By Michael Every of Rabobank
It was perhaps typical of what “freedom” now means that the celebration of “Freedom Day” in the UK included street-protests demanding freedom from Covid restrictions; the PM isolating from Covid despite having natural antibodies threatening the introduction of vaccine passports for young people wishing to go to clubs and mass events from end-September; figures showing 60% of new UK hospitalisations are double-jabbed – though thankfully deaths are still very low; and the US CDC recommending no travel to the UK.
Meanwhile France, the home of liberté, after the whole little Robespierre Reign of Terror thing, is pushing ahead with a ban on unvaccinated individuals’ access to shopping malls and places of leisure from tomorrow, and bars, restaurants, and hospitals from August; also just saw mass street protests against it; and two vaccination centres vandalised – as most of the emerging world is desperate for any vaccine at all.
Freedom Day also saw markets tumble – saying that if this is what it looks like then they would rather not, thanks. The Dow closed down more than 2% and US yields tumbled, with the 10-year down 11bp to just 1.18%. One and half more days like that and we are going to break 1% to the downside as the US curve flattens aggressively. Remind me again how recently some of the big Wall Street names were calling for a break of 2% and then a surge higher from there? At least the long end agrees with the White House, which is also now saying inflation is “transitory” – and suggesting that the Fed should be prepared to act if it isn’t.
As flagged by Rabo Research for years, the key underlying problem here *is* the 1% - with the current coterie of billionaires in spaaaaaace just the highest-above-the-radar exemplars of a distorted, monopoly-and-monosophy neoliberal structure that has a relationship with global labor like that of ‘The Food Chain’ poster from an early episode of The Simpsons; or of Marlon Brando on a palanquin carried by his DNA-spliced minions in The Island of Dr Moreau.
Add that weighty structure to the current delta in Delta (meaning Covid) --which only a research community/financial media that rotates round the aforementioned neoliberal structure in a Ptolemaic fashion could have not foreseen the emergence of as a high probability event-- and suddenly markets are desperate for another shot.
Vaccines are no longer enough, it seems: so it would now need to be either monetary, despite pressure to go the other way, or fiscal - and this merely weeks or months after flagging that we were closer to returning to normal. In which case, we will probably need to see equities and yields fall a lot further than this first. We know that central banks are always prepared to pivot on request for more liquidity (the RBA minutes out today are already historical, for example), but the desired drug now is fiscal: and Republican and/or swing-state Democrat Senators don’t get out of bed for 2.1% on the Dow and 11bp on US 10s.
Yet if/when we do eventually get a drop in markets big enough to persuade central banks and central-casting US senators reluctantly saving the day with more huge stimulus, I repeat yet again that we better see plans for new supply chains at the same time, or else the next supply-side inflation shock will make the one we are experiencing now look like original Covid compared to Delta, which will destroy demand again with a lag.
Meanwhile, The Guardian just had one of its intermittent pieces of actual journalism, akin to the Panama Papers showing the 1% avoiding paying tax offshore --which changed nothing-- and the WikiLeaks exposes showing how national security elites operate - which changed nothing. The Pegasus Project now lists 50,000 key individuals around the world with spyware planted on their phones: yet surely the safest, saddest way to proceed is to always assume that everything we do on our mobile phone is being accessed by at least one security agency at all times? To say nothing of the social media platforms we all use “for free” – as if such services could ever be free. Of course, markets could care less about this: the obvious heuristic is that they divorced themselves from any cultural correlation with liberal democracy and the rule of law years ago. Indeed, they adore monopoly and monopsony, and are apolitical and amoral unless specifically instructed otherwise. Freedom, shmeedom say free markets.
However, they might get upset at the idea of said politicization happening after the US and others in Europe and Asia --and even NATO-- accused China's Ministry of State Security of using "criminal contract hackers" to conduct “a range of destabilizing activities around the world for personal profit”: that puts China on the same cyber blacklist as Russia, with whom economic relations are far cooler to put it mildly.
Politico also reports that US lawmakers are looking to pass legislation that targets China’s ability to purchase agricultural land in the States; which may encourage more economic decoupling, or at least as much as is physically possible on the key agri front; and it will helpfully free up more US farmland for Bill Gates to buy, of course.
For now the 1% are pulling us down towards 1% yields, it seems – until that in turn creates the dialectic to force through a structural break of the power of at least one 1% (i.e., more stimulus and a new temporary reflation trade in bonds); or the other (i.e., an anti-billionaire reflation alongside financial repression); or both simultaneously (i.e., a social and economic melt-down). Some would also probably put the odds on any of those happening ahead at 1%: but then evidently many in markets put the odds on a global pandemic around the same 18 months ago; and of a Delta variant after having ‘beaten’ the original Covid less than 6 months ago.
The same carry-on-until-the-politics-gets-in-the-way market runs true for oil, where the US is considering adapting its negotiation style with Iran. Critics say that under Trump this was “Surrender! Surrender!”; and other critics now say it is “We surrender! We surrender!”; but with fears growing Iran doesn’t want a deal, the White House will apparently adopt an appropriately Middle-Eastern bargaining style to threaten Iran that it will stop its oil sales to China if it does not rejoin the nuclear deal. Needless to say, this would be a huge escalation, involve the new China anti-sanctions law, and likely mean the US Navy having to physically interdict oil tankers, if serious. That would be deadly serious in a way not seen so far despite other US-China tensions.
Oh, for the happy days when the global 1% all just got along, eh? (Remind me again: exactly how many years of mankind’s total history was this true for? I forget.)