Ambrose Evans-Pritchard: Markets are losing faith in the Federal Reserve’s credibility

Submitted by admin on Thu, 2021-05-13 13:24 Section: Daily Dispatches

By Ambrose Evans-Pritchard
The Telegraph, London
Thursday, May 13, 2021

The United States is engaged in an astonishing monetary experiment. The Federal Reserve is still conducting quantitative easing even as the rate of headline inflation hit 4.2 percent.

Core inflation has risen to a 25-year high of 3 percent, recording the biggest jump in a single month since 1981. Factory gate inflation has been running at a 7.1 percent annual growth rate over the last six months even before full reopening


The Biden administration is running a budget deficit of 13 percent of GDP this year even though the output gap closed in April and large parts of the economy are overheating. Small firms cannot find workers. Unfilled job openings have reached a record high.

Yet interest rates are zero and the Fed is still buying $120 billion of bonds each month, directly financing part of Washington’s “war economy” debt issuance. It is persisting even though the broad M3 money supply has grown at 24 percent over the last year. It is downplaying all evidence of pent-up inflation as “temporary.” …

… For the remainder of the report:…

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Alasdair Macleod: The end of the LBMA is nigh

Submitted by admin on Thu, 2021-05-13 11:43 Section: Daily Dispatches

By Alasdair Macleod
GoldMoney, St. Hellier, Jersey, Channel Islands
Thursday, May 13, 2021

Basel 3 is on course to regulate the LBMA out of existence. And with it will go all the associated arbitrage business and position-taking on Comex, because most bullion bank trading desks will cease to exist. The only supply to buy-side speculators of gold and silver contracts will be producer hedging.

In recent months there has been some limited commentary concerning the introduction of Basel 3 regulations and the implications for precious metals trading. These new regulations are scheduled to be introduced for European banks at the end of June — only seven weeks’ time — and in the UK from 1 January next, affecting all LBMA member banks.

This article explains the new regulations and concludes that the recent joint LBMA/WGC consultation paper addressed to the British regulator is unlikely to save London’s unallocated gold trading market. And because Basel 3 regulations are scheduled to be introduced into the UK at the year-end all banks in the London gold market can be expected to wind down their exposure well ahead of the deadline.

The unallocated forward settlement market will effectively be shut down. Hedging into Comex futures from this source will also cease. As it is unwound, the withdrawal of synthetic supply has enormous implications for future precious metals prices by transferring pricing power to physical markets, now dominated by China. …

… For the remainder of the analysis:…

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US Producer Prices Surge Most On Record

Tyler Durden's PhotoBY TYLER DURDENTHURSDAY, MAY 13, 2021 – 08:37 AM

After consumer prices exploded higher yesterday – and were immediately rejected by establishment types as ‘transitory’, despite the market’s obvious disagreement – all eyes were on this morning’s producer prices for signs of more pressure. Many were fearful of a repeat of last month’s debacle  delay (and there were rumors of a softer PPI print leaked earlier today)

The rumors were wrong as April Producer Prices exploded 6.2% YoY (well ahead of the 5.8% expected) which was clearly impacted by the base effect of last year’s collapse, but even sequentially, the PPI print was shockingly hot, rising 0.6% MoM (double the +0.3% expected). Excluding food and energy, so-called core PPI advanced even more, or 0.7%.

Source: Bloomberg

That was the biggest YoY jump on record:“There is more inflation coming,” Luca Zaramella, chief financial officer at Mondelez International Inc., said on the food and beverage maker’s April 27 earnings call.“The higher inflation will require some additional pricing and some additional productivities to offset the impact.”

jumped 0.7% from the prior month and increased 4.6% from a year earlier.
Michael Hsu, chief executive officer at consumer-product maker Kimberly-Clark Corp., said in April that the maker of Scott toilet paper and Huggies diapers is “moving rapidly especially with selling price increases to offset commodity headwinds.”

Digging below the surface further, ex-food, energy, and trade, producer prices soared 4.6% YoY, the most on record also.

Source: Bloomberg

Some more details at the final demand level:

  • Final demand services: Prices for final demand services rose 0.6 percent in April, the fourth consecutive advance. Half of the broad-based increase in April is attributable to the index for final demand services less trade, transportation, and warehousing, which moved up 0.5 percent. Margins for final demand trade services also rose 0.5 percent, and the index for final demand transportation and warehousing services jumped 2.1 percent. (Trade indexes measure changes in margins received by wholesalers and retailers.)
  • Product detail: Within the index for final demand services in April, prices for portfolio management rose 1.5 percent. The indexes for airline passenger services; food retailing; fuels and lubricants retailing; physician care; and hardware, building materials, and supplies retailing also moved higher. Conversely, margins for machinery and vehicle wholesaling fell 5.6 percent. The indexes for apparel wholesaling and for securities brokerage, dealing, investment advice, and related services also declined.
  • Final demand goods: Prices for final demand goods climbed 0.6 percent in April, after rising 1.7 percent in March. Leading the April advance, the index for final demand goods less foods and energy increased 1.0 percent. Prices for final demand foods moved up 2.1 percent. In contrast, the index for final demand energy fell 2.4 percent.
  • Product detail: A major factor in the April increase in prices for final demand goods was the index for steel mill products, which jumped 18.4 percent. Prices for beef and veal, pork, residential natural gas, plastic resins and materials, and dairy products also moved higher. Conversely, the index for gasoline fell 3.4 percent. Prices for chicken eggs and for carbon steel scrap also declined.

Yesterday’s data – which showed the strongest monthly gain in the overall consumer price index since 2009 – suggested companies are passing along at least some of the input-price inflation.. and today’s PPI surge suggests that push through to CPI is far from over.

Not transitory.


Israel’s Military Initiates Ground Invasion Of Gaza

Tyler Durden's PhotoBY TYLER DURDENTHURSDAY, MAY 13, 2021 – 05:50 PM


Home Prices Soar Most On Record As Fed Continues Bubble Blowing Policies 

THURSDAY, MAY 13, 2021 – 05:45 AM

The Federal Reserve continued to increase its holdings of mortgage-backed securities by the tune of $40 billion per month, fueling a housing bubble with record-low mortgage rates and low inventory. 

Even as the housing sector has more than recovered from the downturn, Chair Jerome Powell continues pedal to the metal with MBS purchases. According to the National Association of Realtors (NAR), this has resulted in the median price for a single-family home to soar the most on record in the first quarter. 

“Nationally, the median existing-home sales price rose 16.2% on a year-over-year basis to $319,200, a record high since 1989. All regions recorded double-digit year-over-year price growth, with the Northeast seeing a 22.1% increase, followed by the West (18.0%), South (15.0%), and Midwest (14.4%),” NAR said. 

Source: Bloomberg 

As home prices surge, Powell still doesn’t have a satisfactory answer for why the Fed continues its massive MBS purchases every month. 

Here’s Powell’s quote in full from an April press conference:

“Yeah. I mean, we started buying MBS because the mortgage-backed security market was really experiencing severe dysfunction, and we’ve sort of articulated, you know, what our exit path is from that. It’s not meant to provide direct assistance to the housing market. That was never the intent. It was really just to keep that as, it’s a very close relation to the Treasury market, and a very important market on its own. And so, that’s why we bought as we did during the global financial crisis. We bought MBS, too. Again, not intention to send help to the housing market, which was really not a problem this time at all. So, and, you know, it’s a situation where we will taper asset purchases when the time comes to do that, and those purchases will come to zero over time. And that time is not yet.”

Back to the report, Lawrence Yun, NAR chief economist, said, “record-high home prices are happening across nearly all markets, big and small, even in those metros that have long been considered off-the-radar in prior years for many home-seekers.” 

Of the 183 metro areas covered by NAR, 163 had double-digit price gains, up from 161 in the fourth quarter. 

“The sudden price appreciation is impacting affordability, especially among first-time homebuyers,” said Yun. “With low inventory already impacting the market, added skyrocketing costs have left many families facing the reality of being priced out entirely.”

In a separate report, Redfin’s monthly data showed that in April, homes sold at their fastest pace on record with nearly half off-market within one week.

Quantitative easing is a crapshoot, the Fed’s overstimulation is fueling a housing bubble. Any taper announcement, possibly at Jackson Hole, could throw a wrench into the housing market later this year.



France Aims To Shut British Firms Out Of EU Financial System As Fisheries Dispute Drags On

THURSDAY, MAY 13, 2021 – 02:45 AM

As the spat between the UK and France over access to British fishing waters – a contentious issue that nearly scuppered the post-Brexit trade deal – worsens, France has apparently decided to go for the jugular.

Last week, French officials threatened to cut off electricity to the UK-dominated island of Jersey while a “protest” staged by French fishermen nearly prompted a confrontation between British and French naval ships. Now, France is threatening to do everything in its power to scupper a EU deal that would broaden access to European markets for British financial firms.

In keeping with threats made by a French diplomat last week, Bloomberg reports that French diplomats are working to stall an agreement that would help restore some of the access British financial firms once enjoyed to European markets, which was lost when Brexit officially came into effect following the end of the transition and the start of 2021.

Though it wouldn’t have much practical effect in the near term, reaching a Memorandum of Understanding between the UK and the EU about plans to re-integrate their financial systems is seen by the UK as a critical first step to restoring the level of access they once enjoyed. Negotiations in Brussels later this month will bring EU leaders together to further the discuss a potential deal on market access. To be sure, the EU has said that it’s in no rush to restore the reciprocity rules that would restore trading rights for British financial firms.

Here’s more from BBG:

At the end of March, Britain and the EU had agreed on a forum regarding cross-border financial market access. While granting so-called equivalences that would allow U.K. financial firms to do business in Europe remains a separate and unilateral process, the MoU would help speed up the process.

Since Brexit took effect at the beginning of 2021, London-based financial firms have been largely unable to operate in the bloc, forcing banks like JPMorgan Chase & Co. and Goldman Sachs Group Inc. to move billions of dollars in assets and thousands of staff to the continent.

All 27 EU states must sign off on an MoU before it can be implemented. BBG says talks could begin in the coming days. But if the British are still refusing to hand out fishing licenses for the waters around the island of Jersey by then, well, they can expect the French to do everything within their power to stall talks on the MoU.

As a reminder, here’s how close British and French Navy vessels came to a confrontation earlier this month (courtesy of Bloomberg).

France has accused the British government of reneging on some of its promises from the Brexit deal by refusing to hand out licenses for French fishermen in certain British-controlled fishing waters, primarily those off the island of Jersey, which lies close to the French coast


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