has intensified expectations of a return to orthodoxy and abandonment of state intervention in favor of allowing the market to determine fair value for Turkish assets. Since the election on May 28, the lira has weakened more than 13% against the dollar.

Investors are betting that more weakness is coming. The options market is currently pricing about an 80% chance that the lira will hit 25 per dollar within the next three months, and a more than 60% chance that it could hit 27 per dollar, according to data compiled by Bloomberg.

Turkey’s state banks don’t comment on their interventions in the foreign-exchange market. A former governor of the central bank said in 2020 that state-owned lenders carry out transactions in line with regulatory limits and could continue to be active in the currency market.

We have some great examples of what works and does not work on the international stage. Brazil and Mexico have successfully overcome inflationary pressures by taking aggressive measures and expressing a willingness to tolerate economic weakness. Many other countries have raised rates but are curtailed from being overly aggressive by high debt loads and interest rate sensitive asset markets. They have not yet overcome their inflationary threats. Then we have Turkey which has insisted on keeping rates low and ignored inflation. That is leading to a significant additional currency devaluation. 

A link to today's video commentary is posted in the Subscriber's Area.

Some of the topics discussed include: Ukrainian counter offensive, tech valaution expansion, China meagre supports, US banks rebound to unwind oversold condition. 

It's understandable to assign higher revenue multiples to smaller and highly disruptive companies with exponential growth potential. However, the combined market capitalization of these seven companies now exceeds US$10 trillion, so how can they deliver such growth while defying the laws of diminishing returns, especially when they were unable to do so when they were smaller, more innovative and capital was next to free with interest rates hovering around zero per cent? Over the past decade, Nvidia's revenue has grown sixfold and yet the market is now giving it a 38 times multiple. Microsoft has grown revenue by 2.7 times with a current 12 times multiple, and Apple's revenue has grown 2.2 times and yet it has a seven times multiple.

It isn't as if this hasn't happened before. Take Sun Microsystems Inc., which traded at more than 10 times its revenue prior to the bursting of the 2000 tech bubble. In 2002, chief executive Scott McNealy responded to the aftermath with a thought-provoking quote.

"At 10 times revenues, to provide a 10-year payback, I would have to distribute 100 per cent of our revenues to shareholders for 10 consecutive years in the form of dividends. This assumption assumes that I can achieve such an arrangement with our shareholders, that we have no cost of goods sold (which is highly unlikely for a computer company), that we have zero expenses (difficult with 39,000 employees), that we pay no taxes (also challenging), and that you, as shareholders, pay no taxes on the dividends received (which is illegal)," he said.

"Additionally, this assumption presumes that, with no investment in research and development for the next 10 years, we can maintain the current revenue rate. Considering these unrealistic assumptions, would any of you be interested in purchasing our stock at US$64? Can you fathom the absurdity of these basic assumptions? We don't need any transparency or footnotes to recognize their implausibility. What were you thinking?" In a seemingly repetitive cycle, we wonder if we will eventually be questioning ourselves again with a "what were you thinking?" moment. If you are tempted to say "this time it's different," we checked with ChatGPT and will leave you with its answer.

…"It's prudent to exercise caution, diversify portfolios and focus on fundamental principles rather than getting carried away by the idea that the current situation is entirely unprecedented."

I created a chart today to demonstrate the dominance of mega-caps in the Nasdaq-100. The eight FANGMANT shares represent 61.86% of the Index’s market cap. Those companies are Apple, Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, Netflix and Tesla.

Gold swung between gains and losses as traders mulled the Federal Reserve’s interest-rate path after a surprise hike by Australia’s central bank.

The Reserve Bank of Australia unexpectedly raised its key rate and kept the door open to further hikes. Treasury yields rose alongside a strengthening dollar, keeping bullion’s upside in check. Traders have been increasingly betting the US central bank will hold rates steady at its June meeting, while keeping the option for hikes later open.

“After many traders were surprised by the hawkish rate rise by the RBA, fears are growing that the Fed might need to do a lot more tightening,” said Ed Moya, senior market analyst at Oanda.

The RBA’s willingness to continue raising rates is being shaped by concerns inflation is stickier than they hoped. The jump in the minimum wage is worrisome since it puts upward pressure on wage demands across the spectrum and that tends to also be sticky. 

The dam, 30 metres (yards) tall and 3.2 km (2 miles) long and which holds water equal to the Great Salt Lake in the U.S. state of Utah, was built in 1956 on the Dnipro river as part of the Kakhovka hydroelectric power plant.

It also supplies water to the Crimean peninsula, annexed by Russia in 2014, and to the Zaporizhzhia nuclear plant, which is also under Russian control and which gets cooling water from the reservoir.

The International Atomic Energy Agency (IAEA) said there was no immediate nuclear safety risk at the plant due to the dam failure but that it was monitoring the situation closely. The head of the plant also said there was no current threat to the station.

The destruction of the Kakhovka is an obvious response to the beginning of the Ukrainian counter offensive. Back in February there were several stories about how Russia had opened the sluice gates at the dam to drain the reservoir. That action puzzled commentators at the time but the intention is now clear. 

A link to today's video commentary is posted in the Subscriber's Area.

Some of the topics discussed include: oil prices ease following initial strength, bonds steady, dollar eases and gold rebounds, Apple downward dynamic following AR/VR product launch, natual gas steadying. 

RBC Capital Markets
While some will focus on Saudi Arabia not acting in concert with the rest of OPEC+, the fact that the kingdom is willing to shoulder the curbs alone adds to the credibility of the cut and signals real barrels coming off the market, analysts Helima Croft and Christopher Louney wrote in a note. Saudi Arabia has a track record of delivering on material cuts, they said.

ANZ Group Holdings Ltd
.“The move by Saudi Arabia is likely to come as a surprise, considering the most recent change to quotas had only been in effect for a month,” analysts Brian Martin and Daniel Hynes wrote in a note. “The oil market now looks like it will be even tighter in the second half of the year.”

UBS Group AG
“There has been some anticipation of a production cut, that is why the reaction this morning was a bit more muted,” Strategist Giovanni Staunovo said in a Bloomberg television interview. Still, “the market will react further when the cut is implemented in one month’s time, as soon as inventory dynamics show a drop or exports fall from Saudi Arabia.”

$80.90 is apparently the magic number for Saudi Arabia’s budget. With so many ambitious projects in the works and a large young population, the kingdom needs to ensure its finances are in order. If that means enduring some short-term pain to support prices, that appears to be a price they are willing to pay. 

China's Shenzhen Energy closed a buy tender on May 30 seeking an August-delivery cargo,and the tender was awarded in the low $9s/MMBtu,according to several sources.

Prior to this, China's Guanghui Energy was heard to have partially awarded a buy tender for certain cargoes delivering from July 2023 to January 2024,S&PGlobal Commodity Insights reported earlier.

The prices of pipeline gas in China, which reflect crude prices 9-12 months ago, have been rising this year, with the average net import price above $8.5/MMBtu in April, showed calculations based on customs data

This means that the price advantage of pipeline gas over spot LNG is fading, which is expected to stimulate buying interest from importers who do not have sufficient long-term contracts in hand, market sources said.

"Rising prices of domestic pipeline gas in China could provide some incentive for downstream industries to switch to LNG," a Chinese importer said, adding that the current LNG prices were quite competitive and second-tier buyers could be more likely to come out to buy spot cargoes.

I was not previously aware of the look back relationship between current Chinese pipeline gas prices and the crude oil price a year ago. That suggests pipeline gas prices will begin to fall over the coming month since crude oil rolled over in June of 2022. 

Others defend the software innovation, called Ordinals, that allows Bitcoin’s blockchain to host large numbers of memecoins and nonfungible tokens — digital collectibles — for the first time, arguing it can have wider applications.

Developer Casey Rodarmor created Ordinals to enable users to inscribe digital content like videos, images and text on satoshis, the smallest unit of Bitcoin. There are 100 million satoshis in one Bitcoin. 

Rodarmor’s innovation took off this year and was seized on by pseudonymous blockchain analyst Domo to develop the Bitcoin Request for Comment — or BRC-20 — standard, which led to the explosion of memecoins.

There are now about 25,000 meme tokens on the Bitcoin blockchain with a market value of roughly $475 million, according to website brc-20.io. The figure had soared past $1 billion in early May.

Jameson Lopp, co-founder of crypto storage solutions provider Casa, said the Bitcoin network is meant to be an “auction market for the block space” — the place where data is stored — and Ordinals merely stoked demand for it.

This story is another version of the network capacity teething pains bitcoin has been going through since inception. The promise of peer to peer currency exchange is that it avoids banking fees and delays of days. The reality is it is complicated for the uninitiated and is a long way from instantaneous. When prices of the underlying move around a lot that does not help to build confidence. 

A link to this week's Big Picture Long-Term video is posted in the Subscriber's Area.

A mountain of developer debt — equal to about 12% of China’s GDP — is at risk of default and poses a threat to financial stability, according to Bloomberg Economics. That’s despite a slew of existing support measures for the industry, which include: 

Lower mortgage rates for first-home buyers if newly constructed house prices drop for three consecutive months
A nationwide cap on real estate commissions to boost demand
Allowing private equity funds to raise money for residential property developments
Pledging 200 billion yuan ($28 billion) in special loans to ensure stalled housing projects are delivered
A 16-point plan unveiled in November that ranged from addressing the liquidity crisis to loosening down-payment requirements for homebuyers

Speculation about further policy support helped propel a gauge of Chinese property developers to a more than 6% gain on Friday before the Bloomberg report, the most since December. In the coastal city of Qingdao, the government this week lowered the down payment ratio for first- and second-time home buyers in areas not subject to purchase restrictions, local media reported earlier on Friday.

Everyone can agree that moral hazard is a problem for economists. Create an incentive and resisting regulation ensure it will be exploited to the greatest extent possible by any and all means possible. Unbridled debt issuance is a hallmark of speculative activity in China. That’s been a clear feature of the housing/infrastructure boom. It was equally evident in the pace with which loans were made to foreign governments and projects as part of the Belt and Road Initiative. 

3M has agreed to a tentative settlement of "at least" $10B to resolve water pollution claims tied to PFAS "forever chemicals,' people familiar with the proposed pact tell Bloomberg's Jef Feeley. The potential deal would require board approval, the report noted.

There have been several examples of the last few years of storied companies falling foul of massive lawsuits. Bayer underestimated the cost of settling Monsanto’s glyphosate suit and the share crated as a result. That’s not something that is accurately reflected in the raw fundamentals because of the time lag between news breaking and earnings updates. 

Conventional wisdom believed the industry had improved its drilling and completion of shale wells. The ability to stay in the zone, the choice, and the volume of proppant and fluid were all said to have resulted in sharply higher drilling productivity. Wall Street and the energy industry both promoted a consistent narrative. We felt there were several unanswered questions and undertook a study to consider what was driving surging well productivity. If the industry had radically improved drilling techniques, it would ultimately be bearish for the sector. A previous low-quality Tier 2 location could now be transformed, through enhanced drilling and completion techniques, into a top-quality Tier 1 well. As a result, the inventory of best wells would explode, and the shale basins would continue to thrive for years to come. Modeling well performance is hugely complex. Shale basins are highly nonlinear with high degrees of variable inter-dependence. As a result, traditional statistical techniques, such as the linear regressions used by most analysts, fall short. We turned to advanced methods, including machine learning and neural networks, and achieved surprising results. Instead of improved drilling techniques, we concluded that two-thirds of the improved productivity between 2013-2018 came from favoring the best drilling locations. In 2013, 22% of Midland wells were Tier 1. By 2018, Tier 1 represented 50% of all wells. Since a Tier 1 well is nearly twice as productive as a Tier 2 well, the migration from lower to higher quality areas drove a massive amount of the improved well productivity.

There is significant difficulty in assessing the production profile of shale fields because constant drilling is required to both grow and sustain production. If the shale drillers have been following the energy sector’s equivalent of “rich veining”, then it would be reasonable to expect they will be reluctant to invest in additional new supply until prices are higher enough to secure their margins. 

One of the questions subscribers ask most often is how to find details of my open trades. To make it easier I will simply repost the latest summary on a daily basis until there is a change.
 

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: gold extends rebound on weaker Dollar, yield curve inversion deepens, copper and uranium firm, Apple testing previous peak on potential new product enthusiasm, AI shares rebound from initial weakness. 

India’s GDP growth increased to 6.1% year on year in January-March, from an upwardly revised 4.5% in the final quarter of last year. The reading exceeded even our forecast of 5.7% — the highest in a Bloomberg News survey — and was 1.1 percentage points higher than the consensus estimate.

For fiscal 2022, which ended March 31, that translates into GDP growth of 7.2%, higher than the government’s second advance estimate of 7%. This was in line with our forecast, but 0.2 ppt higher than the consensus estimate.

Key drivers behind the positive data surprise included government subsidies that are energizing the electronics sector, multinationals shifting back-office business to India to reduce costs, and stronger real credit growth.

The Reserve Bank of India’s cumulative 250 basis points of repo rate increases in this cycle didn’t appear to have any meaningful impact. The construction sector, which is most sensitive to interest rates, also recorded higher growth in 1Q.

India’s Manufacturing PMI is in expansion territory and continues to trend higher. That is in sharp contrast to the negative readings in both China and the USA. Manufacturing capacity has been migrating for much of the last decade as China’s wage bill trended higher. The low end garment industry is now well established in places like Bangladesh, Pakistan, and Ethiopia for example. 

Develop and Deploy New Nuclear Technologies

The bill reduces regulatory costs for companies seeking to license advanced nuclear reactor technologies.
The bill creates a prize to incentivize the successful deployment of next-generation nuclear reactor technologies.
The bill requires the NRC to develop a pathway to enable the timely licensing of nuclear facilities at brownfield sites.

Preserve Existing Nuclear Energy

The bill modernizes outdated rules that restrict international investment.
The bill extends a long-established, indemnification policy necessary to enable the continued operation of today’s reactors and give certainty for capital investments in building new reactors.

Strengthen America’s Nuclear Fuel Cycle and Supply Chain Infrastructure

The bill directs the NRC to establish an initiative to enhance preparedness to qualify and license advanced nuclear fuels.
The bill identifies modern manufacturing techniques to build nuclear reactors better, faster, cheaper and smarter.

Authorize funds for Environmental Cleanup Programs

The bill authorizes funding to assist in cleaning up legacy abandoned mining sites on Tribal lands.

Improve Commission Efficiency

The bill provides flexibility for the NRC to budget and manage organizational support activities to ensure the NRC is prepared to address NRC staff issues associated with an aging workforce.
The bill provides the NRC Chair the tools to hire and retain highly-specialized staff and exceptionally well-qualified individuals to successfully and safely review and approve advanced nuclear reactor licenses.
The bill requires the NRC to periodically review and assess performance metrics and milestone schedules to ensure licensing can be completed on an efficient schedule.

The cost of building new nuclear facilities is the most common counter argument for expanding the sector. Two of the biggest cost centres are the regulatory morass that needs to be traversed to get a new project permitted and the fact that many reactors are unique designs. Adjusting regulations to take technological innovations into account and building reactors on assembly lines could greatly reduce the cost of construction. 

Around the same time, Apple started buying several companies focused on specific technologies that could end up in a headset.

In 2013 it bought Primesense, whose 3D camera sensor eventually ended up being part of the basis for FaceID, the company’s facial recognition system for iPhones, and influenced the company’s current depth-sensing cameras.
In 2015, it bought Metaio , which made AR software for mobile devices.
In 2016, it bought Flyby Media, which worked on computer vision technology.
In 2017, it bought SensoMotoric Instruments, which developed eye tracking, a core VR technology, as well as Vrvrana, which developed a VR headset.
In 2018, it bought Akonia Holographics, which developed transparent lenses for AR glasses
It bought NextVR, which filmed video content for virtual reality, including sports.

Apple also started releasing developer’s kits for augmented reality, including one called ARKit which could use the iPhone’s hardware to create limited AR experiences on the phone, like interacting with a virtual pet or trying out digital furniture in a living room.

Apple now has an entire library of software to perform difficult tasks that the headset will need to be able to do to integrate the real world and a virtual world seamlessly.

The thing I will be paying most attention to when Apple releases its mixed reality product will be whether they have come close to fixing the eye strain issues current VR systems incur. I do wonder if Microsoft’s Hololens suffered from the same issues.

I can only speak for myself but using the Oculus Quest gives me eye strain after half an hour and it takes about 3 hours to subside. Repeated use in 24 hours gives me eye strain for several days. Additionally, playing Beat Saber or boxing games is fun but the headset is also sweaty and that makes taking turns with family or friends unappealing.

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These topics are becoming more mainstream. When I talk to the most sophisticated macro hedge funds and investors, the common refrain that comes back is they’ve never seen an environment as complicated as this. There is consensus around gold; it’s a safe bet, and everything else is very uncertain. This is a very unique environment. I think we need to take a very, very broad perspective to actively reimagine and rethink our understanding of the world, because things are changing fast. The dollar and the renminbi and gold and money and commodities. I think they are all going to get caught up.

There are a lot of moving parts in the global macro environment. The introduction of AI and the race for dominance is a wholly new development for example. The challenge with making big long-term predictions is that other events can happen before the prediction comes to fruition. 

Wells Fargo & Co. Chief Executive Office Charlie Scharf said there are significant risks to segments of the US office sector and that his bank will see losses stemming from real estate loans.

“We look city by city, we look property by property to look at our exposures, and I would say there’s no question that there will be losses,” Scharf said Wednesday at a conference hosted by AllianceBernstein Holding LP. The San Francisco-based bank is proactively managing its loan portfolio and working with borrowers to restructure terms with the goal of helping clients and minimizing risk, he said. 

Many office owners are struggling amid the rise in remote work and the surge in borrowing costs, which has made financing more difficult. Landlords such as Columbia Property Trust, owned by funds managed by Pacific Investment Management Co., have defaulted on office debt, often in a bid to renegotiate terms with lenders. Brookfield Corp. recently handed over control of a building in downtown Los Angeles to a receiver after it stopped payments on the office tower.

“If you’re reserving conservatively, then you’ve derisked the financial impact to the company,” Scharf said, noting that Wells Fargo has a little less than 6% reserve coverage in its office portfolio. “In the context of the overall portfolio and the overall size of our loan portfolio in the company, we’re not overly concentrated in office.”

I was speaking with a friend in San Francisco recently who related the story of a major landmark office building. The building had leased at $1000 a square foot before the pandemic. Today it is vacant despite rates having fallen to $200 and there is speculation it will eventually lease for $100. The cost of retrofitting the building to make it residential is $750 and the cost to knock it and completely rebuild is also $750. That’s a white elephant project no one is going to touch and it is only one example. 

By 2050, the UK’s Environment Agency expects the gap between available water and what’s needed by homes and businesses to reach 4 billion liters per day in England — enough to fill 1,600 Olympic size swimming pools. Leaks are part of the picture, but so is a neglected network, some of which was built more than 150 years ago, that doesn’t store enough for times of drought, and water consumption that outstrips many other parts of Europe.

The crisis has become a national obsession. The public is furious with a privatized English water industry that has paid out millions to executives and shareholders while failing to keep pace with population growth and climate pressures, and the government and regulators that have allowed it to happen. As well as the threat of water shortages, underdeveloped pipes and treatment plants mean raw sewage is frequently dumped in rivers and the sea, causing environmental damage.

Now, after years of delays, the UK is racing to fix its broken water system before it’s too late. “The worst risk has not materialized yet,” says Jim Hall, a professor of climate and environmental risk at Oxford University and a member of the government’s official infrastructure adviser. “There is some sense until now that we’ve got away with it,” he says, but “a severe and prolonged drought could materialize at any time.”

The population of Greater London declined between the 1950s and early 1980s but then jumped around 50% over the last forty years. There was no incentive to invest in water infrastructure during a time of declining population growth and it takes a long time for institutional mindsets to change. Today, there is urgency to the investment case because urgent remedial action in both storage and usage are necessary. 

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Some of the topics discussed include: oil prices breaking lower, China growth prospects in question, AI stocks overbought and at risk of reversion, gold rebounds on debt ceiling deal, Treasuries rebound on slowing growth. 

Mounting rate-hike expectations have pushed short-term yields up relative to longer-term ones, flattening the Treasury curve. The flattening continued Tuesday as yields declined, briefly pushing 30-year yields below the five-year for the first time since March.

The trend has temporary support from Wednesday’s month-end bond index rebalancing, which may create demand for the long-maturity Treasuries created during the month in quarterly auctions. 

Later this week, Friday’s release of US labor market data for May has the potential to alter expectations for Fed policy. Job creation exceeded economists’ median estimate in April and each of the previous 12 months. However Fed officials in their public comments have been divided on how to balance an anti-inflationary stance with the possibility that the central bank’s 10 rate increases totaling 5 percentage points in the past 14 months warrant a pause in June.

The deal announced over the weekend relies on capping spending and growing defense spending below the rate of inflation. The headline impact will be to grow the national debt less quickly. That is supporting Treasury prices today. 

Chinese company Longi Green Energy Technology Co. cut wafer prices by as much as 31% on Monday. Wafers are silicon squares that are wired up and pieced together to form solar panels. 

The reduction comes after solar silicon prices have plunged by almost half since early February. A slew of new factories have ramped up production, ending a shortage of the material that disrupted the industry’s supply chain last year. 

Longi President Li Zhenguo warned last week that aggressive expansion in the solar supply chain could lead to excess capacity that forces more than half the companies in the industry out of business in the next few years. 

China is the global heavyweight in solar panel manufacturing and not least because several provinces have the same ambition of dominating the sector. If they have decided to embark on a price war to drive the weakest domestic manufacturers out of business, that is near-term positive for consumers but is a significant challenge for global competitors who will not be spared from dumping of excess supply. 

Anheuser-Busch InBev ADRs fall as much as 2.5% ahead of the bell after the latest Nielsen data shows accelerating volume and sales declines for its Bud Light beer. Shares dropped as much as 1.9% in Europe.

Nielsen data through May 20 show that Bud Light volume declines accelerated to -27.2% vs -25.0% in the week ended May 13, while sales worsened to down 24.3% from down 21.6%, writes Citi analyst Simon Hales

The broader InBev beer portfolio also continues to see weakness, while Molson Coors’ Coors Light beer continues to see market share gains accelerate, he says.

The culture wars are ramping up a year ahead of the US Presidential election. “Protect the children” is developing as the counter point to the rollback of abortion rights earlier this year. It is reasonable to expect continued efforts to deepen the gulf between the parties as centrists are increasingly forced to pick a side. Taking the bi-partisan agreement to raise the debt ceiling as a sign that partisanship is ebbing would seem to be rather naive. 

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But the latest swing higher in real yields shows that in spite of fraught debt-ceiling negotiations, the world’s biggest bond market senses another jolt of policy tightening and an extended period of staying on hold may be warranted. A similar outlook is being echoed in the swaps market, with traders almost fully pricing in a quarter-point hike within the next two policy meetings.

That view has found support in recent data pointing to a resilient US economy and sticky inflation. A report on Friday showed the inflation rate for US personal spending on items excluding food and energy running firmer than forecast at an annual pace of 4.7% in April. That comes amid upside surprises in UK and European inflation numbers, reminders that central banks may have more work to do and bond yields may keep climbing. 
 

PCE inflation, the trimmed kind followed by economists who don’t like volatile real life data, surprised on the upside today. That is a mirror of the UK result earlier this week. It suggests the primary sources of inflation are now services and shelter. The sources of inflation which can be influenced by interest rates are already subsiding. For example food prices are now contracting. 

"First, we believe the current growth rate is depressed by the overall softness in consumer discretionary spend," Mahaney wrote of Amazon's retail business, which he expected will grow revenue by 10% this year, compared with 13% last year. An improvement in macroeconomic trends "should enable an acceleration in North American Retail revenue growth."

Further, Amazon could see big revenue benefits as it continues making its shipping times ever speedier. As Mahaney wrote, "the faster the shipping, the greater the demand."

On the cloud-computing side of the business, Mahaney saw the potential for an even more dramatic slowdown in the near term. Revenue there could increase by only 10% or 11% in the second quarter and 16% for the whole of 2023, by his estimates, versus 29% in 2022.

But he also saw room for Amazon to drive a growth inflection after the second quarter of this year, driven by easier comparisons, traction for artificial-intelligence workloads and a relaxation of "optimization" efforts like discounts and bundled renewals.

The reason Amazon is rebounding is because investors are betting its AWS data centres will be used for AI computing resources. There is logic to that assumption since AI requires a multiple of the computing power devoted to cloud or search. 

Delivery companies as publicly listed entities are under pressure to churn out profits. And there’s very little competition. Consolidation, particularly since that start of the pandemic, has left three dominant players in the US. DoorDash had 65% of food delivery sales as of April, including those from its Caviar unit, according to Bloomberg Second Measure, a provider of transaction data analytics. Uber Eats has a 25% share, aided by its 2020 acquisition of Postmates. Grubhub Inc. — which has over the years absorbed Seamless, Eat24, and Tapingo before being acquired by Just Eat Takeaway.com — has 9%. 

Delivery apps are a vestige of the success stories that characterised the pandemic living experience. The market is not big enough to accommodate all the companies vying for dominance so the best capitalised are most likely to gain markets share as the weaker companies disappear. 

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Some of the topics discussed include: AI stocks surge on strong NVidia earnings, Auto shares break lower on weak XPeng sales, Rand breaks lower, yields climb ahead of debt ceiling impasse negotiation final days. 

“It doesn’t happen often to see a $700 billion company move 25% in one day — I’ve never seen anything like it,” said Richard Windsor, founder of independent researcher Radio Free Mobile based in Abu Dhabi. For as long as the AI craze persists, “Nvidia is in a good position.”

A trillion dollars of data center infrastructure will be upgraded to handle so-called accelerated computing, Chief Executive Officer and co-founder Jensen Huang told analysts, letting them run generative AI tools such as ChatGPT. Huang said the firm saw “incredible orders.”

Nvidia’s outlook was so strong that Morgan Stanley analyst Joseph Moore said the numbers match what they had in mind for 2025. “The transformational surge in AI spending is paying off much earlier than expected,” he wrote in a note.

There is no arguing with the size of the sales beat by Nvidia. It is truly impressive. Of course, it begs the question who is buying? The company announced in late March they have altered the best-selling H800 chip, so it will comply with prohibitions on selling high tech to China. The upshot is a Chinese company will need more of these chips to achieve the same efficiency. That’s likely to have been a significant factor in the jump in Nvidia’s sales. 

“The health of the local economy is now the primary concern,” said Brendan McKenna, an emerging-markets strategist at Wells Fargo Securities in New York. “It’s difficult to make a really compelling case to deploy capital toward South Africa and the rand at the moment. The rand has been an EM currency that has underperformed for most of this year, and given the commentary from the SARB today, that underperformance is likely to continue.”

Bloomberg’s forecast model based on prices of options to buy and sell the rand shows a 53% chance of the currency breaching 20 per dollar within the next week. That compares with a probability of just 6.8% before Thursday’s rate decision.

All of the monetary policy committee’s five members voted for the half-point increase, the first such unanimous decision since September 2021. There have been a cumulative 475 basis points of interest-rate hikes since November 2021, the most aggressive tightening cycle in at least two decades.

“The rand should strengthen after an interest rate hike, but given the poor reaction in the currency, the market seems to think that this is a potential policy mistake,” said Michelle Wohlberg, a fixed-income analyst at Rand Merchant Bank in Johannesburg. “The yield curve has steepened aggressively post the rate hike as fiscal fears start playing in investors’ minds on the back of poor growth prospects.”

When the former CEO of Eskom writes a book called Truth to Power and refers to the company as South Africa’s largest organised crime network, it is not exactly good for the country’s international reputation. The cholera outbreak north of Pretoria, which has killed 17 people so far, is an additional sign that South Africa’s water infrastructure is also in need to remedial care. 

BYD’s Qin Plus DM-i and Song Plus DM-i models use normal-pressure fuel tanks and therefore purportedly fail to meet the country’s vehicle emissions standards, Great Wall Motors said today, citing the filing it made to the Ministry of Ecology and Environment, State Administration for Market Regulation and the Ministry of Industry and Information Technology on April 11.

Great Wall Motors is paying close attention to the case to see if legal action will be taken, the Beijing-based carmaker said. Environmental protection authorities need to conduct a probe and legal proceedings must be started should the results show any irregularities, it added.

BYD retorted that it reserves the right to carry out legal action of its own and is firmly against any form of unfair competition. All of the Shenzhen-based company’s autos conform with national standards and they have all passed verification by the country’s authorities.

Great Wall Motor bought the two cars and sent them to the China Automotive Technology & Research Center for testing, BYD said. They were not tested according to national-level standards, it said.

In normal times this kind of backbiting might be considered part of normal competition. However, the share prices of Chinese automotive companies suggest a scramble is one for market share amid slowing demand. 

One must also consider that a healthy percentage of ev owners charge at home. The business model for gasoline retailers would be very different if the same percentage of ice owners had gas pumps at home.

Thank you for this important point. 68% of people live in single family homes in the USA. People earning more than $100,000 buy around 57% of EVs. It is reasonable to assume many people earning that sum also own a house. The challenge with mass adoption is EVs are expensive and if you are one of the people who does not own a home, finding a charger is an inconvenience. 

One of the questions subscribers ask most often is how to find details of my open trades. To make it easier I will simply repost the latest summary on a daily basis until there is a change.

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Some of the topics discussed include: Wall Street eases on debt ceiling fears, bonds yield rise, gold and copper ease, oil firms, Uk inflation surprising on the upside, dividend aristocrats under pressure from yields.

UK bond yields are back to where they were when Liz Truss was in No. 10 after a shocking inflation report prompted traders to bet on more rate hikes from the Bank of England.

The inflation rate came in higher than all economists forecast — sending wagers on future interest-rate hikes soaring and lifting yields to levels last seen when the former Prime Minister rattled markets with her unvetted mini-budget. 

The rate on 10-year securities now pays a premium of more than 50 basis points over equivalent US notes, around the biggest seen in more than a decade. A key part of the curve inverted the most since February, a sign bond traders are positioning for short-term borrowing costs to remain elevated for longer. 

“It’s a terrible inflation print that really sets the UK apart from other major developed economies,” said Derek Halpenny, head of research, global markets EMEA & international securities at MUFG Bank. “The scale of divergence on the inflation path risks undermining policy credibility.”

The whole point of creating an ex-food and energy inflation measure was to reduce the impression inflation is out of control. We have rather the opposite condition at present because the core figure is breaking out to new highs while the broad measure is contracting. That’s not good news because the core measure is centred on shelter and services and only a steep recession is likely to have a meaningful effect on the price of either.