While oil remains oddly muted amid yet another middle-eastern shock, the same can not be said for various precious metals and commodities which are soaring to start the week, and which according to Bloomberg’s Jake Lloyd-Smith, will make for a lively session in Europe and the US, with flow-through gains on the cards for mining-industry stocks that have already been put on edge as BHP Group bids to swallow (most of) Anglo American.

Copper and gold – the leading lights of the base and precious metals arenas – are in what Lloyd-Smith puts as “history making mode”, as both powered to record highs in early Monday trading. Here’s a handful of things to watch in what could be a compelling week.

Copper: Everybody’s favorite base metal is benefiting from the fallout from a dramatic short squeeze on the Comex that plays straight into long-standing hype about global deficits to come given the energy transition. Still, some physical indicators remain weak, so watch to see if copper’s prompt spread — which has been mired in an ugly, bearish contango — narrows more this week

Gold: The Godfather of metals is up +18% YTD and is positioned to challenge $2,500/oz. Its latest leg higher appears to stem from a return to usual drivers: real 10-year Treasury yields are coming off a three-week drop, the longest run in a year. A decent batch of Fedspeak, as well as FOMC minutes will help to set the tone

Silver: is flexing its muscles with gold, up 12% last week and roaring higher again on Monday. Watch to see if the ratio to gold realigns with the long-standing average. That gauge is now back to ~75 , closer to the ~68 since the start of this millennium

And finally for good measure, here is nickel too, which while not at an all time high yet, may get there soon.

Authored by Mike Shedlock via mishtalk.com,

I’m all in favor of hydrogen-powered plants to produce electricity if only we had cheap hydrogen. But we don’t and likely won’t.

A Bad Bet on Hydrogen Hype

Bloomberg cautions Europe’s Spending Billions on Green Hydrogen. It’s a Risky Gamble

Today, the bright yellow power plant tucked behind a graffiti-covered fence burns planet-warming gas to produce electricity. But if all goes to plan, it will one day switch to emissions-free hydrogen. It’s the first, tiny part of a dream energy system being sketched out by policymakers across Europe, who are banking on the green fuel to meet some of the world’s most aggressive climate targets. That dream rests on converting newly built polluting infrastructure to burn hydrogen, a fuel that’ll be many times more expensive than natural gas and that no one has figured out how to move safely and cheaply in bulk.

Governments and companies that are racing to meet net-zero deadlines but worried about energy security can still build billions of dollars worth of gas infrastructure as long as it’s “hydrogen-ready.” Nine of the world’s 10 biggest carbon polluters have published hydrogen strategies and incentives to grow the fuel’s use, which globally already exceed $360 billion, according to BloombergNEF.

Gas-dependent economies including Germany, the Netherlands, Spain, Italy and the UK are among Europe’s biggest proponents for using hydrogen and some have plans to use it to generate electricity. But there’s no official definition of what makes a plant hydrogen-ready, opening the door for greenwashing. For power plants, burning hydrogen hasn’t even been tested at scale.

“There has not yet been any measurable progress in the construction of hydrogen-ready, gas-fired power plants,” said Eric Heymann, an economist at Deutsche Bank Research.

Then there’s the problem of moving hydrogen around. The Leipzig plant isn’t hooked up to the grid (and hasn’t yet set up its own electrolyzers), which means the highly combustible fuel will have to be trucked in until the second part of the government’s grand plan comes to fruition. It’s building a €1 billion liquefied natural gas terminal in Brunsbuettel, a town along the North Sea, that will initially import LNG but be designed to also handle futuristic clean fuels.

Hydrogen can only be liquefied at -253C (-423F), well beyond the capabilities of today’s LNG ships. So Germany is planning to import hydrogen in the form of liquid ammonia, a combination of hydrogen and nitrogen that can more easily be turned into a liquid. But ammonia is toxic and handling requires better ventilation systems. Many components in the terminal, including control valves and fire and gas sensors as well as inline devices — most of which have not been tested with ammonia — will also need upgrades, according to Fraunhofer ISI, an energy think tank.

Not Viable But Full Speed Ahead

Germany doesn’t have an ammonia pipeline network and there are limitations to moving it via trucks on an industrial scale because it’s hazardous. That means ammonia will have to be converted back into hydrogen, yet there’s no economically viable technology currently available to do that. The terminal’s operator said it will discuss alternative strategies if none emerge by next year.

Wind and solar produce clean electricity — a commodity the world already uses. Green hydrogen, on the other hand, will require building more solar and wind farms when, in many cases, it would be simpler to just use that clean energy directly. By the time hydrogen is made, stored and burned to make electricity again, there’s nearly 70% less energy than at the start — and the cost has tripled.

Plans Only Exist On Paper

For the most part, the plans only exist on paper. That’s because they only work on paper.

A trial in the UK was cancelled when people made an uproar after learning they would have to replace their furnaces and stoves for new hydrogen appliances.

That does not apply to the situation discussed above which proposes burning hydrogen to produce electricity. However, there is a 70 percent loss of energy in the conversion from hydrogen to ammonia then back to hydrogen to burn it.

This makes no sense anywhere. Nonetheless, Germany is spending $20 billion to make electricity plants “hydrogen ready”.

Wasting $20 billion is a monthly occurrence in the Biden administration, but that’s a lot of money to Germany which unlike the US has budget rules.

China Shock

Germany is feeling the pinch of China shock. But the US is on deck too. A global trade war looms.

For discussion, please see China Shock II Is Coming, the EU Will Be Hit Hard, Then the US

Germany has too much else to worry about to waste money on absurd projects.

Baltimore officials announced that the “refloat and transit” of the container ship that toppled the Francis Scott Key Bridge nearly two months ago will begin around 0500 ET on Monday. 

This is video of what the #KeyBridgeCollapse site looks like today. You can see the progress—but there’s still a chunk of the Beltway on the Dali. You can also see the massive cut pieces of steel from the old Key Bridge on a salvage barge. @wjz pic.twitter.com/Rd3cSGpFfY

— Mike Hellgren (@HellgrenWJZ) May 17, 2024

Unified Command wrote in a Saturday statement:

Optimum conditions call for the transit of the M/V Dali to commence at high tide, predicted to be Monday at 5:24 a.m. The vessel will be prepared at 2 a.m., allowing the M/V Dali to catch the peak high tide for a controlled transit.

Five tugboats will tow and push the Dali about two and a half miles to the Seagirt Marine Terminal in the Port of Baltimore. The 984-foot, 106,000-ton ship will travel at one mph to the marine terminal and take an estimated three hours. 

 Maryland Gov. Wes Moore said on Sunday that the deep water shipping lane will reopen by the end of the month.

 “I’m proud that we’re on track that by the end of May we’ll have that federal channel reopened,” Moore said on NBC’s Meet the Press, adding, “And within days, we’re going to have that massive vessel, the Dali, out of that federal channel.”

The collision of the Dali with the bridge in the early hours of March 26 has caused severe disruptions at the port and the local economy. This incident underscores the need for state and federal governments to increase protections for critical infrastructures. 

The FBI and Coast Guard are investigating what caused the ship’s loss of propulsion system minutes before the bridge strike. 

Authored by Steve Watson via modernity.news,

A Congolese man who was previously held up as an example of successful migrant integration has been jailed for only nine years in Germany for raping his own mother and beating her almost to death.

The German outlet Nuis reports that 30-year-old Moise Lohombo was sentenced by the Wiesbaden District Court, with the judge barely being able to believe what he had read in the case file.

The report notes that Lohombo, just been released from prison for drug offences last August, returned to an apartment he shared with his mother, who is only 12 years older than him, and proceeded to threaten her at knifepoint to have sex with him.

In an act of desperation, the mother offered him money to spend on a prostitute, the report further notes.

Lohombo then proceeded to rape his own mother while punching her repeatedly in the face. He then called an ambulance and fled.

Investigators noted that they found the apartment walls covered in blood spatter, which Lohombo had attempted to clean off.

The report further details that the mother miraculously survived after being treated for severe brain bleeding. She also suffered psychological trauma and expressed anxiety that her own son may have impregnated her.  

The court found the migrant guilty and rejected a plea to incarcerate him in a psychiatric institution.

The only thing Lohombo said during the trial was “I don’t know how this happened,” according to the report.

It also details how Lohombo was featured in an article in 2017 in the Deutsche Handwerkszeitung newspaper as a migrant who had turned his life around in Germany after arriving from Congo aged 8, turning away from previous violence and crime and completing an apprenticeship as a baker and then training to be a professional boxer.

Instagram screenshot

The piece described Lohombo as “a charming, friendly young man who enthusiastically shows pictures of his bull terrier dog Betty on his cell phone.”

It further described Lohombo’s life as having “ups and downs” and claimed he had “literally fought his way through” and left his “youthful sins” behind.

That certainly did not age well.

As we have noted, recent German government statistics show that 41 percent of all crime suspects are foreigners, despite them making up a much smaller percentage of the population.

Violent crimes, especially knife attacks and rapes, have increased exponentially.

As we also highlighted last week, a German politician was found guilty of ‘incitement’ by a district court and fined $6000 after she posted a link to the same government statistics on crimes committed by migrants, specifically rape, and asked why they are so disproportionately high.

A recent survey found that seven in ten citizens of European countries believe there is too much unchecked immigration. Among Germans, the number was 77 percent.

This also dovetails with another stunning poll out of Germany that finds widespread opposition to mass migration across the board.

Your support is crucial in helping us defeat mass censorship. Please consider donating via Locals or check out our unique merch. Follow us on X @ModernityNews.

According to a survey of adults from 43 countries, around 7% of adults identify as LGBT+, Statista reports.

Broken down by country, The United States, Philippines and Israel had the highest percentage – around 11% each. In close second were Thailand and Canada at around 10% of adults. Sweden Brazil and Australia clocked in at 9%.

Broken down by sexual orientation in the US, 3% identified as gay, 6% bisexual, and 1% pansexual. No word on all the other acronyms.

The least gay countries were South Korea and Romania at about 3% of adults identifying as LGBT+.

By age group in the US, 20% of Gen Z self-identified as part of the LGBT+ community vs. 11% of millennials, 6% of GenX and 5% of Baby Boomers.

The survey was conducted online between April 2023 and March 2024 by Statista Consumer Insights.

Authored by Andrew Korybko via Substack,

Former Ukrainian MP Andrey Derkach, who’s reviled by the Biden Administration for sharing dirt about Hunter Biden’s Burisma corruption scandal with Trump’s former lawyer Rudy Giuliani ahead of the 2020 elections, just gave a very important interview to Belarus’ BelTA where be blew the whistle even louder. According to him, the $6 million bribe that was paid in cash to shut down the investigation into the First Son’s scandal eventually found its way to the Ukrainian Armed Forces and its military-intelligence agency.

Derkach claimed to have proof of the secret court order that divided these funds between those two, with the first investing its portion into building up their country’s drone army while the second financed terrorist attacks like the assassination of Darya Dugina, which he specifically mentioned in the interview. These allegations expand upon the ones that he shared earlier this year regarding the real-world impact of Hunter’s corruption scandal, which were analyzed here at the time.

On the subject of Ukrainian assassinations and terrorism, Derkach said that the CIA and FBI actually condone these actions despite their public claims to the contrary, but he warned that this immoral policy will inevitably ricochet into the US itself. In particular, he cited FBI chief Christopher Wray’s testimony to Congress last April where he said that law enforcement officials fear that Crocus-like attacks are presently being plotted against their country.

About that, it shouldn’t be forgotten that Ukraine’s military-intelligence service GUR is the chief suspect of Russia’s investigation into what became one of the worst terrorist attacks in its history, thus meaning that the portion of Burisma’s $6 million bribe that made its way into their hands likely financed part of it. In other words, the third-order effect of Hunter’s corruption scandal is that it was partially responsible for the brutal murder of innocent civilians halfway across the world some years later.

That’s already scandalous enough, but Derkach shared even more details about the other indirect consequences of this cover-up into the First Son’s illicit activities, adding that some GUR-linked figures have been connected to the Western narrative about September 2022’s Nord Stream terrorist attack. He regards that story as a distraction from the US’ complicity, the view of which was elaborated upon here at the time that it entered the discourse, but lauded the CIA for the lengths it went to cover up its role.

In his view, the CIA might very well have sent a highly trained Ukrainian diving team to the Baltic Sea exactly as the Western media reported, though only to plant fake bombs. In his words, “when a cover story is made, it is done quite well. We shouldn’t belittle the experience of the CIA or the experience of MI6 in preparing cover operations. They have quite a lot of experience in using proxies, in using cover stories to form a certain position in order to dodge responsibility. This is actually what happened.”

Looking forward, Derkach expects Ukraine to attempt more terrorist attacks against Russia, which the US public is being preconditioned to accept via the CIA’s various leaks to the media. While many might lay the blame for all this on Zelensky’s lap, Derkach believes that it’s actually his Chief of Staff Andrey Yermak who’s running the show, albeit as a Western puppet. Nevertheless, he’s also convinced that the West is indeed preparing to formally replace Zelensky, but doesn’t yet know when or with whom.

Altogether, the importance of Derkach’s interview is that he’s a former veteran Ukrainian politician who still retains a lot of sources inside the regime, having served in the Rada for a whopping 22 years from 1998-2020. While his homeland charged him with treason after he fled to Russia in early 2022, which followed the US charging him with election meddling on behalf of that country in September 2020, the argument can be made that these are politically driven attempts to intimidate a top whistleblower.

The dirt that Derkach shared about Hunter’s Burisma corruption scandal, not to mention its newly revealed third-order effects that led to the brutal killing of civilians halfway across the world after part of his company’s bribe made its way into GUR’s hands, made him an enemy of the US Government. They and their Ukrainian proxies will therefore always try to discredit him with sensational allegations, but everyone would do well to listen to what he says and then make up their own minds about it.

Authored by Matthew Piepenburg via VonGreyerz.gold,

Below, we soberly assess the lessons of history and math against the current realities of a debt-defined America to ask and answer a painful yet critical question: Is America losing?

The End of History and the Last Man

In 1992, while I was still an undergrad with a seemingly endless optimism in life in general and the American Dream in particular, the American political scientist, Francis Fukuyama, published a much-discussed book entitled, The End of History and the Last Man.

Released in the wake of the wall coming down in Berlin and a backdrop of continually low rates and rising US markets, this best-selling and optimistic work captured the Western mindset with obvious pride.

With its central theme (supported by an overt Hegelian and dialectal framework) of capitalism and liberal democracy’s penultimate and victorious evolution (Aufhebung moment) beyond the Soviet dark ages of a debt-soaked and centralization/autocratic communism, the famous book made headline sense in this Zeitgeist of American exceptionalism.

But even then, amidst all the evidence of Soviet failures (from extended wars, currency destruction, unpayable debts and a clearly dishonest media and police-state leadership), my already history-conscious (and fancy-school) mind could not help but wonder out loud if this book’s optimistic conclusion of the West’s ideological and evolutional end-game was not otherwise a bit, well: naïve.

Had the West truly reached a victorious “end of history” moment?

Pride & An Insult to History?

In fact, and as anyone who truly understands history should know then as now, history is replete with rhyming turning points, but never a victorious and eternal “end-game.”

Stated more simply, the famous book, which made so much sense at that particular moment in time, seemed to me even in 1992 as a classic example of “hubris comes before the fall.”

In other words, it may have been a bit too soon to declare victory for liberal democracy and capitalism, as these fine systems require fine leadership and even finer principles to survive history’s forward flow.

Today’s History…

Fast-forward many decades (grey hairs, advanced degrees and sore muscles) later, and it would seem that my young skepticism (and historical respect) was well-placed.

The evidence around us now suggests that the “victorious” capitalism Fukuyama boasted of in 1992 died long ago, replaced in the interim years by obvious and mathematically-corroborated examples of unprecedented wealth inequality and modern feudalism.

Furthermore, if one were to contrast the principles of America’s founding fathers as evidenced by their first 10 Amendments to the US Constitution (remember our Bill of Rights?) to the current and obvious destruction of the same in what is now a far more centralized, post-9-11 “Patriot Act” USA, the evidence of democracy’s crumbling façade is literally all around us.

In other words, perhaps Fukuyama got a little too ahead of himself.

Or more to the point, perhaps he was dead wrong about the final “victory” of genuine US capitalism and an actual, living/breathing liberal democracy?

Is the USA the Old USSR?

In fact, and with a humble nod to modesty, blunt-speak, current events, simple math and almost tragic irony, the actual evidence of history since 1992 suggests that today’s Divided States of America (DSA) (and Pravda-like media) appears to look far more like the defeated USSR than the victor presented by Mr. Fukuyama…

Such dramatic statements, of course, mean nothing without facts, and we all deserve a careful use of the same if we seek to replace emotion with data and hence see, argue and prepare ourselves politically and financially with more clarity.

Facts Are Stubborn Things

Toward this end, I am once again grateful for the facts and figures which Luke Gromen provides in supporting the otherwise “sensational” conclusion that America may have won the “cold battle” with the USSR, but it is now losing a “cold war” with the Russians and Chinese.

Really?

C’mon.

Really?

Again, let’s look at the facts. Let’s look at the numbers. Let’s look at current events, and let’s look at history, which is anything but at an “end.”

For those whose respect for history goes beyond a twitter-level attention span or the assistance of mainstream media Ken and Barbies (from CNN to The View), none of whom understand anything of history, you will recall that Regan’s successful war against the USSR was won by bankrupting the Soviets.

But as Gromen so eloquently reminds us, “nobody seems to notice that is EXACTLY what the Russians and Chinese are doing to us now.”

This is not fable but fact, and I warned of this in How the West was Lost the moment the US weaponized the USD in 2022. This desperately myopic (i.e., stupid) policy gave a very patient and history-savvy Russia and China just the opportunity they have been waiting for to turn the tables on the DSA.

History’s Fatal Debt Trap Lesson

As I also recently wrote, with the insights of both Niel Ferguson and Luke Gromen, you know (and history confirms) a nation (or empire) is ALWAYS doomed the moment its debt expenses (in interest terms alone) exceed its defense spending.

And as of this writing, the DSA’s gross interest is 40% higher than its military spending.

Nor are we, the Russians, the Chinese or even a select minority of informed Americans alone in this knowledge of the DSA’s fatal debt trap.

No Hiding the Obvious

The current turning point in American debt is now increasingly and more globally understood in what Ben Hunt calls “the Common Knowledge Game.”

Stated more simply, and as evidenced by the now undeniable move away from the US IOU and USD by an ever-increasing (and ever de-Dollarizing) BRICS+ membership roster, the world is catching on to the blunt fact that the American empire (of citizen lions led by political donkeys) is spending fatally more than it earns.

What is far more sickening, however, is that Uncle Sam is then paying its IOUs with debased Dollars literally mouse-clicked into existence at the not-so “federal” and not-so “reserved” Federal Reserve.

This desperate reality, and completely fantasy-based monetary “solution,” has resulted in an empirically bankrupt nation who quantifiably spends more on entitlements (cashed out by 2030), sovereign IOUs and warfare than it does on transportation, agriculture, veteran benefits and citizen education (our apologies to Thomas Jefferson).

See for yourself:

Returning from simple math to otherwise forgotten (or now increasingly “cancelled) history, it becomes harder to deny Gromen’s observation “that the US appears to be reprising the role of the USSR this time, with a heavy debt load, uncompetitive and hollowed-out industrial base, reliant on a Cold War adversary for imported manufactured goods, and needing ever-higher oil prices in order to keep its oil production from falling.”

Democracy’s Suicide?

In other words, and in the many years since Fukuyama declared victory in 1992, the interim sins/errors of increasingly suicidal (or grotesquely negligent/stupid) US military, financial and foreign policies have irrevocably placed the DSA into a defeated decline rather than victorious “End of History.”

This reality, of course, gives me no pleasure to share, as I was, am and will always remain a patriotic American—or at least patriotic to the ideals for which America originally stood.

But as I’ve said many times, today’s DSA is almost unrecognizable to the American I was when Fukuyama’s book of hubris was released over three decades ago.

As our second US President, John Adams, warned his wife Abigail: “Remember, democracy never lasts long. It soon wastes, exhausts, and murders itself. There never was a democracy yet that did commit suicide.”

Again, this is history, and it appears to be a history that Fukuyama misunderstood in 1992, when he apparently thought it had reached its happy “end.”

The Past Informs the Future

Looking forward, I/we must be equally capable of looking backward.

History has far more to teach us than the stump-speeches (or pathetic cue cards) of current political opportunists (puppets?) who, with very few exceptions, care far more about preserving their power (via coalitions, the legalized bribery of K-Street lobbyists, the promulgation of mis-information and the deliberate omission of mal-information) than serving their public.

The Sad History of Currency Debasement

History also warns/teaches that the leadership of all debt-soaked and failing regimes will buy time saving their “systems” (and covering their @$$’s) by debasing their currencies to monetize their debts.

Folks, this is true throughout history, and WITHOUT EXCEPTION.

Sadly, the DSA and its hitherto “exceptionalism” is no exception to this otherwise ignored historical lesson.

Toward this end, and as Egon and I have argued for years, the DSA will thus pretend to “fight inflation” while simultaneously seeking inflation, as all debt-strapped (and hence failed) regimes need inflation rates to exceed interest rates (as measured by the yield on the US10Y UST) in what the fancy lads call “negative real rates.”

The Sad History of Dishonesty

Inflation, however, is not only politically embarrassing, but stone-cold proof of failed monetary and fiscal leadership.

To get around this embarrassment, politicos from the Fed and the White House to the so-called House of Representatives (and the Don-Lemonish/Chris Quomo/ 1st Amendment-insulting/hit-driven legacy media which supports them) will do what most children do when faced with making an error, that is: Lie.

And in this case: Lie about inflation data.

Of course, a nation that lies to its people is not best suited for leading its people.

As Hemingway warned, and as I often repeat, those at fault will point the fingers of blame to others (from Eastern bad guys, and man-made viruses to political fear campaigns on everything from global warming, white nationalism or green men from Mars); or worse, leaders will distract their constituents in perpetual wars.

Sound familiar?

In the interim, those “people” will continually and increasingly suffer from the sins of their childish leadership under the crippling yet invisible tax of the debased purchasing power of their so-called “money.”

This too, is nothing new to those who track history…

Golden Solutions?

Gold, of course, cannot and will not solve for all of the myriad and “human, all too human” failures of national leadership and the monetary, social and centralized disfunctions which ALWAYS follow in the wake of too much debt.

But as history also confirms (and equally without exception), each of us can at least protect the purchasing power of our wealth by measuring that wealth in ounces and grams rather than openly dying paper/fiat money.

This is not a biased argument. This is not a “gold bug” argument.

It is far more simply an historical argument, which further explains why governments don’t want you to understand the history of money nor the history of gold.

In fact, even Fukuyama’s now embarrassing book ignores this simple lesson of gold lasting and paper money dying, which only adds to my opening observation that history never “ends” it simply teaches and protects the informed.

The same is true of physical gold.

Painting a concerning picture, the median retirement savings for Americans stands at a mere $87,000, a figure far lower than what is needed for a comfortable nest egg.

This savings gap—the amount people have actually saved versus what they believe is needed for retirement—is significantly rising. In fact, a recent survey from Northwestern Mutual reveals that $1.46 million is the ideal savings target for retirement, up from $1.27 million last year.

This graphic, via Visual Capitalist’s Niccolo Conte, shows the retirement savings that Americans currently hold, based on data from the Federal Reserve’s 2022 Survey of Consumer Finances.

Savings for Retirement Fall Short

Below, we show the average and median retirement savings in the U.S. by age group:

For people aged 35 and under, the median savings were $18,880, while this amount increased to $200,000 for those aged 65 to 74.

At current rates, this means that older generations are living on a mere $10,000 per year in retirement based on these savings alone. Given this shortfall, Americans will need to increasingly rely on Social Security benefits to make ends meet. In fact, it’s estimated that state and federal governments will need $1.4 trillion for public assistance costs by 2040.

One reason behind declining retirement savings is the steep drop in employment-sponsored pension plans over the last several decades. As of 2022, there was $37.8 trillion held in U.S. pension plans and Individual Retirement Accounts (IRAs). Of these, employment-sponsored plans comprised a substantial 70% share of these assets.

However, for many Americans without employer-sponsored plans, saving for retirement has become an increasingly uphill battle. In fact, a separate survey shows that just 58% of Americans aged 55 to 64 have retirement accounts, underscoring the growing challenges faced in preparing for retirement.

Among the most common retirement planning mistakes are underestimating the impact of inflation, one’s life expectancy, and healthcare costs. To combat this problem, 12 states have adopted automated retirement savings accounts for private employees. These programs, impacting up to 56 million people, enroll employees automatically with the choice to opt out, to help encourage Americans to save for the future.

By Seth Carpenter, Managing Director and Chief Global Economist at Morgan Stanley, and Matthew Hornbach, Global Head of Macro Strategy at Morgan Stanley

Japan in Rome

Last month at our annual Fixed Income CIO conference, one of the liveliest sessions was on Japan’s reflation. The BoJ ending negative rates and normalizing policy for the first time in eight years marked the end of decades of a deflationary equilibrium. Nominal GDP growth hit 5.7%Y in 2023, and our Japan team forecasts that Japan’s nominal GDP growth will remain above 3%Y across our forecast horizon. Nominal growth tends to translate into earnings, and so it is no surprise that our equity strategy team remains bullish, with a target for the TOPIX of 2,800.

Our baseline forecast is that the BoJ hikes rates in July this year, a view that has been reinforced by recent communications from Governor Ueda. Because we think inflation will stabilize and drift lower, we look for only one more hike after that, in 1Q25. We think the risks are to the upside for policy, if inflation doesn’t drift down the way we expect.

The falling value of the yen prompted intense market focus and ultimately intervention by the MoF. Since the exchange rate directly affects import prices (after all, 90% of energy is imported in Japan), the risks to inflation cannot be ignored when the currency moves. Our baseline view is that the yen will appreciate through the end of this year and into next year, partly based on our view that the Fed will cut rates by 75bp this year and 100bp next year. If we are wrong, and the yen continues to weaken, further intervention seems plausible and would also increase the risks of more hikes by the BoJ than in our baseline forecast.

Of course, the exchange rate is only one factor. Governor Ueda also emphasized a so-called “second force” driving inflation, the virtuous cycle between wages and prices. We remain convinced that the cycle is intact, even if the empirical outcome remains a question. We are in the middle of a fundamental shift in equilibria. The labor market is tight and tightening; the spring wage negotiations resulted in a substantial 5.2% rise, including a base wage increase of 3.6%. Domestic and foreign demand remain strong.

The strong macro backdrop and the BoJ’s shift to a hiking campaign have coincided with a sell-off in sovereign curves around the world. The 10-year JGB almost touched 1% in November, and after retracing it is now looking to test similar highs. Our baseline is that the yield returns to 1% by the end of this year. However, our bear case has a more notable sell-off, possibly to as high as 1.25%, by year-end, if inflation dynamics point to more persistence, building in a steeper curve along with more rate hikes.

While the forecast may not be crystal clear – forecasting is hard, as the saying goes, especially about the future – that fact that Japan is undergoing a fundamental shift should now be clear. Before Covid, it would have strained credulity to say that Japan would be a focus of macro investors around the world. The fact that it was one of the most heated discussions at our conference in Rome shows just how much the world has changed. When in Rome, do as the Romans do.

This week, the U.S. introduced a new series of tariff increases on Chinese imports, amounting to over $18 billion worth of goods.

In the announcement, President Biden said they are aiming to “counter China’s unfair trade practices” by targeting specific sectors where the U.S. is boosting domestic production.

This graphic, via Visual Capitalist’s Kayla Zhu, shows the new and current U.S. tariff rates set on a variety of Chinese imports.

Tariff rates and implementation years for the new rates come from The White House’s May 14 press release announcing the new tariff rate increases. Implementation years for the current rates comes from the Office of the United States Trade Representative (USTR) and United States International Trade Commission (USITC).

Tariff Raises on China Hit EV and Medical Industries

Below, we show the current and new tariff rates, as well as the implementation years for both, for a range of Chinese imports, as of May 14, 2024.

†Current rate for steel and aluminium products and personal protective equipment ranges from 0 to 7.5%.

*Tariffs implemented in 2019 started at 15% and were reduced to 7.5% in January 2020

The U.S. directed many of its new tariff increases on the Chinese EV industry, targeting imports such as semiconductors, lithium-ion batteries, and other battery parts.

Notably, tariffs on electric vehicles from China were bumped to 100% and new tariffs on certain critical minerals, which are essential for manufacturing battery parts and semiconductors, were introduced.

Medical-related products, such as medical and surgical gloves and certain personal protective equipment like face masks were also impacted by the new tariff increases. Some of these items were previously granted exclusions from Section 301 tariffs due to COVID-19.

Syringes and needles, which were previously not subjected to any tariffs, were also hit with a new 50% tariff.

Section 301 Tariffs Still Going Strong

Tariffs are taxes imposed by a country on imported goods, increasing their price to protect domestic industries, regulate trade, or generate revenue for the government.

These new tariff actions were introduced under Section 301, a provision that allows the U.S. government to investigate and respond to unfair trade practices by foreign countries.

Section 301 tariffs on Chinese goods were first introduced by former President Donald Trump in 2018, which sparked retaliatory tariffs on China and set off a years-long trade war between the two countries.

Currently, Section 301 tariffs apply to over $300 billion worth of Chinese imports.