UN 'Shocked' by Fighting in Northern Myanmar

Tensions in Northern Myanmar

Summary:

The United Nations on Monday (November 6) expressed concern about "fierce fighting" in northern Myanmar between the Myanmar army and the northern ethnic minority alliance, which has caused civilian casualties and displaced more than 30,000 people.

Stephane Dujarric, spokesman for the UN secretary-general, said: "We are alarmed by the intense fighting, particularly in Myanmar's northern Shan state, where there are reports... of airstrikes resulting in civilian casualties, Tens of thousands of people have been newly internally displaced.”

"Our colleagues in the humanitarian sector tell us that nearly 33,000 men, women and children have been displaced since October 26," he added.

He said Secretary-General Antonio Guterres "reaffirmed that civilians should be protected" and called for humanitarian aid to be "unhindered".

Fighting intensified last week in a large swath of Shan state near the Chinese border.

The Myanmar National Democratic Alliance Army (MNDAA), Ta'ang National Liberation Army (TNLA) and Arakan Army (AA) on Saturday claimed to have captured dozens of outposts and four towns and blocked key trade routes to China.

A few days ago, a junta spokesman described claims that armed groups had seized several towns in Shan State as "propaganda."

The fighting is a threat not seen since Myanmar's military overthrew the government of Aung San Suu Kyi in a 2021 coup.

According to the Associated Press, Myanmar residents, the main opposition alliance and the media reported that Myanmar's armed resistance group seized the town of Kao Lam, the capital of Kao Lam district in Sittwe Province, on Monday. This is the first administrative area occupied by anti-government armed forces since the military coup. capital.

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Glendon

Central Bank

Economic

Over the past 18 months, the Federal Reserve (Fed) has raised rates by 525 basis points (bps), its biggest tightening of monetary policy since 1981. Long-term bond yields have also soared (Figure 1). All but two other major central banks -- the Bank of Japan and the People's Bank of China -- have also raised interest rates sharply (Figure 2).

Figure 1: The biggest rate hikes since 1981 and a steep yield curve inversion

Figure 2: Rates hikes initiated nearly everywhere except China and Japan.

Yet, the U.S. economy continues to defy expectations. It grew at nearly a 5% annualized pace in Q3 from Q2, and U.S. GDP expanded nearly 3% more than from a year ago despite the Fed rate hikes and a sharply inverted yield curve, which is traditionally considered a harbinger of economic downturns. Should we be surprised? Absolutely not. Here's why:

Long lags between rate hikes and recessions: The economy has never responded quickly to policy tightening, and the lag times appear to have grown since the early 1980s. During the past three endogenous downturns (not counting the exogenous shock of Covid-19 in 2020), it took anywhere from 9 to 18 months after the Fed's last rate hike to finally tip the economy into a recession (Figure 3). Currently, we are about three months past the Fed's most recent, and perhaps last, rate hike.

Figure 3: Recessions often follow tightening cycles with a delay of 9-18 months or so

Long lags between yield curve inversion and recessions: Yield curve inversions tend to foretell what the economy does roughly two years in advance. Yield curves were inverted in 1988 and 1989, and there was a recession in 1990-91. The yield curve inverted again in 1999 and early 2000, and a recession followed in 2001. The yield curve inverted in 2006 and early 2007, and a recession began in December 2007 that lasted until November 2009 (Figure 4).

Figure 4: Long lags between yield curve inversions and the onset of recessions

This time might be different: The fact of a still growing economy in the face of higher rates has activated the usual “this time is different” chorus to a fever pitch. The lyric this time is about two themes that might allow the U.S. to avoid the usual post-Fed tightening cycle/yield curve inversion recession. First, many large corporations refinanced themselves by issuing bonds at very low yields during the pandemic when long-term interest rates were at rock bottom. Second, some argue that households are still sitting on piles of cash from the boom in savings during the height of the pandemic stimulus programs.

Of the two “this time is different” arguments, the first is strongly supported by the evidence. Many large corporations did indeed lock in inexpensive long-term financing when rates were low.

However, the same is almost certainly not true of small and mid-size firms, including the small caps in the Russell 2000, which has underperformed the S&P 500 and Nasdaq 100. These types of companies rarely issue long-term bonds. Rather, they tend to rely on bank financing. According to the Federal Reserve Bank of St. Louis, the average length of a business loan is 749 days, which is about 23 months. Coincidentally, this corresponds quite closely to the average lag time between Fed rate hikes (or cuts) and the eventual economic response. In any case, higher interest rates could force many small and mid-sized enterprises to make very difficult choices regarding staffing and investment in the coming years, which could contribute to higher unemployment rates and a retrenchment in both consumer spending and business investment.

When it comes to consumers, how much cash reserves they have left after the pandemic is a subject of debate. However, retail sales have not been growing quickly in volume terms. Moreover, mortgage rates have soared from 2.9% to nearly 8% (Figure 5). While this is of no consequence to the more than 90% of homeowners on fixed rate mortgages, new mortgage loan initiation has collapsed to its lowest point since 1995 (Figure 6) while sales of new and existing homes have plummeted (Figure 7). Building permits and housing starts have also fallen (Figure 8).

Figure 5: Mortgage rates have soared from 2.9% to over 8%.

Figure 6: Mortgage applications have fallen to a 28-year low

Figure 7: Existing home sales have fallen by more than one-third.

Figure 8: Housing starts and building permits have also dipped.

Adding to the mix, the average loan rate on credit cards has soared from 14.5% to 21%. The average U.S. household had $9,228.38 of credit card debt as of the end of 2022, according to the Fed. Financing that debt will cost the average American household an additional $640 per year going forward or about $78 billion across the entire population. While this comes to only 0.3% of GDP, it comes on top of higher auto loans and renewed student loan payments as a possible brake on economic activity.

Overall, U.S. GDP growth was 2.9% year-on-year (YoY) in Q3 2023 but consumer spending growth was below average with just 2.4% YoY (it grew by 4% annualized in Q3 from Q2) while home building dropped by 7.8% YoY. The main boost to growth came from a 6.3% rise in non-defense Federal government spending and a 4.9% increase in defense spending. However, the boost to non-defense spending mainly came as a result of the Inflation Reduction Act, passed by the previous Congress; and the defense spending was in response to the Russo-Ukrainian war. It seems much less likely that Federal spending will contribute so much to growth over the next four quarters given the changed political environment in Washington DC. Inventories also stacked up in Q3, potentially signalling slower growth going forward.

As such, when one looks at the forward curve, one must wonder if we will really have rates higher for longer? Three months after the Fed stopped hiking in June 2006, the market priced that the Fed might eventually shave 25-50 bps off rates by late 2008. Almost nobody saw the eventual cuts to (near) zero coming.

This time around, three months after the Fed's (possibly) last rate hike in July 2023, the Fed funds futures curve looks strikingly similar, pricing a handful of cuts between now and late 2025 (Figure 9). This is a reasonable forward curve for a soft landing with continued sticky inflation. However, it is not one that prices any significant possibility of a recession (Figure 10). Finally, it is worth pointing out that outside of rising rental costs, inflation in the U.S. has plunged to just 2.1% YoY and the rise in rental costs appears to have peaked about four months ago.

Figure 9: Three months after the Fed's 2004-06 tightening ended, investors didn't price major cuts.

Can U.S. Avoid a Recession This Time?_10

Figure 10: Fed funds futures pricing a soft landing – for the moment.

Source: CME Group

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Michelle

Central Bank

Economic

Financial markets are ramping up expectations for interest rate cuts from the European Central Bank, betting it will be the first major central bank to ease policy to buffer a euro zone economy facing recession in contrast to a robust United States.

Last week money market traders anticipated that the ECB, U.S. Federal Reserve and the Bank of England (BoE) would all start easing monetary policy in the second half of 2024 as inflation eases and recent interest rate hikes slow economic growth.

Yet that changed after data on Tuesday showed euro zone inflation dropped more than expected to its lowest in over two years in October, while the economy shrank during the third quarter, raising the risk of a year-end recession.

With investors confident that big central banks are likely done raising rates, focus has switched to when rate cuts will start.

Traders now price in over an 80% chance of a 25 basis-points (bps) ECB cut by April, which had been fully priced for July last week.

They also expect an additional cut next year, now pricing in more than a 50% chance of four, 25 bps cuts by end-2024 that would lower the key deposit rate to 3% .

"The European economy clearly is weakening and weakening quite sharply," said BNY Mellon Investment Management's chief economist Shamik Dhar.

"There are more reasons to believe rates have peaked in Europe than in the U.S. and the UK," he added. "That's the view markets are coming to as well."

Traders Bet ECB Will Be First Big Central Bank to Cut Rates_1

In Britain, where the BoE held rates steady on Thursday and ruled out rate cuts any time soon, traders have also ratcheted up bets for easing.

They now expect two cuts in 2024. But facing more stubborn inflation, the BoE is expected to move slower than peers.

US RESILIENCE

In contrast to the euro zone, the U.S. economy continues to defy recession warnings, growing almost 5% in the third quarter.

Bets on Fed cuts have also risen with traders on Friday pricing in a high chance of four rate cuts next year, likely starting in May , following weaker-than-expected jobs data. But they still see at least one less cut than they expected in late July.

The diverging moves reflect the reckoning with higher U.S. rates for longer, which in part explains the recent global bond market rout.

ECB President Christine Lagarde acknowledged last week as the bank paused hikes for the first time since July 2022 that surging U.S. Treasury yields had spilled over, tightening euro area financing conditions.

Traders Bet ECB Will Be First Big Central Bank to Cut Rates_2

INVESTORS CAUTIOUS, HAVING BEEN BURNT

But having been wrong-footed time and again by hawkish central banks, some investors warn markets are getting ahead of themselves, risking a fresh bond sell-off.

Hopes that global policy tightening is over have pushed bond yields down from multi-year highs. In the euro zone, Italian bond yields were set on Friday for their biggest weekly fall since June.

Piet Christiansen, chief analyst at Danske Bank, said the expectations for ECB rate cuts now reflected a "doom and gloom" scenario.

"It would be a complete collapse of the European economy that should justify this."

Lagarde said last week it was premature to discuss rate cuts and hawkish policymakers have called bets on cuts in the first half of 2024 "entirely misplaced".

The ECB emphasizes wage growth remains strong, while services inflation remains sticky. The Hamas-Israel war also poses a bigger risk to the euro zone, heavily dependent on energy imports, leaving it more vulnerable to higher oil prices.

"We're underweight European rates on a cross-market basis. That's because we still think the market is pricing too much ECB easing for next year," said Goldman Sachs Asset Management strategist Gurpreet Gill. She expects a first rate cut next September.

Others said rising rate-cut expectations were a warning to the ECB, which they said has raised rates too far to respond to inflation largely driven by energy prices, moving aggressively to follow a Fed that has responded to inflation driven by domestic demand.

"I don't think that Europe can live with the level of interest rates that we have, so (the ECB) have gone too far. Hopefully they correct back quite quickly," said Dario Perkins, managing director, global macro at TS Lombard. He added the ECB would need to cut rates at least as much as traders expect next year.

Source: REUTERS

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FastBull Featured

Daily News

[Quick Facts]

1. Fed's Kashkari: Over-tightening is preferable to doing too little.

2. Fed's Cook: Rising yields are not tied to the monetary policy outlook.

3. Global supply-chain pressure hits a record low.

4. Biden calls for an Israel-Hamas ceasefire.

5. Polish president asks the prime minister to form a new government.

6. Putin decides to run for president again next year.

[News Details]

Fed's Kashkari: Over-tightening is preferable to doing too little

Minneapolis Fed President Neel Kashkari said in an interview with The Wall Street Journal on Monday, 7 November, that he doesn't think the rate hike cycle is over. To bring inflation back to the 2% target, over-tightening monetary policy is preferable to doing too little. The current under-tightening will not get us back to 2% in a reasonable time. More data is needed to make a firm decision on future interest rate decisions. We can't say we're in a good position yet.

Fed's Cook: Rising yields are not tied to the monetary policy outlook

The recent rise in long-term U.S. bond yields does not seem to have been driven by investor expectations of further interest rate increases, Federal Reserve Governor Lisa Cook said on Monday, November 7, drawing a key distinction in how those market-based rates may be assessed within the central bank.

If bond yields rise because the market expects the Fed to tighten policy further, this will pose a challenge for Fed policymakers, forcing them to take action based on these expectations; while if the climb in bond yields is driven by other factors, it can lead to tighter financial conditions and help slow demand and inflation, regardless of whether the Fed takes further action.

Decompositions between changes in expected rates and term premiums depend on the specific models and assumptions used, Cook said. "But I would say that an expectation of higher near-term policy rates does not appear to be causing the increase in longer-term rates."

Global supply-chain pressure hits a record low

Global logistics difficulties are at a 26-year low as transportation costs keep declining, a New York Fed indicator shows. The New York Fed's Global Supply Chain Pressure Index fell to -1.74 in October, the lowest level since records began in 1997. Zero represents the historical average, with both upward and downward movements marking standard deviations away from that trend. The index has been negative for nine consecutive months. It aggregates 27 variables that measure everything from cross-border transportation costs to national and regional manufacturing data.

Biden calls for an Israel-Hamas ceasefire

U.S. President Joe Biden on Monday urged Israeli Prime Minister Benjamin Netanyahu to agree to a "tactical pause" in the Israel-Hamas war to allow more aid to reach Gaza and improve the chances of hostages being released.

The Israeli army has now surrounded Gaza's main cities and is heavily bombarding the besieged Gaza Strip. John Kirby, a spokesman for the U.S. National Security Council, said Biden told Netanyahu in a phone call that Washington would "continue to advocate for a temporary localized pause in the fighting". But the Biden administration does not support a full ceasefire, which U.S. officials said would only give Hamas time to regroup.

Polish president asks the prime minister to form a new government

Polish President Andrzej Duda announced on November 6 that he had given the task of forming a new government to the incumbent prime minister, Mateusz Morawiecki of the Law and Justice party.

According to parliamentary tradition, the party that wins the parliamentary election gets the chance to form a government. After analyses and consultations, Duda decided to give the task of forming the government to PM Morawiecki. If the Law and Justice Party fails to form a government, then the Sejm, the lower house, will nominate a prime minister, whom the president will immediately appoint to form a government. Duda emphasized that all constitutional rules and time frames will be respected.

Duda also announced the appointment of Marek Sawicki from the Polish People's Party as interim speaker of the Sejm until the new parliament elects a new speaker. The Polish People's Party is one of the parties that make up the Third Way coalition. The new parliament will hold its first meeting on November 13.

Putin decides to run for president again next year

Russian President Vladimir Putin has decided to run for the presidency in March next year, a move that will keep him in power until at least 2030, as he believes he must lead the country through its most dangerous period in decades, six sources said, according to Reuters. News of Putin's decision has spread and his advisers are preparing for the campaign and Putin's election, the sources said. A diplomatic source said on condition of anonymity that Putin had recently made the decision and would announce it soon. Some polls show that Putin's approval rating in Russia is as high as 80%, so if he runs for the presidency, he is very likely to be the next president.

[Focus of the Day]

UTC+8 11:30 Reserve Bank of Australia's rate decision for November

UTC+8 22:50 Kansas Fed President Jeffrey Schmid speaks

UTC+8 00:30 Next Day: Bank of Canada Deputy Governor Sharon Kozicki speaks

UTC+8 01:00 Next Day: New York Fed President Williams speaks

UTC+8 02:30 Next Day: Dallas Fed President Logan speaks

UTC+8 03:30 Next Day: ECB Governing Council member Negel speaks in London

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Glendon

Economic

Commodity

Looking back to 1928, when the time series for the S&P 500 began, U.S. equities have had an average annual price return of 5.9%. But gold isn’t far behind with an average yearly gain of 4.9%.

It can be instructive to reprice equities in gold terms by dividing the S&P 500 index by the dollar price of gold.

Why Is Gold Outpacing the Stock Market?_1

The S&P 500 to gold ratio has been through broad swings over the past century, with stocks falling by 86% in gold terms between 1929 and 1942; rising by 1165% versus gold from 1942 to 1967; falling by 95% versus gold from 1967 to 1980; soaring 4000% versus gold between 1980 and 2000; and then falling by 89% between 2000 and 2011. More recently, the S&P 500 rose by 350% versus gold between 2011 and 2021 but has since dropped back by around 15%.

Why Is Gold Outpacing the Stock Market?_2

Gold tends to outperform stocks during periods of fiscal and monetary expansion, price instability, and periods of geopolitical conflict and uncertainty. As such, one might wonder if gold might be the outperformer for the remainder of the 2020s.

Source: CME Group

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Michelle

Political

Donald Trump Clashes Repeatedly With Judge in Heated New York Testimony_1

During almost four hours on the witness stand, the former president disputed claims that he deceived banks and aired broad grievances with the case.

The judge has already ruled the Trump Organization committed fraud and this trial will determine the penalties.

Prosecutors are seeking a $250m (£202m) fine and severe business restrictions.

During his highly anticipated appearance at the Manhattan federal courthouse on Monday, Mr Trump, 77, was asked about the value of various properties including his Florida estate Mar-a-Lago, Trump Tower in New York and his golf course in Scotland.

These properties are among several that prosecutors say were intentionally overvalued in company statements in order to secure better loans and insurance policies.

In his testimony, Mr Trump, who is the current frontrunner for the 2024 Republican presidential nomination, stood by the valuations as prosecutors quizzed him on how they were reached and the financial statements at the centre of the trial.

"I'm worth billions of dollars more than the financial statements," Mr Trump said, before describing the valuations as "very conservative."

He said the property values were bolstered by his personal brand, something he said was never factored into financial statements.

"I can look at buildings and tell you what they're worth," he said in another testy exchange.

The lawsuit was brought by New York Attorney General Letitia James, who accuses Mr Trump, along with his sons Eric and Donald Jr and other Trump Organization executives, of deliberately inflating company assets for years. All deny wrongdoing.

Ms James, who was in the courtroom and stared directly at Mr Trump during his testimony, later told reporters: "He rambled. He hurled insults. But we expected that."

"The numbers don't lie," she said. "Justice will prevail."

The former president's time on the stand was marked by heated exchanges and lengthy, sometimes meandering, responses. These prompted several rebukes from Judge Arthur Engoron who appeared exasperated at times.

"Please just answer the questions, no speeches," the judge said.

After another lengthy answer, Judge Engoron said to one of Mr Trump's lawyers: "Can you control your client? This is not a political rally, this is a courtroom."

"I beseech you to control him," he added. "If you can't, I will."

Judge Engoron will ultimately decide the outcome of the trial and, as well as a multi-million dollar fine, could strip the defendants of the ability to do business in New York.

"I'm sure the judge will rule against me because he always rules against me," Mr Trump said at one point in court.

Judge Engoron fired back: "You can attack me in whichever way you want, but please answer the questions." He later referred to Mr Trump as a "broken record".

Like his two sons in their testimony last week, the former president said it was the Trump Organization accountants who bore responsibility for the financial reports.

"All I did was authorise and give people whatever was necessary for the accountants to do the statement," Mr Trump said.

As he left court, he again referred to the case as a "fraud" and said he believed his testimony "went very well".

Some legal and political analysts have suggested Mr Trump's combative approach on the stand was a considered strategy, while others have said he used the much anticipated moment as an opportunity to campaign.

Renato Mariotti, a former federal prosecutor, told the BBC that Mr Trump's responses indicate his legal team believes "they've already lost".

"They're trying to spin or add some colour to a very bad result," Mr Mariotti said.

"I think he is trying to goad the judge into doing something [Trump] can argue on appeal that shows prejudice on his part," Kevin McMunigal, another former federal prosecutor, said. "Maybe he makes a comment they can use to support a bias case later."

The judge has already fined Mr Trump $15,000 for comments made outside of court last month.

Mr Trump's daughter, Ivanka, is expected to give evidence on Wednesday.

The civil case in New York is one of several legal battles in which Mr Trump is embroiled.

He also faces four criminal indictments - two relating to his alleged efforts to overturn the results of the 2020 election, one on his handling of classified documents and another alleging false accounting involving hush money.

Source: BBC

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Glendon

Economic

Central Bank

Israel Rate Path Unclear As MPC Votes to Hold Rates in October Despite War_1

All five members of the Bank of Israel's monetary policy committee voted on Oct. 23 to leave the benchmark interest rate (ILINR=ECI) at 4.75%, although minutes of the discussion on Monday gave little clue as to the near-term interest rates outlook.

Policymakers focused heavily on economic ramifications of Israel's war with Islamist militant group Hamas, which sparked the war after its gunmen on Oct. 7 rampaged through Israeli towns, killing 1,400 Israelis and abducting more than 240 others. Since then, Israel has bombarded Hamas targets in the Gaza Strip, which Hamas controls.

Ahead of the rates decision, some economists had projected the start of steep rate cuts to support the economy, but central bank officials said they would not lower rates while Israel's risk premium was high and the shekel was weakening and liable to fuel more inflation.

"In view of the war, the monetary committee’s policy is focusing on stabilizing the markets and reducing uncertainty," the minutes said, pointing to foreign exchange intervention and providing liquidity in the swap and repo markets.

Interest rates and other tools, it said, will be determined by developments in the war, as well as with "data on economic activity and the inflation dynamics, in order to continue supporting the markets’ stability and achieving the policy objectives and the needs of the economy."

The central bank's decision to hold rates steady last month was the third in a row and followed 10 straight rate increases that had taken the policy rate up from 0.1% in April 2022.

Prior to the war, the central bank believed Israel's economic activity was "robust" with a tight labour market and as such would enable the economy to deal with the effects of the war.

Now, uncertainty reigns, with hundreds of thousands of workers having been called up for military reserve duty, leaving many businesses short-staffed.

The central bank noted that while much of the economy is continuing, "there is a still a lot of uncertainty regarding the continuation of the war and its ramifications" with the "magnitude of the war's impact increasing the more that a larger part of the economy will be impacted for a longer time."

The bank's economists expect the war to reduce GDP by 0.5 to 1.0 percentage point in 2023 and 2024, while inflation is expected to slip to a 2.9% rate in a year's time - within the state's 1-3% annual target - from 3.8% in September.

The MPC noted that in addition to shekel depreciation, supply side constraints due to the war could impact prices, while in contrast, lower demand could moderate inflation.

"The committee members assessed that the policy tools implemented by the committee are consistent with the commitment to return inflation to the target," the minutes said.