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Kitco daily macro-economic/business digest - June 8

Kitco News

Global bond yields up-tick late this week

In Today's Digital Newspaper

Abbreviated report again today.

— U.S. equities on Wednesday: The Dow ended up 91.74 points, 0.22%, at 33,665.02 The Nasdaq declined 171.52 points, 1.29%, at 13,104.89. The S&P 500 was down 16.33 points, 0.38%, at 4,267.52.

— Bond yields rise. Government bond yields around the world rose as investors anticipate that interest rates will remain elevated due to high inflation pressures. Both the Reserve Bank of Australia and the Bank of Canada surprised with a 25bps interest rate increase this week, after a pause in the previous meetings. Also, the ECB is set to rise the borrowing cost next week while the Federal Reserve is expected to deliver another hike by July, which traders expect to be the last interest-rate hike in 2023.

— Efforts to rescue those endangered by the destruction of the Nova Khakovka dam, located in a Russian-controlled area of south-east Ukraine, continued. Ukrainian officials reported that 29 towns and villages had been flooded, leaving people stranded on their rooftops and without drinking water. Authorities say at least 40,000 people must be evacuated. Russia and Ukraine each blame the other for the blast. Though it is too early to assess the long-term damage, officials are concerned about homelessness, crop failure, energy shortages and displaced landmines. At least three people have died, according to local media.

— Germany blamed Russian President Vladimir Putin for the destruction of the Nova Khakovka dam in Ukraine, and was joined by other European NATO members in denouncing it as a "war crime." The statements added to rising outcry over the biggest man-made disaster in Europe in decades as Ukraine said it was mounting rescue efforts for tens of thousands of people affected by the floodwaters unleashed by the demolition of the dam on Tuesday. The Kremlin denied responsibility and said Ukraine was behind the breach at the Kakhova hydroelectric plant.

— Japan revised up its annualized first-quarter GDP growth to 2.7% from 1.6% as businesses ramped up spending. Economists expected an expansion of 1.9%. Meanwhile, BOJ watchers scaled back forecasts for policy adjustments, with only a few predicting a tightening move this month.

— The economy of the Eurozone shrank by 0.1% in the first quarter of 2023, according to downwardly revised data released on Thursday. That puts the currency area into a recession, defined as two consecutive quarters of negative growth. But the downturn is unlikely to last too long: the European Commission forecasts that the region's GDP will expand by 1.1% this year.

— Wildfire smoke blanketed North America, generating health alerts from Ontario to South Carolina. New York had the worst air quality of any major city in the world, with some inbound flights disrupted. Almost 4 million hectares (9,884,215 acres) of forests have burned in Canada, with over 400 blazes now active.

— U.S. West Coast shipping gateways are experiencing the longest labor-related disruptions since 2015 due to ongoing negotiations between port employers and dockworkers. A central point of contention is how to allocate carriers' pandemic-era profits in a market with rock-bottom freight rates. The previous labor contract expired in July 2022, and negotiations between the International Longshoremen and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA) have been ongoing since May 2022.

Despite largely peaceful negotiations, labor shortages and other disruptions are becoming more frequent, affecting terminals in Seattle, Los Angeles, and Oakland. Cargo flows have been disrupted with some container vessels experiencing cancellations or delays.

A primary issue is the ILWU's demand for a $7.50 per hour wage increase for each year of the proposed contract, amounting to a nearly 100% raise in dockworker wages over the six-year agreement. Carriers are also concerned about the ILWU's request for pay increases to be retroactive to July 1, 2022.

The White House has been monitoring the situation but has chosen not to intervene, hoping the two sides can reach an agreement through collective bargaining. Shipping bottlenecks seem to be resolving, but the issue has put extra pressure on retailers and alternative trade routes such as the Panama Canal. Some cargo owners are diverting shipments to East and Gulf coast ports to avoid labor disruptions, resulting in capacity constraints and rising fees at the Panama Canal.

— A recent European Council of Foreign Relations poll has found that most Europeans view China as an important economic partner, despite acknowledging potential limitations in the partnership. Of those surveyed, 46% saw China as an ally or necessary partner, in contrast with only 35% regarding Beijing as a rival or adversary. Europeans expressed concerns over some of the country's economic practices. Despite European Commission President Ursula von der Leyen's suggestion for nations to reduce risks related to China, public opinion appears not to support a pullback from the relationship. Instead, the EU member states seem to gravitate toward French President Emmanuel Macron's vision of China as a strategic and global partner.

— Republican leaders in America's House of Representatives cancelled this week's votes after a two-day standoff with the Freedom Caucus, a group on the party's right wing. The caucus paralyzed the House, refusing to cede control of the floor in protest at the debt-ceiling deal that Kevin McCarthy, the House speaker, struck with President Joe Biden.

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