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China fires missiles near Taiwan, Democrats’ bill would reduce deficits and
crypto has another hack.
Taiwan fallout
China fired 11 missiles into the sea around Taiwan on Thursday in
response to US House Speaker Nancy Pelosi’s visit, even as Taipei played
down the impact on flights and shipping. Pelosi’s trip left a fuming White
House scrambling for a plan. The Biden administration is lobbying
Democratic senators to put the brakes on a bill that would alter US policy
toward Taiwan, including by designating it as a major non-NATO ally,
according to people familiar with the matter. China said it called off a faceto-face meeting between Foreign Minister Wang Yi and his Japanese
counterpart over a G-7 statement expressing concern about Beijing’s
“threatening actions” around Taiwan.
Economic package
The Senate Democrats’ tax, climate and drug-price bill would reduce
federal budget deficits by $102 billion over 10 years, the nonpartisan
Congressional Budget Office said. A tax credit for nuclear power is
included in the bill, which is slated for a Senate vote as soon as this week.
Meanwhile, Arizona Democrat Senator Kyrsten Sinema, a pivotal vote in
the Senate, is seeking to preserve a tax break for investment managers and
narrow a levy hike on large corporations in the economic package
Democrats want to pass as soon as this week, people familiar with the
discussions said. Michigan Democratic Senator Debbie Stabenow is
pushing for last-minute changes to stringent new electric-vehicle tax-credit
limits.
Crypto setbacks
Cryptocurrencies' difficulties continue as a prominent Swiss wealth
manager cautions against crypto forming part of private-wealth portfolios.
The CEO of Pictet Group's Asia wealth management arm, Tee Fong Seng,
spoke on a panel at the Bloomberg Asia Wealth Summit this week,
commenting that "today I don't think [crypto] is a place for private bankers
and for private-bank portfolios." This comes amid news of of another
crypto hack. Hackers targeted Solana's ecosystem on Wednesday, with
estimates of the total amount stolen from victims' wallets ranging from
$5.6 million to $8 million. Meanwhile, beleaguered crypto exchange
Coinbase has asked the US Supreme Court to halt two suits by users of the
exchange who claimed to have lost money on the platform.
Market calm
There's little by way of volatility to speak of in markets, with futures on US
equity indexes near unchanged on the day. The Stoxx 600 is 0.3% higher at
5:30 a.m. New York time, led by retail and car companies. Currencies were
also broadly unchanged, with the Bloomberg Dollar Index down 0.1%
ahead of Friday's key jobs numbers. US and European bond yields mostly
rose, with flattening twists seen. Oil advanced 0.5% on the day after the
modest OPEC+ supply increase.
Coming up...
This week’s heavy dose of Fed speakers continues with Loretta Mester at 12
p.m. Data at 8:30 a.m. include the trade balance and weekly jobless claims.
Earnings reports include Expedia, Kellogg, ConocoPhillips, NRG Energy,
Live Nation and Motorola. Also, this week’s MLIV Pulse survey is asking
about your outlook for corporate bonds, mergers and acquisitions and the
health of US corporate balance sheets through the end of the year. It takes
one minute to participate, so please click here to get involved
anonymously.
What we've been reading
Here's what caught our eye over the past 24 hours.
Ken Griffin added to Twitter-case subpoena list.
US ratifies NATO membership for Finland, Sweden.
Walmart cuts 200 corporate jobs.
Podcast guests paying up to $50,000.
Stocks rally can fizzle out.
Mickelson, 10 other golfers sue PGA.
Netflix struggles to learn ad business.
And finally, here’s what Joe’s interested in this
morning
Stocks have been on a pretty nice run. The S&P 500 is up 14% from its
June low. The NASDAQ 100 is up roughly 20% in that time frame.
The rally has certainly taken a lot of people by surprise. Sentiment has
been pretty dismal lately. But maybe investors are growing more optimistic
about a soft landing?
Here and there, you can find some encouraging signs:
-- Housing may already be stabilizing a little bit after the initial mortgagerate shock
-- Yesterday we got an ISM Services reading showing an unexpected gain
in July
-- June durable-goods orders also came in better than expected
-- Monday's ISM Manufacturing index came in better than expected as
well. And not only that, there was a major drop in the prices paid index.
-- Gas prices have fallen for 50 straight days.
-- Earnings have been decent, not amazing, but no widespread signs that
the bottom is falling out of demand. Yesterday, Booking Holdings, the
online travel company, warned of some softness out there, but it noted that
North America was holding up the best of all regions.
This is just a snapshot in time, but you could make the case that at least
right now, a number of cost pressures are easing even as demand holds up.
Soft landing vibes.
Ok, so you can tell a story for why the market rebound makes some sense
based on economic fundamentals. That being said, even as risk assets have
rallied off the bottom, the yield curve continues to deepen its inversion.
Here is the 2-5 spread, which is one way of seeing that the market is
pricing in rate cuts fairly imminently, even as the next few meetings are
virtually certain to see hikes.
Even members of the FOMC are scratching their heads over what the
market is showing. Here are some headlines just from yesterday:
*KASHKARI: 2023 RATE CUTS SEEM LIKE `VERY UNLIKELY
SCENARIO'
*DALY: MARKETS ARE AHEAD OF THEMSELVES ON FED CUTTING
RATES
*DALY: WON'T BRING RATES DOWN IN JUST A FEW MONTHS
Just intuitively, it seems like it would take a LOT for the Fed to get back
into rate cut mode. After the painful inflation of the last year, that's
naturally going to bring about reluctance to ease again soon. Presumably it
would take some real, further pain to get there. Just getting inflation low
again wouldn't be enough.
So on the one hand, you have about six weeks now of sanguine risk assets,
and some decent macro news flow. And on the other hand, you have this
steepening inversion that has regional Fed Presidents questioning the
wisdom of the markets. Definitely a confusing time.
Follow Bloomberg's Joe Weisenthal on Twitter @TheStalwart
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