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Five Warning Signs The End Of Dollar Hegemony Is Near... Here"s What Happens Next

Five Warning Signs The End Of Dollar Hegemony Is Near... Here's What Happens Next Authored by Nick Giambruno via InternationalMan.com, It’s no secret that China and Russia have been stashing away as much gold as possible for many years. China is the world’s largest producer and buyer of gold. Russia is number two. Most of that gold finds its way into the Russian and Chinese governments’ treasuries. Russia has over 2,300 tonnes—or nearly 74 million troy ounces—of gold, one of the largest stashes in the world. Nobody knows the exact amount of gold China has, but most observers believe it is even larger than Russia’s stash. Russia and China’s gold gives them access to an apolitical neutral form of money with no counterparty risk. Remember, gold has been mankind’s most enduring form of money for over 2,500 years because of unique characteristics that make it suitable to store and exchange value. Gold is durable, divisible, consistent, convenient, scarce, and most importantly, the “hardest” of all physical commodities. In other words, gold is the one physical commodity that is the “hardest to produce” (relative to existing stockpiles) and, therefore, the most resistant to inflation. That’s what gives gold its superior monetary properties. Russia and China can use their gold to engage in international trade and perhaps back the currencies. That’s why gold represents a genuine monetary alternative to the US dollar, and Russia and China have a lot of it. Today it’s clear why China and Russia have had an insatiable demand for gold. They’ve been waiting for the right moment to pull the rug from beneath the US dollar. And now is that moment… This is a big problem for the US government, which reaps an unfathomable amount of power because the US dollar is the world’s premier reserve currency. It allows the US to print fake money out of thin air and export it to the rest of the world for real goods and services—a privileged racket no other country has. Russia and China’s gold could form the foundation of a new monetary system outside of the control of the US. Such moves would be the final nail in the coffin of dollar dominance. Five recent developments are a giant flashing red sign that something big could be imminent. Warning Sign #1: Russia Sanctions Prove Dollar Reserves “Aren’t Really Money” In the wake of Russia’s invasion of Ukraine, the US government has launched its most aggressive sanctions campaign ever. Exceeding even Iran and North Korea, Russia is now the most sanctioned nation in the world. As part of this, the US government seized the US dollar reserves of the Russian central bank—the accumulated savings of the nation. It was a stunning illustration of the dollar’s political risk. The US government can seize another sovereign country’s dollar reserves at the flip of a switch. The Wall Street Journal, in an article titled “If Russian Currency Reserves Aren’t Really Money, the World Is in for a Shock,” noted: “Sanctions have shown that currency reserves accumulated by central banks can be taken away. With China taking note, this may reshape geopolitics, economic management and even the international role of the U.S. dollar.” Russian President Putin said the US had defaulted on its obligations and that the dollar is no longer a reliable currency. The incident has eroded trust in the US dollar as the global reserve currency and catalyzed significant countries to use alternatives in trade and their reserves. China, India, Iran, and Turkey, among other countries, announced, or already are, doing business with Russia in their local currencies instead of the US dollar. These countries represent a market of over three billion people that no longer need to use the US dollar to trade with one another. The US government has incentivized almost half of mankind to find alternatives to the dollar by attempting to isolate Russia. Warning Sign #2: Rubles, Gold, and Bitcoin for Gas, Oil, and Other Commodities Russia is the world’s largest exporter of natural gas, lumber, wheat, fertilizer, and palladium (a crucial component in cars). It is the second-largest exporter of oil and aluminum and the third-largest exporter of nickel and coal. Russia is a major producer and processor of uranium for nuclear power plants. Enriched uranium from Russia and its allies provides electricity to 20% of the homes in the US. Aside from China, Russia produces more gold than any other country, accounting for more than 10% of global production. These are just a handful of examples. There are many strategic commodities that Russia dominates. In short, Russia is not just an oil and gas powerhouse but a commodity superpower. After the US government seized Russia’s US dollar reserves, Moscow has little use for the US dollar. Moscow does not want to exchange its scarce and valuable commodities for politicized money that its rivals can take away on a whim. Would the US government ever tolerate a situation where the US Treasury held its reserves in rubles in Russia? The head of the Russian Parliament recently called the US dollar a “candy wrapper” but not the candy itself. In other words, the dollar has the outward appearance of money but is not real money. That’s why Russia is no longer accepting US dollars (or euros) in exchange for its energy. They are of no use to Russia. So instead, Moscow is demanding payment in rubles. That’s an urgent problem for Europe, which cannot survive without Russian commodities. The Europeans have no alternative to Russian energy and have no choice but to comply. European buyers must now first buy rubles with their euros and use them to pay for Russian gas, oil, and other exports. This is a big reason why the ruble has recovered all of the value it lost in the initial days of the Ukraine invasion and then made further gains. In addition to rubles, the top Russian energy official said Moscow would also accept gold or Bitcoin in return for its commodities. “If they want to buy, let them pay either in hard currency—and this is gold for us… you can also trade Bitcoins.” Here’s the bottom line. US dollars are no longer needed (or wanted) to buy Russian commodities. Warning Sign #3: The Petrodollar System Flirts With Collapse Oil is by far the largest and most strategic commodity market. For the last 50 years, virtually anyone who wanted to import oil needed US dollars to pay for it. That’s because, in the early ’70s, the US made an agreement to protect Saudi Arabia in exchange for ensuring, among other things, all OPEC producers only accept US dollars for their oil. Every country needs oil. And if foreign countries need US dollars to buy oil, they have a compelling reason to hold large dollar reserves. This creates a huge artificial market for US dollars and forces foreigners to soak up many of the new currency units the Fed creates. Naturally, this gives a tremendous boost to the value of the dollar. The system has helped create a deeper, more liquid market for the dollar and US Treasuries. It also allows the US government to keep interest rates artificially low, thereby financing enormous deficits it otherwise would be unable to. In short, the petrodollar system has been the bedrock of the US financial system for the past 50 years. But that’s all about to change… and soon. After it invaded Ukraine, the US government kicked Russia out of the dollar system and seized hundreds of billions in dollar reserves of the Russian central bank. Washington has threatened to do the same to China for years. These threats helped ensure that China cracked down on North Korea, didn’t invade Taiwan, and did other things the US wanted. These threats against China may be a bluff, but if the US government carried them out—as it recently did against Russia—it would be like dropping a financial nuclear bomb on Beijing. Without access to dollars, China would struggle to import oil and engage in international trade. As a result, its economy would come to a grinding halt, an intolerable threat to the Chinese government. China would rather not depend on an adversary like this. This is one of the main reasons it created an alternative to the petrodollar system. After years of preparation, the Shanghai International Energy Exchange (INE) launched a crude oil futures contract denominated in Chinese yuan in 2017. Since then, any oil producer can sell its oil for something besides US dollars… in this case, the Chinese yuan. There’s one big issue, though. Most oil producers don’t want to accumulate a large yuan reserve, and China knows this. That’s why China has explicitly linked the crude futures contract with the ability to convert yuan into physical gold—without touching China’s official reserves—through gold exchanges in Shanghai (the world’s largest physical gold market) and Hong Kong. PetroChina and Sinopec, two Chinese oil companies, provide liquidity to the yuan crude futures by being big buyers. So, if any oil producer wants to sell their oil in yuan (and gold indirectly), there will always be a bid. After years of growth and working out the kinks, the INE yuan oil future contract is now ready for prime time. And now that the US has banned Russia from the dollar system, there is an urgent need for a credible system capable of handling hundreds of billions worth of oil sales outside of the US dollar and financial system. The Shanghai International Energy Exchange is that system. Back to Saudi Arabia… For nearly 50 years, the Saudis had always insisted anyone wanting their oil would need to pay with US dollars, upholding their end of the petrodollar system. But that could all change soon… Remember, China is already the world’s largest oil importer. Moreover, the amount of oil it imports continues to grow as it fuels an economy of over 1.4 billion people (more than 4x larger than the US). China is Saudi Arabia’s top customer. Beijing buys over 25% of Saudi oil exports and wants to buy more. The Chinese would rather not have to use the US dollar, the currency of their adversary, to buy an essential commodity. In this context, The Wall Street Journal recently reported that the Chinese and the Saudis had entered into serious discussions to accept yuan as payment for Saudi oil exports instead of dollars. The WSJ article claims the Saudis are angry at the US for not supporting it enough in its war against Yemen. They were further dismayed by the US withdrawal from Afghanistan and the nuclear negotiations with Iran. In short, the Saudis don’t think the US is holding up its end of the deal. So they don’t feel like they need to hold up their part. Even the WSJ admits such a move would be disastrous for the US dollar. “The Saudi move could chip away at the supremacy of the US dollar in the international financial system, which Washington has relied on for decades to print Treasury bills it uses to finance its budget deficit.” Here’s the bottom line. Saudi Arabia—the linchpin of the petrodollar system—is flirting in the open with China about selling its oil in yuan. One way or another—and probably soon—the Chinese will find a way to compel the Saudis to accept the yuan. The sheer size of the Chinese market makes it impossible for Saudi Arabia—and other oil exporters—to ignore China’s demands to pay in yuan indefinitely. Moreover, using the INE to exchange oil for gold further sweetens the deal for oil exporters. Sometime soon, there will be a lot of extra dollars floating around suddenly looking for a home now that they are not needed to purchase oil. It signals an imminent and enormous change for anyone holding US dollars. It would be incredibly foolish to ignore this giant red warning sign. Warning Sign #4: Out of Control Money Printing and Record Price Increases In March of 2020, the chair of the Federal Reserve, Jerome Powell, exercised unfathomable power… At the time, it was the height of the stock market crash amid the COVID hysteria. People were panicking as they watched the market plummet, and they turned to the Fed to do something. In a matter of days, the Fed created more dollars out of thin air than it had for the US’s nearly 250-year existence. It was an unprecedented amount of money printing that amounted to more than $4 trillion and nearly doubled the US money supply in less than a year. One trillion dollars is almost an unfathomable amount of money. The human mind has trouble wrapping itself around such figures. Let me try to put it into perspective. One million seconds ago was about 11 days ago. One billion seconds ago was 1988. One trillion seconds ago was 30,000 BC. For further perspective, the daily economic output of all 331 million people in the US is about $58 billion. At the push of a button, the Fed was creating more dollars out of thin air than the economic output of the entire country. The Fed’s actions during the Covid hysteria—which are ongoing—amounted to the biggest monetary explosion that has ever occurred in the US. When the Fed initiated this program, it assured the American people its actions wouldn’t cause severe price increases. But unfortunately, it didn’t take long to prove that absurd assertion false. As soon as rising prices became apparent, the mainstream media and Fed claimed that the inflation was only “transitory” and that there was nothing to be worried about. Of course, they were dead wrong, and they knew it—they were gaslighting. The truth is that inflation is out of control, and nothing can stop it. Even according to the government’s own crooked CPI statistics, which understates reality, inflation is rising. That means the actual situation is much worse. Recently the CPI hit a 40-year high and shows little sign of slowing down. I wouldn’t be surprised to see the CPI exceed its previous highs in the early 1980s as the situation gets out of control. After all, the money printing going on right now is orders of magnitude greater than it was then. Warning Sign #5: Fed Chair Admits Dollar Supremacy Is Dead “It’s possible to have more than one reserve currency.” These are the recent words of Jerome Powell, the Chairman of the Federal Reserve. It’s a stunning admission from the one person who has the most control over the US dollar, the current world reserve currency. It would be as ridiculous as Mike Tyson saying that it’s possible to have more than one heavyweight champion. In other words, the jig is up. Not even the Chairman of the Federal Reserve can go along with the farce of maintaining the dollar’s supremacy anymore… and neither should you. Conclusion It’s clear the US dollar’s days of unchallenged dominance are quickly ending—something even the Fed Chairman openly admits. To recap, here are the five imminent, flashing red warning signs the end of dollar hegemony is near. Warning Sign #1: Russia Sanctions Prove Dollar Reserves “Aren’t Really Money” Warning Sign #2: Rubles, Gold, and Bitcoin for Gas, Oil, and Other Commodities Warning Sign #3: The Petrodollar System Flirts With Collapse Warning Sign #4: Out of Control Money Printing and Record Price Increases Warning Sign #5: Fed Chair Admits Dollar Supremacy Is Dead If we take a step back and zoom out, the Big Picture is clear. We are likely on the cusp of a historic shift… and what’s coming next could change everything. *  *  * The economic trajectory is troubling. Unfortunately, there’s little any individual can practically do to change the course of these trends in motion. The best you can and should do is to stay informed so that you can protect yourself in the best way possible, and even profit from the situation. That’s precisely why bestselling author Doug Casey and his colleagues just released an urgent new PDF report that explains what could come next and what you can do about it. Click here to download it now. Tyler Durden Sat, 05/21/2022 - 14:30.....»»

Category: worldSource: nytMay 21st, 2022

Futures Rise Ahead Of Hawkish ECB Meeting

Futures Rise Ahead Of Hawkish ECB Meeting US index futures turned positive on Thursday, even as European stock slipped ahead of the ECB decision at 745am ET, with Nasdaq 100 contracts outperforming as oil prices and bond yields stabilized and strategists at Goldman and JPMorgan gave more bullish comments on equities. Sentiment was boosted after Bloomberg reported that China’s crackdown on internet companies may be easing with a revival of the Ant Group IPO, which boosted the country’s US-traded stocks (the news was since refuted by China, but moments later Reuters re-reported what Bloomberg said). S&P 500 futures traded 22 points or 0.5% higher, and Nasdaq 100 futs were 0.4% higher. The dollar slid, and 10Y rates were flat at 3.02%. Markets remain fixated on the risk that central banks intent on cooling inflation snuff out economic recoveries in the process. Money markets have priced in 36.5 basis points of tightening to the ECB’s rate by next month’s meeting, just short of a 50% chance of a half-a-percentage point increase, which would be the first since 2000. “To rein in surging prices the Fed has to increase rates, which can result in a recession,” Geir Lode, head of global equities at Federated Hermes, wrote in a note. “However, the pandemic-induced supply-chain shock and the Ukraine conflict are beyond the central bank’s control. In this environment we need to be lucky to avoid stagflation that could last for a long time.” While the ECB isn’t expected to raise official borrowing costs, President Christine Lagarde signaled in a blog post last month that the central bank will end bond purchases this month, and hike once in July and again in September, lifting the deposit rate from minus 0.5% to zero. Some investors see a new tone reaching beyond the official line as central bankers succumb to huge pressure to rein in record inflation at more than four times their target of 2%. Peers at the Federal Reserve, Bank of Canada and Reserve Bank of Australia have hiked in 50-basis point increments this year. “Chances are that the ECB will have a hawkish pivot today,” Carol Kong, a strategist at Commonwealth Bank of Australia, said on Bloomberg Television. In US premarket trading, Alibaba Group was among the best performers - at least initially - as it pumped, dumped and then rose again after several conflicting reports that Chinese regulators are considering a potential revival of the initial public offering by Jack Ma’s Ant Group. Tesla gained 3% after an upgrade to Buy from UBS and after the company said its deliveries of cars made in China doubled in May compared with April and as UBS recommended buying the stock. Bank stocks also traded higher in premarket trading as the US 10-year Treasury yield hovered just above 3%. In corporate news, Credit Suisse shares dropped after its CEO Thomas Gottstein said he wouldn’t comment on State Street’s reported interest in the Swiss bank. Here are all the notable premarket movers: Five Below (FIVE US) shares decline 7.3% in premarket trading after the company cut its full-year guidance, while analysts trimmed their targets for the stock, but were broadly positive on the firm’s longterm prospects. Spotify (SPOT US) shares could be in focus today as analysts were positive on the streaming giant’s forecast that its podcasting business will turn profitable as the company focuses on more non-music segments like audiobooks. Travel stocks could be active on Thursday following Expedia CEO Peter Kern’s bullish comments on summer travel. Keep an eye on Delta (DAL US), United (UAL US), Marriott (MAR US), Expedia (EXPE US), Airbnb (ABNB US) and Booking Holdings (BKNG US) among others Watch Oxford Industries (OXM US) shares after the company reported results, as Citi says that there is no sign of consumer weakness in any part of the branded apparel retailer’s business. Ollie’s Bargain (OLLI US) stock may be in focus as RBC Capital Markets upgraded the discount retailer to outperform, saying that despite another tough quarter, its fundamentals should improve in the back-half and beyond. In Europe, equities slipped ahead of a European Central Bank decision that will put the region’s monetary policy on a path of tightening and help close the gap with global peers. Real-estate companies and retailers led the Stoxx Europe 600 Index 0.5% lower. EDF jumped the most in three months, after a newspaper report that the new French government is studying two options for the electricity giant’s nationalization, including a buyout offer. Here are the most notable European movers: EDF shares rise as much as 8.3% after Les Echos newspaper reported that nationalization is among priorities for new government after this month’s legislative elections alongside combating inflation and pension reform. Prosus gains as much as 7.4% in Amsterdam and Naspers gains as much as 6.8% in Johannesburg following a report that Chinese financial regulators are considering reviving the IPO of Jack Ma’s Ant Group. Tate & Lyle advances as much as 4.4% after the company reported FY22 results that beat estimates. The FY23 outlook suggests upgrades to consensus estimates, according to Jefferies. Beiersdorf rises as much as 7.8% after the company said in a Capital Markets Day presentation on its website that it targets above-market organic sales growth at its consumer unit in the medium term. Credit Suisse drops as much as 4.9% after State Street declined to comment on a report that it was looking to acquire the Swiss bank. Separately, Bloomberg reported that Credit Suisse is tapping the brakes on its China expansion. CMC Markets falls as much as 19% after cutting its dividend and saying it was boosting spending on new hires, product development and marketing as the firm seeks to diversify amid a fading retail trading boom. Wizz Air drops as much as 8.3%, extending Wednesday’s 9.5% decline after the company gave guidance for an operating loss for the first quarter, while analysts also noted their concern about pricing trends. Asian stocks slipped as technology and financial firms declined and higher oil prices stoked concerns about inflation.  The MSCI Asia Pacific Index fell 0.3%, trimming its gain this week. Chip stocks declined after a warning on demand from Intel Corp., with the Hang Seng Tech Index sliding more than 1%, a breather after its recent rally. Australian banks were among the biggest contributors to the regional benchmark’s loss.  “We are seeing profit-taking moves after Chinese stocks rose a lot in recent sessions,” said Xue Hua Cui, a China equity analyst at Meritz Securities in Seoul. “There are also renewed concerns about the second-quarter corporate earnings.” Australia’s broad benchmark was among the biggest decliners in Asia Pacific as bank stocks slumped on concerns about valuations and macroeconomic risks. Shares in Singapore and Malaysia also fell. South Korean equities erased early-day losses to close nearly flat on options expiry, while Japanese peers also finished little changed amid the yen’s extended weakness.  Read: Australian Bank Stocks Take $32 Billion Hit on Rate Concerns Stocks in much of the region held losses after data showed Chinese exports jumped more than expected in May, while a mini-lockdown weighed on market sentiment. Even with Thursday’s dip, the MSCI Asia Pacific Index remained on track for its fourth straight weekly gain, which would be its longest winning streak since early 2021 Japanese stocks traded in a narrow range as investors continued to worry about inflation and growth while the yen extended losses to a fresh 20-year low.  The Topix Index was virtually unchanged at 1,969.05 as of the market close in Tokyo, while the Nikkei 225 was stable at 28,246.53. Out of 2,170 shares in the index, 937 rose and 1,105 fell, while 128 were unchanged. In Australia, the S&P/ASX 200 index fell 1.4% to close at 7,019.70, its lowest level since May 12. Banks contributed the most to the benchmark’s slump on growing concerns that faster monetary policy tightening might increase housing-market risks and pressure valuations.  Magellan was the top performer after saying co-founder Hamish Douglass will resume working with the business in a new consultancy role. In New Zealand, the S&P/NZX 50 index fell 0.5% to 11,211.31. In India, stock gauges advanced for the first session in five, helped by a surge in Reliance Industries and energy companies on the improving outlook for refining margin and software exporters extending recovery.  The S&P BSE Sensex rose 0.8% to 55,320.28 in Mumbai, while the NSE Nifty 50 Index gained 0.7%. Both indexes are still headed for weekly drops of about 0.8% and 0.6%, respectively, their first decline in four weeks. “With policy rate announcements now behind us, investors lapped up stocks that were in a downward spiral for quite some time,” Kotak Securities analyst Shrikant Chouhan said in a note. The market may witness select bouts, but volatility is expected to remain over the near-to-medium term, he added.  Reliance Industries provided the biggest boost to the key gauges, increasing 2.7%. Out of 30 shares in the Sensex index, 21 rose and 9 fell In FX, the Bloomberg Dollar Spot Index was little changed as the greenback traded mixed against its Group-of-10 peers. The euro fluctuated around $1.07. Bunds and Italian bonds swung between modest gains and losses. Options pricing in the euro and spot swings suggest not everyone is convinced that the euro will rally after the ECB meeting, which leaves ample room for an advance on a hawkish decision. The yen rebounded after touching a fresh two-decade low against the dollar and seven-year lows against the Australian dollar and the euro, as traders adjusted positions before the ECB. Speculators are gathering around the beleaguered yen and positioning is by no means extended, suggesting there’s still room for bears to pile in. The New Zealand dollar inched up and the nation’s 10-year yield hit a seven-year high after the RBNZ announced plans to offload QE bond holdings. One beneficiary of a hawkish pivot by the ECB would be the euro. The common currency has been bogged down by concerns over euro-area growth while a resurgent dollar and hawkish Fed pushed it to a five-year low against the US currency last month. The euro traded little changed against the dollar at $1.07. “If we do see Christine Lagarde leaning toward a 50 basis-points hike in July, that’s going to be very supportive of the euro-dollar,” Kong said. In rates, Treasuries are narrowly mixed with the yield flatter ahead of ECB rate decision at 7:45am ET and 30-year bond reopening, the last of this week’s coupon auctions. 2-year TSY yields rose to 2.80%, highest level since May 4 YTD high. 10-year little changed at 3.02%, underperforming bunds while gilts trail. US front-end cheapening flattens 2s10s by ~1bp on the day toward lowest level since May 25; as previewed before, the ECB is expected to announce imminent end to large-scale asset purchases, opening the door for interest-rate hikes at the July meeting; swaps price in around 30bp of rate- hike premium. Looking at today's auction we have a $19BN 30-year bond reopening which follows Wednesday’s mediocre 10-year, which tailed by 1.2bp. WI 30-year yield at ~3.16% is above auction stops since 2018 and ~16bp cheaper than May’s, which stopped 0.9bp through. German bonds and the euro are steady ahead of the ECB’s meeting later Thursday, where traders will look for clues on whether the bank will raise rates by 25bps or 50bps in July. Money markets don’t expect a hike today, and currently bet on 36bps next month, and about 132bps by the end of the year. Peripheral spreads tighten to Germany.  Both gilt and Treasury curves flatten.  In commodities, WTI trades within Wednesday’s range around the $122 level. Most base metals trade in the red; LME nickel falls 2.9%, underperforming peers. Spot gold falls roughly $3 to trade near $1,850/oz To the day ahead now, and the main highlight will be the aforementioned ECB decision and President Lagarde’s subsequent press conference. We’ll also hear from Bank of Canada Governor Macklem, and data releases today include the US weekly initial jobless claims. Market Snapshot S&P 500 futures up 0.4% to 4,130.75 STOXX Europe 600 down 0.7% to 437.16 MXAP down 0.4% to 168.75 MXAPJ down 0.6% to 557.70 Nikkei little changed at 28,246.53 Topix little changed at 1,969.05 Hang Seng Index down 0.7% to 21,869.05 Shanghai Composite down 0.8% to 3,238.95 Sensex up 0.2% to 54,988.33 Australia S&P/ASX 200 down 1.4% to 7,019.75 Kospi little changed at 2,625.44 Brent Futures down 0.4% to $123.07/bbl Gold spot down 0.3% to $1,848.12 U.S. Dollar Index little changed at 102.62 German 10Y yield little changed at 1.35% Euro down 0.1% to $1.0701 Top overnight News from Bloomberg The ECB is set to announce an imminent end to large-scale asset purchases, paving the way for the first increase in interest rates in more than a decade next month Traders are betting the BOE will deliver a historic half-point interest-rate hike by September to wrest control of inflation running at the fastest pace in four decades Judging by the latest comments, the yen’s exchange rate still has some way to go before Japan’s finance ministry would consider intervention to prop up the currency via actual purchase operations, something it has avoided for more than two decades. With the US more likely to be against any moves to weaken the dollar, Japan faces the problem that actual intervention may not be effective Japan’s Prime Minister Fumio Kishida appears to be counting on the Bank of Japan to keep borrowing costs near rock-bottom levels as his government paves the way for continued spending even after a record-breaking pandemic splurge and with the yen languishing at two-decade lows Riksbank Deputy Governor Anna Breman said all options are on the table for the June policy meeting as speculation grows over whether the Swedish central bank needs to speed up its interest rate increases China’s exports rebounded in May as Covid-related bottlenecks on production and logistics clear up, but a slowdown looms this year as global consumer demand for goods cools, weakening trade’s ability to act as a driver for economic growth A more detailed look at global markets courtesy of newsquawk Asia-Pac stocks were subdued following a weak handover from the US and with sentiment cautious. ASX 200 was pressured by underperformance in the top-weighted financials sector and weakness in property-related stocks also suffering amid expectations of aggressive RBA rate hikes which increases banks’ funding costs and could threaten the quality of their loan portfolios. Nikkei 225 kept afloat as participants contemplated the ramifications of further currency depreciation. Hang Seng and Shanghai Comp. were lacklustre despite the mostly better than expected Chinese trade data as some COVID concerns resurfaced in Shanghai with the city locking down the Minhang district on Saturday morning for mass COVID testing. Asia headlines Shanghai will lockdown the Minhang district on Saturday morning for mass COVID-19 testing, according to Bloomberg; additionally, Beijing's Chaoyang district is to close all entertainment venues from 14:00 local time (07:00BST) for COVID containment. US Treasury Secretary Yellen said China is guilty of unfair trade practices but some tariffs on Chinese goods do not serve US strategic interests and the Biden administration is looking to reconfigure tariffs in a way that would be more strategic, according to Bloomberg. Japan is planning to expand its prefectural travel subsidies across the entire country, according to Yomiuri. RBNZ outlined plans to sell New Zealand government bonds from July 2022 in which it intends to offload NZD 5bln per fiscal year in order of maturity date until its LSAP holdings are reduced to zero, according to Reuters. Equities are, overall, struggling for clear direction in relatively cautious trade going into ECB; Euro Stoxx 50 -0.5%. Bourses, and US futures, were lifted amid further constructive China tech developments, this time for Ant Group; albeit, we have drifted modestly off best since, ES +0.3%. China is said to be mulling reviving Jack Ma's Ant IPO, with reports framing it as an easing in crackdowns from China, according to Bloomberg sources. *Click here for analysis/reaction. China PCA Retail Passenger Vehicle Sales (May): -17.3% YY; Tesla (TSLA) 32.2k (prev. 33.5k YY). Walgreens Boots Alliance's (WBA) Boots has received a non-binding bid from Apollo Global Management and Reliance Industries, according to FT sources. European headlines Hawkish Lagarde Is Not Fully Priced In the Euro: ECB Cheat Sheet Traders Bet BOE Will Join Peers in Historic Half-Point Rate Hike European Gas Soars as Fire in US Compounds Russia Supply Concern Italy’s Eni to List Renewable Unit Plenitude in Milan FirstGroup Rejects £1.2 Billion Takeover Bid From I Squared FX Yen finally finds some friends amidst less hostile yield environment and supportive risk backdrop; USD/JPY retreats just over 100 pips around 134.00 and EUR/JPY almost 150 pips from 144.00+ peak. DXY remains anchored around 102.500 ahead of Friday’s US CPI data and as Euro pivots 1.0700 pre-ECB; EUR/USD flanked by decent option expiries as well from 1.0750-55 to 1.0605-00 on the downside. Kiwi underpinned after RBNZ outlines schedule for balance sheet rundown; NZD/USD hovers near 0.6450, AUD/NZD sub-1.1150 with AUD/USD capped into 0.7200. Rand continues bull run with extra incentive from wider than forecast SA current account surplus, USD/ZAR straddling 15.2500. Lira rout resumes following fleeting respite on prospect of capital controls raised by S&P, USD/TRY above 17.2200. Yuan retains bulk of Chinese trade data related gains even though parts of Beijing and Shanghai reimpose restrictive Covid measures; USD/CNH closer to 6.6700 than 6.7100, USD/CNY settles sub-6.7000 vs circa 6.7000 high. Fixed Income Bunds choppy and lagging Eurozone periphery within 149.17-148.52 range pre-ECB, as focus falls on fragmentation along with rate and QE guidance Gilts underperforming between 114.86-42 parameters as BoE tightening expectations rise and drag Sonia strip down US Treasuries flat-lining ahead of jobless claims and long bond supply, with 10 year T-note just above par inside tight 118-07/117-26+ band Commodities WTI and Brent are steady after giving up overnight gains with participants cautious and cognizant of China's fluid COVID situation. Currently, the benchmarks are sub-USD 122/bbl and USD 123.50/bbl respectively, vs highs of 122.72 and 124.34. Magnitude 5.6 earthquake hits the Antofagasta region in Chile, according to EMSC. Spot gold is sub-USD1850/oz, having slipped below its falling 10-DMA but holding above the overlapping 200- & 21-DMAs at USD 1842/oz. Central Banks Riksbank's Breman says she will support doing what is required to attain the inflation target, including more hikes than are currently in the path; adding, to control inflation back to target, need to act now. Does not exclude a 50bps hike at the next meeting.   Hungarian Finance Minister says the Hungary has issued FX bonds totalling USD 3bln and EUR 750mln; follows the NBH maintaining its one-week deposit rate at 6.75%. US Event Calendar 08:30: May Continuing Claims, est. 1.3m, prior 1.31m 08:30: June Initial Jobless Claims, est. 206,000, prior 200,000 12:00: 1Q US Household Change in Net Wor, prior $5.3t DB's Jim Reid concludes the overnight wrap I kicked off Day 1 of our annual European LevFin conference in London yesterday and we had a record attendance of over 1100 issuers and investors. It was the first in-person version since 2019 and if this conference is anything to go by, people still like the personal contacts that such an event brings. I also had a dinner at the event last night so I’m a bit shattered this morning so bear with me. This conference has been going now for 26 years at DB and the headline acts at the post conference entertainment have in the past included, The Killers, Duran Duran, Cheryl Crow, Dire Straits, The Corrs, The Sugababes, Stevie Wonder and Bon Jovi. Last night’s entertainment was a pub quiz. How times have changed. If you think the above means Zoom is dead then think again, as I’ll be doing a Zoom webinar next Wednesday (June 15th) at 2pm on my annual Default Study (“The End of the ultra-low default world?”), published earlier this week, that I presented at the conference. Please click here to register, and here to see the report itself. The day before this (June 14th), also at 2pm London time, a selection of our heads of trading and research desks will do a call on the near-term macro outlook across rates, FX, EM, equities and credit. Please click here to register. As I recover from the heckling of telling High Yield investors that defaults are coming, we arrive at the business end of the week with a big 36 hours ahead with the ECB meeting today, and US CPI tomorrow, looming large! And then don’t forget the FOMC, BoE and BoJ meetings next week. Markets approach this busy period on the nervous side with rates and equities selling off over the last 24 hours, and that’s still the case in much of Asia in this morning’s trading. Starting with Europe, sovereign bond yields hit fresh highs yesterday as investors have come to view a potential 50bp hike at some point this year as an increasingly likely possibility. In fact by the close of trade yesterday, overnight index swaps were pricing in 132bps worth of ECB hikes by the December meeting, which is the highest to date and more than double the 63bps of hikes expected after their last meeting in mid-April. So if they don’t hike until July as is widely expected, that implies at least one 50bp move is being fully priced in by year-end. In their preview last week (link here), our European economists agreed with this assessment that a 50bp hike is likely soon, and their view is that one of the two hikes in Q3 will be a 50bp hike, with September being more likely than July. After that, they then see the ECB reverting to continuous back-to-back 25bp hikes until they reach a terminal deposit rate of 2% in mid-summer 2023, although there’s a risk of a second 50bp hike before policy rates reach neutral. In terms of today’s decision however, they expect the ECB to confirm that APP net purchases will cease at the end of June, and that their new staff forecasts will show inflation at 2.0% in 2024, thus satisfying the liftoff criteria. When it comes to new guidance, their view is that the three conditions for policy rate liftoff are likely to be replaced by new guidance on the speed and extent of the hiking cycle. And finally on TLTRO, they expect the end of the TLTRO discount to be confirmed and the ECB to pledge a smooth transmission of monetary tightening through the banking system. With all that in mind, European yields moved higher through the day, with those on 10yr bunds (+6.2bps) and OATs (+7.0bps) both rising to their highest levels since 2014. The selloff was more pronounced among peripheral debt, with yields on 10yr Italian (+8.8bps) and Spanish (+8.2bps) debt seeing even larger rises, although the spread of both over bunds was still tighter than their recent peak last week. There are signs of growing nervousness elsewhere too, with EURUSD overnight implied volatility at its highest level right now since the US presidential election in November 2020. Meanwhile, those at the more hawkish end of the Governing Council received further support yesterday from data revisions, with Euro Area growth in Q1 revised up to show a +0.6% expansion (vs. +0.3% previously). This investor concern about rate hikes and persistent inflation was bad news for equities, first in Europe where the STOXX 600 (-0.57%) fell for a second day running and then extending to a late sell-off across the Atlantic, where the S&P 500 fell -1.08%, with only energy (+0.15%) managing to end the day in the green. This brings the index to +0.18% for the week, as it enters yet another late week showdown to see if it can manage to stay in positive territory. The decline came as 10yr Treasuries eclipsed the 3% mark again, closing up +4.8bps at 3.02%, and we’re up another +1.5 bps higher this morning at 3.036%. The impact of tighter monetary policy extended beyond risk assets and showed some signs of being felt in the real economy, too, with the number of mortgage applications in the US falling to a 22-year low in the week ending June 3. These inflationary worries for investors and central banks were aggravated further by a fresh rise in commodity prices. Oil prices saw further gains, and Brent Crude (+2.50%) moved back above $123/bbl again, inching ever closer to their post-invasion peak levels despite news of OPEC supply expansion and US reserve releases. That trend has continued this morning, with Brent crude up a further +0.33% at $123.98/bbl. WTI (+2.26%) moved above $122/bbl as well, so not far from its peak closing level following the invasion of $123.70/bbl. US natural gas prices displayed a lot of volatility, hitting a post-2008 high intraday before crashing into the close to finish down -6.39% following reports of a fire at a terminal used for exporting, keeping supplies stateside. European natural gas futures fell for a 6th consecutive session to hit another post-Ukraine invasion low of €78.41/MWh. Those losses on Wall Street have carried over into Asia overnight as that rally in oil prices has ramped up worries about inflation and the outlook for interest rates. The Hang Seng (-0.24%), the Shanghai Composite (-0.49%) and the CSI 300 (-0.64%) are all in negative territory, as is the Kospi (-0.31%), although the Nikkei (+0.26%) is up as the weaker Yen has raised hopes for an earnings improvement. Indeed yesterday, the Yen fell a further -1.22% against the US Dollar to close at a 20-year low of 134.25 Yen per dollar, having at one point traded at an intraday low of 134.47. Bear in mind that its intraday low so far in the 21st century was at 135.15 back in January 2002, so we’re not far off reaching levels unseen since the 1990s, although this morning it’s strengthened a touch to 134.06. Outside of Asia, stock futures in the US and Europe are pointing to additional losses today with contracts on the S&P 500 (-0.10%), NASDAQ 100 (-0.11%) and DAX (-0.44%) edging lower. Finally on the data front, China’s May exports advanced +16.9% y/y, beating analyst estimates for a +8.0% rise and faster than the +3.9% increase in April. At the same time, the nation’s trade surplus grew to $78.76 bn in May, (vs. $57.7 bn expected) and compared to a $51.12 bn surplus in April. Separately, German industrial production grew by a weaker-than-expected +0.7% in April (vs. +1.2% expected), which comes on the back of an unexpected contraction in factory orders the previous day. To the day ahead now, and the main highlight will be the aforementioned ECB decision and President Lagarde’s subsequent press conference. We’ll also hear from Bank of Canada Governor Macklem, and data releases today include the US weekly initial jobless claims. Tyler Durden Thu, 06/09/2022 - 07:45.....»»

Category: smallbizSource: nytJun 9th, 2022

Profit Recession Is Coming To US Equities

Profit Recession Is Coming To US Equities By Simon White, Bloomberg Markets Live Analyst and Commentator There are pervasive and increasingly pronounced signs that US equities will be in a profit recession before the end of this year. Target’s warning on margins yesterday is emblematic of the problems faced by firms in an inflationary regime. Even if an economy-wide recession is avoided, the backdrop for equities is set to get worse before it gets better. Inevitably -- given the unequivocal message from leading indicators earlier this year -- the emphasis in the market debate has shifted from inflation to growth. Higher rates and tighter liquidity have a more immediate effect on growth than inflation, and while inflation has yet to conclusively peak, growth is beginning to show the cracks you’d expect in the face of a Fed on the warpath. US large-cap earnings have been resilient this year, but here too there are worrying signs that seem set to worsen. One of those is sentiment. The Conference Board’s CEO Confidence Index has fallen sharply this year. This typically leads to weaker profit growth in the next 3-6 months. Furthermore, analysts are revising down their earnings estimates which also often precedes weaker earnings growth. The stronger dollar is squeezing profits too. The direct effect comes from the ~40% of S&P revenues that come from abroad. But all revenues are impacted by the depressive influence of a higher dollar on global trade. South Korea, as a relatively small and open economy with a large export sector, is a leading indicator for global trade conditions. A steady decline in South Korean exports growth is a strong indication US earnings growth is facing more downside. The weaker outlook for manufacturing is another rain cloud for earnings. Manufacturing may only be around 11% of US GDP, but it accounts for almost a third of corporate revenues, and therefore has an outsized impact on the whole economy. The fall in manufacturing new orders is gathering pace, yet another bad omen for earnings. The largest corporate cost is labor, and the tightness of the US labor market is the biggest headwind US earnings face. Low unemployment leads to higher wages which eventually erodes margins. Margins will be increasingly squeezed by rising wages in the coming years, the effect multiplied if inflation triggers a wage-price spiral. An earnings recession, though, does not guarantee the hammer-blow of a full recession. Over the last sixty years, there have been several large-cap earnings recessions – e.g. in 1975, 1985-86 and 2015-16 -- that did not coincide or immediately precede an economy-wide recession. Either way, there is no positive angle for equities. Even if a full recession -- when all bets are off for stocks -- is avoided an earnings recession still means equities will find it hard to stage a sustainable rally. Selling in May, and going away until September’s St Leger’s Day, continues to seem like a sound decision. Tyler Durden Wed, 06/08/2022 - 12:39.....»»

Category: smallbizSource: nytJun 8th, 2022

Futures Drop As Yields Push Higher, Hawkish ECB Looms

Futures Drop As Yields Push Higher, Hawkish ECB Looms After yesterday's bizarro rally, US futures and European bourses dipped ending two days of gains, as yields reversed Tuesday's slide and climbed ahead of highly anticipated CPI data on Friday and a hawkish ECB meeting tomorrow, as traders try to predict the Federal Reserve’s policy path. Nasdaq 100 futures were flat at 7:30 a.m. in New York, with contracts on the S&P 500 and Dow Jones also modestly lower. European markets also dipped, with Credit Suisse shares tumbling after the Swiss bank announced that it expects a loss in the 2Q and is weighing a fresh round of job cuts. Meanwhile, Asian stocks rose as Beijing’s move to approve a slew of new video games bolstered bets that the outlook is improving for the Chinese technology sector. The yield on the 10-year US Treasury resumed its advance, climbing to 3%, while the dollar rose as the yen cratered to fresh 20 year lows, flat and bitcoin traded around $30K again. Among notable premarket movers, energy companies’ extended their Tuesday gains with Imperial Petroleum rising 8.3% and Energy Focus adding 20%. Western Digital shares climbed 4.1% in US premarket trading after the chipmaker said that it’ll consider splitting its main units as part of a review of “strategic alternatives” following talks with activist investor Elliott. US-listed Chinese stocks jump in premarket trading, on track for a third day of gains, after China approved a second batch of video games this year, providing a signal of policy support to the the country’s internet sector; Alibaba (BABA US) gained 5.8%, JD.com (JD US) +4.4%, Pinduoduo (PDD US) +5.9%, Baidu (BIDU US) +2.7%. Other notable premarket movers: Intel (INTC US) shares fell 1.9% in premarket trading as Citi lowered its estimates on the chipmaker after the company’s management mentioned at a conference that circumstances are worse than expected during the quarter. Altria Group (MO US) stock slid 2.4% in premarket trading as Morgan Stanley downgraded it to underweight, citing increasing macro pressures and competitive risks. Western Digital (WDC US) shares rise 4.1% in premarket trading, after the chipmaker said that it will consider splitting its main units as part of a review of “strategic alternatives”. Smartsheet (SMAR US) stock fell about 7% in premarket trading as analysts said the software company delivered a mixed set of results with billings growth decelerating to top estimates by a slimmer margin than in previous quarters. Novavax (NVAX US) shares jump as much as 22% in US premarket trading after the company’s coronavirus vaccine won support from an FDA advisory panel. DBV Technologies ADRs (DBVT US) gain as much as 22% in US premarket trading after a trial for the biotech firm’s peanut allergy treatment met its primary endpoint. Sentiment remains fragile on concerns rising rates will spark a recession as corporate earnings are set to slide. Thursday the ECB is set to wind down trillions of euros of asset purchases in a prelude to a rate hike expected in July that will mark the end of eight years of negative interest rates. "Higher yields will inevitably resume the pressure on valuations,” said Roger Lee, head of UK equity strategy at Investec Bank. Inflation now exceeds 8% in the euro area, and is expected to stay above that level in the US when May data comes out on Friday, increasing pressure on central banks to stick to aggressive rate hikes. “Recent bouts of optimism can only be short-lived for now, as they were based on the wrong assumptions, that lower growth would push central bankers to ease their aggressive path,” Olivier Marciot, a portfolio manager at Unigestion SA, wrote in a report. Yet some argue that central banks will be forced back into dovish mode, among them hedge fund founder Ray Dalio. The billionaire said central banks across the globe will be required to cut interest rates in 2024 after a period of stagflation. On Friday, focus will turn to the US CPI reading for hints on the Fed's tightening path following the central bank’s outsized hike on May 4. The data is expected to show inflation picked up from a month ago, but slightly slowed from a year earlier. Complicating the task of policy makers trying to arrest runaway inflation without choking off growth, the war in Ukraine shows no signs of ending. That’s ignited higher food and energy prices across the world, despite the best efforts of central banks to use higher rates to cool economies. In Europe, the Stoxx 600 Index was down 0.4%, with shares of basic resources companies and financial sector stocks leading the drop,  while the region’s bonds fell as traders braced for a crucial European Central Bank meeting. Credit Suisse shares tumbled as much as 7.6% after the Swiss bank announced that it expects a loss in the 2Q. In addition, people familiar with the matter said that the lender is weighing a fresh round of job cuts. European mining stocks also underperformed the Stoxx 600 benchmark as copper declines, while iron ore fluctuates with investors weighing signs of demand recovery against caution that China may seek to stabilize commodity prices. The Stoxx Europe 600 Basic Resources sub-index slid 1.1% as of 9:45 a.m. in London after rising to the highest since April on Tuesday. Here are the most notable European movers: Prosus’s shares jump as much as 8.6% in Amsterdam trading after China approved its second batch of video games this year, with a total of 60 titles. Naspers, which holds a 29% stake in Tencent through Prosus, up as much as 9.8%. Inditex shares gain as much as 5.3% after the Zara owner reported 1Q results. Analysts were impressed by the sales beat, with Bryan Garnier calling the company a “safe-haven choice” in the retail sector. UK and European retail stocks rise after Inditex’s results helped boost sentiment, with the retail segment the biggest gainer in the Stoxx 600 Index. Asos gained as much as +3.9%, Boohoo +3.1%, JD Sports +2.5%. Voestalpine shares rise as much as 4.5% after the company reported strong results for the business year, even as its guidance for FY23 points at a lack of visibility for fiscal 2H, according to analysts. Haldex shares rise as much as 45% after SAF-Holland offers SEK66 in cash per share for the Swedish brake and air suspension products maker, representing a 46.5% premium to its closing price on Tuesday. Wizz Air shares fall as much as 8.6% after the company reported results that were in line with expectations but flagged an operating loss for the 1Q of fiscal year 2023. European mining stocks underperform the Stoxx 600 benchmark as copper declines, while iron ore fluctuates. Anglo American shares fell as much as 1.7%, Rio Tinto -1.8%, Glencore -1.7%, Antofagasta -3.3%. Orpea shares declined as much as 5.9% as the company said that French police investigators began an evidence-gathering raid on Wednesday at its headquarters. Asian stocks rose as Beijing’s move to approve a slew of new video games bolstered bets that the outlook is improving for the Chinese technology sector.  The MSCI Asia Pacific Index advanced as much as 1.1%, with Alibaba and Tencent providing the biggest boosts. Benchmarks in Hong Kong outperformed on the approvals news, while Japanese equities climbed as the yen continued to weaken. Stocks in India fell after the country’s central bank raised interest rates as expected while Thai shares inched up after the Bank of Thailand kept its benchmark rate unchanged.  China approved more games in a step toward normalization after a months-long freeze amid the government’s crackdowns on the tech sector. The news follows a report earlier this week that regulators are preparing to conclude an investigation of ride-hailing giant Didi. “We think the significant dangers have passed” in Chinese equities markets, said Eric Schiffer, chief executive officer at California-based private equity firm Patriarch Organization, which holds positions in Alibaba and JD. “The approval on the game titles signals that policymakers are following through on their intention to back off tech regulation and reverse the pain that caused investors to leave the sector."  Optimism toward a less-harsh regulatory environment and China’s post-Covid economic reopening has helped Hong Kong’s tech stocks outperform US peers recently. The Hang Seng Tech Index is up more than 17% the past month compared with little change in the Nasdaq 100. The rebound in Chinese equities also helped the MSCI Asia Pacific Index stage a bigger recovery than the S&P 500 in the same period. Japanese equities advanced for a fourth straight day, as the yen’s weakness provided support for the nation’s exporters.   The Topix rose 1.2% to 1,969.98 as of market close, while the Nikkei advanced 1% to 28,234.29. Toyota Motor Corp. contributed the most to the Topix gain, increasing 1.8%. Out of 2,170 shares in the index, 1,646 rose and 435 fell, while 89 were unchanged. Stocks in India declined as the Reserve Bank of India said it would withdraw pandemic-era accommodation to quell inflation after raising borrowing costs for a second straight month.  The S&P BSE Sensex dropped 0.4% to 54,893.84, as of 2:46 p.m. in Mumbai, while the NSE Nifty 50 Index fell 0.6%. Both gauges erased gains of as much as 0.8% reached during the central bank’s briefing and are heading for a fourth day of declines. Of 30 shares in the Sensex, 13 rose and 17 fell. Sustained high prices could unhinge inflationary expectations and trigger second-round effects, central bank Governor Shaktikanta Das said in an online briefing, emphasizing that preserving price stability is key to ensuring lasting economic growth. Reliance Industries was the biggest drag on the Sensex, while State Bank of India gave the biggest boost. All except two of BSE’s 19 sector sub-gauges declined, with telecom and energy groups the worst performers as realty and metals gained In FX, Yen weakness extends in European trade, with JPY hitting the weakest level since 2002 at 133.77/USD after BOJ’s Kuroda reiterated easing stance. The dollar strengthened against all its group-of-10 peers with the yen and Australian and New Zealand dollars as the worst performers. The euro fluctuated around the $1.07 handle while bunds and Italian bonds fell alongside Treasuries, paring some of Tuesday’s gains. Australian and New Zealand dollars both weakened amid greenback strength and falling US stock futures. Aussie further was weighed by local yields giving up Tuesday’s RBA-driven gains. In rates, Treasuries drifted lower, giving back a portion of Tuesday’s gains and following bigger losses for bunds, which underperformed ahead of Thursday’s ECB policy meeting.  Yields are cheaper by 2bp-3bp across the curve with front-end marginally outperforming, steepening 2s10s spread by ~1.5bp and building curve concession for the auction; bunds underperform by 1.5bp in 10-year sector.  Focal points of US session include 10-year auction, following soft results for Tuesday’s 3-year. $33b 10-year reopening at 1pm ET is second of this week’s three auctions; $19b 30-year reopening is ahead Thursday. WI 10-year yield ~3.015% is above auction stops since 2011 and ~7bp cheaper than May’s, which tailed by 1.4bp. JGBs little changed, with benchmark 10-year bonds trading again after no transactions on Tuesday. Peripheral spreads widen to Germany; Italy lags, widening ~3bps to core at the 10y points ahead of the ECB on Thursday. In commodities, WTI drifts 0.6% higher to trade at around $120. Most base metals are in the green; LME tin rises 2.8%, outperforming peers. Spot gold falls roughly $5 to trade at $1,848/oz. Looking at To the day ahead now, and it’s a fairly quiet one on the calendar, but data releases include German industrial production and Italian retail sales for April, as well as the UK construction PMI for May and the final reading of US wholesale inventories for April. Market Snapshot S&P 500 futures down 0.4% to 4,144.00 STOXX Europe 600 down 0.3% to 441.39 MXAP up 0.8% to 169.14 MXAPJ up 1.1% to 559.98 Nikkei up 1.0% to 28,234.29 Topix up 1.2% to 1,969.98 Hang Seng Index up 2.2% to 22,014.59 Shanghai Composite up 0.7% to 3,263.79 Sensex down 0.4% to 54,907.55 Australia S&P/ASX 200 up 0.4% to 7,121.10 Kospi little changed at 2,626.15 Brent Futures up 0.3% to $120.92/bbl Gold spot down 0.3% to $1,847.71 U.S. Dollar Index up 0.34% to 102.67 German 10Y yield little changed at 1.33% Euro down 0.2% to $1.0686 Top Overnight News from Bloomberg Boris Johnson plans to press ahead with legislation giving him the power to override parts of the Brexit deal, three people familiar with the matter said, a move likely to anger some of his MPs and the EU The yen’s historic weakness is spreading from the dollar into other currency crosses as the Bank of Japan’s policy isolation grows. Bloomberg’s Correlation-Weighted Currency Index for the yen -- a gauge of its relative strength against a broad basket of Group-of-10 peers -- slumped to a seven-year low Wednesday Japanese investors sold US Treasuries for the sixth consecutive month in April, underscoring waning appetite for the securities as the Federal Reserve sticks to its aggressive monetary tightening path Inflation in Hungary exceeded 10% for the first time in more than 20 years, putting pressure on the central bank to tighten monetary policy further and prop up the forint Australian inflation is likely to breach 6% and potentially could go “well above” that level and remain there for the rest of the year, Secretary to the Treasury Steven Kennedy said Wednesday Economists and investors criticized Australia’s central bank for confusing communications after it raised interest rates by twice as much as expected, having previously signaled a preference for quarter-point moves The RBI delivered a 50 basis-point rate hike as predicted by 17 of 41 economists in a Bloomberg survey A slew of China video game approvals is giving stock bulls renewed hope that a nascent rebound in tech shares could become a sustainable rally. The Hang Seng Tech Index jumped more than 4% Wednesday after the government approved 60 licenses A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks were mostly higher following the gains on Wall St and optimism of China easing its tech crackdown. ASX 200 recovered from the prior day’s RBA-induced selling with nearly all sectors in the green, although financials underperformed. Nikkei 225 extended further above the 28k level on currency weakness and with Q1 GDP data revised upwards to a narrower contraction. Hang Seng and Shanghai Comp. traded mixed with tech fuelling the gains in Hong Kong after China’s NPPA approved the publishing licences for 60 games this month, while sentiment in the mainland gradually soured despite support efforts as an official also warned that China's foreign trade stabilisation faces uncertainties and large pressure. Top Asian News China Vice Commerce Minister Wang said China's foreign trade stabilisation faces uncertainties and a large pressure from domestic and external factors. Furthermore, he sees global demand growth as low, while he added that China will accelerate export tax rebates and MOFCOM will assist foreign trade companies in securing orders, according to Reuters. Chinese Retail Passenger Car Sales (May) +30% M/M, according to PCA's Prelim data cited by Bloomberg. Japan's CDP has, as expected, submitted a no-confidence motion against the governing administration within the Lower House, motion will be put to a vote on June 9th, via Asahi; Asahi adds that the move is not expected to go anywhere European bourses have trimmed initial upside, Euro Stoxx 50 -0.2%, with macro newsflow limited and the initial strength primarily a continuation of APAC/Wall St. leads. In specifics, Credit Suisse (-5%) issued a Q2 profit warning for the group and its Investment Bank division while noted Retail name Inditex (+4%) provided a positive update. Stateside, futures are modestly pressured overall but well within overnight ranges ahead of a slim docket; ES -0.4%. DiDi (DIDI) is in advanced discussions to own a one-third stake of Sinomach Zhijun, a China state-backed EV maker, according to Reuters sources. Top European News Euro-Zone Economy Grew More Than Estimated at Start of Year Even the ECB’s Most Dire Forecast May Have Been Too Optimistic Euro Options Point to Most-Pivotal ECB Meeting Since 2019 Ireland Accuses Johnson of Acting in ‘Bad Faith’ on Brexit Deal Saudi Wealth Fund Makes Second $1 Billion Bet on Swedish Gaming Central banks RBI hiked the Repurchase Rate by 50bps to 4.90% (exp. 40bps hike) via unanimous decision and dropped mention of "staying accommodative", while RBI Governor Das noted that inflation has increased above upper tolerance levels and they remain focused on bringing down inflation. Das added they will control inflation without losing sight of growth and that further monetary policy measures are necessary to anchor inflation, as well as noted that upside risk to inflation had intensified and materialised sooner than expected. RBI Governor says they dropped the word "accommodative" from their stance, but they remain accommodative; liquidity withdrawal going forward will be calibrated and gradual. BoJ's Kuroda says rapid weakening of JPY as seen recently is undesirable; various macroeconomic models show that a weak JPY is positive. I It is important for FX to move stably, reflecting fundamentals. BoJ is expected to maintain its view that the domestic economy is picking up as a trend and will likely continue improving, according to Reuters sources. PBoC international department official Zhou said the PBoC will keep guiding financing costs lower, while the PBoC also announced that China will extend the trading hours of the interbank FX market, according to Reuters. FX Buck bounces as Yen rout continues after soft verbal intervention from BoJ Governor and Japanese Economy Minister; DXY back around 102.500 axis, USD.JPY climbs to circa 133.86 at one stage. More Lira depreciation on multiple negative factors including unconventional easing policy stance aimed at returning inflation to target, USD/TRY touches 17.1500. Aussie and Kiwi undermined by Greenback rebound and fade in general risk sentiment; AUD/USD loses 0.7200+ status again, NZD/USD sub-0.6450. Franc and Pound down, but Euro and Loonie resilient as former awaits ECB and latter leans on strong crude prices; USD/CHF just shy of 0.9790, Cable under 1.2550, EUR/USD probing 1.0700 and USD/CAD pivoting 1.2550. Forint and Zloty underpinned post-strong Hungarian CPI metrics and pre-NBP that is expected to hike 75bp; EUR/HUF & EUR/PLN around 389.60 and 4.5700 respectively. Fixed Income Bunds and Gilts pare some losses after testing round and half round number levels at 149.00 and 114.50 respectively, with added incentive after solid demand for 10 year German and UK supply. US Treasuries await 2032 issuance with caution given a lukewarm reception at 3 year auction. 10 year note just off base of 118-03/13 overnight range. Commodities WTI and Brent have been moving in-line with broader risk; however, following the UAE Minister the benchmarks have extended to the upside and post gains in excess of USD 1.50/bbl. US Energy Inventory Data (bbls): Crude +1.8mln (exp. -1.9mln), Cushing -1.8mln, Gasoline +1.8mln (exp. +1.1mln), Distillates +3.4mln (exp. +1.1mln) Brazilian government is considering measures to monitor fuel prices at distributors, according to Reuters sources. UAE Energy Minister says situation is not encouraging when it comes to the amounts of crude OPEC+ can bring to the market, via Reuters; Notes conformity with the OPEC+ deal is more than 200%, are risks when China is back, in talks with Germany and other nations to see if they are interested in UAE natgas. Spot gold is essentially unchanged, and continues to pivot its 10-DMA, while base metals are primarily tracking broader risk sentiment. US Event Calendar 07:00: June MBA Mortgage Applications -6.5%, prior -2.3% 10:00: April Wholesale Trade Sales MoM, prior 1.7% 10:00: April Wholesale Inventories MoM, est. 2.1%, prior 2.1% DB's Henry Allen concludes the overnight wrap A reminder that Jim’s annual default study was released yesterday. His view is that while nothing much will change for the remainder of 2022, we might be coming to the end of the ultra-low default world discussed in previous editions. First, there’ll likely be a cyclical US recession to address in 2023, and after that, a risk that various trends reverse that have made the last 20 years so subdued for defaults. See the report here for more details. It’s been another topsy-turvy session for markets over the last 24 hours as investors look forward to the big macro events later in the week, namely the ECB tomorrow and then the US CPI print the day after. Initially it had looked like we were set for another day of higher rates, not least after the hawkish surprise from the RBA we mentioned in yesterday’s edition as they hiked by a larger-than-expected 50bps. But more negative developments subsequently dampened the mood, including an unexpected contraction in German factory orders, and then an announcement by Target (-2.31%) that they were cutting their profit outlook for the second time in three weeks. But then sentiment turned once again later in the US session, with equities seeing a late rally that put the major indices back in positive territory for the day. Against that backdrop, equities swung between gains and losses, but the S&P 500 rallied to a broad-based gain after the European close, finishing the day +0.95% higher after being as much as -1% lower following the open, with only the consumer discretionary (-0.37%) sector finishing in the red after Target updated their guidance again to now expect Q2’s operating margin to be around 2% amid price reductions to reduce inventory. For the index as a whole, it was also the first back-to-back positive start the week since in a month, that’s also seen it recover all of last week’s declines. Energy (+3.14%) was the biggest outperformer in the S&P amidst a further rise in oil prices, with Brent Crude (+0.89%) moving back above the $120/bbl mark. However, Europe’s STOXX 600 (-0.28%) missed the late rally and eventually settled in negative territory. Whilst equities had a mixed session, sovereign bonds put in a more consistent performance ahead of tomorrow’s ECB decision, with decent gains posted on both sides of the Atlantic. Yields on 10yr Treasuries were down -6.6bps to 2.97%, moving back beneath 3% again, although this morning’s +2.8bps rise has taken them just back above that point to 3.001% at time of writing. Yesterday’s moves lower in yields were more pronounced at the long end of the curve, with the 2yr yield essentially flat as investors’ expectations of the near-term path of Fed rate hikes remained fairly steady. Indeed, the futures-implied rate by the December meeting was also down just -1.5bps to 2.84%. It was much the same story in Europe too of lower yields and flatter curves, as the amount of ECB tightening priced in for the rest of the year fell a modest -1.4bps from its high of 125bps the previous day. Yields on 10yr bunds (-2.9bps), OATs (-3.6bps) and gilts (-3.3bps) all fell back, and there was a noticeable decline in peripheral spreads thanks to even larger reductions in the Italian (-12.1bps) and Spanish (-7.4bps) 10yr yields. Interestingly, another trend over recent days that continued was the fall in European natural gas prices (-3.57%), which fell for a 5th consecutive session to hit its lowest level since Russia’s invasion of Ukraine, at €79.61/MWh. Those late gains for US equities have carried over into Asia overnight, with the Hang Seng (+1.70%) the Nikkei (+0.85%) both advancing strongly. The main exception to that has been in mainland China however, where the CSI 300 (-0.41%) and the Shanghai Composite (-0.70%) have just taken a tumble this morning. We’ve also seen that in US equity futures too, with those on the S&P 500 down -0.335 this morning. On the data side, the final estimate of Japan’s GDP for Q1 showed a smaller contraction than initially thought, with GDP only falling by an annualised -0.5%, which is half the -1% decline initially thought. However, the Japanese Yen has continued to weaken overnight, and is currently trading at a fresh 20-year low against the US Dollar of 133.13 per dollar. It’s also at a 7-year low against the Euro of 142.19 per euro. Here in the UK, Brexit could be back in the headlines shortly as it’s been reported by multiple outlets including Bloomberg that legislation will be introduced that would enable the UK government to override the Northern Ireland Protocol. That’s the part of the Brexit deal that avoids the need for a hard border between Northern Ireland and the Republic of Ireland, but has been a persistent source of tension between the two sides since the deal was signed, since it creates an economic border between Northern Ireland and Great Britain that Northern Irish unionists are opposed to. Irish PM Martin said yesterday that Europe would respond in a “calm and firm” way, and Bloomberg’s report suggested the draft bill could be presented to the House of Commons tomorrow. Looking at yesterday’s data releases, German factory orders for April unexpectedly saw a -2.7% contraction (vs. +0.4% expansion expected). That was the third consecutive monthly decline, and was driven by a -4.0% decline in foreign orders. On the other hand, the final PMIs from the UK for May were revised up relative to the flash readings, with the composite PMI at 53.1 (vs. flash 51.8), helping sterling to strengthen +0.48% against the US Dollar. Finally, the World Bank yesterday became the latest body to downgrade their global growth forecast, now projecting a +2.9% rise in GDP for 2022 compared to their 4.1% estimate put out in January, and openly warned about the risk of stagflation. To the day ahead now, and it’s a fairly quiet one on the calendar, but data releases include German industrial production and Italian retail sales for April, as well as the UK construction PMI for May and the final reading of US wholesale inventories for April. Tyler Durden Wed, 06/08/2022 - 08:09.....»»

Category: dealsSource: nytJun 8th, 2022

Futures Slide, Yields Jump And Oil Surges As Inflation Fears Return Ahead Of Biden-Powell Meeting

Futures Slide, Yields Jump And Oil Surges As Inflation Fears Return Ahead Of Biden-Powell Meeting After posting solid gains on Monday when cash markets were closed in the US for Memorial Day, boosted by optimism that China's  covid lockdowns are effectively over, and briefly topping 4,200 - after sliding into a bear market below 3,855 just over a week earlier - on Tuesday US equity futures fell as oil’s surge following a partial ban on crude imports from Russia added to concerns over the pace of monetary tightening, exacerbated by the latest data out of Europe which found that inflation had hit a record 8.1% in May.  As of 7:15am ET, S&P futures were down 0.4% while Nasdaq futures rose 0.1% erasing earlier losses. European bourses appeared likely to snap four days of gains, easing back from a one-month high while Treasury yields climbed sharply across the curve, joining Monday’s selloff in German bunds and European bonds. The dollar advanced and bitcoin continued its solid rebound, trading just south of $32,000. Traders will be on the lookout for any surprise announcement out of the White House after 1:15pm when Joe Biden holds an Oval Office meeting with Fed Chair Jerome Powell and Janet Yellen. As noted last night, Brent oil rose to above $124 a barrel after the European Union agreed to pursue a partial embargo on Russian oil in response to the invasion of Ukraine, exacerbating inflation concerns; crude also got a boost from China easing coronavirus restrictions, helping demand. With the price of oil soaring, energy stocks also jumped in premarket trading; Exxon gained as much as 1.5% while Chevron rose as much as 1.4%, Marathon Oil +2.9%, Coterra Energy +3.7%; smaller stocks like Camber Energy +8.8% and Imperial Petroleum rose 15%, leading advance. US-listed Chinese stocks jumped, on track to wipe out their monthly losses, as easing in lockdown measures in major cities and better-than-expected economic data gave investors reasons to cheer. Shares of e-commerce giant Alibaba Group Holding Ltd. were up 4.4% in premarket trading. Among other large-cap Chinese internet stocks, JD.com Inc. advanced 6.7% and Baidu Inc. gained 7%. Cryptocurrency stocks also rose in premarket trading as Bitcoin trades above $31,500, with investors and strategists saying the digital currency is showing signs of bottoming out. Bitcoin, the largest cryptocurrency, advanced 1.2% as of 4:30 a.m. in New York. Crypto stocks that were rising in premarket trading include: Riot Blockchain +9%, Marathon Digital +8.1%, Bit Digital +6.1%, MicroStrategy +9.4%, Ebang +3.4%, Coinbase +5.3%, Silvergate Capital +5.2%. “It’s very hard to have conviction at the moment,” Mike Bell, global market strategist at JPMorgan Asset Management, said in an interview with Bloomberg Television. “We think it makes sense to be neutral on stocks and pretty neutral on bonds actually.” The possibility that Russia could retaliate to the EU move on oil by disrupting gas flows “would make me be careful about being overweight risk assets at the moment,” he said. U.S. stocks are set for a slightly positive return in May despite a dramatic month in markets, which saw seven trading days in which the S&P 500 Index posted a move bigger than 2%. Global stocks are also on track to end the month with modest gains amid skepticism about whether the market is near a trough and as volatility stays elevated. Fears that central bank rate hikes will induce a recession, stubbornly high inflation and uncertainty around how China will boost its flailing economy are keeping investors watchful. On the other hand, attractive valuations, coupled with hopes that inflation may be peaking has made investors buy up stocks. In Europe, Stoxx 600 Index was set to snap four days of gains, retreating from a one-month high, with technology stocks among the heaviest decliners. The UK's FTSE 100 outperforms, adding 0.4%, CAC 40 lags, dropping 0.6%. Travel, real estate and construction are the worst-performing sectors. Among individual stock moves in Europe, Deutsche Bank AG slipped after the lender and its asset management unit had their Frankfurt offices raided by police. Credit Suisse Group AG dropped after a Reuters report that the bank is weighing options to strengthen its capital. Unilever Plc jumped as activist investor Nelson Peltz joined its board. Royal DSM NV soared after agreeing to form a fragrances giant by combining with Firmenich. Asian stocks rose Tuesday, helped by a rally in Chinese shares after Shanghai further eased virus curbs and the nation’s factory activity showed signs of improvement.  The MSCI Asia Pacific Index climbed as much as 0.5% Tuesday, on track for the first monthly advance this year, even as investors sold US Treasuries on renewed inflation concerns. Chinese stocks capped their longest winning streak since June. “Asia has seen the worst earnings revision of any region in the world,” David Wong, senior investment strategist for equities at AllianceBernstein, told Bloomberg Television. “When the news is really bleak, that is when one wants to establish a position in Chinese equities,” he said. “It is very clear that the policy support is on its way.” Tech and communication services shares were among the biggest sectoral gainers on Tuesday.  Asia stocks are on track to eke out a gain of less than a percentage point in May as the easing of China’s lockdowns improves the growth outlook for the region. Still, the impact of aggressive monetary-policy tightening on US growth and higher energy and food costs globally are weighing on sentiment in the equity market as traders struggle to assess the earnings fallout. Japanese stocks dropped after data showed the nation’s factory output dropped in April for the first time in three months as China’s Covid-related lockdowns further disrupted supply chains.  Benchmark gauges were also lower as 22 Japanese companies were set to be deleted from MSCI global standard indexes at Tuesday’s close. The Topix Index fell 0.5% to 1,912.67 on Tuesday, while the Nikkei declined 0.3% to 27,279.80. Nippon Telegraph & Telephone Corp. contributed the most to the Topix’s drop, as the telecom-services provider slumped 2%. Among the 2,171 companies in the index, shares in 1,369 fell, 720 rose and 82 were unchanged. “Until after the FOMC in June, stocks will continue to sway,” said Shingo Ide, chief equity strategist at NLI Research Institute, said referring to the US Federal Reserve.   India’s benchmark equities index clocked its biggest monthly decline since February, as a surge in crude oil prices raised prospects of tighter central bank action to keep a lid on inflation. The S&P BSE Sensex slipped 0.6% to 55,566.41 in Mumbai, taking its monthly decline to 2.6%. The NSE Nifty 50 Index dropped 0.5% on Tuesday. Mortgage lender Housing Development Finance Corp. fell 2.6% and was the biggest drag on the Sensex, which had 16 of the 30 member stocks trading lower.  Of the 19 sectoral indexes compiled by BSE Ltd., 10 declined, led by a measure of power companies.    The price of Brent crude, a major import for India, climbed for a ninth consecutive session to trade around $124 a barrel. “The primary focus in the coming weeks will be on central banks’ policy measures to stabilize inflation,” Mitul Shah, head of research at Reliance Securities Ltd. wrote in a note. “Changes in oil prices and amendments to import and export duties might play a role in assessing the market’s trajectory.” Similarly, in Australia the S&P/ASX 200 index fell 1% to close at 7,211.20, with all sectors ending the session lower. The benchmark dropped 3% in May, notching its largest monthly decline since January. Suncorp was among the worst performers Tuesday after it was downgraded at Morgan Stanley. De Grey Mining rose after an update on its Mallina Gold Project. In New Zealand, the S&P/NZX 50 index rose 1.5% to 11,308.34. With rate hikes in full swing in the US and the UK, the ECB is preparing to lift borrowing costs for the first time in more than a decade to combat the 19-member currency bloc’s unprecedented price spike. In the US, Federal Reserve Governor Christopher Waller said he wants to keep raising interest rates in half-percentage point steps until inflation is easing back toward the central bank’s goal. In rates, Treasuries are off worst levels of the day although yields remain cheaper by 5bp-7bp across the curve as opening gap higher holds. 10-year TSY yields around 2.815%, cheaper by 7.7bp on the day, while intermediate-led losses widen 2s7s30s fly by ~4.5bp; bund yields around 2bp cheaper vs Monday close, following hot euro- zone inflation prints. European bonds also pressure Treasuries lower after euro-zone inflation accelerated to a fresh all-time high and ECB hike premium was added across front-end. Italian bond yields rose by up to 6bps after data showed that euro-zone consumer prices jumped 8.1% from a year earlier in May, exceeding the 7.8% median estimate in a Bloomberg survey. Comments from Fed’s Waller on Monday -- backing half-point hike at several meetings --  saw Treasury yields reset higher from the reopen, following US Memorial Day holiday.Front-end weakness reflects Fed hike premium returning in US swaps, with around 188bp of hikes now priced in for December FOMC vs 182bp at Friday’s close. In FX, the Bloomberg Dollar Spot Index rose 0.2% as the greenback outperformed all Group-of-10 peers apart from the Norwegian krone, though the gauge is still set for its first monthly fall in three. The euro erased Monday’s gain after data showed that euro-zone consumer prices jumped 8.1% from a year earlier in May, exceeding the 7.8% median estimate in a Bloomberg survey. Norway’s krone rallied after the central bank said it will reduce its daily foreign currency purchases on behalf of the government to the equivalent of 1.5 billion kroner ($160 million) next month. Norway has been benefiting from stronger revenue from oil and gas production as the war in Ukraine contributed to higher petroleum prices. Sterling slipped against the broadly stronger dollar. UK business confidence rose for the first time in three months in May, with more companies planning to increase prices. Cable may see its first month of gains since December. The yen fell as Treasury yields surged. Japanese government bonds also took a hit from selling in US bonds while a two-year note auction went smoothly. Australian and New Zealand bonds extended an opening fall as cash Treasuries dropped on return from a long weekend. Dollar strength weighed on the Aussie and kiwi. In commodities, Brent rises 2% to trade around $124 after European Union leaders agreed to pursue a partial ban on Russian oil. Spot gold falls roughly $4 to trade at $1,852/oz. Base metals are mixed; LME nickel falls 1.7% while LME zinc gains 0.9%. Looking at the day ahead, the data highlights will include the flash CPI reading for May from the Euro Area, as well as the country readings from France and Italy. On top of that, we’ll get German unemployment for May, UK mortgage approvals for April, and Canada’s Q1 GDP. Over in the US, there’s then the FHFA house price index for March, the Conference Board’s consumer confidence indicator for May, the MNI Chicago PMI for May and the Dallas Fed’s manufacturing activity for May. Otherwise, central bank speakers include the ECB’s Villeroy, Visco and Makhlouf. Market Snapshot S&P 500 futures little changed at 4,159.50 STOXX Europe 600 little changed at 446.27 MXAP up 0.5% to 169.92 MXAPJ up 0.9% to 559.23 Nikkei down 0.3% to 27,279.80 Topix down 0.5% to 1,912.67 Hang Seng Index up 1.4% to 21,415.20 Shanghai Composite up 1.2% to 3,186.43 Sensex little changed at 55,914.64 Australia S&P/ASX 200 down 1.0% to 7,211.17 Kospi up 0.6% to 2,685.90 German 10Y yield little changed at 1.05% Euro down 0.3% to $1.0743 Brent Futures up 1.6% to $123.60/bbl Gold spot up 0.1% to $1,856.27 U.S. Dollar Index little changed at 101.63 Top Overnight News from Bloomberg ECB Governing Council member Francois Villeroy de Galhau said the latest acceleration in inflation warrants a “gradual but resolute” normalization of monetary policy The ECB’s interest- rate hiking must proceed in an “orderly” way to avoid threatening the integrity of the euro zone, Governing Council member Ignazio Visco said German joblessness dropped the least in more than a year, pointing to labor-market vulnerabilities as the war in Ukraine and surging inflation weigh on Europe’s largest economy China’s factories still struggled in May, but the slower pace of contraction suggests that the worst of the current economic fallout may be coming to an end as the country starts to ease up on its tough lockdowns A debt crisis in China’s property industry has sparked a record wave of defaults and dragged more developer bonds down to distressed levels A more detailed look at global markets courtesy of Newsquawk Asia-Pacific stocks were mixed as most indices lacked firm direction amid month-end and mixed data. ASX 200 was subdued by tech underperformance and after a deluge of data releases. Nikkei 225 traded rangebound with the index restricted after Industrial Production data missed forecasts. Hang Seng and Shanghai Comp were initially indecisive following the Chinese PMI data which printed above estimates but remained at a contraction, although risk appetite gradually picked amid further support measures and improved COVID situation in China. Top Asian News China's Cabinet issued a series of policies to stabilise the economy, according to a Cabinet document cited by Reuters. China is to accelerate the issuance of local government special bonds and add new types of infrastructure and energy projects to the project pool eligible for fundraising, while it is to step up VAT credit rebates, boost fiscal spending and will guide actual lending rates lower. China reported 97 new COVID-19 cases on May 30th which was the first time infections were below 100 since March 2nd, according to Bloomberg. Shanghai official said the city is moving into a normalised epidemic control phase and looks to resume normal life. The official added that malls and shops will be able to reopen with capacity capped at 75% although the reopening of high-density venues such as gyms will be slower, while all workers in low-risk areas should be able to return to work from June 1st, according to Reuters. Hong Kong Chief Executive Lam said they will likely begin the third stage of easing COVID-19 restrictions in late June, according to Bloomberg. RBNZ Deputy Governor Hawkesby said the central bank needs to keep decreasing stimulus and tighten conditions beyond the neutral of 2.0%. European bourses are mixed, Euro Stoxx 50 -0.8%, with sentiment cautious after a mixed APAC handover and in wake of hot EZ CPI before Powell's meeting with Biden. Note, the FTSE 100 and AEX are bucking the trend given their exposure to Unilever after Trian Fund Management confirmed a 1.5% stake. US futures are pressured, ES -0.6%, succumbing to the broader risk moves after relatively steady initial trade as sentiment remains cautious with multiple factors in play. IATA Chief says that demand is very strong and traffic will likely return to 2019 levels nearer to 2023 than 2024. Question does remain regarding the impact of inflation on disposable incomes and travel demand. Higher oil prices will result in higher ticket prices; rule of thumb is a 10% change in ticket prices can impact demand by 1%. Top European News Senior Tory MPs said UK PM Johnson is likely to face a no-confidence vote as leader of the Conservative Party if they lose two parliamentary by-elections next month, according to FT. Pressure is increasing for the ECB to hike rates after German CPI rose to its highest in half a century, according to The Times. ECB’s Visco Insists on ‘Orderly’ Rate-Hike Pace to Avoid Stress UK Mortgage Approvals Fall to 65,974 in April Vs. Est. 70,500 UK Could Reopen Top Gas Storage to Endure Energy Crisis BNP Paribas Aims to Hire 7,000 People in France in 2022 Russia’s Biggest Lender Sberbank Targeted in EU Sanctions Plan FX Buck bounces into month end as US Treasury yields rebound amidst rally in crude prices and hawkish Fed commentary, DXY towards top of firmer 101.800-410 range. Kiwi undermined by downbeat NBNZ business survey findings and recession warning from RBNZ; NZD/USD hovering just above 0.6500 and AUD/NZD back over 1.1000. Euro fades from Fib resistance irrespective of Eurozone inflation exceeding consensus, EUR/USD down through 1.0750 vs circa 1.0787 at best on Monday. Yen hampered by mixed Japanese data and UST retreat, but back above 128.00 and retracement level (128.27 Fib retracement). Aussie limits losses alongside recovering Yuan after better than feared Chinese PMIs and economic stability policies from the Cabinet, AUD/USD stays within sight of 0.7200, USD/CNH reverses from 6.6900+ and USD/CNY from just shy of 6.6750. Petro currencies cushioned by oil gains after EU embargo on some Russian exports; USD/CAD beneath 1.2700, EUR/NOK probes 10.1000 with added impetus as Norges Bank plans to trim daily FX purchases in June. Fixed Income Bonds succumb to more downside pressure as oil soars, inflation data exceeds consensus and Central Bank hawks get more aggressive. Bunds only just hold above 152.00, Gilts lose 117.00+ status and 10 year T-note retreats through 120-00 ahead of cash re-open from 3-day holiday weekend. Bobl supply snapped up at final sale of current 5 year batch and end of month Italian offerings relatively well received, albeit at much higher gross yields. BoJ maintains bond-buying operations for June at May levels. Commodities WTI and Brent are bid as China's COVID situation remains fluid, but with incremental improvements, alongside EU leaders reaching a watered-down Russian sanctions package. Currently, the benchmarks are holding comfortably above USD 119/bbl and in proximity to the top-end of the sessions range. Reminder, given the US market holiday there was no settlement on Monday. IEA's Birol says oil market could get tight in the summer and sees bottlenecks with diesel, gasoline, and kerosene, especially in Europe. Spot gold is modestly pressured but yet to stray much from the USD 1850/oz mark while base metals are mixed as sentiment slips. Central Banks ECB's Visco says rate hikes will need to be gradual given uncertainties, recent widening in the IT/GE spread shows the need to strengthen public finances and lower debt. Need to ensure tha t normalisation does not lead to unwarranted fragmentation in the Eurozone. ECB's Villeroy says the May inflation numbers confirm expectations for an increase and need for progressive monetary normalisation. Speaking in relation to the French inflation data. US Event Calendar 09:00: 1Q House Price Purchase Index QoQ, prior 3.3% 09:00: March S&P/Case-Shiller US HPI YoY, prior 19.80% 09:00: March S&P/CS 20 City MoM SA, est. 1.90%, prior 2.39% 09:00: March S&P CS Composite-20 YoY, est. 19.80%, prior 20.20% 09:00: March FHFA House Price Index MoM, est. 2.0%, prior 2.1% 09:45: May MNI Chicago PMI, est. 55.0, prior 56.4 10:00: May Conf. Board Expectations, prior 77.2 10:00: May Conf. Board Present Situation, prior 152.6 10:00: May Conf. Board Consumer Confidenc, est. 103.8, prior 107.3 10:30: May Dallas Fed Manf. Activity, est. 1.5, prior 1.1 DB's Jim Reid concludes the overnight wrap Yesterday we published our May market participant survey with 560 filling in across the globe. The highlights were that property was seen as the best inflation hedge with crypto only winning favour with 1%. 61% think a recession will be necessary to rein in inflation but less think the Fed will be brave enough to take us there. A majority think the ECB will have to throw in a 50bps hike at some point in this cycle but only around a quarter think the Fed will do a 75bps hike. Only a quarter think equities have now bottomed over a horizon of the next 3-6 months but responders have reduced their view of bubbles in the market from the last time we asked. Finally inflation expectations continue to edge up. See the link here for lots of interesting observations and thanks again for your continued support. It may have been a quieter session over the last 24 hours with the US on holiday, but inflation concerns were put firmly back on the agenda thanks to another upside surprise in German inflation, as well as a further rise in oil prices that sent Brent Crude back above $120/bbl (it was as low as $102 three weeks ago). That led to a fresh selloff in sovereign bonds, as well as growing speculation about more hawkish central banks, which marks a shift in the dominant narrative over the last couple of weeks, when growing fears of a recession had led to a rally in sovereign bonds, not least since there were growing doubts about the extent to which central banks would be able to take policy into restrictive territory, if at all. In reality though, that German inflation print for May provided significant ammunition to the hawkish side of the argument, with the EU-harmonised reading coming in above every estimate on Bloomberg at +8.7% (vs. +8.1% expected). For reference, that leaves German CPI at its highest level since the 1950s (using the numbers for West Germany before reunification), and that holds even if you use the national definition of CPI, which rose to a slightly lower +7.9% (vs. +7.6% expected). It was a similar story from Spain earlier in the day, which reported inflation on the EU-harmonised measure at +8.5% (vs. +8.3% expected). Speaking to our German economist Stefan Schneider he thinks temporary energy tax reductions should reduce the annual rate to below 7% in June but it’s likely that it’ll be back above 7% by September when this and other charges roll-off, and then only modestly fall into year-end. That’s a long period of high inflation where second round effect and wage pressures can build. With upside surprises from both Germany and Spain yesterday, that’ll heighten interest in this morning’s flash CPI print for the entire Euro Area, not least since the next ECB meeting is just 9 days away. Indeed, those bumper inflation readings have only added to expectations that the ECB will follow the Fed in moving by a larger-than-usual 50bps rather than 25bps once they start hiking. Overnight index swaps reacted accordingly, and are now pricing in a +33bps move higher in rates by the July meeting, which is the highest to date and leaves it just a few basis points away from being closer to 50bps than 25bps. On top of that, the amount of hikes priced in for the year as a whole rose to 114bps, which again is the highest to date. Ahead of that meeting, there were some further comments from policymakers, with the ECB’s Chief Economist Lane saying in an interview that “increases of 25 basis points in the July and September meetings are a benchmark pace.” Interestingly he didn’t rule out the possibility of a 50bp move, saying that “The discussion will be had”, but also said that their “current assessment … calls for a gradual approach to normalisation.” Against that backdrop, there was a significant selloff in European sovereign bonds, with yields on 10yr bunds (+9.4bps), OATs (+8.5bps) and BTPs (+9.9bps) all moving higher. The prospect of tighter policy meant those rises in yields were more pronounced at the front end of the curve, with 2yr German yields up +10.9bps to 0.43%, which is a level unseen in over a decade. The only major exception to that pattern were Swedish government bonds, where 10yr yields were down -6.2bps after the country’s economy contracted by a larger-than-expected -0.8% in Q1, which was above the -0.4% contraction in the flash estimate from April. Whilst Treasury markets were closed for the US Memorial Day holiday, Fed funds futures provided a sense that the direction of travel was similar in the US to Europe, since the implied fed funds rate by the December FOMC meeting ticked up +7bps. Furthermore, we also had a speech from Fed Governor Waller, who commented that he was in favour of “tightening policy by another 50 basis points for several meetings”, and said that he was “not taking 50 basis-point hikes off the table until I see inflation coming down closer to our 2% target”. Up to now, there’s been a pretty strong signal from Fed Chair Powell and others that 50bps were likely at the next two meetings (in June and July), but in September there’s been speculation they might begin to slow down to a 25bp pace, with futures currently pricing in something in between the two at present. In Asia, US sovereign yields are playing catch-up after reopening with 2yr through to 10yr yields 8-11bps higher across the curve. The main other story yesterday was a significant rise in oil prices, with Brent Crude up +1.97% on the day to close at $121.15/bbl, whilst WTI rose +1.82% to $117.17/bbl. That marks an 8th consecutive daily increase in Brent Crude prices, and leaves it at its highest closing level in over two months, and will not be welcome news for policymakers already grappling with higher energy prices. Part of that increase has come amidst the easing of Covid restrictions in China, but the prospect of an EU embargo on Russian oil has also played a role. Indeed, following an extraordinary European Council summit, EU leaders agreed late last night, a political deal to impose a partial ban on most Russian oil imports. Under a compromise plan, the 27-nation bloc has decided to cut 90% of oil imports from Russia by the end of 2022 with EU leaders agreeing to exempt Hungary from Russian oil embargo. The embargo will cover seaborne oil and partially exempt pipeline oil thus providing an important concession to the landlocked nation. Following this, oil prices are building on yesterday's gains with Brent and WTI up just under 1.5% as I type. Asian equity markets are mostly treading water this morning but with China higher. The Nikkei (+0.13%), Hang Seng (+0.24%) and Kospi (+0.11%) are slightly higher with the Shanghai Composite (+0.75%) and CSI (+0.98%) leading gains after China’s official factory activity contracted at a slower pace. The official manufacturing PMI advanced to 49.6 in May (vs 49.0 expected) from 47.4, as COVID-19 curbs in major manufacturing hubs were eased. This is still three months below 50 now. In line with the weakness in the factory sector, services sector activity remained soft, but did bounce. The non-manufacturing PMI came in at 47.8 in May, up from 41.9 in April. US equities were closed for the holiday yesterday, but in spite of the prospect of faster rate hikes being back on the table, futures still managed to put in a decent performance, with those on the S&P 500 up over +0.5% around the time of the European close. That's dipped to +0.2% as I type though. European indices made gains, with the STOXX 600 up +0.59% thanks to an outperformance among the more cyclical sectors, and the index built on its +2.98% advance last week. Those gains were seen across the continent, with the DAX (+0.79%), the CAC 40 (+0.72%) and the FTSE 100 (+0.19%) all moving higher on the day. Finally, there wasn’t much other data yesterday, although the European Commission’s economic sentiment indicator for the Euro Area stabilised in May having fallen in all but one month since October. The measure came in at 105.0 (vs. 104.9 expected), up from a revised 104.9 in April. To the day ahead now, and the data highlights will include the flash CPI reading for May from the Euro Area, as well as the country readings from France and Italy. On top of that, we’ll get German unemployment for May, UK mortgage approvals for April, and Canada’s Q1 GDP. Over in the US, there’s then the FHFA house price index for March, the Conference Board’s consumer confidence indicator for May, the MNI Chicago PMI for May and the Dallas Fed’s manufacturing activity for May. Otherwise, central bank speakers include the ECB’s Villeroy, Visco and Makhlouf. Tyler Durden Tue, 05/31/2022 - 07:51.....»»

Category: worldSource: nytMay 31st, 2022

The New York Times" Dramatic Shift On Victory In Ukraine

The New York Times' Dramatic Shift On Victory In Ukraine Authored by John Walsh via Consortium News, On May 11 The New York Times ran an article documenting that all was not going well for the U.S. in Ukraine, and a companion opinion piece hinting that a shift in direction might be in order. Then on May 19, the editorial board, the full Magisterium of the Times, moved from hints to a clarion call for a change in direction, declaring that “total victory” over Russia is not possible and that Ukraine will have to negotiate a peace in a way that reflects a “realistic assessment” and the “limits” of U.S. commitment. The Times serves as one the main shapers of public opinion for the elite and so its pronouncements are not to be taken lightly. US Limits The editorial contains the following key passages: “In March, this board argued that the message from the United States and its allies to Ukrainians and Russians alike must be: No matter how long it takes, Ukraine will be free. …” “That goal cannot shift, but in the end, it is still not in America’s best interest to plunge into an all-out war with Russia, even if a negotiated peace may require Ukraine to make some hard decisions.”  And, to ensure that there is no ambiguity, it went on: “A decisive military victory for Ukraine over Russia, in which Ukraine regains all the territory Russia has seized since 2014, is not a realistic goal. …Russia remains too strong…” Image: Flickr Then, to make certain that President Joe Biden and the Ukrainians understand what they should do, it adds: “… Mr. Biden should also make clear to President Volodymyr Zelensky and his people that there is a limit to how far the United States and NATO will go to confront Russia, and limits to the arms, money and political support they can muster. It is imperative that the Ukrainian government’s decisions be based on a realistic assessment of its means and how much more destruction Ukraine can sustain.” As Ukraine’s President Volodymyr Zelensky read those words, he must surely have begun to sweat.  The voice of his masters was telling him that he and Ukraine will have to make some sacrifices for the U.S. to save face.  As he contemplates his options, his thoughts must surely run back to February 2014, and the U.S.-backed Maidan coup that culminated in the hasty exit of President Viktor Yanukovych from his office, his country and almost from this earth. Alexander Mercouris of The Duran explains the shift in Western media reporting: Too dangerous In the eyes of the Times editorial writers, the war has become a U.S. proxy war against Russia using Ukrainians as cannon fodder – and it is careening out of control:  “The current moment is a messy one in this conflict, which may explain President Biden and his cabinet’s reluctance to put down clear goal posts. “The United States and NATO are already deeply involved, militarily and economically. Unrealistic expectations could draw them ever deeper into a costly, drawn-out war… “Recent bellicose statements from Washington — President Biden’s assertion that Mr. Putin ‘cannot remain in power,’ Defense Secretary Lloyd Austin’s comment that Russia must be ‘weakened’ and the pledge by the House speaker, Nancy Pelosi, that the United States would support Ukraine ‘until victory is won’ — may be rousing proclamations of support, but they do not bring negotiations any closer.” While the Times dismisses these “rousing proclamations,” it is all too clear that for the neocons in charge of US foreign policy, the goal has always been a proxy war to bring down Russia. This has not become a proxy war; it has always been a proxy war. The neocons operate by the Wolfowitz Doctrine, enunciated in 1992, soon after the end of Cold War 1.0, by the necoconservative Paul Wolfowitz, then under secretary of defense: “We endeavor to prevent any hostile power from dominating a region whose resources would, under consolidated control, be sufficient to generate global power. “We must maintain the mechanism for deterring potential competitors from even aspiring to a larger regional or global power.” Clearly if Russia is “too strong” to be defeated in Ukraine, it is too strong to be brought down as a superpower. Paul Wolfowitz, then deputy secretary of defense, on March 1, 2001. Image: DoD What Changed? After seven years of slaughter in the Donbas and three months of warfare in southern Ukraine, has the Times editorial board suddenly had a rush of compassion for all the victims of the war and the destruction of Ukraine and changed its opinion?  Given the record of the Times over the decades, it would seem that other factors are at work. First of all, Russia has handled the situation unexpectedly well despite dire predictions from the West. Russian President Vladimir Putin’s support exceeds 80 percent. Out of 195 nations, 165 —including India and China with 35 percent of the world’s population —have refused to join sanctions against Russia, leaving the U.S., not Russia, relatively isolated in the world.  The ruble, which Biden said would be “rubble,” has not only returned to its pre-February levels but is trading recently around a two-year high of about 60 rubles to the dollar compared to 150 in March.  Russia is expecting a bumper harvest and the world is eager for its wheat and fertilizer, oil and gas all of which provide substantial revenue. The EU has largely succumbed to Russia’s demand to be paid for gas in rubles.  U.S. Treasury Secretary Yellin is warning the suicidal Europeans that an embargo of Russian oil will further damage the economies of the West. Russian forces are making slow but steady progress across southern and eastern Ukraine after winning in Mariupol, the biggest battle of the war so far, and a demoralizing defeat for Ukraine. In the U.S., inflation, which was already high before the Ukraine crisis, has been driven even higher and reached over 8 percent with the Federal Reserve now scrambling to control it by raising interest rates.  Partly as a result of this, the stock market has come close to bear territory.  As the war progresses, many have joined Ben Bernanke, former Fed Chair, in predicting a period of high unemployment, high inflation and low growth — the dread stagflation.  US Treasury Secretary Janet Yellen at World Bank meeting in March. Image: World Bank Domestically, there are signs of deterioration in support of the war.  Most strikingly, 57 House Republicans and 11 Senate Republicans voted against the latest package of weaponry to Ukraine, bundled with considerable pork and hidden bonanzas for the war profiteers.  (Strikingly no Democrat, not a single one, not even the most “progressive” voted against pouring fuel on the fire of war raging in Ukraine.  But that is another story.)  And while US public opinion remains in favor of U.S. involvement in Ukraine there are signs of slippage.  For example, Pew reports that those feeling the U.S. is not doing enough declined from March to May.  As more stagflation takes hold with gas and food prices growing and voices like those of Tucker Carlson and Rand Paul pointing out the connection between the inflation and the war, discontent is certain to grow. Finally, as the war becomes less popular and it takes its toll, an electoral disaster looms ahead in 2022 and 2024 for Biden and the Democratic Party, for which the Times serves as a mouthpiece. Note of Panic There is a note of panic in this appeal to find a negotiated solution now.  The US and Russia are the world’s major nuclear powers with thousands of nuclear missiles on launch-on-warning, aka hair-trigger alert.  At moments of high tension, the possibilities of accidental nuclear Armageddon are all too real.  Biden’s ability to stay in command of events is in question. Many people of his age can handle a situation like this, but many cannot and he seems to be in the latter category. The neocons are now in control of the foreign policy of the Biden administration, the Democratic Party and most of the Republican Party. But will the neocons in charge give up and move in a reasonable and peaceful direction as the Times editorial demands?  This is a fantasy of the first order.  As other commentators have observed, hawks such as Secretary of State Antony Blinken, Under Secretary for Political Affairs Victoria Nuland and National Security Advisor Jake Sullivan have no reverse gear; they always double down. They do not serve the interests of humanity nor do they serve the interests of the American people. They are in reality traitors to the US.  They must be exposed, discredited and pushed aside. Our survival depends on it. Tyler Durden Mon, 05/30/2022 - 20:20.....»»

Category: worldSource: nytMay 30th, 2022

Futures Rise As Dip Buyers Emerge To Cap Best Week Since Mid-March

Futures Rise As Dip Buyers Emerge To Cap Best Week Since Mid-March Unless stocks crater today, and the S&P tumbles by 4.3%, the streak of seven consecutive weekly declines in the S&P is about to end... ... as US stock futures rose again on Friday, their third consecutive gain, setting up the underlying indexes for the first strong weekly finish since late March on signs consumers remain resilient despite inflationary pressures, as upbeat earnings from Alibaba and Baidu eased some fears on the economic impact of China’s Covid lockdowns, and as investors (mostly retail) have staged a cautious return to the market hoping that the selloff earlier this month left valuations at bargain levels. Nasdaq 100 contracts rose 0.5% by 7:15 a.m. in New York, while S&P 500 futures were up 0.4%. Still, even after the recent rout, upside may be limited as the S&P 500’s 12-month fwd P/E ratio is now near its 10-year average. Among notable moves in premarket trading, Gap Inc. shares sank as much as 17% as analysts after analysts said that the retailer’s guidance cut was worse than expected, prompting brokers to lower their targets and downgrade the stock given a worsening macroeconomic environment could trigger further bad news. China's Uber, Didi Chuxing, jumped after a Bloomberg News report that state-owned automaker China FAW Group is considering acquiring a significant stake in the ride-hailing company. Zscaler Inc. rose after the security software company reported results above expectations.  Here are some other notable premarket movers: Gap (GPS US) shares dropped as much as 17% in US premarket trading with analysts saying that the retailer’s guidance cut was more than expected, prompting brokers to lower their targets and downgrade the stock given a worsening macroeconomic environment could trigger further bad news. Costco (COST US) shares dropped 2.1% in US after-hours trading on Thursday. While Costco’s margins disappointed analysts, brokers were generally positive on how the wholesale retailer is navigating an environment with rising inflation by controlling expenses. Zscaler (ZS US) shares rose 2% in extended trading on Thursday, after the security software company reported third- quarter results that beat expectations and raised its full-year forecast. Analysts lauded strength in multi-product deals. Marvell Technology (MRVL US) shares climbed 3.4% in US postmarket trading after results. Analysts highlighted that the semiconductor maker is seeing strength across key markets, in particular across data center and carrier infrastructure. 23andMe Holding Co. (ME US) dropped 8.3% in postmarket trading Thursday. It is in a “tough spot,” Citi says in note after the consumer genetics firm gave a fiscal 2023 revenue forecast that missed expectations. Workday (WDAY US) shares fell 9% in extended trading on Thursday, after the software company reported adjusted first-quarter earnings that missed expectations. Analysts noted that software deals were pushed out of the quarter and cut their price targets as they factored in the increased global uncertainty. The latest round of retail earnings have restored some confidence in consumer demand, lifting appetite for risk assets, while speculation is growing that the Federal Reserve will pause its rate hikes later this year as inflation shows signs of peaking. Still, Citigroup strategists on Friday cut their recommendation on US stocks to neutral on the risk of a recession, joining an increasing number of banks in warning of a growth slowdown. The path for the Federal Reserve to successfully bring inflation down while keeping the rate of economic growth above zero is narrow, according to Mark Haefele, chief investment officer at UBS Global Wealth Management. “If Fed policymakers underestimate the strength of the US economy, we face an extended period of above-target inflation. If they overestimate it, we face a recession. And we can’t know with great conviction which path we’re on,” he wrote in a note. Global stock funds saw their biggest inflows in 10 weeks, led by US stocks, according to EPFR data, as cheaper valuations lured buyers after a steep selloff on recession fears. The selloff made valuations attractive and enticed investors back into a market still shadowed by worries about inflation and higher interest rates, China’s downbeat economic outlook and the war in Ukraine. “We may see a little bit more stability here because we have repriced the stocks so much already,” Anastasia Amoroso, iCapital chief investment strategist, said on Bloomberg Television. “In the next three to six months it’s still going to be a constrained market environment.” Meanwhile, China-US tensions are once again being played out after direct comments from Secretary of State Antony Blinken aimed at Chinese President Xi Jinping. And in a fresh challenge to Beijing, the US and Taiwan are planning to announce negotiations to deepen economic ties. And elseshwere, as the Russins war in Ukraine approaches 100 days, the US may announce a new package of aid for Kyiv as soon as next week that would include long-range rocket systems and other advanced weapons. Boris Johnson urged further military support for Ukraine, including sending it more offensive weapons such as Multiple Launch Rocket Systems that can strike targets from much further away. Russia’s efforts to avoid its first foreign default in a century are back in focus on Friday, when investors are supposed to receive about $100 million in interest on Russian debt. Turning back to markets, consumer and technology sectors led gains in Europe’s Stoxx 600 which rose 0.9%, and was headed for its best weekly advance since mid-March, while utilities and energy shared lagged after the UK government announced windfall tax plans on oil and gas companies on Thursday. BP Plc said it will look again at its plans in the country. Here are some of the more notable movers in Europe: Cantargia gains as much as 23%, the largest intraday rise since December, after releasing three research updates late Thursday. The interim readout for the company’s nadunolimab (CAN04), used in combination with gemcitabine and nab-paclitaxel as a first line treatment of PDAC, a type of pancreatic cancer, was the most interesting of the data releases, according Kempen. FirstGroup shares jump as much as 9.8%, extending the gains from yesterday’s confirmation that the public transport operator received an unsolicited takeover approach from I Squared. Richemont shares rise as much as 8.3%, heading for their best weekly advance since November, pushing the Swiss Market Index higher as dip buyers returned more broadly this week. European miners advance for a third day, outperforming all other sectors on the Stoxx 600 on Friday as iron ore futures climb and metals posted broad gains. Hapag-Lloyd falls as much as 7.1% after Citi cut the recommendation to neutral from buy due to valuation versus peers. In note on European shipping, broker says it expects the supply and demand dynamics to remain favorable in the near term. Rieter Holding falls as much as 5.4% as Baader Helvea downgrades its recommendation to reduce from add after the manufacturer of chemical fiber systems said that it’s seeing a challenging first half. Earlier in the session, Asian stocks also advanced as upbeat earnings from Alibaba and Baidu eased some fears on the economic impact of China’s Covid lockdowns and fueled risk-on sentiment. The MSCI Asia Pacific Index rose 1.6%, poised for its first gain in four sessions, led by consumer discretionary and technology shares. Most markets in the region were up, led by Hong Kong.  Alibaba and Baidu both delivered better-than-expected quarterly sales growth, providing investors with some relief after Tencent’s recent lackluster report and amid concerns over China’s virus measure and regulatory crackdowns. The Hang Seng Tech Index, which tracks the nation’s tech giants listed in Hong Kong, surged 3.8%. Asian equities have gained about 0.7% this week, set for a back-to-back weekly advance as dip buyers emerged. The regional MSCI benchmark is still down about 14% this year amid ongoing market concerns over global inflation and higher US interest rates, China’s economic outlook and the war in Ukraine. “The risk of a bull trap cannot be dismissed,” Vishnu Varathan, the head of economics and strategy at Mizuho Bank, wrote in a note. “Bear markets are famous for the pockets of relief rallies,” and increasing strains on liquidity in the coming quarters “may not pass without pain.” Japan’s stocks likewise advanced as the nation prepared to reopen to foreign tourists and China’s tech shares jumped.    The Topix rose 0.5% to 1,887.30 as of the 3pm close in Tokyo, while the Nikkei 225 advanced 0.7% to 26,781.68. Tokyo Electron Ltd. contributed the most to the Topix’s gain, increasing 3.2%. Out of 2,171 shares in the index, 1,480 rose and 615 fell, while 76 were unchanged In Australia, the S&P/ASX 200 index rose 1.1% to close at 7,182.70, the highest level since May 6, led by energy and consumer discretionary shares. Woodside Energy Group was among the biggest gainers as US crude and gasoline stockpiles showed signs of continuing decline ahead of the summer driving season. Appen was the top decliner after saying that Telus revoked its indicative proposal for a takeover. In New Zealand, the S&P/NZX 50 index fell 0.3% to 11,065.15 In FX, the Bloomberg Dollar Spot Index slumped as the dollar was steady to weaker against all of its Group-of-10 peers. Treasuries were steady across the curve. The euro inched up to touch a fresh one- month high of 1.0765 before paring. The bund yield curve bull- flattened slightly, drawing the 10-year yield away from 1%. Risk- sensitive Antipodean and Scandinavian currencies led gains. The Australian dollar climbed as a decent retail sales print brightened the outlook and a drop in the greenback triggered buy-stops. Benchmark bonds slipped. Australian retail sales rose 0.9% m/m in April vs estimate +1% and prior +1.6%. The pound ticked higher, touching its highest level in a month against the dollar, while gilts advanced. Chancellor of the Exchequer Rishi Sunak said that his package of support for the UK economy will have a “minimal” impact on inflation. The yen advanced for a second day as lower Treasury yields weighed on the dollar. Japanese bonds rise after being sold off on Thursday In rates, Treasuries were steady, following gains in European markets where bull-flattening was observed across bunds and gilts. Yields were richer by 1bp-3bp across the curve, the 10-year yield dropped by ~2bp to 2.72%, underperforming bunds by 1.5bp, gilts by ~3bp. IG dollar issuance slate still blank in what has so far been the slowest week of the year for new deals; next week’s calendar is expected to total $25b- $30b. Focal points for US session include several economic data releases including April personal income/spending with PCE deflator. Sifma recommended 2pm close of trading for dollar-denominated fixed income ahead of US holiday weekend.    In commodities, WTI drifts 0.7% higher to trade below $115. Spot gold rises roughly $7 to trade at $1,858/oz. Most base metals are in the green; LME nickel rises 6.6%, outperforming peers. Looking to the day ahead, and data releases include US personal income and personal spending for April, as well as the preliminary wholesale inventories for that month, and the final University of Michigan consumer sentiment index for May. In the Euro Area, there’s also the M3 money supply for April. Otherwise, central bank speakers include ECB Chief Economist Lane. Market Snapshot S&P 500 futures up 0.3% to 4,068.25 STOXX Europe 600 up 0.7% to 440.64 MXAP up 1.6% to 165.89 MXAPJ up 2.1% to 542.44 Nikkei up 0.7% to 26,781.68 Topix up 0.5% to 1,887.30 Hang Seng Index up 2.9% to 20,697.36 Shanghai Composite up 0.2% to 3,130.24 Sensex up 1.2% to 54,919.92 Australia S&P/ASX 200 up 1.1% to 7,182.71 Kospi up 1.0% to 2,638.05 German 10Y yield little changed at 0.99% Euro up 0.1% to $1.0737 Brent Futures up 0.4% to $117.91/bbl Gold spot up 0.5% to $1,859.48 U.S. Dollar Index down 0.16% to 101.67 Top Overnight News from Bloomberg The path for Russia to keep sidestepping its first foreign default in a century is turning more onerous as another coupon comes due on the warring nation’s debt. Investors are supposed to receive about $100 million of interest on Russian foreign debt in their accounts by Friday, payments President Vladimir Putin’s government says it has already made China’s oil trading giant Unipec has significantly increased the number of hired tankers to ship a key crude from eastern Russia A central bank legal proposal envisages Russian eurobond issuers placing “substitute” bonds in order to ensure debt payments come through to local investors, Interfax reported The US and Taiwan are planning to announce negotiations to deepen economic ties, people familiar with the matter said, in a fresh challenge to Beijing, which has cautioned Washington on its relationship with the island. Profits at Chinese industrial firms shrank last month for the first time in two years as Covid outbreaks and lockdowns disrupted factory production, transport logistics and sales “The process of increasing interest rates should be gradual,” ECB Governing Council member Pablo Hernandez de Cos comments in op- ed in Expansion. “The aim is to avoid abrupt movements, which could be particularly damaging in a context of high uncertainty such as the current one” The RBA is poised for its first review in a generation as new Treasurer Jim Chalmers makes good on a pledge to ensure the nation’s monetary and fiscal regimes are fit for purpose The UK signed its first trade agreement with a US state, amid warnings that Prime Minister Boris Johnson’s stance on Brexit is hindering progress on a broader deal with Joe Biden’s administration A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks took impetus from the risk-on mood on Wall St where all major indices were lifted amid month-end flows and encouraging retailer earnings.  ASX 200 was led higher by outperformance in the commodity and resources industries, while consumer stocks were mixed after Retail Sales printed in line with expectations, albeit at a slowdown from the prior month. Nikkei 225 traded positively but with upside capped by a mixed currency and weakness in energy and power names after increases in international prices and with the government looking to address the tight energy market. Hang Seng and Shanghai Comp were firmer with notable outperformance in Hong Kong amid a euphoric tech sector after earnings from Alibaba and Baidu topped estimates which also inspired the NASDAQ Golden Dragon China Index during the prior US session, while advances in the mainland were moderated by the contraction in April Industrial Profits and after Premier Li’s unpublished comments from Wednesday’s emergency meeting came to light in which he warned of dire consequences for the economy. Top Asian News China’s State Council will seek specific implementation rules by May 31st regarding necessary measures at all levels of government and will dispatch inspection teams to all 31 provinces, municipalities and autonomous regions to oversee the rollout amid an urgent need for national economic mobilisation, according to SGH Macro Advisors. US is seeking to hold economic discussions with Taiwan in the latest test with China, while supply chains and agriculture are said to be among the topics, according to Bloomberg. Furthermore, reports noted that bilateral economic talks will be announced in the upcoming weeks. Evergrande (3333 HK) is reportedly considering repaying offshore bondholders in instalments, according to Reuters sources; discussing giving the option of converting part of debt into equity of property management and EV units. China's Health Official says some areas along the Jilin border report local infections without a clear source, close attention should be paid to the risk of importing the virus; COVID infections show a trend of gradual spread from border to inland areas, via Reuters European bourses are firmer, Euro Stoxx 50 +0.9%, drawing impetus from APAC strength into month-end with catalysts thin thus far. Stateside, futures are supported across the board with familiar themes in play pre-PCE Price Index for insight into the 'peak' inflation narrative; ES +0.3%. Note, the FTSE 100 Unch. is the mornings underperformer amid pressure in energy names after Chancellor Sunak's windfall tax announcement on Thursday. DiDi (DIDI) has reportedly drawn interest from FAW Group, regarding a stake purchase, according to Bloomberg. +7.5% in the pre-market Top European News UK Oil Windfall Tax Prompts BP to Review Investment Plans; UK Energy Stocks Extend Windfall Declines as Retailers Gain Richemont Leads Swiss Stocks Higher as Dip Buyers Return Hapag-Lloyd Drops; Cut to Neutral at Citi on Valuation Big Dividend Payers May Be Next After UK Windfall Tax on Energy FX Greenback grinds higher ahead of PCE inflation metrics with month end rebalancing flows providing impetus, DXY bounces from fresh WTD base just under 101.500 to 101.800. Kiwi and Aussie propped by bounce in commodities and Loonie protected by further gains in crude; NZD/USD tests Fib retracement at 0.7129, AUD/USD eyes 0.7150 and USD/CAD probes 1.2750. Big option expiries in the mix and potentially supportive for the Dollar into long US holiday weekend, +1bln rolling off at NY cut not far from spot in EUR/USD, USD/JPY, AUD/USD and USD/CAD. Rand firmer as Gold touches Usd 1860/oz after 200 DMA breach, USD/ZAR below 15.7000. Fixed Income Debt futures on a firmer footing ahead of US PCE price metrics, but some way below weekly peaks. Bunds sub-154.00, Gilts under 119.00 and 10 year T-note below 121-00. Curves a tad flatter following hot reception for 7 year US issuance. Commodities Crude benchmarks are underpinned, but off best levels, by broader sentiment and initial USD weakness going into a long US weekend with Memorial Day touted as the driving seasons commencement. WTI July and Brent August, at best, were in proximity to USD 115/bbl vs troughs of USD 113.61/bbl and USD 113.77/bbl respectively. US Treasury is reportedly expected to renew Chevron’s (CVX) license to operate in Venezuela as soon as Friday, according to Reuters citing sources. China's State Planner has approved a coal mine in the Shanxi area to bolster annual output to 12mln tonnes per annum from 8mln; investment of CNY 5.35bln, via Reuters. Spot gold is steady and holding onto the bulk of overnight upside after breaching the 21-DMA at USD 1850.80/oz; USD 1860.19/oz peak, thus far. US Event Calendar 08:30: April Advance Goods Trade Balance, est. -$114.8b, prior -$125.3b, revised -$127.1b 08:30: April Retail Inventories MoM, est. 2.0%, prior 2.0% April Wholesale Inventories MoM, est. 2.0%, prior 2.3% 08:30: April Personal Income, est. 0.5%, prior 0.5%; April Personal Spending, est. 0.8%, prior 1.1% 08:30: April PCE Deflator MoM, est. 0.2%, prior 0.9%; PCE Deflator YoY, est. 6.2%, prior 6.6% April PCE Core Deflator MoM, est. 0.3%, prior 0.3%; PCE Core Deflator YoY, est. 4.9%, prior 5.2% April Real Personal Spending, est. 0.7%, prior 0.2% 10:00: May U. of Mich. Current Conditions, est. 63.6, prior 63.6; Expectations, est. 56.3, prior 56.3; Sentiment, est. 59.1, prior 59.1 10:00: May U. of Mich. 1 Yr Inflation, est. 5.4%, prior 5.4%; 5-10 Yr Inflation, prior 3.0% DB's Jim Reid concludes the overnight wrap A reminder that it’s your last chance to answer our latest monthly survey, where we try to ask questions that aren’t easy to derive from market pricing. This time we ask if you think the Fed would be willing to push the economy into recession in order to get inflation back to target. We also ask whether you think there are still bubbles in markets and whether equities have bottomed out yet. And there’s another on which is the best asset class to hedge against inflation. The more people that fill it in the more useful so all help from readers is very welcome. The link is here. I did have tickets available for tomorrow night's Champions League final but there is a big 36 hole golf tournament at my club so I decided that at my age you never know when your body will fail next so playing sport now pips watching it live. So I'll be playing golf all day, trying to rescue my marriage for an hour when I get home, and then blaring out the final on the TV at home with a couple of glasses of wine for good measure. I can't honestly think of a better day. However I may come last and Liverpool may lose so let's see what happens! The market comeback this week is on a par with some of Madrid's remarkable ones this year and indeed it’s been another strong performance over the last 24 hours, with better-than-expected outlooks from US retailers helping to bolster sentiment, coupled with growing hopes that the Fed won’t take policy much into restrictive territory, if at all. Those developments helped the S&P 500 to post a +1.99% advance yesterday, bringing its gains for the week to +4.01%, and means we should finally be on the verge of ending a run of 7 consecutive weekly losses. Obviously it’s not impossible things could end up in negative territory given recent volatility, and it was only last week the index posted a one-day decline of more than -4%, but it would still take a massive slump today to get an 8th consecutive week in the red for only the third time since the Great Depression. That advance grew stronger as the day went on, with S&P futures having actually been negative when we went to press yesterday. But sentiment was aided by a number of positive earnings developments, with Macy’s (+19.31%) boosting its adjusted EPS guidance before the US open, whilst the discount retailers Dollar Tree (+21.87%) and Dollar General (+13.72%) both surged as well thanks to decent reports of their own. That helped consumer discretionary (+4.78%) to be the top performing sector in the S&P, and in fact Dollar Tree was the top performing company in the entire index. Cyclicals were the outperformers, but defensives also shared in the advance that saw around 90% of the index’s members move higher on the day. As well as that news on the retail side, risk appetite has been further supported by growing speculation that the Fed won’t be as aggressive in hiking rates as had been speculated just a few weeks ago. I'm not sure I agree with that conclusion but if you look at the futures-implied rate by the December 2022 meeting of 2.64%, that is some way down from its peak of 2.88% back on May 3rd, and in fact means that markets have now taken out just shy of one 25bp hike from the rate implied by year end, which makes a change from that pretty consistent move higher we’ve seen over recent months. Yesterday also brought fresh signs that this re-pricing is beginning to filter its way through to the real economy, with data from Freddie Mac showing that the average rate for a 30-year mortgage fell to 5.10% last week, down from 5.25% the week before. For reference that’s the biggest weekly decline since April 2020, and comes on the back of recent housing data that’s underwhelmed against the backdrop of higher rates. There was another report fitting that pattern yesterday too, with pending home sales for April dropping by a larger than expected -3.9% (vs. -2.1% expected). But as with the retail outlooks, the more timely data was much more positive, with the weekly initial jobless claims falling to 210k (vs. 215k expected) in the week ending May 21, whilst the Kansas City Fed’s manufacturing index for May came in at 23 (vs. 15 expected). Treasuries swung back and forth against this backdrop, but ultimately the more bullish outlook led to a small steepening in the curve, with the 2yr yield down -1.6bps as 10yr yields were essentially flat at 2.75%. In a change from recent weeks, breakevens marched higher despite the little changed headline, with the 10yr breakeven up +7.0bps to come off its two-month low the previous day. But to be fair, that came amidst a big surge in oil prices after US data showed gasoline stockpiles fell to their lowest seasonal level since 2014, with Brent Crude (+2.96%) up to a 2-month high of $117.40/bbl, whilst WTI (+3.41%) rose to $114.09/bbl. European markets followed a pretty similar pattern to the US, with the STOXX 600 advancing +0.78% on the day. However, utilities (-1.12%) were the worst-performing after the UK government moved to impose a temporary windfall tax on oil and gas firms’ profits at a rate of 25%. That came as part of a wider package of measures to help with the cost of living, adding up to £15bn in total. They included a one-off payment of £650 to 8mn households in receipt of state benefits, with separate payments of £300 to pensioner households and £150 to those receiving disability benefits. There was also a doubling in the energy bills discount from £200 to £400, whilst the requirement to pay it back over five years has been removed as well. See Sanjay Raja’s blog on it here and where he also compares the measures to similar ones seen in the big 4 EuroArea economies. With more fiscal spending in the pipeline, UK gilts underperformed their counterparts elsewhere in Europe, with 10yr yields ending the day up +5.9bps. Those on bunds (+4.6bps) and OATs (+3.2bps) also rose too, but the broader risk-on tone led to a tightening in peripheral spreads, with the gap between 10yr BTPs over bunds falling -10.4bps yesterday to 189bps. There was a similar pattern on the credit side, with iTraxx crossover coming down -23.9bps to 439bps, which was its biggest daily decline in nearly 2 months. Asian equity markets are joining in the rally this morning with the Hang Seng rising +2.93% as Chinese listed tech stocks are witnessing big gains after Alibaba (+12.21%) posted better than expected Q4 earnings yesterday. Mainland Chinese stocks are also trading higher with the Shanghai Composite (+0.52%) and CSI (+0.63%) up. Elsewhere, the Nikkei (+0.63%) and Kospi (+0.89%) are also in the green. Outside of Asia, futures contracts on the S&P 500 (-0.11%) and NASDAQ 100 (-0.14%) are seeing mild losses. Data released earlier showed that Tokyo’s core CPI rose +1.9% y/y in May versus +2.0% expected. Core core was +0.9% y/y as expected with nothing here at the moment to change the BoJ's stance. Elsewhere, China’s industrial profits (-8.5% y/y) shrank at the fastest pace in two years in April, swinging from a +12.2% gain in March. On the geopolitical front, we heard from US Secretary of State Blinken yesterday, who gave a significant speech on the Biden Administration’s China policy. Blinken zoomed out to give a view of the forest from the trees, noting that the Russia-Ukraine conflict was not as strategically important as America’s relationship with China over the long-run. He offered a three pillar strategy for managing the relationship with China that involved investing in US competitiveness, aligning strategy with allies to enhance effectiveness, and to compete with China across economic, military, and technological frontiers. He noted the countries’ two different political systems need not impair connection between its peoples, or inhibit dialogue. Staying on the US-China front but switching gears, a bi-partisan group of US senators sent a letter to President Biden urging him to keep tariffs on China, to improve the US’s negotiating position in future deals, pouring cold water on the prospects for tariff relief to provide a temporary salve to raging price pressures. To the day ahead, and data releases include US personal income and personal spending for April, as well as the preliminary wholesale inventories for that month, and the final University of Michigan consumer sentiment index for May. In the Euro Area, there’s also the M3 money supply for April. Otherwise, central bank speakers include ECB Chief Economist Lane.   Tyler Durden Fri, 05/27/2022 - 07:54.....»»

Category: blogSource: zerohedgeMay 27th, 2022

Futures Slide Before Fed Minutes, Dollar Jumps As China Lockdown Fears Return

Futures Slide Before Fed Minutes, Dollar Jumps As China Lockdown Fears Return Another day, another failure by markets to hold on to even the smallest overnight gains: US futures erased earlier profits and dipped as traders prepared for potential volatility surrounding the release of the Federal Reserve’s minutes which may provide insight into the central bank’s tightening path, while fears over Chinese lockdowns returned as Beijing recorded more Covid cases and the nearby port city of Tianjin locked down a city-center district. Contracts on the Nasdaq 100 and the S&P 500 were each down 0.5% at 7:30 a.m. in New York after gaining as much as 1% earlier, signaling an extension to Tuesday’s slide that followed a profit warning from Snap. In premarket trading, Nordstrom jumped 10% after raising its forecast for earnings and revenue for the coming year suggesting that the luxury consumer is doing quite fine even as most of the middle class has tapped out; analysts highlighted the department store’s exposure to higher-end customers.Meanwhile, Wendy’s surged 12% after shareholder Trian Fund Management, billionaire Nelson Peltz' investment vehicle, said it will explore a transaction that could give it control of the fast-food chain. Here are the most notable premarket movers in the US: Urban Outfitters (URBN US) shares rose as much as 5.7% in premarket trading after Nordstrom’s annual forecasts provided some relief for the beaten down retail sector. Shares rallied even as Urban Outfitters reported lower-than-expected profit and sales for the 1Q. Best Buy (BBY US) shares could be in focus as Citi cuts its price target on electronics retailer to a new Street-low of $65 from $80, saying that there continues to be “significant risk” to 2H estimates. Dick’s Sporting Goods (DKS US) sinks as much as 20% premarket after the retailer cut its year adjusted earnings per share and comparable sales guidance for the full year. Peers including Big 5 Sporting Goods, Hibbett and Foot Locker also fell after the DKS earnings release 2U Inc. (TWOU US) shares drop as much as 4.3% in US premarket trading after Piper Sandler downgraded the online educational services provider to underweight from neutral, with broker flagging growing regulatory risk. Verrica Pharma (VRCA US) shares slump as much as 61% in US premarket trading after the drug developer received an FDA Complete Response Letter for its VP-102 molluscum treatment. Shopify’s (SHOP US) U.S.-listed shares fell 0.7% in premarket trading after a second prominent shareholder advisory firm ISS joined its peer Glass Lewis to oppose the Canadian company’s plan to give CEO Tobi Lutke a special “founder share” that will preserve his voting power. Cazoo (CZOO US) shares declined 3.3% in premarket trading as Goldman Sachs initiated coverage of the stock with a neutral recommendation, saying the company is well positioned to capture the significant growth in online used car sales. CME Group (CME US Equity) may be in focus as its stock was upgraded to outperform from market perform at Oppenheimer on attractive valuation and an “appealing” dividend policy. US stocks have slumped this year, with the S&P 500 flirting with a bear market on Friday, as investors fear that the Fed’s active monetary tightening will plunge the economy into a recession: as Bloomberg notes, amid surging inflation, lackluster earnings and bleak company guidance have added to market concerns. The tech sector has been particularly in focus amid higher rates, which mean a bigger discount for the present value of future profits. The Nasdaq 100 index has tumbled to the lowest since November 2020 and its 12-month forward price-to-earnings ratio of 19.7 is the lowest since the start of the pandemic and below its 10-year average. “The consumer in the US is still showing really good signs of strength,” said Michael Metcalfe, global head of macro strategy at State Street Global Markets. “Even if there is a slowdown it’s going to be quite mild,” he said in an interview with Bloomberg Television. Meanwhile, Barclays Plc strategists including Emmanuel Cau see scope for stocks to fall further if outflows from mutual funds pick up, unless recession fears are alleviated. Retail investors have also not yet fully capitulated and “still look to be buying dips in old favorites in tech/growth,” the strategists said. "Our central scenario remains that a recession can be avoided and that geopolitical risks will moderate over the course of the year, allowing equities to move higher,” said Mark Haefele,  chief investment officer at UBS Global Wealth Management. “But recent market falls have underlined the importance of being selective and considering strategies that mitigate volatility." The Fed raised interest rates by 50 basis points earlier this month -- to a target range of 0.75% to 1% -- and Chair Jerome Powell has signaled it was on track to make similar-sized moves at its meetings in June and July. Investors are now awaiting the release of the May 3-4 meeting minutes later on Wednesday to evaluate the future path of rate hikes. However, in recent days, traders have dialed back the expected pace of Fed interest-rate increases over worse-than-expected economic data and the selloff in equities. Sales of new US homes fell more in April than economists forecast, and the Richmond Fed’s measure of business activity dropped to a two-year low. The yield on the 10-year Treasury slipped for a second day to 2.73%. “Given the risks to growth and our view that positive real rates will be unmanageable for any significant length of time, we expect the Fed to deliver less tightening in 2022 overall than it and markets currently expect,” Salman Ahmed, global head of macro and strategic asset allocation at Fidelity International, wrote in a note. In Europe, stocks pared an earlier advance but hold in the green while the dollar rallies. The Stoxx 600 gave back most of the morning’s gains with autos, financial services and travel weighing while miners and utilities outperformed. The euro slid as comments by European Central Bank officials indicated policy normalization will be gradual. The ECB is in the midst of a debate over how aggressive it should act to rein in inflation. Here are some of the most notable European movers today: SSE shares rise as much as 6.3% after strong guidance and amid reports that electricity generators are likely to escape windfall taxes being considered by the U.K. government. Air France-KLM jumps as much as 13% in Paris after falling 21% on Tuesday as the airline kicked off a EU2.26 billion rights offering. Mining and energy stocks outperform the broader market in Europe as iron ore rebounded, while oil rose after a report that showed a decline in US gasoline stockpiles. Rio Tinto gains as much as 2.3%, Anglo American +2.6%, TotalEnergies +2.8%, Equinor +3.7% Elekta rises as much as 9.3% after releasing a 4Q earnings report that beat analysts’ expectations. Torm climbs as much as 12% after Pareto initiates coverage at buy and says the company may pay out dividends equal to 40% of its market value over the next 3 years. Mercell rises as much as 104% to NOK6.13/share after recommending a NOK6.3/share offer from Spring Cayman Bidco. Luxury stocks traded lower amid rekindled Covid-19 worries in China as Beijing continued to report new infections while nearby Tianjin locked down its city center. LVMH declines as much as 1.4%, Burberry -2.6% and Hermes -1.7% Sodexo falls as much as 5.7% after the French caterer decided not to open up the capital of its benefits & rewards unit to a partner following a review of the business. Ocado slumps as much as 8% after its grocery joint venture with Marks & Spencer slashed its forecast for FY22 sales growth to low single digits, rather than around 10% guided previously. Earlier in the session, Asian stocks were steady as traders continued to gauge growth concerns and fears of a US recession. The MSCI Asia Pacific Index rose 0.1%, paring an earlier increase of as much as 0.5%, as gains in the financial sector were offset by losses in consumer names. New Zealand equities dipped on Wednesday after the central bank delivered an expected half-point interest rate hike to combat inflation. Chinese shares stabilized after the central bank and banking regulator urged lenders to boost loans as the nation grapples with ongoing Covid outbreaks. The benchmark CSI 300 Index snapped a two-day losing streak to close 0.6% higher. Asian equities have been trading sideways as the prospect of slower growth amid tighter monetary conditions, as well as China’s strict Covid policy and supply-chain disruptions, remain key overhangs for the market. In China, the country’s strict Covid policy is outweighing broad measures to support growth and keeping investors wary. Its commitment to Covid Zero means it’s all but certain to miss its economic growth target by a large margin for the first time ever. The nation’s central bank and banking regulator urged lenders to boost loans in the latest effort to shore up the battered economy. “The valuation is still nowhere near attractive and you have a number of leading indicators, whether its credit, liquidity or growth, which are not yet indicating that we want to take more risks on the market,” Frank Benzimra, head of Asia equity strategy at Societe Generale, said in a Bloomberg TV interview. He added that the preferred strategy in equities will focus on defensive plays like resources and income. Investors will get further clues on the Federal Reserve’s interest-rate policies with the release in Washington of minutes from the latest meeting on Wednesday. Concerns that the Fed’s tightening will plunge the nation into recession had spurred a sharp selloff in US shares recently. Japanese stocks ended a bumpy day lower as investors awaited minutes from the latest Federal Reserve meeting and continued to gauge the impact of China’s rising Covid cases. The Topix fell 0.1% to close at 1,876.58, while the Nikkei declined 0.3% to 26,677.80. Nintendo Co. contributed the most to the Topix Index decline, decreasing 4.3%. Out of 2,171 shares in the index, 793 rose and 1,257 fell, while 121 were unchanged. Meanwhile, Australian stocks bounced with the S&P/ASX 200 index rising 0.4% to close at 7,155.20, with banks and miners contributing the most to its move. Costa Group was the top performer after reaffirming its operating capex guidance. Chalice Mining dropped after an equity raising. In New Zealand, the S&P/NZX 50 index fell 0.7% to 11,173.37 after the RBNZ’s policy decision. The central bank raised interest rates by half a percentage point for a second straight meeting and forecast further aggressive hikes to come to tame inflation. India’s key equity indexes fell for the third consecutive session, dragged by losses in software makers as worries grow over companies’ spending on technology amid a clouded growth outlook. The S&P BSE Sensex slipped 0.6% to 53,749.26 in Mumbai, while the NSE Nifty 50 Index dropped 0.6%. The benchmark has retreated for all but four sessions this month, slipping 5.8%, dragged by Infosys, Tata Consultancy and Reliance Industries. All but two of the 19 sector sub-indexes compiled by BSE Ltd. fell on Wednesday, led by information technology stocks. Out of 30 shares in the Sensex index, 12 rose and 18 fell. The S&P BSE IT Index has lost nearly 26% this year and is trading at its lowest level since June.  In FX, the Bloomberg dollar spot index resumed rising, up 0.3% with all G-10 FX in the red against the dollar. The euro slipped and Italian bonds extended gains after comments from ECB officials. Executive board member Fabio Panetta said the ECB shouldn’t seek to raise its interest rates too far as long as the euro-area economy displays continuing signs of fragility. Board Member Olli Rehn said the ECB should raise rates to zero in autumn. The pound was steady against the dollar and gained versus the euro, paring some of its losses from Tuesday. Focus is on the long-awaited report into lockdown parties at No. 10. The BOE needs to tighten policy further to fight rising inflation, but it’s also wary of acting too quickly and risking pushing the UK into recession, according to Chief Economist Huw Pill. Sweden’s krona slumped on the back of a stronger dollar and amid data showing that consumer confidence fell to the lowest level since the global financial crisis. Yen eased as Treasury yields steadied in Asia from an overnight plunge.  China’s offshore yuan weakened for the first time in five days as Beijing recorded more Covid cases and the nearby port city of Tianjin locked down a city-center district. New Zealand dollar and sovereign yields rose after the RBNZ hiked rates by 50 basis points for a second straight meeting and forecast more aggressive tightening, with the cash rate seen peaking at 3.95% in 2023. Most emerging-market currencies also weakened against a stronger dollar as investors await minutes from the Federal Reserve’s last meeting for clues on the pace of US rate hikes.  The ruble extended its recent rally in Moscow even as Russia’s central bank moved up the date of its next interest-rate meeting by more than two weeks to stem gains in the currency with more monetary easing. Russia has been pushed closer to a potential default. US banks and individuals are barred from accepting bond payments from Russia’s government since 12:01 a.m. New York time on Wednesday, when a license that had allowed the cash to flow ended. The lira lagged most of its peers, weakening for a fourth day amid expectations that Turkey’s central bank will keep rates unchanged on Thursday even after consumer prices rose an annual 70% in April. In rates, Treasuries were steady with yields slightly richer across long-end of the curve as S&P 500 futures edge lower, holding small losses. US 10-year yields around 2.745% are slightly richer vs Tuesday’s close; long-end outperformance tightens 5s30s spread by 1.4bp on the day with 30-year yields lower by ~1bp. Bunds outperform by 2bp in 10-year sector while gilts lag slightly with no major catalyst. Focal points of US session include durable goods orders data, 5-year note auction and minutes of May 3-4 FOMC meeting. The US auction cycle resumes at 1pm ET with $48b 5-year note sale, concludes Thursday with $42b 7-year notes; Tuesday’s 2-year auction stopped through despite strong rally into bidding deadline. The WI 5-year yield at ~2.740% is ~4.5bp richer than April auction, which tailed by 0.9bp. In commodities, WTI pushed higher, heading back toward best levels of the week near $111.60. Most base metals trade in the red; LME aluminum falls 2.3%, underperforming peers. Spot gold falls roughly $10 to trade around $1,856/oz. Spot silver loses 1.1% to around. Bitcoin trades on either side of USD 30k with no real direction. Looking to the day ahead now, and central bank publications include the FOMC minutes from their May meeting and the ECB’s Financial Stability Review. Separately, we’ll hear from ECB President Lagarde, the ECB’s Rehn, Panetta, Holzmann, de Cos and Lane, BoJ Governor Kuroda, Fed Vice Chair Brainard and the BoE’s Tenreyro. Otherwise, data releases from the US include preliminary April data on durable goods orders and core capital goods orders. Market Snapshot S&P 500 futures little changed at 3,942.75 STOXX Europe 600 up 0.4% to 433.41 MXAP little changed at 163.41 MXAPJ up 0.3% to 531.42 Nikkei down 0.3% to 26,677.80 Topix little changed at 1,876.58 Hang Seng Index up 0.3% to 20,171.27 Shanghai Composite up 1.2% to 3,107.46 Sensex down 0.5% to 53,763.20 Australia S&P/ASX 200 up 0.4% to 7,155.24 Kospi up 0.4% to 2,617.22 German 10Y yield little changed at 0.94% Euro down 0.5% to $1.0677 Brent Futures up 1.0% to $114.69/bbl Gold spot down 0.5% to $1,856.22 U.S. Dollar Index up 0.30% to 102.16 Top Overnight News from Bloomberg New Zealand dollar and sovereign yields rose after the RBNZ hiked rates by 50 basis points and forecast more aggressive tightening, with the cash rate seen peaking at 3.95% in 2023 The euro slipped and Italian bonds extended gains after comments from ECB officials. Executive board member Fabio Panetta said the ECB shouldn’t seek to raise its interest rates too far as long as the euro-area economy displays continuing signs of fragility. Board Member Olli Rehn said the ECB should raise rates to zero in autumn The pound was steady against the dollar and gained versus the euro, paring some of its losses from Tuesday. Focus is on the long-awaited report into lockdown parties at No. 10 The BOE needs to tighten policy further to fight rising inflation, but it’s also wary of acting too quickly and risking pushing the UK into recession, according to Chief Economist Huw Pill Sweden’s krona slumped on the back of a stronger dollar and amid data showing that consumer confidence fell to the lowest level since the global financial crisis Yen eased as Treasury yields steadied in Asia from an overnight plunge A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks were mostly positive but with gains capped and price action choppy after a lacklustre lead from global counterparts as poor data from the US and Europe stoked growth concerns, while the region also reflected on the latest provocations by North Korea and the RBNZ’s rate increase. ASX 200 was led higher by commodity-related stocks despite the surprise contraction in Construction Work. Nikkei 225 remained subdued after recent currency inflows and with sentiment clouded by geopolitical tensions. Hang Seng and Shanghai Comp were marginally higher following further support efforts by the PBoC and CBIRC which have explored increasing loans with major institutions and with the central bank to boost credit support, although the upside is contained amid the ongoing COVID concerns and with Beijing said to tighten restrictions among essential workers. Top Asian News US SEC official said significant issues remain in reaching a deal with China over audit inspections and even if US and China reach a deal on proceeding with inspections, they would still have a long way to go, according to Bloomberg. China will be seeing a Pacific Island Agreement when Senior Diplomat Wang Yi visits the region next week, according to documents cited by Reuters. North Korea Fires Suspected ICBM as Biden Wraps Up Asia Tour Luxury Stocks Slip Again as China Covid-19 Worries Persist Asia Firms Keep SPAC Dream Alive Despite Poor Returns: ECM Watch Powerlong 2022 Dollar Bonds Fall Further, Poised for Worst Week In Europe the early optimism across the equity complex faded in early trading. Major European indices post mild broad-based gains with no real standouts. Sectors initially opened with an anti-defensive bias but have since reconfigured to a more pro-defensive one. Stateside, US equity futures have trimmed earlier gains, with relatively broad-based gains seen across the contracts; ES (+0.1%). Top European News Aiming ECB Rate at Neutral Risks Hurting Economy, Panetta Says M&S Says Russia Exit, Inflation to Prevent Profit Growth Prudential Names Citi Veteran Wadhwani as Insurer’s Next CEO EU’s Gentiloni Eyes Deal on Russian Oil Embargo: Davos Update UK’s Poorest to See Inflation Hit Near Double Pace of the Rich FX Buck builds a base before Fed speak, FOMC minutes and US data - DXY tops 102.250 compared to low of 101.640 on Tuesday. Kiwi holds up well after RBNZ hike, higher OCR outlook and Governor Orr outlining the need to tighten well beyond neutral - Nzd/Usd hovers above 0.6450 and Aud/Nzd around 1.0950. Euro pulls back sharply as ECB’s Panetta counters aggressive rate guidance with gradualism to avoid a normalisation tantrum - Eur/Usd sub-1.0700 and Eur/Gbp under 0.8550. Aussie undermined by flagging risk sentiment and contraction in Q1 construction work completed - Aud/Usd retreats through 0.7100. Loonie and Nokkie glean some underlying traction from oil returning to boiling point - Usd/Cad capped into 1.2850, Eur/Nok pivots 10.2500. Franc, Yen and Sterling all make way for Greenback revival - Usd/Chf bounces through 0.9600, Usd/Jpy over 127.00 and Cable close to 1.2500. Fixed Income Choppy trade in bonds amidst fluid risk backdrop and ongoing flood of global Central Bank rhetoric, Bunds and Gilts fade just above 154.00 and 119.00. Eurozone periphery outperforming as ECB's Panetta urges gradualism to avoid a normalisation tantrum and Knot backs President Lagarde on ZIRP by end Q3 rather than going 50 bp in one hit. US Treasuries flat-line before US data, Fed's Brainard, FOMC minutes and 5-year supply - 10 year T-note midway between 120-21/09+ parameters. Commodities WTI and Brent July futures are firmer intraday with little newsflow throughout the European morning. US Energy Inventory Data (bbls): Crude +0.6mln (exp. -0.7mln), Gasoline -4.2mln (exp. -0.6mln), Distillates -0.9mln (exp. +0.9mln), Cushing -0.7mln. Spot gold is pressured by the recovery in the Dollar but found some support at its 21 DMA. Base metals are pressured by the turn in the risk tone this morning. US Event Calendar 07:00: May MBA Mortgage Applications -1.2%, prior -11.0% 08:30: April Durable Goods Orders, est. 0.6%, prior 1.1% -Less Transportation, est. 0.5%, prior 1.4% 08:30: April Cap Goods Ship Nondef Ex Air, est. 0.5%, prior 0.4% 08:30: April Cap Goods Orders Nondef Ex Air, est. 0.5%, prior 1.3% Central Banks 12:15: Fed’s Brainard Delivers Commencement Address 14:00: May FOMC Meeting Minutes DB's Jim Reid concludes the overnight wrap This morning we’ve launched our latest monthly survey. In it we try to ask questions that aren’t easy to derive from market pricing. For example we ask whether you think a recession is a price worth paying to tame inflation back to target. We also ask whether you think the Fed will think the same. We ask whether you think bubbles are still in markets and whether the bottom is in for equities. We also ask you the best hedge against inflation from a small list of mainstream assets. Hopefully it will be of use and the more people that fill it in the more useful it might be so all help welcome. The link is here. Talking of inflation I had a huge shock yesterday. The first quote of three came back from builders for what I hope will be our last ever renovation project as we upgrade a dilapidated old outbuilding. Given the job I do I'd like to think I'm fully aware of commodity price effects and labour shortages pushing up costs but nothing could have prepared me for a quote 250% higher than what I expected. We have two quotes to come but if they don't come in nearer to my expectations then we're either going to shelve/postpone the project after a couple of years of planning or my work output might reduce as I learn how to lay bricks, plumb, tile, make and install windows and plaster amongst other things. Maybe I could sell the rights of my journey from banker to builder to Netflix to make up for lost earnings. Rather like my building quote expectations, markets came back down to earth yesterday, only avoiding a fresh closing one-year low in the S&P 500 via a late-day rally that sent the market from intra-day lows of -2.48% earlier in the session to -0.81% at the close and giving back just under half the gains from the best Monday since January. Having said that S&P futures are up +0.6% this morning so we've had a big swing from the lows yesterday afternoon. The blame for the weak market yesterday was put on weak economic data alongside negative corporate news. US tech stocks saw the biggest losses as the NASDAQ (-2.35%) hit its lowest level in over 18 months following Snap’s move to cut its profit forecasts that we mentioned in yesterday’s edition. The stock itself fell -43.08%. Indeed, the NASDAQ just barely avoided closing more than -30% (-29.85%) from its all-time high reached back in November. The S&P 500's closing loss leaves it +1.03% week to date as it tries to avoid an 8th consecutive weekly decline for just the third time since our data starts in 1928. Typical defensive sectors Utilities (+2.01%), staples (+1.66%), and real estate (+1.21%) drove the intraday recovery, so even with the broad index off the day’s lows, the decomposition points to continued growth fears. Investors had already been braced for a more difficult day following the Monday night news from Snap, but further fuel was then added to the fire after US data releases significantly underwhelmed shortly after the open. First, the flash composite PMI for May fell to 53.8 (vs. 55.7 expected), marking a second consecutive decline in that measure. And then the new home sales data for April massively underperformed with the number falling to an annualised 591k (vs. 749k expected), whilst the March reading was also revised down to an annualised 709k (vs. 763k previously). That 591k reading left new home sales at their lowest since April 2020 during the Covid shutdowns, and comes against the backdrop of a sharp rise in mortgage rates as the Fed have tightened policy, with the 30-year fixed rate reported by Freddie Mac rising from 3.11% at the end of 2021 to 5.25% in the latest reading last week. The strong defensive rotation in the S&P 500 and continued fears of a recession saw investors pour into Treasuries, which have been supported by speculation that the Fed might not be able to get far above neutral if those growth risks do materialise. Yields on 10yr Treasuries ended the day down -10.1bps at 2.75%, and the latest decline in the 10yr inflation breakeven to 2.58% leaves it at its lowest closing level since late-February, just after Russia began its invasion of Ukraine that led to a spike in global commodity prices. And with investors growing more worried about growth and less worried about inflation, Fed funds futures took out -11.5bps of expected tightening by the December meeting, and saw terminal fed funds futures pricing next year close below 3.00% for the first time in two weeks. 10 year US yields are back up a basis point this morning. Over in Europe there was much the same pattern of equity losses and advances for sovereign bonds. However, the decline in yields was more muted after there was further chatter about a potential 50bp hike from the ECB. Austrian central bank governor Holzmann said that “A bigger step at the start of our rate-hike cycle would make sense”, and Latvian central bank governor Kazaks also said that a 50bp hike was “certainly one thing that we could discuss”. Along with Dutch central bank governor Knot, that’s now 3 members of the Governing Council who’ve openly discussed the potential they could move by 50bps as the Fed has done, and markets seem to be increasingly pricing in a chance of that, with the amount of hikes priced in by the July meeting closing at a fresh high of 32.5bps yesterday. In spite of the growing talk about a 50bp move at a single meeting, the broader risk-off tone yesterday led to a decline in sovereign bond yields across the continent, with those on 10yr bunds (-4.9bps), OATs (-4.3bps) and BTPs (-5.9bps) all falling back. Equities struggled alongside their US counterparts, and the STOXX 600 (-1.14%) ended the day lower, as did the DAX (-1.80%) and the CAC 40 (-1.66%). The flash PMIs were also somewhat underwhelming at the margins, with the Euro Area composite PMI falling a bit more than expected to 54.9 (vs. 55.1 expected). Over in the UK there were even larger moves after the country’s flash PMIs significantly underperformed expectations. The composite PMI fell to 51.8 (vs. 56.5 expected), which is the lowest reading since February 2021 when the country was still in lockdown. In turn, that saw sterling weaken against the other major currencies as investors dialled back the amount of expected tightening from the Bank of England, with a fall of -0.44% against the US dollar. That also led to a relative outperformance in gilts, with 10yr yields down -8.3bps. And on top of that, there were signs of further issues on the cost of living down the tracks, with the CEO of the UK’s energy regulator Ofgem saying that the energy price cap was set to increase to a record £2,800 in October, an increase of more than 40% from its current level. Asian equity markets are mostly trading higher this morning with the Hang Seng (+0.64%), Shanghai Composite (+0.58%), CSI (+0.17%) and Kospi (+0.80%) trading in positive territory with the Nikkei (-0.03%) trading fractionally lower. Earlier today, the Reserve Bank of New Zealand (RBNZ), in a widely anticipated move, hiked the official cash rate (OCR) by 50bps to 2.0%, its fifth-rate hike in a row in a bid to get on top of inflation which is currently running at a 31-year high. The central bank has significantly increased its forecast of how high the OCR might rise in the coming years with the cash rate jumping to about 3.4% by the end of this year and peaking at 3.95% in the third quarter of 2023. Additionally, it forecasts the OCR to start falling towards the end of 2024. Following the release of the statement, the New Zealand dollar hit a three-week high of 0.65 against the US dollar. Elsewhere, as we mentioned last week, today marks the expiration of the US Treasury Department’s temporary waiver that allowed Russia to make sovereign debt payments to US creditors. US investors will no longer be able to receive such payments, pushing Russia closer to default on its outstanding sovereign debt. To the day ahead now, and central bank publications include the FOMC minutes from their May meeting and the ECB’s Financial Stability Review. Separately, we’ll hear from ECB President Lagarde, the ECB’s Rehn, Panetta, Holzmann, de Cos and Lane, BoJ Governor Kuroda, Fed Vice Chair Brainard and the BoE’s Tenreyro. Otherwise, data releases from the US include preliminary April data on durable goods orders and core capital goods orders. Tyler Durden Wed, 05/25/2022 - 08:00.....»»

Category: blogSource: zerohedgeMay 25th, 2022

Market Rout Extends With Futures Tumbling To Verge Of Bear Market

Market Rout Extends With Futures Tumbling To Verge Of Bear Market US stock futures slumped again, extending yesterday’s brutal selloff that erased $1.5 trillion in market value on concerns about everything from slowing growth, to Chinese lockdowns, to soaring inflation and tightening monetary policy. Contracts on the S&P 500 were down 1.2% 7:30 a.m. in New York, having earlier dropped to 3,856, one point away sliding 20% from January's all time highs, and triggering a bear market. The underlying index tumbled 4% on Wednesday, the most since June 2020, as consumer shares cratered after Target slashed its profit forecast due to a surge in costs. Nasdaq 100 futures were down 1.2%. 10Y TSY Yields slumped about 7bps, dropping to 2.833, while the dollar also dropped after yesterday's surge; bitcoin was flat around $29K. The retail rout continued on Thursday: shares of US retailers again tumbled in premarket trading amid growing worries over the impact of rising inflation and the ability of companies to pass on higher costs to consumers; with Bath & Body Works becoming the latest retailer to cut its guidance. Major technology and internet stocks were also down, pointing to further losses in major technology and internet stocks a day after the tech-heavy Nasdaq slumped to its lowest since November 2020. Apple (AAPL US) -1.2%, Microsoft (MSFT US) -1.2%, Meta Platforms (FB US) -1.1%, Netflix (NFLX US) -0.9% and Nvidia (NVDA US) -2.2% in premarket trading. US rail stocks may be in focus as Citi cuts ratings on Norfolk Southern (NSC US), Union Pacific (UNP US) and US Xpress Enterprises (USX US) to neutral from buy, while lowering 2023 estimates “across the board.”Here are some other notable movers: Cisco Systems (CSCO US) plunged 13% in premarket trading after the network-gear maker spooked investors with a warning that Chinese lockdowns and other supply disruptions would wipe out sales growth in the current quarter. Shares of networking equipment makers drop after Cisco cuts outlook, with Broadcom (AVGO US) -3.6% and Juniper Networks (JNPR US) -5.9% in premarket trading. Synopsys (SNPS US) rises 3.8% in premarket trading after the supplier of software used to design semiconductors boosted its profit and revenue guidance for the full year. Target (TGT US) shares fall 2.2% in premarket trading, Walmart (WMT US) -0.3%; Kohl’s (KSS US) is in focus after two senior executives depart Under Armour (UAA US) shares dropped as much as 6% in US premarket trading, with analysts saying that the departure of the sportswear maker’s CEO Patrik Frisk is a surprise and adds uncertainty. Bath & Body Works’s (BBWI US) outlook cut was a little greater than expected, though analysts noted that it was due to higher costs and investment. The company’s shares fell almost 4% in premarket trading. United Wholesale Mortgage (UWMC US) will struggle to main its 1Q earnings level in coming quarters, Piper Sandler says in a note downgrading the stock to underweight from neutral. Shares drop as much as 7% in US premarket trading. The S&P 500 is on track for its longest weekly losing streak since 2001 as traders flee risk assets over fears that the Federal Reserve will push the economy into a recession as it tries to curb inflation. The benchmark is close to falling into a bear market, after dropping 18% from a record high in January. "The US selloff was rather orderly and the market isn’t oversold, yet. That tells us that we are likely not at the bottom yet,” said Joachim Klement, head of strategy, accounting and sustainability at Liberum Capital. “Consumer sentiment remains depressed and we are seeing consumers retrenching on some discretionary spending.”  Speaking on Tuesday in his most hawkish remarks to date, Fed Chair Jerome Powell said the US central bank will keep raising interest rates until there is “clear and convincing” evidence that inflation is in retreat. JPMorgan's Marko Kolanovic, meanwhile, said - what else - that things can get better for US stocks. “There will be no recession this year, some summer increase in consumer activity on the back of reopening, China increasing monetary and fiscal measures,” he said.  Bolstering his opinion is a conviction that US inflation has probably peaked, or is about to do so, paving the way for a pullback in price pressures that will eventually allow the Federal Reserve to moderate the pace of monetary tightening.  "Since we are pricing in a growth scare but not yet a recession, we could see further downside in the coming weeks, but we are starting to price in a very negative picture already, suggesting we should, at some point, be closer to the bottom,” said Esty Dwek, chief investment officer at Flowbank SA. US stock investors are pricing in stronger odds of a recession than are evident from positive macroeconomic indicators, according to Goldman Sachs strategists. "A recession is not inevitable,” Goldman strategists led by David J. Kostin wrote in a note. “Rotations within the US equity market indicate that investors are pricing elevated odds of a downturn compared with the strength of recent economic data.” Bets that robust earnings can help investors weather this year’s turbulence were thrown in doubt after US consumer titans signaled growing impact of high inflation on margins and consumer spending. Meanwhile, Federal Reserve officials reaffirmed that tighter monetary policy lies ahead, and investors fretted over stagflation risks. “We are pricing in a growth scare,” Lori Calvasina, the head of US equity strategy at RBC Capital Markets, told Bloomberg TV. “There is a lot of uncertainty in this market right now about whether or not that recession is going to come through or if it’s going to be another near-death experience.” There was some more good news on the China covid lockdown front: Shanghai Vice Mayor said Shanghai port throughput recovered to around 90% of the levels a year ago and that Shanghai will expand work resumption in areas with no COVID risk in early June. Furthermore, Shanghai is to gradually restore inter-district public transport from May 22nd and will require residents to show negative PCR tests taken within 48 hours before using public transport, while an economy official said Shanghai will reduce rents for small and medium-sized enterprises by more than CNY 10bln and the city extended CNY 72.3bln of loans to over 10,000 firms since March, according to Reuters. In Europe, the Stoxx 600 retreated 1.8%, after sliding more than 2% earlier, with all industry sectors in the red and personal care and financial services leading the decline as Wednesday’s retailer trouble in the U.S. spills over into Europe. FTSE 100 lags regional peers, dropping 2%. Here are some of the biggest European movers today: HomeServe shares jump as much as 12% after Brookfield agrees to buy the home emergency and repair services company for GBP4.1b. Societe Generale shares rise as much as 1.5%, as it was raised to outperform from market perform at KBW, with the broker saying the sale of Russian activities removes a key overhang for the bank and should result in a re-rating. Generali shares rose as much as 1.4% after 1Q profit beats analyst estimates as EU136m impairments on Russian investments were more than offset by higher operating income. PGNiG shares rise as much as 6.2% after reporting 1Q results that, according to analysts, support Polish gas company’s outlook. Nestle shares drop as much as 5.3% after Bernstein downgraded the stock to market perform from outperform, saying the shares will “struggle” if market sentiment improves and investors exit havens. Royal Mail shares fall as much as 14% after the postal group’s FY results slightly missed estimates and analysts said its outlook is “disappointing.” National Grid shares fall as much as 2.5%, erasing gains from yesterday’s record high, after the utility company reported full-year results. Earlier in the session, shares of Asian retailers follow their US counterparts lower after Target became the second big retailer in two days to trim its profit forecast. Australia: JB Hi-Fi retreats 6.6%, Wesfarmers -7.8%, Harvey Norman -5.5%, Woolworths -5.6% South Korea: E-Mart - 3.4%; apparel makers Hansae -9.4%, F&F -4.2%, Youngone -8.2% Japan: Fast Retailing - 3.1%, MatsukiyoCocokara -1.4%, Ryohin Keikaku -1.7%, Nitori -3% Singapore: Grocery chain operator Sheng Siong slips as much as 1.3% Hong Kong: Sun Art Retail down as much as 4.1% In China, Tencent Holdings Ltd. plunged 6.6% after warning it will take time for Beijing to act on promises to prop up the Chinese tech sector. Cisco Systems Inc. slid in extended US trading on a disappointing revenue outlook. Japan's Nikkei 225 suffered firm losses amid reports the ruling coalition is considering increasing the corporate tax rate and after several data releases in which Machinery Orders topped estimates but Exports missed as China-bound exports declined by the fastest pace since March 2020. Indian stocks declined to a ten-month low, tracking a sell-off across Asia, on concerns the US Fed’s hawkish stance on inflation may cool economic activity and hurt consumer demand.  The S&P BSE Sensex plunged 2.6% to 52,792.23, its lowest level since July 30, in Mumbai, while the NSE Nifty 50 Index slipped 2.7% to 15,809.40  Software exporter Infosys Ltd. fell 5.4% to a 11-month low and was the biggest drag on the Sensex, which had 27 of 30 member stocks trading lower. All 19 sector indexes compiled by BSE Ltd. declined, led by S&P BSE Information Technology index, that dropped the most in over two years.   “Deteriorating macro sentiment such as soaring inflation, recession fears, and the prospect of the Federal Reserve getting even more hawkish will continue to keep benchmarks on the edge,” Prashanth Tapse, an analyst at Mehta Equities Ltd., wrote in a note.  In earnings, of the 36 Nifty 50 firms that have announced results so far, 21 have either met or exceeded analyst estimates, while 15 have missed forecasts. In Australia, the S&P/ASX 200 index fell 1.7% to close at 7,064.50, tumbling with global shares as concerns over inflation, interest-rate hikes and Ukraine piled up. All sectors dropped, except for health. Consumer shares were among the worst performers, following their US peers lower after Target became the second big retailer in two days to trim its profit forecast. Aristocrat rose after it released its 1H results and unveiled buyback plans. In New Zealand, the S&P/NZX 50 index fell 0.5% to 11,206.93 And in emerging markets, Sri Lanka fell into default for the first time in its history as the government struggles to halt an economic meltdown that prompted mass protests and a political crisis. An index of developing-nation stocks slumped more than 2%. In FX, the Bloomberg dollar spot index declines, with all G-10 majors rising against the greenback. CHF is the strongest G-10 performer with USD/CHF snapping lower on to a 0.97 handle and EUR/CHF slumping below 1.03. The Swiss franc diverged from Japanese yen and dollar after hawkish comments from SNB’s Thomas Jordan Wednesday, which assured traders CHF rates could follow EUR higher. Options trades may also be behind the latest move in the spot market. In rates, Treasury yields dropped about seven basis points as investors sought insurance against further declines in risk assets. Treasury yields richer by up to 6bp across belly of the curve, richening the 2s5s30s fly by 2.2bp on the day; 10-year yields around 2.83% with German 10-year outperforming by 2.5bps. Treasuries extended Wednesday’s rally as stocks resume slide with S&P 500 futures dropping under 3,900 to lowest level in a year; on the curve, the belly led the advance while bunds outperform in a more aggressive bull-flattening move as European stocks tumble. US session highlights include 10-year TIPS reopening at 1pm ET. Flurry of block trades during London session follows a spate of trades Wednesday; five blocks worth a combined cash-equivalent $1.2m/DV01 between 3:38am and 5:35am similarly entailed price action consistent with sales. Most European bonds also gained, with the yield on German 10-year securities falling more than basis points.  German yield curve bull-flattens: 30-year yield drops ~9bps before stalling near 1.05% which has acted as support for much of May so far. The Dollar issuance slate empty so far; eight borrowers priced $8.5b Wednesday, and new issue activity is expected to be muted during remainder of the week. Three-month dollar Libor +2.69bp to 1.50486%. Economic data slate includes May Philadelphia Fed business outlook and initial jobless claims (8:30am), April existing homes sales and leading index (10am). In commodities, crude oil extended declines, while most industrial metals were in the red as global growth fears damped the demand outlook. WTI reverses Asia’s gains, dropping back below $110 but holding above Wednesday’s lows. Spot gold is comparatively quiet, holding above $1,810/oz. Most base metals trade in the green; LME tin rises 2.1%, outperforming peers while copper held near a seven-month low and zinc extended losses. Bitcoin is modestly softer in a relatively contained range that lies just shy of the USD 30k mark. Crypto exchange FTX to start rollout of new stock-trading service on Thursday, WSJ reports; will not accept payment for order flow on stock trades. Looking to the day ahead now, and data releases from the US include the weekly initial jobless claims, along with April’s existing home sales and the Philadelphia Fed’s business outlook survey for May. Central bank speakers include ECB Vice President de Guindos, the ECB’s Holzmann and the Fed’s Kashkari. Finally, the ECB will be publishing the minutes from their April meeting. Market Snapshot S&P 500 futures down 1.1% to 3,879.25 STOXX Europe 600 down 1.7% to 426.41 MXAP down 1.8% to 161.60 MXAPJ down 2.2% to 527.30 Nikkei down 1.9% to 26,402.84 Topix down 1.3% to 1,860.08 Hang Seng Index down 2.5% to 20,120.68 Shanghai Composite up 0.4% to 3,096.97 Sensex down 2.4% to 52,926.71 Australia S&P/ASX 200 down 1.6% to 7,064.46 Kospi down 1.3% to 2,592.34 Gold spot down 0.1% to $1,814.49 U.S. Dollar Index down 0.28% to 103.52 German 10Y yield little changed at 0.96% Euro up 0.3% to $1.0496 Brent Futures down 0.1% to $109.00/bbl Top Overnight News from Bloomberg President Joe Biden is set to meet on Thursday with Finland’s President Sauli Niinisto and Swedish Prime Minister Magdalena Andersson at the White House to discuss the Nordic nations’ NATO bids. China’s top diplomat again warned the US over its increased support for Taiwan, showing the island democracy remains a major sticking point between the world’s biggest economies as Beijing sent more military aircraft toward the island Sri Lanka fell into default for the first time in its history as the government struggles to halt an economic meltdown that prompted mass protests and a political crisis The yuan’s outlook is finally looking more balanced after a 6.5% dive versus its major trading partner currencies since March. A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks were pressured on spillover selling after the worst day on Wall St in almost two years. ASX 200 was led lower by consumer staples following the retailer woes stateside and mixed Australian jobs data. Nikkei 225 suffered firm losses amid reports the ruling coalition is considering increasing the corporate tax rate and after several data releases in which Machinery Orders topped estimates but Exports missed as China-bound exports declined by the fastest pace since March 2020. Hang Seng and Shanghai Comp initially weakened with the Hong Kong benchmark dragged lower by heavy losses in tech after Tencent’s profit declined by more than 50% and with the mainland pressured as Beijing conducts a fresh round of mass COVID testing, although the mainland bourse recovered most of its losses after Shanghai announced a further gradual easing of restrictions. Xiaomi (1810 HK) Q1 adj. net profit CNY 2.859bln (vs 6.069bln Y/Y), Q1 revenue CNY 73.4bln (vs. 76.9bln Y/Y); global smartphone shipments -10.5% Y/Y at 38.5mln units. Top Asian News Shanghai Vice Mayor said Shanghai port throughput recovered to around 90% of the levels a year ago and that Shanghai will expand work resumption in areas with no COVID risk in early June. Furthermore, Shanghai is to gradually restore inter-district public transport from May 22nd and will require residents to show negative PCR tests taken within 48 hours before using public transport, while an economy official said Shanghai will reduce rents for small and medium-sized enterprises by more than CNY 10bln and the city extended CNY 72.3bln of loans to over 10,000 firms since March, according to Reuters. Japanese MOF official said China's COVID curbs are among the factors that caused a decline in China-bound exports from Japan which fell by the fastest pace since March 2020, while Japan's April imports reached the largest amount on record, according to Reuters. Japan's ruling coalition is reportedly considering increasing the corporate tax rate, according to Jiji. New Zealand sees 2021/22 OBEGAL at NZD -18.98bln (prev. forecast -20.44bln), 2021/22 net debt at 36.9% of GDP (prev. forecast 37.6%) and Cash Balance at NZD -31.78bln (prev. forecast -34.10bln), while Finance Minister Robertson said the economy is expected to be robust in the near term and they see a return to OBEGAL surplus in 2024/25, according to Reuters. European bourses are pressured across the board in a broader risk-off moves after yesterday's Wall St. sell off, as European players look past the brief respite seen overnight on Shanghai's reopening; Euro Stoxx 50 -2.3%. Stateside, the magnitude of the downside is somewhat more contained given newsflow has been limited since Wednesday's downside commenced, ES -1.2%. Top European News EU is reportedly considering a targeted trade war on troublesome Brexiteer MPs and Tory ministers to force UK PM Johnson to do a U-turn on the Northern Ireland protocol, according to The Telegraph. Top UK Economist Defends BOE’s Handling of Inflation Crisis EasyJet Bookings Pick Up Ahead of Uncertain Summer Season Apax-Owned Rodenstock Acquires Spanish Rival Indo European Gas Slips With LNG Imports Helping Boost Stockpiles In FX Franc resurgence and re-emergence as a safe haven currency continues; USD/CHF touches 0.9750 vs 1.0060+ peak on Monday, EUR/CHF sub-1.0250 vs circa 1.0500 at one stage only yesterday. Dollar loses momentum as US Treasury yields retreat further and curve re-flattens amidst ongoing risk rout, DXY ducks under 103.500 after peaking just shy of 104.000 on Wednesday. Kiwi and Aussie find positives via fiscal and fundamental factors to evade aversion; NZD/USD back above 0.6300 after NZ budget and AUD/USD hovering around 0.7000 post- Aussie jobs data. Yen retains underlying bid irrespective of mixed Japanese data, USD/JPY below 128.00 again. Euro firmer beyond EUR/CHF cross ahead of ECB minutes and Sterling off UK inflation data lows awaiting retail sales on Friday, EUR/USD retains sight of 1.0500 and Cable near 1.2400. Rand meandering ahead of SARB in anticipation of 50 bp rate hike, USD/ZAR around 16.0000, irrespective of Gold taking firmer hold of USD 1800/oz handle. Fixed Income Debt resumes safe-haven rally as market mood continues to sour. Bunds top 154.00, Gilts get close to 120.00 and 10 year T-note even nearer the same psychological level. BTPs lag amidst the ongoing aversion to risk, while OATs and Bonos reflect on somewhat mixed auction results. Commodities WTI and Brent are pressured in-fitting with broader sentiment as initial resilience on demand-side positives re. China/COVID were overpowered by the risk move. However, the benchmarks are around USD 1.00/bbl off lows of USD 104.36/bbl and USD 106.76/bbl respectively, following reports that China is discussing the purchase of Russian crude. China is said to be in talks with Russia to purchase oil for strategic reserves, according to Bloomberg sources; detailed on terms and volume reportedly not decided yet Qatar Energy was reportedly selling July Al-Shaheen crude at premiums of USD 5.80-6.40/bbl above Dubai quotes which is the highest in 2 months, according to Reuters sources. Spot gold is bid as it draws haven allure, with the yellow metal marginally surpassing USD 1830/oz. US Event Calendar 08:30: May Initial Jobless Claims, est. 200,000, prior 203,000; Continuing Claims, est. 1.32m, prior 1.34m 08:30: May Philadelphia Fed Business Outl, est. 15.0, prior 17.6 10:00: April Existing Home Sales MoM, est. -2.2%, prior -2.7%; Home Resales with Condos, est. 5.64m, prior 5.77m 10:00: April Leading Index, est. 0%, prior 0.3% DB's Jim Reid concludes the overnight wrap Today is my last day at work this week before I head up to Cambridge tomorrow for my Masters’ graduation. Before you send in a flood of congratulations though, I didn’t actually do any work for this qualification, with not even a single hour of revision. Now at this point you’re probably thinking I’m either a genius or guilty of some serious academic malpractice. I’m hoping the former. But the truth is that I’m benefiting from a quirky tradition that somehow means Cambridge, Oxford and Dublin will upgrade your Bachelors into a Masters after a few years. With the wedding two months away, it appears as though I’m losing all my bachelor status at once. Markets seem ready for a holiday too after the last 24 hours, with the selloff resuming at pace after the brief respite on Tuesday. In fact it was nothing short of a rout with the S&P 500 ending the day down -4.04%, marking its worst daily performance since June 2020, and leaving the index at a fresh one-year low. There wasn’t a single catalyst behind the slump, but weak housing data out of the US along with Target’s move to cut its profit outlook helped feed investor concern that the consumer might not be in as strong a position as previously thought. And that’s on top of all the other worries of late that the global economy is heading in a stagflationary direction amidst various supply-chain issues, alongside the prospect that tighter central bank policy is going to further dent growth and risks tipping various economies into recession. In terms of the specific moves, the S&P 500 gradually tumbled as the day went on, with its -4.04% decline more than reversing its +2.02% bounceback on Tuesday. The decline was an incredibly broad-based one, with just 8 constituents in the index ending the day higher, which is the lowest number since November. That earnings report we mentioned at the top meant that Target (-24.93%) saw the worst performance in the entire S&P 500, after saying they now expected their full-year operating income margin rate to be around 6%. That follows a disappointing report from Walmart the previous day, and meant that consumer staples (-6.38%) and consumer discretionary (-6.60%) were the worst-performing sectors in the S&P yesterday. The latest declines also mean that the S&P is back on track for a 7th consecutive weekly decline, having shed -2.49% since the start of the week, and S&P 500 futures are only up by +0.18% this morning. If the S&P 500 does see a 7th week in negative territory, then that would be the longest run of weekly declines for the index since 2001. Other indices lost ground too given the risk-off move, with the Dow Jones (-3.57%), the NASDAQ (-4.73%), and the small-cap Russell 2000 (-3.56%) all experiencing sizeable declines of their own. European indices had a better performance after closing before the worst of the US declines, and the STOXX 600 was “only” down -1.14% to just remain in positive territory for the week. With recessionary concerns back in focus, sovereign bonds rallied on both sides of the Atlantic as investors sought out safe havens. Yields on 10yr US Treasuries fell by -10.2bps to 2.88%, with the decline mostly led by a -9.6bps move lower in real yields, and nominal yields are only back up +2.5bps this morning. The yield curve also continued to flatten and the 2s10s slope (-6.9ps) fell to its lowest in over two weeks, at 21.0bps, although it’s been over 6 weeks now since the curve last traded in inversion territory. We did get some Fedspeak but to be honest there weren’t any major headlines relative to what we already knew, with Chicago Fed President Evans saying it was “quite likely” the Fed would be at a neutral setting by year-end, whilst Philadelphia Fed President Harker was making the case for more gradual rate hikes after the next few 50bp hikes are delivered. More important for the outlook was the release of various housing data yesterday, where housing starts fell to an annualised rate of 1.724m in April (vs. 1.756m expected), and that was from a downwardly revised 1.728m in March. That comes against the backdrop of rising mortgage rates, and the MBA reported that mortgage purchase applications fell -11.9% in the week ending May 13, leaving them at their lowest levels since May 2020 when the numbers were still recovering from the pandemic slump. Over in Europe, sovereign bond curves also became flatter as investors became increasingly aggressive on the near-term ECB rate path. Indeed the amount of ECB rate hikes priced in by the December meeting hit a fresh high of 108bps, or equivalent to at least four rate hikes of 25bps by year-end. That came amidst further ECB speakers over the last 24 hours, including Finnish central bank governor Rehn, who had already endorsed a July hike and said yesterday that the initial hike was “likely to take place in the summer”. Furthermore, he said that it seemed “necessary that in our policy rates we move relatively quickly out of negative territory”. We also heard from Estonian central bank governor Muller, who also endorsed a July hike and said he “wouldn’t be surprised” if the deposit rate were in positive territory by year-end. However, Spanish central bank governor De Cos said that rate hikes should be gradual as he called for APP purchases to end at the start of Q3, with rate hikes to follow shortly afterwards. Those growing expectations of tighter policy saw shorter-dated yields move higher in Europe once again, with 2yr German yields hitting their highest level since 2011 despite only a marginal +0.1bps move to 0.36%. However, the broader risk-off tone meant it was a different story for their longer-dated counterparts, and yields on 10yr bunds (-1.6bps) and OATs (-2.2bps) both moved lower on the day. Peripheral spreads widened as well, whilst iTraxx Crossover neared its recent highs with a +26.2bps move to 468bps. In terms of the fight against inflation, there was a potential boost on the trade side yesterday as US Treasury Secretary Yellen confirmed ahead of a meeting of G7 finance ministers and central bank governments that the she favoured removing some tariffs on goods that are not considered strategic. Separately the risk-off move also saw oil prices move lower for a 2nd day running yesterday, with Brent crude down -2.52%, although it’s since taken back a decent chunk of that loss this morning with a +1.51% move higher to $110.76/bbl. Over in Asia, equity markets have tracked those steep overnight losses on Wall Street to move sharply lower this morning. Among the key indices, the Hang Seng (-2.25%) is the largest underperformer amidst a broad weakness in tech stocks as the Hang Seng Tech index fell by an even larger -3.40%. Mainland Chinese stocks have performed relatively better however, even if the Shanghai Composite (-0.08%) and CSI (-0.25%) have both moved slightly lower, while the Nikkei (-1.91%) and the Kospi (-1.29%) have seen more substantial losses. Finally there was some important employment data out of Australia this morning ahead of their election on Saturday, with the unemployment rate falling to its lowest since 1974, at 3.9%. The employment gain was a bit softer than expected with just a +4.0k gain (vs. +30.0k expected), but that included a +92.4k gain in full-time employment, offset by a -88.4k decline in part-time employment. Elsewhere on the data side, there were fresh signs of inflationary pressure in the UK after CPI inflation rose to a 40-year high of +9.0% in April. But in spite of the 40-year high, that was actually slightly beneath the +9.1% reading expected by the consensus, which marked the first time in over 6 months that the reading hasn’t been higher than expected. Gilts outperformed following the release as it was also beneath the BoE’s staff projection of +9.1%, and 10yr gilt yields closed down -1.6bps on the day, whilst sterling underperformed the other major currencies leave it -1.28% weaker against the US Dollar. To the day ahead now, and data releases from the US include the weekly initial jobless claims, along with April’s existing home sales and the Philadelphia Fed’s business outlook survey for May. Central bank speakers include ECB Vice President de Guindos, the ECB’s Holzmann and the Fed’s Kashkari. Finally, the ECB will be publishing the minutes from their April meeting. Tyler Durden Thu, 05/19/2022 - 08:02.....»»

Category: personnelSource: nytMay 19th, 2022

Wall Street"s Most Accurate Analyst: "Today"s Bear Market Ends In October With The S&P At 3,000"

Wall Street's Most Accurate Analyst: "Today's Bear Market Ends In October With The S&P At 3,000" Two weeks ago, just when everyone thought that he couldn't turn any more bearish, BofA's chief investment strategist Michael Hartnett, Wall Street's biggest bear who is by implication has also emerged as the most accurate sellside analyst (the average S&P price target of his peers is still around 4,700), stunned everyone when he told readers that while the mood on the street was already dismal, relaying the the Heard on the Street line was "I'm so bearish, and even I'm miserable", he warned that even though everyone was bearish, redemptions were just starting, and the real selling was only just beginning. One week later - and much to the embarrassment of JPM's in house permabull who at the same time said to take the other side of the trade and to buy stocks - Hartnett was again been proven right, with the S&P tumbling and the Nasdaq suffering its worst month since the Lehman bankruptcy. Hartnett also correctly warned that the closer we got to the 4,000 "strange attractor" level, the more aggressive the selling would become (as we discussed in "Hartnett Turns Apocalyptic, Says Carnage To Accelerate With "Max Pain" And "Exit" Waiting Below 4,000") Since then it's gotten even worse, providing the biggest bear on Wall Street with even more ammo for his latest weekly Flow Show note (available to pro subscribers in the usual place), and he wastes no time to terrify his readers of the hell that is coming, warning that with the NYSE Composite (US stocks + ADR's + bond ETFs) down -9% YTD to 100-week moving average, "recession/crises in past 25 years have always seen our fave Wall St barometer break decisively below this level (15350 today)...at 100wma;" And in case that's not enough, he also warns that "every crisis/recession sees meaningful dip below 100wma...game time!" Extending this analogy to all bear markets - because the only ones who still don't realize that the S&P is in a brutal bear market are JPMorgan's strategists - Hartnett compiles the following useful information: 9 bear markets in the past 140 years Average price decline = 37.3% Average duration is 289 days And while past performance no guide to future performance, if it were, today's bear market ends Oct 19th '22 with S&P500 at 3000, Nasdaq at 10000.  There are two silver linings here: first: many stocks are already there, i.e., 49% of Nasdaq >50% below their 52-week highs, 58% of Nasdaq >37.3% down, and 77% of index in bear market, i.e. down >20%; second: bear markets are quicker than bull markets. Hartnett next echoes what we said yesterday in our discussion of the BOE's shocking decision, which we said confirms the worst stagflationary case for the economy. According to the BofA strategist, the BoE projected UK CPI >10% by Oct'22, cut '23 GDP forecast 150bps to -0.25%; in other words, 10% inflation, 0% growth the living definition of stagflation.  It's why to Hartnett, the correct relative playbook is 1973/74 and it shows that cash and commodities beat bonds & stocks (esp consumer & tech; note Big Tech starting to ape Nifty 50 crash). Meanwhile, flows - which are always a leading indicator for sentiment - confirm that none of this is a shock to investors, and after some huge outflows in the past month, the latest weekly flows into the FOMC were massively “risk-off” as investors waved in the cash: $0.3bn from gold, $3.4bn from stocks, $9.1bn from bonds, $14.0bn from cash. Some more details: big inflow to Treasuries ($6.0bn), big outflow from TIPS ($3.2bn), big outflow IG bonds ($7.3bn), largest REIT (real estate) outflow ever ($2.2bn), big outflow financials ($1.6bn), 4-week average of flows to stocks turning most negative since May’20 when the Fed had to step in to bail out the market. Turning from the past - both distant and recent - to the future, and Hartnett's 2022 View, it will come as no surprise that the BofA strategist is not exactly bullish. Here's how he see things playing out Base case remains equity lows, yield highs yet to be reached Wall St to spend much of '22 working through "inflation shock", "rates shock", "recession shock" = negative, volatile returns in absolute terms Relative calls defensive...cash/volatility/commodities>stocks/bonds, IG>HY, defensives>cyclicals Meantime as recession risks next move up in commodities should be tactically sold, Lead indicators of bear market were trough in yields & US$ + peak in EM, crypto, speculative tech (e.g. biotech) in Q1'21; only once yields & US$ peak, and floor in EM, crypto, speculative tech follow, should risk be added, first and foremost in corporate bonds – we are not there yet (and note speculative tech will remain in bear market for next 2 years, a floor does not = new bull market) Finally, Harnett turns to his favorite topic - the three types of shocks that define the transition from 2020 to 2022. According to the BofA strategist, in past 9 months “inflation shock” was priced-in slowly, “rates shock” was priced-in slowly, but “recession shock” was priced-in too quickly; this is a problem as stronger-than-expected economic data in H1’22 is causing market to price-in longer/bigger inflation/rates shock. Inflation shock: inflation set to "peak" but lower inflation likely to be "transitory" given biggest macro story of ‘22...a lack of supply of energy, food, housing, labor relative to demand showing scant signs of improvement... Energy...natural gas prices at highest since '08 as world scrambles to reconfigure energy supplies (note explosive upside of Russian ruble now at new highs vs sterling, euro, US dollar), Food...fertilizer prices @ all-time highs = cost of food production up = supply of food down = price of food up, note corn prices @ new highs & food prices seriously vulnerable to super-spike on poor harvests, Houses...mortgage rate surging but 93% of US mortgages are fixed and supply of existing homes near record low, as evidenced by housing permits highest since '74 Labor...there are 12mn US job openings versus a 6mn supply of unemployed workers , you do the math. Rates shock: yes central banks on course to hike rates 251 times in 2022, yes net 34% tightening monetary policy most since '08, yes QT starts H2'22, yes not a lot rate hikes can do about broken supply chains; but yields & volatility will rise until Fed & central banks ahead of the curve...this week they moved further behind curve; US inflation 8%, EU inflation 8%, UK inflation heading >10%, yet they are quivering at the thought of selling $1 of bonds (QT) after buying $23,000,000,000,000 since Lehman, and $11,000,000,000,000 since COVID-19; little wonder bond vigilantes back to trading “end of central bank credibility” = volatility entrenched. Recession shock: the economy today is strong, a problem; but macro data has turned from unambiguously strong to ambiguously strong; business confidence has stalled (see PMI’s) which threatens to stall improvement in labor market in H2; Asian FX devaluation discounts weaker Asian export growth... ... which discounts weaker US consumer; and quickest route to recession on Main St is via a sharp decline in asset valuations on Wall St, & risk of systemic events on bond/stock/real estate deleveraging in risk parity (RPAR)... ...  private equity, sovereign wealth funds, credit events in speculative tech, shadow banking, US consumer buy now, pay later models, Emerging Markets, zombie corporations, goes up with every rate hike. There is more in the full Hartnett note, available to pro subscribers in the usual place. Tyler Durden Sat, 05/07/2022 - 06:35.....»»

Category: dealsSource: nytMay 7th, 2022

Financial War Takes A Nasty Turn

Financial War Takes A Nasty Turn Authored by Alasdair Macleod via GoldMoney.com, The chasm between Eurasia and the Western defence groupings (NATO, Five-eyes, AUKUS etc.) is widening rapidly. While media commentary focuses on the visible side of the conflict in Ukraine, the economic and financial aspects are what really matter. There is an increasing inevitability about it all. China has been riding the inflationist Western tiger for the last forty years and now that it sees the dollar’s debasement accelerating wonders how to get off. Russia perhaps is more advanced in its plans to do without dollars and other Western currencies, hastened by sanctions. Meanwhile, the West is increasingly vulnerable with no apparent alternative to the dollar’s hegemony. By imposing sanctions on Russia, the West has effectively lined up its geopolitical opponents into a common cause against an American dollar-dominated faction. Russia happens to be the world’s largest exporters of energy, commodities, and raw materials. And China is the supplier of semi-manufactured and consumer goods to the world. The consequences of the West’s sanctions ignore this vital point. In this article, we look at the current state of the world’s financial system and assess where it is headed. It summarises the condition of each of the major actors: the West, China, and Russia, and the increasing urgency for the latter two powers to distance themselves from the West’s impending currency, banking, and financial asset crisis. We can begin to see how the financial war will play out. The West and its dollar-based pump-and-dump system The Chinese have viewed the US’s tactics under which she has ensured her hegemony prevails. It has led to a deep-seated distrust in her relationship with America. And this is how she sees US foreign policy in action. Since the end of Bretton Woods in August 1971, for strategic reasons as much as anything else America has successfully continued to dominate the free world. A combination of visible military capability and less visible dollar hegemony defeated the communism of the Soviets and Mao Zedong. Aid to buy off communism in Africa and Latin America was readily available by printing dollars for export, and in the case of Latin America by deploying the US banking system to recycle petrodollars into syndicated loans. In the late seventies, banks in London would receive from Citibank yards-long telexes inviting participation in syndicated loans, typically for $100 million, the purpose of which according to the telex was invariably “to further the purposes of the state.” Latin American borrowing from US commercial banks and other creditors increased dramatically during the 1970s. At the commencement of the decade, total Latin American debt from all sources was $29 billion, but by the end of 1978, that number had skyrocketed to $159 billion. And in early-1982, the debt level reached $327 billion.[i] We all knew that some of it was disappearing into the Swiss bank accounts of military generals and politicians of countries like Argentina. Their loyalty to the capitalist world was being bought and it ended predictably with the Latin American debt crisis. With consumer price inflation raging, the Fed and other major central banks had to increase interest rates in the late seventies, and the bank credit cycle turned against the Latins. Banks sought to curtail their lending commitments and often (such as with floating-rate notes) they were paying higher coupon rates. In August 1982, Mexico was the first to inform the Fed, the US Treasury, and the IMF that it could no longer service its debt. In all, sixteen Latin American countries rescheduled their debts subsequently as well as eleven LDCs in other parts of the world. America assumed the lead in dealing with the problems, acting as “lender of last resort” working with central banks and the IMF. The rump of the problem was covered with Brady Bonds issued between 1990—1991. And as the provider of the currency, it was natural that the Americans gave a pass to their own corporations as part of the recovery process, reorganising investment in production and economic output. So, a Latin American nation would have found that America provided the dollars required to cover the 1970s oil shocks, then withdrew the finance, and ended up controlling swathes of national production. That was the pump and dump cycle which informed Chinese military strategists analysing US foreign policy some twenty years later. In 2014, the Chinese leadership was certain the riots in Hong Kong reflected the work of American intelligence agencies. The following is an extract translated from a speech by Major-General Qiao Liang, a leading strategist for the Peoples’ Liberation Army, addressing the Chinese Communist Party’s Central Committee in 2015: “Since the Diaoyu Islands conflict and the Huangyan Island conflict, incidents have kept popping up around China, including the confrontation over China’s 981 oil rigs with Vietnam and Hong Kong’s “Occupy Central” event. Can they still be viewed as simply accidental? I accompanied General Liu Yazhou, the Political Commissar of the National Defence University, to visit Hong Kong in May 2014. At that time, we heard that the “Occupy Central” movement was being planned and could take place by end of the month. However, it didn’t happen in May, June, July, or August. What happened? What were they waiting for? Let’s look at another timetable: the U.S. Federal Reserve’s exit from the Quantitative Easing (QE) policy. The U.S. said it would stop QE at the beginning of 2014. But it stayed with the QE policy in April, May, June, July, and August. As long as it was in QE, it kept overprinting dollars and the dollar’s price couldn’t go up. Thus, Hong Kong’s “Occupy Central” should not happen either. At the end of September, the Federal Reserve announced the U.S. would exit from QE. The dollar started going up. Then Hong Kong’s “Occupy Central” broke out in early October. Actually, the Diaoyu Islands, Huangyan Island, the 981 rigs, and Hong Kong’s “Occupy Central” movement were all bombs. The successful explosion of any one of them would lead to a regional crisis or a worsened investment environment around China. That would force the withdrawal of a large amount of investment from this region, which would then return to the U.S." For the Chinese, there was and still is no doubt that America was out to destroy China and stood ready to pick up the pieces, just as it had done to Latin America, and South-East Asia in the Asian crisis in 1997. Events since “Occupy Central” will have only confirmed that view and explains why the Chinese dealt with the Hong Kong problem the way they did, when President Trump mounted a second attempt to derail Hong Kong, with the apparent objective to prevent global capital flows entering China through Shanghai Connect. For the Americans the world is slipping out of control. They have had expensive wars in the Middle East, with nothing to show for it other than waves of displaced refugees. For them, Syria was a defeat, even though that was just a proxy war. And finally, they had to give up on Afghanistan. For her opponents, America has lost hegemonic control in Eurasia and if given sufficient push can be removed from the European mainland entirely. Undoubtedly, that is now Russia’s objective. But there are signs that it is now China’s as well, in which case they will have jointly obtained control of the Eurasian land mass. Financial crisis facing the dollar The geopolitics between America and the two great Asian states have been clear for all of us to see. Less obvious has been the crisis facing Western nations. Exacerbated by American-led sanctions against Russia, producer prices and consumer prices are not only rising, but are likely to continue to do so. In particular, the currency and credit inflation of not only the dollar, but also the yen, euro, pound, and other motley fiat currencies have provided the liquidity to drive prices of commodities, producer prices and consumer prices even higher. In the US, reverse repos which absorb excess liquidity currently total nearly $2 trillion. And the higher interest rates go, other things being equal the higher this balance of excess currency no one wants will rise. And rise they will. The strains are most obvious in the yen and the euro, two currencies whose central banks have their interest rates stuck below the zero bound. They refuse to raise them, and their currencies are collapsing instead. But when you see the ECB’s deposit rate at minus 0.5%, producer prices for Germany rising at an annualised rate of over 30%, and consumer prices already rising at 7.5% and sure to go higher, you know they will all go much, much higher. Like the Bank of Japan, the ECB and its national central banks through quantitative easing have assembled substantial portfolios of bonds, which with rising interest rates will generate losses which will drive them rapidly into insolvency. Furthermore, the two most highly leveraged commercial banking systems are the Eurozone’s and Japan’s with assets to equity ratios for the G-SIBs of over twenty times. What this means is that less than a 5% fall in the value of its assets will bankrupt the average G-SIB bank. It is no wonder that foreign depositors in these banking systems are taking fright. Not only are they being robbed through inflation, but they can see the day when the bank which has their deposits might be bailed in. And worse still, any investment in financial assets during a sharply rising interest environment will rapidly lose value. For now, the dollar is seen as a haven from currencies on negative yields. And in the Western world, the dollar as the reserve currency is seen as offering safety. But this safety is an accounting fallacy which supposes that all currency volatility is in the other fiat currencies, and not the dollar. Not only do foreigners already own dollar-denominated financial assets and bank deposits totalling over $33 trillion, but rising bond yields will prick the dollar’s financial asset bubble wiping out much of it. In other words, there are currently winners and losers in currency markets, but everyone will lose in bond and equity markets. Add into the mix counterparty and systemic risks from the Eurozone and Japan, and we can say with increasing certainty that the era of financialisation, which commenced in the 1980s, is ending. This is a very serious situation. Bank credit has become increasingly secured on non-productive assets, whose value is wholly dependent on low and falling interest rates. In turn, through the financial engineering of shadow banks, securities are secured on yet more securities. The $610 trillion of OTC derivatives will only provide protection against risk if the counterparties providing it do not fail. The extent to which real assets are secured on bank credit (i.e., mortgages) will also undermine their values. Clearly, central banks in conjunction with their governments will have no option but to rescue their entire financial systems, which involves yet more central bank credit being provided on even greater scales than seen over covid, supply chain chaos, and the provision of credit to pay for higher food and energy prices. It must be unlimited. We should be in no doubt that this accelerating danger is at the top of the agenda for anyone who understands what is happening — which particularly refers to Russia and China. Russia’s aggressive stance There can be little doubt that Putin’s aggression in Ukraine was triggered by Ukraine’s expressed desire to join NATO and America’s seeming acquiescence. A similar situation had arisen over Georgia, which in 2008 triggered a rapid response from Putin. His objective now is to get America out of Europe’s defence system, which would be the end of NATO. Consider the following: America’s military campaigns on the Eurasian continent have all failed, and Biden’s withdrawal from Afghanistan was the final defeat. The EU is planning its own army. Being an army run by committee it will lack focus and be less of a threat than NATO. This evolution into a NATO replacement should be encouraged. As the largest supplier of energy to the EU, Russia can apply maximum pressure to speed up the political process. The most important commodity for the EU is energy. And through EU policies, which have been to stop producing carbon-based energy and to import it instead, the EU has become dependent on Russian oil, natural gas, and coal. And by emasculating Ukraine’s production, Putin is putting further pressure on the EU with respect to food and fertiliser, which will become increasingly apparent over the course of the summer. For now, the EU is toeing the American line, with Brussels instructing member states to stop importing Russian oil from the end of this year. But already, it is reported that Hungary and Slovakia are prepared to buy Russian oil and pay in roubles. And it is likely that while other EU governments will avoid direct contractual relationships with Russia, ways round the problem indirectly are being pursued. A sticking point for EU governments is having to pay in roubles. Otherwise, the solution is simple: non-Russian, non-EU banks can create a Eurorouble market overnight, creating rouble bank credit as needed. All that such a bank requires is access to rouble liquidity to manage a balance sheet denominated in roubles. The obvious providers of rouble credit are China’s state-controlled megabanks. And we can be reasonably sure that at his meeting with President Xi on 4 February, not only would the intention to invade Ukraine have been discusseded, but the role of China’s banks in providing roubles for the “unfriendlies” (NATO and its supporters) in the event of Western sanctions against Russia will have been as well. The point is that Russia and China have mutual geopolitical objectives, and what might have come as a surprise to the West was most likely agreed between them in advance. The recovery in the rouble from the initial hit to an intraday low of 150 to the dollar has taken it to 64 at the time of writing. There are two factors behind this recovery. The most important is Putin’s announcement that the unfriendlies will have to pay for energy in roubles. But there was a subsidiary announcement that the Russian central bank would be buying gold. Notionally, this was to ensure that Russian banks providing finance to gold mines could gold and other related assets as collateral. But the central bank had stopped buying gold and accumulated the unfriendlies currencies in its reserves instead. This was taken by senior figures in Putin’s administration as evidence that the highly regarded Governor, Elvira Nabiullina, had been captured by the West’s BIS-led banking system. Russia has now realised that foreign exchange reserves which can be blocked by the issuers are valueless as reserves in a crisis, and that there is no point in having them. Only gold, which has no counterparty risk can discharge this role. And it is a lesson not lost on other central banks either, both in Asia and elsewhere. But this sets the rouble onto a different course from the unbacked fiat currencies in the West. This is deliberate, because while rising interest rates will lead to a combined currency, banking, and financial asset crisis in the West, it is a priority of the greatest importance for Russia to protect herself from these developments. A new backing for the rouble Russia is determined to protect herself from a dollar currency collapse. So far as Russia is concerned, this collapse will be reflected in rising dollar prices for her exports. And only last week, one of Putin’s senior advisors, Nikolai Patrushev, confirmed in an interview with Rossiyskaya Gazeta that plans to link the rouble to commodities are now being considered. If this plan goes ahead, the intention must be for the rouble to be considered a commodity substitute on the foreign exchanges, and its protection against a falling dollar will be secured. We are already seeing the rouble trending higher, with it at 64 to the dollar yesterday. Figure 1 below shows its progress, in the dollar-value of a rouble. Keynesians in the West have misread this situation. They think that the Russian economy is weak and will be destabilised by sanctions. That is not true. Furthermore, they would argue that a currency strengthened by insisting that oil and natural gas are paid for in roubles will push the Russian economy into a depression. But that is only a statistical effect and does not capture true economic progress or the lack of it, which cannot be measured. The fact is that the shops in Russia are well stocked, and fuel is freely available, which is not necessarily the case in the West. The advantages for Russia are that as the West’s currencies sink into crisis, the rouble will be protected. Russia will not suffer from the West’s currency crisis, she will still get inflation compensation in commodity prices, and her interest rates will decline while those in the West are soaring. Her balance of trade surplus is already hitting new records. There was a report, attributed to Dmitri Peskov, that the Kremlin is considering linking the rouble to gold and the idea is being discussed with Putin. But that’s probably a rehash of the interview that Nickolai Patrushev recorded with Rossiyskaya Gazeta referred to above, whereby Russia is considering fixing the rouble against a wider range of commodities. At this stage, a pure gold standard for the rouble of some sort would have to take the following into account: History has shown that the Americans and the West’s central banks manipulate gold prices through the paper markets. To fix the rouble against a gold standard would hold it a hostage to fortune in this sense. It would be virtually impossible for the West to manipulate the rouble by intervening in this way across a range of commodities. Over long periods of time the prices of commodities in gold grams are stable. For example, the price of oil since 1950 has fallen by about 30%. The volatility and price rises have been entirely in fiat currencies. The same is true for commodity prices generally, telling us that not only are commodities priced in gold grams generally stable, but a basket of commodities can be regarded as tracking the gold price over time and therefore could be a reasonable substitute for it. If Russia has significant gold bullion quantities in addition to declared reserves, these will have to be declared in conjunction with a gold standard. Imagine a situation where Russia declares and can prove that it has more gold that the US Treasury’s 8,133 tonnes. Those who appear to be in a position to do so assess the true Russian gold position is over 10,000 tonnes. Combined with China’s undeclared gold reserves, such an announcement would be a financial nuclear bomb, destabilising the West. For this reason, Russia’s partner, China, for which exporting semi-manufactured and consumer goods to the West is central to her economy activities, would prefer an approach that does not add to the dollar’s woes directly. The Americans are doing enough to undermine the dollar without a push from Asia’s hegemons. Furthermore, a mechanism for linking the rouble to commodity prices has yet to be devised. The advantage of a gold standard is it is a simple matter for the issuer of a currency to accept notes from the public and to pay out gold coin. And arbitrage between gold and roubles would ensure the link works on the foreign exchanges. This cannot be done with a range of commodities. It will not be enough to simply declare the market value of a commodity basket daily. Almost certainly forex traders will ignore the official value because they have no means of arbitrage. It is likely, therefore, that Russia will take a two-step approach. For now, by insisting on payments in roubles by the unfriendlies domestic Russian prices for commodities, raw materials and foods will be stabilised as the unfriendlies’ currencies fall relative to the rouble. Russia will find that attempts to tie the currency to a basket of currencies is impractical. After the West’s currency, banking, and financial asset crisis has passed then there will be the opportunity to establish a gold standard for the rouble. The Eurasian Economic Union While it is impossible to formally tie a currency which trades on the foreign exchanges to a basket of commodities, the establishment of a virtual currency specifically for trade settlement between jurisdictions is possible. This is the basis of a project being supervised by Sergei Glazyev, whereby such a currency is planned to be used by the member states of the Eurasian Economic Union (EAEU). Glazyev is Russia’s Minister in charge of integration and macroeconomics of the EAEU. While planning to do away with dollars for trade settlements has been in the works for some time, sanctions by the unfriendlies against Russia has brought about a new urgency. We know no detail, other than what was revealed in an interview Glazyev gave recently to a media outlet, The Cradle [ii]. But the desire to do away with dollars for the countries involved has been on the agenda for at least a decade. In October 2020, the original motivation was explained by Victor Dostov, president of the Russian Electronic Money Association: “If I want to transfer money from Russia to Kazakhstan, the payment is made using the dollar. First, the bank or payment system transfers my roubles to dollars, and then transfers them from dollars to tenge. There is a double conversion, with a high percentage taken as commission by American banks.” The new trade currency will be synthetic, presumably price-fixed daily, giving conversion rates into local currencies. Operating rather like the SDR, state banks can create the new currency to provide the liquidity balances for conversion. It is a practical concept, which being relatively advanced in the planning, is probably the reason the Kremlin is considering it as an option for a future rouble. That idea of a commodity basket for the rouble itself is bound to be abandoned, while a successful EAEU trade settlement currency can be extended to both the wider Shanghai Cooperation Organisation and the BRICS members not in the SCO. China’s position We can now say with confidence that at their meeting on 4 February Putin and Xi agreed to the Ukraine invasion. Chinese interests in Ukraine are affected, and the consequences would have had to be discussed. The fact that Russia went ahead with its war on Ukraine makes China complicit, and we must therefore analyse the position from China’s point of view. For some time, America has attacked China’s economy, trying to undermine it. I have already detailed the position over Hong Kong, to which can be added other irritations, such as the arrest of Huawei’s chief financial officer in Canada on American instructions, trade tariffs, and the sheer unpredictability of trade policy during the Trump administration. President Biden and his administration have now been assessed by both Putin and Xi. By 4 February their economic and banking advisors will have made their recommendations. Outsiders can only come to one conclusion, and that is Russia and China decided at that meeting to escalate the financial war on the West. Their position is immensely strong. While Russia is the largest exporter of energy and commodities in the world, China is the largest provider of intermediate and consumer goods. Other than the unfriendlies, nearly all other nations are neutral and will understand that it is not in their interests to side with NATO, the EU, Japan and South Korea. The only missing piece of the jigsaw is China’s commoditisation of the renminbi. Following the Fed’s reduction of its funds rate to the zero bound and its monthly QE increase to $120bn per month, China began to aggressively stockpile commodities and grains. In effect, it was a one-nation crack-up boom, whereby China took the decision to dump dollars. The renminbi rose against the dollar, but by considerably less than the dollar’s loss of purchasing power. This managed exchange rate for the renminbi appears to have been suppressed to relieve China’s exporters from currency pressures, at a time when the Chinese economy was adversely affected first by credit contraction, then by covid and finally by supply chain disruptions. With respect to supply chains, current lockdowns in Shanghai and the logjam of container vessels in the Roads look set to emasculate Western economies with supply chain issues for the rest of the year. All we know is that the authorities are making things worse, but we don’t know whether it is deliberate. It is increasingly difficult to believe that the financial and currency war is not being purposely escalated by the Chinese-Russian partnership. Having attacked Ukraine, the West’s response is undermining their own currencies, and the urgency for China and Russia to protect their currencies and financial systems from the consequences of a fiat currency crisis has become acute. It is the financial war which is going “nuclear”. Talk in the West of the military war escalating towards a physical nuclear war misses this point. China and Russia now realise they must protect themselves from the West’s looming currency and economic crisis as a matter of urgency. To fail to do so would simply ensure the crisis overwhelms them as well. Tyler Durden Fri, 05/06/2022 - 21:00.....»»

Category: dealsSource: nytMay 6th, 2022

Futures Slide As Amazon, Apple Slump; Nasdaq Set For Worst Month Since Nov 2008

Futures Slide As Amazon, Apple Slump; Nasdaq Set For Worst Month Since Nov 2008 It has been an illiquid, rollercoaster session on the last day of the week and month, which first saw US index futures modestly rise alongside European stocks propped up by surging Chinese and Asian markets following Beijing's latest vow to use new tools and policies to spur growth, however the initial move higher quickly faded as markets remembered that not only did Amazon report dismal earnings (with Apple also sliding on weak guidance) but the Fed is set to hike 50bps (or maybe 75bps) next week, and put a lit on any upside follow through. As a result, S&P500 futures dropped 0.9%, while Nasdaq futures retreated 1.1% on the last trading day of April, adding to their 9.3% decline so far this month and on pace for the worst monthly performance since November 2008 as fears of rising rates hurt bubbly growth shares and fuel risks for future profits. The yen snapped a slide while staying near 20-year lows. The yuan, euro, pound and commodity-linked currencies made gains while the dollar dipped. 10Y TSY yields rose, rising by about 4bps to 2.87% while gold moved back above $1900. Bitcoin tumbled as usual, and last traded back under $39,000. In premarket trading, Amazon.com plunged 9%, after projecting dismal second-quarter sales growth, while the world's largest company Apple dropped 2.8% after warning on supply constraints. Meanwhile, Tesla shares gained 3.1% premarket after CEO Elon Musk said he doesn’t plan on selling any more stock after a $4 billion stake sale. Here are some other notable premarket movers: Intel (INTC US) shares slide 3.1% premarket as analysts flag “light” guidance for the chipmaker’s second quarter, stoking worries over the impact of waning demand for PCs. Intel’s second-quarter forecast missed the average estimate. Robinhood (HOOD US) shares are set to open at a record low Friday as a lockdown-driven boom in retail trading continues to fade and a stock market selloff squeezes out some clients. Tesla (TSLA US) shares rise as much as 4.2% premarket, after CEO Elon Musk said he doesn’t plan on offloading any more Tesla stock after selling ~$4b of shares in the electric vehicle maker following his deal to buy Twitter. Accolade (ACCD US) plummets 36% premarket after the company’s 2023 revenue forecast fell short of estimates, with Morgan Stanley downgrading the healthcare software provider to equal-weight after the loss of a key customer. Finch Therapeutics (FNCH US) shares soar as much as 54% premarket after the biotech announced that the FDA removed the clinical hold on Finch’s investigational new drug application for CP101. Piper Sandler cut its recommendation on Mastercard (MA US) to underweight, becoming the first broker to downgrade the company with a sell-equivalent rating since August. Shares down 1.1% premarket. U.S.-listed Chinese stocks rally across the board in premarket trading after China’s top leaders pledged more support to spur economic growth and vowed to contain Covid outbreaks. Alibaba (BABA US) +13%, JD.com (JD US) +16%. Zymeworks (ZYME US) climbs 30% premarket; All Blue Capital made a non-binding offer at $10.50 per share in cash for the biotech company, Reuters reports, citing people familiar with the matter. Outside of the flagship tech giant earnings misses, the results season has been reassuring so far. S&P 500 earnings growth is tracking 4.3% year-on-year, with 86% of companies beating estimates, according to Barclays strategists. “With continued solid U.S. growth prospects, robust earnings, and relatively strong household balance sheets, a recession in the next 12 months is not in our base case,” said UBS Wealth Management CIO Mark Haefele.  Meanwhile, as reported earlier, China’s top leaders promised to boost economic stimulus to spur growth.  While China’s announcement brought some relief for markets, many risks remain. They span China’s ongoing Covid challenges, the impact of the Fed on the U.S. economy and Russia’s war in Ukraine. “The Fed’s record on soft landings is not that strong,” Carol Schleif, deputy chief investment officer at BMO Family Office LLC, said on Bloomberg Television. “Markets are watching very, very carefully to see if we can thread that needle.” The latest U.S. data showed that the world’s largest economy unexpectedly shrank for the first time since 2020. That reflected an import surge tied to solid consumer demand, suggesting growth will return imminently.  The figures underscore the debate about how much scope the U.S. central bank has to tighten policy before the economy cracks. Markets continue to project a half-point Fed rate hike next week. “A year from now, 10-year yields are most likely going to be lower than where we are today,” Jimmy Chang, chief investment officer at Rockefeller Financial LLC, said on Bloomberg Television, referring to Treasuries. “I do believe at some point the economy starts to weaken, the Fed will be less hawkish, perhaps even go into a pause mode by, say, early next year.” Meanwhile, China's latest vow to prop up markets helped support European stocks (in addition to Asian and Chinese stocks of course), also spurred by a robust earnings season. The Stoxx Europe 600 Index climbed 0.8%, trimming a monthly decline. The Euro Stoxx 50 gains as much as 1.5% with most cash equity indexes gaining over 1% before stalling. Tech, consumer products and financial services are the strongest performing sectors. Here are some of the biggest European movers today: Novo Nordisk shares gain as much as 7.3% after the Danish pharmaceutical giant reported its latest earnings, which included a large beat on its blockbuster obesity drug Wegovy. The company also hiked its outlook. BBVA rises as much as 5.6% after better-than-expected first-quarter earnings, as the Spanish lender’s performance in Turkey showed signs of vindicating Chief Executive Officer Onur Genc’s bet on the country. Johnson Matthey jumps as much as 36%, the steepest gain since at least 1989 when Bloomberg’s records started, after Standard Industries Inc. bought a stake in the company. Remy Cointreau climbs as much as 3.8% after the French distiller reported 4Q sales that were in line with consensus. Analysts noted the strong start to the current fiscal year and a limited impact so far from a Covid-19 resurgence in the key Chinese market. Spie shares climb as much as 5.1% after the French company reported 1Q figures that Bryan Garnier said were “substantially” above expectations, with planned European investments for energy independence also viewed as a potential headwind. AstraZeneca shares decline as much as 1.3% after the company’s first-quarter earnings included a beat on core EPS and overall revenue, but also a slight miss on Alexion rare disease medication and key growth drugs such as Imfinzi. Neste falls as much as 8.7% even as the Finnish maker of renewable diesel reported first-quarter results that beat estimates. Jefferies (hold) said the lack of longer-term (full-year 2022) margin guidance could disappoint. Henkel tumbles as much as 10% after what RBC says was a “substantial profit warning” for 2022. NatWest falls as much as 6% after its 1Q results got a mixed response from analysts. Some were impressed with the performance of the bank’s Go-Forward business, while others highlighted the very low mortgage spread and miss in the CET1 capital ratio. Orsted drop as much as 3.2% despite reporting a 1Q profit beat, with analysts focusing on the project delays due to supply chain shortages as well as the impact of high input costs. Earlier in the session, Asian stocks climbed for a second day led by a jump in Chinese technology shares, amid a series of new policy promises from the country’s top leaders to bolster the economy and markets.  The MSCI Asia Pacific Index advanced as much as 1.7%, with Tencent and Alibaba among the biggest gainers. The Hang Seng Tech Index soared more than 10%, rebounding from earlier losses, as the country vowed to support healthy growth of platform companies. As reported earlier, China’s Politburo, led by President Xi Jinping, vowed to meet economic targets in a sign that it may step up stimulus to support growth. Shortly before the measures were unveiled, Chinese tech stocks reversed earlier losses as traders speculated about a possible relaxation of the yearlong regulatory clampdown. Chipmakers in Taiwan and South Korea also climbed, helping the region’s tech sector. A Bloomberg index of Asian semiconductor stocks rallied as much as 2.4%, its biggest gain in more than two weeks. A key technical indicator suggested that the sector is still oversold after Intel’s disappointing profit forecast. “After recent selloffs in the semiconductor sector, the price levels have become attractive for dip buyers,” said Seo Jung-Hun, a strategist at Samsung Securities, adding that the rebound may be limited ahead of the U.S. Federal Reserve meeting next week.   Stocks in South Korea, Taiwan and Australia advanced while those in Japan were closed for a holiday. Asia’s equity benchmark was still poised for its steepest monthly drop since March 2020 and its fourth monthly decline. Australian stocks also advanced, paring the week's decline. The S&P/ASX 200 index rose 1.1% to 7,435.00, paring the week’s loss. Technology and communications sectors gained the most Friday. Pointsbet gained the most in almost a month, snapping a five day losing streak after reporting turnover for the third quarter. Domino’s Pizza fell for a fourth day, dropping the most in a month. New Zealand, the S&P/NZX 50 index was little changed at 11,884.30. India’s benchmark equities index completed a third monthly slide this year as higher oil prices weighed on sentiment.  The S&P BSE Sensex fell 0.8% to 57,060.87 in Mumbai on Friday, taking its loss in April to 2.6%. Axis Bank Ltd. dropped 6.6% after reporting earnings and was the biggest drag on the Sensex, which saw 23 of 30 member-stocks fall. The NSE Nifty 50 Index also slipped 0.8% to 17,102.55. All 19 sectoral sub-indexes compiled by BSE Ltd. slipped, led by a gauge of oil and gas companies.  “We’ve been seeing the index oscillating in a broader range for the last two weeks and there’s no clarity over the next directional move yet,” Ajit Mishra, vice president for research at Religare Broking Ltd., wrote in a note.  The brokerage maintains a cautious view, with focus on earnings, auto sales data and the initial share sale of Life Insurance Corporation next week.  Of the 15 Nifty 50 firms that have announced earnings results so far, 10 either met or exceeded analysts’ expectations, while five missed.  In FX, the Bloomberg Dollar Spot Index fell after touching an almost two-year high yesterday as the greenback weakened against all of its Group-of-10 peers. Treasuries underperformed European bonds, with 3-year yields rising by 7bps. Scandinavian currencies were the top performers as they were supported by month-end flows. The Australian dollar extended intra-day gains after China’s top leaders promised to boost economic stimulus to spur growth and vowed to contain the country’s worst Covid outbreak since 2020, which is threatening official targets for this year. The euro snapped six days of losses against the dollar but was still set for its worst monthly performance in almost four years. Bunds extended losses and yields rose by up to 5 bps after data showed euro-area consumer prices rose by 7.5% from a year earlier in April, in line with the median estimate in a Bloomberg survey. A gauge excluding volatile items such as food and energy jumped to 3.5%. The pound advanced against the dollar, trimming a weekly decline of 2.2%. The cost of hedging against swings in the pound over a one-week period rose to the highest since December 2020. Gilts outperformed bunds and Treasuries, as money markets pared BOE tightening wagers. The yen rose on demand over the currency fix in Tokyo but it remains on track for its worst monthly performance since 2016 In rates, Treasuries hold losses into the U.S. session leaving yields down by as much as 6bps across front-end as the curve flattens. 10-year TSY yields were around 2.86%, cheaper by 4bp vs. Thursday close while 2s10s, 5s30s spreads flatten 2bp and 2.5bp amid front-end and belly-led weakness. German short-end cheapens roughly 5 bps to 0.24% as euro-area core inflation accelerated higher than expected. In Europe, peripherals underperform and lead bond losses while Estoxx50 climbs following better sentiment across Asia stocks after China’s pledge to ramp up stimulus.  Dollar issuance slate empty so far; two names priced $4.5b Thursday, taking weekly volumes through $8b vs. $20b forecast. Expectations are for $20b to $25b next week and a total of $125b to $150b for the month of May In commodities, WTI rose 1.2% higher to trade near $107. Saudi Aramco is expected to lower its official selling prices for June-loading crudes, market sources told S&P Global Commodity Insights; following tepid Asian demand fundamentals, with the OSP differentials retreating from the record highs. North Sea Crude oil grades underpinning dated Brent Benchmark to average 540k BPD in June (prev. 755k BPD), according to programmes. Indian firms are reportedly seeking oil import deals with Russia, according to sources cited by Reuters; three refiners looking to buy up to 16mln bbl per month of oil from Russia. Spot gold rises roughly $20 to trade around $1,915/oz. Most base metals trade in the green. Bitcoin prices are softer as usual and briefly retreated beneath the 39,000 level. Looking at the day ahead now, and data releases include the flash CPI estimate for the Euro Area in April, as well as the first look at Q1 GDP for the Euro Area, Germany, France and Italy. Otherwise from the US, we’ll get March’s data on personal spending and personal income, the Q1 employment cost index, the NI Chicago PMI for April, and the University of Michigan’s final consumer sentiment index for April. From central banks, we’ll hear from the ECB’s de Cos, and the Central Bank of Russia will be making its latest policy decision. Finally, earnings releases include ExxonMobil, Chevron, AbbVie, Bristol-Myers Squibb, Honeywell International, Charter Communications, Aon and NatWest. Market Snapshot S&P 500 futures down 0.9% to 4,242.00 STOXX Europe 600 up 1.0% to 451.55 MXAP up 2.0% to 169.00 MXAPJ up 2.6% to 561.33 Nikkei up 1.7% to 26,847.90 Topix up 2.1% to 1,899.62 Hang Seng Index up 4.0% to 21,089.39 Shanghai Composite up 2.4% to 3,047.06 Sensex up 0.5% to 57,796.94 Australia S&P/ASX 200 up 1.1% to 7,435.01 Kospi up 1.0% to 2,695.05 German 10Y yield little changed at 0.88% Euro up 0.7% to $1.0574 Brent Futures up 0.9% to $108.51/bbl Brent Futures up 0.9% to $108.51/bbl Gold spot up 1.1% to $1,915.10 U.S. Dollar Index down 0.66% to 102.94 Top Overnight News from Bloomberg More than six years after China’s shock 2015 devaluation roiled global markets and spurred an estimated $1 trillion in capital flight, the yuan is weakening at a similar pace. Onshore it’s lost nearly 4% in eight days, while the offshore rate is heading for its worst month relative to the greenback in history. Selling momentum is the strongest since the height of Donald Trump’s trade war in 2018 Geopolitical turmoil is reviving the dollar’s status as a haven, extending gains seen earlier this year as traders shifted to the U.S. to seize on rising interest rates from the Federal Reserve. On Thursday, one gauge of the greenback pushed through to the strongest level since 2002, swept up by a wave of demand for the world’s reserve currency Russia’s war with Ukraine may persuade the Swiss National Bank to adjust its monetary policy if inflation accelerates, SNB President Thomas Jordan said Economic expansion in the euro zone began 2022 on a weak footing -- underscoring the damage from soaring energy costs and worsening supply snarls following Russia’s invasion of Ukraine. Output increased 0.2% from the previous quarter in the three months through March -- matching the median estimate in a Bloomberg survey U.K. house prices rose for a ninth consecutive month in April as the housing market continued to defy an escalating cost of living crisis. The 0.3% gain marked the longest winning streak since 2016 Oil is poised for a fifth monthly gain after another tumultuous period of trading that saw prices whipsawed by the fallout from Russia’s war in Ukraine and the resurgence of Covid-19 in China A More detailed look at global markets courtesy of Newsquawk APAC stocks gained after the firm lead from the US where stocks looked past the surprise contraction in US GDP, but with advances in the region capped heading into month-end and next week's mass closures. ASX 200 was firmer as tech mirrored the outperformance of the Nasdaq stateside and with gold miners following closely behind after the precious metal reclaimed the psychological USD 1900/oz level. Hang Seng and Shanghai Comp were initially indecisive ahead of next week’s holiday closures including in the mainland where markets will remain closed through to Wednesday, while participants also digested the surprise contraction in Hong Kong’s exports and imports data. However, a surge in Hong Kong tech stocks and policy pledges by China's Politburo helped shake off the indecision. Top Asian News Bets of Easing Crackdown Spur Dizzying Jump in China Tech Stocks Grab Gets Malaysia Digital Bank License as Five Bids Win CATL Posts Sharp Drop in Earnings in Abrupt Reversal of Fortune China Plans Symposium With Big Tech Firms After Labor Day: SCMP European equities remained on the front foot on the last trading day of the month.   In terms of sectors, tech currently stands as the clear outperformer amid the sectoral gains on Wall Street yesterday alongside the surge in Chinese Tech. Overall, sectors have a slight anti-defensive bias. State-side futures were dented overnight amid after-hours losses in Amazon (-9% pre-market) and Apple (-2.4% pre-market) following disappointing guidance and inflationary headwinds. Thus, the NQ (-0.8%) currently lags. Top European News Russia Offers Dual-Payment Plan for Oil, Other Trade With India Germany Says Won’t Block Embargo on Russian Oil to Punish Putin UBS Wealth Says Too Early to Bet on Recession, Fed’s Failure U.K. House Prices Deliver Longest Winning Streak Since 2016 FX Dollar bulls book profits into month end and DXY pulls back further from near 104.000 peak in the process. High betas, cyclical and activity currencies grab the chance to recoup losses vs Buck. Euro rebounds amidst more hot Eurozone inflation data, but could be hampered by big option expiries. Yuan regroups as Chinese Government promises stimulus measures and aid for sectors of the economy suffering worst covid contagion Central Bank of Russia (CBR) cuts key rate by 300bps to 14.00% (exp. 15.00%); sees key rate in 12.5-14.00% range this year (prev. 9.0-11.0%). Russia's Kremlin, when asked about the idea of pegging the RUB to gold prices, says it is under discussion, according to Reuters. Fixed Income Bonds suffer another inflation setback after early EU rebound. Bunds some 100 ticks down from 154.69 peak, Gilts flattish between 119.34-118.73 parameters and 10 year T-note nearer 119-04+ low than 19-24 high. BTPs weak after so-so reception at end of month Italian auctions - US PCE data also adds to caution as Fed's preferred measure of inflation. Commodities WTI and Brent front-month futures have been gaining during the European morning. Saudi Aramco is expected to lower its official selling prices for June-loading crudes, market sources told S&P Global Commodity Insights; following tepid Asian demand fundamentals, with the OSP differentials retreating from the record highs. (S&PGlobal) North Sea Crude oil grades underpinning dated Brent Benchmark to average 540k BPD in June (prev. 755k BPD), according to programmes. Indian firms are reportedly seeking oil import deals with Russia, according to sources cited by Reuters; three refiners looking to buy up to 16mln bbl per month of oil from Russia. Spot gold has been rising in tandem with a pullback in the Buck but ahead of the US March PCE metric. Overnight, base metals saw gains in Shanghai, with some also citing a demand front-load ahead of the Chinese Labour Day. US Event Calendar 08:30: 1Q Employment Cost Index, est. 1.1%, prior 1.0% 08:30: March Personal Income, est. 0.4%, prior 0.5% March Personal Spending, est. 0.6%, prior 0.2% March Real Personal Spending, est. -0.1%, prior -0.4% March PCE Deflator MoM, est. 0.9%, prior 0.6% March PCE Deflator YoY, est. 6.7%, prior 6.4% March PCE Core Deflator MoM, est. 0.3%, prior 0.4% March PCE Core Deflator YoY, est. 5.3%, prior 5.4% 09:45: April MNI Chicago PMI, est. 62.0, prior 62.9 10:00: April U. of Mich. Sentiment, est. 65.7, prior 65.7 U. of Mich. Expectations, est. 64.1, prior 64.1 U. of Mich. Current Conditions, est. 68.0, prior 68.1 U. of Mich. 1 Yr Inflation, est. 5.5%, prior 5.4%; 5-10 Yr Inflation, prior 3.0% DB's Jim Reid concludes the overnight wrap By the time you're reading this I'll be lying down with straps around my ankles and wrists and making strange noises while I get manipulated by someone very strict. No I'm not remaking "50 Shades" but instead starting "Reformer Pilates" for the first time at a very early physio appointment. The miracle worker of a back consultant that has for now cured my debilitating sciatica with one simple injection has recommended it as a way of preventing a relapse. At this point, I will do absolutely anything he says so I’m prepared to humiliate myself on a regular basis going forward. So feel free to picture this as you read this. Some of the bearish chains have been loosened in risk markets over the last 24 hours but volatility remains elevated. We’ve seen another major European bond selloff, the highest German inflation since 1950, a further surge in the dollar, an unexpected US economic contraction in Q1, poor Amazon earnings, as well as growing geopolitical tensions as speculation continues about a Russian oil embargo in Europe. In spite of all that however, major equity indices have continued to advance from their Tuesday lows, with the S&P 500 (+2.47%) staging a huge comeback as investors focused on the more positive stories from recent corporate earnings releases. This was before Amazon missed sales expectations after the bell and revised down sales expectations for the second-quarter, fueling fears that consumer spending may slow despite evidence of robust activity in yesterday's GDP data. Amazon shares were -9.15% lower after hours. However, Apple reported earnings that beat estimates on strong iPhone sales, despite supply chain issues coinciding with China’s lockdowns. Shares were -2.19% lower after hours. Overall sentiment still remains fragile with NASDAQ 100 futures (-1.04%) and S&P 500 futures (-0.43%) moving lower in the overnight trade. This followed the best day for the S&P 500 (+2.47%) since the bounceback after the initial invasion in early March, with every sector more than +1.00% higher. Megacap tech stocks led the way as the FANG+ index rose +4.78%, its best day since mid-March. Europe also saw decent gains, although missing most of the rally that took place in the New York afternoon, with the STOXX 600 (+0.62%), the DAX (+1.35%) and the FTSE 100 (+1.13%) all higher. Given the big run-up in the New York afternoon, the S&P 500 was 'only' around +0.8% higher as Europe closed. Bond markets were again lively with most of the action in Europe, with a significant selloff after the German CPI print for April surprised on the upside yet again. Looking at the details, the year-on-year measure rose to +7.8% using the EU-harmonised method (vs. +7.6% expected), which is certainly the fastest pace of inflation since German reunification, and at the same level briefly seen in West Germany after the first oil shock in 1973. Indeed if you’re looking for German inflation faster than that, you’ve got to go all the way back to the 1950s, since West Germany had much more success than the US or UK for example in keeping inflation in the single-digits even during the 1970s. We’ll have to see what the flash CPI reading for the entire Euro Area brings today, but as I mentioned in my Chart of the Day yesterday (link here), this brings home just how far the ECB is behind the curve, since the last time inflation was around these levels in the 70s, the Bundesbank certainly didn’t have a negative deposit rate. With the inflation reading coming in above expectations, that catalysed a fresh bond selloff that took the 10yr bund yield up by +9.8bps to 0.89%. This echoes some of the other big moves higher in yields we’ve seen over the last couple of months, but it still leaves them beneath the peak of 0.97% at the end of last week. What was also noticeable was the fresh widening in spreads that speaks to the building minor stresses in European markets right now, with the gap between Italian and German 10yr yields up a further +4.2bps to 181bps, a level not seen since June 2020. As in the previous session, those moves were seen in the credit space too, with the iTraxx Crossover widening +3.7bps to 418bps, leaving it just shy of its recent peak at 421bps in early March. Another cause for concern in European markets have been the ongoing tensions between Russia and the West over Ukraine, with the Euro falling by a further -0.55% yesterday to $1.0499, the first close below $1.05 since early 2017, although this morning it has moved back up to $1.0514. Conversely the dollar index (+0.65%) continued its upward march, strengthening for the 19th time in the last 21 sessions, and closing at its strongest level since 2002. That comes as the latest reports indicate that a Russian oil embargo is moving closer, with Brent crude ending the day up +2.16% at $107.59/bbl after Dow Jones reported that Germany had dropped its opposition to an embargo, and this morning, Brent has risen further to $108.00/bbl. We also heard from President Biden, who requested $33bn from Congress for further assistance to Ukraine, including $20.4bn on security and military assistance, $8.5bn on economic assistance, and $3bn on humanitarian assistance. Overnight in Asia, equity markets are mostly trading higher following the strong performance on Wall Street, with tech stocks leading the way. The Hang Seng (+2.04%) has seen one of the strongest performances, far outpacing mainland Chinese indices including the Shanghai Composite (+0.37%) and the CSI 300 (-0.06%). That comes amidst persistent concerns over the country’s lockdowns, with Shanghai seeing an increase in Covid-19 cases for the first time in 6 days, and overnight we also heard from China’s Politburo, with CCTV reporting that they’re urging efforts to meet the economic growth targets. Elsewhere, the Kospi (+0.78%) is trading up while markets in Japan are closed for a holiday today. Back on the data front, another notable release yesterday came from the US GDP reading for Q1. On one level it’s a fairly backward-looking reading, but the print saw an unexpected contraction, with the economy shrinking at an annualised rate of -1.4%, marking the first quarterly contraction since the lockdowns of Q2 2020. That said, there are no indications this is going to derail the Fed from their path of rate hikes, with a 50bps move next week still fully priced in. In fact, there was a massive drag coming from the surprisingly large trade deficit, while underlying consumption was actually very robust, suggesting rates need to get even higher to slow demand, as we’ve been arguing. In turn, the amount of Fed hikes priced for the rest of the year moved up +2.2bps to 239bps, and this morning they’re up to 242bps, just shy of their closing high last Friday at 244bps. That led to a renewed flattening in the yield curve, and 2yr yields gained +2.6bps while 10yr yields fell -0.9bps. Despite the tepid headline nominal move, there was a big divergence in 10yr inflation breakevens and real yields. Breakevens gained +7.3bps to 2.98%, a few bps shy of their highest levels on record from last week. By contrast, real yields fell -8.2bps to -0.16%, taking them a further from positive territory ahead of next week’s FOMC where its also widely-anticipated they will announce the beginning of their QT program. To the day ahead now, and data releases include the flash CPI estimate for the Euro Area in April, as well as the first look at Q1 GDP for the Euro Area, Germany, France and Italy. Otherwise from the US, we’ll get March’s data on personal spending and personal income, the Q1 employment cost index, the MNI Chicago PMI for April, and the University of Michigan’s final consumer sentiment index for April. From central banks, we’ll hear from the ECB’s de Cos, and the Central Bank of Russia will be making its latest policy decision. Finally, earnings releases include ExxonMobil, Chevron, AbbVie, Bristol-Myers Squibb, Honeywell International, Charter Communications, Aon and NatWest. Tyler Durden Fri, 04/29/2022 - 07:33.....»»

Category: personnelSource: nytApr 29th, 2022

Turning Around For Good?

S&P 500 rose incessantly during the regular session but bonds don‘t yet confirm the decline would be over. So much hawkish noise (75bp hike next?), and tech keeps rising? Still a peculiar case of strength but a daily rotation out of energy stocks into tech can‘t be denied. I wouldn‘t yet jump to conclusions about […] S&P 500 rose incessantly during the regular session but bonds don‘t yet confirm the decline would be over. So much hawkish noise (75bp hike next?), and tech keeps rising? Still a peculiar case of strength but a daily rotation out of energy stocks into tech can‘t be denied. I wouldn‘t yet jump to conclusions about lastingly improving market breadth though. The S&P 500 upswing may just take a few days more to run its course as the tightening heat hasn‘t yet played out. Powell talking tomorrow is a nice opportunity. Real assets will find it easy to recover from yesterday‘s daily setback – they had plenty of opportunities to decline before Feb 24th, yet tellingly didn‘t… if (typeof jQuery == 'undefined') { document.write(''); } .first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles .af-body.af-standards input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; } Get The Full Henry Singleton Series in PDF Get the entire 4-part series on Henry Singleton in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues (function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true); Q1 2022 hedge fund letters, conferences and more Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook By the shape of yesterday‘s candle, the S&P 500 can extend its gains before turning south again. The volume doesn‘t yet indicate the presence of sellers nearby. Reversing when Powell speaks next? Credit Markets Sea of red, anywhere you look – HYG intraday upswing attempt looks too weak. Rising yields still work against the stock market bulls – these are running on borrowed time. Gold, Silver and Miners Precious metals downswing was partially bought, and odds are the downside wouldn‘t be too deep. The upside risks remain much greater, and with expectations building up for 75bp hike in May (i.e. it not being just a fantasy), the bulls will welcome even a mere 50bp hike getting out of the way. Anyway, good performance when you look at the USD strength. Crude Oil Crude oil downswing will have a very limited shelf life – and the same goes for oil stocks. Don‘t be surprised by a spike early Monday. Copper Copper is holding up nicely, and would take the bullish cue as well. Before that, patience, quite some patience is called for. Bitcoin and Ethereum Cryptos failing to extend gains could be one of the first warning signs that the paper assets rally is coming to an end, slowly but surely. Bitcoin outperforming Ethereum is in itself defensive. Summary The introduction to today‘s analysis together with the rich captions, serve as a good summary, so enjoy the many thoughts presented. Suffice to say that the stock market upswing isn‘t yet confirmed by bonds – there is no risk appetite there. It‘s a counter trend move at odds with the the dollar, and temporarily helped by real assets daily weakness. Strength would return into precious metals and commodities, and the Fed won‘t be able to break inflation regardless of putting up a good fight visually. The countdown to the approaching recession is on, and I have it set at rather 6 than 9 or even 12 months. Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals. Thank you, Monica Kingsley Stock Trading Signals Gold Trading Signals Oil Trading Signals Copper Trading Signals Bitcoin Trading Signals www.monicakingsley.co mk@monicakingsley.co All essays, research and information represent analyses and opinions of Monica Kingsley that are based on available and latest data. Despite careful research and best efforts, it may prove wrong and be subject to change with or without notice. Monica Kingsley does not guarantee the accuracy or thoroughness of the data or information reported. Her content serves educational purposes and should not be relied upon as advice or construed as providing recommendations of any kind. Futures, stocks and options are financial instruments not suitable for every investor. Please be advised that you invest at your own risk. Monica Kingsley is not a Registered Securities Advisor. By reading her writings, you agree that she will not be held responsible or liable for any decisions you make. Investing, trading and speculating in financial markets may involve high risk of loss. Monica Kingsley may have a short or long position in any securities, including those mentioned in her writings, and may make additional purchases and/or sales of those securities without notice. Updated on Apr 20, 2022, 10:36 am (function() { var sc = document.createElement("script"); sc.type = "text/javascript"; sc.async = true;sc.src = "//mixi.media/data/js/95481.js"; sc.charset = "utf-8";var s = document.getElementsByTagName("script")[0]; s.parentNode.insertBefore(sc, s); }()); window._F20 = window._F20 || []; _F20.push({container: 'F20WidgetContainer', placement: '', count: 3}); _F20.push({finish: true});.....»»

Category: blogSource: valuewalkApr 20th, 2022

Futures Flat As Yen Discombobulation Extends To Record 13th Day

Futures Flat As Yen Discombobulation Extends To Record 13th Day After some jerky rollercoaster moves in Monday's illiquid trading session, which jerked both higher and lower before closing modestly in the green, US futures resumed their volatility and at last check were trading flat after earlier in the session rising and falling; Nasdaq futures retreated 0.1%. as investors weighed the risks to economic growth from hawkish Federal Reserve comments. Stocks in Europe dropped as markets reopened after the Easter holiday, while bonds around the globe slumped as investors weighed the prospect of aggressive policy action to curb inflation. Asian stocks also dropped as did oil, while the dollar extended its gains .  Treasuries extended declines, with the 10-year yield hitting a fresh three-year peak north of 2.90%. German and U.K. 10-year yields climbed to the highest since 2015 as bonds across Europe plunged. The grotesque farce that is MMT came one step closer to total collapse as the yen dropped for a record 13th day, its longest-losing streak in at least half a century with the credibility of the BOJ - that central bank that launched MMT, QE and NIRP - now hanging by a thread. It wasn't all bad news however, because with the yen losing more of its purchasing power, Japanese stocks gained. Disruptions to supply chains from China’s lockdowns and to commodity flows from the war are keeping pressure on central banks to rein in runaway prices at a time when global growth is tipped to slow. The World Bank cut its forecast for global economic expansion this year on Russia’s invasion. Meanwhile, investors - already betting on an almost half-point Federal Reserve rate increase next month - continue monitoring comments from policy makers as prospects of monetary tightening weigh on the sentiment. St Louis Fed President James Bullard said the central bank needs to move quickly to raise interest rates to around 3.5% this year with multiple half-point hikes and that it shouldn’t rule out rate increases of 75 basis points. The last increase of such magnitude was in 1994. “The Bullard comments really encapsulate the quandary that many of the world’s central banks have found themselves in,” said Jeffrey Halley, a senior markets analyst at Oanda. “Luckily, they have plenty of excuses in the shape of the pandemic and the Ukraine war. Central banks can now play catchup, hike aggressively and run the risk of recessions. Getting the pain over and done may be the least worst option.” Over in Ukraine, President Volodymyr Zelenskiy said Monday that Russian forces had begun the campaign to conquer the Donbas region in Ukraine’s east. Here are all the latest news and headlines over Ukraine: Russia's Belgorod provincial Governor said a village near the Ukrainian border was struck by Ukraine, according to RIA. However, Sputnik noted that no casualties were reported. Russian Foreign Minister Lavrov says another stage of its operation is beginning Russian Defence Ministry is calling on Ukrainian and foreign fighters to leave the metallurgical plant in Mauripol without arms and ammunition today, via Reuters; adding, the US and other Western countries do everything to drag out the Ukrainian military operation. White House said US President Biden will hold a call with allies and partners on Tuesday to discuss continued support for Ukraine and efforts to hold Russia accountable, according to Reuters. French Finance Minister Le Maire says an embargo on Russian oil is being worked on, adds that we have always said with President Macron that we want such an embargo, via Reuters; aims to convince the EU on such an embargo in the coming weeks. Russia's Gazprom has not booked gas transit capacity via Yamal-Europe pipeline for May. In premarket trading, Zendesk rose 4.1% in premarket trading after a report about the software company hiring a new adviser to explore a potential sale. NXP Semiconductors dropped 2.5% in premarket trading after Citi cut the stock to neutral from buy, saying in note that its thesis on margin expansion has played out. Other notable premarket movers include: Amazon (AMZN US) could be active as Barclays analyst Ross Sandler is upbeat on it heading into 1Q results and sees gross merchandise value (GMV) accelerating on a 1-yr basis in 2Q. Netgear (NTGR US) dropped 11% in extended trading Monday after reporting preliminary net revenue for the first quarter that trailed the average analyst estimate. Super Micro Computer (SMCI US) climbed 15% after the maker of server and storage systems reported fiscal 3Q preliminary profit and sales that beat the average analyst estimate. Acadia (ACAD US) shares declined in postmarket after it said Phase 2 clinical trial of the efficacy and safety of ACP-044 for acute pain following bunion removal surgery didn’t meet the primary endpoint. WeWork (WE US) advanced in postmarket trading Monday as coverage starts with an overweight rating and $10 price target at Piper Sandler, which highlights that the co-working company is on track to achieve profitability by late 2023 or early 2024. European stocks slumped with the Stoxx 600 dropping 1.1% led lower by healthcare and media shares as traders returned from a lengthy Easter holiday, with technology stocks also underperforming; the energy sub-index the only sector gaining in Europe in Tuesday trading as investors digest the recent rally in crude prices. Meanwhile in Russia equities fell for a second day with the benchmark MOEX Index dropping as Russia’s military pressed on with its offensive in southern and eastern Ukraine, with President Volodymyr Zelenskiy saying Moscow had launched a new campaign focused on conquering the Donbas region. The MOEX dropped as much as 3.2%, adding to declines of 3.4% on Monday with Lukoil, Sberbank and Gazprom leading losses. Here are some of Europe's biggest movers: TotalEnergies rises as much as 3.6% to the highest level since the end of last month after reporting higher refining margins, as well as better liquids and gas prices Spectris gains as much as 6.3% after the firm said it will sell its Omega Engineering business to Arcline Investment Management for $525m, and also announced a GBP300m buyback program Carrefour climbs as much as 3% as Berenberg upgrades to buy from hold, saying that higher inflation is making the food retail sector more challenging, but will also reveal outperformers Virbac advances as much as 11% after the French maker of veterinary products raised the top end of its sales growth forecast. Oddo upgraded the stock to outperform. Food delivery shares lead European tech lower as U.S. Treasury yields touch new highs following a hawkish comment from a Federal Reserve President, Just Eat Takeaway -4.5%; Delivery Hero -2.5% European consumer staples and luxury stocks fall as markets reopen after a 4-day break, with higher inflation and looming interest-rate hikes at the forefront of investor worries L’Oreal, which reports 1Q sales after the market close today, slumps as much as 4.1%; LVMH decreases as much as 1.9%, Hermes down as much as 4% Wizz Air drops as much as 6.1% after being downgraded to reduce at HSBC, with the broker saying the low-cost airline’s decision to not hedge its fuel prior to the outbreak of the Ukraine war could bite Adevinta falls as much as 9.8% after Bank of America downgraded to underperform from neutral on Thursday, due to the classifieds business’s large exposure to the automotive sector Elior and SSP Group shares retreat after both are downgraded to hold from buy at Deutsche Bank on downside risks; Elior down as much as 3.7%, SSP as much as 6.1% Earlier in the session, Hong Kong technology names declined on ongoing concerns over regulation. China dropped as investors assessed measures to tackle economic headwinds from Covid-led lockdowns. Asian stocks declined for a third day, as continued concerns over China’s regulatory crackdowns and the prospect of aggressive monetary-policy tightening by the Federal Reserve weighed on sentiment. The MSCI Asia Pacific Index fell as much as 0.6%, with Chinese technology shares including Tencent and Alibaba the biggest drags after Beijing announced a “clean-up” of the video industry. Hong Kong stocks were the worst performers around the region as trading resumed after Easter holidays, while equities rose in Japan and South Korea. The People’s Bank of China on Monday announced measures to help businesses hit by Covid-19, as the latest economic data started to show the impact of extended lockdowns. Investors are awaiting further easing with the release of China’s loan prime rates on Wednesday, after the central bank last week announced a smaller-than-expected cut in the reserve requirement for banks. Whether policy support measures will “flow significantly into the economy will be on watch,” and market participants may “want to see signs of recovery before taking on more risks in that aspect,” said Jun Rong Yeap, a strategist at IG Asia Pte. Hawkish Fed member James Bullard raised the possibility of a 75 basis-point hike in interest rates. Concerns of inflation and moves by the Fed and other central banks to fight it have driven the recent global equity selloff, with the Asian benchmark down about 11% this year. In China, markets are also awaiting the release of banks’ benchmark lending rates on Wednesday after the People’s Bank of China reduced the reserve requirement ratio for most banks Friday but refrained from cutting interest rates. The latest policy measures “have really highlighted easing is required,” Gareth Nicholson, Nomura chief investment officer and head of discretionary portfolio management, said on Bloomberg Television. “The markets don’t believe enough has been done and they’re going to have to step it up.” Japanese equities gained, rebounding after two days of losses as the continued weakening of the yen bolstered exporters. Electronics and auto makers were the biggest boosts to the Topix, which rose 0.8%. Tokyo Electron and Advantest were the largest contributors to a 0.7% rise in the Nikkei 225. The yen extended declines to a 13th straight day, its longest losing streak on record, falling through 128 per dollar. Australian stocks also advanced, with the S&P/ASX 200 index rising 0.6% to close at 7,565.20 as trading resumed following Easter holidays. The energy and materials sectors gained the most.  Cleanaway was among the biggest gainers, climbing the most since April 2021 after a media report said KKR has been preparing an offer for the Australian waste management company. City Chic Collective was the biggest decliner, falling to its lowest since December 2020. In New Zealand, the S&P/NZX 50 index fell 0.5% to 11,835.88. In rates, Treasuries slipped, with yields rising by as much as 6bps in the long end of the curv, however they traded off session lows reached during European morning as those markets reopened after a four-day holiday. Yields beyond the 5-year are higher by 3bp-4bp, 10-year by 3.3bp at 2.89% after rising above 2.90% earlier; U.K. and most euro-zone 10-year yields are higher by at least 5bp, correcting spreads vs U.S. created Monday when those markets were closed. The yield curve continues to steepen; 7- to 30-year yields reached new YTD highs, nearly 3% for 30-year. Japanese government bonds were mixed. Focal points for U.S. session are corporate new-issue calendar expected to include more financial offerings and comments by Chicago Fed President Evans. In FX, the Bloomberg Dollar Spot Index was little changed, after earlier rising to its highest since July 2020, and the dollar fell against almost all of its Group-of-10 peers. Commodity-related currencies and the Swedish krona were the best performers while the Japanese currency fell versus all of its G-10 peers. The yen extended its longest-losing streak in at least half a century, and touched 128.45 per dollar, its weakest level since May 2002, amid concerns over further widening in yield differentials. The euro reversed an Asia session loss even amid another round of bearish option bets in the front-end due to political risks. Bunds extended a slump, underperforming Treasuries, before a five-year debt sale and as money markets increased ECB tightening wagers. The Australian dollar surged against the yen to levels last seen almost seven year ago. RBA minutes said quicker inflation and a pickup in wage growth have moved up the likely timing of the first interest-rate increase since 2010. The New Zealand dollar also advanced; RBNZ Governor Orr reiterated the central bank’s aggressive rate stance. The pound was little changed and gilts slid, sending the U.K. 10-year yield to the highest since 2015 as money markets bet on a faster BOE policy tightening path. In commodities, crude futures declined. WTI trades within Monday’s range, falling 1.5% to trade around $106. Brent falls 1.5% to ~$111. Most base metals trade in the green; LME copper rises 1.4%, outperforming peers. Spot gold is down 0.1% to $1,977/oz. Bitcoin was flat and holding steady at the bottom of the sessions USD 40.6-41.2k parameters. Looking at the day ahead, data is light with US March building permits, housing starts, and Canada March existing home sales. The IMF will also release their 2022 World Economic Outlook. Market Snapshot S&P 500 futures up 0.3% to 4,401.75 STOXX Europe 600 down 0.8% to 456.07 MXAP down 0.4% to 171.55 MXAPJ down 0.3% to 570.60 Nikkei up 0.7% to 26,985.09 Topix up 0.8% to 1,895.70 Hang Seng Index down 2.3% to 21,027.76 Shanghai Composite little changed at 3,194.03 Sensex up 0.5% to 57,438.93 Australia S&P/ASX 200 up 0.6% to 7,565.21 Kospi up 1.0% to 2,718.89 German 10Y yield little changed at 0.91% Euro up 0.2% to $1.0808 Brent Futures down 0.7% to $112.40/bbl Brent Futures down 0.7% to $112.40/bbl Gold spot up 0.1% to $1,979.91 U.S. Dollar Index little changed at 100.73 Top Overnight News from Bloomberg Record numbers of U.K. business leaders expect operating costs to soar this year as inflation proves more sticky than thought, according to a survey by Deloitte French President Emmanuel Macron led his rival Marine Le Pen 55.5% to 44.5% ahead of the run-off presidential election set for April 24, according to a polling average calculated by Bloomberg on April 19. The gap between them has widened from the 8.2 percentage points recorded on April 15 Nationalist leader Marine Le Pen never led in the three campaigns she’s run for France’s top job, but a protectionist stance on economic issues in recent years has allowed her to reach some voters who traditionally backed left- wing candidates China’s central bank announced a spate of measures to help an economy which has been hit by lockdowns to control the current Covid outbreak, but the focus on boosting credit likely means the chances for broad-based easing are shrinking A more detailed breakdown courtesy of Newsquawk Asia-Pac stocks saw a mixed performance as more markets reopened and trade picked up from the holiday lull. ASX 200 gained on return from the extended weekend, led by strength in commodity-related sectors and top-weighted financials. Nikkei 225 briefly reclaimed the 27k level as continued currency depreciation underscored the Fed and BoJ policy divergence. Hang Seng was pressured as it took its first opportunity to react to the PBoC’s underwhelming policy decisions and with tech hit after Shanghai's market regulator summoned 12 e-commerce platforms including Meituan on price gouging during COVID outbreaks. Shanghai Comp was choppy as participants mulled over the latest virus-related developments including an increase in Shanghai deaths and the lockdown of five districts in the steel producing hub of Tangshan, although policy support pledges from the PBoC and NDRC ultimately provided a cushion. Top Asian News Japan’s Stepped-Up Warnings Fail to Stem Yen’s Slide Past 128 China’s Promises to Support Covid-Hit Economy Fail to Impress China Tech Stocks Slump on Didi Delisting Plan, Regulation Woes Sri Lanka Officially Requests Rapid IMF Funds Amid Crisis European bourses are negative on the session but were choppy and rangebound for much of the morning before dropping further amid renewed yield upside, Euro Stoxx 50 -1.4%. Stateside, US futures have given up their initial positive performance and are now lower across the board, ES -0.3%, and the NQ -0.4% lags given yield action; session is focused on Fed speak and earnings with NFLX due. Truist Financial Corp (TFC) Q1 2022 (USD): Adj. EPS 1.23 (exp. 1.10), Revenue 5.32bln (exp. 5.47bln) Top European News Stellantis Idles One of Russia’s Last Auto Plants Left Running Commodities Trader Gunvor Doubled Profits on Hot Gas Market European Gas Falls to Lowest Since Russian Invasion of Ukraine Credit Suisse’s Top China Banker Tu Steps Aside for New Role FX: USD/JPY breezes through more option barriers and disregards more chat from Japanese officials about demerits of Yen weakness; pair pulls up just pips shy of 128.50. DXY tops 101.000 in response before pulling back as Europeans return from long Easter break. Aussie outperforms as RBA minutes highlight more recognition about inflationary environment externally and internally. Kiwi next best G10 currency as RBNZ Governor Orr underlines that policy is being weighted towards anchoring inflation expectations; AUD/USD hovers under 0.7400 and NZD/USD around 0.6750 Euro trying to hold near 1.0800 where 1.3bln option expiry interest rolls off at the NY cut, Pound regains 1.3000 plus status and Loonie pivots 1.2600 on the eve of Canadian CPI. Yuan close to 6.4000 ahead of Chinese LPR rate verdict on Wednesday amidst heightened easing expectations. Fixed income: EU bonds correct lower after long Easter holiday weekend then pick up the baton to push US Treasuries even lower; Bunds giving up 154.00 and dropping to a 153.58 trough in short order and USTs lower to the tune of 7 ticks. Decent demand for German Bobls, but high price in terms of yield and a larger retention - limited relief seen in the benchmark, given broader action. Benchmark 10 year cash rates approaching new psychological marks of 1.0%, 2.0% and 3.0% in Bunds, Gilts and T-notes respectively. Commodities Crude benchmarks are softer after yesterday's firmer session, which was driven by Libya supply concerns, currently moving in tandem with broader equity performance awaiting fresh geopolitical developments. Currently, WTI and Brent are modestly above session lows which reside sub USD 106/bbl and USD 111/bbl respectively. OPEC+ produced 1.45mln BPD below targets during March, via Reuters citing a report; compliance 157% (132% in February). Spot gold and silver are contained with the yellow metal pivoting USD 1975/oz while copper derives further impetus from Peru protest activity. MMG said protesters at the Las Bambas copper mine alleged a failure to comply with social investment commitments, while it rejected the allegations and noted that Las Bambas will be unable to continue copper output as of April 20th. US Event Calendar 08:30: March Building Permits MoM, est. -2.4%, prior -1.9%, revised -1.6% 08:30: March Housing Starts MoM, est. -1.6%, prior 6.8% 08:30: March Building Permits, est. 1.82m, prior 1.86m, revised 1.87m 08:30: March Housing Starts, est. 1.74m, prior 1.77m Central Bank Speakers 12:05: Fed’s Evans Speaks to Economic Club of New York DB's Tim Wessel concludes the overnight wrap Welcome back to another holiday-shortened week for many markets. What it lacks in tier one data releases, it makes up for with heavy hitting central bank speakers and a core European Presidential election. We’re also wading into the thick of earnings season, while the on-running war in Ukraine has the potential to tip markets in any direction at the speed of a headline. Starting with the central bankers, President Lagarde and Chair Powell will sit on an IMF panel to discuss the global economy in the last Fed communications before their May meeting blackout period. The Fed has primed markets for a +50bp hike in May, and pricing has obliged, with futures placing a 98.1% probability of a +50bp rise, along with +246bps of tightening for the entire year. Governor Bailey won’t miss out on the action and is also delivering an address Thursday. Other Fed regional Presidents will speak throughout the week, with the Fed’s Beige Book due Wednesday. The IMF, meanwhile, will release their global outlook later today. As a reminder, DB Research updated our World Outlook earlier this month, where we are calling for recessions in the US and the euro area within the next two years. Plenty more in the link here. US earnings season will diversify beyond the financials-heavy slate from last week. Today is a nice microcosm of the change up, showcasing earnings from Johnson & Johnson, Halliburton, Hasbro, Lockheed Martin, Netflix, and IBM. On data the rest of the week, we’ll receive German PPI and Canadian CPI Wednesday, along with global PMIs Friday. US housing data dot the rest of the week, as we unravel the competing threads of tight inventories, heightened demand, and supply constraints, against higher mortgage rates on housing activity. Finally, the second round of the French Presidential election is this coming Sunday. Politico’s latest polling aggregates still have incumbent President Macron outpacing Marine Le Pen by around 9% in Sunday’s runoff. Our Europe team has their takeaways from the first round here. The ECB’s April meeting garnered top billing during the EMR’s long weekend (our Euro econ team’s full review here). Overlaid on an inflationary backdrop, the Governing Council is weighing the downside risk to growth against the upside risk to inflation stemming from the recent conflict. While uncertainty pervades, the latter risks are more pressing, which drove their decision to signal net APP purchases would end in Q3, paving the way for policy rate liftoff later this year. Our economists expect the last APP net purchases will occur in July, with the risk skewed toward June, with a +25bp liftoff in September. Markets have +11.8bps of hikes priced by July, +35.6bps by September, and +64.4bps of hikes through 2022. There was no new tool to address market fragmentation, though the ECB signaled imperfect policy transmission would not stand in the way of lifting rates and a new tool would be created if need be. 10yr BTP spreads were -5.0bps tighter to bunds over the week, and +3.3bps wider the day of the meeting. Elsewhere, as mentioned, a suite of US financials reported. Looking through the releases, it seems most FICC trading desks benefitted from the quarter of volatility and higher rates are set to improve margins. However, the prospect of an economic slowdown or potential exposures to war fallout cloud the outlook. S&P 500 financials were -2.65% lower on the week. Taking a longer view of last week, sovereign yields marched higher on the back of tighter expected monetary policy, and the yield curve’s recent sharp steepening continued. 10yr Treasury and bund yields respectively increased +12.8bps (+12.9bps Thursday, +2.5bps yesterday) and +13.5bps (+7.6bps Thursday) with continued heightened volatility. Real yields drove most of the gains in the US (+10.2bps for the week, +4.6bps Thursday, -1.0bps yesterday), ending the week at -0.09%, the highest level since early 2020. 10yr real yields are now +101.7bps higher this year, having had their climb only briefly interrupted by Russia’s invasion of Ukraine. The 2s10s Treasury curve steepened +19.1bps (+2.5bps Friday, +2.9bps yesterday). There were not many positives to hang onto in Ukraine last week. Negotiation progress turned sour, President Biden labeled Russia’s invasion a ‘genocide’, and the US upped the provision of heavy weaponry to Ukraine, which was met with a diplomatic warning from Russia. The EU also pledged additional aid, while Finland began the process of applying for NATO membership and Sweden is reportedly considering the same. On the ground, Russian forces continued their eastern offensive, surrounding Ukrainian defenders of the port city Mariupol. Along with the drag on sentiment, the International Energy Agency warned the full disruption to Russian oil supply had yet to bind, with as much as 3 million barrels of oil per day coming offline starting in May. Brent crude futures therefore climbed +8.7% (+2.68% Thursday, +1.31% yesterday), and closed yesterday at $113.16/bbl, their highest level in three weeks. The S&P 500 fell -2.13% (-1.21% Thursday, -0.02% yesterday in a very quiet session) while the STOXX 600 managed to lose just -0.2% after a +0.7% rally Thursday into the holiday. In the S&P, energy (+3.53%) outperformed given the oil spike, while large cap stocks underperformed on the valuation hit wrought by rising yields, with FANG+ falling -4.81% (-3.16% Thursday, +0.25% yesterday). Asian equity markets are ambivalent about returning after a long holiday, with the Hang Seng (-2.80%) leading regional losses. Mainland Chinese stocks are faring better, with the CSI dipping -0.38% while the Shanghai Composite is -0.03% lower. This, following the PBOC announcing yesterday increased financial support for industries, businesses, and people affected by Covid-19. Elsewhere, the Nikkei (+0.12%) and the Kospi (+0.90%) are up. Outside of Asia, S&P 500 (+0.20%) and Nasdaq (+0.28%) futures are both trading higher. The RBA minutes overnight signaled they are not too far from joining the global tightening cycle, as they expect inflation to further increase above target. The yen extended its depreciation streak against the US dollar, falling -0.58% to 127.73 per dollar, the weakest level since May 2002, as diverging monetary policy paths take their toll. Oil prices and 10yr Treasury yields are little changed overnight; brent futures are +0.19% higher, while 10yr Treasury yields are -1.5bps lower. To the day ahead, data is light on top of the aforementioned earnings, with US March building permits, housing starts, and Canada March existing home sales. The IMF will also release their 2022 World Economic Outlook. Tyler Durden Tue, 04/19/2022 - 08:05.....»»

Category: blogSource: zerohedgeApr 19th, 2022

Futures Flat Ahead Of ECB And Barrage Of Bank Earnings With $2.1 Trillion In Options Expiring

Futures Flat Ahead Of ECB And Barrage Of Bank Earnings With $2.1 Trillion In Options Expiring US index were flat on Thursday, reversing earlier gains sparked by hopes of imminent easing in China, as investors turned their attention to the ECB which is set to maintain its speedier withdrawal of stimulus, data on retail sales and unemployment claims, and a barrage of earnings from Goldman Sachs, Morgan Stanley, Citigroup and Wells Fargo, and all of this happening as $2.1 trillion in options are set to expire (since tomorrow is a holiday). At 7;00am ET, S&P futures were unchanged at 4440, Nasdaq futures were down 0.1% and Europe’s Stoxx 600 rose 0.2%. Asian stocks rose after China again indicated looser monetary policy is on the way. Treasuries extended gains as investors dialed back aggressive bets on Federal Reserve interest-rate hikes. The yen bounced from a two-decade low against the dollar. The greenback slipped after snapping its longest winning streak since 2020. Oil fell. Twitter shares soared after Elon Musk offered to buy the whole company for $54.20. Delta Air Lines gained 0.9% in premarket trading, extending this week’s rally after it had its price projection raised at JPMorgan and Barclays. However the biggest mover in the premarket was Twitter which soared as much as 18%, and was last trading at $51 following a hostile offer by Elon Musk; Tesla shares fell. While elevated and sticky inflation “remains a key risk for investors,” there are signs that price growth will ease in the rest of the year, according to Mark Haefele, chief investment officer at UBS Global Wealth Management. “In our base case, this should allow central banks to slow the pace of monetary tightening and tone down hawkish rhetoric,” he said. “That in turn should lower the threat of an economic hard landing.” China is expected to cut a key policy interest rate for the second time this year on Friday and reduce the reserve requirement ratio soon. South Korea raised its key interest rate and Singapore further tightened policy, spurring advances in their currencies. “We have actually turned cautiously optimistic on the Chinese equity market in April already,” Stefanie Holtze-Jen, Asia-Pacific chief investment officer at Deutsche Bank AG in Singapore, said on Bloomberg Television. “We perceived the communication from the government as the line in the sand.” “We’re still being cautious” about equities, Michael Vogelzang, chief investment officer at CAPTRUST, said on Bloomberg Television. “We think there’s still a lot more that can go wrong than probably can go right.” The latest developments over the war in Ukraine included a European Union warning for member states that President Vladimir Putin’s demand that “unfriendly countries” effectively pay for Russian gas in rubles would violate sanctions. The U.S. will expand the scope of weapons it’s providing to Ukraine in a new $800 million package of military assistance. In Europe, gains for travel and consumer companies outweighed declines in the telecommunications and energy industries, leading the Stoxx Europe 600 Index up 0.1% and Stoxx 50 up 0.3%. CAC 40 outperforms, adding 0.4%, FTSE 100 lags, dropping 0.2%. Atlantia jumped 4.9% in Milan after the Benetton family and Blackstone offered to buy out the Italian highway operator for 23 euros per share. Ericsson dropped 5.6% in Stockholm after its earnings missed estimates. Here are some of Europe's most notable movers: Wizz Air shares jump as much as 8.9% after it said it sees its 4Q operating result ahead of guidance provided at 3Q. Concorde says the low-cost carrier’s expectation to fly 30%-40% more compared with 2019 capacity in the next two quarters is “encouraging.” Holcim shares rise as much as 4.3%, most since March 29, following a Bloomberg report that the group is considering the sale of assets in India. Atlantia shares rise as much as 5.8% after Italy’s Benetton family and Blackstone have made a EU19b bid to buy out the infrastructure group, it follows Bloomberg News last week’s report that the firm was circled by potential suitors. Hermes shares advance as much as 4.6% after publishing 1Q sales that one analyst described as “spectacular.” Peers are also up with Richemont rose as much as +3% Ericsson shares fall as much as 9.2% after reporting adjusted operating profit that undershot average analyst estimates by 25%. While the first-quarter revenue came ahead of expectations, a “clear miss” on profits together with multiple new headwinds to margins may keep investors on the sidelines, according to Barclays. VW shares decline as much as 2.3% after the car-maker reported preliminary figures that Jefferies says are “overall negative.” UPM shares decline as much as 5.1% on Friday after the Finnish company said it has not been able to come to new collective labor agreements with the Paperworkers’ Union. Ashmore shares sink as much as 9.2%, the most since April 2020, after the emerging markets-focused asset manager reported 3Q net outflows of $3.7b, which analysts say were worse than consensus expectations. European bonds fell and the euro advanced as attention turns to the ECB, which is set to maintain its speedier withdrawal of stimulus. Earlier in the session, Asian stocks headed for a two-day gain amid growing expectations that China’s central bank will ease policy to support growth in the region’s biggest economy. The MSCI Asia Pacific Index climbed as much as 0.8% as all sectors rose, with shares in mainland China leading the regionon hopes that the People’s Bank of China will cut its key policy rate soon. A 50-basis point, broad-based reduction in the reserve requirement ratio could also be confirmed as early as Friday, injecting 1.2 trillion yuan ($188 billion) of liquidity into the economy, Citigroup said. While an RRR cut “will help in terms of stabilizing expectations, it could be just an expedient measure as the economy urgently calls for more easing,” wrote Huatai Securities analysts including Yi Huan in a note. Asia’s cyclical and defensive shares climbed with SoftBank Group hauling up the gauge, as Mizuho Securities said the technology giant may sell some of its assets to improve its finances.  Japan’s main gauges were also among the top performers in Asia, rising for a second day, driven by advances in technology shares. Electronics makers were the biggest boost to the Topix, which gained 1%. Fast Retailing and Tokyo Electron were the largest contributors to a 1.2% rise in the Nikkei 225.  The Kospi index ended the day little changed after the Bank of Korea raised its seven-day repurchase rate by a quarter percentage point. China’s growth outlook has been a key pressure point for Asian shares as the country maintains its Covid Zero strategy. The MSCI Asia Pacific Index is down about 10% in 2022, extending last year’s underperformance versus the S&P 500. “China’s dynamic zero-Covid policy could ravage the Chinese economy if lockdowns continue,” Alicia Garcia Herrero, chief economist for Asia Pacific at Natixis, wrote in a note. “Beyond the reduced demand for imports from China, an even more immediate effect is inflation given the world’s dependence on China’s production of intermediate goods.” In rates, yields are lower by as much as 2bp in 3- to 5-year sector, steepening 5s30s spread by about that much with long-end yields little changed; 10-year, lower by ~1bp at around 2.69%, outperforms bunds and gilts in the sector by 5bp-6bp. Treasuries were slightly richer across front-end and belly of the curve, steepening most curve spreads and outperforming European core rates ahead of ECB policy decision at 7:45am ET and President Christine Lagarde’s press conference. Focal points of U.S. session include retail sales data and three Fed speakers. Sifma has recommended a 2pm close ahead of Friday’s U.S. market holiday.   German curve bear-steepens with yields up 2.5-3bps across the back end. Peripheral spreads widen to Germany with 10y BTP/Bund widening 2.9bps to 242.3bps. Cash USTs bull-steepen with the curve seeing ~2bps of riching from the 5y point out. U.K. curve bear-steepens with 30y yields rising over 3bps. The Bloomberg Dollar Spot Index headed for a second day of losses, falling 0.1%. and the dollar fell against most of its Group-of 10 peers. CHF and AUD are the weakest performers in G-10 FX, SEK and NZD outperform. The euro rose above $1.09 while yields on Bunds and Italian bonds advanced as money markets increased ECB rate hike bets ahead of the monetary policy decision.  Sweden’s krona strengthened against all of its G-10 peers and the nation’s sovereign bonds slumped, led by the front-end of the curve. Markets rushed to price in faster Riksbank tightening after its target measure, CPIF, rose to 6.1% on an annual basis in March. Economists surveyed by Bloomberg expected underlying prices to rise by 5.6%. The Australian dollar declined versus its New Zealand counterpart as the economy added fewer jobs than expected last month. Yen snapped a nine-day losing streak as U.S. yields continued to fall and players prepared for the long Easter weekend. Japanese government bonds followed Treasuries higher. BOJ Deputy Governor Masazumi Wakatabe said that it’s desirable for foreign exchange rates to reflect economic fundamentals and move in a stable manner. In commodities, crude futures decline. WTI trades within Wednesday’s range, falling 0.7% to trade around $103. Brent falls 0.7% to $108. Most base metals trade in the red; LME zinc falls 1.1%, underperforming peers. LME aluminum outperforms, adding 1.1%. Gold weakens to around $1,972. The commodity-fueled jump in costs exacerbated by Russia’s war in Ukraine continues to ripple across the global economy and color market sentiment. JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said inflation and the conflict were creating “significant” challenges. The firm was among the first of the big U.S. banks to report earnings. Looking to the day ahead, the main highlight will be the ECB’s latest policy decision. We’ll also hear from the Fed’s Williams, Mester and Harker. Data releases include US retail sales for March, the weekly initial jobless claims, and the University of Michigan’s preliminary consumer sentiment index for April. Lastly, earnings releases are again financials heavy, with Wells Fargo, Citigroup, Morgan Stanley, Goldman Sachs and UnitedHealth Group showcasing. Market Snapshot S&P 500 futures down 0.1% to 4,437.75 STOXX Europe 600 little changed at 457.19 MXAP up 0.6% to 175.12 MXAPJ up 0.4% to 580.08 Nikkei up 1.2% to 27,172.00 Topix up 1.0% to 1,908.05 Hang Seng Index up 0.7% to 21,518.08 Shanghai Composite up 1.2% to 3,225.64 Sensex down 0.4% to 58,338.93 Australia S&P/ASX 200 up 0.6% to 7,523.43 Kospi little changed at 2,716.71 German 10Y yield little changed at 0.78% Euro up 0.2% to $1.0906 Brent Futures down 0.7% to $108.07/bbl Gold spot down 0.1% to $1,975.23 U.S. Dollar Index down 0.17% to 99.71 Top Overnight News from Bloomberg Jumbo-sized interest rate hikes from Canada to New Zealand are boosting market confidence that central banks are on track to tame inflation, putting bonds back in investors’ focus Russian authorities are considering a step-by-step approach to rolling back the harsh capital controls imposed to stabilize markets after the invasion of Ukraine. Discussions this week focused on options that included extending the deadline for exporters to carry out mandatory conversions of their overseas earnings into rubles and lowering below 80% the share of foreign proceeds that companies are obliged to sell in the market, according to people informed on the matter Russia threatened to deploy nuclear weapons in and around the Baltic Sea region if Finland and Sweden join the North Atlantic Treaty Organization as tensions fueled by Vladimir Putin’s invasion of Ukraine spread Singapore’s central bank further tightened monetary settings and raised its inflation forecast, sending the currency higher as it seeks to fight cost pressures that threaten the recovery from the pandemic Chinese President Xi Jinping says his government will stick to its zero-tolerance approach to Covid even as public anger simmers in Shanghai and economic costs mount Copper and aluminum rose on signs China will loosen monetary policy to revive its virus-wracked economy, while zinc dipped but remained near the highest close since 2006 amid a global supply crunch A More detailed breakdown of global news from Newsquawk Asia-Pac stocks were mostly positive after the gains on Wall St where risk appetite was supported by lower yields, although some bourses lagged on policy tightening. ASX 200 traded higher but with gains capped by cautiousness in the top-weighted financials sector after Bank of Queensland's shares failed to benefit post-earnings. Nikkei 225 outperformed and reclaimed the 27,000 level with Japan's ruling coalition parties unveiling their draft relief proposals. Fast Retailing (9983 JT) 6-month (JPY): Net Profit 146.84bln, +38.7%; Operating Profit 189.3bln, +12.7%; Pretax Profit 212.6bln, +24%; Sees FY net income at 190bln (prev. guidance 175bln). KOSPI and Straits Times Index lagged after the BoK unexpectedly hiked rates by 25bps points and the MAS tightened FX-based policy, respectively. Hang Seng and Shanghai Comp were kept afloat with speculation rife that the PBoC will lower rates tomorrow via an MLF rate cut, while Citi also sees the possibility for a RRR cut on Friday to free up around CNY 1.2tln cash. Top Asian News Chinese Stocks Advance as Key Rate Cut Seen as Soon as Friday TSMC Raises Sales Outlook Despite Fears Around Global Demand Sri Lanka Seeking Up to $4 Billion as IMF Talks Set to Start Uniqlo Owner Gets Serious About Conquering North American Market European bourses are firmer, Euro Stoxx 50 +0.4%, but off best levels as sentiment was hit on commentary from Russia's  Medvedev and as we await key bank earnings. Sectors in Europe are contained and are not exhibiting any pronounced theme thus far. US futures remain within narrow parameters at this point in time awaiting updates from Goldman Sachs and Morgan Stanley before Retail Sales rounds off the week's key data; NQ +0.1%. Tesla (TSLA) CEO Musk, on April 13th, offered to purchase all of the outstanding Twitter (TWTR) shares for USD 54.20/shr (vs prior close of USD 45.85); said it was his final offer. TWTR +13% in the pre-market. TSMC (2330 TW) Q1 (TWD): Revenue 491bln (prev. 362bln), Net Profit 202.7bln (exp. 184.7bln), Gross Margin 55.6%. Expects chip demand to continue in the long term, believes capacity will remain tight this year and expects another strong year. Working to address supply chain challenges with tool suppliers. Top European News ArcelorMittal Buys $1 Billion Voestalpine Plant in Texas VW Sees Profit Surge on $3.8 Billion Hedging Boost Valneva’s Covid Vaccine Gets U.K. Clearance After Rocky Ride Macron’s Lead Grows in French Election Polling Average FX: DXY almost full point down from midweek y-t-d peak as US Treasury yields continue to recede ahead of packed pre-Easter agenda index hovering above 95.500 vs 100.520 high. Kiwi rebounds after RBNZ letdown with tailwinds from AUD/NZD cross in wake of weaker than forecast Aussie jobs data, NZD/USD back on 0.6800 handle, AUD/USD straddling 0.7450. Euro takes advantage of Greenback retreat awaiting words of wisdom from ECB President Lagarde following policy announcement that is not expected to reveal changes; EUR/USD above 1.0900 vs close shave with 2022 low (1.0806) yesterday. Swedish Crown aloft as more consensus and Riksbank target topping inflation prints prompt earlier rate hike calls, EUR/SEK pivots 10.3000. Korean Won and Singapore Dollar boosted by shock BoK hike and MAS tightening, but Chinese Yuan backs off amidst growing speculation about PBoC easing possibly as soon as tomorrow. Fixed income: Eurozone bonds extend retreat from recovery peaks and underperformance ahead of the ECB. Bunds nearer 155.00 after rebound to just shy of 156.00, Gilts sub-119.00 vs 119.65 Liffe high and 10 year T-note closer to 120-19+ overnight bottom than 121-05+ top. US Treasuries down in sympathy with Gilts and curve a tad steeper after so-so long bond auction. Debt also defensive pre-long Easter weekend and busy line up of US data, including IJC and retail sales. Commodities: WTI and Brent are pressured and in relatively proximity to the session's troughs of USD 102.50/bbl and USD 107.01/bbl. Newsflow remains focused on Ukraine-Russia, particularly Medvedev's commentary, and the COVID situation in China as other cities are on edge re. Shanghai. Libyan National Unity Government adopted a plan to develop the oil sector to raise output to 1.4mln bpd, according to Reuters. Chinese refiners are seen cutting April's crude throughput by 900k BPD, around 6% of the 2021 average, via Reuters citing sources/analysts; expected to export 2mln/T of refined fuel in April, counter to earlier China plan to halt exports. Spot gold/silver are pressured and have lost the brief upside derived from earlier geopolitical developments, yellow metal at lows of USD 1967/oz. US Event Calendar 08:30: April Initial Jobless Claims, est. 170,000, prior 166,000 Continuing Claims, est. 1.5m, prior 1.52m 08:30: March Import Price Index YoY, est. 11.9%, prior 10.9%; MoM, est. 2.3%, prior 1.4% March Export Price Index YoY, est. 16.2%, prior 16.6%; MoM, est. 2.2%, prior 3.0% 08:30: March Retail Sales Advance MoM, est. 0.6%, prior 0.3% March Retail Sales Ex Auto MoM, est. 1.0%, prior 0.2% March Retail Sales Control Group, est. 0.1%, prior -1.2% 10:00: Feb. Business Inventories, est. 1.3%, prior 1.1% 10:00: April U. of Mich. Sentiment, est. 59.0, prior 59.4; Current Conditions, est. 67.0, prior 67.2 Expectations, est. 53.6, prior 54.3 1 Yr Inflation, est. 5.5%, prior 5.4%;  5-10 Yr Inflation, prior 3.0% DB concludes the overnight wrap The EMR will be joining much of the market on holiday and will be back on Tuesday. A happy, restful long weekend to our loyal readers, and cheers to whatever it is you may be celebrating. Ahead of the holiday, the yield curve rose on the third day straight, with 2s10s having risen +42.5bps since its nadir at the start of the month. Global sovereign yields modestly fell, while US equities outperformed their European counterparts. The ECB meets today, where our economists are not expecting a change in tune. Starting with Ukraine, the US announced another round of aid, which will include heavy weaponry. Meanwhile, Finland has started the process to obtain NATO membership, and Swedish media report Sweden is considering the same. This, following President Biden labelling Russia’s excursions into Ukraine a genocide, the lack of negotiation progress, and the collective bracing for a renewed assault in the east, has cast a gloomy pall over the conflict. The International Energy Agency elsewhere warned that the disruption to Russian oil supply has yet to bind, with upwards of 3m bbls/day coming offline starting in May. The combined effect was to send Brent crude oil futures higher, which gained +4.14% yesterday to $108.78bbl, their highest level in two weeks following a +10.5% gain over the last two days. Sovereign yields had a subdued day by the standards of recent volatility, with yields falling across most jurisdictions and tenors. 10yr Treasuries were down -2.3bps, outpaced by the -5.7bp decline in 2yr yields that led to a further steepening of the curve. Most of the declines came in the New York morning, when reports of large block futures trades were relentlessly hitting the tapes. In Europe, 10yr bund, OAT, and BTP yields were -2.4bps, -3.5bps, and -3.4bps lower ahead of today’s ECB meeting, respectively. Both ECB meetings so far this year have surprised on the hawkish side of expectations, which comes as inflation has continued to accelerate to the fastest since the single currency’s formation, at +7.5% in March. Today, however, our economists preview (link here) that they’re not expecting much change to the ECB’s message. Instead, they believe with the new staff forecasts in June, the ECB will announce that APP purchases will end in July, ahead of liftoff in September. Equities were mixed in Europe, with the DAX falling -0.34%, while the STOXX 600 and CAC managed marginal gains of +0.03% and +0.07%, respectively. Farther from the conflict, the S&P 500 outperformed, climbing +1.12%, with mega-cap shares leading the way on falling discount rates, as the FANG+ climbed +2.06%. The S&P outperformance came amidst mixed results from some bellwether US financials, with JPM missing analyst earnings expectations while Blackrock sales came below expectations. In their release, JPM noted that they were increasing reserves to account for increased recession probabilities and to account for exposures to the war, two themes likely to suffuse earnings releases this season. In other central bank news, the Bank of Canada rose rates by +50bps to 1.00%, as was expected, and announced that their bond purchases would stop on April 25, a decision that contained some intrigue. The 50bp hike was the largest since 2000; Canada is no outlier in fighting multi-decade high inflation. The BoC said interest rates would need to rise further, as there was growing risk of higher inflation expectations becoming entrenched, a primal fear for any central banker. How much further? President Macklem suggested rates may need to surpass neutral if inflation doesn’t moderate, and the BoC happened to revise their neutral rate 25bps higher to a range between 2% and 3%. They also revised higher their inflation and GDP forecasts for 2022, revising down their 2023 growth forecast to 3.2%, which is nevertheless still above trend growth. US producer prices grew at a much faster rate than analysts were expecting, with final demand growing +11.2% year-on-year, versus expectations of +10.6%, while the core measure grew at +9.2%. Interesting enough, the elements of PPI that feed into core PCE were among those that printed to the soft side. Combined with the CPI data from the day before, our economists are expecting core PCE in March to grow at +0.25% Asian equity markets are following US stocks higher this morning, with most indices in the green, augmented by China signalling a potential impending RRR cut. US equity futures are pointing to a steady start today, with contracts on the S&P 500 (+0.07%) and Nasdaq 100 (+0.16%) both a smidge higher. Brent crude futures are -0.61% down to $108.12/bbl. 10yr Treasury yields have declined -2.7bps to 2.67%, with the 2yr yields edging -2.9bps lower to 2.32%. The Bank of Korea got in on the global tightening overnight, lifting its base rate by +25bps to 1.5%, its highest since August 2019 and making it the fourth rate increase since August 2021. The increase came even without the formal appointment of a new governor Rhee Chang-yong, who is expected to begin his four-year term from April 19. With 10 days left until the French Presidential election, polls show a consistent lead for President Macron. His lead over Marine Le Pen expanded in 3 of the 4 polls released yesterday, yet still reflect a smaller expected margin of victory than his previous triumph. The spread of French 10yr yields over bunds narrowed to close beneath 50bps for the first time in over a week. Aside from the US PPI data, the other main release yesterday were the UK inflation numbers, where the year-on-year measure for headline CPI rose to +7.0% (vs. +6.7% expected). That’s the 6th consecutive month that the reading has surpassed the consensus expectation, whilst core CPI also surprised to the upside at +5.7% (vs. +5.3% expected). In turn, investors moved to raise the probability of a 50bp hike in May from the Bank of England to 28%, the highest in a couple of weeks. Our UK economist also put out an update after the report (link here) move above 9% year-on-year in the April data next month. To the day ahead now, the main highlight will be the ECB’s latest policy decision. We’ll also hear from the Fed’s Williams, Mester and Harker. Data releases include US retail sales for March, the weekly initial jobless claims, and the University of Michigan’s preliminary consumer sentiment index for April. Lastly, earnings releases are again financials heavy, with Wells Fargo, Citigroup, Morgan Stanley, Goldman Sachs and UnitedHealth Group showcasing. Tyler Durden Thu, 04/14/2022 - 07:25.....»»

Category: blogSource: zerohedgeApr 14th, 2022

Rabo: Over Half Of France Just Voted For Extreme Alternatives To The Status Quo

Rabo: Over Half Of France Just Voted For Extreme Alternatives To The Status Quo By Michael Every of Rabobank Le Pen is Mightier Than The Sword(?) Markets may try an attempt at risk on today given the French elections saw President Macron win around 28% in the first round while far-right - and pro-Putin - Le Pen got around 24% and is also through to the head-to-head in two weeks. An even-further far right candidate got 7%, and the far-left candidate got 22%, while the centre-right got just 5%. Even if Macron wins, an advance risk-on rally will overlook that French society is deeply happy. Over half of it just voted for extreme alternatives to the status quo. Yet France is one of the world’s richest countries, with a nuclear power network to rely on, and a huge food surplus: if it is that angry, imagine the implications elsewhere. In poorer countries, things look far worse. Food prices hit a record high in March according to the FAO; one reports suggests Ukraine’s harvest could be down 50% this year, which could make things far worse; we see headlines like ‘Rising Food Costs Push Arab World's Vulnerable to Breaking Point’; and Lebanon, a buyer of Ukrainian wheat, is allegedly out of it completely: its last delivery was ruined by moisture - and it does not appear to have the spare FX reserves to buy more at a time of tight supply and soaring prices. Pakistan just saw the parliamentary ousting of pro-Chinese PM Khan, despite it being a nuclear power in a tense neighborhood; and the chaos in pro-China Sri Lanka, where the IMF are talking about a new loan rather than a new Marshall Plan; and that’s at a time when others are talking about a new global financial architecture – Russia on Saturday called on the BRICs economies to extend the use of national currencies and integrate their payment systems, for example. US President Biden is to talk to Indian PM Modi this week: certainly lots to discuss. Today’s Chinese CPI picked up slightly more than expected from 0.9% to a still-low 1.5% y/y (it’s amazing what price controls and a policy of deliberate over-supply can do), while PPI fell back from 8.8% to 8.3% y/y (again, it’s amazing what price controls and going all-in on cheap coal can do). So, food prices may not be a major issue right now in China - but food *supply* is. The market voices who extolled China’s Covid restrictions are eerily quiet now tens of millions are locked down and reportedly struggling to get hold of enough to eat, prompting the US to withdraw its diplomatic personnel from Shanghai. The former editor of the acerbic Global Times states it is “rude, undiplomatic, and unethical” for the US to comment on China’s Covid struggles. I don’t recall the reverse being true when it was the US floundering with the virus – it was the US system that was seen as failing. At least Covid has delayed a further China-US firestorm, as House Speaker Pelosi has postponed a visit Taiwan after testing positive. The same former editor says Pelosi is “playing with fire”: the Japanese press today says, ‘Taiwan conducts drills to prepare for possible Chinese attack on nuclear plant’, showing the kind of fire potentially being played with. Meanwhile, we are days away from a huge new front in east Ukraine, as Russia reportedly calls up 60,000 reservists to fight there. That really will be the largest battle in Europe since WW2. Yet the even larger one many in markets still refuse to see. Former-oligarch Khodorkovsky argues, “The US and its Western allies fail to understand that from Putin’s perspective, they are already at war with Russia.”; Russian intellectual Karaganov, in an interview, says, “We are at war with the West. The European security order is illegitimate.”: “We see that most of the [European security] institutions are, in our view, one-sided and illegitimate. They are threatening Russia and Eastern Europe. We wanted fair peace, but the greed and stupidity of the Americans and the short-sightedness of the Europeans revealed they didn’t want that. We have to correct their mistakes.… Americans and their NATO partners continue support of Ukraine by sending arms. If that continues, it is obvious that targets in Europe could or will be hit in order to stop lines of communications. Then the war could escalate. At this juncture it is becoming more and more plausible. I think the Joint chiefs of staff of US armed forces are of the same opinion as I am.” That is as Finland and Sweden are both being reported as being on the verge of NATO membership, making the European security order even less legitimate in Russia’s eyes; and Western weapons are flooding into Ukraine from some countries, if not from Germany, whose dog ate its geopolitical homework again. Someone is bluffing; or someone is going to get a shock. We won’t find out which until we escalate. So, trade as if Le Pen is mightier than the sword. Just consider how many daggers are being drawn behind you, and knives are falling: the dollar index DXY is just shy of 100 this morning, up over 8% over 12 months; and Aussie 10-year yields have flirted with 3%, perhaps flagging a warning to US Treasuries trading at 2.70%. Regardless, many in markets think they are mightier than the likes of Le Pen or any sword. Indeed, a recent op-ed in The New York Times argued “Ordinary People Don’t Think Like Economists. It’s a Problem.” I will confess I didn’t read it. I will also confess I wouldn’t read it even if it were free, let alone requiring a subscription – which logically makes me one of the ordinary people and not an economist. However, that op-ed title points to how we ended up in our current mess: presuming neoliberal economics was a panacea for the longer cycles of history, class struggle, and even of national character, rather than an amplifier of all of them. As an example, as Italy signs a new gas supply deal with Algeria, Germany is contemplating its Russian gas flows. Thinking like an economist, it sees voluntarily switching off the gas to hit the Russian economy is bad because it would mean a deep German recession. There are various figures bandied about, but some say GDP might fall as much as 6%. On the other hand, has Germany calculated the cost of buying Russian gas, for now, and de facto helping it win the war in Ukraine? I don’t mean the direct human cost, which social media is pointing out. I mean the future economic cost to Germany of having a victorious, entrenched, revanchist, irridentist Russia as a neighbour, and inspiring a new global alliance around it. You think that would cost less than 6% of GDP over time, and carry even larger tail risks? You must be an economist! Knives are also out for UK Chancellor and until-recently-presumed-next-PM Sunak, as another rich (net food importing) country sees economic pain and rising public discontent. Sunak is now revealed as holding a US Green Card(!), while his wife is a ‘non-dom’ not paying tax on her foreign income. How both of these facts were apparently unknown until last week is politically jaw-dropping. Then again, so is Sunak’s alleged resistance to the UK acting to ensure its long-term energy security by fast-tracking seven new nuclear power stations. He is reported as believing Russia will win the war soon and we will all go back to BAU, so why bother spending so much? He is *obviously* an economist. Tyler Durden Mon, 04/11/2022 - 09:40.....»»

Category: worldSource: nytApr 11th, 2022

Goldman: "Is The Recession Signal Once Again Hiding In Plain Sight?"

Goldman: "Is The Recession Signal Once Again Hiding In Plain Sight?" Two weeks ago, Goldman's head of hedge funds sales Tony Pasquariello unexpectedly took a contrarian position to the conventionally bullish house view, warning that over the next few weeks, "he called the market lower." So far he has been spot on, and stocks indeed are now lower than they were at the end of March as the retail driven melt up that started in mid-March has once again collapsed. So what happens next? Well, it depends on whom one listens to: Goldman or Goldman, because while the bank's traditionally permabullish chief equity strategist (for common consumption) David Kostin continues to push the bank's retail clients to buy whatever Goldman has to sell, and as we noted on Friday, Goldman has been selling a lot... ... Pasquariello still refuses to jump on the bullish bandwagon, and instead in his latest Markets and Macro note says that while he is not yet ready to fully subscribe to the recession narrative, he is very close and adds that when all is said and done, "bulls are fighting uphill." . Below we excerpt from the note which is traditionally reserved for Goldman's most lucrative institutional clients, and which presents a far less optimistic view than that one would glean from reading Goldman's generic (and generally worthless) "house" research. From Pasquariello's latest "Markets and Macro: From QE to QT": Let me summarize 23 points in just two lines: the tectonic plates underlying the global investing ecosystem are on the move. that is neither “all good” nor “all bad” for market participants, but the game is getting a lot more complicated. here’s the run of it ... as always, a taker of feedback and good ideas: 1. Recent price action in spaces like homebuilders (see S15HOME) and transports (see GSSITRUC) has been dreadful, and cause for some contemplation. If you lived through 2006-08, when you observe these charts today, it’s hard not to wonder if the recession signal is once again hiding in plain sight. What I’m getting at here: there’s a message coming from the underbelly of the market that -- rightly or wrongly -- points, with increasing force, in the direction of a growth scare. 2. This stress in the deep cyclicals is consistent with a recent poll of our institutional client base, where over half of the respondents expect a US recession between now and the end of next year. alongside the ongoing heaviness of high yield, this also foots with the interest strip, where Eurodollars are seemingly discounting that the Fed will need to reverse course come 2024. Even though I would argue that geopolitical risk premium has been tamping down over recent weeks -- look no further than the VIX or EM currencies -- other parts of the macro complex are simultaneously dialing up warning signs around the trajectory of growth. 3. To be clear, the GFC was principally a function of the US building far too many homes, while the broader private sector built up far too much leverage. this time around, the setup is fundamentally very different: the US currently has a serious national shortage of housing ... and, the private sector financial balance is far healthier. Furthermore, despite how poorly certain parts of the market trade, also note how well some of traditional mega caps have performed: WMT, KO, JNJ, LLY and COST all marked an ATH this week (reflective of a sensible up-in-quality bias). 4. Where this leaves me: respectful of the flickering red lights on the macro dashboard, while not yet ready to fully subscribe to the recession narrative (see point 10 below). That tension supports my ongoing instinct that S&P will remain in a turbulent range trade -- sell rips over 4500, buy dips below 4200 -- with an overall portfolio bias towards commodities and quality. I also continue to believe that gap risk is more likely to be to the downside and not to the upside. 5. The upcoming barrage of Q1 earnings is apt to be fascinating given the macro cross-currents. As mentioned last week, the bar for Q1 isn’t particularly demanding: 0% expected y/y growth ex-energy, which seems low given the nominal GDP world we live in. The challenge, rather, will be H2’22 expectations of double-digit y/y growth … how guidance around that shakes out will be the key part of the story. As GMD colleague Bobby Molavi put it: “in certain cases it will be the starter gun for broad stroke sell side downward revisions.” 6. I’d argue the biggest development of the week -- a more forceful discussion of Fed balance sheet runoff -- supports a view that the bulls are fighting uphill. I’m inclined to think this is a big deal, and one which will intimidate stock operators on occasion, given what we learned way back in QE2: if you want to adjust financial conditions, the balance sheet is a much more powerful tool than the Fed Funds rate. I had actually pecked out that point before Bill Dudley took off the gloves: “if stocks don’t fall, the Fed needs to force them. In contrast to many other countries, the U.S. economy doesn’t respond directly to the level of short-term interest rates ... financial conditions need to tighten. If this doesn’t happen on its own (which seems unlikely), the Fed will have to shock markets to achieve the desired response.” 7. With respect to positioning, the disjunction between professionals and households persists: our Prime Brokerage franchise has seen selling from hedge funds for five of the past six weeks; over that same period, there’s been $46bn of inflows to equity mutual funds / ETF’s (entirely to the US; credit GMD client Scott Rubner). I suspect the collective flow-of-funds picture skews towards the negative side over the next few weeks, given the buyback blackout window and market talk of a > $300bn capital gains tax bill -- while also noting that retail is the heavy, and if they don’t back down, underlying sponsorship will remain intact. 8. While it’s a guarantee of nothing on the forward, I suspect a significant part of ongoing retail demand for equities begins and ends with a severe lack of good alternatives. Witness this check-down: the real returns on cash are terrible (consider the compounding of inflation over a five or ten-year period, it’s sobering). The nominal bonds you hold -- Treasuries, munis -- just keep selling off. the risk/reward profile of corporate bonds is not at all appealing. Crypto continues to hang in there, but it carries a very low weighting for most actors, and as much as you should love commodities, the volatility is not for anyone. 9. A non sequitur: through the end of 2021, the total return of S&P was positive in 17 of the past 19 years, and the average annual return over the prior three years was +26%. This provokes a few big picture reactions: (1) while those stats belie how hugely difficult the path of risk management was along the way, for strategic holders of risky assets, the getting was so exceptionally good; (2) despite an ongoing boom in genuine corporate innovation, I do worry that some of the underlying drivers that supported profit growth -- the compounding of immense Chinese GDP growth, structurally lower global inflation, low US corporate taxes and an ever lower cost of capital -- could all be in some form of retreat. 10. This is the most interesting point I read all week, credit to Jan Hatzius in GIR: “There has never been an increase in the [US] unemployment rate of more than 0.35pp (on a 3-month average basis) that wasn’t associated with a recession. The broader point is that once the labor market has overshot full employment, the path to a soft landing becomes narrow ... nevertheless, we think a recession is far from inevitable. First, the US recession sample underlying our labor market rules of thumb is small -- 12 in the entire postwar period and just 4 since 1982 -- and there are quite a few instances in other G10 economies in which moderate labor market deterioration did not result in recession. Second, in previous US labor market overheating episodes there was no source of incremental labor supply comparable to the 1-1.5 million prime-age workers that may now be poised to return to the workforce. Third, few of the financial imbalances that made the US economy vulnerable to self-feeding recessionary forces in the run up to the 2001 and 2007-2009 recessions -- especially the giant private sector deficits in the household and/or corporate sector -- are visible now." 11. quick points: i. while acknowledging how volatile local price action has been, Jeff Currie’s mark-to-market on the commodities bull market is worth a glance. The punch line is vividly clear: this is a policy-driven volatility trap ... oil to $125 by year-end and GSCI +28% NTM ... “our conviction in a multi-year super cycle has risen substantially." ii. speaking of commodities and inflation, next Tuesday brings a biggee: CPI. while this print could well mark the cycle high -- consensus on headline is +8.4% y/y -- I suspect the move from peak back towards trend will keep macro traders on their feet a good while longer. iii. do you know when globalization peaked? if defined by global trade as a % of GDP, the peak in globalization was not in 2016 ... it was not in 2019 ... it was actually back in 2008. iv. a reminder: Chinese industrial data peaked in November of 2020. in this spirit, I re-learned something else this week: Chinese debt/GDP is now running around 280%. v. Brazil has enjoyed a remarkable, if surprising trading rally to start the year. For a (cautious) take on where we go from here: link. vi. on the technicals of the all-important US bond market: “The past 24 hours have seen some significant developments transpire in the US rates markets. the most notable is the 1yr1yr Libor Swap ending its secular downtrend with the break above its 2018 high at 3.330%. To our knowledge this is the first US rates market to end its long term bull trend”. vii. in the spirit of April Fool’s -- and, my unabashed fondness for Taco Bell -- this warrants mention: “the Taco Liberty Bell was an April Fool's Day joke played by fast food restaurant chain Taco Bell. On April 1, 1996, Taco Bell took out a full-page advertisement in seven leading U.S. newspapers announcing that the company had purchased the Liberty Bell to ‘reduce the country's debt’ and renamed it the ‘Taco Liberty Bell’”. 12. This plots the real Fed Funds rate, with the inflation adjustment coming from market-based expectations. It levels sets just how crazy easy the starting point is for this tightening cycle -- perhaps part of the reason stocks have held up decently of late -- while also inviting the question of “how could this possibly get any better from here”: 13. Then there’s this show stopper -- also subject to your interpretation -- the GS wage tracker. My view: while it’s hard to think the gradient of this slope can be sustained forever, I also don’t see it turning meaningfully lower anytime soon: 14. A chart that (actually) tells you everything you need to know about Q1: 15. Speaking of energy prices ... this is what the cost of jet fuel looks like. From Callum Bruce in GIR: “ultimately, it’s a specific locational issue that is not significant to broader balances, but is nevertheless symptomatic of tight market and shows the binding, physical nature of commodity shortages and their large upside convexity at low storage levels. more of these events are in store.” 16. The more I travel around, the more I think the primary destination for capital is the US for now. In a similar vein, the market is very clearly rewarding companies with leverage to the US vs those with leverage to offshore revenues: 17. Scott Feiler, GMD: “at the idea dinners I attended in November/December, shorting the low-income consumer was the most popular idea. that was just due to compares, lack of stimulus, lack of child tax credit etc. that had not even contemplated higher gas prices. here we are though at the end of 1Q and our GS low-income basket outperformed the high-income basket by 500 bps. many of the low-income stocks have heavy consumables exposure and have simply outperformed. Our conversations have shifted dramatically the last 3 weeks, with investors looking to more middle-income type names that are heavily discretionary and have chunky dollar purchases that a consumer might forgo ... our baskets team put a basket together last week that they think addresses this theme, with the title being the ‘middle income discretionary basket’ (ticker GSCNSMDI Index).” note the ratio of this basket vs S&P. Tyler Durden Sun, 04/10/2022 - 11:10.....»»

Category: worldSource: nytApr 10th, 2022

In Stunning Speech, Peter Thiel Blasts Buffett, Dimon, & Fink As "Finance Gerontocracy"; Sees Bitcoin Rising 100-Fold

In Stunning Speech, Peter Thiel Blasts Buffett, Dimon, & Fink As "Finance Gerontocracy"; Sees Bitcoin Rising 100-Fold As Bitcoin Magazine's Casey Carillo writes, "there’s seemingly few people who arouse such polarized responses in the Bitcoin community as Peter Thiel. Love him or hate him, he’s an exceptionally influential individual in modern finance and tech, and when it was announced that he would be speaking at Bitcoin 2022 in Miami, many were curious what he would say." Previously, Thiel - who today was the highlight of the Miami Bitcoin summit along with Michael Saylor and Cathy Wood - has said “You’re supposed to just buy Bitcoin,” and “I feel like I’ve been underinvested in it.” He even went as far as to say, “Bitcoin at $66,000. Is it going to go up? Maybe … But it surely tells us that we are at a complete bankruptcy moment for the central banks.” This of course is what Bitcoiners have been shouting from the rooftops for years — the price action, in the short term does not matter (and indeed it went down after that quote), but regardless, the decentralized currency’s rise is testament to falling trust in the monetary status quo, especially now that as part of the Bretton Woods 3 world, the US Dollar has been weaponized against Russia prompting many countries, including China, to contemplate a shift away from the reserve currency. At Bitcoin 2022, Thiel started his speech with a video from him in the past, talking about the future of digital infrastructure. His predictions regarding cell phone usage, which may have sounded odd at the time, were quite accurate. He also mentioned the dollar hegemony and even the potential for digitalization of the dollar, all of which we are seeing today. The speech that followed was, in the words of Bitcoin Mag, "quite incredible" - he started by pulling out a wad of $100 bills, and presenting them to the crowd. He said, “It's a mysterious thing, what is money?” He followed by offering the money to a random person in the crowd, a gesture to which many people responded. “It's kind of crazy that this still works,” Thiel said. While he is a billionaire, he had a point. He went on about how PayPal began, bitcoin’s placement in terms of velocity and more — and then he began talking about enemies of Bitcoin. “If bitcoin is going to replace gold, the question is, why is it so undervalued?" he said. "Bitcoin is always the most honest market in the world, the most efficient market and it was the canary in the coal mine.” Thiel went on to point out that "today all the gold in the world is worth $12 trillion, while global equities are worth $115 trillion. In 1980, the ratio was one-to-one, with all the gold in the world and global equities having the same value of $2.5 trillion." And so, while in the 1970s, equities were a bad investment, the great moderation that started in 1980 after Volcker killed galloping inflation, made equities the best investment of the past 40 years. However, now that inflation is as high as it was in the late 1970s, equities are the enemy and bitcoin is the right investment, according to Thiel. Concluding his musing on valuation, Thiel says that the competitor for bitcoin is not ethereum which is a payment system, nor gold, but equities and asks why shouldn't there be parity between the $115 trillion value of global equities and the ~$830BN value of bitcoin. "I am still hopeful that bitcoin goes up by a factor of 100x" he said.  The Paypal founder then also makes a mockery of all those who say that bitcoin is not an inflation hedge with just one chart - the chart showing how anyone who had a sense of the inflationary tsunami that is coming, made a killing in early 2020 when the could have bought bitcoin at a far lower price. Saying that it’s hard to know where Bitcoin goes from here, the billionaire said that Bitcoin is the most honest and most efficient market: "Bitcoin is the canary in the coalmine, it was telling us that inflation is coming; it is telling us that central banks are bankrupt; it is telling us that we are at the end of the fiat money regime." Peter Thiel at @TheBitcoinConf: "Bitcoin is the most honest and most efficient market in the world." pic.twitter.com/P2QnjBS1ga — BUILD OR DIE (@buildordie_) April 7, 2022 Thiel then moved on the truly shocking part of his speech where he put up pictures of Warren Buffet, Bill Gates, Larry Fink and Jamie Dimon... ... whom he referred to as the "finance gerontocracy"... ... and which he opposed to a "revolutionary youth movement" which embraces bitcoin. Thiel blamed the "gerontocrats" for Bitcoin's failure to reach $100,000 pinning blame on Warren Buffett, whom he called a “sociopathic grandpa,” as well as Dimon, the 66-year-old chief executive officer of JPMorgan who called bitcoin a "fraud" on multiple occasions, and BlackRock's Larry Fink, 69, who recently ran the Fed's direct corporate bond and ETF monetization program. Thiel accused all three "gerontocrats" - who have frequently said they’re skeptical of Bitcoin or digital currencies in general - of using investing ESH practices as a “hate factory” to undermine Bitcoin and other businesses. Extending on this, Thiel defined the conflict between the the old and new money, or the gerontocracy and the youth, simply as “BTC vs ESG." “Perhaps the real enemy is ESG," he said to widespread to applause, explaining that ESG is just a "vast umbrella" term providing cover to various state and "gerontocracy" extensions, adding that ESG has been harnessed and weaponized against Bitcoin right now. “If you have these sort of large institutional investors, they need to be allocating some of their money to Bitcoin. When they chose not to allocate to Bitcoin, that is a deeply political choice, and we need to be pushing back against them” Thiel said before explaining that the true enemy that is ESG - which we have repeatedly mocked over the years (here, here and here and here) for being the most hypocritical financial construct of the past generation - "is just a hate factory. It’s a factory for naming enemies, and we should not be allowing them to do that. When you think ESG, you should be thinking Chinese Communist Party." Thiel also attacked central bankers such as Fed chair Jerome Powell. “Mr. Powell - people like that - should be extremely grateful to Bitcoin because it’s the last warning they are going to get,” Thiel said. “They’ve chosen to ignore it, and they will have to pay the consequences for that in the years ahead.” Without missing a beat Thiel said that “bitcoin is not a company. It does not have a board. We do not know who Satoshi is" and laid out the war raging at the heart of modern finance as one between "the finance gerontocracy that runs the country through whatever silly virtue signaling/hate factory term like ESG they have versus what I would call a revolutionary youth movement... And we have just to go out and take over the world." Peter Thiel at @TheBitcoinConf: "Bitcoin is not a company. We don't know who Satoshi is. It's the finance gerontocracy running the country through whatever virtue signalling/hate factory term like ESG versus a revolutionary youth movement. We have to take over the world." pic.twitter.com/m5mlTtjF85 — BUILD OR DIE (@buildordie_) April 7, 2022 His conclusion: the Financial Gerontocracy has declared war on Bitcoin as a revolutionary youth movement for good reason. It is this time the revolutionary youth should understand their enemies and return fire. Excerpt: pic.twitter.com/5HbRw12hFX — Eric Weinstein (@EricRWeinstein) April 7, 2022 His full speech is below. Tyler Durden Fri, 04/08/2022 - 04:45.....»»

Category: blogSource: zerohedgeApr 8th, 2022

Futures Flat On Last Day Of Dismal Quarter, Oil Tumbles As Biden Preps Massive SPR Release

Futures Flat On Last Day Of Dismal Quarter, Oil Tumbles As Biden Preps Massive SPR Release US equity futures were muted and flat on the last trading day of the month and quarter, fading a modest overnight gain as the underlying index headed for its first quarterly decline in two years on worries about surging inflation, hawkish monetary policy and an economic slowdown. Contracts on the S&P 500 were down 0.1% at 730 a.m. ET while Dow futures were little changed and Nasdaq 100 futures rose 0.2%, while European stocks fell, heading for the first quarterly decline since 2020. Asian equities retreated on lackluster Chinese PMI data and regulatory concerns. Treasuries held gains with the 10Y yield dropping to 2.31% (from 2.50% earlier this week when the 2s10s inverted) and the dollar ticked up against almost all G-10 peers. Fed watchers will be focused on the PCE deflator, which may have sped up in February. The big overnight action was in oil, which plunged following the news late on Wednesday that the White House was (again) mulling a plan to release roughly a million barrels a day from reserves to combat crashing Democrat approval rating ahead of the midterms as a result of soaring gasoline prices coupled with supply shortages in response to US sanctions of Russia. The proposal, which includes 180 million barrels being freed over several months, may help the market rebalance this year but won't solve a structural deficit, Goldman said. The reserve release news came just hours ahead of an OPEC+ supply meeting, where the cartel is expected to stick with its strategy of a modest output boost in May. Equities globally are poised for their worst quarter since the early days of the pandemic on concerns about tightening monetary policy, red-hot inflation and a looming recession. While stocks remained resilient to the historic rout in bond markets this month, some strategists see little room for them to rally this year, partly as high costs threaten corporate profits. French inflation accelerated more than expected to reach another record, following unexpectedly high readings on Wednesday from Germany and Spain. “Our base case now is for only modest upside for stocks,” said Mark Haefele, chief investment officer at UBS Global Wealth Management, adding that he expects the S&P 500 to end the year at 4,700, about 2% higher than current levels. He also trimmed his estimate for global earnings growth to 8% from 10% for 2022. “Aside from quarter-end considerations, oil is very much the center of attention,” Simon Ballard, chief economist at First Abu Dhabi Bank, wrote in a note to investors. Still, “all the usual suspects are still in play, keeping the market in check, including the specter of the Fed pursuing an aggressive path of monetary policy normalization over the coming months.” Elsewhere, officials from Ukraine and Russia are set to resume talks via video conference on Friday, according to a Ukrainian negotiator, though there was no immediate confirmation from Moscow. Friday’s video discussions between Ukraine and Russia would follow in-person talks this week in Turkey that didn’t produce a short-term cease-fire or major progress toward a broader peace deal. Ukraine’s negotiator said the hope was to have enough agreed on paper in another week to be able to move toward a meeting between President Vladimir Putin and President Volodymyr Zelenskiy. Going back to the US market, shares in big U.S. energy companies slumped in premarket trading along with crude prices drop (Exxon Mobil -1.9% and Chevron -1.5% premarket, Occidental Petroleum -2.6%, Gran Tierra Energy -3.1%, Imperial Petroleum -3.8%, Camber Energy -4.3%). Bank stocks are also lower putting them on track to fall for a second straight day as the U.S. 10-year yield falls to 2.31%. Goldman Sachs warned that stagflation could make bank stocks less profitable. U.S.-listed Chinese stocks slipped in premarket trading as Securities and Exchange Commission Chair Gary Gensler dialed down prospects of an imminent deal to allow Chinese firms to keep trading on American exchanges. Russian equities advanced as the nation partly lifted the short-selling ban on local stocks on Thursday, removing one of the measures that helped limit the declines in the market after a record long shutdown. Other notable premarket movers include: Vipshop ADRs (VIPS US) rise 8.4% in premarket trading after the Chinese online retailer announces a $1b share buyback plan. Robinhood Markets (HOOD US) shares rise 1.4% in U.S. premarket trading, set to extend the previous day’s 24% gains after the online brokerage announced plans to expand the trading day by four hours, while Morgan Stanley begins coverage of the stock with an equal-weight rating. Energy companies decline in premarket trading as crude prices drop. The U.S. is considering tapping its reserves again in a potentially massive release aimed at managing inflation and supply shortages. Exxon Mobil (XOM US) -1.9%, Chevron -1.5% (CVX US). U.S.-listed Chinese stocks are heading for a lower open after Securities and Exchange Commission Chair Gary Gensler dialed down prospects of an imminent deal to allow Chinese firms to keep trading on American exchanges. Alibaba (BABA US) fell 1.7% in premarket, while its e-commerce rival JD.com (JD US) lost 2.8%. Advanced Micro Devices (AMD US) shares fall 1.3% in U.S. premarket trading, after the semiconductor maker is downgraded to equal- weight from overweight at Barclays, which says that the growth story “needs a pause.”. IZEA Worldwide (IZEA US) shares surge 27% in U.S. premarket trading after the influencer marketing company reported fourth-quarter earnings and saw total revenue increase 62% to a record of $10.3m. In Europe, the Stoxx 600 reversed initial gains and dropped 0.3%, the Euro Stoxx 50 fell 0.2%, and other major indexes trade flat to slightly lower with retailers, telecoms and energy the worst performing sectors. Retail and telecom stocks led declines while utilities and insurance sectors outperformed. Some notable premarket movers: Brewin Dolphin shares rise as much as 62% and trade slightly below the agreed bid for the firm from RBC Wealth Management. The transaction, being carried out at a high premium, highlights the attractiveness of the U.K. wealth sector, analysts say. Orpea shares climb to their highest level in almost 2 months after Societe Generale says that allegations of mistreatment at its facilities are likely to have “limited” financial impact. Fresenius SE shares rise as much as 3.3% on news that the company’s Kabi intravenous drug unit has bought a majority stake in mAbxience SL and acquired Ivenix. Pernod Ricard shares rise as much as 2.6% as Citi says 3Q sales are likely to beat expectations, also lifting its which lifts EPS estimates and PT, as well as opening a positive catalyst watch. Tate & Lyle shares gain as much as 3.7% after saying it would buy Quantum Hi-Tech, a prebiotic dietary fiber business in China. The deal enhances Tate & Lyle’s portfolio, Goodbody says. Pearson shares rise as much as 3.5%, rebounding from Wednesday’s losses after private equity firm Apollo Global Management said it won’t make an offer for the education publisher. Earlier in the session, Chinese data and regulatory concerns weighed on Asia stocks. China's NBS manufacturing PMI declined to 49.5 in March from 50.2 in February, missing estimates, likely due to Covid-related restrictions and geopolitical tensions. The output sub-index in the NBS manufacturing PMI survey fell by 0.9 points in March, and the new orders sub-index fell by 1.9 points. The NBS non-manufacturing PMI fell to 48.4 in March from 51.6 in February, also missing expectations, and entirely driven by the decline of services sector due to recent Covid outbreaks in multiple provinces. Separately, Bloomberg reported that Chinese authorities are considering a plan to raise several hundred billion yuan for a new fund to backstop troubled financial firms. Asian stocks retreated after a two-day advance, as the U.S. securities regulator’s tough stance on a potential delisting of Chinese firms and weak China manufacturing data worried investors.  The MSCI Asia Pacific Index declined as much as 0.8%, and was poised to finish its worst quarterly performance in two years, with Taiwan Semiconductor Manufacturing and Tencent among the biggest drags. Benchmarks in Hong Kong and China underperformed regional peers. Japanese equities headed for a second day of declines while Australia stocks retreated after seven straight day of gains in response to a stimulatory federal budget.  The U.S. Securities and Exchange Commission’s chief said Chinese firms need to fully comply with audit requirements in order to stay on American exchanges. Meantime, China’s manufacturing contracted in March, underscoring the growing toll of lockdowns. Investors are also watching how a tumble in oil prices can alleviate inflation risks and affect corporate earnings.  “If you look at the PMIs there’s an obvious explanation for why PMIs are weak, which is China pursuing zero-Covid strategy,” Kieran Calder, head of Asia Equity Research at Union Bancaire Privee, said in an interview with Bloomberg Television. “The reality of Covid-19 versus the response in China, the mismatch is too strong right now and I think that’s the biggest worry for us.”  For the quarter, Asian stocks were poised for nearly a 7% loss, the worst performance since early 2020 when the emergence of the pandemic shocked investors. Investors had to grapple with a U.S. rate hike, a war in Ukraine and continued regulatory risks out of China, which caused huge volatility Japanese equities fell for a second day following a rally in the yen. Electronics makers and banks were the biggest drags on the Topix, which fell 1.1%. Recruit and SoftBank were the largest contributors to a 0.7% loss in the Nikkei 225. The yen was little changed after gaining 1.6% against the dollar over the previous two sessions. Both key gauges still capped their first monthly gains of the year. The Nikkei 225 rose 4.9% in March, the most since November 2020, while the Topix climbed 3.2% on the month. India’s benchmark equity index clocked its best monthly advance since August, as buying by local funds amid war-induced volatility supported sentiment. The S&P BSE Sensex fell 0.2% to 58,568.51 in Mumbai, trimming its gain for March to 4.1%. The NSE Nifty 50 Index also slipped 0.2% on Thursday. Stocks swung between gains and losses several times during the day ahead of the expiry of monthly derivative contracts Thursday. Institutional investors in India have bought $5 billion worth of shares this month, while foreign investors are set to extend their selling to a sixth consecutive month. Reliance Industries Ltd. was the biggest drag on the 30-share Sensex, which saw an equal number of shares closing up and down. Twelve of the 19 sectoral indexes compiled by BSE Ltd. gained, led by a gauge of telecom stocks. S&P BSE Healthcare Index was the worst performing sub-index.   “Markets took a breather on a monthly expiry day and ended the last day of the financial year on a flat note,” said Ajit Mishra, vice president of research at Religare Broking Ltd. “We reiterate our positive yet cautious stance citing lingering geopolitical tension between Russia-Ukraine and its impact on the global markets.” In rates, Treasuries extended this week’s rally with yields richer by up to 5bp across belly of the curve, which continues to outperform vs wings. Wider bull-steepening move grips bunds and gilts, as central-bank rate-hike premium is pared. Oil futures are sharply lower, weighing on energy stocks, following reports that Biden is considering a massive release of crude from U.S. reserves to fight inflation. The 10-year yield was around 2.31%, richer by ~4bp vs Wednesday’s close, underperforming bunds in the sector by ~4bp while keeping pace with gilts. Long-end swap spreads are sharply tighter, with 30- year dropping as low as -19.5bp. Euro-area, bonds extended their advance as money markets pare central bank tightening wagers. French bonds underperformed bunds as EU-harmonized CPI rose 5.1% from a year ago in March -- the most since the data series began in 1997 -- and above the 4.9% median estimate in a Bloomberg survey of economists.  The belly of the German curve richened 6-7bps, leading gains. Peripheral spreads are mixed: Italy tightens, Portugal and Spain widen to core. Money markets trim rate hike pricing. Japanese government bonds extended their advance as the central bank’s aggressive bond purchases this week reassured players that an excessive rise in yields won’t be tolerated. Yen was little changed in choppy trade. Bank of Japan’s offer to buy an unlimited amount of 10-year government bonds at fixed yields recorded no takeup, the central bank said. In FX, Bloomberg dollar spot index snapped two days of losses after rebounding in early European session; the dollar advanced versus all of its Group-of-10 peers and commodity currencies were the worst performers. The euro gave up earlier gains after earlier touching a four-week high versus the greenback. Norway’s krone slumped by as much as 1.6% versus the greenback after the central bank announced a ramp-up of FX purchases on behalf of the government. The pound declined for a third day against the euro, touching its weakest level versus the common currency since Dec. 23. A report from the British Retail Consortium gave another glimpse into the cost-of-living crisis, showing prices in U.K. shops rose in March at the fastest annual pace since September 2011. Japan’s factory output eked out its first gain in three months in February, offering only a tepid sign of resilience amid fears the economy has slipped back into reverse. Production inched up 0.1% from the previous month. The Australian dollar declined against most of its Group-of-10 peers as oil prices tumbled on news that the Biden administration is weighing a massive release of crude from U.S. reserves. Sales of Aussie back into euro have seen option-related Australian dollar bids attached to large option strikes get filled, according to Asia-based currency traders In commodities, crude futures hold Asia’s losses triggered by reports that the White House may make an announcement on the U.S. oil reserve release as soon as Thursday. WTI drops over $6.50 near $101.10. European natural gas faded an initial drop after Germany signaled Russia is softening its demand for ruble payments. Precious metals and much of the base metals complex traded heavy. Looking to the day ahead now, data releases include German retail sales for February and unemployment for March, French and Italian CPI for March, and the Euro Area unemployment rate for February. From the US, there’s also February’s personal income and personal spending, the weekly initial jobless claims, and the MNI Chicago PMI for March. Otherwise, central bank speakers include ECB Vice President de Guindos, Chief Economist Lane, and New York Fed President Williams. Market Snapshot S&P 500 futures up 0.1% to 4,601.75 STOXX Europe 600 down 0.2% to 459.49 MXAP down 0.7% to 180.37 MXAPJ down 0.6% to 591.98 Nikkei down 0.7% to 27,821.43 Topix down 1.1% to 1,946.40 Hang Seng Index down 1.1% to 21,996.85 Shanghai Composite down 0.4% to 3,252.20 Sensex down 0.2% to 58,590.32 Australia S&P/ASX 200 down 0.2% to 7,499.59 Kospi up 0.4% to 2,757.65 German 10Y yield little changed at 0.62% Euro down 0.3% to $1.1130 Brent Futures down 3.6% to $109.40/bbl Gold spot down 0.4% to $1,924.94 U.S. Dollar Index up 0.24% to 98.03 Top Overnight News from Bloomberg The Biden administration is weighing a plan to release roughly a million barrels of oil a day from U.S. reserves, for several months, to combat rising gasoline prices and supply shortages following Russia’s invasion of Ukraine, according to people familiar with the matter Bank of Japan Governor Haruhiko Kuroda is determined to stick with targeting long-term bond yields near zero, even as it leaves him increasingly at variance with global peers and propels a depreciating exchange rate The yen has taken a beating in recent weeks but technicals suggest that it may be on the road to a recovery. Japan’s currency may rebound to 116 per dollar in the coming months after sliding as low as 125.09 on Monday, the weakest in almost seven years, an analysis by Bloomberg shows Russian President Vladimir Putin said that European buyers could continue making gas payments in euros, according to a German readout of a call he had with Chancellor Olaf Scholz Russian government bondholders would be left with no viable path to recover their money if the country defaults, according to one of the top global lawyers in sovereign debt litigation Hungary kept its key interest rate unchanged after the forint staged the second-biggest emerging-market currency rally this week, relieving pressure on policy makers to deliver more monetary tightening China’s cabinet vowed to stabilize the economy and called on officials to avoid measures that harm market expectations as the government struggles to control Covid outbreaks across the country including in the financial center of Shanghai For the first time in more than a decade, China’s yield advantage over Treasuries may be erased. The yield spread between the benchmark bonds of the world’s two biggest debt markets has narrowed to around 40 basis points from 150 a year ago, well below the People’s Bank of China’s “comfortable” range Australia will invest more to find new buyers for its exports in an effort to ease trade dependence on China, its treasurer said, in the face of “economic coercion” from Beijing that shows little sign of abating A more detailed look at global markets courtesy of Newsquawk Asia=Pac stocks traded cautiously at month-end following the weak lead from the US due to increased Russia-Ukraine scepticism and as the region digested disappointing Chinese PMI data. ASX 200 was kept afloat by outperformance in the mining and materials industries although upside was capped as the tech sector suffered from profit-taking and with energy hit by a drop in oil prices. Nikkei 225 traded indecisively amid a choppy currency and after Industrial Production data missed forecasts. Hang Seng and were subdued following the weak Chinese PMI data and with the mood inShanghai Comp. stocks not helped by the US SEC chief casting doubt regarding an imminent deal to avert a delisting of Chinese stocks. Top Asian News Thirteen-Hour Power Cuts Get Sri Lanka to Shorten Stock Trading Effissimo Would Tender Toshiba Shares in Event of Bain Bid BOJ Looks Ready for a Victory Lap With Yields on the Retreat BOJ Boosts Bond Buying in April-to-June Quarter European equities (Eurostoxx 50 -0.3%) kicked the final trading session of the month off on the front foot before drifting towards the unchanged mark. Sectors in Europe exhibit a mostly positive tilt with airline names cheering the declines in the energy space as the Energy sector suffers. The biggest laggard in the region is the retail section following a disappointing Q1 update from H&M (-8%). Futures in the US are modestly firmer as the NQ (+0.5%) marginally outpaces the ES (+0.1%) with inflation set to continue to remain in focus today, with the release of US PCE metrics for March; core PCE is seen rising to 5.5% Y/Y Top European News Iron Ore Futures Advance as Outlook for Demand Brightens Sorrell’s S4 Capital Audit Delay No Longer Down to Covid EU Commission Confirms Raids in Germany’s Natural Gas Sector Pearson Shares Rebound; Barclays Sees a ‘Resilient Business’ In FX, Dollar finds its feet as month, quarter and fiscal year end approach, albeit with a helping hand from others - DXY back on the 98.000 handle, narrowly. Commodity currencies reverse course alongside underlying prices, with crude crushed on reports of US SPR and IEA opening reserve taps - Usd-Cad rebounds through 1.2500 after sliding to new y-t-d low sub-1.2450 only yesterday. Yen choppy amidst residual repatriation flows and more BoJ action to cap JGB yields - Usd/Jpy circa 122.00 within a 122.45-121.35 range. Euro fades into 1.1200 vs Buck again as option expiries and tech resistance impinge, but Aussie  may derive traction from expiry interest at 0.7500 - EURUSD now eyeing support at 1.1100 after tripping stops. In commodities, WTI and Brent remain firmly on the backfoot in the wake of reports suggesting that the Biden administration is considering a 'massive' SPR release. The news has sent May’22 WTI and Jun’22 Brent to respective lows of USD 100.53/bbl and USD 107.39/bbl to leave them a few dollars above their weekly lows of USD 98.44/bbl and USD 102.19/bbl respectively. US President Biden's administration is considering a 'massive' release of oil to combat inflation and may release up to 1mln bpd for months from the strategic reserve in which the total release could be 180mln , according to Bloomberg.bbls Goldman Sachs says a potentially large SPR release would ease the situation but wouldn't resolve the structural deficit in the oil market. Says adjustments for SPR release, Iran supply delays would lower H2 22 Brent forecast by USD 15, to USD 120/bbl - still above market forwards. US President Biden will deliver remarks today at 13:30EDT/18:30BST regarding the administration's actions to reduce gas prices in the US, according to the White House. It was also reported that the US mulls permitting, according to Reuters sources.summertime sales of higher ethanol blends of gasoline to ease pump prices IEA called an emergency ministerial meeting for Friday, according to the Australian Energy Minister's office. It was later reported that , according to New Zealand'sIEA countries are to decide on a collective oil release Energy Minister's office OPEC+ JTC replaced IEA reports with Wood Mackenzie and Rystad Energy as secondary sources to assess crude oil output and conformity, according to sources cited by Reuters. In fixed income, bonds on track to see out extremely bearish month, quarter and end to FY on a firmer note. Curves more even after wild swings between flattening, inversion and steepening.BoJ ramps efforts to maintain YCC via a mostly larger JGB buying remit for Q2. US Event Calendar 08:30: March Initial Jobless Claims, est. 196,000, prior 187,000 08:30: Feb. Personal Income, est. 0.5%, prior 0% 08:30: Feb. Personal Spending, est. 0.5%, prior 2.1%; Real Personal Spending, est. -0.2%, prior 1.5% 08:30: Feb. PCE Deflator MoM, est. 0.6%, prior 0.6%; PCE Deflator YoY, est. 6.4%, prior 6.1% 08:30: Feb. PCE Core Deflator MoM, est. 0.4%, prior 0.5%; YoY, est. 5.5%, prior 5.2% 09:45: March MNI Chicago PMI, est. 57.0, prior 56.3 DB's Jim Reid concludes the overnight wrap After a great deal of optimism in markets on Tuesday following the Russia-Ukraine negotiations in Turkey, the last 24 hours have proven to be much more negative as investor hopes for a de-escalation in Ukraine were dampened by more gloomy comments on the war from both sides. From Russia, the Kremlin spokesman Dmitry Peskov said that they hadn’t seen a breakthrough in the talks, whilst Ukrainian President Zelensky said that “Russia is deploying new forces on our terrain to try to continue destroying us”, and NATO leaders continued to strike a sceptical tone. Indeed, it was reported by Dow Jones that the European Commission was considering new sanctions against additional Russian banks, and UK Prime Minister Johnson said that the UK was “looking at going up a gear” in its support to Ukraine. President Biden expressed similar sentiments, pledging $500 million of additional aid to Ukraine in a call with President Zelensky. Against this backdrop, oil prices rose again for the first time this week, with Brent Crude up +2.92% to $113.45/bbl, but there’s been a sharp turnaround overnight on the back of news that the US are planning a major release from their reserves, with Bloomberg reporting it would be a million barrels a day over several months. Biden is due to speak about efforts to lower prices at 1:30pm Eastern, so all eyes will be on that, and overnight we’ve seen Brent Crude prices come down by -4.54% to $108.30/bbl, more than reversing their gains from the previous session. However, European natural gas (+9.77%) rose for a third consecutive session to €118.97/MWh, which is its highest closing level in nearly 3 weeks. That occurred amidst a continued dispute about Russian gas payments, which President Putin wants paid for in rubles, but which multiple European countries have rejected as a breach of contract. In response, Germany’s economy minister Robert Habeck activated the “early warning phase” of an emergency law, which could eventually lead to gas rationing if supplies fall short. With Russia’s invasion having lasted for over 5 weeks now, we’re increasingly seeing the impact reflected in the official inflation numbers, and yesterday’s releases out of Europe gave fresh life to the bond selloff. In terms of the numbers, German inflation rose to +7.6% in March on the EU-harmonised measure, which was up from +5.5% back in February and some way above the +6.8% reading expected by the consensus. It was the same story in Spain, where inflation rose to +9.8% (up from +7.6% in February), which will heighten interest in tomorrow’s flash release for the entire Euro Area. In turn, that’s led to growing expectations of ECB rate hikes this year, with a total of 63bps being priced in by the December meeting, which is the most we’ve seen to date. On top of that, more than 30bps are even being priced in by the September meeting, which surpasses their pre-invasion peak. Given the strong inflation numbers and the prospect of a more aggressive ECB, European bonds sold off across most of the continent, with yields on 10yr bunds (+1.3bps), OATs (+2.3bps) and BTPs (+1.3bps) all hitting fresh multi-year highs. Furthermore, the 2yr German yield (+5.6bps) closed in positive territory for the first time since 2014, having briefly got there on an intraday basis during the previous session. Unsurprisingly, the latest rise in yields was driven by higher inflation breakevens rather than real rates, and the 10yr German breakeven surged another +6.0bps to 2.71%, its highest level in data available back to 2009, whilst the Italian breakeven rose +4.0bps to 2.53%, its highest level since 2008. Even as European bonds were selling off once again, it was the reverse story in the United States, where Treasuries recovered somewhat yesterday as we come to the end of one of their worst quarterly performances in decades. Yields on 10yr Treasuries fell -4.6bps to 2.35%, whilst yield curves remained incredibly flat; the 2s10s curve steepened marginally by +1.3bps to 3.6bps, avoiding another inversion, and this morning is up another +0.3bps to 3.9bps. In terms of other developments this morning, Asian equity markets have followed Wall Street’s lead overnight with the Nikkei (-0.18%), Hang Seng (-0.59%), Shanghai Composite (-0.14%), CSI (-0.26%) all losing ground, though the Kospi (+0.54%) is the exception to this pattern. The weakness in Asian gauges has come amidst declines in the PMI data, with China’s manufacturing PMI down to 49.5, and the non-manufacturing PMI down to 48.4. For reference, that’s the first time that both readings have been below the 50-mark that separates expansion from contraction since February 2020, and comes as multiple cities are undergoing further lockdowns in response to the current Covid outbreak. Additionally, a slide in Chinese tech stocks is weighing on sentiment after the US Securities and Exchange Commission added Hong Kong listed Baidu Inc. to its long list of companies potentially facing delisting from US exchanges. Outside of Asia, stock futures in the US and Europe are pointing to a more positive start, with contracts on the S&P 500 (+0.28%), Nasdaq (+0.56%) and DAX (+0.59%) all trading higher. Those equity declines overnight in Asia follow a broader decline in risk appetite yesterday given the more negative geopolitical developments, and both the S&P 500 (-0.63%) and Europe’s STOXX 600 (-0.41%) unwound some of their gains from the previous day. More cyclical industries underperformed in general, whilst the German DAX (-1.45%) also put in a weaker performance relative to the other main European indices. The VIX Index of volatility (+0.43pts) also ticked up to 19.33pts, after closing at to its lowest level since Russia’s invasion of Ukraine on Tuesday. In France, we’re now just 10 days away from the first round of the presidential election, and there are continued signs of a narrowing in the polls, albeit with President Macron still in the lead. In terms of yesterday’s polls (from Opinionway, Harris, Ipsos, Ifop and Elabe), all of them pointed to a repeat of the second-round contest from 2017, with the first-round polling putting President Macron in first place followed by Marine Le Pen in second. That said, they’re also implying a noticeably tighter result in the second round than Macron’s 66%-34% victory against Le Pen in 2017. Looking through the numbers, the second round estimates ranged from a 55%-45% Macron victory (from Opinionway and Ipsos), to a 52.5%-47.5% Macron victory (from Elabe). Finally on yesterday’s other data, the ADP’s report of private payrolls from the US showed growth of +455k in March (vs. +450k expected). That comes ahead of tomorrow’s jobs report, where our US economists are expecting nonfarm payrolls to have grown by +400k, with the unemployment rate ticking down to a post-pandemic low of 3.7%. To the day ahead now, and data releases include German retail sales for February and unemployment for March, French and Italian CPI for March, and the Euro Area unemployment rate for February. From the US, there’s also February’s personal income and personal spending, the weekly initial jobless claims, and the MNI Chicago PMI for March. Otherwise, central bank speakers include ECB Vice President de Guindos, Chief Economist Lane, and New York Fed President Williams. Tyler Durden Thu, 03/31/2022 - 07:56.....»»

Category: blogSource: zerohedgeMar 31st, 2022

IMF Warns Countries May Cut Dollar Reserves In Response To US Sanctions Against Russia

IMF Warns Countries May Cut Dollar Reserves In Response To US Sanctions Against Russia Did the IMF just parrot one of Russian President Vladimir Putin's favorite criticisms of Western sanctions? During an interview with Foreign Policy, the IMF's first deputy managing director, Gita Gopinath, warned that Western sanctions on Russia, and more specifically, the confiscation of dollar- and euro-denominated reserves held by the Russian Central Bank, could backfire by making other foreign central banks more reluctant to hold such a large amount of their own foreign reserves in dollars and euros. For decades now, the international dollar-based financial system has been underpinned by free market principles. Unfortunately, when western institutions effectively confiscate reserves belonging to an independent central bank, they cut against this notion, and prompt other nations to ponder the possibility - however remote - that they could be next. Ultimately, it's likely that some countries will "reconsider" the wisdom of so heavily relying on Washington. "We are likely to see some countries reconsidering how much they hold of certain currencies in their reserves," she told Foreign Policy. While Russia accuses the West of trying to engineer a default on Russia's foreign-currency bonds by restricting its access to euros and dollars, Gopinath pointed out that the sanctions imposed over the past month have effectively cut Russia's ties to the global financial system, and a default (however technical in nature) would likely lock Russia out of said system for years. "When you’ve defaulted, reentry into the market is not easy. And that can take a long time." The IMF is already seeing an "increasing fragmentation" in global payments systems. On Thursday morning, it was reported that Russia and Iran are working on a global financial messaging system that could act as an alternative to SWIFT. Of course, the IMF isn't the only institution to highlight this trend. Just the other day, Goldman Sachs released a note warning that the twilight of the US dollar's global hegemony could be at hand - citing the possibility of Saudi Arabia accepting yuan for oil instead of dollars (leading to deep fissures in the edifice of the petrodollar) - as evidence. Since the annexation of Crimea in 2014, Russia's central bank had steadily divested its reserves of most U.S. dollar assets. But the dollar, euro and sterling still account for more than 50% of its holdings, located in France, Germany, Japan, Britain, the United States, Canada and Australia. Russia isn't alone in this: Increasingly, Latin American nations are diversifying their reserves away from the dollar, including larger percentages of alternatives like the Chinese yuan. And Russia isn't alone in this. As Credit Suisse's Zoltan Poszar recently pointed out, western sanctions could help spark a larger move away from holding reserves in the form of "inside" (aka fiat) money, and instead see a movement toward a new system where crypto, or perhaps a hybrid of gold and other commodities like oil, serve as the new reserve asset of choice. Of course, the Fed - which is pushing the adoption of a central bank digital currency to seize the last bit of financial autonomy Americans have left - will likely push back with force. We're already seeing it today as the US and its G7 allies seek to halt purchases of gold by the Russian Central Bank. Tyler Durden Thu, 03/24/2022 - 21:20.....»»

Category: blogSource: zerohedgeMar 24th, 2022

The Evolution Of Credit & The Growing Fiat Money Crisis

The Evolution Of Credit & The Growing Fiat Money Crisis Authored by Alasdair Macleod via GoldMoney.com, After fifty-one years from the end of the Bretton Woods Agreement, the system of fiat currencies appears to be moving towards a crisis point for the US dollar as the international currency. The battle over global energy, commodity, and grain supplies is the continuation of an intensifying financial war between the dollar and the renminbi and rouble. It is becoming clear that the scale of an emerging industrial revolution in Asia is in stark contrast with Western decline, a population ratio of 87 to 13. The dollar’s role as the sole reserve currency is not suited for this reality. Commentators speculate that the current system’s failings require a global reset. They think in terms of it being organised by governments, when the governments’ global currency system is failing. Beholden to Keynesian macroeconomics, the common understanding of money and credit is lacking as well. This article puts money, currency, and credit, and their relationships in context. It points out that the credit in an economy is far greater than officially recorded by money supply figures and it explains how relatively small amounts of gold coin can stabilise an entire credit system. It is the only lasting solution to the growing fiat money crisis, and it is within the power of at least some central banks to implement gold coin standards by mobilising their reserves. Evolution or revolution? There are big changes afoot in the world’s financial and currency system. Fiat currencies have been completely detached from gold for fifty-one years from the ending of the Bretton Woods Agreement and since then they have been loosely tied to the King Rat of currencies, the dollar. Measured by money, which is and always has been only gold, King Rat has lost over 98% of its relative purchasing power in that time. From the Nixon Shock, when the Bretton Woods agreement was suspended temporarily, US Government debt has increased from $413 bn to about $30 trillion — that’s a multiple of 73 times. And given the US Government’s mandated and other commitments, it shows no signs of stabilising. This extraordinary debasement has so far been relatively orderly because the rest of the world has accepted the dollar’s hegemonic status. Triffin’s dilemma has allowed the US to run economically destructive policies without undermining the currency catastrophically. Naturally, that has led to the US Government’s complacent belief that not only will the dollar endure, but it can continue to be used for America’s own strategic benefits. But the emergence of rival superpowers in Asia has begun to challenge this status, and the consequence has been a financial cold war, a geopolitical jostling for position, particularly between the dollar and China’s renminbi, which has increased its influence in global financial affairs since the Lehman crisis in 2008. Wars are only understood by the public when they are physical in form. The financial and credit machinations between currency-issuing power blocs passes it by. But as with all wars, there ends up a winner and a loser. And since the global commodity powerhouse that is Russia got involved in recent weeks, America has continued its policy of using its currency status to penalise the Russians as if it was punishing a minor state for questioning its hegemonic status. The consequence is the financial cold war has become very hot and is now a commodity battle as well. Bringing commodities into the conflict is ripe with unintended consequences. Depending how the Russians respond to US-led sanctions, which they have yet to do, matters could escalate. In the West we have comforted ourselves with the belief that the Russian economy is on its uppers and Putin will have to either quickly yield to sanctions pressures, or face ejection by his own people in a coup. But that is a one-sided view. Even if it has a grain of truth, it ignores the consequences of Putin’s military failures on the ground in Ukraine so far, and his likely desperation to hit back with the one non-nuclear weapon at his disposal: Russia’s commodity exports. He may take the view that the West is damaging itself and little or no further action is required. And surely, the fact that China has stockpiled most of the world’s grain resources gives Russia added power as a marginal supplier. Putin can afford to not restrict food and fertiliser exports, blaming on American policy the starvation that will almost certainly be suffered by all non-combatant nations. He could cripple the West’s technology industries by banning or restricting exports of rare metals which are of little concern to headline writers in the popular press. He might exploit the one big loophole left in the sanctions regime by supplying China with whatever raw materials and energy it needs at discounted prices. And China could compound the problem for the West by restricting its exports of strategic commodities claiming they are needed for its own manufacturing requirements. While everyone focuses on what is seen, it is what is not seen that is ignored. Commodities are the visible manifestation of a trade war, while payments for them are not. Yet it is the flow of credit on the payment side where the battle for hegemonic status is fought. The Americans and their epigones in Europe have tried to shut down payments for Russian trade through the supposedly independent SWIFT system. And even the Bank for International Settlements, which by dealing with both Nazi Germany and the Allies retained its neutrality in the Second World War, is siding with the West today. But step back for a moment to look at how broadly based the West’s position is in a global context, because that will be a factor in whether the dollar’s hegemony will survive this conflict. We see America, the EU, Japan, the UK, Canada, Australia, and New Zealand on one side. In population terms that’s roughly 335, 447, 120, 65, 38, 26 and 5 million people respectively, totalling 1,036 million, only 13% of the world population. This point was made meaningfully by the Saudis who now want to talk with Putin rather than Biden. As long ago as 2014, this writer was informed by a director of a major Swiss refinery that Arab customers were sending LBMA 400-ounce bars for recasting into Chinese four-nine one kilo bars. The real money saw this coming at least eight years ago. Even if the US’s external policies do not end up undermining the dollar’s global status, it is becoming clear that the King Rat of currencies is under an existential threat. And the Fed, which is responsible for domestic monetary policies, in conjunction with the Biden administration is undermining it from the inside as well by trying to manage a failing US economy by accelerating its debasement. A betting man would therefore be unlikely to put money on a favourable dollar outcome. Whether the dollar suffers a crisis or merely an accelerated decline, just as Nixon changed the world’s monetary order in 1971 it will change again. That the current situation is unsatisfactory is widely recognised by multiple commentators, even in America, calling for a financial and currency reset. And it is assumpted that the US Government and its central bank should come up with a plan. There are two major problems with the notion that somehow the deck chair attendant can save the ship from sinking by rearranging the sun loungers. The first error is insisting that money is the preserve of only the state and is not to be decided by those who use it. It was the underlying fallacy of Georg Knapp’s State Theory of Money published in 1905. That ended with Germany printing money to arm itself in the hope that it would win: it didn’t and Germany ended up destroying its papiermark. The second error is that almost no one understands money itself, as evidenced by the whole financial establishment, from the governments down to junior fund managers, thinking that their currencies are money. Commentators calling for a reset are themselves in the dark. Events will deal with the fallacies behind the State Theory of Money and whether it will turn out to be an evolution or revolution. But at least we can have a stab at explaining what money is for a modern audience, so that the requirements and conditions of a new currency system to succeed can be better understood. What is money for? The pre-Keynesian classical economic explanation of money’s role was set out in Say’s Law, otherwise known as the law of markets. Jean-Baptiste Say was a French economist, who in his Treatise on Political Economy published in 1803 wrote that, “A product is no sooner created than it, from that instant, affords a market for other products to the full extent of its own value.” And “Each of us can only purchase the productions of others with his own productions — and so the value we can buy is equal to the value we can produce. The more men can produce the more they will purchase.” Money or credit is the post-barter link between production and consumption facilitating the exchange between the two. What to produce and what is needed in exchange is a matter for those involved in individual transactions. And the medium of exchange used is a decision for each of the parties. They will tend to use a medium which is convenient and widely accepted by others. Say’s Law was incorrectly redefined and trashed by Keynes to “…that the aggregate demand price of output as a whole is equal to the aggregate supply price for all volumes of output is equivalent to the proposition that there is no obstacle to full employment.” This has subsequently been shortened to “supply creates its own demand”. Keynes’s elision of the truth was leading to (or was it to justify?) his erroneous invention of mathematical macroeconomics. It is simply untrue. All Say was pointing out is we divide our labour as the most efficient means of production for driving improvements in the human condition. That cannot be argued with, even by blinkered Keynesians. Money, or more correctly credit has two roles in this division of labour. The first is as the medium for investment in production, because things must be made before they can be sold and there are expenses in the form of presale payments that must be made. And the second is to act as the commonly accepted intermediary between the sale of products to their buyers. Instead of opining that supply creates its own demand, if we say instead that people make things so they can buy the products and services they don’t make for themselves, it is so obviously true that Keynes and his self-serving theories don’t have a leg to stand on. And importantly, full employment has nothing to do with it. The money involved is always credit. Even the act of lending gold coins to an entrepreneur to make something is credit because it is to be repaid. If gold coins are the payment medium between production and consumption, they are the temporary storage of production before it is spent. In this very narrow sense, they represent the credit of production which will be spent. The principal quality of gold, which when it is at rest is undeniably money, is that it has no counterparty risk and is to be parted with last. The point is that money in circulation is a subsection of wider credit and is the very narrowest of definitions of circulating media. But even under a gold standard, it is hardly ever used in transactions and rarely circulates. This is partly due to a Gresham’s Law effect, where it is only exchanged for inferior forms of credit as a last resort, and partly because it is less convenient than transferring banknotes or making book entries across bank ledgers. By far the most common forms of circulating media are credit in the form of banknotes issued by a central bank, and transferable credit owed by banks to depositors. But in our estimate of a practical replacement of the current fiat currency-based system, we must also acknowledge that credit is far broader than that recorded as circulating by means of the banking system. We are increasingly aware of the term, “shadow banks” most of which are pass-through channels of credit rather than credit creators. But doubtless, there is expanded credit in circulation originating from shadow banks, the equivalent of officially recorded bank credit, which is not captured in the money supply statistics. But there are also wider forms of credit in any economy. Defining credit To further our understanding of credit, we must define the fundamental concept of credit: Credit is anything which is of no direct use, but which is taken in exchange for something else, in the belief or confidence that we have the right to exchange it away again. It is the right to a future payment, not necessarily in money or currency. It is not the transfer of something, but it is a right to a future payment. Consequently, the most common form of credit is an agreement between two parties which has nothing to do with bank credit per se. Bank credit is merely the most obvious and recorded subset of the entire quantity of credit in an economy. And the whole world of derivatives, futures, forwards, and options, are also credit for an action in time, additional to bank credit. Global M3 money supply is said to be $40 trillion equivalent, about 3% of investments, derivatives, and cryptocurrencies, all of which are forms of credit: rights and promises to future payments in credit or currency. And this is in addition to private credit agreements between individuals and other individuals, and between businesses and individuals, which are extremely common. The commonly stated position among sound money advocates of the Austrian school is that bank credit should be replaced by custodial deposit-taking banks and separate arrangers of finance. But given the broad definition of credit in the real world, eliminating bank credit appears untenable when individuals are free to offer multiple amounts of credit and the vast bulk of credit creation is outside the banking system. Consider the case of a bookie accepting wagers for a horse race. Ahead of the event, he takes on obligations many times the capital in his business, in return for which he is paid in banknotes or drawings on bank credit by his betting customers. When the race is over, he keeps the losers’ stakes and is liable for payments to holders of the winning bets. He has debts to the winners which are only extinguished when the winners collect. While there are differences in procedures and of the risks involved, in principal there is little difference between a bookie’s business and that of a commercial bank; they are both dealers in credit. Arguably, the bookie has the sounder business model. The restriction imposed on an individual providing credit to others is his potential liability if it is called upon. The unfairness in the current system is not that bank credit is permitted, but that is permitted with limited liability. Surely, the solution is to ensure that all providers of credit are responsible for the risks involved. Licenced banks and their shareholders should face unlimited liability. It is even conceivable that listed capital in an overleveraged bank might trade at negative values if shareholders face a risk of unlimited calls on their wealth. That should promote responsibility in bank lending. It will not eliminate the cycle of bank credit expansion and contraction, but it will certainly lessen its disruptive impact. Variations in the purchasing power of a medium of exchange A proper consideration of credit, the all-embracing term for mediums of exchange to include future promises, shows that government statistics for money supply are a diminishingly small part of overall credit in an economy. We must take this fact into account when considering changes in the official quantity of money on the purchasing power of units of the medium of exchange (that is credit in the form of circulating banknotes and commercial bank credit — M1, M2, M3 etc.). A downturn in economic activity must be considered in the broader sense. If, for example, I say to my neighbour that if he arranges it, I will cover half the cost of fencing the boundary between our properties, I have offered him credit upon which he can proceed to contract a fencing supplier and installer. However, if in the interim my circumstances have changed and I cannot deliver on my promise, the credit agreement with my neighbour is withdrawn and the fence might not be installed. A father might promise his son an allowance while he attends university. That is a credit agreement with periodic drawdowns lasting the course. Later, the father might promise help in buying a property for his son to live in. These are promises, whose values are particular and precarious. And they will be valid only so long as they can be afforded. If there is a general change in economic conditions for the worse, it is almost certainly driven more by the withdrawal of unrecorded credit agreements between individuals and small businesses such as corner shops, and not directly due to bank credit contraction. An appreciation of these facts and of changes in human behaviour which cannot be recorded statistically explains much about the lack of correlation between measures of credit (i.e., broad money supply) and prices. The equation of exchange (MV=PQ) does not even capture a decent fraction of the relationship between the quantity of credit in an economy and prices. Our understanding of the wider credit scene goes some way to resolving a mystery that has bedevilled monetary economists ever since David Ricardo first proposed the relationship over two centuries ago. In theory, an increase in the quantity of measurable credit (that is currency in the banking system) leads to a proportionate increase in prices. Even allowing for statistical legerdemain, that is patently not true, as Figure 1 illustrates. Figure 1 shows that over the last sixty years, the broadest measure of US dollar money supply has increased by nearly seventy times, while prices have increased about nine. The equation of exchange explains it by persuading us that each unit of currency circulates less so that the increase in the money quantity somehow leads to less of an effect on prices. This interpretation is consistent with Keynes’s denial of Say’s Law. The Law tells us that we all make profits and/or earn salaries, which in the time-space of a year means we can only spend and save once. That is an unvarying velocity of unity. Instead, the mathematical economists have introduced a variable, V, which simply balances an equation which should not exist. That is not to say that credit expansion does not affect the purchasing power of a currency. Logic corroborates it. But an understanding of the true extent of credit in an economy confirms that the sum of currency and recorded bank credit is just a small part of the story – only one eighth as indicated by the divergence between M3 and consumer prices — all else being equal. It brings us to the other driving force in the credit/price relationship, which is the public acceptability of the currency. Ludwig von Mises, the Austrian economist, who lived through the Austrian inflation in the post-WW1 years and whose advice the Austrian government was reluctant to accept, observed that variations in public confidence in the currency can have a profound effect on its purchasing power. Famously, Mises described a crack-up boom as evidence that the public had finally abandoned all faith in the government’s currency and disposed of all of it in return for goods, needed or not. It leads to the sensible conclusion that irrespective of changes in the circulating quantity, the purchasing power is fully dependent on the public’s faith in the currency. Destroy that, and the currency becomes valueless as a medium of exchange. If confidence is maintained, it follows that the price effects of a currency debasement may be minimised. This brings us to gold coin. If the state backs its currency with sufficient gold which the public is free to obtain on demand from the issuer of the currency, then the currency takes on the characteristics of gold as money. We should not need to justify this established and ancient role for gold, or silver for that matter, to the current generations of Keynesians brainwashed into thinking it’s just old hat. Though they rarely admit it, central bankers fully committed to their fiat currencies still retain gold reserves in the knowledge that they are no one’s liability; that is to say, true money while their currencies are simply credit. Given what we now know about the extent of credit beyond the banking system and the role of public confidence in the currency when it is a credible gold substitute, we can see why a moderate expansion of the currency need not undermine its purchasing power proportionately. While the cycle of bank credit expansion and contraction leads to the boom-and-bust conditions described by Von Mises and Hayek in their Austrian business cycle theory, the effects on prices under a gold standard do not appear to have been enough to destabilise a currency’s purchasing power. Figure 2 illustrates the point. Admittedly there are several factors at work. While the increase in the quantity of currency in circulation was generally restricted by the gold coin standard, the bank credit cycle of expansion and contraction led to periodic bank failures. Then as now, the quantity of bank credit relative to bank notes was eight or ten times, and so long as the note-issuing bank remained at arm’s length from the tribulations of commercial bank credit the overall price effects were contained. Britain abandoned the gold standard in 1914, and just as the abandonment of the silver standard in the 1790s led to an increase in the general price level, a dramatic increase occurred during the First World War. This was due to deficit spending by the state driving up material costs at a time when imported factors of supply were limited by the destruction of merchant shipping. The end of the war restored the supply/demand balance and saw a reduction in military spending. Prices fell and then stabilised. A gold bullion standard at the pre-war rate of exchange was re-established in 1925, only to be abandoned in 1931. The Second World War and subsequent lack of any anchor to the currency led to an inexorable rise in prices before America abandoned the Bretton Woods Agreement in 1971. And since then, the sterling price of gold has risen even further from £14.58 when the Agreement ceased to £1,470 today. Measured in true money the currency has lost over 99% of its purchasing power over the last fifty-one years. Both logic and the empirical evidence point to the same conclusion: price stability can only be achieved under a working gold coin standard, whereby ordinary people can, should they so wish, exchange banknotes for coin on demand. Despite making up most of the circulating medium, fluctuations in bank credit then have less of an effect on prices, for the reasons stated above. Can cryptocurrencies replace gold? The reason gold is relatively stable in purchasing power terms is that through history, above ground stocks have expanded at similar rates to population growth. A very gradual increase in gold’s purchasing power comes from manufacturing, technological, and competitive production factors. In other words, the price stability clearly demonstrated in Figure 2 above between 1820—1914 is evolutionary. Whether cryptocurrencies or central bank digital currencies might have a stabilising role for prices in future is highly contentious. We can readily dismiss yet another version of state-issued currencies as being a worse form of credit than failing fiat currencies. The aim behind them is communistic, to enable the state to allocate credit resources wherever and to whomsoever its political class may desire. It is with the intention of reducing the vagaries of human action on the state’s intended outcome. Just as every replacement currency for failing fiat in the past has failed, if CBDCs are introduced they will fail as well. It is unnecessary to comment further. Cryptocurrencies, particularly bitcoin, are seen by a small minority of enthusiasts as the money of the future, being outside the state’s printing presses. But as observed above, in reality, sound money is augmented by fluctuating quantities of credit in far larger quantities. So long as sound money provides price stability, circulating credit inherits those characteristics. Bitcoin, the leading claimant to being future money, lacks both world-wide acceptance and the flexibility required for long-term stability and therefore economic calculation. Imagine an entrepreneur planning to invest in production, a project which from the drawing-board to final sales takes several years. His nineteenth century forebears had a reasonable idea of final prices, so could calculate costs, sales values, and therefore the interest cost of the capital deployed over the whole project to leave him with a profit. No such certainty exists with bitcoin because final prices cannot be assumed. Furthermore, central banks do not have bitcoin as part of their reserves, and by embarking on plans for their own CBDCs have signalled that they will not have anything to do with it. But in most cases central banks or their government treasury ministries possess gold bullion, which as a last resort they can deploy to stabilise a failing currency. While there will undoubtedly be future benefits from their underlying technologies, it is impossible to see how cryptocurrencies can have a practical role in backing wider credit. Conclusion The evolution of fiat dollars which dates from the abandonment of the Bretton Woods Agreement is coming to an inevitable conclusion: fiat currencies come and go and only gold goes on forever. Whoever wins the financial battle now raging with increasing intensity over commodity prices, the US dollar as the King Rat of fiat currencies is losing its assumed superiority over the renminbi, and possibly the rouble if the Russians can stabilise it. The old-world population backing the dollar is heavily outnumbered by the newly industrialising Eurasia as well as its commodity and raw material suppliers in Africa and South America. Not mentioned in this article is the Federal Reserve Board’s commitment to sacrifice the dollar to support financial values — that ground has been well covered in earlier Goldmoney articles. But it is a repetition of John Law’s policies in 1720 France, now underway to stop the global financial bubble from imploding. And just as the Mississippi Company continued after 1720 when the French livre collapsed entirely that year, we see the same dynamics in play for the entire fiat currency system today. John Law’s policies of credit stimulation for the French economy were remarkably like those of modern Keynesians. This time, the expansion of money supply on a global basis has been on an unprecedented scale, encouraged by the subdued effect on prices measured by government-compiled consumer price indices. Undoubtedly, much of the lack of price inflation is down to statistical method, but from Figure 1 we have seen that over the last sixty years the quantity of currency and credit captured by US dollar M3 has grown about seven and a half times more rapidly than prices. We have concluded that this disparity is partly due to not all credit in the economy being captured in the monetary statistics. Understanding the relationship between money which is only physical gold coin, currency which is bank notes and credit which includes bank credit, shadow bank credit, derivatives, and personal guarantees, is vital to understanding what is required to replace the fiat-currency system. It also explains why a relatively small base of exchangeable gold coin in relation to the overall credit in an economy is sufficient to guarantee price stability. Tyler Durden Sat, 03/19/2022 - 18:30.....»»

Category: dealsSource: nytMar 19th, 2022