There are growing concerns among US and European antitrust enforcers over PGA Tour and Saudi Arabia-backed challenger LIV Golf’s proposed merger that ends the divide that has dominated the golf world for the last year, according to Bloomberg, citing people familiar with the matter.

The parties said that the agreement combines the golf-related business from Saudi Arabia’s sovereign wealth fund with the commercial and business rights of the PGA Tour and European Tour into a new, collectively owned for-profit entity. However, antitrust enforcers view the move as riddled with red flags, such as creating a monopoly in the golf world that just recently gained a competitor, said the people. 

“The new for-profit entity involves three of the biggest golf tours in the world proposing to coordinate key aspects of their business on which they currently compete,” the people pointed out. They added:

Competition enforcers are likely to want to know how the proposed partnership will impact players, sponsorships and broadcast rights, they said. The US and United Kingdom — where DP World Tour is based — are certain to ask questions and the European Union’s competition authority may want information as well. 

Instead of the US Federal Trade Commission, the US Justice Department has been investigating PGA Tour’s year-long conflict with LIV. The people said the DoJ would be responsible for reviewing the proposed deal.

According to people familiar with the deal, no antitrust lawyers were involved in the PGA-LIV meetings, which concentrated on how to grow the sport and attract a younger audience. 

The person, who spoke about the confidential negotiations, expects the merger of the three leagues won’t require traditional merger review. 

Antitrust experts say the merger details will be under review by DoJ officials. 

On Tuesday, PGA Tour Chairman Jay Monahan dismissed questions on CNBC about possible antitrust concerns:

“Every single player in men’s professional golf is going to have more opportunity and more growth.

“We are going to grow our industry. This is all positive.”

“There’s been a lot of tension in our sport over the last couple years,” PGA Tour Commissioner Jay Monahan tells @davidfaber. “But what we’re talking about today is coming together to unify the game of golf.” https://t.co/Nz6LcMuIfq pic.twitter.com/D0h099HMuE

— CNBC (@CNBC) June 6, 2023

However, Bloomberg pointed out not everyone agrees with this view:

“The PGA-LIV merger is another in a long line of successful efforts by entrenched monopoly organizers of sporting competitions to maintain their dominance through predatory behavior directed toward rivals, followed by swallowing them up.

“Jay Monahan is no different than John D. Rockefeller, putting independent gas stations out of business and then folding them into Standard Oil,” said Stephen Ross, a professor at Penn State Law. 

Ross expressed uncertainty regarding how the DoJ will come down, stating that it is difficult to predict the outcome without complete details of the deal.

Jodi Balsam, a professor of sports law at Brooklyn Law School, said antitrust lawyers might request changes to some parts of the deal, but it’s likely the partnership will go through:

“People don’t want to see this battle continue, including the regulators — they want to see golfers compete with each other without any barriers,” said Balsam, a former lawyer for the National Football League.

Even though the deal with PGA and LIV will resolve their legal battle, another could be brewing with the DoJ. 

Authored by Steve Watson via Summit News,

Biden Press Secretary Karine Jean-Pierre again attempted to brush off concerns that Joe Biden is constantly stumbling around and falling over, claiming “things happen,” and that “other Presidents have had similar situations.” 

Jean-Pierre was questioned by NewsMax’s James Rosen who pointed out that Americans are concerned that Biden isn’t fit to run for another four year term as he appears frail.

“I want to ask about the President’s tumble that he took on the stage in Colorado the other day,” Rosen began, adding “It’s absolutely true that any one of us could trip over an object that just happens to be in our path. Nonetheless. We’ve all observed the difficulty this President has in certain settings.”

“Steps are one of them and of course there was no sand bag in his path on the steps up Air Force One on any of those occasions,” Rosen noted, adding “I was struck particularly by the incident on May 19, in Hiroshima where the President descended down a set of stone steps toward a shrine.”

“At the bottom of which steps he was greeted by the Japanese Prime Minister. And if you look at that footage, the President slipped and caught himself on those steps. And as he greeted the Prime Minister, you could even see on the president’s face, pursed lips as if to say this was a close one,” Rosen continued. 

Here is the incident Rosen is referring to:

WATCH YOUR STEP! President Joe Biden stumbled on a set of stairs AGAIN as he and other G7 leaders gathered near the Shinto Shrine on Itsukushima Island, near Hiroshima, Japan, on Friday. pic.twitter.com/ZDmxyYBatD

— Breitbart News (@BreitbartNews) May 19, 2023

And here is the fall in Colorado:

BREAKING: President Biden falls on stage during the U.S. Air Force Academy graduation ceremony. https://t.co/ZdwNdAd6Kg pic.twitter.com/fPI2MlbCCr

— NEWSMAX (@NEWSMAX) June 1, 2023

The reporter then asked “whether this whole series of incidents has led the White House Chief of Staff to direct some kind of review of the advance procedures that are employed on behalf of this, the nation’s oldest President?”

Jean-Pierre was having none of it, claiming she didn’t see anything that happened in Japan and then listing achievements Biden has accomplished as some sort of counter balance to him stumbling around.

“Your proposition may or may not be true, but it’s not responsive to my question,” Rosen responded.

The Press Secretary snapped back “You’re asking me if we’re going to change anything from here, the Chief of Staff has asked for it to change anything from here. And here’s the thing, here’s the thing. We are not. Things happen. Other Presidents have had similar situations.” 

And with that she ended the press conference.

Watch:

Yesterday the Press Secretary refused to comment on whether Biden would actually survive another four years:

“What do you say to anyone who is questioning whether the president would survive a full, four-year term?”

Karine Jean-Pierre: “Not gonna comment” pic.twitter.com/KA5TY5zfle

— RNC Research (@RNCResearch) June 5, 2023

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The recent escape-velocity melt-up in mega-cap tech – at the expense of almost every other asset – sent relative valuations to a remarkably coincidental level. The ratio of Nasdaq 100 to Russell 2000 hit its Feb 2000 (DotCom peak) record high last week as the blowout jobs report hit…

Source: Bloomberg

We asked at the time: “Did the QQQ/RTY trade just peak?”

5 days later, we have an answer – yes, bigly!

Source: Bloomberg

As Small Caps are up 7% while Nasdaq is down 0.5%…

Today’s continued Small Cap outperformance follows record call volumes in IWM yesterday…

Notably, as Goldman Sachs points out, the soft-landing narrative is once again gaining traction and so-called safe-haven flows into mega-cap tech are unwinding (as shown below Goldman’s ‘Soft Landing’ basket is breaking out)…

Source: Bloomberg

IWM may highlight a general theme of “bargain shopping”, wherein those sectors & names which have struggled, finally catch a bid.

Perhaps most ominously, the recent exuberance in Nasdaq’s big names has come at a time of tightening financial conditions as ‘AI trumped The Fed’ – is that exuberant unwind about to assert itself?

Source: Bloomberg

Finally, adding more ammunition to this reversal, Goldman notes that CTAs are currently short R2K (the only index this cohort is short) and providing a tailwind for the market with one month baseline demand estimates the largest in two years.

In other words, as we noted previously, while the S&P may continue to go nowhere (and especially the equal-weighted S&P), prepare for a violent reverse rotation below the surface as the historic outperformance in tech, and crushing underperformance in small caps, is set go in the other direction.

Authored by Michael Maharrey via SchiffGold.com,

With a debt ceiling deal done, the threat of a US government default is off the table for the time being. But a wave of corporate defaults is on the horizon according to Deutsche Bank’s annual default study.

This is the inevitable consequence of central bank monetary policy and it was entirely predictable.

Deutsche Bank strategists Jim Reid and Steve Caprio say that corporate defaults will become “more normal” as we enter into a default cycle thanks to higher interest rates and a growing number of over-leveraged companies.

Our cycle indicators signal a default wave is imminent. The tightest Fed and ECB policy in 15 years is colliding with high leverage built upon stretched margins. And tactically, our US credit cycle gauge is producing its highest non-pandemic warning signal to investors, since before the GFC [Great Financial Crisis].”

The Deutsche Bank study projects defaults for US high-yield debt will peak at around 9% in late 2024. For comparison, the high-yield default rate was a mere 0.5% in 2021 and 1.3% in 2022.

The study predicts that the looming recession will create significant pain in the world’s credit markets, similar to the dot-com bust.

Corporate leverage is elevated. And global credit markets derive more of their revenue from manufacturing and the sale of physical goods than the real economy at large. Going forward, corporates will likely lose pricing power on their sale of physical goods, due to high inventory builds and a post-COVID demand shift from goods to services. But labor costs are likely to remain sticky, because of a shrinking working-age population and a desire for consumers to recoup nearly 2 years of negative real wage growth.”

Bank of America also forecasts a wave of defaults. According to its analysis, defaults could rise to $1 trillion if the US economy enters into a full-blown recession.

Meanwhile, Moody’s expects defaults on speculative-grade corporate debt globally will rise to 4.6% by the end of this year, up from 2.9% in March.

We’re already seeing a rise in corporate defaults. More companies globally defaulted in Q1 2023 than during any quarter since late 2020 at the peak of the government COVID lockdowns.  Moody’s reported that 33 corporations it rates defaulted on their debts in the first quarter with 15 of those defaults coming in March.

What the Central Banks Giveth Central Banks Taketh Away

Central banks globally blew up this giant debt bubble with nearly two decades of artificially low interest rates. Central banks pushed rates to zero in the wake of the Great Recession and some banks, including the European Central Bank and the Bank of Japan took rates negative. Despite some efforts by the Federal Reserve to normalize rates in the mid to late 2010s, it never succeeded and had already started cutting rates due to shakiness in the economy before COVID. During the pandemic, central banks doubled down on their easy money policies.

The whole point of this monetary policy was to incentivize borrowing to “stimulate” the economy.

It worked.

Global debt hit a record $300 trillion at the end of 2022, according to data from S&P Global. That equals 349% leverage against global GDP and $37,500 of average debt for each person in the world.

Since 2000, non-financial corporate debt across America and Europe has grown from $12.7 trillion to $38.1 trillion, a 200% increase. Meanwhile, the percentage of US speculative-grade issuers of “B-” ratings and below doubled, to 36%, in September 2022 compared with September 2007.

Most people just assumed a low interest rate environment was the new normal. But in the wake of the COVID stimulus, price inflation finally caught up with the central banks, forcing them to raise interest rates.

Low-interest rates are the mother’s milk of a global economy built on easy money and debt. With interest rates rising, the bubbles are starting to pop.

What nobody seems willing to say out loud is that this problem falls squarely on the shoulders of governments and central banks. They implemented policies intended to incentivize the accumulation of debt. They created trillions of dollars out of thin air and showered the world with stimulus, unleashing the inflation monster. And now they’re trying to battle the dragon they set loose by raising interest rates. This will inevitably pop the bubble they intentionally blew up.

All of this was entirely predictable.

The US government is about to exacerbate the problem. With the debt ceiling out of the way, the US Treasury will have to go on a borrowing binge in order to replenish the cash reserves it spent while the government was up against the borrowing limit.

According to an analysis by Goldman Sachs, the US Treasury will likely need to sell around $700 billion in T-bills within six to eight weeks of a debt ceiling deal just to replenish cash reserves spent down while the government was up against the borrowing limit. On a net basis, the Treasury will likely have to sell more than $1 trillion in Treasuries this year.

The market may be able to absorb all of that paper, but it will almost certainly cause interest rates to rise even more as the sale drains liquidity out of the market.

This liquidity crunch will also spill over into the corporate bond market. The price of non-government debt instruments will have to fall as well in order to compete with Treasury bonds. That means the cost of borrowing will go up for everybody, making it harder for over-leveraged companies to refinance.

It’s likely that Deutsche Bank and other mainstream analysts are underestimating the extent of the default problem coming at us like a freight train.

Two days ago Australia shocked the market when it unexpectedly hiked rates to 4.1%, an 11 year high, and warned of more hikes to come. Today, it was Canada’s turn.

Moments ago the BOC also hiked its overnight rate to 4.75% – the highest rate since 2001 – surprising median consensus which expected the central bank to extend its “pause” and remain unchanged from last month at 4.50%.

The hike was expected by only about one in five economists in a Bloomberg survey, and markets had put the odds at about a coin flip.

The Bank of Canada said that the “overall, excess demand in the economy looks to be more persistent than anticipated,” the bank said in its rate statement, which wasn’t accompanied by a new set of forecasts…. Governing Council decided to increase the policy interest rate, reflecting our view that monetary policy was not sufficiently restrictive to bring supply and demand back into balance and return inflation sustainably to the 2% target.” The bank also said that it “will be evaluating whether the evolution of excess demand, inflation expectations, wage growth and corporate pricing behaviour are consistent with achieving the inflation target” and added that it “remains resolute in its commitment to restoring price stability for Canadians.”

Some more details from the statement:

• Governing Council will continue to assess the dynamics of core inflation and the outlook for CPI inflation. In particular, we will be evaluating whether the evolution of excess demand, inflation expectations, wage growth and corporate pricing behaviour are consistent with achieving the inflation target.

• Bank continues to expect CPI inflation to ease to around 3% in the summer as lower energy prices feed through and last year’s large price gains fall out of the yearly data.

• However, with three-month measures of core inflation running in the 3!4-4% range for several months and excess demand persisting, concerns have increased that CPI inflation could get stuck materially above the 2% target.

• The labour market remains tight: higher immigration and participation rates are expanding the supply of workers but new workers have been quickly hired, reflecting continued strong demand for labour. Overall, excess demand in the economy looks to be more persistent than anticipated

• Demand for services continued to rebound. In addition, spending on interest-sensitive goods increased and. more recently, housing market activity has picked up.

Since declaring a conditional pause in January, policymakers have warned that further rate increases may be necessary. And while some Canadians are feeling the pinch of steeper borrowing costs, the bank’s move from the sidelines suggests officials are worried that economic momentum won’t slow enough without another hike.

“Monetary policy was not sufficiently restrictive to bring supply and demand into balance and return inflation sustainably to the 2% target,” the bank said, citing an “accumulation of evidence” that includes stronger-than-expected first quarter output growth, an uptick in inflation and a rebound in housing-market activity.

The move follows a surprise 25 basis-point boost Tuesday by the Reserve Bank of Australia.

As Bloomberg reminds us, the Bank of Canada was the first and only Group of Seven central bank to pause its hiking cycle. Now it’s changed its mind, conceding that higher borrowing costs are still required to bring inflation to heel in an economy that’s proving more resilient than anticipated.

Understandably, the central bank also removed the April language about being prepared to raise rates further if needed. Here is a full redline comparison between the two most recent statements:

BoC chief Macklem and his officials pointed to elevated three-month moving measures of underlying price pressures as a key reason for their move. “Concerns have increased that CPI inflation could get stuck materially above the 2% target,” they said.

The statement was light on forward-looking commentary, suggesting policymakers aren’t yet sure whether the move will end up as a fine tuning or the start of another series of increases. Officials said they plan to examine how excess demand, inflation expectations, wage growth and corporate pricing behavior evolve.

In kneejerk response, the loonie rallied: the USDCAD fell from 1.3384 to 1.3320 before paring back to 1.3350…

… while Bonds dropped, pushing the Canada two-year yield to 4.473%, up about 10 basis points, the highest since August 2007.

Finally, we note that rate-hike odds for The Fed are on the rise, as investors reflect on Canada’s inflation/jobs data…

…and note how similar it looks to what The Fed is facing.

Following yesterday’s Kakhovka dam explosion and as flooding continues to wreak disaster for towns and villages downstream in Ukraine’s south, the International Atomic Energy Agency (IAEA) is assuring Ukraine and the world that the dam break is posing “no short-term risk” to Europe’s biggest atomic plant.

While falling water levels have been observed in a reservoir used to cool the reactors for the Russian-occupied Zaporizhzhia nuclear power station, the late Tuesday IAEA statement cited “no short-term risk to nuclear safety and security.”

The Zaporizhzhia plant sits some 150 kilometers, or 90 miles upstream of the dam on the on the Dnipro River. The ‘no immediate risk’ assessment is also based on the facility having “back-up options available,” according to the IAEA as cited in AFP.

Ukrainian leaders while trying to lay quick blame on Russia, which the Kremlin has rejected, asserted Tuesday that the world “once again finds itself on the brink of a nuclear disaster” – according to the words of presidential aide to Zelensky, Mykhaylo Podolyak. Local authorities estimate that some 42,000 residents are at risk and in the flooding disaster zone.

“The water went up in an instant,” said one resident downstream. “In the morning there was nothing.”

IAEA chief Rafael Grossi has painted a picture of the dam breakage being very concerning but not unmanageable for Europe’s largest nuclear power plant: 

Water levels were dropping by nine centimeters (3.5 inches) per hour in the reservoir above the dam, up from five centimeters early on Tuesday, IAEA head Rafael Grossi said in a statement.

Water in the reservoir was at around 15.44 meters late Tuesday, he added. When the level drops below 12.7 meters, then water can no longer be pumped to the plant, Grossi warned.

“As the full extent of the damage to the dam is not yet known, and the water loss rate is fluctuating, it is not possible to predict exactly when this might happen,” Grossi said, adding that the key level “could be reached in the next couple of days.”

Video showing the flooding and devastation in Russian-occupied Oleshky, Kherson oblast, a day after the Kakhovka Dam under Russian forces’ control was destroyed. pic.twitter.com/k6ys9rnjij

— Christopher Miller (@ChristopherJM) June 7, 2023

But, Grossi emphasized, the plant operators already have experience of implementing fail-safe backup procedures throughout the war thus far, and the reactors have already been shut down – yet they still need cooling water to prevent nuclear meltdown.

According to more of Grossi’s words via AFP: 

Existing water at the plant in cooling ponds and elsewhere can then still be used “for some time” to cool the reactors and the spent fuel pools in the reactor buildings, Grossi added.

Additionally, a large cooling pond next to the site is “currently full and has enough in storage to supply the plant for several months as its six reactors are in shutdown mode,” Grossi said.

“It is therefore vital that this cooling pond remains intact… I call on all sides to ensure nothing is done to undermine that,” Grossi told a meeting of the agency’s board of governors, adding he will visit the plant next week. 

The plant can also access a deep water-filled excavation in its cargo port area, as well as the water system of the nearby city of Enerhodar and use mobile pumps and firefighter trucks to fetch water.

Plant staff have already implemented measures to limit the consumption of water, using it only for “essential nuclear-safety related activities.”

“There is a preparedness for events like this (the dam being damaged)… But clearly, this is making an already very difficult and unpredictable nuclear safety and security situation even more so,” Grossi said.

…”Absence of cooling water in the essential cooling water systems for an extended period of time would cause fuel melt and inoperability of the emergency diesel generators,” Grossi warned.

All of this means that the situation is worsening but there is still “time” to look for solutions, according to authorities overseeing the plant. 

Kherson. Hundreds of residential buildings flooded. pic.twitter.com/NB2jeCdN0X

— NEXTA (@nexta_tv) June 7, 2023

Meanwhile, many thousands in the region impacted by the Kakhovka dam collapse continue to be evacuated, and international media reports have said there’s likely an unknown number of casualties from the rising flood waters.

Ukrainian officials have predicted that by Thursday water levels of the Dnipro will rise another 3 feet, and will engulf more areas downstream along the banks. Kherson oblast could see flooding for at least another ten days. Area residents’ access to clean drinking water is also being impacted. 

By Philip Marey, Senior US Strategist at Rabobank

Battleground Preparation

Yesterday, battleground preparation in Ukraine took a new turn with the destruction of the Kakhovka dam. In addition to the flooding, this will restrict the water supply and Ukraine’s agricultural output, pushing up global prices of grains and other produce. The Zaporizhzhia nuclear power plant is also dependent on water supply from the dam reservoir, but is said to have sufficient reserves and could be supplied by other means. Both sides, Ukraine and Russia, are denying responsibility, but Western intelligence agencies are leaning toward Russia. The flooding definitely reduces Ukraine’s options for its long-awaited counteroffensive.

This morning, the 7.5% decline (year-on-year) in China’s exports beat the Bloomberg consensus of a more modest 1.8% decrease. This adds to concerns about global demand as higher interest rates and persistent inflation are eroding purchasing power. The decline in China’s imports by 4.5% was smaller than the 8.0% consensus expectation, but still points to domestic economic problems. As our Teeuwe Mevissen summarizes, there are multiple reasons why China’s economy is struggling and most of them are factors that have been plaguing China’s economy for quite some time. On top of the ongoing weakness in the real estate sector and high levels of debt, regulatory uncertainty and geopolitical tensions are increasingly weighing on China’s weakening recovery.

Euro zone inflation expectations for the next 12 months fell to 4.1% in April from 5.0% in March, according to the ECB’s monthly survey, released yesterday. Expectations three years ahead declined to 2.5% from 2.9%. This could bolster the case of the doves in the Governing Council. However, ECB President Lagarde said on Monday that there is no clear evidence that underlying inflation has peaked and hawkish GC member Knot warned yesterday that the euro area is now observing second round effects from higher energy prices.

US voters think the debt limit deal reflects slightly more favorably on Democrats than on Republicans. According to a Reuters/Ipsos poll published yesterday, 50% of the respondents thought that neither party emerged as a winner and 20% decided that both sides won. However, 20% saw the Democrats as the winners, and only 11% thought the Republicans won. More good news for Biden is that 80% of Democrats liked his performance in the debt limit negotiations. In contrast, House Speaker McCarthy has a more difficult – because divided – audience as only 44% of Republicans approved of how he handled the debt limit. As we discussed in our Debt Limit Wrap Up, this may be the start of a more centrist course from President Biden, leading to more bipartisan legislation.

In fact, the House Republicans have shifted their focus to tax cuts. They are working on a bill to reverse limitations on the deductions companies can claim for interest, research costs and capital expenses from a 2017 law. Democrats may be willing to discuss these tax cuts, especially those related to R&D, but they are likely to demand a restoration of the expanded child tax credits that were in place during the pandemic year 2021 in exchange. The House Republicans could introduce their tax bill as soon as this month. Looking further ahead, Republicans have not indicated yet whether later this year they would go for an extension of the 2017 individual tax cuts that are set to expire at the end of 2025. Biden has already said he wants to extend these tax cuts only for people making less than 400K.

Day Ahead

Today, it is decision day for the Bank of Canada. Our expectation is for the Bank to keep the policy rate unchanged at 4.50%. As our Christian Lawrence summarizes, Canadian macroeconomic data released during May continued to paint a picture of slowing inflation, albeit at a very gradual pace, slowing activity, and low unemployment. We expect to see the labor market to start loosening, but this will likely be very gradual. We also expect the data will continue to support our view that rate cuts are unlikely in Canada over the course of the next year.

Chris Licht, the embattled CEO of CNN who took a wrecking ball to many of the network’s leftist anchors as part of an image rehabilitation, is out of a job after just 13 months, Puck News first reported.

His tenure at the network was marked with controversy, including the shuttering of the network’s failed CNN+ streaming platform at the request of CNN’s new owners who were unsure about a standalone digital product, a move which resulted in scores of layoffs. The network’s financial picture has also been worsening – generating just $750 million in profit last year, including one-time losses from CNN+, down from $1.25 billion the year before.

As Axios notes, “Licht’s leadership became untenable following a damning profile about him published by The Atlantic last week.”

Meanwhile, one day before the Atlantic story was published, longtime confidant of Warner Bros. Discovery CEO David Zaslav, David Leavy, was named Chief Operating Officer of CNN.

According to The Atlantic, the Town Hall with former President Donald Trump was the last straw;

When he took the helm of CNN, in May 2022, Licht had promised a reset with Republican voters—and with their leader. He had swaggered into the job, telling his employees that the network had lost its way under former President Jeff Zucker; that their hostile approach to Trump had alienated a broader viewership that craved sober, fact-driven coverage. These assertions thrust Licht into a two-front war: fighting to win back Republicans who had written off the network, while also fighting to win over his own journalists, many of whom believed their new boss was scapegoating them to appease his new boss, David Zaslav, who’d hired Licht with a decree to move CNN toward the ideological center.

One year into the job, Licht was losing both battles. Ratings, in decline since Trump left office, had dropped to new lows. Employee morale was even worse. A feeling of dread saturated the company. Licht had accepted the position with ambitions to rehabilitate the entire news industry, telling his peers that Trump had broken the mainstream media and that his goal was to do nothing less than “save journalism.” But Licht had lost the confidence of his own newsroom. Because of this, he had come to view the prime-time event with Trump as the moment that would vindicate his pursuit of Republican viewers while proving to his employees that he possessed a revolutionary vision for their network and the broader news media.

Trump had other ideas.

For 70 minutes in Manchester, the former president overpowered CNN’s moderator, Kaitlan Collins, with a continuous blast of distortion, hyperbole, and lies. The audience of Trump devotees delighted in his aggression toward Collins, cheering him on so loudly and so purposefully that what began as a journalistic forum devolved into a WWE match before the first voter asked a question.

In March, FTVLive suggested that Licht didn’t have long at the network – with one insider telling the outlet that he “doesn’t have his ear to the ground.” A spokesperson for the network refuted the report, saying that Licht and Saslav aren’t on the same page.

Guess that denial was fake news and it’s back to business as usual?

Authored by Ven Ram, Bloomberg cross-asset strategist,

If the labor market continues to stay robust, the Federal Reserve will be forced to tighten again after a pause in June to prevent its benchmark rate from falling behind the curve, an application of the Taylor Rule shows.

Given still-resistant core inflation, the restrictive rate for the US economy is between 5% and 6.55%, meaning the Fed’s mid rate at 5.125% isn’t yet getting the job done on curbing price pressures.

The chart above shows the Fed’s benchmark rate juxtaposed against a more generous application of the Taylor Rule and a less generous interpretation.

The more generous version is derived from using the Dallas Fed trimmed mean PCE and also assumes that the Fed’s real policy neutral rate is -50 basis points, which in the words of Fed St. Louis President James Bullard represents “an approximate pre-pandemic value” for the US economy. It also uses a phi value – which captures policymakers’ reaction to deviations of inflation from target – of 1.25.

The less generous version is bootstrapped from current inflation, a higher real neutral rate of +50 basis points that is more consistent with the macroeconomic momentum that we have seen in the aftermath of the pandemic, and a phi value of 1.5, which is closer to standard literature.

Core PCE inflation is now running at 4.7%, way above the Fed’s estimate that sees it crumbling to 3.6% this year before settling at 2% over the longer run.

Even though the Fed has raised rates by a phenomenal 500 basis points in the current cycle, core PCE has come off just 70 basis points from its peak of 5.4%.

While Chair Jerome Powell remarked recently that Fed’s “stance of policy is restrictive and we face uncertainty about the lagged effects of our tightening so far,” the stickiness of core inflation will force policymakers to raise rates further, though it doesn’t look likely that they will do so next week.

However, the findings of the analysis aren’t lost on the hawks of the Fed’s policy committee, who underscored in recent weeks that rates may have to climb higher to be restrictive. Back in March, when the economy was passing through the peak of the banking turmoil, seven of 18 members estimated that the Fed’s upper end of its funds rate needed to be at least 5.50% to be restrictive enough. With the stress in the banking sector now appearing to have settled, it is presumable that their numbers may grow, especially considering that core PCE is nowhere near the Fed’s comfort zone.

Interest-rate traders are yet to fully wake up to the possibility that the Fed will have to raise rates again. They are currently assigning only an 80% chance of one 25-basis point move in the cycle. As the analysis shows, the Fed may well have to hike by more than that.

Farmers in Corn Belt states have been very concerned about their crops this spring as drought expands across the Heartland.

The latest weekly report from the US Department of Agriculture shows the US corn crop deteriorated by the most in nearly three years as drought conditions worsened in the Midwest. 

About 64% of the nation’s corn crop was rated good-to-excellent in the weekly report, a five percentage-point plunge that was the most significant decline since August 2020. The drop was more than double of any analysts surveyed by Bloomberg. 

According to the US Drought Monitor, Illinois, Indiana, Iowa, Michigan, Minnesota, Missouri, Ohio, and Wisconsin, often called the “Corn Belt” states, are experiencing “exceptional drought” to “moderate drought.” The timing of the drought, this early in the season, could stress young plants. 

“Soil moisture levels decreased sharply,” the USDA’s Indiana field office noted in the report. 

Emerging signs of a #corn #drought in 2023 are raising concerns. Weather patterns reminiscent of 2012 and dry conditions in the Midwest could dramatically affect yields. Keep a watchful eye on the #CommodityMarket. #Agriculture #FoodSecurity 🌽☀️💧 pic.twitter.com/xETtEZ8e7c

— Jeremey Frost (@FearlessGrain) June 3, 2023

Approximately 34% of #corn production is within an area experiencing #drought. pic.twitter.com/perCjSTssO

— FarmPolicy (@FarmPolicy) June 1, 2023

It’s 89F and the Timber ground near Taylorville, IL is always the first to show signs of drought stress of corn. My lawn and hydrangea are also the other first natural indicators of drought stress. pic.twitter.com/AKazB1PA8y

— Stephanie Porter (@skporter) June 1, 2023

First signs of drought, rootless corn syndrome! Please let it rain! @Iowa_Channel @ChannelSeed pic.twitter.com/uVkbOWFxIN

— Phillips Ag Center (@PhillipsAgCentr) May 31, 2023

The drought, according to Newsweek, could be the worst in three decades “since the 1983–1985 North American drought.” 

It’s still uncertain whether the report will be sufficient to stabilize Corn futures.

And maybe the drought in Corn Belt states is being exacerbated by El Nino. 

We’ve explained to readers: “El Nino Watch Initiated As Ag-Industry In Crosshairs.”