Beijing Flinches 

Doug Nolan


Market drama is reappearing. 

Ten-year Treasury yields traded down to 1.25% in Thursday trading, a notable 35 bps six-week decline to a five-month low. 

German bund yields dropped to negative 0.34%, the low since March. 

French 10-year yields were back down to zero Thursday, before closing the week at 0.05%. 

Swiss yields traded down to negative 0.34%, about 20 bps below their May peak. 

Global equities were under significant pressure. 

At Friday lows, Japan’s Nikkei Index was down 4.7% for the week and near 2021 lows (ending the week 2.9% lower). 

Japan’s TOPIX Bank Index fell 3.5% this week to lows since February (down 16% from March highs). 

South Korea’s Kospi Index dropped almost 3%, before a Friday afternoon rally cut losses for the week to 1.9%. 

Hong Kong’s Hang Seng Index was down more than 5% at Friday lows to the lowest level since December 30th - before ending the week with a 4.1% decline. 

Hong Kong’s China Financials Index dropped another 4.1% this week to 2021 lows, boosting losses since June 1st to 13.5%. 

While Asia suffered the brunt of this week’s sell-off, the great U.S. bull market indicated heightened vulnerability. 

The S&P500 opened Thursday trading down 1.6%. 

Bank stocks dropped 2.8%, pushing the three-session decline to 5.8%. 

Friday’s 3.5% rally cut the week’s losses to 1.2%. 

The broader market has turned highly volatile, indicative of an important change in trend. 

The small cap Russell 2000 was down 4.9% at Thursday lows, only to rally 4.0% to end the week only 1.2% lower. 

July 9 – Bloomberg: “China’s central bank cut the amount of cash most banks must hold in reserve, a move that went further than many economists had expected and suggested growing concerns about the economy’s faltering recovery. 

The People’s Bank of China will reduce the reserve requirement ratio by 0.5 percentage point for most banks… 

That will unleash about 1 trillion yuan ($154bn) of long-term liquidity into the economy and will be effective on July 15, the central bank said.”

Global markets rallied solidly Friday, confirming the view that Chinese developments have become a key market driver. 

The S&P500 rallied 1.1% in Friday trading. 

Germany’s DAX jumped 1.7%, France’s CAC40 rose 2.1%, and Italy’s MIB gained 1.7%. 

European Bank Stocks were down 4% for the week at Thursday lows, before rallying 2.4% Friday. 

Friday’s PBOC bank reserve ratio cut is an intriguing development. 

Beijing has been focused on a cautious stimulus pullback. 

Officials recognize the myriad risks associated with runaway Credit growth and speculative Bubbles in housing and securities markets. 

I’ve doubted this “tightening” process would proceed smoothly. 

Things over recent weeks clearly turned increasingly problematic. 

I have posited that intensifying Chinese Credit stress has been an unappreciated force behind collapsing Treasury and global yields. 

The PBOC was eager to communicate that the reserve adjustment does not signal a change to its “prudent monetary policy.” 

Quite a high-wire balancing act. 

The last thing Beijing wants at this point is to further stoke asset market speculative excess. 

From Reuters: “Part of the liquidity released will help financial institutions to repay maturing medium-term lending facility (MLF) loans, and will also help ease liquidity pressure caused by tax payments, [the PBOC] said.”

Surely, the PBOC’s move goes beyond liquidity management. 

The last reverse cut was in April 2020, in the heart of the pandemic economic downturn. 

The release of Q2 GDP data is due next week. 

While down from Q1’s 18.3% annualized expansion, GDP is expected to have expanded at an 8.0% pace. 

June exports are forecast to have increased 15%, with a huge $44 billion trade surplus. 

The data are not consistent with the narrative that the PBOC was forced to respond to rapidly deteriorating growth dynamics.

Wednesday from China’s State Council: “China will increase the financial support for the real economy, especially the micro, small and medium-sized enterprises. 

To that end, the country will adopt monetary tools such as cuts in the reserve requirement ratio (RRR) for banks at an appropriate time.”

The “appropriate time” arrived expeditiously. 

Beijing’s pivot to a reserve requirement cut had me expecting weak June Credit data. 

Lending, however, was reported Friday much stronger-than-expected. 

Aggregate Financing expanded a blistering $566 billion during June, 27% ahead of estimates. 

This was almost double May’s $296 billion, to the strongest expansion since January’s $800 billion. 

New Loans rose $327 billion, 42% above estimates. 

At $225 billion, Corporate Loan growth was almost double May’s $124 billion, to the strongest expansion since March. 

At $1.292 TN, y-t-d Corporate loan growth is running only 4.6% below comparable 2020 – while 34% ahead of comparable 2019. Corporate Loans have expanded 11.2% over the past year, 25.5% for two years, 39.6% over three and 66.2% over five years.

Consumer Loans expanded $134 billion during June, the biggest increase since March’s $177 billion. 

At $707 billion, y-t-d Consumer Loan growth is running 29% ahead of comparable 2020. 

Consumer Loans have expanded 15.1% over the past year, 31% over two years, 54% over three and 126% over five years.

Government Bonds expanded $116 billion, the briskest growth since September 2020 ($156bn). At $377 billion, y-t-d growth is running 36% below last year’s record level. 

Government Bonds have expanded 16.8% over one year, 36.7% over two and 62.7% over three years.

Aggregate Financing expanded $2.735 TN during the year’s first half. 

And while this was down 15% from the first-half 2020’s Credit onslaught, it is nonetheless an alarming amount of new Credit. 

At $1.969 TN, y-t-d New Loans are actually running 5.5% ahead of comparable 2020 (32% ahead of 2019). 

China’s State Council was certainly not spooked into an unexpected reserve ratio cut due to a precipitous Credit slowdown. 

And there’s no indication of an abrupt change in the economic backdrop. 

China’s Services PMIs were weaker-than-expected, but Manufacturing surveys indicate ongoing strength. 

Producer price pressures remain elevated, with PPI up 8.8% y-o-y in June. 

Analysts (and reporters) struggled to make sense of China’s hasty policy shift: “PBOC’s Surprise Preemptive RRR Cut to Extend Recovery.” “China’s Central Bank Pivots to Easing as Growth Risks Build.” “China signals easier monetary policy, reviving worries about weaker growth.” “China’s Dovish Switch Ignites Fears Over Global Recovery Trade.” “China’s Reserve Ratio Cut Raises Growth Fears, Divides Market.” “PBOC is ‘Confusing’ Markets with Talk of RRR Cut: JPMorgan.”

Is it coincidence that Beijing drops a policy surprise as global bond yields astonish to the downside? 

There has been over recent weeks a marked weakening in Chinese Credit. 

Ominously, Credit stress has been mounting despite exceptionally strong lending and economic growth. 

I believe Beijing’s “pivot” is in response to the recent acceleration in the pace of Credit market deterioration and the associated risk of problematic dislocations.

July 7 – Bloomberg (Rebecca Choong Wilkins): 

“Chinese junk dollar bonds suffered the worst selloff since the pandemic roiled markets last year, as investor concerns about China Evergrande Group drag on the sector. 

Yields on the nation’s riskier notes have been climbing for two weeks to 10.2% through Tuesday… 

Evergrande’s notes have been the worst performers among Chinese dollar debt with its 2025 bond down 5.5 cents so far this week to 60.7 cents. 

There are signs of contagion rippling through China’s riskier debt market as growing concern over the health of Asia’s biggest issuer of junk bonds weighs on the sector. 

Property developers are facing fresh pressures to reduce their debt loads as Beijing looks to curb risk in its financial markets.”

An index of Chinese yield-high dollar bond yields ended the week at 10.43%, up about 70 bps for the week. 

This index traded with a yield of 8.00% as recently as May 26th. 

The yield surge of the past six weeks has been the sharpest since the March 2020 crisis period.

Troubled behemoth developer Evergrande’s four-year bond yields traded above 25% this week. 

Modern Land China’s three-year yields jumped to 18.8% (one-month gain 400bps). 

Developer Sichuan Languang Development Co. is a risk of defaulting on a payment due Sunday.

The marketplace is losing confidence in some of China’s big developers. 

But when it comes to heightened systemic risk, all eyes are for now on the colossal “asset management companies” (AMCs). 

China Huarong CDS jumped 137 bps this week to a one-month high 1,138 bps. 

Fellow AMC China Orient’s CDS increased eight bps to a near record 250 bps, having more than doubled since April. 

July 6 – Bloomberg (Rebecca Choong Wilkins and Ailing Tan): 

“China’s corporate credit market is the world’s biggest, after the U.S. 

It’s also one of the safest. 

The government has backstopped even the most reckless companies, fending off defaults where they were arguably long overdue. 

But those days are now drawing to a close as Beijing forces more accountability on its weakest companies to reduce moral hazard. 

The defaults are coming. In China, the current default rate is around 1%; in more developed markets, it’s closer to 2% to 3%. 

Removing government support in order to close that gap is a delicate process. 

Allow too many firms, or the wrong ones, to fail, and investors’ faith in the overall market will wobble, triggering precisely the crisis that Beijing wants to avoid.” 

Will Beijing stand behind the debt of troubled Haurong and the other AMCs? 

Evergrande and the big developers? 

Local government special purpose vehicles (SPVs)? 

The entire $12 TN Chinese Credit market rests on faith in central government backing. 

And let’s not overlook the Chinese banking system, which will approach $55 TN of assets this year. 

Beijing must begin preparing for history’s greatest bank recapitalization challenge. 

July 9 – Bloomberg (Tian Chen): 

“China’s switch toward monetary easing is making it lucrative for traders to borrow cash to buy sovereign bonds, a strategy disliked by Beijing for its potential to increase financial risks. 

The volume of overnight repurchase contracts surged to 4.1 trillion yuan ($632bn) Thursday, the highest since January, while the cost of such agreements spiked the most in a week on Friday. 

That suggests traders may be using the interbank market to raise funds so they can profit from a rally in government bonds that’s pushed 10-year yields to the lowest in almost a year. 

The so-called carry trade became popular on bets the central bank would loosen policy to buoy growth…”

I have posited that Chinese Credit, with limitless quantities of securities with enticing yields, evolved over this cycle into a hotbed of leveraged “carry trade” speculation. 

Clearly, enormous speculative leverage has accumulated in the Chinese government debt market. 

How much in the domestic bond market? 

And what is the scope of speculative leverage in offshore dollar-denominated Chinese bonds, especially higher-yielding developer and “AMC” bonds? 

Globally attractive yields coupled with implicit Beijing backing, a surefire recipe for one of history’s spectacular Bubbles. 

Has speculative leverage begun to unwind, and does this development help explain the instability taking hold in the Chinese high-yield dollar bond market?

Chinese Credit and speculative excess are integral to the global Bubble – arguably the marginal source of global Credit (while challenging central banks as the marginal source of liquidity). 

And through the lens of the “Core vs. Periphery” analytical framework, instability (de-risking/deleveraging) typically emerges at the “Periphery” and then begins working its way toward the “Core.” 

Risk aversion and deleveraging undermine marketplace liquidity, and warning liquidity and confidence over time encroach upon the “Core.” 

Simplistically, if leveraged speculators get hammered in Chinese bonds, they’ll be forced to slash risk elsewhere. 

It’s somewhat confounding why it took the marketplace so long to lose confidence in Lehman’s short-term liabilities. 

A creeping process suddenly careened at lightning speed. 

I won’t venture a guess as to when the market panics over Beijing’s unworkable Credit system backstop. 

But it seemed clear this week that contagion effects attained important momentum.

July 4 – Bloomberg (Alice Huang): 

“Financial strains among Chinese property developers are hurting the Asian high-yield debt market, where the companies account for a large chunk of bond sales. 

That’s widening a gulf with the region’s investment-grade securities, which have been doing well amid continued stimulus support. 

Yields for Asia’s speculative-grade dollar bonds rose 41 bps in the second quarter…, versus a 5 bps decline for investment-grade debt. 

They’ve increased for six straight weeks, the longest stretch since 2018, driven by a roughly 150 bps increase for Chinese notes.”

How Delta variant forced Israel to rethink its Covid strategy

Case numbers are rising in country that has been world leader in vaccinations

Neri Zilber in Tel Aviv

Medics test children for coronavirus in Binyamina, Israel. A fresh effort has been launched to inoculate 1.2m teenagers and unvaccinated adults © Ariel Schalit/AP


For much of this year Israel has been hailed as a resounding Covid-19 success story. It rolled out one of the world’s fastest vaccination drives, reopened its economy and jettisoned all remaining lockdown restrictions last month.

Now rising infection rates, driven by the more infectious Delta variant, have forced the Israeli government to reintroduce restrictions for the first time since January.

While hospitalisation rates remain low, Israel has chosen a cautious approach. 

Israelis once again have to wear masks inside and on public transport. 

Testing sites have been reopened. 

Multiple other restrictions, including stricter quarantine for travellers and greater testing of children, are expected to be introduced. 

Israel may even bring back the “green pass”, which allowed greater freedom for vaccinated people.

“We are not waiting to protect the health of Israeli citizens. 

It must be understood, the Delta variant is running amok around the world at a much higher rate than all of the previous variants,” Israeli prime minister Naftali Bennett said on Sunday.

Israel spearheaded one of the world’s fastest vaccination drives after it secured plentiful supplies from Pfizer in return for sharing data on the jab’s impact. 

But cases have ticked up since Israel lifted all remaining Covid restrictions on June 1, with many experts blaming the highly transmissible Delta variant brought into Israel by returning travellers.

Passengers at Israel’s Ben Gurion airport. Many experts have blamed rising cases on the Delta variant brought into the country by returning travellers © Jack Guez/AFP via Getty Images


After weeks of single-digit daily infection rates, the number of new cases has ballooned to more than 400 per day this week. 

As of Wednesday, the country had more than 3,345 active cases — almost triple that of the previous week — though the health ministry said only 46 were considered seriously ill. 

And while the number of infections is increasing, its coronavirus rate — at 25 new cases per 100,000 people every seven days — is still far lower than the UK, which has a rate of 267. 

Cyprus, the EU country with the most new infections, has a seven-day rate of 424.

Israeli hospitals’ Covid wards remain largely empty, with health experts urging vigilance and calm.

“[Israel’s] numbers are rising, and will continue to rise. 

We’re definitely at the start of a fourth wave, which could be bigger in terms of overall infection numbers,” said Professor Gili Regev-Yochay, director of the Infection Prevention and Control Unit at Sheba Medical Center. 

“But the numbers of seriously ill are much lower [than previous waves] and it won’t collapse the health system. 

We have to be alert, not panicked or hysterical.


A preliminary study compiled by the health ministry this week indicated that the BioNTech/Pfizer vaccine was still 93 per cent effective against serious illness and hospitalisation, but only 64 per cent effective at preventing infection.

“According to the Israeli data, there is a potential decrease in vaccine effectiveness against infection and mild disease with respect to Delta, and strong preliminary signals to that effect,” said Dr Ran Balicer, a senior official at the Clalit health organisation and chair of the Israeli government’s national Covid advisory committee. 

But Balicer and other health experts cautioned that the study was based on preliminary and highly localised infection numbers, and faced several methodological challenges.

Studies in other countries have also documented a drop in efficacy for the Pfizer jab against the Delta variant versus earlier strains, though less severe. 

Public Health England in May found the vaccine provided 88 per cent protection against symptomatic infection with Delta, and 93 per cent against the Alpha variant first identified in Kent, England.

People without masks at Carmel Market in Tel Aviv earlier this year. The government has now reintroduced a mask mandate © Amir Levy/Getty Images


More than 5m of Israel’s 9m citizens have been fully vaccinated with the Pfizer vaccine. 

Since the recent uptick in case numbers, a fresh effort has been launched to inoculate the estimated 1.2m remaining teenagers over the age of 12 and unvaccinated adults. 

While parents were initially reluctant, over the past week 150,000 teenagers have received the jab, including Prime Minister Bennett’s 14-year-old daughter.

“The single most important factor for the long-term control of disease spread is increasing the number of vaccinated,” said Dr Balicer. 

“It decreases the severe cases and heightens the ‘vaccine wall’ against disease dissemination.”

With the new Covid guidelines, the government is going a step further, although the chances of a new nationwide lockdown — similar to the previous three the country imposed over the past 18 months — was “very, very low,” according to Regev-Yochay.

“These aren’t draconian measures . . . that hurt the economy. 

Moderation and proportionality are key,” Dr Balicer said. 

The Israeli public, for its part, appears frustrated by the new restrictions, offering a glimpse of the challenges that may lie ahead for governments that find they need to reinstate restrictions.

The mask mandate introduced last week has been met with only partial success. 

Avi, 50, a freelance boat captain, forgot his mask one recent weekday as he shopped at a central Tel Aviv supermarket. 

“I was on buses earlier in the day and then now in the supermarket — no one said anything to me,” he said. 

“I’m a law-abiding citizen, but [once] we got used to going with [masks], they stopped it. 

Now we have to get used to it again. 

They’re driving us crazy.”

Matan, 52, the owner of a nearby café, was even more scathing about the new measures. 

“They only need to check one thing: how many seriously ill there are. 

It’s not going up anywhere. 

If it was a bad flu, would they shut down the entire country? 

No,” he said. 

“It’s a joke. 

The new [Bennett] government, they seem like good people, but they and the media don’t have to run a business.”

Officials hope that the public will ultimately understand the need for these new initial steps — and that further restrictions won’t be necessary.

“No one knows what will be the effect if we just let the disease run out of control.

We don’t want to have to make a severe U-turn down the line,” said Dr Balicer. 

A humbling week for bond bears

US Treasuries rally as investors’ worries over inflation ease

Katie Martin

A powerful accepted wisdom developed of persistently surging growth, lasting fiscal support and the Fed turning a blind eye to rising price pressures © Financial Times


Towards the end of January, UBS asked the question that mattered most for global markets: “Bond bears come out of hibernation, but is it too soon?”

Hibernation was possibly not the right word. Strong demand and sinking benchmark interest rates meant that yields on US government bonds, the centre of markets’ universe, had been sliding pretty smoothly for close to 40 years. 

So, less a case of waking from a winter snooze, more a case of the resurgent undead.

In any case, six months or so later, investors appear to have decided it was indeed too soon. 

The Great Bond Wobble of 2021 was striking — the benchmark 10-year US government bond yield rattled as high as 1.77 per cent in late March, and the first quarter was the darkest for the market in four decades. 

But this week brought an abrupt rethink, leaving yields as low as 1.25 per cent, still well above the starting point of the year, but a serious dent.

It is worth reliving some of the bond shock’s origins and key moments.

Their safety and stability mean that government bonds love misery (among other things). 

So when news about vaccine rollouts late last year dangled the tantalising prospect of a return to post-pandemic normal life for the first time, that dragged them down.

The real blow however came from the spectre of inflation, the market’s true kryptonite as it eats into the fixed rate of bond returns. 

The Democratic party’s success in clinching control of the US Senate with an early January win in Georgia fired up expectations for supercharged fiscal spending. 

A powerful accepted wisdom developed of persistently surging growth, lasting fiscal support and a Federal Reserve that would turn a blind eye to rising price pressures.

“The narrative in January was pie in the sky, it was rainbows and fairy dust,” said James Athey, an investment manager at abrdn, the asset manager that inexplicably changed its name this week from Aberdeen Standard Investments. (For anyone wondering, it is pronounced “Aberdeen”. I don’t get it either.)

In that environment, a shaky auction of seven-year US government debt in February — typically a humdrum event that would captivate only the purists — ended up sparking a heavy drop. 

Ten-year yields finished the day some 0.14 percentage points higher, a huge move by the standards of the typically sedate US market.

That served as a reminder that while US government bonds are the bedrock of global markets, underpinning the price of pretty much all riskier asset classes around the world, they have their moments of instability under pressure. 

That is a faultline that might be tested when the Fed more forcefully reels back its largesse.


Even Steven Major, HSBC’s head of bond research and one of the best-known and most bullish voices on the street, said in February he was “eating humble pie”. 

Around that time, Major bumped up his year-end forecast for 10-year yields by a quarter of a percentage point.

Now, though, as Athey notes, investors are scaling back some of the more generous expectations around fiscal spending. 

Inflation has picked up, sharply, but investors are increasingly confident that much of it appears rooted in the bottlenecks inevitable in an economy emerging quickly from lockdowns. 

And crucially, the Fed has reinforced the message that its somewhat more relaxed attitude to rising prices in the post-crisis recovery does not mean it has abandoned its inflation-targeting mandate altogether. 

Rate setters have indicated that lift-off in policy rates may come somewhat sooner than they had previously anticipated.

The result is a 0.19 percentage-point drop in 10-year yields to the lowest point last week, albeit with a small rebound on Friday.

One mystery here is precisely what sparked the rush back in to bonds. 

Some of the supposed underlying reasons have been kicking around for a few weeks with much more limited effect.

Perhaps the most popular explanation is positioning: investors’ consensus had become so strong and the reflation trade too popular. 

When this positioning started to unravel, the resulting pick-up in bond prices tripped up investors that were still short. 

These sorts of squeezes can quickly become self-reinforcing.

Major, who is sticking to his 1 per cent 10-year yield target for the end of the year is not convinced on that front. 

“Positioning is ex-post rationalisation,” he said. 

“It’s a little bit intellectually bankrupt.”

But he suggests that investors should think again about the real drivers of demand for government bonds even at times of enormous issuance. 

“You can flip them in to cash without even moving the price. 

That’s true liquidity,” he said. 

“Can you do that with your house? 

Can you do it with crypto?”

So what next? 

Naturally, it takes two sides to make a market. 

UBS Wealth Management said this week that it still expects yields to reach 2 per cent this year, while the BlackRock Investment Institute is also shying away from government bonds on the basis that skinny yields offer little cushion to compensate against shocks elsewhere in a portfolio.

Major, too, thinks the pick-up in bond prices is largely over for the time being. 

But he adds: “We’re not going short, and we haven’t changed our forecasts. 

We have still got half a year to go.” 

How Republican States Are Expanding Their Power Over Elections

In Georgia, Republicans are removing Democrats of color from local boards. In Arkansas, they have stripped election control from county authorities. And they are expanding their election power in many other states.

By Nick Corasaniti and Reid J. Epstein

Lonnie Hollis in LaGrange, Ga. With Republican-led legislatures mounting an expansive takeover of election administration in a raft of new voting bills this year, local officials like Ms. Hollis have been some of the earliest casualties.Credit...Lynsey Weatherspoon for The New York Times


LaGRANGE, Ga. — Lonnie Hollis has been a member of the Troup County election board in West Georgia since 2013. A Democrat and one of two Black women on the board, she has advocated Sunday voting, helped voters on Election Days and pushed for a new precinct location at a Black church in a nearby town.

But this year, Ms. Hollis will be removed from the board, the result of a local election law signed by Gov. Brian Kemp, a Republican. Previously, election board members were selected by both political parties, county commissioners and the three biggest municipalities in Troup County. Now, the G.O.P.-controlled county commission has the sole authority to restructure the board and appoint all the new members.

“I speak out and I know the laws,” Ms. Hollis said in an interview. “The bottom line is they don’t like people that have some type of intelligence and know what they’re doing, because they know they can’t influence them.”

Ms. Hollis is not alone. Across Georgia, members of at least 10 county election boards have been removed, had their position eliminated or are likely to be kicked off through local ordinances or new laws passed by the state legislature. At least five are people of color and most are Democrats — though some are Republicans — and they will most likely all be replaced by Republicans.

Ms. Hollis and local officials like her have been some of the earliest casualties as Republican-led legislatures mount an expansive takeover of election administration in a raft of new voting bills this year.

G.O.P. lawmakers have also stripped secretaries of state of their power, asserted more control over state election boards, made it easier to overturn election results, and pursued several partisan audits and inspections of 2020 results.

Republican state lawmakers have introduced at least 216 bills in 41 states to give legislatures more power over elections officials, according to the States United Democracy Center, a new bipartisan organization that aims to protect democratic norms. Of those, 24 have been enacted into law across 14 states.

G.O.P. lawmakers in Georgia say the new measures are meant to improve the performance of local boards, and reduce the influence of the political parties. But the laws allow Republicans to remove local officials they don’t like, and because several of them have been Black Democrats, voting rights groups fear that these are further attempts to disenfranchise voters of color.

The maneuvers risk eroding some of the core checks that stood as a bulwark against former President Donald J. Trump as he sought to subvert the 2020 election results. Had these bills been in place during the aftermath of the election, Democrats say, they would have significantly added to the turmoil Mr. Trump and his allies wrought by trying to overturn the outcome. They worry that proponents of Mr. Trump’s conspiracy theories will soon have much greater control over the levers of the American elections system.

“It’s a thinly veiled attempt to wrest control from officials who oversaw one of the most secure elections in our history and put it in the hands of bad actors,” said Jena Griswold, the chairwoman of the Democratic Association of Secretaries of State and the current Colorado secretary of state. “The risk is the destruction of democracy.”

Officials like Ms. Hollis are responsible for decisions like selecting drop box and precinct locations, sending out voter notices, establishing early voting hours and certifying elections. But the new laws are targeting high-level state officials as well, in particular secretaries of state — both Republican and Democratic — who stood up to Mr. Trump and his allies last year.

Republicans in Arizona have introduced a bill that would largely strip Katie Hobbs, the Democratic secretary of state, of her authority over election lawsuits, and then expire when she leaves office. 

And they have introduced another bill that would give the Legislature more power over setting the guidelines for election administration, a major task currently carried out by the secretary of state.

Had Republican voting bills been in place during the aftermath of the election, Democrats and voting rights groups say, they would have significantly added to the turmoil Mr. Trump and his allies wrought by trying to overturn the results.Credit...Gabriela Bhaskar for The New York Times


Under Georgia’s new voting law, Republicans significantly weakened the secretary of state’s office after Brad Raffensperger, a Republican who is the current secretary, rebuffed Mr. Trump’s demands to “find” votes. 

They removed the secretary of state as the chair of the state election board and relieved the office of its voting authority on the board.

Kansas Republicans in May overrode a veto from Gov. Laura Kelly, a Democrat, to enact laws stripping the governor of the power to modify election laws and prohibiting the secretary of state, a Republican who repeatedly vouched for the security of voting by mail, from settling election-related lawsuits without the Legislature’s consent.

And more Republicans who cling to Mr. Trump’s election lies are running for secretary of state, putting a critical office within reach of conspiracy theorists. 

In Georgia, Representative Jody Hice, a Republican who voted against certifying President Biden’s victory, is running against Mr. Raffensperger. Republican candidates with similar views are running for secretary of state in Nevada, Arizona and Michigan.

“In virtually every state, every election administrator is going to feel like they’re under the magnifying glass,” said Victoria Bassetti, a senior adviser to the States United Democracy Center.

More immediately, it is local election officials at the county and municipal level who are being either removed or stripped of their power.

In Arkansas, Republicans were stung last year when Jim Sorvillo, a three-term state representative from Little Rock, lost re-election by 24 votes to Ashley Hudson, a Democrat and local lawyer. 

Elections officials in Pulaski County, which includes Little Rock, were later found to have accidentally tabulated 327 absentee ballots during the vote-counting process, 27 of which came from the district.

Mr. Sorvillo filed multiple lawsuits aiming to stop Ms. Hudson from being seated, and all were rejected. 

The Republican caucus considered refusing to seat Ms. Hudson, then ultimately voted to accept her.

But last month, Arkansas Republicans wrote new legislation that allows a state board of election commissioners — composed of six Republicans and one Democrat — to investigate and “institute corrective action” on a wide variety of issues at every stage of the voting process, from registration to the casting and counting of ballots to the certification of elections. 

The law applies to all counties, but it is widely believed to be aimed at Pulaski, one of the few in the state that favor Democrats.

State Representative Mark Lowery, a Republican, at the capitol in Little Rock, Ark. He said the new legislation provides a necessary extra level of oversight of elections.Credit...Liz Sanders for the New York


The author of the legislation, State Representative Mark Lowery, a Republican from a suburb of Little Rock, said it was necessary to remove election power from the local authorities, who in Pulaski County are Democrats, because otherwise Republicans could not get a fair shake.

“Without this legislation, the only entity you could have referred impropriety to is the prosecuting attorney, who is a Democrat, and possibly not had anything done,” Mr. Lowery said in an interview. 

“This gives another level of investigative authority to a board that is commissioned by the state to oversee elections.”

Asked about last year’s election, Mr. Lowery said, “I do believe Donald Trump was elected president.”

A separate new Arkansas law allows a state board to “take over and conduct elections” in a county if a committee of the legislature determines that there are questions about the “appearance of an equal, free and impartial election.”

In Georgia, the legislature passed a unique law for some counties. 

For Troup County, State Representative Randy Nix, a Republican, said he had introduced the bill that restructured the county election board — and will remove Ms. Hollis — only after it was requested by county commissioners. 

He said he was not worried that the commission, a partisan body with four Republicans and one Democrat, could exert influence over elections.

“The commissioners are all elected officials and will face the voters to answer for their actions,” Mr. Nix said in an email.

Eric Mosley, the county manager for Troup County, which Mr. Trump carried by 22 points, said that the decision to ask Mr. Nix for the bill was meant to make the board more bipartisan. 

It was unanimously supported by the commission.

“We felt that removing both the Republican and Democratic representation and just truly choose members of the community that invest hard to serve those community members was the true intent of the board,” Mr. Mosley said. 

“Our goal is to create both political and racial diversity on the board.”

In Morgan County, east of Atlanta, Helen Butler has been one of the state’s most prominent Democratic voices on voting rights and election administration. 

A member of the county board of elections in a rural, Republican county, she also runs the Georgia Coalition for the People’s Agenda, a group dedicated to protecting the voting rights of Black Americans and increasing their civic engagement.

Helen Butler, who has been one of the state’s most prominent voices on voting rights and election administration in Atlanta, on Saturday. Ms. Butler will be removed from the county board at the end of the month.Credit...Matthew Odom for The New York Times


But Ms. Butler will be removed from the county board at the end of the month, after Mr. Kemp signed a local bill that ended the ability of political parties to appoint members.

“I think it’s all a part of the ploy for the takeover of local boards of elections that the state legislature has put in place,” Ms. Butler said. “It is them saying that they have the right to say whether an election official is doing it right, when in fact they don’t work in the day to day and don’t understand the process themselves.”

It’s not just Democrats who are being removed. In DeKalb County, the state’s fourth-largest, Republicans chose not to renominate Baoky Vu to the election board after more than 12 years in the position. Mr. Vu, a Republican, had joined with Democrats in a letter opposing an election-related bill that eventually failed to pass.

To replace Mr. Vu, Republicans nominated Paul Maner, a well-known local conservative with a history of false statements, including an insinuation that the son of a Georgia congresswoman was killed in “a drug deal gone bad.”

Back in LaGrange, Ms. Hollis is trying to do as much as she can in the time she has left on the board. The extra precinct in nearby Hogansville, where the population is roughly 50 percent Black, is a top priority. While its population is only about 3,000, the town is bifurcated by a rail line, and Ms. Hollis said that sometimes it can take an exceedingly long time for a line of freight cars to clear, which is problematic on Election Days.

“We’ve been working on this for over a year,” Ms. Hollis said, saying Republicans had thrown up procedural hurdles to block the process. But she was undeterred.

“I’m not going to sit there and wait for you to tell me what it is that I should do for the voters there,” she said. “I’m going to do the right thing.”


Rachel Shorey contributed research.

Red-Hot U.S. Economy Drives Global Inflation, Forcing Foreign Banks to Act

Central banks are raising rates to fend off a rise in inflation as policy makers respond to the booming U.S. economy

By Tom Fairless in Frankfurt and Paul Hannon in London

People watched fireworks Tuesday after New York state reached a 70% vaccination rate for adults. / PHOTO: EDUARDO MUNOZ/REUTERS


A booming U.S. economy that is driving inflation higher around the world and pushing up the U.S. dollar is pressing some central banks to increase interest rates, despite still-high levels of Covid-19 infections and incomplete economic recoveries in their own countries.

The world’s central banks are hanging on how the U.S. Federal Reserve will respond to a rise in inflation, wary of being caught in the crosscurrents of an extraordinary U.S. economic expansion. 

Global stock markets fell on Thursday after Fed officials signaled they expect to raise interest rates by late 2023, sooner than they anticipated in March, as the U.S. economy heats up.

A global march toward higher interest rates, with the Fed at the center, risks stifling the economic recovery in some places, especially at a time when emerging-market debt has risen.

The size of the U.S. economy, accounting for almost a quarter of world gross domestic product, and the importance of its financial markets have long exerted an outsize pull on global policy-making. 

But unusually brisk U.S. growth this year is critical to a world economy still recovering from last year’s shocks. 

Fed officials expect the U.S. economy to grow 7% this year, according to projections released Wednesday.

Central banks in Russia, Brazil and Turkey have raised interest rates in recent weeks, in part to tamp down inflation stemming from the surge in commodities prices this year. 

As factories around the world strain to satisfy U.S. demand, commodities’ prices ranging from tin to copper have soared.

“With all the consequences of the pandemic, the last thing these countries need now is policy tightening,” said Tamara Basic Vasiljev, an economist with Oxford Economics in London.

A U.S. economic boom supports economies around the world by boosting U.S. imports and remittances. 

But it also drives up borrowing costs and inflation and strengthens the dollar, which tightens global financial conditions and acts as a restraint on the recovery.

The pain is felt unevenly. 

A stronger dollar hurts emerging-market economies that have borrowed in dollars, while helping larger exporters in Europe and East Asia whose products become more competitive relative to U.S. exports.

In advanced economies, central bankers mostly believe that the period of rising inflation will prove temporary unless consumers come to expect it to continue and demand higher wages.

While central banks don’t see that happening soon, some economists think they may be surprised.

“I think there is a high chance that this temporary shock to prices could become more enduring,” said Luigi Speranza, chief global economist at BNP Paribas. 

Mr. Speranza noted that inflation in Germany is likely to be around 4% when the next round of pay bargaining starts toward the end of this year.

Central banks in Europe and Japan need to match the Fed’s dovishness or risk a spike in their currencies that could undermine economic recovery, economists said. 

The delicate dance around the Fed could come undone if inflation proves more persistent than expected, which would likely trigger a chain reaction of interest-rate increases.

“To prevent the euro strengthening the [European Central Bank] would need to be similarly dovish as the Federal Reserve, which might be a struggle due to different inflation and growth dynamics,” said Elga Bartsch, head of macro research at BlackRock.

Emerging-market economies often don’t have the luxury of waiting, however. 

Even a short burst of inflation can weigh heavily on their currencies and hurt companies’ and households’ ability to service debt that is often denominated in dollars or euros.

The Fed has signaled that it will take care to avoid a repeat of the 2013 “taper tantrum,” in which central banks in developing countries were forced to respond to a sudden withdrawal of foreign investment after the U.S. central bank surprised investors by saying it was considering a reduction in its stimulus programs.

“So our intention for this process is that it will be orderly, methodical, and transparent,” Federal Reserve Chairman Jerome Powell said Wednesday. 

“And I can just tell you, we see real value in communicating well in advance what our thinking is. 

And we’ll try to be clear.”

But with global inflation accelerating and the Fed starting to shift course, the calculus for some central banks is changing.

Brazil’s central bank unveiled a third consecutive 0.75 percentage point interest rate increase on Wednesday and signaled possible larger increases ahead, as it wrestles with inflation above 8%.

The Bank of Russia has raised its benchmark rate three times this year to 5.5%, after inflation accelerated to over 6% this month, its highest level in almost five years. 

On Tuesday, Gov. Elvira Nabiullina said that Russia will continue raising interest rates and doesn’t expect this to hinder economic growth.

“We have kept rates low for quite some time to make sure we don’t clip the wings of a recovering economy,” Ms. Nabiullina said in a speech at Russia’s lower house of parliament. 

“Now is the time to raise rates in response to changed circumstances and rising inflation.”

Russian Central Bank Gov. Elvira Nabiullina presented the bank’s annual report to the Russian parliament on Tuesday. / PHOTO: SERGEI FADEICHEV/TASS/ZUMA PRESS


Turkey’s central bank sharply increased its main interest rate to 19% in March to counter double-digit inflation and a depreciating lira. 

But the Turkish lira has again come under pressure in recent weeks as investors try to assess whether the central bank will heed the demands of President Recep Tayyip Erdogan to cut rates.

Recent price increases on fresh produce have raised the so-called borscht set—the vegetables needed for Russia’s beloved soup—which is a bellwether indicator for many Russians. 

Since the start of the year, the price of potatoes, cabbage and carrots have risen by 60% to 80%.

In poor countries, a larger share of spending usually goes to essentials such as food and energy, so policy makers are quicker to tamp down on inflation when those prices rise.

Central banks in Scandinavia and South Korea have signaled plans to tighten monetary policy to restrain possible asset bubbles, particularly in property. 

Norway’s central bank signaled Thursday that it will increase interest rates in September.

Central banks in central Europe, and including Hungary and the Czech Republic, are also expected to lift rates soon. 

They didn’t suffer contractions on the same scale as larger European countries such as France and Spain during the pandemic, but are seeing inflation rise.

Iain Stealey, chief investment officer of fixed income at JP Morgan Asset Management, said the Fed will likely manage to avoid a repeat of the “taper tantrum.”

“It is a very long, slow process…it’s very difficult not to do this given upside surprises in inflation,” Mr. Stealey said.

Still, there are problems with the patient approach, economists said.

“This idea of letting inflation run hot…means that you’re only going to realize you have an inflation problem when you already have an inflation problem,” said Klaus Baader, chief global economist at Société Générale.

Housing Starts Fall Short Again as the ‘Housing Supply Crisis’ Looms Large

By Shaina Mishkin

A short supply of materials has cut into builder confidence, the National Association of Home Builders reported Tuesday. / Joe Raedle/Getty Images)


A gauge of new-home construction missed consensus expectations for the second month in a row as a housing trade group characterized the shortage of homes for sale as a “housing supply crisis.”

The seasonally-adjusted annual rate of housing starts rose to 1.57 million in May, up from a revised rate of 1.52 million in April, the Census Bureau said Wednesday. 

That’s 3.6% higher than last month and 50.3% above the seasonally-adjusted annual rate at this time last year. 

Those polled by FactSet had expected a rate of 1.65 million as of Tuesday. 

The rate of new permits, an indicator of future construction, was 1.68 million—3% lower than April’s revised rate and 34.9% higher than the same time last year. The rate of permits issued was expected to remain about flat at 1.73 million, according to FactSet. 

A pickup in new-home construction in line with expectations would have been welcome news for buyers in the supply-constrained residential real estate market. An imbalance between supply and demand is one factor that has likely contributed to swiftly rising home prices and recent month-over-month declines in new- and existing-home sales.



Jefferies economists Aneta Markowska and Thomas Simons wrote about the imbalance in a note following the data release. 

“With housing inventories still hovering near all-time lows and prices soaring, homebuilders are certainly incentivized to build more units,” they wrote. 

“However, the lack of skilled labor and an acute shortage of construction materials, from lumber to household equipment to paint – are making it nearly impossible to increase the run-rate of housing production.”

Lawrence Yun, chief economist for the National Association of Realtors, wrote that the nation’s housing shortage goes beyond month-over-month data. 

“America is facing a massive housing shortage due to multiple years of underproduction in relation to population growth,” Yun said. 

“Expect both rents and home prices to outpace overall consumer price inflation in the upcoming years.”

The trade group on Wednesday released a report, authored by the Rosen Consulting Group, calling the short supply of homes for sale dire and urging action at a governmental level. 

According to the trade group, an additional 5.5 to 6.8 million homes are needed to meet demand.

New-home construction data has been volatile in recent months. 

The seasonally-adjusted annual rate of housing starts in March hit its fastest pace in more than a decade before falling unexpectedly in April as supply availability squeezed builders. 

Of the builders polled last month by the National Association of Home Builders, 95% reported a shortage of appliances. 

The short supply of materials has cut into builder confidence, the National Association of Home Builders reported Tuesday. 

The trade group’s monthly housing market index, which measures home-builder sentiment, declined two points from its prior reading of 83 to what the trade group says is the lowest level since last August. 

“Higher costs and declining availability for softwood lumber and other building materials pushed down builder sentiment in June,” Chuck Fowke, National Association of Home Builders chairman, said. 

“These higher costs have moved some new homes beyond the budget of prospective buyers, which has slowed the strong pace of home building.”



And even as lumber prices have fallen recently, they are still significantly higher than the normal rate at this time of year, the Wall Street Journal reported.

The trade group noted that all three components of the index slipped in June: builders’ perceptions of current sales, their sales expectations for the next six months, and their gauge of buyer traffic. 

“While builders have adopted a variety of business strategies including price escalation clauses to deal with scarce building materials, labor and lots, unavoidable increases for new home prices are pushing some buyers to the sidelines,” Robert Dietz, chief economist at the National Association of Home Builders, wrote. 

“Moreover, these supply-constraints are resulting in insufficient appraisals and making it more difficult for builders to access construction loans."