Authored by Nick Giambruno via InternationalMan.com,

Hal Finney was a pioneering computer scientist, cryptographer, and prominent Cypherpunk who played a crucial role in the early development of Bitcoin.

He was one of the first supporters, contributors, and adopters of Bitcoin.

In short, Finney was a visionary who understood Bitcoin’s potential before almost everyone else.

In December 2010, Finney wrote:

“There is a very good reason for Bitcoin-backed banks to exist, issuing their own digital cash currency, redeemable for bitcoins.

Bitcoin itself cannot scale to have every single financial transaction in the world be broadcast to everyone and included in the blockchain.

There needs to be a secondary level of payment systems which is lighter weight and more efficient. Likewise, the time needed for Bitcoin transactions to finalize will be impractical for medium to large value purchases.

Bitcoin backed banks will solve these problems. They can work like banks did before nationalization of currency. Different banks can have different policies, some more aggressive, some more conservative. Some would be fractional reserve while others may be 100% Bitcoin backed. Interest rates may vary. Cash from some banks may trade at a discount to that from others.

I believe this will be the ultimate fate of Bitcoin, to be the ‘high-powered money’ that serves as a reserve currency for banks that issue their own digital cash. Most Bitcoin transactions will occur between banks, to settle net transfers.

Bitcoin transactions by private individuals will be as rare as… well, as Bitcoin based purchases are today.”

Bitcoin banking takes the “free banking” concept and makes enormous improvements.

The free banking era in the US lasted from the 1830s to the early 1860s. Minimal regulations and the absence of a central bank characterized it.

Banks were permitted to issue their own currency, known as banknotes, that circulated as money. These banknotes were supposed to be redeemable on demand for the gold or silver reserves they represented.

The value of these banknotes fluctuated based on the perceived solvency of the issuing bank and the distance from the bank itself, as people were less willing to accept notes from distant or unknown banks.

Similarly, Bitcoin banks hold BTC as a reserve asset and issue digital eCash notes redeemable for Bitcoin (either onchain or on the Lightning Network) anytime on demand. These eCash notes are like digital versions of the gold-backed banknotes during the free banking era, but with several significant improvements.

The best way to think of Bitcoin banking is as a massive upgrade to the existing custodial banking models.

Below are a few benefits.

• Private transactions

• Fungibility between different eCash notes

• Low barrier to entry

• Minimizing trust

• Low switching costs

• Convenient and easy to use

• Redeemable at any time

• Backup and recovery of funds

First, we have to understand the basic structure of how a Bitcoin bank could work.

Bitcoin banks are likely to take the form of a federation.

This model reduces trust by distributing control over a group of people or entities. This federated group issues, verifies, transfers, and administers the digital eCash notes—but only if there is consensus among the federation members to take these actions.

The main idea of a federation is that you are reducing the amount of trust needed to run a system by distributing control.

The federation holds its Bitcoin reserves in a multisig wallet, a special type of wallet that requires multiple people’s authorization to spend the funds. Think of it as a safe that requires multiple keys to open.

There will likely be a wide variety of Bitcoin banking federations. Some will be small and focused on local communities, while others will be large and geared towards providing commercial-scale operations.

Naturally, there are risks with any system that depends on trust or third parties.

Bitcoin banks have risks, too, but the main point is that they significantly reduce these risks compared to centralized systems. Specifically, you have to trust that the members of the federation will not form a majority quorum to steal the Bitcoin held in the multisig wallet that backs customer deposits or debase their eCash notes. I’ll discuss these and other risks later.

Here’s how it works.

Someone who wants to obtain eCash notes will first download the software to interact with the federated Bitcoin bank. Then, you will send Bitcoin (onchain or Lightning) to the federated Bitcoin bank and receive eCash notes in return.

With a federated Bitcoin bank, you can also sell something and receive eCash notes in your wallet. You could also earn eCash notes from your employer as they deposit your salary into your wallet, just like they do with your traditional bank account today.

Bitcoin banking federations are meant to be interoperable with the Lightning Network—an open, peer-to-peer network built on Bitcoin that allows for nearly instantaneous transactions and almost zero fees. You can use eCash notes anywhere that Lightning is accepted.

With Bitcoin banking federations, you can withdraw to another federation or your own Bitcoin wallet (onchain or Lightning) anytime on demand.

Unlike self-custody wallets, Bitcoin banking federations can help users recover their funds if they lose access to their wallets.

Suppose you want to spend your eCash with a merchant with a different Bitcoin banking federation. This is where the Lightning Gateways come in. They are market makers who provide liquidity between Bitcoin (onchain and Lightning) and various eCash notes issued by different banking federations for a small fee.

When you send an eCash payment to a merchant at a different banking federation, you will send the eCash to a Lightning Gateway, which will then send the correct eCash to the merchant. Or suppose the Lightning Gateway doesn’t have liquidity in the merchant’s eCash notes. In that case, it will find another Lightning Gateway that does, send that Lightning Gateway a Lightning payment, and then the second Lightning Gateway will forward the payment to the merchant in its eCash note.

In short, Lightning Gateways will provide liquidity that increases the fungibility between numerous eCash notes issued by different Bitcoin banking federations.

It’s like seamlessly sending a payment from PayPal to a user on Cash App, Venmo, or another platform.

If this seems complicated, don’t worry. This just explains how a Bitcoin banking application on your phone would work under the hood. It does all of this in the background without your input. For the user, it will be a seamless experience of simply scanning a QR code and authorizing a payment on a phone application.

Most internet users do not know how TCP/IP or SSL works, but they use it daily in the background as they browse the web. I expect a similar dynamic with Bitcoin, the Lightning Network, federated Bitcoin banks, and various Bitcoin-backed eCash notes.

The graphic below does an excellent job illustrating how transactions with different eCash notes from different federated Bitcoin banks would work. It’s from Eric Yakes, author of The 7th Property: Bitcoin and the Monetary Revolution, which I consider the best resource for understanding the mind-bending potential of Bitcoin banking.

Source: Eric Yakes

Bitcoin Banking and Privacy

Financial privacy is one of the biggest benefits federated Bitcoin banks will offer over traditional custodians.

Chaumian eCash is what will enable it.

The name is a nod to cryptographer and Cypherpunk David Chaum, who created a way to provide secure and anonymous online transactions, much like using cash in the physical world.

With Chaumian eCash, users can spend money online without revealing their identity or transaction details to anyone, including the recipient or the federated Bitcoin banks and Lightning Gateways involved in the transaction.

One of the key features of Chaumian eCash is its use of blind signatures, a cryptographic technique that allows a federated Bitcoin bank to sign and validate eCash notes without actually seeing the transaction details.

In other words, a federated Bitcoin bank knows a valid eCash note has been issued and spent, but it doesn’t know who spent it or on what. Further, they will not be able to know individual account balances nor the identity of those who redeem an eCash note for Bitcoin.

Those running a federated Bitcoin bank will only be able to know the total amount of BTC held in reserves in the federation’s multisig wallet and the total amount of eCash notes outstanding for redemption.

This is a revolutionary improvement in financial privacy over existing custodial solutions, which offer no privacy whatsoever.

The strong privacy protections that Chaumian eCash offers enable another critical benefit: censorship resistance.

With PayPal, Venmo, traditional bank accounts, and other traditional custodial financial services, they can block a payment or cancel your account whenever they want under any pretext they find convenient.

With federated Bitcoin banks, they are unable to censor or block transactions. Thanks to the strong privacy protections from Chaumian eCash, they can’t know the details of each transaction, so they can’t block or prevent them.

In short, with federated Bitcoin banks and Chaumian eCash, we have, for the first time, a convenient custodial solution that is resistant to censorship.

Fedimint

Perhaps the most promising implementation of federated Bitcoin banks is Fedimint.

Fedimint is an open-source protocol that allows anyone to create a federated Bitcoin bank with a few clicks.

Using Fedimint to set up a federated Bitcoin bank costs nothing. No licenses or permission is needed.

In short, Fedimint could do to the banking cartels what Uber did to the taxi cartels.

Rug Pull Risk

Like all Layer 2 solutions, federated Bitcoin banks are a trade-off. They are less secure than self-custody but offer more convenience, ease of use, and privacy, among other benefits.

Specifically, you have to trust that the members of the federation will not collude to form a majority quorum to steal the Bitcoin held in the multisig wallet that backs customer deposits.

The size of that quorum will vary between different federations. The larger the quorum, the more distributed the risk.

It could be as small as a 2-of-3 setup, meaning there are three authorized users, and two are needed to spend the Bitcoin reserves in the federation’s multisig wallet, or as large as a 99-of-100 and anything in between.

Rug pull risk will naturally vary between different banking federations.

Local Bitcoin banking federations could mitigate this risk because known community members would operate them. They would likely suffer serious legal, reputational, and physical consequences for stealing their neighbors’ money.

With larger commercial Bitcoin banking federations, depositors could mitigate this risk with private insurance, rating agencies, and other market solutions.

In any case, ongoing due diligence of federated Bitcoin banks will be important. Depositors will have to do this or find someone to do it.

Centralization Risk

Trusted third parties are centralized vulnerabilities. Governments can capture and coerce them.

This is precisely how governments used the gold standard to bootstrap the fiat currency system into existence.

First, people used physical gold as money. Then, to scale, they necessarily turned to third parties, like banks, that stored gold and issued gold IOUs to facilitate trade. Governments captured those third parties and then gradually removed the gold backing from the IOUs until they were nothing more than confetti. In short, that is how the fiat currency system was born.

Could something similar occur with Bitcoin?

Bitcoin has a great chance of avoiding this fate because of its extreme portability and decentralization.

In the past, government agents could simply show up at a bank and demand they hand over their physical gold reserves to a centralized depository.

Let’s presume government agents would even be able to identify someone running a federated Bitcoin bank.

What could they do?

If the federated Bitcoin bank had been set up with sufficient geographical and political diversification, there’s not much they could have done. They could, at most, detain the one person in their jurisdiction running the federated Bitcoin bank.

Let’s say there was a quorum of 7-of-10, and the other nine federation members were located in different political jurisdictions. The Bitcoin reserves would be safe because the one person the government agents detained could not reach a quorum to spend them. The other nine federation members could then take further defensive measures to ensure the safety of the federation’s BTC.

In short, it would be exponentially more challenging for governments to capture, coerce, and centralize federated Bitcoin banks than it was for them to do the same with banks under the gold standard.

Hal Finney noted that there will likely be a market for the various eCash notes, and their values will fluctuate depending on how the market evaluates their risk. I expect eCash notes with more exposure to riskier jurisdictions to trade a discount to their Bitcoin reserves to reflect this risk.

Remember, with the open-source Fedimint protocol, anyone can easily form a federated Bitcoin bank. This low barrier to entry also helps mitigate the centralization risk.

With the traditional banking system—and banking under the gold standard—the government needs to control a relatively small number of banks and entities. With federated Bitcoin banks, anyone could potentially operate one—permission from a centralized banking cartel is not required.

Here’s the bottom line.

If governments attempted to capture, centralize, and coerce federated Bitcoin banks, I believe it would be a fruitless game of whack-a-mole.

Debasement Risk

There is also a risk that the people running a federated Bitcoin bank could secretly collude to debase their eCash notes.

Consider the example of the bankrupt exchange FTX, which created many more claims to Bitcoin than the actual BTC held in reserve. FTX account holders who thought they owned Bitcoin and did not withdraw were left holding the bag.

I think several factors will mitigate this risk with federated Bitcoin banks.

First, the cost of switching to another federated Bitcoin bank or withdrawing is low and can occur anytime. The ease at which a potential bank run could occur should put fear in the hearts of those attempting any debasement scheme.

I expect other market-based incentives, such as memberships in exclusive clubs for Bitcoin banks with the best reputations and other reputation systems, will help minimize the debasement risk.

The low barrier to entry to creating a federated Bitcoin bank and low switching costs means there will likely be cut-throat competition. If the market suspects a Bitcoin bank is debasing its eCash notes, it will be an excellent opportunity for a competitor to grab market share.

Likewise, speculators could play an important role. They will be there to short the eCash notes of Bitcoin banks suspected of engaging in debasement.

Conclusion

Bitcoin is a revolutionary innovation for the base monetary layer and provides a foundation for a new financial system.

Consider the implications of the trustless Bitcoin base layer in combination with the Lightning Network, federated Bitcoin banks issuing Chaumian eCash, and other trust-minimized Layer 2 solutions for scaling and convenience.

The amount of value they could unlock is astonishing. It could usher in a new era of free banking worldwide.

While the Bitcoin megatrend is no longer in its infancy, it is still early, and you are not too late. Bitcoin has a long way to go before it emerges as the world’s dominant money and displaces the traditional financial system.

I have little doubt The Bitcoin Supremacy will be one of the biggest financial trends of the decade. I believe that patient investors will reap substantial gains.

That’s why I’ve just released an urgent PDF report revealing three crucial Bitcoin techniques to ensure you avoid the most common—sometimes fatal—mistakes.

Check it out as soon as possible because it could soon be too late to take action. Click here to get it now.

Rice is a staple food for over 3.5 billion people worldwide, especially in Asia, Latin America, and Africa. It’s grown in over 100 countries, with 90% of the world’s rice produced in Asia. We have been tracking the prices of Thai white rice, which surged to 15-year highs in 2023 and has since consolidated at these highs with risks of a further upside breakout. 

According to new data from the Thai Rice Exporters Association, Thai white rice 5% broken, an Asian benchmark, rose nearly 6% to $649 a ton, inching closer and closer to last year’s highs. Since early 2022, prices have surged 64%. 

We continue to follow Thai rice prices because rice is a critical staple food for billions of people worldwide. 

Here are some of the risks we’ve pointed out in the last few years:

• Sept. 2022: The Stage Is Being Set For A Massive Global Rice Shortage

• May 2023: Global Rice Shortage Looms, Set To Be The Biggest In Decades

• May 2023: Thai Rice Crop In Crosshairs Of El Nino As Farmers Are Warned About Water Shortages

• July 2023: “So It Begins “: US Supermarkets Hit With Buying Panic As India Bans Rice Exports

• August 2023: Rice Crisis Sends Prices To Highest Levels Since 2008

• September 2023: “Go Easy On The Curry”: HSBC Warns Rice Crisis Reminiscent Of ‘2008 Asian Food Price Scare’

• November 2023: Rice Nears 15-Year High As Global Food Crisis ‘Much Worse Than 2008’

The good news is that global food prices measured via the UN’s Food and Agriculture Organization print below the 2010 Arab Spring level, an area of risk where high food prices cause social instabilities in third-world countries. However, some of the latest prints show that food inflation could increase. 

If prices do surge from here, let’s remind readers of this 2008 headline from The Guardian:

Food inflation is certainly not going away. That’s evident in the prices of cocoa, OJ, coffee, beef, and many other items at the supermarket. 

By Charles Kennedy of OilPrice.com

Venezuela has moved “substantial quantities of [military] personnel and equipment to the border with Guyana amid its territorial dispute over the Essequibo region.

The update comes from the Center for Strategic and International Studies in Washington D.C., which this week released a report on the latest developments in the Venezuela-Guyana dispute.

The think tank talks about an expansion of a military base on Anacoco Island in the area, with new roads and a bridge getting built in the past few months. A local airport is also being expanded, CSIS also said, citing satellite imagery and social media posts.

According to the report’s authors, the activity could be preparation for a “manufactured crisis” before or after Venezuela’s next elections, set to take place in late July.

The Essequibo region encompasses about two-thirds of Guyana’s territory and is where most of its oil resources lie, and the site of massive discoveries and new production by Exxon and partners.

The International Court of Justice previously ruled that Essequibo is part of Guyana, although this is still not recognized by Venezuela. A written agreement was penned in December between the two that denounced the use of force, instead calling for a commission to address the disputes.

However, after a December referendum, in which Venezuelans overwhelmingly voted that Essequibo is part of their country, the government pushed with its annexation attempt. The buildup of troops began in February this year and prompted expectations of an imminent military conflict.

At the time, Caracas said it had the right to shore up its borders in response to U.S. military exercises in Guyana toward the end of the year and the presence of a UK anti-narcotics vessel that is in Guyanese waters. The Venezuelan government has also criticized Exxon for depending on the U.S. military for its security and for its exploitation of Guyana’s oil resources.

With the US national debt at $34 trillion and climbing, USD reserve status under pressure, inflation destroying standards of living, and the Biden administration stoking costly war on several fronts, perhaps it’s time for more thoughts on the Roman empire.

In a Tuesday thread posted to X, user ‘Culture Critic‘ (@Culture_Crit) posted a deep dive into the unraveling of the Rome in the 3rd century. Let’s jump in;

Does inflation lead to civilizational collapse?

Well, in the 3rd century, the Roman Empire began to buckle under the weight of state spending.

It frantically “printed” money until things went horribly wrong… (thread) 🧵 pic.twitter.com/DRdCa6A8BO

— Culture Critic (@Culture_Crit) May 14, 2024

Continued…

When Augustus slowed the expansion of the empire, wealth stopped flowing from conquered lands into the treasury. Managing expenditures (construction, armies, bureaucracy) became increasingly difficult.

Whenever costs exceeded tax income, emperors minted new coins to cover it. Mining precious metals increased the supply of gold and silver coinage.

Things remained pretty stable for two centuries…

But the army was an immense burden. In the mid-2nd century, it was 70% of the entire budget — half a million soldiers were on the payroll.

Then, crisis struck.

Frontiers across the empire came under attack in the 3rd century. Military expenses soared as entire provinces were being abandoned and their tax yields lost. Plus, the mines were drying up…

When soldiers’ wages could no longer be paid, “debasing” the currency was the only option.

Emperors issued new denarius (the silver coin troops were paid in) with less and less silver content — i.e., further increasing the money supply.

Nero had already begun clipping coins and diluting silver purity in 64 AD. The state soon got addicted to solving its problems this way — and lining the pockets of political insiders at the same time.

The denarius was down to 60% silver purity by the 3rd century AD. Of course, prices inflated with it.

Still, the state kept spending to maintain the illusion of prosperity, until things got really bad…

By 268 AD, the denarius was 0.5% silver. A bag full of coins replicated the silver content of a single coin a century earlier.

By 300 AD, soldiers were paid 8x in denarius compared to a century ago, and wheat prices were up 200x.

But the state still struggled to pay troops — some abandoned the military and went about pillaging towns. And for half a century, the empire was on the brink of destruction: emperors were assassinated, barbarians sacked towns and enslaved citizens…

Diocletian tried to stabilize matters by enforcing price caps on over 1,000 goods and services, but it failed. A modius of wheat that had cost 0.5 denarius in the second century, sold for over 10,000 in 338 AD.

Who pays when the money system breaks?

People pay with their freedom. The currency was so worthless that the state demanded forced labor rather than accept its own coins as tax. Merchants had to provide goods directly to the state and army, and leaving their trade was outlawed.

The masses slipped into serfdom and unrest, while the state grew larger and more authoritarian in response. The state was now keeping itself alive at all cost.

As Septimus Severus said: “Live in harmony; enrich the troops; ignore everyone else.”

It’s said the Roman Empire fell due to apathy. By the time the 5th century barbarians came, belief in the system was gone, and invaders seen as liberators.

“The empire could no longer afford the problem of its own existence.”

Does any of this sound familiar?

It might be because 80% of all dollars in circulation today were printed since Covid… pic.twitter.com/oHJvTDZ5zW

— Culture Critic (@Culture_Crit) May 14, 2024

Additional color provided by @EconofEmpire:

1. The exploitation of the silver to gold ratio depleted Roman silver supplies as the creditor oligarchy exported coinage to India & the east. There the ratio was as low as 4:1 & 12:1 in Rome.

2. European gold & silver supplies were exhausted around 26BC. There was little plunder left available.  

3. The role of debt was a monumental factor in Rome’s rise & fall. An aggressive & brutal creditor oligarchy had sought land monopolization as they seized land as collateral for unpaid debts. Their actions have led many to conclude that life within the empire was like “hell on earth.”

4. The church & the state also hastened Rome’s decline as they sought tribute & taxes.

The sheer brutality of the regime can be well summed up by Emperor Severus telling his generals to “enrich the men, scorn all others.”

And a few replies:

Well, Ludwig von Mises certainly agrees. Here’s a quote from the Austrian–American Austrian School economist, historian, logician, and sociologist:

…if inflation is not eliminated very soon, all our technological and scientific improvements will not prevent us from a tremendous… pic.twitter.com/ykUwJc9LGW

— The Daily Historian (@_DailyHistorian) May 14, 2024

How too much wealth led to the downfall of the Spanish Empire💰

The Spanish Empire embarked on a journey of exploration and conquest in the late 15th century, venturing into the Americas in search of riches. They discovered vast reserves of gold and silver, which they eagerly… pic.twitter.com/kcka4zL6Fu

— Past and Prosperity (@PastProsperity) May 14, 2024

Daniel Webster, “Inflation is the surest way to fertilize the rich man’s field with the sweat of the poor man’s brow.”

— Robert The Homeschooler (@TheRobertBshow) May 15, 2024

Authored by Jonathan Turley,

Below is a slightly expanded version of my column in the New York Post on the first day of cross examination for Michael Cohen. He still has one day of cross examination ahead of him on Thursday. With the government resting after Cohen’s cross examination, I believe that an honest judge would have no alternative but to grant a motion for a directed verdict and end the case before it goes to the jury. Judge Juan Merchan will now have to give the full measure of his commitment to the rule of law. Given the failure to support the elements of any crime or even to establish the falsity of recording payments as legal expenses, this trial seemed to stumble through the motions of a trial. Michael Cohen was only the final proof of a raw political exercise. For critics, some of Cohen’s answers appear clearly false or misleading. Like their star witness, the prosecutors have shown that they simply do not take the law very seriously when there is an advantage to be taken. Cohen has truly found a home with the office of Manhattan District Attorney Alvin Bragg.

Here is the column:

On Tuesday, the prosecution surprised many by suddenly announcing that it would rest its case against former president Donald Trump with the completion of testimony by Michael Cohen.

It was surprising because the prosecution never clearly stated the crime that it was proving, the elements of that crime, or even why denoting payments related to Stormy Daniels were not properly recorded as legal expenses.

Indeed, the only thing the prosecutors proved was that, in the pantheon of dishonesty, there are liars, pathological liars . . . and Michael Cohen.

Cohen spent the last two days insisting that he used to be a liar but lied to help former President Donald Trump. If that is the thrust of his testimony, it is just the latest lie told by Cohen under oath.

Cohen has lied to Congress, courts, special counsels, the IRS, the banks, and virtually every creature that walks or crawls on the face of the Earth.

Notably, his past conviction for business and tax fraud were not taken in the interests of Trump but himself.

When he admitted on the stand that he lied during his prior plea agreement, that was not to assist Trump who he had already denounced. It was to advance his own interests.

There is every indication that Cohen is still lying.

Cohen repeatedly said that he could not remember even recent calls after recounting calls from eight years ago with crystal clarity. He said that he could not remember if he leaked information in the case to CNN. However, these paled in comparison to other glaring moments.

Take, for example, his testimony on his unethical decision to secretly record a Sept. 6, 2016 telephone call with Trump.

It was a breathtaking betrayal that most lawyers would not contemplate, let alone carry out.

When asked by the prosecutors about that act, Cohen bizarrely claimed that he did so to guarantee that David Pecker, the former publisher of the National Enquirer, would “remain loyal to Mr. Trump.”

No one seriously believes that this is true. It does not even make sense. Pecker was speaking to Trump about the payments and even met with him at the White House.

Playing for him a call with Trump would produce nothing but confusion rather than pressure for Pecker.

Moreover, why would Cohen tape the call without letting Trump know? The obvious motive was to squirrel away material to use against Trump if he ever needed a little leverage.

Again, it was for Cohen.

Cohen’s testimony showed that he has consistently acted in his sole interest.

After portraying his sudden cooperation with prosecutors as a type of Road to Damascus, jurors learned that all roads lead back to Cohen and his bank accounts.

After telling the jury that he has dedicated his life to righting the wrongs of Trump and holding him accountable, he admitted that he repeatedly acted to undermine the prosecution in order to make a buck.

Told by prosecutors to stop doing public interviews, Cohen did not care. He did roughly two dozen television appearances and recorded hundreds of podcast episodes.

He admitted that Trump is mentioned in virtually every episode, of which he did roughly four a week.

He recounted how he raked in millions on books, including one titled “Revenge.” He admitted that he is selling items like a $32 shirt with a photo of Trump in a jumpsuit behind bars and a coffee mug with the phrase “send him to the big house, not the White House.”

He is also peddling a reality show called “The Fixer,” in which he promises viewers, “I am your fixer.”

After just a few hours of cross examination, it was clear that Cohen is the same grifter saving himself — one Venmo at a time.

Yet, Cohen continued to reframe reality in his own self-constructed image.

When asked about his TikTok antics, he portrayed his postings as a type of sleep deprivation therapy, explaining that “having a difficult time sleeping and [he] found an out.”

No sane prosecutor would rely on Cohen, let alone make him the entirety of their case.

The prosecutors did not even bother to show that Trump was responsible for or knew about how the payments were recorded on ledgers and business records.

They also just shrugged away the need to show why denoting these payments as “legal expenses” was fraudulent — or what the correct description might be.

Those details might be demanded in any other courtroom, but this is New York and the defendant is Donald Trump.

For Bragg and his team, it is all about what they can get out of this case despite the law.

In that sense, they found a kindred spirit in their star witness, and Michael Cohen has finally found a place that values what he calls on his reality show promo his “particular set of skills.”

Oil prices are tumbling this morning despite lower CPI (juicing rate cut hopes), weak retail sales (but strong gas station spending), and a big draw reported overnight by API. It seems the main downside driver was IEA lowering its 2024 demand forecast.

• World oil demand is forecast to grow by 1.1 million barrels per day this year, down 140,000 bpd from last month’s projection.

• Global crude inventories surged in March by 34.6 million barrels as trade disruptions pushed oil on water to a post pandemic high, according to the IEA.

The question is – will the official data confirm API’s big crude draw and re-energize prices.

API

• Crude -3.1mm (-1.1mm exp)

• Cushing -601k

• Gasoline -1.27mm (unch exp)

• Distillates +349k (+300k exp)

DOE

• Crude -2.508mm (-1.1mm exp)

• Cushing -341k

• Gasoline -235k (unch exp)

• Distillates -45k (+300k exp)

The official data shows inventory draws across the board with crude stocks down 2.5mm barrels…

Source: Bloomberg

The Biden admin continued to add to the SPR, adding 593k barrels…

Source: Bloomberg

US Crude production remains flat near record highs at 131.mm b/d…

Source: Bloomberg

WTI was trading just above $77 ahead of the official print and rallied further on the across-the-board draws…

Finally, we note that refinery utilization rates are back above 90%, the highest since January. Rates increased in all regions, with the Midwest rising for the second straight week to 90.8%, from 85.2% in the previous week, as refineries wake up from maintenance.

President Biden on Wedensday says he won’t participate in the decades-old tradition of three fall debates by the bipartisan Commission on Presidential Debates, and has proposed two televised debates in June and September – with no audience, RFK Jr. can’t participate, and Trump’s mic will be muted when Biden is speaking. Oh, and they can only be hosted by a regime-friendly network.

Outlined in a video message and a letter to the commission, Biden called for direct negotiations between his campaign and the Trump campaign over rules, moderators, and network hosts for the one-on-one debates. He proposed a separate VP debate in July, after the Republican nominating convention and before the Democratic nominating convention.

“Donald Trump lost two debates to me in 2020, and since then he hasn’t shown up for a debate. Now he is acting like he wants to debate me again. Well, make my day, pal. I’ll even do it twice,” Biden said in a video released Wednesday, poking fun at Trump’s trial schedule in which the former President is free on Wednesdays. “So let’s pick the dates, Donald. I hear you’re free on Wednesdays.”

According to Biden campaign chair Jen O’Malley Dillon, the commission’s proposed schedule and difficulty in keeping candidates from violating debate rules are the reason for the proposal, the Washington Post reports.

“The Commission’s model of building huge spectacles with large audiences at great expense simply isn’t necessary or conducive to good debates,” she wrote in a letter. “The debates should be conducted for the benefit of the American voters, watching on television and at home — not as entertainment for an in-person audience with raucous or disruptive partisans and donors, who consume valuable debate time with noisy spectacles of approval or jeering.”

Here’s the notice. https://t.co/peSh2ZW0ZX pic.twitter.com/hBcUBHp27o

— Stephen L. Miller (@redsteeze) May 15, 2024

Trump responded to the challenge, telling Fox News’ Brooke Singman “I’m ready to go…The dates that they proposed are fine…Let’s see if Joe can make it to the stand-up podium,” adding “The proposed June and early September dates are fully acceptable to me. I will provide my own transportation.”

EXCLUSIVE: @realDonaldTrump tells me:

“I’m ready to go…The dates that they proposed are fine…Let’s see if Joe can make it to the stand-up podium.”

“The proposed June and early September dates are fully acceptable to me. I will provide my own transportation.”

— Brooke Singman (@BrookeSingman) May 15, 2024

Trump and the RNC have also shown interest in ditching the commission, which has held presidential debates since 1988. They have already scheduled three presidential and vice presidential debates starting on Sept. 16, as well as a presidential candidate meeting in Texas that would have been simultaneously broadcast by major networks.

“Let’s set it up right now,” Trump told Biden in a May 9 video posted to Truth Social. “I’m ready to go anywhere that you are.”

The two camps will conduct extensive negotiations over the coming weeks, with Biden’s team requesting that only broadcast networks which hosted Republican primary debates in 2016 and Democratic primary debates in 2020 should be eligible to host – meaning CNN, ABC News, Telemundo and CBS News.

To that end, Biden has ‘received and accepted an invitation from CNN for a debate on June 27th.’

I’ve received and accepted an invitation from @CNN for a debate on June 27th. Over to you, Donald. As you said: anywhere, any time, any place.

— Joe Biden (@JoeBiden) May 15, 2024

As far as moderators go, Biden’s team has proposed that the host be picked from networks’ “regular personnel,” and that the actual debate have firm time limits on answers, equal speaking time, alternative turns to speak, and microphones that are only active during each candidate’s turn.

DEBATE: Biden’s debate challenge to Trump came with fine print:

• No live audience
• RFK Jr. is banned
• Trump’s mic is muted when Biden speaks
• Only hosted by NPR, CNN, MSNBC, ABC, or CBS
• Moderated by Democrat-aligned reporter pic.twitter.com/ST4ZKTcMFA

— @amuse (@amuse) May 15, 2024

Volatility in “meme stocks” continued in premarket trading on Wednesday as AMC Entertainment Holdings announced a debt-for-equity exchange for $163.9 million in bonds maturing in 2026. This strategy mirrors management’s approach that helped the struggling movie theater chain capitalize on retail day traders to boost liquidity in 2021. 

A regulatory filing released Wednesday morning detailed how AMC reached a deal to swap about $164 million of its 10% notes due 2026 for 23.3 million shares of newly issued stock. The new stock is valued at $7.33 per share. 

“AMC, much of whose debt trades at distressed prices, has been chipping away at its maturities through other swaps and buybacks. It exchanged around $200 million of the debt for shares last year,” Bloomberg pointed out. 

Today’s news sparked a rally in AMC’s high-yield bonds. The company has over $2.5 billion in outstanding bonds, most of which will mature in 2026. 

News of the added supply sent shares down nearly 9% in premarket trading to the low $6 handle. 

Shares were as high as $11.48 early Tuesday in the multi-day meme stock mania, triggered by a post on X from Roaring Kitty, also known as Keith Gill, on Sunday night.

Also, on Tuesday, AMC completed a previously disclosed ATM. The deal was completed through Citigroup Global Markets, Barclays Capital, B. Riley Securities, and Goldman Sachs & Co., raising about $250 million in new capital for the struggling company. 

The old saying goes, “Strike while the iron is hot.” That’s precisely what AMC’s management is doing: taking advantage of retail day traders by completing ATM and debt-for-equity exchanges. Somehow, this company, which should’ve been dead a long time ago, continues to stay alive with help from Roaring Kitty, squeezing bearish hedge funds by igniting upside momentum through retail day traders. 

We asked this question yesterday: Who’s Next For The ‘Roaring Kitty’ Treatment?

With the CPI report came in on top of expectations on 3 of the 4 closely watched metrics, with just headline CPI coming in at 0.3%, just shy of the 0.4% expected (with the retail sales print coming in far uglier and missing across the board), there has been some debate among the usual commenting suspects whether this inflation report was enough to tip the scales to an earlier rate cut or not, although the consensus seems to suggest that the print was enough to keep September, if not the July, FOMC meeting in play for a rate cut.

Below we quote some of the most active Wall Street economists and strategists who have already manged to sneak in a bullet point or two with their kneejerk response to the CPI print.

Neil Birrell, CIO at Premier Miton Investors:

“The usual excitement over US inflation ended up being a damp squib, as it came in exactly as expected. However, retail sales were weaker than expected and the core rate is back to levels not seen for quite some time, which might well see optimists calling for rate cuts and markets rallying.”

Capital Economics

“Core CPI was even better than it looked, particularly given that we already know the PPI components that feed into the Fed’s preferred PCE deflator measure came in, on balance, weaker than expected. We estimate that core PCE increased by around 0.20%m/m. All things considered, this is consistent with the Fed cutting interest rates in September.”

David Russell, Global Head of Market Strategy at TradeStation

“Shelter didn’t ease as hoped, but there was improvement in transportation and healthcare. The number wasn’t perfect, but we’re staggering toward lower inflation. Weaker data on retail sales and the Empire Index also suggest growth is slowing, which keeps rate cuts on the table. It was a trifecta of dovish news.”

Nick “Nikileaks” Timiraos, WSJ resident Fed leaker:

“One good print can’t offset three unfavorable ones. It may take a couple more for officials to get over the PTSD of the Q1 inflation. It reduces the risk of any shift to a neutral bias (ie, open the door to hikes).”

Florian Lepo, Lombard Odier Asset Management

“With this in-line inflation print, rates are likely to break the [4.4%] level, dragged down by real rates. With that, the dollar should fall, supporting most assets labeled in it.”

Rubeela Farooqi, chief US economist at High Frequency Economics:

“Overall, price pressures remain elevated but are moving in the right direction. We think the data support the case for a patient approach on policy decisions from the Fed going forward although the base case remains one of lower rates this year.”

Gregory Faranello, head of US rates for AmeriVet Securities:

“Fed friendly data for the most part with both the CPI and retail sales. Both indicate a tempering which is what the Fed is looking for. These numbers support Chair Powell’s notion of ‘higher for longer’ to potentially lower.”

Ira Jersey, head of rates at Bloomberg

“The relief-rally knee-jerk reaction may be more about retail sales slowing meaningfully than the close-to-expected CPI. Sales have tended to lead goods CPI by a few months. The CPI report being pretty close to consensus underlines the continuing trend of lower-volatility core CPI sectors contributing nearly 4% on a year-on-year basis, while higher-volatility ones (right now generally goods sectors) contribute nothing. So although the data was broadly in line, inflation continues to run above the Fed’s comfort level, meaning near-term rate cuts aren’t likely.”

Source: Bloomberg

Equity futures were set to hold yesterday’s gains ahead of today’s CPI report, but will move violently either higher or lower after today’s CPI number is released, which will either validate or reject Jerome Powell’s latest signals that interest rates will be higher for longer (our CPI preview is here). European and Asian stocks also gained, and the MSCI All Country World Index extended its longest run of gains since January. At 7:15am ET, futures contracts on the S&P 500 were little changed with small-caps catching a bid, while the MSCI All Country World Index extended its longest run of advances since January. Nasdaq 100 futures were also flat after the underlying index hit an all time high on Tuesday.  Bond yields are down 1-2bps across the curve with the USD seeing some weakness. Commodities are higher, led by Energy and Precious Metals. On the macro front, both CPI and Retail Sales at 8.30am ET (previews here and here).

Activity in the premarket is muted with even the meme names up “only” low single digits and Mag7 seeing small moves ex-TSLA which is +0.8%. Here are the most prominent pre-market movers:

• Arcutis Biotherapeutics shares soar 24% after the company reported first-quarter sales that exceeded expectations, citing growth in demand for its prescription medications for skin conditions.
• Dlocal shares slide 27% after the Uruguayan fintech reported net income for the first quarter that missed the average analyst estimate.
• Meme stocks extend their rally into a third day, leading a frenzy affecting other high-risk and heavily shorted companies. GameStop +11%, AMC Entertainment +10%
• New York Community Bancorp shares rise 5.9% after the lender agreed to sell about $5 billion in mortgage warehouse loans to JPMorgan. Analysts were positive on the sale, saying that it will boost capital and liquidity and is in keeping with management’s new strategy.
• Nextracker shares rise 14% after it provided a fiscal 2025 adj. Ebitda forecast that beat estimates. Given the backlog-driven nature of the business, the growing +$4 billion in backlog “should substantially de-risk 2025 outlooks,” according to analysts at KeyBanc.
• Nu Holdings shares gain 6.49% after the parent of Nubank reported record revenue and net income for the first quarter that beat the average analyst estimate. The Brazil-based digital bank has an “open-ended growth opportunity” with a large addressable market, according to KeyBanc analysts.

In other news, overnight China vowed to take “resolute measures” after the Biden administration’s move to increase US tariffs on a wide range of Chinese imports; Bloomberg also reported that China was preparing a soft nationalization of the real estate sector by buying unsold houses to prop up the property market. In other news, Boeing faces possible criminal prosecution after the Justice Department found it violated a deferred-prosecution agreement tied to two fatal crashes half a decade ago.

In the run-up to US consumer price index data, the S&P 500 advanced despite Jerome Powell’s signals that interest rates will be higher for longer and a mixed reading on producer inflation, amid speculation that today’s CPI print will come in below estimates: core CPI, which excludes volatile food and energy costs, is seen slowing to 0.3% month-on-month, from 0.4%; the core CPI reading is expected to show the lowest annual increase yet this year, in which case the core PCE deflator, the Fed’s preferred inflation gauge, could also register its lowest reading in 2024. Into the data, Fed-dated OIS price in around 42bp of rate cuts for the year with the first 25bp fully priced in for the November policy meeting (see our preview here for why a lower than expected number seems likely).

“An in-line-with-consensus US core CPI read is discounted and in the price, but that may be enough to promote relief buyers and see the index push higher,” said Chris Weston, head of research at Pepperstone Group Ltd. “A core CPI read below 0.25% month-on-month and I certainly wouldn’t want to be short.”

A survey conducted by 22V Research showed 49% of investors expect the market reaction to the CPI report to be “risk-on” — while only 27% said “risk-off.”

“A downside surprise seems needed,” said Michael Leister, head of rates strategy at Commerzbank AG. “For one, break-evens have already corrected notably and thus should provide less support for the long-end from here. At the same time, the Fed will remain reluctant to give the all-clear considering the lack of disinflation progress.”

European stocks rallied, led by real estate, telecoms and utilities. The IBEX 35 outperformed while the CAC 40 was flat, lagging peers.  In individual stocks, Burberry Group Plc declined after reporting a slump in sales, dragging the consumer goods sector lower. ABN Amro Bank NV dropped more than 5% after unchanged guidance, while Finnish refiner Neste Oyj slumped on a downward revision on sales margins for its renewable products. Here are all the notable European movers:

• Merck KGaA shares climb as much as 4.6% after the Germany company reported adjusted Ebitda for the first quarter that beat analyst expectations and forecast a return to organic sales and earnings growth for 2024.
• LEG Immobilien shares rise as much as 3.3% after the German real estate firm’s first-quarter results show what analysts describe as a solid start to the year.
• Hunting shares surge as much as 23% after the oil field services provider said Ebitda will be at the top-end of its current guidance range thanks to a bumper order from the Kuwait Oil Co.
• Keller rises as much as 15% to a record high after the British ground-engineering specialist reported a better-than-expected start to the year and said its annual results will be “materially ahead” of the board’s initial expectations.
• InPost shares jump as much as 10% to hit their highest level since September 2021 following a 1Q earnings beat. That was aided by a 22% rise in parcel volumes and guidance for further volume growth in 2Q is seen positive by analysts, as it confirms that the Polish automated parcel locker operator is gaining further market share.
• Lundbeck shares gain as much as 7.7%, the most in more than 15 months, after the Danish pharmaceutical group reported better-than-expected results for the first quarter.
• SoftwareONE shares rally as much as 6.6% after the Swiss software provider posted solid margin expansion, offsetting slightly below-consensus Ebitda, according to Baader.
• Thyssenkrupp drops as much as 8.1%, the most since Feb. 14, after the steel producer reduced its expectations for a second time in three months amid lower steel prices and carbon dioxide trading losses.
• ABN Amro shares decline as much as 6.5% after the Dutch bank’s first-quarter results showed a capital ratio that missed analyst estimates, overshadowing more positive aspects of the earnings report.
• Burberry shares fall as much as 4.6% after the British luxury-goods maker’s adjusted pretax profit for the full year missed estimates amid a tough backdrop for high-end goods.
• Allianz slips as much as 2.2% despite reporting operating profit for the first quarter that beat estimates. Analysts note misses on accident year loss and solvency ratios, amid otherwise in-line results.
• Neste shares decline as much as 15% to the lowest level since 2018, after it posted a big downward revision of its renewable products sales margin guidance, which implies cuts to the Finnish refiner’s consensus and signals weaker market conditions, according to analysts.
• HelloFresh shares fall as much as 7.2% to a record intraday low Wednesday after JPMorgan downgraded the meal-kit company to neutral from overweight, saying its North America business is still “far from stabilizing.”

The euro-zone economy started the year on a stronger footing than anticipated, growing 0.3% in the three months through March following a shallow recession in the latter half of 2023, data Wednesday confirmed. Yet inflation is likely to backpedal more quickly than previously anticipated, with growth picking up next year, according to the European Commission. In contrast to the likely US path for interest rates, Bank of France Governor Francois Villeroy de Galhau said that the European Central Bank is very likely to start easing policy at its next policy meeting in June.

Earlier in the session, Asian stocks closed at the highest level since April 2022, as technology shares were lifted by key earnings reports and gains in US peers overnight. The MSCI Asia Pacific Index climbed as much as 0.6%, with Sony providing the biggest boost after announcing strong results and a buyback. Taiwan stocks led gains among regional equity gauges, with shares also rising in Australia. Markets were closed for holidays in Hong Kong and South Korea.

In FX, the dollar extended declines; Norwegian krone and yen outperformed as all G-10 FX rose. US equity futures were steady while

In rates, major global bonds rallied, led by gilts. US 10-year yields dropped to a five-week low of around 4.42% before US CPI data as treasuries were slightly richer across the curve, following wider gains in core European rates where German yields are lower by 4bp to 7bp, outperforming peers. Gains in Treasuries extend Tuesday’s rally as traders set up for Wednesday’s April CPI and retail sales reports. US yields richer by up to 2bp across belly of the curve which outperforms slightly, steepening 5s30s spread by almost 1bp on the day; 10-year yields around 4.42% with bunds and gilts outperforming by 5bp and 3.5bp in the sector.

In commodities,  oil held gains after an industry report showed shrinking US stockpiles, overshadowing a softer demand growth outlook by the International Energy Agency for the rest of the year.  WTI traded within Tuesday’s range, adding 0.5% to near $78.42.  Most base metals trade in the green. Copper futures in New York rallied to a record high after a short squeeze that’s prompted a scramble to divert metal in other regions to US shores. Spot gold was up roughly $15 to trade near $2,373/oz.

Looking at today’s calendar, US economic data slate includes May Empire manufacturing, April CPI and retail sales (8:30am New York time), March business inventories and May NAHB housing market index (10am) and March TIC flows (4pm). Fed officials’ scheduled speeches include Barr (10am), Kashkari (12pm) and Bowman (3:20pm)

Market Snapshot

• S&P 500 futures little changed at 5,271.50
• STOXX Europe 600 up 0.4% to 523.60
• MXAP up 0.6% to 179.55
• MXAPJ up 0.6% to 562.20
• Nikkei little changed at 38,385.73
• Topix little changed at 2,730.88
• Hang Seng Index down 0.2% to 19,073.71
• Shanghai Composite down 0.8% to 3,119.90
• Sensex down 0.2% to 72,945.92
• Australia S&P/ASX 200 up 0.3% to 7,753.70
• Kospi up 0.1% to 2,730.34
• German 10Y yield little changed at 2.49%
• Euro up 0.1% to $1.0834
• Brent Futures up 0.6% to $82.87/bbl
• Gold spot up 0.5% to $2,369.50
• US Dollar Index down 0.19% to 104.82

Top Overnight News

• China is considering buying millions of unsold homes to support the property market, people familiar said. Local governments would be asked to purchase units from distressed developers at steep discounts using loans provided by state banks. The offshore yuan strengthened. BBG
• The IEA lowered its outlook for crude demand growth this year amid an economic slowdown and mild weather in Europe. Still, annual consumption remains on track to reach a record of more than 103 million barrels a day. The agency kept its estimates for 2025. BBG
• The ECB is very likely to start cutting interest rates at its next policy meeting in June, Bank of France Governor Francois Villeroy de Galhau said. Barring surprise shocks, the ECB remains committed to bringing inflation to its 2% goal by next year from 2.4% currently, he said in an interview on RTL radio on Wednesday. BBG
• The Biden administration is encouraging Arab states to participate in a peacekeeping force that would deploy in Gaza once the war ends, in the hope of filling a vacuum in the strip until a credible Palestinian security apparatus is established. FT
• The Biden administration notified Congress on Tuesday that it was moving forward with more than $1 billion in new weapons deals for Israel, U.S. and congressional officials said, a massive arms package less than a week after the White House paused a shipment of bombs over a planned Israeli assault on Rafah. WSJ
• CPI: We expect a 0.28% increase in April core CPI (vs. 0.3% consensus), corresponding to a year-over-year rate of 3.61% (vs. 3.6% consensus); We think an upward pressure from Car Insurance, a neutral impact from health insurance, and see rent inflation slowing, while OER should remain strong. SPX implied moving into the event is 95bps. GIR
• A top official at the Federal Reserve said it was too soon to say that progress bringing down inflation had stalled and said it was appropriate for the Fed to hold rates steady as it awaits evidence that price pressures are easing further. “It’s too early to really conclude that we stalled out or that inflation is going to reverse,” said Cleveland Fed President Loretta Mester in an interview Tuesday. “I kind of always suspected that we wouldn’t be able to make as quick progress as we got in the second half last year.” WSJ
• Washington is increasingly concerned about Russia’s momentum in Ukraine, although the Pentagon still hopes that once American weapons begin arriving (around July), many of Moscow’s recent gains can be reversed. NYT
• Brazil’s President Luiz Inacio Lula da Silva fired Petrobras CEO Jean Paul Prates following a dispute over dividend payments. The government is proposing Magda Chambriard to replace him.

A more detailed look at global markets courtesy of Newsquawk

APAC stocks traded mostly higher following the momentum from the US where the major indices ultimately gained and the Nasdaq posted a fresh record close with two-way price action seen following PPI data. ASX 200 was led by the mining, materials and healthcare sectors, while participants also digested the recent budget announcement with the government planning to boost spending next year ahead of an election. Nikkei 225 gained but was well off today’s best levels with newsflow dominated by earnings releases including from Sony and Sharp, while the Japanese megabanks are also scheduled to announce their results today. Shanghai Comp was pressured after the recent US tariff announcement and with Stock Connect trade shut owing to the holiday closure in Hong Kong, although the real estate industry found solace from news that China is mulling purchases of unsold homes to ease the glut.

Top Asian News

• PBoC conducted CNY 125bln (CNY 125bln maturing) in 1-year MLF with the rate kept unchanged at 2.50%.
• China mulls government purchases of millions of unsold homes from distressed developers at steep discounts to ease the glut, while Beijing is seeking feedback on the preliminary proposal, according to Bloomberg sources.

European bourses, Stoxx600 (+0.2%) are mostly firmer, continuing the positive sentiment seen in APAC trade overnight. European sectors hold a strong positive tilt; Real Estate is the clear outperformer, lifted by post-earning gains in Leg Immobilien (+2.9%). Basic Resources is lifted by broader strength in underlying metals prices. Consumer Products & Services is weighed on by losses in the Luxury sector, namely Burberry (-3.1%). US Equity Futures (ES U/C, NQ U/C, RTY +0.3%) are modestly firmer, attempting to build on the prior session’s advances, though still mindful of the upcoming US CPI & Retail Sales.

Top European News

• CB’s Rehn says if the confidence that inflation is approaching its target in a sustainable manner continues to strengthen, the restrictiveness of monpol can be reduced.
• European Commission Forecasts (Spring 2024): A gradual expansion amid high geopolitical risks.
• Riksbank Minutes: Floden said “Monetary policy will remain contractionary even after a policy rate cut to 3.75 per cent. If these developments continue, it will therefore be appropriate to continue to cut the rate by a few more steps”.

FX

• DXY has continued its descent below the 105 mark and is approaching its 100DMA at 104.78 ahead of today’s US CPI & Retail Sales.
• EUR/USD is on firmer footing vs. USD and now above the 1.08 mark, with its 100DMA at 1.0822. EZ-specific updates have been non-incremental for today’s session.
• GBP is a touch firmer vs. peers with nothing in the way of UK-specific drivers. As such, the dollar side of the equation will likely prove more pivotal. A dovish CPI print could see GBP/USD test the May high at 1.2634.
• Antipodeans are both performing well vs. the USD with some support seen after reports that China is mulling purchases of unsold homes to ease the glut; has helped prop up metals prices. AUD/USD has printed a new high for the month at 0.6651.
• A two-way reaction for the SEK post-CPI. Initially, EUR/SEK moved lower from 11.6760 to 11.6520 with the focus likely on the hot ex-energy M/M. However, this swiftly retraced with EUR/SEK surpassing pre-release levels and going as high as 11.7035 given the slight uptick in the headline Y/Y was less than expected.

Fixed Income

• USTs are firmer by a handful of ticks at a fresh WTD peak of 109-07+, with the complex continuing to build on the post-PPI gains; data which whilst is hawkish at first-glance, contained some softer components relevant to the US PCE.
• Gilts are the modest outperformer as the complex continues to pick up from Wednesday’s PPI-induced downside, alongside broader fixed benchmarks, and as the dovish commentary from Pill remains the main development for the Gilt market in recent sessions. Gilts holding above 98.0 at a fresh WTD peak of 98.18.
• Bund price action is in-fitting with peers, but less-so than Gilts. Bunds are holding just above the 131.00 mark and matching the 131.13 double-top from Monday & Tuesday; price action was little reactive to the dual-tranche 30yr Bund auction, which was strong.

Commodities

• Crude is in the green with magnitudes comparable to equity performance as the complex appears to be following the overall risk tone and perhaps taking some impetus from USD downside into CPI. Brent July currently holds around USD 82.80/bbl, whilst WTI hovers USD 76.50.
• Gas benchmarks outperform after commentary from the QatarEnergy and TotalEnergies CEO around significant gas demand and there being no chance of a LNG surplus currently.
• Precious metals are supported given the cooler-take from PPI for CPI/PCE and after Chair Powell’s comments on the readings. XAU around USD 2372/oz, just shy of last week’s USD 2378/oz peak.
• Base metals are entirely in the green with sentiment lifted amid reports of further Chinese support measures.
• IEA OMR: cuts 2024 oil demand growth forecast by 140k BPD to 1.1mln BPD, 2025 demand expected to grow by 1.2mln BPD (vs. prev. forecast of 1.1mln BPD). 2024 demand forecast lowered due to weak deliveries, notably in Europe, shifted Q1 OECD demand into contraction. World oil supply to rise by 580k BPD in 2024 to a record 102.7mln BPD. Oil market looks more balanced in 2024. Even in the event that OPEC+ voluntary production cuts were to remain, global oil supply could rise by 1.8mln BPD in 2025 compared to the 580k BPD rise in 2024.
• US Energy Inventory Data (bbls): Crude -3.1mln (exp. -0.5mln), Cushing -0.6mln, Gasoline -1.3mln (exp. +0.5mln), Distillate +0.3mln (exp. +0.8mln).
• Explosion was reported after a drone attack at Russia’s Rostov fuel depot, according to Russian agencies.

Geopolitics: Middle East

• A Hezbollah commander was killed in an Israeli airstrike targeting a car in southern Lebanon’s Tyre, according to two Lebanese security sources cited by Reuters.
• Iraqi armed factions targeted an Israeli military target in Eilat with drones, according to Sky News Arabia.
• US President Biden would veto the Israeli bill on the floor this week, according to Punchbowl citing the White House. It was separately reported that the US State Department moved USD 1bln weapons aid for Israel to a congressional review process, according to a senior official cited by Reuters.
• Israel’s Defence Minister Galliant set to to give security briefing to press at 16:00 BST/11:00ET.

Geopolitics: Other

• Ukrainian officials are making a new push to get the Biden administration to lift its ban on using US-made weapons to strike inside Russia, according to POLITICO.
• France and Netherlands seek EU sanctions on global financial institutions that help Russia’s military, according to a proposal seen by Reuters.
• Russian President Putin said Russia and China are promoting the prosperity of both nations through expanded equal and mutually beneficial cooperation, as well as noted that Russian-Chinese economic ties have great prospects. Furthermore, Putin said China clearly understands the roots of the Ukraine crisis and its global geopolitical impact, while he is open to a dialogue on Ukraine, but added that such negotiations must take into account the interests of all countries involved in the conflict, including theirs, according to Xinhua.
• North Korean leader Kim oversaw a tactical missile weapon system on Tuesday, according to KCNA.

US Event Calendar

• 08:30: April CPI MoM, est. 0.4%, prior 0.4%
• 08:30: April CPI YoY, est. 3.4%, prior 3.5%
• 08:30: April CPI Ex Food and Energy MoM, est. 0.3%, prior 0.4%
• 08:30: April CPI Ex Food and Energy YoY, est. 3.6%, prior 3.8%
• 08:30: April Retail Sales Advance MoM, est. 0.4%, prior 0.7%
• 08:30: April Retail Sales Ex Auto MoM, est. 0.2%, prior 1.1%
• 08:30: April Retail Sales Control Group, est. 0.1%, prior 1.1%
• 08:30: May Empire Manufacturing, est. -10.0, prior -14.3
• 10:00: March Business Inventories, est. -0.1%, prior 0.4%
• 10:00: May NAHB Housing Market Index, est. 50, prior 51
• 16:00: March Total Net TIC Flows, prior $51.6b

DB’s Jim Reid concludes the overnight wrap

Markets had been on course to continue their quiet holding pattern ahead of today’s CPI but a late positive burst powered the S&P 500 (+0.48%) to within a whisker of its all-time high and the NASDAQ (+0.75%) to a new peak, while the 10yr treasury yield (-4.7bps) fell to its lowest level since the last CPI print on April 10. There weren’t obvious drivers, but perhaps the absence of bad news was enough to inject some relief into markets. Y esterday’s PPI data didn’t really move the needle much with a notable beat balanced by some notable down revisions and some of the details being neutral for core PCE. So the focus will now shift to April’s CPI after 3 upside surprises in a row for core CPI. Don’t forget US retail sales as well, released at the same time.

For now at least, the Fed continue to stick to their recent message with Chair Powell yesterday saying that “we’ll need to be patient and let restrictive policy do its work”. So there was little acknowledgement that rate cuts were happening anytime soon, but Powell also didn’t dial up the hawkishness either. That narrative was supported by the PPI print for April, which was a distinctly mixed bag. On the negative side, headline PPI came in at a monthly +0.5% (vs. +0.3% expected), and the measure excluding food, energy and trade was also up +0.4% (vs. +0.2% expected). But in more positive news, the previous month’s headline PPI was revised down three-tenths to show a -0.1% decline. And on top of that, the components that feed into the Fed’s target measure of PCE were more neutral. For instance, portfolio management services were up +3.9%, but domestic airfares came down -4.7%.

For today, our US economists are expecting headline CPI to come in at +0.37%, and core CPI to be at +0.29%. The last three core CPI prints each came in at +0.4%, so this would be a deceleration. But even if those forecasts are realised, the 3m annualised rate for core CPI would still be running at +4.1%, so not the sort of territory where the Fed would ordinarily be cutting rates. For the year-on-year numbers, those forecasts would push the headline CPI rate down to 3.4%, and the core CPI rate to 3.6%. Click here for our US economists’ full preview, along with how to sign up for their webinar immediately afterwards.

Ahead of that, markets turned more upbeat yesterday, with the S&P 500 (+0.48%) closing within two tenths of a percent of its all-time high on March 28. Tech stocks outperformed, with the Magnificent 7 (+1.01%) reaching a new all-time high, led by Tesla (+3.29%) and Nvidia (+1.06%). But the equity rally was broad-based, with the small-cap Russell 2000 up +1.14%. The advance of the S&P 500 was earlier held back by several defensive sectors, with energy stocks (-0.13%) one of the weaker performers as Brent crude oil prices (-1.18%) closed at a 2-month low of $82.38/bbl. Meanwhile in Europe, the STOXX 600 (+0.15%) just about made it up to an all-time high, as the index posted an 8th consecutive advance for the first time since 2021.

The other notable story in the equity space came from several meme stocks, with GameStop up +60.1% on the day, building on its +74.4% advance on Monday. It’s now up to $48.75 having traded as low as $10 in late April. Similarly, AMC Entertainment was up +31.98%, whilst Blackberry gained +11.94%.

For sovereign bonds, there was a divergent performance yesterday, with Treasuries rallying whilst most of Europe sold off. Yields on 10yr Treasuries fell by -4.7bps to 4.44%. By contrast, yields on 10yr bunds (+3.8bps), OATs (+3.9bps) and BTPs (+2.6bps) all moved a bit higher on the day. Those moves came in spite of comments from the ECB’s Knot that “June will be a good opportunity to make a first move in removing restriction”, which helped to cement the view that the ECB are moving towards a rate cut at their next meeting. In the UK, gilts saw a relative outperformance, with the 10yr yield down -0.1bps, which came as the unemployment rate ticked up a tenth to 4.3% over the three months to March. Moreover, BoE chief economist Pill sounded open to a rate cut, saying that it was “not unreasonable to believe that through the summer we will begin to see enough confidence in the decline in persistence that bank rate will come under consideration”.

In other news yesterday, we had confirmation that the US were imposing fresh tariffs on $18bn of Chinese imports, including steel and aluminium, semiconductors, and EVs. In fact, the t ariff on EVs will go up from 25% to 100%. Some of the new tariffs will take effect this year, but others won’t happen until 2026. The move comes ahead of November’s presidential election, but both parties have taken a much tougher stance on China over recent years, and Biden has kept most of Trump’s previous tariffs in place. Indeed, Trump himself said at a rally on Saturday that “I will put a 200% tax on every car that comes in from those plants”. So the direction has been towards a more protectionist stance on trade from both parties. Our China economist has written about the potential impact on the domestic macro landscape here.

Asian equity markets are mixed this morning with the Nikkei (+0.18%) and the S&P/ASX 200 (+0.47%) trading higher while Chinese markets are lagging with the CSI (-0.27%) and the Shanghai Composite (-0.17%) both trading slightly lower after the new US tariffs announced yesterday on an array of Chinese imports. Elsewhere, stock markets in South Korea and Hong Kong are shut for a public holiday. US equity futures are slightly higher with Treasuries fairly flat.

In monetary policy action, the PBOC kept the one-year medium-term lending facility (MLF) unchanged at 2.50%. This came despite weaker money supply numbers than expected overnight although Bloomberg are running a story suggesting China are working on a plan to buy up unsold homes to shore up the property sector. Moving ahead, markets will move their focus to China’s industrial production and retail sales data due on Friday.

Looking at yesterday’s other data, the German ZEW survey improved in May, with the expectations component up to 47.1 (vs. 46.4 expected), whilst the current situation reading moved up to -72.3 (vs. -75.9 expected). For the current situation that’s a 9-month high, and for the expectations component, that’s a 2-year high, which was last surpassed in February 2022.

To the day ahead now, and data releases include the US CPI report for April, along with retail sales for April and the NAHB’s housing market index for May. From central banks, we’ll hear from the ECB’s Rehn, Muller, Villeroy and Makhloufi, along with the Fed’s Kashkari and Bowman.