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Germany Warns of Lehman-Like Contagion From Russian Gas Cuts

Germany warned that Russia’s moves to slash Europe’s natural gas supplies risked sparking a collapse in energy markets Germany warned that Russia’s moves to slash Europe’s natural gas supplies risked sparking a collapse in energy markets, drawing a parallel to the role of Lehman Brothers in triggering the financial crisis. With energy suppliers piling up losses by being forced to cover volumes at high prices, there’s a danger of a spillover effect for local utilities and their customers, including consumers and businesses, Economy Minister Robert Habeck said Thursday after raising the country’s gas risk level to the second-highest “alarm” phase. “If this minus gets so big that they can’t carry it anymore, the whole market is in danger of collapsing at some point,” Habeck said at a news conference in Berlin that was called at short notice. “So a Lehman effect in the energy system.” [time-brightcove not-tgx=”true”] Europe’s largest economy faces the unprecedented prospect of businesses and consumers running out of power. For months, Russian President Vladimir Putin has gradually reduced supplies in apparent retaliation over sanctions imposed over the invasion of Ukraine. The standoff escalated last week after steep cuts to the main gas link to Germany, putting reserves for the winter at risk. Read More: Germany Can’t Rely on Russian Energy. It Doesn’t Know What to Do Instead The heightened alert tightens monitoring of the market, and some coal-fired power plants will be reactivated. At the current rate of gas inflows, Germany would need 116 days to reach its target to fill 90% of storage capacity, which would mean it would take until mid-October to do so—a time of year that households would usually start consuming more gas for heating. The alert stage also gives the government an option of enacting legislation to allow energy companies to pass on cost increases to homes and businesses. Habeck said he was holding off on price adjustments for now to see how the market reacts. Chemical giant BASF AG announced later on Thursday that it may cut production as gas prices surge. “It will be a rocky road that we have to travel as a country,” he said. “Even if we don’t feel it yet, we are in a gas crisis.” Dutch front-month gas futures, the European benchmark, rose as much as 7.7% to a one-week high of 137 euros ($144) per megawatt-hour in Amsterdam. The contracts have gained more than 50% since state-run gas giant Gazprom PJSC cut flows on the key Nord Stream pipeline by about 60%. Germany, which relies on Russia for more than a third of its gas supplies, enacted the initial “early warning” phase at the end of March, when the Kremlin’s demands for payment in rubles prompted Germany to brace for a potential cutoff in supply. The third and highest “emergency” level would involve state control over distribution. The crisis has spilled far beyond Germany, with 12 European Union member states affected and 10 issuing an early warning under gas security regulation, Frans Timmermans, the European Union’s climate chief, said in a speech to the European Parliament. “The risk of a full gas disruption is now more real than ever before,” he said. “All this is part of Russia’s strategy to undermine our unity.” Read More: Europe’s Illusion of Peace Has Been Irrevocably Shattered Habeck, who is also vice chancellor, said Russia’s move to cut gas deliveries through the Nord Stream pipeline makes it all but impossible to secure sufficient gas reserves for the winter without additional measures. He indicated he’s concerned that the Nord Stream link may not return to normal capacity after a 10-day maintenance period starts on July 11. Germany has been rushing to fill up gas-storage facilities, but has made only modest headway. Reserves are currently around 58% full, and energy companies are trying to reach a government-mandated target of 90% capacity by November. The daily fill rate dropped by about half on Wednesday to the lowest level since early June, according to figures from Germany’s network regulator, known as BNetzA. At that rate, it would take more than 100 days to reach the target, which would put the country well into the traditional heating season. “Although the supply of gas is still secured in the short term, companies across all sectors are extremely concerned,” Peter Adrian, the president of the DIHK industry lobby, said in an emailed statement. “Given these dark clouds that are gathering, we must now make a joint effort to do everything to save gas for the winter,” he added. BNetzA would implement rationing if the government triggers the emergency level. The Bonn-based agency has said leisure venues would likely see supply cuts, while consumers and critical public services such as hospitals would be protected. Gas is a crucial part of Germany’s energy mix and more difficult to replace than Russian coal and oil, which are being phased out by the end of the year. The fuel is critical for heating homes and for industrial processes in the chemicals, pharmaceuticals and metals sectors. Germany has taken steps to secure supplies, including taking control of a local Gazprom subsidiary, which was renamed Securing Energy for Europe GmbH. The country is also building infrastructure to import liquefied natural gas from the US and other suppliers, but those won’t be ready until later this year. To shore up the market in the near term, the government is making available additional credit lines by state-owned lender KfW to guarantee gas injections at storage sites. An auction model will begin this summer to encourage industrial gas consumers to save fuel, which can then be put into storage. The plan envisages major gas suppliers or industrial users posting offers with Trading Hub Europe, according to a BnetzA document seen by Bloomberg. In the event of bottlenecks, Trading Hub Europe will take up the cheapest offer. “The curbing of gas supplies is an economic attack on us by Putin,” said Habeck. “It is obviously Putin’s strategy to try to fuel insecurity, drive up prices and divide us as a society. We will fight back against this.” —With assistance from Chad Thomas, Zoe Schneeweiss, Andrew Reierson, Ewa Krukowska and Angela Cullen......»»

Category: topSource: timeJun 24th, 2022

The Ratings Game: Coinbase could see ‘further degradation,’ Goldman warns in downgrade

Amid a rocky market for cryptocurrencies, Coinbase Global Inc. may be on track for "further degradation" of its revenue base and under pressure to reduce expenses beyond previously announced job cuts, according to Goldman Sachs......»»

Category: topSource: marketwatchJun 27th, 2022

Germany says its energy crisis may trigger Lehman-like contagion as the country moves a step toward to natural-gas rationing

Russia has cut piped natural-gas supplies to Germany, citing an equipment hold-up in Canada as a result of sanctions over the Ukraine war. Germany accuses Russian President Vladimir Putin of an "economic attack" as Gazprom slows natural-gas supplies to Europe.Mikhail Metzel/Sputnik/AFP via Getty Images Germany's economy minister warns of a "market collapse" if natural-gas prices continue to soar. Germany has triggered the second stage of its three-stage emergency gas plan on supply fears. That's after Russia —citing a techincal reason — slowed piped natural-gas supplies to Germany. Germany warned the country's energy crisis may trigger a "Lehman effect" across the utility sector as it moved one step closer to rationing natural gas.Germany — Europe's largest economy — moved into the second of its three-stage emergency gas plan on Thursday after Russia slowed supplies to the country, exacerbating concerns over an energy crunch. These supply fears have already driven European natural gas futures up by 85% year-to-date.Under the second stage of Germany's emergency gas plan, utility companies can pass on price increases to customers. The government is holding back on triggering the clause for now. But Habeck said they could kick in if the supply crunch and price increases persist, as energy suppliers that buy power on the wholesale market are running up losses and many could ultimately fail as a result."If this minus gets so big that they can't carry it anymore, the whole market is in danger of collapsing at some point — so a Lehman effect in the energy system," said German economy minister Robert Habeck at a press conference, according to a Bloomberg translation. Habeck was referring to financial services firm Lehman Brothers, which filed for bankruptcy in 2008 amid the subprime mortgage crisis — which spilled over and caused the Global Financial Crisis.Natural gas accounts for about a quarter of the country's energy mix, according to the economy ministry. About 35% of that total comes from Russia. Russian state gas giant Gazprom has cut natural-gas supplies via the Nord Stream pipeline to Germany — which also goes to the rest of Europe — by more than half since last week, citing an equipment hold-up in Canada as a result of sanctions over the Ukraine war.The cut may not be hitting Germany as badly now as it would in the winter because consumption typically troughs in summer. But Europe's in the thick of a summer heatwave now, driving up natural-gas demand for cooling systems. Russia's decision to choke off supply raises questions about how the region can prepare for the crucial winter months, when consumption is far higher."The situation is serious and winter will come," Habeck warned, according to a statement from the German economy ministry. "It will be a rocky road that we as a country now have to walk. Even if you don't really feel it yet: we are in a gas crisis. Gas is now a scarce commodity."If the situation worsens, under the plan Germany may start rationing gas as a last resort, as outlined by the country's economy ministry. German industry association BDI said a recession would be inevitable if Russian natural gas supplies were halted, Reuters reported on Tuesday."We mustn't delude ourselves: cutting gas supplies is an economic attack on us by Putin," said Habeck in a statement on Wednesday. "It is clearly Putin's strategy to create insecurity, drive up prices and divide us as a society. We will defend ourselves against this."Moscow insisted the cut in supplies was technical. Kremlin spokesman Dmitry Peskov said it was "strange" for Germany to say the natural-gas supply cut was politically motivated, AFP reported.Germany is restarting some coal power plants to deal with the energy crisis — a significant move as the country plans to phase out coal — the dirtiest, most carbon-intensive fossil fuel — by 2030. It also plans to increase its imports of liquefied natural gas — a supercooled version of the fuel that can be transported via ships over long distances. Germany aims to wean itself off Russian natural-gas imports by 2024, Habeck said in a March 25 press release.Read the original article on Business Insider.....»»

Category: personnelSource: nytJun 24th, 2022

By The Powell Of Greyskull

By The Powell Of Greyskull By Michael Every of Rabobank I am assuming my post-FOMC Chair testimony headline above is the only one which refers to a cheesy 1980’s (and far worse 2022 Netflix rebooted) cartoon. However, I do so deliberately. What we got in Congress yesterday WAS reminiscent of the 1980’s, with Powell refusing to take a 100bps hike off the table as if he were a muscled-up He-Man. Yet while another 75bps in July and more mighty blows were promised, Powell also suggested nobody was going to get really hurt. Ignore what Larry Summers just said about millions of people needing to lose their jobs for years, because a recession is “not inevitable,” says Powell: Oh yes it is, says Philip Marey. Markets agree with Philip, not the guardian of Fedternia. Indeed, we are finally seeing a logically consistent movement: lower stocks, as US stocks head for the worst H1 since 1932, lower bond yields, lower commodities, and a slightly lower US dollar. Real-economy indicators are looking ugly. US data are obvious. Europe can delude itself that there isn’t going to be a recession ahead, but the IEA is warning it to prepare for a total cessation of Russian gas flows, and Germany is listening, and that would feel like a depression. China keeps promising stimulus that doesn’t arrive, and its consumers won’t spend, or its banks productively lend. The strike-laden UK just saw another high inflation print driven by food and energy prices, driving gloom, while two by-election defeats today would suggest doom for the government. Moreover, Korean 20-day export data this week were -10% m-o-m and -3.4% y-o-y. Hong Kong is seeing massive intervention to keep the HK$ pegged to the US$. Sri Lanka is asking civil servants to work a four-day week so they can grow their own food on Fridays. Broader financial stress indicators are also picking up. So, the market now accepts recession is a risk, having been in total denial. Rightly so: we can't expect energy or commodity prices to stay low if demand picks up; and we can't bring new supply online for years. Yet this still does not make the open and shut case for the Fed to pivot as the rapid resolution of a seemingly intractable problem, as in any good 1980’s cartoon. Indeed, the more the market heard ‘By the Powell of Greyskull; I have the power!... but no recession!’, the more stocks and oil actually came off their intra-day lows (before stocks dipped again). The market is pricing in less Fed tightening and earlier Fed cuts than before Powell held aloft his sword. Much more of this, and oil and stocks will both be going up even as bond yields go down, and we will be back to logically inconsistent market moves that will force the Fed to keep punching harder. Yes, Powell repeated he can’t do anything about rising food and energy prices to Congress: but isn’t it amazing that at just the same time as 75bps got wheeled out, both food and energy are (temporarily) falling back? Yesterday’s testimony also took place against the backdrop of a ‘Masters of the Universe’ struggle for global power: it got very little airtime compared to Powell, but the BRICS (Brazil, Russia, India, China, South Africa) summit is now underway. Russia’s President Putin just used the forum to stress: (1) Russia is selling more oil to India and China - who are refining it, and selling it to Europe; and (2) BRICS are developing an alternative global reserve currency backed by commodities, and an international payments system, to reduce their use of USD and EUR. China’s Xi Jinping also backed Russia’s world view that NATO was most responsible for the war in Ukraine, and called it “a wake-up call,” warning against “expanding military alliances and seeking one’s own security at the expense of other countries’ security.” Because China has never done that. For those who haven’t been paying attention to geopolitics, this might be a shock: it is, however, exactly what I was flagging in my (largely unread) report, ‘Why ‘Bretton Woods 3’ Won’t Work’. Let me repeat again that this proposed BRICS system is unlikely to work. For a start, India and China are at geopolitical loggerheads, which makes it BRI/C/S in reality. Worse, there is no history, trade data, or logic to suggest you can just staple together a few big net commodity exporters, with huge linkages to the West, to a massive net commodity importer, with huge linkages to the West, and expect this to work – or to retain those linkages to the West. There was a story this week about a Chinese property developer taking payment in garlic and wheat: you want an alternative global economy and financial system based on that? More importantly, the West will react strongly to any BRICS movement towards breaking US$ global hegemony. Most of the global financial system is based on credit, based on collateral, and so on the US dollar / Eurodollar. That digital green paper sits behind up to $50 trillion in ex-US annual trade-flow and financial liabilities, and vastly more including derivatives. That is backed by only $7 trillion in US$ FX reserves, $3 trillion of which sit in China to back/prop up CNY. It’s a bad, unstable, unfair, bubble-creating system backed by an increasingly dysfunctional hegemon. But it works, in its own way, and it has the all the benefits of the incumbent network effect. A BRICS alternative is that global shadow banking, actual banking, and real trade flows should all start to accept credit based on a new digital FX with commodities as collateral instead. Which also implies people won’t be able to repay their Eurodollar commitments. There are lots of ways the West can respond to this. Hedge fund billionaires and Wall Street can say ‘We want in!’, which is possible given Western financial systems operate like mercenaries rather than an army (which is why there are no countries around today that operate their national defence on that basis.) If that happens, some rich Westerners get richer, but the West loses its global pre-eminence and the geopolitical power to act on issues like Ukraine and Taiwan. Or the Fed can say anyone using a BRICS currency loses access to the US financial system. That would bifurcate the world. As we already see with sanctions against Russia, it would also mean the West, and third parties, doesn’t get the commodities (or industrial goods) that the BRICS produce. That means massive inflation in some places, deflation in others, and global depression, not recession. I wouldn’t rule it out, but the end-game is clear. Or the Fed can keep raising rates to force commodity prices down, raising the collateral attractiveness of the US$ and reducing that of its new rival. That would mean recession – and it already does. It would imply a massive blow-up for those leveraged long commodities - as with crypto. It would also make getting hold of US$ even harder - but that’s what Fed swap-lines, for friends, would be for. This is obviously not what the markets think will happen, and I understand why. (“Because markets.”) However, it’s not cartoonish. It’s just taking monetary policy into the geopolitical dimension, where it always sits, and most so when potential monetary rivals appear. Today we can listen to see if we get any more details from the BRICS. Then we don’t have to wait long for the rival G7 meeting, where we have very few He-Men or Men-at-Arms. The leaders of France, Germany, Italy, the US, UK, and Canada are all struggling, and only Japan’s PM Kishida is showing real confidence to plough ahead - as Jane Foley talks about the possibility of USD/JPY ploughing a fresh low of 140. Then we get the NATO summit next week, as Estonia’s PM warns of the risk of the country being “wiped from the map”, and where we may see exactly what Xi was warning about in terms of expanded alliances and shifts of focus towards China. In short, a paper tiger may turn into a true BattleCat - although it will need the financial Powell of Greyskull to get there. Or tell yourself none of this matters and that we have a happy ending ahead due to Fed rate cuts and more QE. Just recall He-Man’s sister She-Ra rode a unicorn: perhaps it excreted the M&Ms you are eating. Tyler Durden Thu, 06/23/2022 - 11:10.....»»

Category: blogSource: zerohedgeJun 23rd, 2022

Germany Elevates Risk Level In Its "National Gas Emergency Plan" To Second-Highest "Alarm" Phase

Germany Elevates Risk Level In Its "National Gas Emergency Plan" To Second-Highest "Alarm" Phase European natural gas and power prices surged after Germany triggered the "alarm stage" of its NatGas-emergency plan amid reductions in supplies from Russia, according to Reuters.  German Economy Minister Robert Habeck said Europe's largest economy is in a severe energy crisis. He warned Germany should prepare for further cuts in Russian NatGas flows after Moscow recently slashed deliveries via the Nord Stream pipeline.  "We must not fool ourselves: The cut in gas supplies is an economic attack on us by Putin," Habeck said.  "It is obviously Putin's strategy to create insecurity, drive up prices and divide us as a society. This is what we are fighting against," he continued.  Habeck wasn't clear if NatGas rationing would be avoided.  The second "alarm stage" of a three-stage emergency plan allows utility companies to pass on higher power prices to industry and households to curb demand. The move comes as the Nord Stream pipeline to Germany operates at 40% of capacity after flows last week were reduced for a "technical problem" by Russian gas exporter Gazprom PJSC.  The second stage also increases energy market monitoring and allows for some coal-fired plants to be reactivated to increase electricity output.  All of this comes as Germany is making a mad dash to fill up its NatGas storage facilities ahead of winter. Total storage stands around 58% full, though the government-mandated target of 90% by November, a mark that might be hard to reach considering Nord Stream flows have been reduced.  Front-month benchmark futures rose as much as 6.5% to 135 euros a megawatt-hour on Germany's elevated gas alarm.  German power for next year also surged 4.5% to 256 euros a megawatt-hour.  The energy crisis in Europe is far from over and has spread well beyond Germany's borders and affects 12 EU member states, ten of which have already warned about NatGas supplies.  Frans Timmermans, the European Union's climate chief, told European Parliament this week that a "risk of a full gas disruption is now more real than ever before ... all this is part of strategy to undermine our unity." "Europe should be ready in case Russian gas is completely cut off," IEA head Fatih Birol told FT this week.  Habeck also warned Europe's energy crisis could spark contagion in energy markets, drawing a parallel to the Lehman Brothers collapse and how it resulted in the financial crisis of 2008.  Tyler Durden Thu, 06/23/2022 - 08:25.....»»

Category: blogSource: zerohedgeJun 23rd, 2022

Futures Rebound As Hopes Of Imminent Recession Spark "Bad News Is Good News" Reversal

Futures Rebound As Hopes Of Imminent Recession Spark "Bad News Is Good News" Reversal In a world where bad news is good news, and where the looming recession means an end to rate hikes and a start to easing, it didn't take algos long to bid stocks up as treasury yields tumbled after comments by Jerome Powell and dismal PMI data in Europe justified fears that a global downturn is now just a matter of when, not if. After initially sliding more than 1% late on Wednesday, futures rebounded and recovered all losses and were last trading near Wednesday's session highs, up 0.7% or 27 point to 3,790, while Nasdaq futs were up 0.9% at 11,375 as of 715am ET. 10Y yield initially dumped below 3.10% - near a two week low, after trading at 3.50% one week ago -  before bouncing modestly, while the Dollar pushed higher as the euro tumbled after after a series of very poor European PMI prints confirmed that Europe's runaway inflation is pushing the continent into a stagflationary recession, which in turn sent the yield on German 10-year bonds slumping as much as 21 basis points, poised for the biggest two-day decline since November 2011. US 10-year rates traded near a two-week low. In premarket trading, US-listed Chinese stocks climbed  as bullish sentiment around the group continues to grow amid calls from strategists and fund managers that Beijing’s regulatory crackdowns are easing. JPMorgan Asset Management became the latest to voice its support for Chinese tech shares, saying “the worst is over” when it comes to regulatory crackdowns. Here are some other notable premarket movers: KB Home (KBH US) shares climb 4.7% in premarket trading after the homebuilder reported earnings per share and revenue for the second quarter that beat the average analyst estimate. US-listed shares of Chinese electric-vehicle makers rallied in premarket trading after Chinese state television reported that the government may extend tax exemptions on electric-car purchases. Li Auto (LI US) +6%, Xpeng (XPEV US) +5.3% and Nio (NIO US) +2.6% in premarket trading. Cryptocurrency-exposed stocks rebounded in premarket trading as Bitcoin recovered to remain over the closely watched $20,000 level. Coinbase (COIN US) +3%, Riot Blockchain (RIOT US) +3.7%, Marathon Digital (MARA US) +4.4%, Block (SQ US) +0.7%. EBay (EBAY US) shares decline 2.1% in premarket trading as Morgan Stanley assumed coverage of the stock with a recommendation of underweight and a price target of $36, the lowest on Wall Street. Energy companies slide in US premarket trading as oil eases anew amid concerns of slowing global growth. Exxon Mobil (XOM US) -1%, Chevron (CVX US) -1.1%, Imperial Petroleum (IMPP US) -3.1%, Camber Energy (CEI US) -2.4%. Westinghouse Air Brake (WAB US) and AGCO (AGCO US) shares may be in focus as Morgan Stanley cuts them to equal-weight and resumes coverage of Cummins (CMI US) at equal-weight in a note trimming its PTs across most of its machinery and construction coverage.   On Wednesday, in the first day of his Congressional testimony, Powell accepted that steep rate increases could trigger a US recession, and said the task of engineering a soft economic landing is “very challenging” (day two follows). Policy makers are taking drastic steps to cool inflation at a four-decade high and the Fed chair repeated his resolve to get consumer price growth back down to the 2% target. “Market optimism couldn’t survive Jerome Powell’s testimony yesterday, but most of the negative pricing is certainly done by now,” said Ipek Ozkardeskaya, a senior analyst at Swissquote. “The reaffirmation of the Fed’s commitment to bringing inflation down and that recession is a risk are adding to growth worries, which is the dominant fear again,” said Esty Dwek, chief investment officer at Flowbank. Traders are now debating how far the Fed will stretch its rate cycle in the face of an economic downturn. Money markets indicate diminished odds the central bank will raise rates beyond year-end, and rising odds of a rate cut from May 2023. The Federal Reserve “is well served by keeping some hawkishness there,” Steven Major, global head of fixed income research at HSBC Holdings Plc, said in an interview with Bloomberg Television. “Because if they appear that they’ve reached the peak, then financial conditions will loosen and the policy won’t work. So they need a couple more months of this.” European equities traded flat having erased earlier losses of more than 1%. Real estate, autos and banks are the weakest Stoxx 600 sectors; travel is a rare bright spot. European energy stocks slipped for a second session with crude prices under pressure as concerns over a global economic slowdown intensified. The Stoxx 600 Energy index falls as much as 1.9%; TotalEnergies and Shell the biggest drags on the index on Thursday, with wind- turbine firm Vestas and Italy’s Eni also slipping.  Here are some of the biggest European movers today: Aroundtown stock drops as much as 11% after being cut to underweight from neutral at JPMorgan, which also lowered its PT to EU3.6 from EU6 due to excessive downside exposure for the German landlord. Vantage Towers falls as much as 7.6% after Morgan Stanley cut the stock to equal-weight from overweight, saying the shares have outperformed despite challenges in its outlook. Saipem trims losses after declining as much as 21% following the announcement of a EU2b capital increase on Wednesday; Italy’s Consob warns of volatility in the stock when the rights issue starts. Rheinmetall falls as much as 6.3% after HSBC downgraded the German automotive and defense group to hold from buy due to it being temporarily held back by its automotive division Naked Wines slumps as much as 40% after the online wine merchant forecast fiscal 2023 sales of £345m-£375m. The midpoint of the guidance is ~10% lower than what Jefferies analysts had been expecting. Intertek falls as much as 4.1% after Deutsche Bank cuts the stock to sell, saying many structural trends that underpinned growth for testing and inspection companies are reversing. Eurofins gains as much as 4.2% on an upgrade to hold. Atos gains as much as 11% after a report that Thales has the support of the French state in its effort to buy French tech company’s cybersecurity business. Ubisoft rises as much as 2.5% before paring gains, as Deutsche Bank initiates coverage with a buy rating, saying there’s “good scope” to beat revenue and margins expectations for fiscal 2024 and 2025. As noted above, the latest let of European PMIs were dismal, dropping across the board and all (except the UK) missing expectations: Euro Area Composite PMI (June, Flash): 51.9, consensus 54.0, last 54.8. Euro Area Manufacturing PMI (June, Flash): 52.0,  consensus 53.8, last 54.6. Euro Area Services PMI (June, Flash): 52.8, consensus 55.5, last 56.1. Germany Composite PMI (June, Flash): 51.3, consensus 53.0, last 53.7. France Composite PMI (June, Flash): 52.8, consensus 55.9, last 57.0. UK Composite PMI (June, Flash): 53.1, consensus 52.4, last 53.1. Earlier in the session, Asian stocks edged higher, with an improving outlook in China offering support even as the prospect of a global downturn weighed on some export-reliant markets. The MSCI Asia Pacific Index was up 0.2% with China’s internet giants and automakers contributing to the gains. South Korea and Taiwan, the two tech-heavy markets that have seen foreigners flee amid rising global rates, fell more than 1%. Traders digested Federal Reserve Chair Jerome Powell’s Wednesday comments that steep rate increases could trigger a US recession. China stocks were the region’s best performers, extending a recent trend, as President Xi Jinping pledged to meet economic targets for the year.  Hong Kong stocks gained after a report that the city’s incoming leader is working on a strategy to reopen its borders. Japanese stocks were little changed. “We’re sort of in a bottoming out phase here in Asia, where China is going to eventually support us again,” Robeco Asia-Pacific Chief Investment Officer Arnout van Rijn said in a Bloomberg TV interview. “The rest of Asia, with its better macroeconomic policies and lower interest rates, should at least outperform a weaker global market.” The Fed’s recent rate hike and comments have been especially hard on growth shares, with a gauge of Asia’s tech stocks falling to its lowest level since September 2020. China’s stocks have outperformed the broader region amid hopes for continued fiscal and monetary support. Japanese equities struggled for direction as investors worried over Federal Reserve Chair Jerome Powell’s comments on the risks of a recession. The Topix closed down les than 0.1% at 1,851.74, while the Nikkei advanced 0.1% to 26,171.25. Out of 2,170 shares in the index, 1,295 rose and 775 fell, while 100 were unchanged. “We’re in a very difficult phase,” said Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management. “The market is still focused on what will happen to prices in the US and whether the economy can cope with a larger interest rate hike.”  Indian shares rose to mark their third day of gains in four after a retreat in crude oil prices eased concerns about vehicle demand in Asia’s third-biggest economy. Maruti Suzuki India Ltd. and Mahindra & Mahindra Ltd. were among the top gainers on the S&P BSE Sensex, which climbed 0.9% to close at 52,265.72 in Mumbai. The NSE Nifty 50 Index rose by an equal measure. Both indexes have risen for three of four sessions this week. All but two of the 19 sub-sector gauges compiled by BSE Ltd. advanced, led by auto companies.  Regional peers were mixed after Federal Reserve Chair Jerome Powell acknowledged the risk of a recession. West Texas Intermediate sank toward $104 a barrel after closing at a six-week low on Wednesday. Tata Consultancy contributed the most to the Sensex’s gains, increasing 2.7%. Out of 30 shares in the index, 27 rose and 3 fell. In rates, Treasury futures traded above Wednesday’s highs after tracking steeper gains for bunds sparked by weaker-than-expected euro-zone growth data, before fading much of the move. US yields richer by 3bp-5bp across the curve led by belly, richening the 2s5s10s fly by 3.5bp on the day; 10-year richer by ~3bp at 3.125% vs 16bp slide for German 10-year, widening spread ot ~165bp. Elevated recession risk put German 10-year yields on track for their biggest decline in more than three months. US auctions include $18b 5-year TIPS reopening at 1pm ET; ahead of the sale 5-year breakeven inflation is ~2.75%, near lowest level since January. Focal points of US session include Fed Chair Powell’s second day of congressional testimony and manufacturing survey data. Bunds futures rally, trading over a 300 tick range in high volumes before stalling close to 148.00. Yield curves bull steepen aggressively. German 2y yields crater over 20bps near 0.82%, trading 10bps richer to gilts and ~15bps richer to USTs. Peripheral spreads widen with short-end Portugal underperforming. In FX, Bloomberg dollar spot index rose 0.3% as the EUR tumbled on poor PMI data. The yen extended its rise as comments from an ex-policy official spurred bets that the Bank of Japan may intervene to halt the currency’s slide. Japan’s currency gained as much as 0.8% after Takehiko Nakao, the former head of foreign exchange policy at the finance ministry, said the possibility of the authorities intervening directly in foreign-exchange markets can’t be ruled out. Sterling eased against a broadly stronger dollar as a slide in global share prices prompted investors to sell riskier assets. Markets await UK PMI data, which is expected to show a drop in manufacturing and services sectors, adding to signs of a slowing economy. In commodities, oil dipped initially in early trading before paring the entire loss, Brent crude back above $111 a barrel. Most base metals are trade lower: LME copper drops ~2%, LME tin underperforms declining over 8%. Spot gold drifts lower near $1,830/oz. Bitcoin is firmer overall but continues to pivot the USD 20k mark and has struggled to gain any real traction during brief forays either side. Looking to the day ahead now, and the main data highlight will be the rest of the flash PMIs for June, along with the US weekly initial jobless claims, the Q1 current account balance, and the Kansas City Fed’s manufacturing activity for June. From central banks, Fed Chair Powell will be speaking before the House Financial Services Committee, the ECB will publish their Economic Bulletin, and we’ll hear from the ECB’s Nagel and Villeroy. Finally, EU leaders will be meeting in Brussels. Market Snapshot S&P 500 futures down 0.2% to 3,755.75 STOXX Europe 600 down 1.2% to 401.04 MXAP up 0.1% to 156.60 MXAPJ up 0.2% to 519.03 Nikkei little changed at 26,171.25 Topix little changed at 1,851.74 Hang Seng Index up 1.3% to 21,273.87 Shanghai Composite up 1.6% to 3,320.15 Sensex up 0.7% to 52,208.76 Australia S&P/ASX 200 up 0.3% to 6,528.45 Kospi down 1.2% to 2,314.32 German 10Y yield little changed at 1.47% Euro down 0.6% to $1.0503 Brent Futures down 1.7% to $109.80/bbl Gold spot down 0.2% to $1,834.49 U.S. Dollar Index up 0.46% to 104.67 Top Overnight News from Bloomberg Germany elevated the risk level in its national gas emergency plan to the second-highest “alarm” phase, following steep cuts in supplies from Russia. India’s central bank appears to have ramped up intervention in the forwards market to slow the rupee’s decline and preserve its hard-earned reserves. Russia faces yet another bond payment test this week, with just days remaining before it potentially slides into its first foreign default in a century. India’s central bank appears to have ramped up intervention in the forwards market to slow the rupee’s decline and preserve its hard-earned reserves. A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks were mostly positive after risk appetite slightly improved from the uninspiring lead from Wall St where stocks were choppy as tailwinds from lower oil prices and softer yields were offset by recession fears. ASX 200 was led higher by strength in real estate and consumer stocks, while Manufacturing PMI data remained in a firm expansion. Nikkei 225 swung between gains and losses with the index hampered by currency inflows. Hang Seng and Shanghai Comp. were kept afloat with auto manufacturers lifted after China’s cabinet pledged to boost the auto industry, while markets also shrugged off initial cautiousness brought on by COVID concerns after Shenzhen required PCR tests for anyone entering a public venue. Top Asian News China's Shenzhen is to require PCR tests for anyone entering a public venue, according to Bloomberg. US State Department warned about reconsidering travel to China due to COVID lockdown risks, according to Reuters. Former Japanese FX chief Nakao said continuing with YCC has many negative effects and that it is clear monetary policy is playing a role in the weak JPY, according to Bloomberg. European bourses are pressured overall, but well off lows going into the US session, Euro Stoxx 50 -0.2%; pressure was seen post-PMIs which missed expectations and featured pessimistic internal commentary. The sectoral breakdown is mixed as such while individual movers are affected by numerous broker moves. Stateside, futures are now firmer on the session, ES +0.4%, having shrugged off the French/German/EZ flash-PMI induced risk move ahead of Powell's second day of testimony. Top European News Majority of economists expect the ECB to hike the deposit rate by 25bps in July and 50bps in September, while the Deposit Rate is seen at 0.75% at year-end (prev. 0.25%) and there is a median 34% (prev. 30%) chance of a recession in 12 months, according to a Reuters poll. Bulgarian Turmoil Deepens as Premier Loses Confidence Vote Norway Steps Up Action With First Half-Point Hike Since 2002 Hedge Fund Trader Shah Struck Cum-Ex Trades With DekaBank UK June Flash Services PMI 53.4; Est 52.9 FX Poor preliminary Eurozone PMIs pull rug from under Euro; EUR/USD sub-1.0500 at worst, EUR/JPY under 142.00 vs almost 144.00 peak and EUR/GBP probes 0.8600 from circa 0.8641. Buck benefits indirectly alongside Yen as risk aversion intensifies on heightened recession anxiety; DXY towards top end of 104.780-050 range, USD/JPY vice-versa between 136.25-135.12 parameters. Pound pares some declines with assistance of solid UK services PMI, Cable keeps tabs on 1.2200 handle. Franc makes way for rebounding Dollar, Loonie, Aussie and Kiwi bear brunt of ongoing losses in underlying commodities; USD/CHF back above 0.9650 from sub-0.9600, USD/CAD hovering under 1.3000, AUD/USD capped into 0.6900 and NZD/USD around 0.6250. Norwegian Crown underpinned by bigger than expected 50bp Norges Bank hike and loftier rate path with caveats, EUR/NOK pivots 10.4800 vs near 10.5300 peak and 10.4400 trough. Central Banks Norges Bank Key Policy Rate (June-MPR): 1.25% vs. Exp. 1.00% (Prev. 0.75%); points to a 25bps hike in August (interim meeting). Click here for full details, reaction and newsquawk analysis. Norges Bank Governor Bache says cannot rule out increasing rates by more than 25bps in future meetings.   NBH keeps its one-week deposit rate unchanged at 7.25% Fixed Income Bunds and OATs front-run latest broad and big bond bounce as PMI miss consensus by some distance. Gilts and US Treasuries tag along with a lag post-solid UK services PMI and pre-US jobless claims, PMIs and Fed Chair Powell part 2. Bunds reach 147.89 from 144.81 low, Gilts 113.36 vs 111.93 and 10 year T-note 117-16 compared to 116-25+. Italy raises EUR 9.45bln with the BTP Italia bond, via Reuters. Commodities Crude complex remains pressured with specific newsflow limited and focused on known themes, WTI/Brent -0.5% having benefitted from the recent pick up in broader sentiment; note, the EIA release has been delayed. Private US Energy Inventory Data (bbls): Crude +5.7mln (exp. -0.6mln), Gasoline +1.2mln (exp. -0.5mln), Distillates -1.7mln (exp. +0.3mln), Cushing -0.4mln. US EIA said product releases scheduled this week will be delayed due to system issues, while it added the nat gas storage report will be released as scheduled on June 23rd but all other releases will be delayed, according to Reuters. Germany reportedly fears that a planned 'maintenance' shutdown of the Nordstream 1 pipeline could be used by Russia to shut off gas supplies completely to Germany which would threaten its efforts to build stores ahead of winter, according to FT. Germany declares Phase Two of Emergency Gas Plan due to supply cuts from Russia and high prices. Spot gold is back below the DMAs it briefly surmounted yesterday, downside in wake of post-PMI USD upside. US event Calendar 08:30: June Initial Jobless Claims, est. 226,000, prior 229,000 08:30: June Continuing Claims, est. 1.32m, prior 1.31m 08:30: 1Q Current Account Balance, est. -$275b, prior -$217.9b 09:45: June S&P Global US Services PMI, est. 53.2, prior 53.4 09:45: June S&P Global US Manufacturing PM, est. 56.0, prior 57.0 11:00: June Kansas City Fed Manf. Activity, est. 12, prior 23 Central Bank Speakers 10:00: Powell Testifies Before House Financial Services Panel DB's Jim Reid concludes the overnight wrap It’s been another eventful 24 hours in markets, with recession fears making a prominent return after Fed Chair Powell made some of his most pessimistic comments to date on whether the Fed would be able to successfully engineer a soft landing. Appearing before the Senate Banking Committee as part of the Fed’s semiannual Monetary Policy Report to Congress, Powell said that a recession was “a possibility”, whilst the soft landing the Fed is seeking will be “very challenging”, which is a long way from what the Fed were saying at the start of the year. Similarly, Powell said that the Fed “know we need to have restrictive policy, and that’s where we’re headed”, which is in line with what the Report itself said last week, in that the FOMC’s price stability commitment was “unconditional”. So a further reiteration that the Fed are prepared to keep hiking rates to bring down inflation, and an acknowledgement that there could well be a bumpy ride as they do so. However, even as Powell emphasised the Fed’s willingness to deal with inflation, those growing fears of a recession meant that Fed funds futures became more doubtful on the Fed’s ability to take policy into restrictive territory. For instance, the rate priced in by the December meeting actually came down -10.5bps yesterday, and since early last week we’ve seen nearly a full 25bp hike taken out of market pricing. The expected terminal rate also came down, with futures only seeing a peak of 3.61% in April 2023 before subsequent cuts. With investors becoming increasingly sceptical about the Fed taking policy far into restrictive territory, sovereign bonds rallied strongly yesterday, with yields on 10yr Treasuries down -11.9bps to 3.16%. That was driven by a decline in both real rates and inflation breakevens, and interestingly, the 10yr breakeven fell to its lowest level since Russia’s invasion of Ukraine began in late February yesterday, closing at 2.54%. In terms of the curve’s slope, the 2s10s steepened +2.2bps to 9.4bps, so still pretty close to inversion territory that has traditionally been a leading indicator of a recession. Meanwhile, if you look at the Fed’s preferred yield curve indicator that Powell has cited of the near-term forward spread (which looks at the 18m forward 3m yield minus the current 3m yield), that came down by -18.9bps yesterday to 176bps, which is the lowest it’s been in over 3 months, even if it still remains some way out of inversion territory. Equities put in a mixed performance against this backdrop, with the S&P 500 oscillating between gains and losses before ending the day down -0.13%. Energy stocks were a major laggard after oil prices fell to a one-month low, with Brent crude down -2.54% over yesterday’s session to close at $111.74/bbl. And this morning those losses have accelerated further, with Brent crude down -2.52% to trade at $108.92/bbl, which is now -13% beneath its intraday peak above $125/bbl seen last week. Over in Europe the tone was even more negative, with the major indices including the STOXX 600 (-0.70%) and the DAX (-1.11%) all seeing noticeable declines. That coincided with growing fears on the energy side, and Germany’s economy minister Habeck said yesterday that “we must assume that Putin is ready to reduce the gas flow further”. Natural gas futures in Europe (+1.28%) hit a 3-month high against that backdrop, and this is only set to become more of an issue as we move closer towards the colder months of the year. Staying on Europe, there was a similar rally in sovereign bonds to the US, with yields on 10yr bunds (-13.6bps) coming down from their post-2014 high on Tuesday. That was echoed elsewhere, whilst a fresh narrowing in peripheral spreads saw the gap between Italian 10yr yields over bunds reach their tightest in nearly a month, with a -2.0bps move to 191bps. Over in credit though, growing fears of a recession led to a widening in spreads, and iTraxx Crossover widened +15.4bps after 3 consecutive moves tighter. Overnight in Asia, equities are similarly struggling to gain traction in light of those warnings about a US recession. Both the Nikkei (-0.33%) and the Kospi (-0.84%) have moved lower for a second consecutive session, although Chinese equities have put in a stronger performance, with the Shanghai Composite (+0.58%) and the CSI (+0.49%) both trading in positive territory with the Hang Seng (+0.96%) maintaining its morning gains. Outside of Asia, US equity futures have continued to move between gains and losses, but contracts on the S&P 500 (-0.23%) and NASDAQ 100 (-0.25%) are both pointing lower this morning. Moving on to economic data, it’s an eventful day ahead as we get the flash PMIs for June. But we’ve already had the numbers out of Japan, where the services PMI hit its highest since October 2013 at 54.2, whilst the composite reading also accelerated to 53.2, which is the highest since November. The numbers from Australia showed a modest decline in June however, with the flash composite PMI down three-tenths on May’s reading to a 5-month low of 52.6. Here in the UK, the main news yesterday came from the May CPI reading, where annual inflation rose to +9.1% in line with expectations. That’s the highest rate since March 1982, although core CPI did fall a bit more than expected to 5.9% (vs. 6.0% expected). Staying on the UK, there’s a couple of important political contests taking place in the form of two by-elections to the House of Commons as well. Both are in seats that had been won by the Conservatives at the last election, but where opposition parties are making a challenge, and represent an important test for Prime Minister Johnson’s authority, not least since he saw 41% of his party’s MPs vote no confidence in him at the start of the month. The one in Wakefield will be of particular interest, since that is a so-called “Red Wall” seat that Labour held for the entire post-war period before Johnson’s Conservatives gained it at the 2019 election. So an important bellwether as we move closer to the next election. Looking at yesterday’s other data, the European Commission’s preliminary consumer confidence indicator for the Euro Area in June unexpectedly fell to -23.6 (vs. -20.5 expected), which is its lowest level since April 2020 at the height of the initial wave of the Covid pandemic. Separately, we saw Canadian CPI surprise on the upside, with the annual number coming in at +7.7% in May (vs. +7.3% expected), which is the fastest since 1983. To the day ahead now, and the main data highlight will be the rest of the flash PMIs for June, along with the US weekly initial jobless claims, the Q1 current account balance, and the Kansas City Fed’s manufacturing activity for June. From central banks, Fed Chair Powell will be speaking before the House Financial Services Committee, the ECB will publish their Economic Bulletin, and we’ll hear from the ECB’s Nagel and Villeroy. Finally, EU leaders will be meeting in Brussels. Tyler Durden Thu, 06/23/2022 - 07:50.....»»

Category: blogSource: zerohedgeJun 23rd, 2022

European Markets Fall As Recession Fears Deepen

FTSE 100 down 1.3%, with CAC 40 and DAX seeing steeper declines. Goldman Sachs warns the risk of a US recession has doubled. Brent crude prices fall 3% to $110 on recession fears. Recession Fears Deepen “Global sentiment has tipped further into negative territory. The pan-European Stoxx 600 is down 1.8%, with all sectors edging […] FTSE 100 down 1.3%, with CAC 40 and DAX seeing steeper declines. Goldman Sachs warns the risk of a US recession has doubled. Brent crude prices fall 3% to $110 on recession fears. Recession Fears Deepen “Global sentiment has tipped further into negative territory. The pan-European Stoxx 600 is down 1.8%, with all sectors edging into negative ground. Germany’s DAX has seen a steeper decline of 2.3%, and the CAC 40 has shed almost 129 points. This contagion has likely been driven by the UK’s inflation data, with the CPI running at a 40-year high. if (typeof jQuery == 'undefined') { document.write(''); } .first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles .af-body.af-standards input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; } Get Our Activist Investing Case Study! Get the entire 10-part series on our in-depth study on activist investing in PDF. Save it to your desktop, read it on your tablet, or print it out to read anywhere! Sign up below! (function($) {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 There is a dawning realisation that global policy makers will have to act in a more aggressive manner in order to take the heat out of inflation. Swiftly rising interest rates act as a vacuum for economic growth, and this isn’t lost on the market today. There is also the unavoidable fact that Europe is more exposed to oil and gas supply chain constraints than the US and even the UK, making current conditions even more sensitive. Broader concerns of a slowdown in global economic growth have seen oil and miners among the worst hit on the UK market today. BP plc (LON:BP) is down almost 3%, while mining and commodities trading giant Glencore has lost over 4%. At the same time, the risk of the US entering a recession has doubled from 15% to 30%, according to Goldman Sachs. Again, this is related to an aggressive stance on interest rates, with rates being hiked by 0.75% recently – above and beyond what has previously been expected. Early indicators suggest the US market will open on a gloomy note today too. Wider recession fears have seen brent crude fall 3% to $110 per barrel, which is still some way above the longer-term average, but a welcome trend for consumers. It’s unlikely this dip will be felt at the petrol pumps any time soon though, as broader supply chain concerns still exist in a very big way. Ultimately, this is a darker day for global markets than has been seen in a while. Serious questions remain about the resilience of consumers, and it appears traders are bracing for a harsh hand where interest rates are concerned.” Article by Sophie Lund-Yates, equity analyst at Hargreaves Lansdown About Hargreaves Lansdown Over 1.7 million clients trust us with £132.3 billion (as at 30 April 2022), making us the UK’s number one platform for private investors. More than 98% of client activity is done through our digital channels and over 600,000 access our mobile app each month. Updated on Jun 22, 2022, 1:34 pm (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: valuewalkJun 22nd, 2022

Rabobank: Like Riding A Bicycle

Rabobank: Like Riding A Bicycle By Michael Every of Rabobank “Like riding a bicycle” is an idiom that says once we learn to do tricky things we never forget. However, all around us important people are forgetting how to ride their bicycles. US President Biden is one, but there are so many others it’s hard to keep track – or on the track. Friday saw the BOJ keep peddling away furiously at yield curve control, refusing to accept that if they cannot regain a large trade surplus then there is no way to cushion the downward effects on JPY. For markets, this tour de Japan towards the cliff-edge was taken as relief. Indeed, we saw mostly equity stabilization, and only a moderate drift higher in key bond yields. Notably, there was a further collapse in crypto over the weekend, albeit with Bitcoin bouncing off key support. (On which, I was just told: i) it’s been here before, i.e., below the cost of mining; and ii) it’s worth holding in small amounts as a lottery ticket given the system is so rigged against the asset-poor young that there is no other way they can ever hope to retire with dignity. It’s not an “-ism” to base a political-economy on, but you get the drift.) More notable, but less noted, Friday also saw widespread falls in commodities. So much so that I was tempted to run with the Daily title: ‘Ferrous Bueller’s Day Off’. At time of writing Brent oil was $114, down from $121 at its Friday peak, and having been under $112. Is this the start of a generalized asset melt-down, including commodities, so at least longer-dated bonds get a bid despite Fed hikes? Or is it just a sell-off of performing assets to garner liquidity to cover margin calls on slumping ones? US voices provide evidence in both directions from the back of a tandem wobbling towards us at ever slower speed. The Fed’s Waller argued for a 75bps hike again in July, and is “all in” on fighting inflation; yet also stressed rate cuts to zero and more QE are now policy tools for even a “typical” recession, and there is a “good chance” they will be used again by the Fed. As everyone except the Fed, and Treasury Secretary Yellen on TV on Sunday, sees a recession as inevitable, does that mean zero rates and QE are coming again soon to the US, BOJ-style? There is a long article from historian Niall Ferguson at Bloomberg worth looking at here titled, ‘The Fed Hasn’t Fixed Its Worst Blunder Since the 1970s: Jay Powell wants us to believe he has what it takes to bring inflation under control. History warns us to be sceptical’. It concludes: “Will the Powell Fed be more like the Burns Fed or the Volcker Fed? We won’t know for sure until it confronts something much uglier than the current equity bear market. All we do know is that Powell has blinked before now - and in response to a 19% stock market correction in late 2018 and a president with a Twitter habit. Trump’s successor is not much of tweeter. But the market is already down further. I knew Paul Volcker. I also remember the 1970s. For younger viewers, it’s going to come as a shock to see That ‘70s Show for the first time. Spoiler alert: Not much about that decade was transitory. Try listening to the interminable guitar solos on “Stairway to Heaven” or “Free Bird” to get in the mood.” One can see why the crypto crowd might be holding on to their Willy Wonka tickets in the hope they are ‘golden’, not melting like chocolate. Yet, if so, commodities will not stay down, and hence input inflation will stay high, and so will overall inflation. High inflation is already guaranteed by geopolitics, as Robin Brooks of the IIF underlines: “Putin is cutting gas deliveries to Europe. Europe was always going to end up here - no Russian gas - except that an embargo would have allowed us to hold our heads high. As Churchill said: "You were given the choice between war and dishonour. You chose dishonour, and you will have war."” And no gas. To which Germany is responding by burning more coal, having insisted on going ahead with shutting down its final nuclear power-plants this year. Europe and the West certainly have economic war: and how anyone can make economic forecasts, or national, business, or energy strategy presuming they won’t reminds me of the inverse of the old adage about a fish needing a bicycle. Indeed, President Putin’s ‘Russian Davos’ speech on Friday accused the US of acting as though it is "God's emissary on Earth,” presented Russia as the emerging leader in "a new world order," that would confront the US superpower status and prosper (as Beijing underlines its non-military foreign-policy support for Moscow), and stressed, “Only strong and sovereign governments can speak their minds in this new-born world order - either that or they're destined to remain colonies."  We obviously see that in Ukraine, where NATO warns the war could drag on for years. Bloomberg has another op-ed, from Max Hastings titled, ‘Putin May Win in Ukraine But Can Still Be Stopped’. It argues: “In a famous, or rather notorious, address to a committee of the Prussian parliament in 1862, Otto von Bismarck said: “Not through speeches and majority decisions will the great questions of the day be decided” but by “Blut und Eisen” - blood and iron. We like to believe that civilized 21st-century societies have advanced beyond such brutish doctrine. Yet Putin is attempting to demonstrate that he can exploit extreme violence to secure a vastly larger role on the world stage than Russia’s economic and political stature confers.” Yet we do not have economic forecasts to match, let alone national geoeconomic strategy. Making this point, military-expert Andrew Michta tweets, “Russia is at war, with its economy aligned accordingly. The West does not seem able to recognize fully how the world has already changed, for this would require us to make tough decisions concerning our own production. If we persist, it will cost us.” To which geostrategist @SariArhoHavren replies, “In Western Europe, I hear constant comments from ordinary people how this war is “unnecessary”, “look at the inflation”, “win or lose won’t affect us” – people have become lazy, selfish, taking freedom for granted and have forgotten their history. Maybe they deserve what is coming.” Maybe they do, maybe they don’t: but it’s coming. Even in the US doing all the heavy lifting on Ukraine, and where Congress is about to push for a larger budget for the Indo-Pacific to match China, we see a report titled ‘The Return of Industrial Warfare’. It begins, “Can the West still provide the arsenal of democracy? The war in Ukraine has proven that the age of industrial warfare is still here. The massive consumption of equipment, vehicles and ammunition requires a large-scale industrial base for resupply – quantity still has a quality of its own.” It  concludes, “US annual artillery production would at best only last for 10 days to two weeks of combat in Ukraine.”   Yes, the US is not an artillery-based army like Russia’s. But it still has low stocks of almost everything for an extended war against a near-peer rather than a weak economy or a terrorist group. It ‘plans’ to fight a ‘just in time’ conflict…. against the country which provides much of its industrial supply chain(!), as tensions continue to rise in the Taiwan Strait. There might be a Biden-Xi call ahead, but it risks ending like the financial tweet: “I'M IN THE PROCESS OF DECISION-MAKING ON CHINA TARIFF EASING. *BIDEN FALLS OFF BIKE WHILE COMING TO STOP, SAYS HE'S OKAY* can't make this up!”   Perhaps the US president suddenly realized his bike would be marginally cheaper without tariffs, but would come at a massive geopolitical cost given China will, yet again, have given up nothing at all for that trade benefit; and that Yellen reiterating on TV there is no recession to come, and that some Trump tariffs on China were “not strategic” --as she also talks about “friend-shoring”-- just shows she does not understand ‘strategy’; or ‘inflation’; or ‘recession’; or ‘financial crisis’. On Friday, Putin also defiantly stated the West’s leaders are living in Lalaland, and “Such a detachment from reality, from the demands of society, will inevitably lead to a surge of populism and the growth of radical movements, to serious social and economic changes, to degradation, and in the near future, to a change of elites.”  Presumably he foresaw the French parliamentary election results, where President Macron looks set to lose his majority, with over half of the seats likely to be held by the far-right of Le Pen and the far-left of Melenchon. Good luck with technocratic pension reforms on that basis. So, what do we do? Well, as Hastings argues, more of a focus on how to push back against Blut und Eisen, which means the West remembering how to ride the geopolitical grand strategy bicycle. Yet the US president can apparently neither walk-up stairs nor ride a bicycle without falling over, and much of the US economy is more worried about “Basis und Points.” As I have argued, much higher US rates are still a huge geoeconomic weapon, even if they bifurcate an already bifurcating world. Much lower US rates and QE in the face of deliberate supply constraints are a great power self-destruct mechanism. And yet add high unemployment to our current economic misery, as the Fed’s Waller suggests it might need to rise to a 4.5% rate, and we better have an economic arsenal in our pocket ready. I suspect, as with Europe, we get rate hikes and QE: and then we need trade surpluses to ensure currencies don’t collapse, which means national security/industrial/social policy. On which, note it was the realpolitik mercantilist Bismarck who also introduced state public pensions. Hastings op-ed stresses, “The historic challenge for the West is to prove [Putin’s Ukraine] calculation mistaken, because its success would deal a shocking blow to the cause of democracy, freedom, and justice in the 21st century. Zelenskiy must rely upon Churchill’s dogged policy: KBO (“Keep Buggering On”) and pray that something will turn up.” Yet Churchill’s heirs rely upon doggedly playing silly buggers and Western markets pray that lower rates will turn up. That, as we face years of war and the UN warning of “hell on earth”, as we ‘march towards starvation’, or a “shocking blow to the cause of democracy, freedom, and justice in the 21st century.” Surely better to remember how to ride the Western bicycle? Tyler Durden Tue, 06/21/2022 - 06:30.....»»

Category: dealsSource: nytJun 21st, 2022

"The Debate Is Over": Morgan Stanley Unloads On The Dismal State Of The US Consumer

"The Debate Is Over": Morgan Stanley Unloads On The Dismal State Of The US Consumer Yesterday, we reported that in Morgan Stanley's Sunday Start note, the bank's chief US equity strategist Michael Wilson Equity wrote that while valuations have corrected a lot this year, this was all due to higher inflation and a more hawkish Fed. At the same time, the Equity Risk Premium (ERP) still does not reflect the risks to growth which are increasing due to margin pressure and weaker demand as the consumer decides to hunker down. The reason for this is that in contrast to rates, the ERP is a reflection of growth expectations. When growth is accelerating/decelerating, the ERP tends to be lower/higher; at year end, the ERP was 315bps, well below the average of the past 15 years. It was also below our estimate for the ERP of 335bps at the time. In short, the ERP was not reflecting the rising risks to growth in 2022 that Wilson expected coming into this year. Fast forward to today, and the ERP is even lower at just 295bps. Given the rising risk of slowing growth and earnings, "this part of the P/E seems more mis-priced today than 6 months ago" according to the MS strategist. So given the further deterioration in leading growth signals and greater risk of recession (as Wilson discusses further in his observations on consumer confidence, see below), one could - or should, according to Wilson - argue the ERP should be at least 500bps until earnings are cut. Of course, a recession would also bring lower 10-year yields which would buffer some of the rise in the ERP. Bottom line, according to Morgan Stanley, the final answer depends on all three variables: 10-year yields (lower), ERP (higher) forward 12-month EPS forecasts (lower). As such, if the US avoids a recession over the next 12 months (which is still Morgan Stanley's base case), Wilson sticks to his Street-low view of  3,400 for the S&P 500 is "a more reliable level of support" that takes into account: The view for 3-5% lower earnings than consensus forecasts, A 3% 10-year yield, and An ERP of 370bps. This all translates to approximately 15x $230 in EPS. It's also where technical support lies--200 week moving average, the pre COVID highs and the break out point from the announcement of the vaccines Of course, if we do have a recession, all bets are off and even Goldman is openly cautioning that 3,150 on the S&P may be the best we get... ... in line with what the bank disclosed in its recently published "recession manual." So much for markets, which today are clearly taking Wilson's warning to heart and at 3,750 are already almost half way to his 3,400 target, after trading at 4,100 just last Thursday. What about the economy? Here things are even uglier, because when it comes to the consumer, the debate "should be over now" according to Wilson, who echoes what we have been saying for months, and especially after every time we show the monthly explosion in credit card usage. But one doesn't even have to look at credit card usage: consumer sentiment - or lack thereof - will suffice. According to Wilson, consumer sentiment in the US hit an all-time low in May due to higher prices and growing concerns inflation is here to stay. This is an argument both Wilson and we have been making since late last year. But while we can write whatever we want, Wilson complains that he continually hears from many clients that the consumer is in such great shape due to the excess savings still available in checking accounts, something we have shown repeatedly is a glaring lie. And indeed, this view does not take into account savings in stocks, bonds, crypto and other assets which have been hammered this year. Furthermore, while many consumers may have more cash on hand than pre-COVID, that cash just isn't going as far as it used to - thank Bidenflation - and that is likely to restrain discretionary spending by the consumer. Finally, it's important to point out that this latest reading is the lowest on record and 45% lower than during the last time the Fed embarked on such an aggressive tightening campaign and was able to orchestrate a soft landing. In other words, Wilson notes, "the consumer was in much better shape back then which probably helped the Fed land the plan softly"; he also urges readers to also keep in mind that "inflation was dormant in 1994 relative to today and allowed the Fed to pause, a luxury they clearly do not have now given Friday's red hot CPI release." Interestingly, the collapse in consumer sentiment has also been present among higher end households, indicating the pervasive reach of rising inflation. As the next chart shows, goods purchasing intentions continue to plummet alongside the fall in overall household confidence (even if actual retail spending remains strong, suggesting consumer confidence surveys aren't really worth the inflated paper they are printed on). Wilson warns that this dynamic has negative implications for goods consumption as the exhibit shows: "The drop in sentiment not only poses a risk to the economy and market from a demand standpoint, but it also, coupled with Friday's CPI  print, keeps the Fed on a hawkish path to fight inflation—"Fire" AND "Ice"." Shifting away from the recessionary state of the consumer, Wilson next pivots to commentary from Morgan Stanley analysts during the latest monthly meeting which focused around inventory and the health of the consumer. As Wilson explains, "everyone agreed the low income consumer is already facing challenges." This lines up with the latest results from the bank's Alphawise Consumer Pulse Survey which shows consumers are particularly concerned about inflation, and they are expecting to reduce spending over the next 6 months as a result of high prices. Analysts across different industries also commented that supply chains are loosening and inventory is building: "This build is currently most challenging for retailers, but we expect this to broaden out over the coming months." Summarizing The next shoe to drop is a discounting cycle—a key risk to margins, particularly for Consumer Discretionary goods. In other words, precisely what we said in "Bullwhip Effect Ends With A Bang: Why Prices Are About To Fall Off A Cliff." Below are the key highlights from various Morgan Stanley analysts: On Technology, Media, & Telecom Companies For Telecom companies, there has been a slight uptick in low income consumer churn but nothing too out of the ordinary. Store traffic still looks good. People are braced that there could be some softness. The team is getting investor questions on enterprise spending but the data centers are still doing well from a demand perspective (could be related to supply chain with people trying to lock in space). Semiconductor inventories are rising across the board and we are getting more supply. There are still idiosyncratic shortages all over the place. You have seen demand weakness in PCs/phones but we are still not past the shortages. If we don’t have any more disruptions supply should be better in 3 months. Prices are rising meaningfully. China’s Covid zero policy has been disruptive but it has disrupted both the supply and demand sides. Apple is the only Tech Hardware company to noticeably bring down balance sheet inventory. A handful of covered companies still have elevated levels of finished goods inventory (some of which is in transit) but you are also seeing a build of components in case there are shortages in the future. Component and labor cost inflation (as well as FX) is pressuring margins for the majority of coverage YTD. From an estimate cut perspective, you have seen more cuts on the enterprise side versus the consumer side but there have been more negative data points around the consumer side. Most of the demand pull forward around the pandemic is thought to be consumer driven but MS checks show enterprise hardware demand has also been pulled forward, to a degree, to get ahead of long lead times and avoid potential shortages in the future. Enterprise software demand has remained solid. We have seen some revisions but that is largely from taking out the 1-2% of business that comes from Russia/Ukraine and adjusting for FX. Larger enterprise demand has held up. The more strategic the project the more likely growth is sustained. We are hearing about more layoffs taking place among VC funded software companies. There is a message going out from VCs to companies that they need to get on a faster track to being profitable. The expected compensation rate for engineers and sales people is likely to come down. The inflationary part of compensation has been coming from the stock component of compensation. MSFT upped the level of cash raises in response to an employee survey. They are also upping the highest level of targeted performance payout. Mid-sized companies are trying to up compensation for key performers but they are not planning to make everyone whole in response to their stocks falling. On Consumer Companies: Free money is going down but spending is still high so people are borrowing money to fill the gap. The high end consumer isn’t feeling the effects as much but the low end is getting squeezed. Delinquencies for subprime auto ABS are above pre-Covid levels for consumers with a FICO score of 550 and below - that is deep subprime. Regular subprime and above is showing no signs of stress and we would need a big labor cycle to get that. Delinquencies today are losses 6 months from now but they are coming in lower than we are baking in. Within hardlines/broadlines/food retail most companies are making sales; they are not beating but they are at least making sales. There have been some trade downs. Home furnishings and electronics have seen some weakness. Gas prices could be the catalyst to really disrupt demand. Generally consumables have been holding up well and WMT/TGT have said that publicly. The experience (away from home) side of the business is still strong, with beauty and away from home beverage demand recovering as consumers are returning more to normal summer behavior. Private label has picked up a bit which shows signs of low income consumer stress and there have been modest signs of trade down so far. Cost pressures continue to be severe. There is a lot of low end exposure in restaurants and we are seeing some modest cracks. MCD and WEN have talked about a negative mix shift (ordering more value menu items). There is very little discounting in the space right now. YTD we are seeing some nice bounce back in retail in-store traffic but ecommerce has softened a bit. Store volumes for most retailers are running 10-20% below 2019 levels so we are not seeing a full in-store recovery but it is improving. The big story here is that sales growth was at the low end of plan in 1Q and we are seeing signs of stress for retailers that cater to low income consumers. We could see a soft patch of retail revenue growth over the next few quarters as sales comparisons become more challenging in 2Q & 3Q. Inventory has really backed up; inventory across the sector is up about 30% YOY and sales growth is up about 0% YOY translating to approximately 30% YOY of excess inventory. Markdown/margin pressure did not hit in 1Q and should hit June/July. Store checks show that aggressive discounting has already started as of the Memorial Day holiday weekend. Discounting pressure could accelerate through July. Since more retailers are now discounting, companies are having to offer even bigger discounts to compel consumers to buy, and it is a race to the bottom in margins in order to clear through inventory (see Gap (GPS), Urban Outfitters (URBN), & American Eagle.  It will be some time before retailers can cut back on forward inventory orders. Companies are no longer in a position to order 6 months in advance because of delays in the supply chain. They are currently working with about an 8 month lead time. This means decisions today to cut forward orders could begin to eliminate the inventory problem in 1Q23, but not likely before then. As a result, we are likely to see a tidal wave of discounts that carry us through December because 2022 inventory orders have already been placed. Bottom line: While the margin pressure and waning low end consumer demand dynamics have been largely understood by the market, Wilson is worried that the excess inventory element (largely in consumer goods up to this point) which we described here, and the associated risk to pricing is less understood and is just now beginning to be reflected in stock prices. This has been a growing risk for the past several months as the economic data has reflected this development; it's also a key reason why Morgan Stanley remained Underweight the consumer discretionary sector despite already meaningful underperformance this year. Exhibit 8 shows that real (i.e., this is not just price related) inventory levels for durable goods + apparel are now well above trend after surging in recent months. Wilson attributes much of this to the likely loosening of supply chains that took place in 1Q. There is more in the full Morgan Stanley note available to pro subscribers in the usual place. Tyler Durden Mon, 06/13/2022 - 13:53.....»»

Category: blogSource: zerohedgeJun 13th, 2022

Nomura: Clear Now That Inflation "Light At The End Of The Tunnel" Was An Oncoming Train

Nomura: Clear Now That Inflation "Light At The End Of The Tunnel" Was An Oncoming Train The fecal matter is striking the rotating object this morning and Nomura's Charlie McElligott is worried. This past Friday’s blistering US CPI upside shocker, alongside the horrific outputs on U Mich -Sentiment and -Inflation Expectations, crystalized the “worst fears confirmed” of a market which simply has nowhere left to hide except for USD and Long Vol, as even Commods are “giving back” today, on repricing of the Central Bank “FCI tightening left tail"... ..., which means “hard landing” Recession odds again ratcheting higher... ...and pricing a full Fed “cut” btwn Jun23-Dec23 (and 3 rate-cuts in total)... As if you needed reminding, inflation printed a new four-decade high, with surprises in both Core MoM and YoY, which meant calamity for a market that was attempting to willfully shift the narrative to “peak inflation” denouement and was looking for a “light at the end of the tunnel”. And “insult to injury” here too was the U Mich data, which seemingly confirmed a shock “stagflation” impulse, as the inflation input (versus wages unable to “keep up”) saw the headline consumer “Sentiment” component collapse to a record low (50.2 vs 58.1 est), while both the 1Y- and 5-10Y- Inflation Expectations forecasts moved higher and are looking increasingly “unanchored”. Now, it becomes clear that said “light at the end of the tunnel” was actually an oncoming train, in the form of a Fed now forced to capitulate into an even more aggressive policy stance in a desparate race again said unanchoring of inflation expectations and “…requiring a more forceful response from the Fed to dislodge it” (Nomura Econ) - hence a monstrous two-day “bear-flattening” in curves as hikes are added-back to the front-end, while “hard landing” sees long-end relative outperformance. Recall, after risk-assets celebrated Powell’s prior May press conference where he appeared to “rule out” a 75bps hike - he later clarified in a MarketWatch interview on May 12th that it remains an option: “I said we weren’t actively considering that. But I said what we were actively considering, and this is just a factual recitation of what happened at the meeting, was a 50-basis point increase… But I would just say, we have a series of expectations about the economy. If things come in better than we expect, then we’re prepared to do less. If they come in worse than when we expect, then we’re prepared to do more.” Well, things are worse, a lot worse! Net/Net, McElligott warns that a whole new world of policy tightening "left tail" potentials has left risk assets that remain far above pre-COVID levels exposed for a fresh wave of "FCI tantrum" downside. SPX futures remain +12.5% over pre COVID high on 2/19/20 of 3387 Nasdaq futures +18% over pre COVID high on 2/19/20 of 9733 Bitcoin futures still +25% over prior 12/17/17 highs of $19,041 And, just to complete the perfect storm, all of this happening into Fed and Quarterly VIXperation (Wed) / Options Expiration (Fri) this week. On a tactical basis, SpotGamma notes that S&P trading down into that 3700 strike is where options flows shift from “inducing” volatility to “reducing” volatility which is what marks it as a lower bound. What's also interesting about this is that the lower equity prices go pre-FOMC the more hawkish the Fed has to be to spark a sustained selloff. In other words, lower stock prices are already a reflection of higher rates and so the Fed has to exceed these new, elevated rate expectations to spark another equity leg lower. The net summary is this: We believe that options expiration will invoke a rally, but the timing of this is path dependent. Should the FOMC be perceived as “mild” then the put rally fuel could be drawn into Thursday & Friday. Should the Fed spark further selling into Friday, then we would look for a Monday short term low to be put in for markets, with a rally early next week. Ultimately this expiration is clearing out a lot of equity put protection, which clears the way for lower-lows in the weeks ahead. The Nomura strategist sums it all up with one simple hashtag: #yikesyikesyikes Tyler Durden Mon, 06/13/2022 - 11:06.....»»

Category: blogSource: zerohedgeJun 13th, 2022

Goldman Sees S&P Tumbling To 3150 When The Recession Hits

Goldman Sees S&P Tumbling To 3150 When The Recession Hits After plunging on Friday, S&P futures are starting off the new week even lower with spoos at 3,860 in Sunday evening trade, just 4 points away from a bear market (3856 is 20% off the January all time high), with all other assets - treasuries, commodities and cryptos - all puking as well in the latest "crash correlations to 1" trade as markets freak out that the Fed will crash and burn everything - stocks, bonds, the economy, Biden's approval rating - just to contain inflation, forgetting that once the Fed achieves its mission of a hard landing (because a soft-landing won't push jobs nearly low enough to short-circuit the wage-price spiral), it will be up to the Fed to restart the US economy (since Democrats will be kicked out of Congress in an avalanche this November) and with Biden president, there will be no fiscal stimulus for at least two more years. With that in mind, Goldman's chief equity strategist - whose economists now expect the Fed to hike 50bps in September, if keep the June hike at 50bps despite some banks such as Barclays now expecting a "surprise", non-consensus 75bps rate hike this week - cautions clients that equity valuations remain far from depressed, to wit: The median S&P 500 constituent’s P/E ratio of 18x ranks in the 87th percentile since 1976. For context, in March 2020 the median stock’s P/E was 14x (47th-percentile). Valuations appear more attractive in the context of interest rates, but still do not look “cheap.” The 540 bp gap between the median stock’s EPS yield and the real 10-year Treasury yield ranks in the 49th percentile, whereas in March 2020 the yield gap was 727 bp (7th percentile). Yet as David Kostin writes in his latest Weekly Kickstart note (available to professional subs) his base case forecast valuation is expected to remain roughly flat while earnings growth does the heaving lifting and pushes the S&P back to 4300 at year-end 2022, some +10% from here - or at least until Kostin slashes his year end forecast once again, and for the 4th time in a row- as he himself hedges when warning that "inflation surprises like this morning’s will also affect the path of multiples, for better or worse." How do we know that Kostin is just biding his time until he cuts his S&P price target again (which will likely mark the bottom of stocks in the current cycle)? Because as he admits next, "some of the economic developments that have boded well for the Fed’s battle with inflation have intensified concerns about the earning outlook." As a result, he notes that while "Valuations dominated investor focus in early 2022, but recent client conversations have centered on risks to EPS estimates" which of course is not news to regular readers and to those who have been focusing on Wall Street's more bearish strategists, such as Morgan Stanley's Mike Wilson, who has been warning for a while now that attention has shifted from multiples to earnings. Anyway, back to Kostin who writes that "company announcements have added to these concerns. Just weeks after shares fell by 25% on disappointing 1Q margins, Target (TGT) cut margin guidance this week as it struggles to manage excess inventory. Investors have also focused on a string of downbeat comments from tech companies. In recent weeks firms including AMZN, MSFT, and NVDA have signaled intentions to slow hiring. This development is positive in terms of balancing the labor market but reflects management anxiety about growth and inflation." Catching up to what Wilson has been saying for months, Kostin finally concedes that he, too, "expects further downward revisions to consensus earnings estimates." The Goldman strategist also warns that while "margins have driven the majority of recent analyst cuts, estimates still appear too high" and Kostin now expects S&P 500 net margins excluding Financials and Energy will slip from 12.7% in 2021 to 12.6% in 2023, even as consensus idiotically expects a 30 bps rise to 13.0%, even though most sectors (with the notable exception of Energy) have recently experienced negative margin revisions. Keeping in mind that his latest note is just a placeholder for the forthcoming S&P price target cut, Kostin notes that his "base-case 2023 EPS forecast is $239, 5% below consensus of $251. If the economy contracts, the 13% median historical recession decline would bring 2023 EPS to $200. If the economy avoids recession, but margins and revenues for most sectors return to pre-COVID trends, S&P 500 EPS would equal roughly $215." The chart below summarizes the potential S&P 500 levels at year-end 2022 based on various EPS and P/E scenarios (which a first year analyst can do on their own, of course). The scenarios assume that by year-end consensus 2023 EPS forecasts move halfway from current estimates to eventual actual EPS. For example, if the consensus 2023 EPS estimate moves halfway to our top-down forecast of $239 and the P/E multiple remains at 17x, the implied index level would equal 4165. If the EPS estimate moves to $225, halfway to the recession scenario of $200, a 14x P/E would bring the S&P 500 to 3150. What we find more interesting is Goldman's admission that a worst-case scenario is likely, and what that would mean for the S&P: In a recession, if the EPS estimate moves halfway to $200, a 14x P/E would bring the S&P 500 to 3150. What does all this mean for investors, especially those who aren't dumping everything yet because they realize that the coming Fed freakout and equity ETF buying will be something never before seen: Investors looking for value opportunities should consider both valuations and potential downside risk to earnings estimates. For example, at the sector level, Energy trades well below its 30-year average P/E multiple in absolute terms, and close to record lows relative to the S&P 500. Even haircutting its EPS by the median of the past six recessions, the P/E ratio today would still rank below the 30-year average. While Health Care trades at a P/E close to its 30-year average, it has grown EPS during each of the last six recessions, and looks more attractively valued today than other defensive sectors like Utilities. What about growth stocks ahead of the coming recession? Somewhat controversially, Kostin is not overly negative here, and writes that at a factor level, "the macro environment is becoming more favorable for Growth stocks" yet valuations is one reason he  still prefer “quality” attributes. Hints of easing inflation and less need for FCI tightening help explain the recent Growth stock rebound, including the past month’s 30% return for the GS Non-Profitable Tech Basket (GSXUNPTC). Concerns about corporate earnings also increase the appeal of secular growth stocks. However, the outlook for the Fed’s battle with inflation remains uncertain, as underscored by today’s CPI data and our commodity strategists raising their Brent forecast to $140/barrel. In addition, the valuation spread between Growth and Value remains wide relative to history. In contrast, our sector-neutral low volatility, high profit margin, and high return on capital factors each trade at discounts to their historical average valuations. Bottom line: we commiserate with Kostin who is tacitly hinting that yet another S&P price target cut is looming, especially when one considers that a recession is now just months if not weeks away, (one which as Kostin concedes would send the S&P tumbling to 3,150) an outcome which is abundantly clear when reading the latest note from that other Goldman trader and strategist, Tony Pasquariello, who unlike Kostin is not afraid to say what he really thinks. Tyler Durden Sun, 06/12/2022 - 20:20.....»»

Category: blogSource: zerohedgeJun 12th, 2022

Target warns profits will take short-term hit as it cuts back on excess inventory

Target, which is facing excess inventory in several categories, said it's planning serval actions during the second quarter to "right-size its inventory for the balance of the year.".....»»

Category: topSource: foxnewsJun 7th, 2022

Goldman warns Russia could further choke off natural-gas supplies in response to the EU"s oil ban, whacking European growth

The EU and Russia are doing battle over energy, with Brussels banning oil imports and Moscow restricting natural gas supplies. Europe gets the bulk of its natural gas imports from Russia.Maxim Shemetov/Reuters Goldman Sachs has warned Russia could further restrict the supply of natural gas to Europe in response to the EU's oil ban. The investment bank said more energy squeezes could seriously dent European growth and send Germany into recession. The EU agreed Tuesday to ban the bulk of Russian oil imports, in response to Vladimir Putin's invasion of Ukraine. Goldman Sachs analysts have said Russia could sharply cut its supplies of natural gas to Europe in response to the EU's oil import ban, deepening the downturn on the continent.The EU agreed a plan to ban most Russian oil imports on Tuesday, with officials expecting a 90% reduction in supply by the end of the year.Later on Tuesday, Russia's Gazprom said it had cut off natural gas supplies to Dutch company GasTerra, and would stop shipments to two other companies for its Germany contracts. Gazprom said it was doing so because the companies hadn't complied with demands to pay in rubles.Goldman analysts, led by Alain Durre and Filippo Taddei, said in a note Tuesday that the chances of further natural-gas cuts have risen, as Russia seeks to retaliate for the oil embargo."There is an increased risk that Russia might respond to the oil ban by disrupting its supply of natural gas, potentially leading to a material worsening of the European economic outlook," the analysts wrote.Tighter supplies could further derail Europe's economy, which many analysts expect to slow sharply over the coming year as it deals with high inflation and the fallout from Russia's invasion of Ukraine."The risks to economic growth in the euro area in particular are tilted to the downside," Goldman said."In this respect, a sudden stop of energy product imports from Russia, combined with a likely drop in confidence, would most likely put Germany and Italy into recession, and reduce euro area economic growth by more than two percentage points."The EU used natural gas for 24% of its energy mix in 2020, according to Eurostat. That year, 43% of the bloc's natural gas imports came from Russia.Read the original article on Business Insider.....»»

Category: dealsSource: nytJun 1st, 2022

Russia"s Gazprom cuts off natural-gas supply to the Netherlands after the Dutch refused to pay in rubles. Denmark could be next.

Dutch trader GasTerra and Danish power company Orsted have both refused to comply with Putin's demand to pay for Russian natural gas in rubles. The Netherlands and Denmark face natural gas supply cuts from Gazprom as they have rejected Russian President Vladimir Putin's demand for payments in rubles.Dennis Grombkowski/Getty Images Gazprom said it has cut natural-gas supply to the Netherlands after Dutch trader GasTerra refused to pay in rubles. That's after Russian President Putin has demanded natural gas payments in rubles. Denmark's Orsted has also rejected the demand and warns its supplies from Gazprom could be cut. Russian energy giant Gazprom said it has cut natural gas supply to Netherlands on Tuesday, after Dutch trader GasTerra refused to make payments in rubles.In a March 31 decree, Russian President Vladimir Putin demanded that natural-gas payments be made in rubles, which would entail opening a euro and ruble account with Gazprombank in Moscow to process payments."GasTerra will not go along with Gazprom's payment demands," said GasTerra, which is partly owned by the state and trades on behalf of the government."This is because to do so would risk breaching sanctions imposed by the EU and also because there are too many financial and operational risks associated with the required payment rout," the Dutch company wrote in a press release on Monday. "In particular, opening accounts in Moscow under Russian law and their control by the Russian regime pose too great a risk."Gazprom said on Tuesday it has fully suspended gas supplies to GasTerra "due to failure to pay in rubles."The Dutch government said it understands GasTerra's decision not to comply with Gazprom's demand to pay in rubles."This decision has no consequences for the physical supply of gas to Dutch households," Dutch Climate and Energy Minister Rob Jetten said on Twitter on Monday. The Netherlands relies on Russia for about 15% of its gas supplies, per Reuters.The Dutch government says on its website that the country has enough gas reserves for the short term and plans to import more liquefied natural gas from countries other than Russia.Denmark could be nextIn neighboring Denmark, power company Orsted is also warning about a Gazprom natural gas supply cut as it too is refusing to pay in rubles."We have no legal obligation under the contract to do so, and we have repeatedly informed Gazprom Export that we will not do so," Orsted said in a Monday press release.As Orsted intends to continue paying in euros for a payment due Tuesday, "there is a risk that Gazprom Export will stop supplying gas to Orsted," said the power company.Orsted said it expects to be able to buy gas on the European gas market. Both Netherlands and Denmark also produce their own natural gas.The Danish Energy Agency said in a Monday press release it doesn't expect any immediate impact from a natural gas supply cut by Gazprom and has an emergency plan ready.Gazprom did not immediately respond to Insider's request for comment.Gazprom has already cut off gas supply to Poland, Bulgaria and Finland, as they have all refused to pay in rubles.Not all of Europe is ready to go off Russian natural gas right now. Some major buyers like Italy's Eni and Germany's Uniper have opened accounts at Gazprombank to meet Russian payment demands.Read the original article on Business Insider.....»»

Category: dealsSource: nytMay 31st, 2022

Russia says it"s cutting off its natural-gas supply to the Netherlands as the Dutch refuse to pay in rubles. Denmark could be next.

Dutch trader GasTerra and Danish power company Orsted have both refused to comply with Putin's demand to pay for Russian natural gas in rubles. The Netherlands and Denmark face natural gas supply cuts from Gazprom as they have rejected Russian President Vladimir Putin's demand for payments in rubles.Dennis Grombkowski/Getty Images Gazprom is set to cut natural-gas supply to the Netherlands as Dutch trader GasTerra has refused to pay in rubles. That's after Russian President Putin has demanded natural gas payments in rubles. Denmark's Orsted has also rejected the demand and warns its supplies from Gazprom could be cut. Russian energy giant Gazprom is set to cut natural gas supply to Netherlands on Tuesday, as Dutch trader GasTerra has refused to make payments in rubles.In a March 31 decree, Russian President Vladimir Putin demanded that natural-gas payments be made in rubles, which would entail opening a euro and ruble account with Gazprombank in Moscow to process payments."GasTerra will not go along with Gazprom's payment demands," said GasTerra, which is partly owned by the state and trades on behalf of the government."This is because to do so would risk breaching sanctions imposed by the EU and also because there are too many financial and operational risks associated with the required payment rout," the Dutch company wrote in a press release on Monday. "In particular, opening accounts in Moscow under Russian law and their control by the Russian regime pose too great a risk."In response, Gazprom has announced that it will discontinue natural gas supply go GasTerra from Tuesday, according to the Dutch company.The Dutch government said it understands GasTerra's decision not to comply with Gazprom's demand to pay in rubles."This decision has no consequences for the physical supply of gas to Dutch households," Dutch Climate and Energy Minister Rob Jetten said on Twitter on Monday. The Netherlands relies on Russia for about 15% of its gas supplies, per Reuters.The Dutch government says on its website that the country has enough gas reserves for the short term and plans to import more liquefied natural gas from countries other than Russia.Denmark could be nextIn neighboring Denmark, power company Orsted is also warning about a Gazprom natural gas supply cut as it too is refusing to pay in rubles."We have no legal obligation under the contract to do so, and we have repeatedly informed Gazprom Export that we will not do so," Orsted said in a Monday press release.As Orsted intends to continue paying in euros for a payment due Tuesday, "there is a risk that Gazprom Export will stop supplying gas to Orsted," said the power company.Orsted said it expects to be able to buy gas on the European gas market. Both Netherlands and Denmark also produce their own natural gas.The Danish Energy Agency said in a Monday press release it doesn't expect any immediate impact from a natural gas supply cut by Gazprom and has an emergency plan ready.Gazprom did not immediately respond to Insider's request for comment.Gazprom has already cut off gas supply to Poland, Bulgaria and Finland, as they have all refused to pay in rubles.Not all of Europe is ready to go off Russian natural gas right now. Some major buyers like Italy's Eni and Germany's Uniper have opened accounts at Gazprombank to meet Russian payment demands.Read the original article on Business Insider.....»»

Category: worldSource: nytMay 31st, 2022

Crypto"s growth within traditional institutions will create contagion risk that threatens financial stability, ECB warns

"Based on the developments observed to date, crypto-asset markets currently show all the signs of an emerging financial stability risk," the ECB said. Visual representation of the digital cryptocurrency bitcoinChesnot/Getty Images Cryptocurrency's growth within traditional institutions will pose significant financial stability risk, the ECB said. The warning is the first of its kind from the ECB, which released its biannual financial review.  The ECB also stressed the need for regulation over crypto assets before growth becomes uncontrollable. The European Central Bank warned that strengthening ties between traditional institutions and the crypto market will pose significant financial stability risk.The ECB published its biannual financial review Tuesday, outlining its reservations toward cryptocurrency markets after its first "deep dive" into the sector. The central bank also warned the threat of contagion from crypto is increasing and stressed the need for regulation."Over the last few years, the historical volatility of crypto-assets has continued to dwarf the volatility of the diversified European stock and bond markets," the ECB said. Even as volatility grew in 2021, the ECB said, investor appetite pushed cryptos to all-time highs.And traditional financial like banks, asset managers and other institutional investors are stepping up their exposure to digital assets, the ECB said, giving customers and clients stronger ease of access to trading that could further fuel crypto growth and increase risks."Based on the developments observed to date, crypto-asset markets currently show all the signs of an emerging financial stability risk," it added. "As this is a global market and therefore a global issue, global coordination of regulatory measures is necessary."The ECB also noted that current market conditions and size for cryptos "remain similar in size to, for example, the subprime mortgage crisis that triggered the global financial crisis of 2007-08."The central bank's note comes as both the US and UK have stepped up calls for stronger oversight over cryptocurrencies, in part due to the recent downfall of stablecoins like TerraUSD and Tether that lost their fiat currency pegs and triggered a broader selloff throughout crypto markets.Read the original article on Business Insider.....»»

Category: topSource: businessinsiderMay 24th, 2022

Get Ready To Be Muzzled: The Coming War On So-Called "Hate Speech"

Get Ready To Be Muzzled: The Coming War On So-Called 'Hate Speech' Authored by John W. Whitehead & Nisha Whitehead via The Rutherford Institute, “Whoever would overthrow the liberty of a nation must begin by subduing the freedom of speech.” - Benjamin Franklin Beware of those who want to monitor, muzzle, catalogue and censor speech. Especially be on your guard when the reasons given for limiting your freedoms end up expanding the government’s powers. In the wake of a mass shooting in Buffalo, NY, carried out by an 18-year-old gunman in military gear allegedly motivated by fears that the white race is in danger of being replaced, there have been renewed calls for social media monitoring, censorship of flagged content that could be construed as dangerous or hateful, and limitations on free speech activities, particularly online. As expected, those who want safety at all costs will clamor for more gun control measures (if not at an outright ban on weapons for non-military, non-police personnel), widespread mental health screening of the general population and greater scrutiny of military veterans, more threat assessments and behavioral sensing warnings, more surveillance cameras with facial recognition capabilities, more “See Something, Say Something” programs aimed at turning Americans into snitches and spies, more metal detectors and whole-body imaging devices at soft targets, more roaming squads of militarized police empowered to do random bag searches, more fusion centers to centralize and disseminate information to law enforcement agencies, and more surveillance of what Americans say and do, where they go, what they buy and how they spend their time. All of these measures play into the government’s hands. As we have learned the hard way, the phantom promise of safety in exchange for restricted or regulated liberty is a false, misguided doctrine that serves only to give the government greater authority to crack down, lock down, and institute even more totalitarian policies for the so-called sake of national security without many objections from the citizenry. Add the Department of Homeland Security’s “Disinformation Governance Board” to that mix, empower it to monitor online activity and police so-called “disinformation,” and you have the makings of a restructuring of reality straight out of Orwell’s 1984, where the Ministry of Truth polices speech and ensures that facts conform to whatever version of reality the government propagandists embrace. After all, it’s a slippery slope from censoring so-called illegitimate ideas to silencing truth. Eventually, as George Orwell predicted, telling the truth will become a revolutionary act. If the government can control speech, it can control thought and, in turn, it can control the minds of the citizenry. It’s been a long time since free speech was actually free. On paper—at least according to the U.S. Constitution—we are technically free to speak. In reality, however, we are only as free to speak as a government official—or corporate entities such as Facebook, Google or YouTube—may allow. That’s not a whole lot of freedom, especially if you’re inclined to voice opinions that may be construed as conspiratorial or dangerous. This steady, pervasive censorship creep clothed in tyrannical self-righteousness and inflicted on us by technological behemoths (both corporate and governmental) is technofascism, and it does not tolerate dissent. These internet censors are not acting in our best interests to protect us from dangerous, disinformation campaigns. They’re laying the groundwork now to preempt any “dangerous” ideas that might challenge the power elite’s stranglehold over our lives. The internet, hailed as a super-information highway, is increasingly becoming the police state’s secret weapon. This “policing of the mind” is exactly the danger author Jim Keith warned about when he predicted that “information and communication sources are gradually being linked together into a single computerized network, providing an opportunity for unheralded control of what will be broadcast, what will be said, and ultimately what will be thought.” What we are witnessing is the modern-day equivalent of book burning which involves doing away with dangerous ideas—legitimate or not—and the people who espouse them. Where we stand now is at the juncture of OldSpeak (where words have meanings, and ideas can be dangerous) and Newspeak (where only that which is “safe” and “accepted” by the majority is permitted). The power elite has made their intentions clear: they will pursue and prosecute any and all words, thoughts and expressions that challenge their authority. Having been reduced to a cowering citizenry—mute in the face of elected officials who refuse to represent us, helpless in the face of police brutality, powerless in the face of militarized tactics and technology that treat us like enemy combatants on a battlefield, and naked in the face of government surveillance that sees and hears all—we have nowhere left to go and nothing left to say that cannot be misconstrued and used to muzzle us. Yet what a lot of people fail to understand, however, is that it’s not just what you say or do that is being monitored, but how you think that is being tracked and targeted. We’ve already seen this play out on the state and federal level with hate crime legislation that cracks down on so-called “hateful” thoughts and expression, encourages self-censoring and reduces free debate on various subject matter.  With every passing day, we’re being moved further down the road towards a totalitarian society characterized by government censorship, violence, corruption, hypocrisy and intolerance, all packaged for our supposed benefit in the Orwellian doublespeak of national security, tolerance and so-called “government speech.” Little by little, Americans have been conditioned to accept routine incursions on their freedoms. This is how oppression becomes systemic, what is referred to as creeping normality, or a death by a thousand cuts. It’s a concept invoked by Pulitzer Prize-winning scientist Jared Diamond to describe how major changes, if implemented slowly in small stages over time, can be accepted as normal without the shock and resistance that might greet a sudden upheaval. Diamond’s concerns related to Easter Island’s now-vanished civilization and the societal decline and environmental degradation that contributed to it, but it’s a powerful analogy for the steady erosion of our freedoms and decline of our country right under our noses. As Diamond explains, “In just a few centuries, the people of Easter Island wiped out their forest, drove their plants and animals to extinction, and saw their complex society spiral into chaos and cannibalism… Why didn’t they look around, realize what they were doing, and stop before it was too late? What were they thinking when they cut down the last palm tree?” His answer: “I suspect that the disaster happened not with a bang but with a whimper.” Much like America’s own colonists, Easter Island’s early colonists discovered a new world—“a pristine paradise”—teeming with life. Yet almost 2000 years after its first settlers arrived, Easter Island was reduced to a barren graveyard by a populace so focused on their immediate needs that they failed to preserve paradise for future generations. The same could be said of the America today: it, too, is being reduced to a barren graveyard by a populace so focused on their immediate needs that they are failing to preserve freedom for future generations. In Easter Island’s case, as Diamond speculates: "The forest…vanished slowly, over decades. Perhaps war interrupted the moving teams; perhaps by the time the carvers had finished their work, the last rope snapped. In the meantime, any islander who tried to warn about the dangers of progressive deforestation would have been overridden by vested interests of carvers, bureaucrats, and chiefs, whose jobs depended on continued deforestation… The changes in forest cover from year to year would have been hard to detect… Only older people, recollecting their childhoods decades earlier, could have recognized a difference. Gradually trees became fewer, smaller, and less important. By the time the last fruit-bearing adult palm tree was cut, palms had long since ceased to be of economic significance. That left only smaller and smaller palm saplings to clear each year, along with other bushes and treelets. No one would have noticed the felling of the last small palm.” Sound painfully familiar yet? We’ve already torn down the rich forest of liberties established by our founders. It has vanished slowly, over the decades. Those who warned against the dangers posed by too many laws, invasive surveillance, militarized police, SWAT team raids and the like have been silenced and ignored. They stopped teaching about freedom in the schools. Few Americans know their history. And even fewer seem to care that their fellow Americans are being jailed, muzzled, shot, tasered, and treated as if they have no rights at all. The erosion of our freedoms happened so incrementally, no one seemed to notice. Only the older generations, remembering what true freedom was like, recognized the difference. Gradually, the freedoms enjoyed by the citizenry became fewer, smaller and less important. By the time the last freedom falls, no one will know the difference. This is how tyranny rises and freedom falls: with a thousand cuts, each one justified or ignored or shrugged over as inconsequential enough by itself to bother, but they add up. Each cut, each attempt to undermine our freedoms, each loss of some critical right—to think freely, to assemble, to speak without fear of being shamed or censored, to raise our children as we see fit, to worship or not worship as our conscience dictates, to eat what we want and love who we want, to live as we want—they add up to an immeasurable failure on the part of each and every one of us to stop the descent down that slippery slope. We are on that downward slope now. The contagion of fear that has been spread with the help of government agencies, corporations and the power elite is poisoning the well, whitewashing our history, turning citizen against citizen, and stripping us of our rights. America is approaching another reckoning right now, one that will pit our commitment to freedom principles against a level of fear-mongering that is being used to wreak havoc on everything in its path. Yet as I make clear in my book Battlefield America: The War on the American People and in its fictional counterpart The Erik Blair Diaries, while we squabble over which side is winning this losing battle, a tsunami approaches. Tyler Durden Thu, 05/19/2022 - 00:05.....»»

Category: worldSource: nytMay 19th, 2022

Don"t be fooled by a bear-market rally in stocks ahead of 15% further downside in the the S&P 500, Morgan Stanley warns

"The bottom line is that this bear market will not be over until valuations fall to levels that discount the kind of earnings cuts we envision." A trader works on the floor of the New York Stock Exchange (NYSE) in New York, U.S., March 9, 2020. REUTERS/Bryan R SmithBryan R Smith/ReutersThe stock market is set to fall as a slowdown in economic growth starts to materialize, according to Morgan Stanley's Mike Wilson.Wilson said negative earnings revisions are likely as the economy shows signs of slowing."The bottom line is that this bear market will not be over until either valuations fall to levels that discount the kind of earnings cuts we envision, or earnings estimates get cut," Wilson said.Despite six straight weeks of losses for the broader stock market, investors shouldn't be fooled by any bear-market rally that may materialize, according to Morgan Stanley's Mike Wilson.Wilson still holds a bearish view on the stock market as signs of a slowdown in economic growth begin to show, Wilson said in a Monday note. Recent PMI data shows deceleration, the economy contracted in the first quarter, and earnings revisions are deteriorating, Wilson highlighted."We're in the midst of a hotter but shorter cycle in the US. The key implication here is that the early-to-mid-cycle benefits of positive operating leverage are behind us and earnings growth is likely to decelerate, driven by margin compression and slowing top-line growth," Wilson said, adding that earnings weakness will persist into 2023. "The S&P 500 is still not priced for this backdrop," Wilson said, adding that he expects the overall downtrend in stocks to continue. In Wilson's bear case scenario, the S&P 500 will drop 15% from current levels to 3,400 as a recession materializes due to sticky input and labor cost inflation."The bottom line is that this bear market will not be over until either valuations fall to levels that discount the kind of earnings cuts we envision, or earnings estimates get cut," Wilson said. The real question is whether management companies will lower their earnings guidance before analysts cut their estimates.But the 10-Year US Treasury yield has begun to stabilize below 3%, the forward price-to-earnings multiple for the S&P 500 has fallen below its 10-year average, and stocks appear oversold after six straight weeks of declines. That sets the market up well for a sizable bear market rally, according to Wilson."Stocks appear to have begun another material bear market rally. After that, we remain confident that lower prices are still ahead. In S&P 500 terms, we think that level is close to 3,400, which is where both valuation and technical support lie," Wilson explained.Wilson isn't the only Wall Street strategist with a bearish view on where the market goes from here. Goldman Sachs lowered its S&P 500 price target for the third times this year on Friday to 4,300 from 4,700. The bank also sees a 35% chance that the economy enters a recession over the next year, which if so would send the S&P 500 to about 3,600. "While we don't have a recession baked into our base case forecasts, we do for our bear case because the risk of a recession has gone up materially. That is just another reason why the equity risk premium is too low, and stocks are still overpriced in our view," Wilson concluded. Read the original article on Business Insider.....»»

Category: topSource: businessinsiderMay 16th, 2022

Rabobank: There Are Whispers Of A Shift To Physical Commodities Being Used As Trade Settlement

Rabobank: There Are Whispers Of A Shift To Physical Commodities Being Used As Trade Settlement By Michael Every of Rabobank Name That Tune? Scandinavian Black Metal When I was young there was a TV show called ‘Name That Tune’, where panellists would compete to see how few notes they could name a tune in: I was recently told the same idea has been relaunched as an app. Looking at the key notes struck recently, can you ‘name that tune’? Many were sure it was “transitory inflation”, but even Jeff Bezos is Tweeting the White House wanted to spend trillions more dollars than they have been able to, in which case inflation would be even higher than it is now. There is broad agreement that Friday’s dead-cat-bounce in markets in no way captures the real mood music. As such, some now think the tune is “more new normal”, as Fed Chair Powell talks about 50bp hikes in both June and July, while not ruling out a possible recession, suggesting rates will have to come back down again. Both those hikes and a recession are likely the right notes. However, many tunes start the same, but then diverge sharply. Are we really going to see rate hikes and then rate cuts? Arguably, the music now playing is more sinister – but as a result, many are trying to avoid naming what the tune actually is. Think of Scandinavian Black Metal as Finland and Sweden officially announce bids for NATO membership, overturning decades and centuries of neutrality, respectively; as Ukraine wins the Eurovision Song Contest, showing the tune the EU public is singing, and President Zelenskiy floats hosting it in demolished and occupied Mariupol; and as France and Germany come last, an EU-wide rejection of their continuous bids to harmonize with Russia. Think similarly as the G7 warns of 43 million people going hungry if Russia won’t stop its blockade of the Black Sea, which it won’t. That seems an undercount given recent surveys in even Western countries talking about 2 in 7 people facing some form of hunger, and a surge in the use of food banks. Worse, India just halted exports of wheat, or will only sell to those in real need, which injects another layer of (geo)politics into commodities trading. Likewise, oil remains over $100 despite much of China in lockdown, which Shanghai may lift slightly from 16 May. Imagine how high oil would be with China open. Diesel is in short supply, and Bloomberg’s Javier Blass says at prices the equivalent of $200-250. There are warnings of diesel shortages in the north-east US, which will bring trucking to a halt. Recent conversations with taxi drivers in London and Singapore, which there are evident shortages of, complaining that current fuel prices mean they struggle to make ends meet. Nigerian domestic airlines have threatened to stop flying completely. We can all name the tune that follows. Pro-China Sri Lanka is in chaos over rising food and energy prices. Pro-China Iran is seeing street protests, despite being a major energy producer – and is still no closer to a nuclear deal despite the EU thinking ‘Wandel Durch Handel’ will work in the Middle East in the same way it has not worked in eastern Europe or the Far East. China itself, besides sealing people into their homes, is restricting outbound international travel, clipping passports of those arriving, and according to one source, blocking overseas calls. China also saw terrible data: industrial production -2.9% y-o-y vs. consensus of 0.5% and 5.0% in March; in year-to-date (y-t-d) terms, it was up 4.0%, down from 6.5% from last month; retail sales y-o-y were -11.1% vs. -6.6% consensus, and down from -3.5%, and in y-t-d terms were -1.2%, down from 3.3%; fixed investment y-o-y y-t-d was 6.8% vs. 7.0% consensus and down from 9.3%, the last leg standing; and property investment was -2.7% y-o-y y-t-d vs. -1.5% consensus and 0.7% in March, underlining that the investment seen was into infrastructure not housing. Indeed, residential property sales were -32.2% y-o-y y-t-d, and unemployment ticked up from 6.0% to 6.1%. China’s response was to cut mortgage rates 20bp for first-home buyers, but there was no rate cut in the MLF interest rate from 2.85% despite 50-50 market expectations of such a move. In short, it’s easy to look at those data and the terrible fall in real incomes around the world and conclude that rate hikes are a mistake that will end in recession – and worse. However, there are several tunes that follow those obvious notes. We could see the familiar ‘new normal’ music of a rapid rates retreat, as normal until now. In which case, we would not just get a knee-jerk rally in bonds and stocks, and a weaker US dollar; we would also get more commodity-price inflation, which would imply even more socio-economic and socio-political polarisation and destabilisation. As a result, the Fed might sing a new tune. Look at what just happened in crypto. This obvious bubble, led by people who think if you wear black and sunglasses you somehow become Neo from the Matrix, and cheer-led by people who don’t care provided it tastes like steak, is likely bursting. If/when it does, it will take trillions in ‘wealth’ with it. And what will that achieve? First, the primacy of the fiat US dollar over ‘safe haven’ digital money-printing. Second, it will force millions of people who had walked away from burger-flipping due to ‘crypto wealth’ back into the workforce. Can you see why the Fed would want that to happen? And all it took was fiat Fed Funds at 1%. Likewise, as commodities surge, have been weaponised, and are talked of as backing a ‘new world order’, there are also whispers of a shift to physical commodities being used as trade settlement. Cargoes are still priced in US dollars but, allegedly, de facto barter is already taking place to circumvent the global dollar system and any potential Western sanctions. Can you see why the Fed needs to act on that urgently too? This is not an existential threat per se but, as with crypto, it limits the Fed’s ability to achieve its goals. Just as if everyone can print their own money what does it matter where Fed Funds sits, if commodities are so expensive they can be bartered as settlement, how can the Fed bring inflation down? (As Japanese PPI also hits 10% y-o-y today, and the BOJ keep pegging 10-year JGB bond yields at 0.25%.) The answer/tune might be for the Fed to go well beyond 1%,… and stay there: to do unto commodities what they are doing unto crypto. If so, inflation then falls. Bonds rally. Real incomes rise – for those who still have jobs. Unfortunately, assets get truly smashed – including bonds for quite some time, and most at the short end. Stocks obviously suffer - unless some people help to ramp certain key names, which obviously never happens. Then again, asset-backed ‘new world orders’ also get smashed. Which is part of the tune people won’t name. Of course, so do net exporters such as China; and although lower commodity prices would make another debt-driven infrastructure stimulus package more affordable for Beijing, lower exports plus more stimulus plus higher Fed Funds would be very negative for CNY – which in that kind of scenario becomes another bubble cheer-led by people who think they are Neo and/or who don’t care provided it tastes like steak. On a related note, the IMF just raised the CNY’s share of its Special Drawing Rights (SDR) basket. Yet who cares? The WHO might as well have announced the news. In the first quintennial review since CNY --pointlessly-- became an official reserve currency in 2016, delayed a year by Covid, its weighting rose from 10.92% to 12.28%. As I argued in ‘Why Bretton Woods 3 Won’t Work’, current FX reserve holdings of CNY are arguably already higher than required by day-to-day activity, so this IMF news changes nothing. Indeed, the US dollar’s weighting also rose from 41.73% to 43.38%, while the euro's dropped from 30.93% to 29.31%, JPY's fell from 8.33% to 7.59%, and GBP's from 8.09% to 7.44%. With PM Boris Johnson apparently about to walk away from the Northern Ireland protocol, potentially triggering a UK-EU trade war, GBP was already likely to stay under pressure. Let’s see what there is to ‘note’ today on that front, and others. Tyler Durden Mon, 05/16/2022 - 09:30.....»»

Category: blogSource: zerohedgeMay 16th, 2022

Key Words: ‘Very, very high’ risk of recession, warns Goldman’s Lloyd Blankfein as bank cuts U.S. growth forecast

In an interview on CBS News' "Face the Nation," Blankfein said there is definitely a risk of recession, and that business and consumers should brace for one......»»

Category: topSource: marketwatchMay 16th, 2022

Slow-Motion Crash Drags Futures Below 3,900; Yields, Cryptos Tumble

Slow-Motion Crash Drags Futures Below 3,900; Yields, Cryptos Tumble The relentless slow-motion crash sparked by the Biden Fed (which is hoping that a market collapse will halt inflation) that has sent stocks lower for the past 6 weeks continued overnight, and Wall Street’s main equity indexes were set for more declines after losing $6.3 trillion in value since their late-March high as stubborn inflation in the world’s biggest economy bolstered the case for more aggressive monetary tightening by the Federal Reserve. Nasdaq 100 futures were down 0.7% at 730am in New York, a day after the underlying gauge sank to its lowest since November 2020 on concerns that higher-than-expected inflation in April would lead to an even more aggressive pace of policy tightening by the Fed. S&P 500 were last down -1% and dropping below 3,900, the level. And with eminis trading around 3,900 means that stocks are now at bearish Morgan Stanley's year-end base case price target of 3900, and 100 points away from Michael Hartnett's Fed put of 3,800. The dollar continues its relentless ascent, sending the euro to a five-year low while the yen also perked up, as investors took a cue from a rally in bonds and ploughed into “safe-haven” currencies on concerns about inflation risks to global economic growth. Meanwhile, bonds around the globe are surging as fears mount over an economic slowdown and traders start pricing in the next recession, sending the yield on 10-year German bunds and US Treasuries down more than 10 basis points to about 2.82%. Among notable premarket moves, Disney shares dropped after the media giant said growth in the second half of the year may not be as fast as previously expected, while Beyond Meat slumped 24% as Barclays downgraded the stock and analysts slashed their price targets following underwhelming results. Bank stocks slump in premarket trading Thursday, set for a sixth straight day of losses. In corporate news, Carlyle Group is set to buy Chinese packaging firm HCP for about $1 billion. Meanwhile, Brookfield Asset Management said it plans to list 25% of its asset-management business in a transaction that would value the new entity at $80 billion. Economic data due late today include initial jobless claims. Here are all the notable premarket movers: Disney (DIS US) shares drop 4.8% in premarket trading after the media giant said growth in the second half of the year may not be as fast as previously expected. Apple (AAPL US) shares fall as much as 1.4% in premarket trading Thursday, putting them on course to open more than 20% below their January peak. Beyond Meat (BYND US) shares slump 24% in US premarket trading as analysts slashed their targets on the plant-based food company following underwhelming results. Riot Blockchain (RIOT US) -6.1% in premarket trading, Marathon Digital (MARA US) -5.8%, MicroStrategy (MSTR US)-10% and Coinbase (COIN US) -7.3% Zoom (ZM US) shares decline as much as 4.5% in US premarket as Piper Sandler analyst James Fish cut the recommendation on the stock to neutral as he sees limited upside to paid video service. Dutch Bros (BROS US) slumps 42% in premarket trading after the drive-thru coffee chain’s guidance lagged analyst estimates, though some analysts see the dip in shares as a buying opportunity. Lordstown Motors (RIDE US) shares jump as much as 27% in U.S. premarket trading after the electric truck maker completed the sale of its factory to Foxconn. Rivian (RIVN US) gains 2.9% in premarket trading after the electric vehicle startup reaffirmed its annual production guidance, even as it navigates through supply chain snarls. Coupang (CPNG US) shares jump as much as 18% in US premarket trading after the Korean e- commerce firm reported a first-quarter loss per share that was narrower than analysts’ expectations. Bumble (BMBL US) shares rise 8.3% in premarket after the company reported first-quarter results that beat expectations, despite currency risks and those related to the war in Ukraine. Cryptocurrency-exposed stocks also fell as digital tokens resumed declines after the collapse of the TerraUSD stablecoin, overnight the largest stablecoin, Tether, broke the buck spooking markets further that the contagion is spreading. The hotter-than-expected inflation reading for April raised concern the Fed’s hikes aren’t bringing down prices fast enough and policy makers may have to resort to a 75bps move, rather than the half-point pace markets have come to grips with. Worries such a shift would crimp economic growth, combined with Russia’s war in Ukraine and China’s struggles with Covid, are battering risk assets. The data halted a minor rebound in US equities, which are set for their longest weekly streak of losses since 2011, as investors worried that hawkish moves by central banks at a time of surging commodity prices and slowing earnings growth would spark a recession. While some strategists have said the rout has now made stock valuations attractive, others including Michael Wilson at Morgan Stanley warned of a bigger selloff. “What these wild market moves are telling us is that investors have very little idea of whether we’re near a short-term base, or whether we’ve got further to fall,” said Michael Hewson, chief market analyst at CMC Markets UK. “The higher-than-expected CPI figure may further fuel fears that the Fed will take policy higher than expected for longer than expected, draining precious liquidity from markets, which have until late been awash with it,” said Russ Mould, investment director at AJ Bell.  “Until we get a meaningful move lower in inflation, not only one print, but a consistent two, three, four prints moving in the right direction, this market may remain range bound,” Mona Mahajan, senior investment strategist at Edward Jones & Co., said on Bloomberg Television. Citigroup Inc. strategists said growth stocks, including the battered tech sector, will likely remain under pressure as central banks tighten monetary policy, driving yields higher.  “Now that central banks are unwinding monetary support, growth stocks’ valuations have further to fall,” strategists including Robert Buckland wrote in a note. They are especially wary of growth stocks in the US, where the Nasdaq 100 is down 27% this year. In Europe, the Stoxx 600 was down 2.2% with mining and consumer-products stocks leading declines. The Euro Stoxx 50 drops as much as 2.8%, Haven currencies perform well. The Stoxx 600 Basic Resources sub-index erased all YTD gains as a slide in metal prices and concerns about inflation fueled a selloff in the sector. Miners are the biggest laggard in the broader European equity benchmark on Thursday as major miners and steelmakers slip along with copper and iron ore prices. The basic resources sector (the sector is still second-best performing in Europe this year so far) fell as much as 5.6%, briefly erasing all YTD losses, and down to the lowest since January 3. Morgan Stanley strategists had downgraded miners to neutral on Wednesday, saying it’s time to take profits in the sector amid concerns inflation will lead to demand destruction. Here are the biggest movers: Telefonica shares rise as much as 4.5% after the Spanish carrier reported what analysts said was a solid set of quarterly earnings. STMicroelectronics gains as much as 4.1% as the chipmaker projects annual revenue of more than $20 billion for 2025-2027 period. Compass Group climbs as much as 2.5%, adding to Wednesday’s 7.4% advance, with Morgan Stanley lifting its price target to a Street-high. JD Sports rises as much as 3% after the UK sportswear chain said like-for-like sales for the 14-week period to May 7 were more than 5% higher than a year earlier. AS Roma advances as much as 15% after US billionaire Dan Friedkin made a tender offer for the roughly 13% of the Italian football team he doesn’t already own. The Stoxx 600 Basic Resources sub- index erases all YTD gains as a slide in metal prices and concerns about inflation fuel a selloff. Rio Tinto declines as much as 6%, Glencore -7.3%, Anglo American -6.9%, ArcelorMittal -4.8%, Antofagasta -7.9% Luxury stocks resume their declines after high US inflation bolstered the case for aggressive monetary tightening, deepening fears of an economic slowdown. Kering slides as much as 5.6%, Hermes -5.5% and Swatch -3.7% SalMar falls as much as 8.2% after the Norwegian salmon farmer published its latest quarterly earnings, which included a miss on operating Ebit. Earlier in the session, Asian stocks resumed their slide after Wednesday’s modest gains, as US inflation topped estimates and new Covid-19 community cases in Shanghai damped prospects for a reopening.  The MSCI Asia Pacific Index fell as much as 2%, with tech giants Alibaba and TSMC weighing the most on the gauge. Chinese shares snapped a two-day advance after Shanghai found two infections outside of isolation centers, pushing back the timeline for a relaxation of growth-sapping lockdowns.  US inflation remained above 8% in April, keeping the Federal Reserve on the path of aggressive tightening. That prospect weighed on shares in Asia, as investors also factored in growth implications from continued lockdowns in the world’s second-largest economy. Markets appeared to be unimpressed by China’s Premier Li Keqiang’s comments urging officials to use fiscal and monetary policies to stabilize employment and the economy. Valuations for the MSCI Asia Pacific Index are hurtling toward pandemic lows as the index records a 29% decline from its 2021 peak, posting declines in all but one of the trading sessions so far this month. “We’ve seen nearly the same amount of foreign investor selling in Asia as we saw during the global financial crisis, even though operating conditions aren’t as bad,” Timothy Moe, chief Asia-Pacific equity strategist at Goldman Sachs, told Bloomberg Television. “On our expected conditions over the next year, somewhere around 13 times should be a fair and appropriate valuation for Asian markets,” he added. Benchmarks in Indonesia and Taiwan were among the biggest decliners in the region, with the Jakarta Composite Index on the cusp of erasing gains for the year. Hong Kong shares also fell as the city intervened to defend its currency for the first time since 2019 In FX, the Bloomberg Dollar Spot Index rose to a fresh two-year high as the greenback climbed versus all of its Group-of-10 peers apart from the yen. The demand for havens sent the yield on 10-year German bunds and US Treasuries down more than 10 basis points. Stops were triggered in the euro below $1.0490 and 1.0450, weighed by EUR/CHF selling and yen buying across the board, according to traders. The yen rose by as much as 1.2% against the greenback as selling in stocks hurt risk sentiment. The BOJ indicated its lack of appetite for changing policy to help address a slide in the yen to a two-decade low during discussions at a meeting last month, according to a summary of opinions from the gathering. The Australian and New Zealand dollars fell on concern that lockdowns in China’s financial capital will extend, dragging economic growth in the world’s biggest buyer of commodities. In rates, Treasuries extended Wednesday’s rally with yields richer by 6bp to 9bp across the curve, supported by risk-aversion as stocks extend losses. US 10-year yields around 2.82%, down 10bps on the session, and trailing gilts and bunds by 2.2bp and 3bp in the sector; intermediates lead the US curve, richening the 2s5s30s fly by 4bp on the day to tightest levels since March 23. Eurodollars are bid as well with the strip flattening out to early 2024 as rate-hike premium continues to erode. European fixed income extends gains. German and US curves bull-steepen; bunds outperform, richening ~12bps across the belly. Gilts bull-flatten, focusing on soft March GDP data over hawkish comments from BOE’s Ramsden.  STIRs are similarly well bid with red pack euribor, eurodollar and sonia futures all up over 10 ticks. The US auction cycle concludes with $22b 30-year bond sale at 1pm ET; Wednesday’s 10-year is trading more than 10bp lower in yield after 1.4bp auction tail. WI 30-year around 2.965% is above auction stops since March 2019 and ~15bp cheaper than April stop-out. Super-long sectors led gains in Japanese bonds even as the 30-year sale was seen sluggish. In commodities, base metals were under pressure; LME tin slumps over 8%, zinc down over 3.5%. European natural gas surged as much as 13% on supply concerns. Crude futures drop, fading roughly half of Wednesday’s rally. WTI is down over 2% near $103.50. Spot gold trades a narrow range near $1,850/oz. European natural gas prices jumped as disruptions to a key transit route through Ukraine and a move by Moscow to retaliate against sanctions ramped up the risk of supply cuts. Shanghai found two Covid cases outside government-run isolation centers on Wednesday, according to state-run CCTV, dampening prospects for potential easing of lockdowns. Prices of iron ore, the biggest commodity export from Australia, also fell on the news. Looking at the day, data releases include the US PPI reading for April, the weekly initial jobless claims, and UK GDP for Q1. Central bank speakers include the ECB’s De Cos and Makhlouf. And in the political sphere, US President Biden will be hosting ASEAN leaders at the White House, whilst G7 foreign ministers are meeting in Germany. Market Snapshot S&P 500 futures down 0.6% to 3,907.50 STOXX Europe 600 down 1.9% to 419.41 MXAP down 1.7% to 157.21 MXAPJ down 2.5% to 512.05 Nikkei down 1.8% to 25,748.72 Topix down 1.2% to 1,829.18 Hang Seng Index down 2.2% to 19,380.34 Shanghai Composite down 0.1% to 3,054.99 Sensex down 2.1% to 52,935.64 Australia S&P/ASX 200 down 1.8% to 6,941.03 Kospi down 1.6% to 2,550.08 Gold spot down 0.1% to $1,849.85 U.S. Dollar Index up 0.48% to 104.34 German 10Y yield little changed at 0.89% Euro down 0.6% to $1.0449 Brent Futures down 2.0% to $105.32/bbl Top Overnight News from Bloomberg The EU is looking at creating bond futures and repurchase agreements to bolster its pandemic-era debt program The BOE will have to raise interest rates further to control surging prices, and there’s a risk that the UK’s worst inflation crisis in decades will take longer to ease fully, according to Deputy Governor Dave Ramsden The UK economy unexpectedly contracted in March. Gross domestic product fell 0.1% from February, when growth was flat. It meant the economy expanded just 0.8% in the first quarter, less than the 1% forecast by economists UK Prime Minister Boris Johnson will spend the next few days considering whether the UK will introduce legislation to override its post- Brexit settlement with the EU, a move that risks sparking a trade war A massive sell-off in cryptocurrencies wiped over $200 billion of wealth from the market in just 24 hours, according to estimates from price-tracking website CoinMarketCap Finland’s highest-ranking policy makers President Sauli Niinisto and Prime Minister Sanna Marin threw their weight behind an application and Sweden’s government is likely to do so in the coming days Sweden’s Riksbank’s target measure, CPIF, accelerated to 6.4% on an annual basis in April, the highest level since 1991, according to data released on Thursday. Economists surveyed by Bloomberg expected prices to rise by 6.2% A more detailed look at global markets courtesy of Newsquawk Asia-Pc stocks were pressured after the losses on Wall St where the major indices whipsawed in the aftermath of the firmer than expected CPI data and the DJIA posted a fifth consecutive losing streak. ASX 200 was lower amid heavy losses in tech and with financials subdued after flat earnings from Australia’s largest lender CBA. Nikkei 225 weakened with attention on earnings updates and with SoftBank amongst the worst performers ahead of its results later with the Co. anticipated to have suffered a record quarterly loss. Hang Seng and Shanghai Comp were subdued with early pressure from default concerns after developer Sunac China missed its grace period deadline and warned there was no assurance that the group will be able to meet financial obligations, although the mainland bourse recovered its earlier losses after further policy support pledges by Chinese authorities. SoftBank (9984 JT) - FY revenue JPY 6.2trln (prev. 5.6trln Y/Y). FY net profits -1.7trln (prev. +4.99trln). Foxconn (2317 TT) Q1 net profit TWD 29.45bln (exp. 29.76bln); sees Q2 revenue flat Y/Y, sees smart consumer electronics slightly declining Y/Y. Top Asian News Rupee Tumbles to a Record Low, Stocks Slump on Inflation Woes SoftBank Vision Fund Posts a Record Loss as Son’s Bets Fail Yen Rebound Tipped as Recession Fears Push Down Treasury Yields More Defaults Seen Following Sunac’s Failure: Evergrande Update European bourses are pressured as overnight risk sentiment reverberated into the region, in a continuation of the post-CPI Wall St. move; Euro Stoxx 50 -2.5%. US futures are lower across the board though the magnitude is less extreme, ES -0.6%; NQ fails to benefit from the yield pullback as participants focus on the normalisation's impact on tech. Walt Disney Co (DIS) - Q2 2022 (USD): Adj. EPS 1.08 (exp. 1.19), Revenue 19.25bln (exp. 20.03bln). Disney+ subscribers 137.7mln (exp. 134.4mln). ESPN+ subscribers 22.3mln (exp. 22.5mln) -5.0% in the pre-market. Top European News UK Retailers Sue Truckmakers Over Alleged Price Fixing Rokos Raising $1 Billion as He Joins Macro Hedge Fund Surge Siemens Abandons Russian Market After 170-Year Relationship Hargreaves Tumbles as Peel Notes Macro, Geopolitical Impacts FX DXY tops 104.500 to set new 2022 peak as risk aversion intensifies. Yen regains safe haven premium to buck broadly weak trend vs Dollar, USD/JPY sub-128.50 vs top just over 130.00. Aussie and Kiwi flounder as commodities tumble on demand dynamics'; AUD/USD under 0.6900 and NZD/USD below 0.6250. Euro and Sterling give up big figure levels with the Pound also undermined by worse than forecast UK data; EUR/USD down through 1.0500 then 1.0450, Cable beneath 1.2200 and eyeing 1.2150 next. Swedish Crown holds up in wake of stronger than expected CPI and CPIF metrics; EUR/SEK straddles 10.6000. Yuan crushed as PBoC and Chinese Government reaffirm commitment to provide economic support; USD/CNY 6.7900+, USD/CNH just shy of 6.8300. Forint falls as NBH Deputy Governor contends that aggressive tightening period is over and future hikes likely more incremental. HKMA picks up pace of intervention to defend HKD peg, CNB steps in to support CZK. Fixed Income Debt revival gathers pace amidst risk-off positioning elsewhere. Bunds probe 155.00, Gilts reach 120.71 and 10 year T-note nudges 120-00. BTP supply encounters few demand issues, unlike second US Quarterly Refunding leg ahead of USD 22bln long bond auction. Commodities WTI and Brent are pressured in what has been a grinding move lower during European hours; however, benchmarks were lifted amid Kremlin/N. Korea updates. Currently, the benchmarks are lower by around USD 1.50/bbl. IEA OMR: Revises down oil demand growth projections for 2022 by 70k BPD, amid China lockdowns and elevated prices. Overall decline of Russian supply by 1.6mln BPD in May and 2mln BPD in June; could expand to circa. 3mln BPD from July onwards. Click here for more detail. OPEC MOMR to be released at 13:00BST/08:00EDT. Indian refineries purchased 25-30mln barrels of Russian oil at a discount for delivery in May-June, according to Interfax. Spot gold/silver are pressured amid the USD's revival, but, the yellow metal remains in relatively contained parameters around USD 1850/oz. US Event Calendar 08:30: May Initial Jobless Claims, est. 192,000, prior 200,000 08:30: April Continuing Claims, est. 1.37m, prior 1.38m 08:30: April PPI Final Demand MoM, est. 0.5%, prior 1.4%; YoY, est. 10.7%, prior 11.2% 08:30: April PPI Ex Food and Energy MoM, est. 0.6%, prior 1.0%; YoY, est. 8.9%, prior 9.2% DB's Jim Reid concludes the overnight wrap It was all about the higher than expected US CPI report yesterday which added to Fed rate expectations, as well as hard landing expectations as revealed through the curve flattening that took place through the rest of the day. Longer dated Treasury yields fell (after initially spiking much higher) and equities fell sharply (S&P 500 -1.65%) after actually being higher for the first half of the US session. So a topsy-turvy day that kept the Vix above 30 for a fifth straight session. In terms of the details of that report, headline monthly CPI surprised to the upside with a +0.3% gain (vs. +0.2% expected), whilst monthly core CPI also surprised to the upside at +0.6% (vs. +0.4% expected). Thanks to base effects from last year, the year-on-year numbers managed to decline in spite of the upside monthly surprises, but they were also higher than expected with headline CPI at +8.3% (vs. +8.1% expected), and core CPI at +6.2% (vs. +6.0% expected). Looking at the components, what will concern the Fed is that there are plenty of signs that inflation pressures remain broad and can’t be pinned on transitory shocks like the spike in energy prices of late. For instance, owners’ equivalent rent (which makes up nearly a quarter of the inflation basket) was up +0.45%, which is its fastest monthly pace since June 2006. Rents also remained strong with a +0.56% increase, which is just shy of its February increase and still the second-highest since December 1987. Food prices (+0.9%) also continued to move higher in April, bringing their year-on-year gain to a 41-year high of +9.4%. One consolation might be that the Cleveland Fed’s trimmed mean (which removes the outliers in either direction) saw its smallest monthly increase since last August at +0.45%, even if it’s still increasing well above rates seen throughout the 2010s. The fact the release surprised on the upside saw an immediate reaction across asset classes, with 10yr Treasury yields bouncing by more than +14bps intraday during the half hour following the report to 3.07%, before reversing all of this to end the day down -7.0bps to 2.92%. Ultimately the decline in real rates (-14.7bps) offset expectations of higher inflation (+8.1bps), but it was a different story at the front-end of the curve, where 2yr yields rose +2.5bps since the report was seen to raise the likelihood of larger hikes at the coming meetings, with the futures-implied rate for the December meeting rising +4.5bps on the day. In Asia, US 10 year yields are another -3.3bps lower with 2yrs flats. This has left the 2s10s curve at 24.3bps after trading as high as 48.5bps on Monday. In terms of the reaction from Fed officials themselves, Atlanta Fed President Bostic said he would support +50bp hikes until policy reaches neutral, which suggests more +50bp hikes than just the next two meetings, which has been the common line from Fed speakers of late. Markets are placing a 58% chance on a +50bp hike at September, up from 49% the day before. Markets also increased the chance they place on the Fed being forced into a +75bp hike even at the June meeting, pricing a 14% chance versus 10% yesterday. We will also get the May CPI release ahead of the next FOMC meeting in June, but by that point they’ll be in their blackout period, so this is the last print they’ll be able to comment on ahead of their next decision, and will frame the chatter around whether 75bps might be back on the table at some point given inflation looks to be proving stickier than many had expected. For equities, the CPI print drove indices lower at the open, but they bounced around all day as volatility remained elevated, ultimately closing near the lows. The S&P 500 fell -1.65%, led by tech and mega cap shares, while the Vix ended above 30 for the fifth straight session for the first time since the post-invasion bout of volatility gripped equity markets. As mentioned, tech stocks were the main underperformer, with the NASDAQ down by -3.18% as investors priced in faster hikes from the Fed this year. Separately in Europe, equities outperformed their US counterparts for a 3rd consecutive day, with the STOXX 600 posting a +1.74% advance but closing well before the US slump. Whilst the main focus yesterday was on the US CPI report, there was significant central bank news in Europe as well after ECB President Lagarde put out a strong signal that July would be when the ECB starts hiking rates for the first time in over a decade. In her remarks, she said that the first hike “will take place some time after the end of net asset purchases”, and that “this could mean a period of only a few weeks”. A July hike would be in line with the call from our own European economists here at DB (link here), who see four consecutive quarter point hikes from July, taking the deposit rate up to +0.50% by year-end. That was then echoed by a separate Bloomberg report later in the session, which said that ECB officials were “increasingly embracing a scenario” where interest rates moved into positive territory by year-end. ECB policy pricing by the end of the year actually fell -1.3bps to 26.5bps, as a broader sovereign bond rally overpowered this. With other ECB speakers having already been signalling their openness to a July hike, European sovereign bonds reacted more to the US CPI report than Lagarde’s remarks. So we ended up with a similar pattern to Treasuries, whereby yields surged following the US release before falling back to end the day lower on growth fears. Ultimately, that meant yields on 10yr bunds were down -1.5bps at 0.98%, and there was a significant narrowing in peripheral spreads too, with the gap between 10yr Italian yields and bunds down -9.9bps. Asian equity markets are weaker overnight. The Hang Seng (-0.94%) is the largest underperformer across the region this morning after the Hong Kong Monetary Authority (HKMA) intervened into the currency markets for the first time since 2019 to defend the local dollar from capital outflows. The authority bought about HK$1.589 billion from the market to bolster the exchange rate in order to bring it back within the trading band i.e., between 7.75 and 7.85 versus the US dollar. Elsewhere, the Nikkei (-0.84%), Kospi (-0.56%) are also trading lower. Mainland Chinese stocks are showing a more mixed performance with the Shanghai Composite (+0.17%) higher while the CSI 300 (-0.07%) is a tad lower. Outside of Asia, US stock futures are flat but Euro Stoxx futures are catching down with the late US move last night and are around -2%. According to the BOJ’s summary of opinions from the April 27-28 meeting, the board brushed aside the idea of countering sharp yen falls with interest rate hikes with several board members arguing in favour of maintaining the central bank’s massive stimulus programme. Oil prices are lower in early Asian trade, taking a pause after Brent crude futures closed +4.93% higher last night. This morning, the contract is -1.15% down at $106.27/bbl as I type. Elsewhere in markets, a significant story over the last 24 hours has been the significant price declines in a number of major cryptocurrencies. Bitcoin is at $27,617 as I type, a level not seen since December 2020. Coinbase’s share price was down a further -26.40% yesterday, bringing its losses over the last week alone to almost -60%. A few other headlines worth highlighting. The Dallas Fed announced that Lorie Logan, the current manager of the Fed’s portfolio, would assume the role of President, which makes her a voter on the FOMC next year. Given her remit has been to manage the balance sheet, little is known about her views about monetary policy as of yet. Finally on the Brexit front, there was a further ratcheting up in the comments between the UK and the EU over the Northern Ireland Protocol yesterday. UK PM Johnson said that “we need to sort it out”, and Levelling Up Secretary Gove said that “no option is off the table”. From the EU side however, Irish Foreign Minister Coveney said that the EU would need to react if the UK breached international law, and Bloomberg reported that the EU would likely suspend their trade deal with the UK if the UK were to revoke its commitments. To the day ahead now, and data releases include the US PPI reading for April, the weekly initial jobless claims, and UK GDP for Q1. Central bank speakers include the ECB’s De Cos and Makhlouf. And in the political sphere, US President Biden will be hosting ASEAN leaders at the White House, whilst G7 foreign ministers are meeting in Germany. Tyler Durden Thu, 05/12/2022 - 07:57.....»»

Category: blogSource: zerohedgeMay 12th, 2022