james

By Michael Every of Rabobank

Frank analysis, tunes, and quotes

Please see our Fed-watcher Philip Marey’s take on the latest FOMC decision here for a thorough breakdown and forecast update.

In a Frank summary, the FOMC came very close to implying only two 25bp cuts this year, not three; reduced the number of cuts expected further out; their economic projections raised the level of GDP growth, didn’t expect any increase in unemployment, and saw core PCE inflation over target until 2026; and the market initially sold off.... Until FOMC Chair said even if rates wouldn’t go back to zero, there was uncertainty about even that; the Fed would need to pivot fast if unemployment rose sharply; and refused to address the loosening of financial conditions evident to everyone with a pulse. In short, Powell started crooning an old Sinatra tune:

“I like rate cuts in June, how about you? I like Wall Street’s tune, how about you?

I love a buy-side election boom when due; I like buy-all-the-dips, bulls-are-right yacht trips, how about you?

I'm mad about unbalanced books, can't get my fill; And Bitcoin and gold’s looks give me a thrill

Cutting rates whatever data show; When inflation ain’t low may not be new

But I like it, how about you?”

And markets, and the dollar, swooned as another Sinatra classic immediately came to their minds.

“Fly me to the moon; Let me trade among the stars

Let me see what stonks are like; On Jupiter and Mars

In other words, don’t hold my rates; In other words, Jay, cut them

Fill my trades with song; And let me punt for ever more

You are all I long for; All I worship and adore

In other words, please be true; In other words, Jay, I love you”

On one hand, the Fed might know something grim we don’t. On the other hand, maybe it really is the election coming up, where both polarised US camps are claiming it will be the end of democracy if the other wins: it’s not like central banks and politics aren’t related, for all the pearl-clutching this comment will prompt from some. Anywhere in-between those two hands is also valid as a view - except assuming we are in normal times, with a normal cycle, normal economy, normal markets, and a normal central-bank function: that we ain’t. Not as the US threw in another $8bn for another semi-conductor plant, in the latest tranche of mercantilism-lite, while the Congressional Budget Office says US public debt is only going one way: up.

So, maybe Powell was singing ‘My Way’, not in defiance as much as a tired resignation on the eventual way out the door; a man who did his best and is happy to be handing this hot mess over to whomever gets the short straw next.

Meanwhile, underlining that this is a global central-bank issue spanning Oceans 11, Australia just saw its composite PMIs at 11-month highs and +116.5K mostly full-time jobs added, taking the unemployment rate -0.4ppts to 3.7% to make an absolute mockery of the RBA’s recent shift from a mild tightening bias, and its claim that rates are “slightly restrictive”.

By contrast, neighbouring New Zealand is officially back in recession again even though inflation there is also not defeated either: so, do they cut anyway, or force the economy to suffer more?

Next up today will be the BOE, who have the latest slightly better set of inflation data as a fig leaf for whatever they opt to say; but also the backdrop of a speech from the almost-certain next Chancellor of the Exchequer (according to polls) quoting Joan Robinson and Karl Polanyi --my kind of mood music-- and saying the next Labour government will embrace industrial policy to ensure a boom in investment spending (with no cuts in consumer spending), which will be inflationary before it is eventually deflationary.

Frankly --or Sinatra-ly-- central banks can twinkle their pretty blue eyes at markets, who will fall for it, or threaten them with their ‘legitimate businessmen’ connections when talking tough, but at the end of the day, it won’t matter if stonks, Bitcoin, gold, house prices, and commodity prices --particularly oil (up 12.3% year-to-date, and 3.4% this month)-- say that what monetary policy is doing is actually their way.

Goldman: "Our interpretation is that Chair Powell and a narrow majority of the Committee feel strongly about not delaying cuts for too long and are targeting the June FOMC meeting for the first cut"

keep a very close eye on oil

— zerohedge (@zerohedge) March 21, 2024

Because then inflation will be going its way, and it won’t be down to 2% again, which is the central bank way. America’s geopolitical rivals will all be going their way with a spring in their stride, and it won’t be in the direction of the US dollar system, perhaps.

Indeed, “I’m gonna live till I die,” another Frank quote, may work well for stonks and those forced to buy them by the motivations and deprivations of neoliberalism, but it doesn’t for the supposed adults in the room, central banks.

Personally, that backdrop leaves me thinking of another Frank quote: “Basically, I'm for anything that gets you through the night - be it prayer, tranquilizers, or a bottle of Jack Daniels.” I may need all three simultaneously.

Submitted by Gun Owners of America,

Ecuador is experiencing a wave of violence over the past year that has finally reached a boiling point.

In the past few days, leaders of Ecuadorian cartels were broken out of prison, and violence quickly followed. Most recently, gunmen stormed a news station during a live broadcast and took hostages.

🇪🇨 | URGENTE: Delincuentes irrumpieron en TC Televisión y secuestran a todos en vivo y directo en Guayaquil, Ecuador. pic.twitter.com/ob1yleusOc

— Alerta Mundial (@AlertaMundoNews) January 9, 2024

In addition, footage from the University of Guayaquil showed the armed gang members' attempt to kidnap students.

The only people disarmed by gun free zones are law-abiding citizens! https://t.co/4cjpvsO9wh

— Aidan Johnston (@RealGunLobbyist) January 10, 2024

In response to this takeover and the high levels of violence, Ecuadorian President Daniel Noboa declared a state of emergency, designated the cartels as terrorist organizations, and called in the military.

But the military isn't alone in their fight. Citizens of Ecuador have taken up arms to fight with the army against the gangs. Videos on X show citizens riding with the police and military on motorcycles and in the back of pickup trucks prepared to combat the rising narcoterrorism.

More proof that an armed citizenry is necessary to the security of a free state ⤵️ https://t.co/GjfYWfoa0S

— Aidan Johnston (@RealGunLobbyist) January 10, 2024

While Ecuador recently loosened restrictions on civilians carrying firearms, it has done very little to make it easier for them to own. Citizens must submit to a lengthy permitting process that includes a certificate of skill in handling and using firearms, along with a drug test and psychological evaluation. To make matters worse, according to those familiar with the process, the issuance of a gun license could take anywhere from a few months to a year.

Even after all that, civilians are limited to very specific types of pistols, revolvers, and shotguns.

Meanwhile, videos out of Ecuador appear to show the use of a rocket launcher.

Gun control in Ecuador seems to be going about as well as expected… https://t.co/zYbpB9veB6

— Aidan Johnston (@RealGunLobbyist) January 10, 2024

These scenes of violence perpetrated by drug gangs are so foreign to the United States because even if the US military did nothing, law-abiding, gun-toting Americans could immediately mobilize to stop the threat.

Ecuador recently loosened its gun laws to help civilians protect themselves. Now armed citizens are reportedly fighting alongside law enforcement AGAINST crime and tyranny.

This is why our Second Amendment rights are worth protecting and fighting for.👏 https://t.co/RhL3NY2mmb

— Gun Owners of America (@GunOwners) January 10, 2024

The videos of violence and chaos coming out of Ecuador are evidence that an armed citizenry is necessary for the security of a free state.

*   *   *

We'll hold the line for you in Washington. We are No Compromise. Join the Fight Now.

*   *   *

A comment from ZH staff: 

GOA's note from earlier this week: Did Loosening Gun Control Cause A Nationwide Drop In Homicides?

Weeks before midterm elections - as if it wasn't always planned this way, the Jim Jordan-less, 100% anti-Trump January 6th Committee unanimously voted to issue a subpoena to former President Donald Trump.

Watch this video. This is what a one party state looks like. pic.twitter.com/WXAU5o47Ra

— Raheem J. Kassam (@RaheemKassam) October 13, 2022

The 9-0 vote was held during Thursday's televised (and 'produced'?) meeting aimed at painting Trump as the central antagonist in the January 6th 'attack' on the capital - for which protesters were allowed into the building by federal employees (a fact which this totally legitimate body totally didn't glaze over).

As Axios notes;

Trump has been the central figure of the committee’s investigation, which has focused on proving his culpability for what happened on Jan. 6.

• A key question the panel has grappled with for months has been whether to compel testimony from Trump himself. However, a subpoena this late in their investigation — when the committee is expected to sunset at the end of the year — is largely symbolic.

• It is unlikely that, if they successfully vote to subpoena the former president, it would result in Trumps' actual testimony. Instead, the committee is setting down a marker to show they sought to hear from Trump himself — with the knowledge that doing so will force a response from his team.

What they're saying: "He is the one person at the center of the story of what happened on January 6. So we want to hear from him," said Chair Bennie Thompson (D-Miss.).

• In his opening statement, Thompson said the committee was technically convening as a "formal committee business meeting."

It did not take long for former President Trump to respond (via TruthSocial):

More from John Ransom of The Epoch Times (emphasis ours),

As the House Jan. 6 committee heads towards its final public hearing, lawyers are criticizing the panel for engaging in overreach and harassing targets through onerous document production requests.

The comments were made as the committee is currently locked in a battle with former President Donald Trump’s election attorney John Eastman on the production of 576 emails subpoenaed by the panel. The committee in an Oct. 3 filing before a federal district court argued that Eastman was improperly holding back documents, under the guise of attorney-client privilege and attorney work-product privilege.

Eastman, 62, helped prepare legal filings for Trump that contested the results of the 2020 presidential election in several states. The committee has contended, in part, that the filings were an attempt to overthrow the government.

Eastman’s attorneys, in response, accused the committee of attempting to undermine the attorney-client relationship.

His lawyers further said that the court has already ruled on the matter and found in the vast majority of cases for Eastman’s claim that attorney-client privilege prevented Eastman from disclosing the documents to the committee

“Judge Carter found Dr. Eastman’s privilege logs perfectly adequate to dismiss a majority of the January 6 Committee’s attempts to subvert attorney-client privilege,” said Eastman’s attorneys from Burnham & Gorokhov said in the statement.

As proof of Eastman’s alleged attempts to improperly shield documents from investigators, the Jan. 6 committee released an email between Trump’s election lawyers in which they joked about Trump.

One of the email’s authors, former Trump lawyer Bruce Marks, accused the committee of releasing the exchange in an attempt to embarrass Trump’s lawyers.

“At the time of the emails on December 30 and 31, 2020, Professor Eastman, Ken Chesebro, and I were representing President Trump in litigating a U.S. Supreme Court petition filed on December 23,” Marks told Politico. “These emails were part of a privileged exchange. Regardless of whether specific tongue in cheek emails were protected by the attorney-client privilege, they were clearly protected by First Amendment rights of political association and free speech.”

‘Fishing Expedition’ 

One lawyer who has defended a half-a-dozen people who have been charged as a result of actions at the Capitol on Jan. 6. applauded Eastman and his attorneys for pushing back.

“The Committee’s endless speculation does not trump the power of attorney-client privilege,” attorney Joseph McBride told The Epoch Times in an email. McBride has a reputation for fiercely criticizing the government for its detention and prosecution of people regarding the events of Jan. 6.

“More people need to stand up to these communist psychopaths. I, for one, am glad that John Eastman is doing it,” he added.

Another lawyer who is suing the government over the seizure of phone records cautions said that the dispute between Eastman and the committee was only a small part of the panel’s excesses.

“I think [Eastman’s lawyers] were basically trying to show the court that that was a claim of attorney-client privilege that applied to that email. But the larger issues in the Jan. 6 Committee is they are overreaching,” Paul Kamenar, an attorney with the National Legal and Policy Center (NLPC), a conservative watchdog group, told The Epoch Times.

The NLPC is suing the select committee over phone records of a Jan. 6 protest organizer that the panel demanded in their probe.

“They’re not respecting that attorney-client privilege and work-product privilege. And even so, some of this is first amendment protected communications that we have,” Kamenar said.

To Kamenar, the committee has exceeded its authority.

“I think at this point, it’s just a matter of a fishing expedition and harassment, as I see it, and there’s no more need for any other emails from other people,” he said about the continued investigation of the panel, adding that there are no new facts being discovered by the committee.

McBride said that the continuation of the committee is just being used to hurt so-called MAGA-Republicans, without really investigating what happened.

“The committee is, without question, suppressing exculpatory evidence. It is also selectively editing videos to proffer a narrative to the public that caricatures all MAGA Republicans in the light of domestic extremism,” McBride said, noting that the same members of Congress gave Hillary Clinton a pass when she “destroyed 33,000 emails” she improperly kept on a private email server when she was secretary of state.

Electoral Reforms

According to Kamenar, the dispute over privilege claims is obscuring an obvious purpose of the Jan. 6 Committee hearings, which is to make it toxic to oppose proposed legislative reforms that would make it harder to decertify presidential results.

“That’s the purpose of the committee: Rep. Liz Cheney has a bill that would reform the Electoral Count Act, which is also co-sponsored by Rep. Zoe Lofgren,” said Kamenar.

In September, the House passed the Presidential Electoral Reform Act, introduced by Jan. 6 Committee members Cheney (R-Wyo.) and Lofgren (D-Calif.), that makes a number of changes to the 1887 Electoral Count Act. These include making the vice president’s role in election certification a ceremonial one, and increasing the number of lawmakers needed to sustain an objection to a state’s reported electoral slate.

Read more here...

Authored by Bill Blain via MorningPorridge.com,

“Now I shall go far and far into the East, playing the Great Game.”

Markets and Geopolitics intersect in the Great Game being played in Ukraine. The West’s economies are diverging as a result of inflation shocks and looming recession. Divergence will play into Russian’s hands, and presents a clear market strategy: Buy Dollars and Sell Europe.

Welcome to the age of divergence! A new long-term trend is upon us – Buy Dollars, Sell Europe. Unfortunately, it’s likely to play into Putin’s hand in Ukraine.

Hurts to say it, but Yoorp is going to struggle most with what’s coming next. It’s got limited choices between galloping inflation, economic misery, and political instability. Being Europe, there is a significant risk it’s likely to reap the non-benefits of all three.

After the US and UK hiked interest rates this week, the global inflation threat is so pronounced even the Swiss National Bank surprised markets by joining the Central Bank tightening trend! The Bank of Japan – well, they have a different view, keeping up QE and ZIRP, but they have different demography, and a tumbling yen that doesn’t particularly bother them. (Demographics – the most important thing I don’t pay enough attention to!)

Thus far, Central Banks are struggling in this crisis. Addressing the massive exogenous inflation shock of the Ukraine War, following the exogenous shock of the pandemic, with 50 bp rate hikes feels like treating a gaping flesh wound with a kid’s sticky plaster. It ain’t going to stop inflation. The UK is now predicting Q3 inflation of 11%. And, raising rates is a massive problem for markets – as the downside volatility has shown this week.

Reading through acres of market research, the credibility of Central Banks is being questioned around the globe. They face a devil or the deep blue sea choice – how to a) preserve jobs and economic stability by avoiding a market crash, or b) slashing inflation? And/or is not an option. It’s a thankless task, made more complex by the consequences of the last 13 years of monetary experimentation.

The ECB? It exists in the same economic world as the rest of us. But being a committee of 19 national members makes it rather unwieldy. (No Sh*t Sherlock!) At the best of times, steering an economy with imprecise monetary tools is challenging. For the ECB, it’s a compromise at best. That’s a major reason that 10-years after the last European Sovereign Debt Crisis – nothing, absolutely nothing, is actually fixed about the debt-raddled south.

In the aftermath of the last ECB meeting European Rates have risen; from negative to less negative. The collective economy remains precarious as inflation bites.

But the real problem is the ECB are still a-dither on how to tell the Germans they’re going to be paying for Italian pensions after all. The key for the ECB holding Yoorp together is avoiding the “fragmentation” of Southern European sovereign credit spreads. We don’t know how their new “anti-fragmentation instrument” will do it – and neither do they, yet. They held an emergency ECB meeting to agree to agree about talking about it.

(And yes, I use the world “credit” deliberately because they are not sovereign issuers. All Euro members are using a currency they don’t have financial sovereignty over. Having a vote at a table of 19 members is not the same thing.)

A full-blooded European Sovereign Credit Crisis is coming, and perversely it’s going to give us a clear investment winner! I am not for one second suggesting Italy is an attractive investment proposition, but it’s a screaming speculative opportunity! Buy Italy!

That’s because keeping Italy, and a number of other key debt-stressed members in the Euro remains the defining policy of the ECB, and thus the European Union. Like any good comedy – it’s all a matter of timing, and I would hazard a guess anything over 4% is as good an entry point?

Buy Italy. Sell Germany. Simples. First part of the Great Divergence trade.

The second part is to ignore anyone who says Sell Dollars.

Why would you? The US may longer be the globally trusted world policeman, but it’s still the global hegemon. There is not a credible dollar replacement. When crisis comes to sell – US Treasuries remain the ultimate safe haven, and if folk sell Treasuries it’s because they need dollars to pay as the benchmark for all commodity and finished goods trade.

The respective outlooks for the US and Europe are very different. Recession is coming:

• In the US it will be short, sharp and painful. It will give Donald Trump – who will likely still be calling the shots on the resurgent Republicans come the November Mid-terms – or his successor, the opportunity for a landslide blaming Sleepy Joe for destroying the economy. The US is energy secure and will feed itself. Inflation will hurt, but has hurt before. The US economy will bounce back. (There will be wobbles – higher rates mean thousand of US Zombie over-indebted corporates will fail. Revlon went for bankruptcy protection y’day.)

• For Europe: not so much a swiftly resolved shock, but a continuation of long-term pain. The economy – which never really recovered in Southern Europe – will prove even more definitional. The coming stagflationary crash will hurt. It will crush savings, the EIB expect 17% of European corporates to default, jobs will crash, rising social tensions will see Gillet Jaunes on the streets from Paris to Riga, and a renewed refugee crisis cause by food insecurity across North Africa will inflame populism.

The last time Europe looked this economically weak was in the aftermath of World War 2, when the then new global hegemon, the USA, used the Marshall Plan to bail-out, rebuild and restructure Europe as the bastion against the Soviet Union. It took foresight and vision.

This time? Europe and the US are no longer aligned on the Russian Threat.

President Biden sees the clear necessity to stop Russia at the border of Ukraine. He has the support of most democrat voters to do so. The next Republican administration is likely to be far less supportive of Ukraine, and if its Trump mark 2, there is a widespread assumption he may pull the US out of Nato.

Meanwhile, the economic weakness of Europe is likely to crystalise the current stalemate in Ukraine. Putin has time on his side. He can wait.

Europe is divided on multiple levels.

• Sanctions on Russian energy exports are inflicting pain across the Euro economy

• Southern and Eastern Europe is susceptible to Russian propaganda and kompromat. According to some reports over 50% of Slovakians now support Russia and apparently believe their crass propaganda! As I’ve written before, there is plenty of kompromat on Italian politicians.

What happens next?

Europe and the ECB realise their weakness. That’s why they are doing the usual European thing – seeking a compromise. That will inevitably mean playing to Russia so they can reopen the energy taps. Sadly, such an agreement will likely see Ukraine left a bit like Czechoslovakia after Munich in 1938; forced to accept a compromise where the Nazi’s got the “disputed” Sudetenland and the whole nation shortly thereafter.

The alternative for Europe is a very Bleak Energy-Scarce Winter of 22/23 and the likelihood the US will be domestically focused post November.

Left-wing, blue-check Twitter got a dose of reality Monday after Elon Musk's $54.20 per share offer buyout (approximately worth $46.5 billion) was unanimously approved by the Twitter Board of Directors and expected to close this year. 

After weeks of liberals screaming that Musk will ruin so-called "free speech" on the social media platform, there's been an uptick in internet searches to "delete Twitter," according to AskGamblers. 

Total global search trends, including all countries, suggest an increase of 698% in searches for "delete Twitter," a spokesperson for AskGamblers said. 

"It's interesting to see how Twitter users are disappointed when the world's richest man buys out one of the most popular social media platforms in the world for $44bn," the spokesperson added. 

US Search Trend "Delete Twitter"  

Global Search Trend "Delete Twitter"  

We also see the establishment media melting down, publishing articles on "How to Delete Your Twitter Account." 

Musk has described himself as a free speech absolutist. And perhaps under his leadership, Twitter will get out of the business of censoring anyone who challenges or has a different opinion than the liberal establishment.

After trading flat for much of the overnight session, S&P futures slumped to session lows shortly after JPM reported earnings that disappointed the market (see our full write up here) and were last trading down 30 points or 0.64%, with Dow futures down 0.3% and Nasdaq futures taking on even more water as the "sell tech" trade was back with a bang. Treasury yields rose 3bps to 1.74% and the dollar reversed an overnight loss. The VIX jumped above 20 and was last seen around 21.

The Nasdaq 100 fell to the lowest in almost three months yesterday as tech came under pressure after Fed Governor Lael Brainard said officials could boost rates as early as March. It looks like the selling will continue today.

“Market sentiment has been shaken by concerns over the prospect of imminent Fed tightening along with record global Covid-19 infection rates, but we don’t expect either of these factors to end the equity rally,” said UBS Wealth Management CIO Mark Haefele in a note. “The fourth-quarter U.S. earnings season, which started this week, could turn investor attention back to strong fundamentals.”

JPMorgan shares dropped in premarket trading after revenues and EPS beat thanks to a $1.8 billion reserve release while FICC trading revenue missed expectations even as its dealmakers posted their best quarter ever and Chief Executive Officer Jamie Dimon gave an upbeat assessment of prospects for growth. Wells Fargo advanced after reporting higher-than-estimated revenue. BlackRock Inc. became the first public asset manager to hit $10 trillion in assets, propelled by a surge in fourth-quarter flows into its exchange-traded funds. Here are some of the other notable pre-movers today:

• U.S.-listed casino stocks with operations in Macau rise after the announcement of much-anticipated changes to the local casino law aimed at tightening government oversight on the world’s largest gaming market. Las Vegas Sands (LVS US) +6.6%; Melco Resorts (MLCO US) +5.5%; Wynn Resorts (WYNN US) +5.6%.
• Apple (AAPL US) shares are up in U.S. premarket trading after Piper Sandler raises its target for the stock, saying that Apple’s set-up for 2022 is favorable. Broker adds that the tech giant’s venture into health-care and automotive markets are the next catalysts to drive the stock to a $4 trillion market cap and beyond.
• NextPlay Technologies (NXTP US) shares jump 19% in U.S. premarket trading after giving an update for fiscal 3Q 2022 late yesterday.
• Domino’s Pizza (DPZ US) is cut to equal-weight from overweight at Morgan Stanley, while Chipotle is upgraded to overweight from equal-weight amid a “mixed” view on restaurant stocks into 2022.
• Amicus Therapeutics (FOLD US) advanced in postmarket trading after being upgraded to outperform from market perform at SVB Leerink, which cited the potential of a treatment for Pompe disease, should it be approved.
• Spirit Realty dropped 4% postmarket after launching a share sale via Morgan Stanley and BofA Securities.

European equities traded poorly and followed the drop in Asia, with most sectors trading lower, weighed down once again by a soft tech sector. Euro Stoxx 50 is down 0.8%, most major indexes dropped over 1% before rising off the lows. Oil & gas is the best Stoxx 600 performer with crude trading well. European technology stocks as well as pandemic winners are leading declines after a U.S. selloff in tech shares resumed Thursday as Federal Reserve officials signaled their intention to combat inflation aggressively.  European chipmakers are down in early trading Friday: ASM International -3.5% at 9.17 a.m. CET, Infineon -0.9%, ASML -2.9%, STMicroelectronics -2.3%. Meanwhile, energy and automakers outperformed. Utilities were also in focus as French nuclear energy producer Electricite de France SA (EDF) plunged by a record as the French government confirmed plans to force it to sell more power at a steep discount to protect households from surging wholesale electricity prices, a move that could cost the state-controlled utility 7.7 billion euros ($8.8 billion) at Thursday’s market prices.

There was some good news: a majority of strategists still see the rally in European equities continuing this year. The Stoxx Europe 600 Index will rise about 5.2% to 511 index points by the end of 2022 from Wednesday’s close, according to the average of 19 forecasts in a Bloomberg survey. Equity funds once more led inflows among asset classes in the week through Jan. 12, as investors reduced cash holdings, according to BofA and EPFR Global data.

Earlier in the session, Asian stocks slid as investors offloaded technology shares on growing speculation the Federal Reserve will raise interest rates in March.  The MSCI Asia Pacific Index fell as much as 1.3% before paring losses to 0.7% in afternoon trading. Alibaba, Keyence and Sony Group were among the largest contributors to the benchmark’s slide. The Hang Seng Tech Index, which tracks China’s biggest tech firms, closed down 0.5%. Electronics makers also dragged down indexes in Japan and South Korea, with benchmarks in both nations leading the region’s drop. China’s CSI 300 Index closed at its lowest since November 2020. Asian stocks have been whipsawed this year by remarks from Fed officials as investors try to gauge the timing and scope of the anticipated interest rate hikes. The renewed weakness on Friday was triggered by comments from Fed Governor Lael Brainard, who said officials could boost rates as early as March to ensure that price pressures are brought under control. “This kind of hawkishness and a rush for rate hikes is, of course, a minus for share prices,” said Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank in Tokyo. If the Fed were to increase rates in March, “investors will want to make sure the economy remains strong despite the monetary tightening before making their move,” Sera added.  With Friday’s moves, Asia’s benchmark is set to pare its weekly gain to about 1.6%, which would still be its best weekly performance since October.    In Japan, sentiment worsened as Tokyo raised its Covid alert to the second-highest of four levels as virus cases surged. South Korea’s Kospi was also weighed down as the central bank increased its policy rate for the third time in just five months

In rates, Treasuries pared declines with stock index futures under pressure as U.S. day begins. Yields beyond the 2-year reached session highs inside Thursday’s ranges amid a global government bond selloff. Treasury yields are cheaper by 3bp to 4bp across the curve with 10- year yields around 1.7274%, fading a bigger loss earlier and slightly underperforming bunds and gilts. Asia session featured speculation about tighter global monetary policy. IG dollar issuance slate empty so far and expected to remain light ahead of U.S. holiday weekend with markets closed Monday; four names priced $3.8b Thursday.

In FX, the Bloomberg dollar spot is little changed around worst levels for the week, while NOK, JPY and CAD top the G-10 scoreboard. The yen advanced, and is set for its largest weekly advance in more than a year as speculation about a shift in the Bank of Japan’s policy spurred a further unwinding of dollar longs. The five-year Japanese government bond yield climbed to a six-year high. The volatility term structure in dollar-yen shifted higher Friday and inverted. The euro was little changed around $1.1460 and European sovereign bond yields rose, with the core underperforming the periphery. Norway’s krone and the Canadian dollar advanced as oil prices rose, with Brent trading above $85 per barrel, while the Australian and New Zealand dollars were the worst performers. The pound extended its longest winning streak in nearly two months as the U.K. economy surpassed its pre-pandemic size in November for the first time. Sweden’s krona inched down, shrugging off data showing that the nation’s inflation rate rose to the highest level in 28 years

In commodities, crude futures rally with WTI recovering to Wednesday’s best levels near $83 and Brent putting in fresh highs near $85.40. Spot gold is little changed a brief retest of the week’s highs, trading near $1,823/oz. Base metals are mixed: LME nickel adds about 2% extending its recent surge; copper holds a narrow range in the red

Looking at the day ahead now, data releases include US retail sales, industrial production and capacity utilisation for December, along with the University of Michigan’s preliminary consumer sentiment index for January and the UK’s GDP for November. Central bank speakers include ECB President Lagarde and New York Fed President Williams. Lastly, earnings releases include Citigroup, JPMorgan Chase, Wells Fargo and BlackRock.

Market Snapshot

• S&P 500 futures up 0.3% to 4,667.00
• STOXX Europe 600 down 0.5% to 483.71
• MXAP down 0.8% to 195.28
• MXAPJ down 0.5% to 639.13
• Nikkei down 1.3% to 28,124.28
• Topix down 1.4% to 1,977.66
• Hang Seng Index down 0.2% to 24,383.32
• Shanghai Composite down 1.0% to 3,521.26
• Sensex up 0.1% to 61,320.31
• Australia S&P/ASX 200 down 1.1% to 7,393.86
• Kospi down 1.4% to 2,921.92
• German 10Y yield little changed at -0.08%
• Euro up 0.1% to $1.1467
• Brent Futures up 0.8% to $85.16/bbl
• Gold spot up 0.1% to $1,823.97
• U.S. Dollar Index little changed at 94.73

Top Overnight News from Bloomberg

• Federal Reserve Governor Christopher Waller said that three interest-rate increases this year was a “good baseline” but there may be fewer or even as many as five moves, depending on inflation
• The U.K. and the European Union agreed to intensify post-Brexit negotiations over Northern Ireland, as Foreign Secretary Liz Truss led the British side for the first time in a meeting at her official country residence
• Germany’s economy contracted by as much as 1% in the final quarter of 2021 as the emergence of the coronavirus’s omicron strain added to drags on output from supply snarls and the fastest inflation in three decades
• Japan’s Government Pension Investment Fund, the world’s largest, may mull investing in Chinese government bonds if the market situation improves, GPIF President Masataka Miyazono says at a press conference in Tokyo
• Ukraine said a cyberattack brought down the websites of several government agencies for hours. Authorities didn’t immediately comment on the source of the outage, which comes as tensions with Russia surge over its troop buildup near the border
• Russia won’t wait “endlessly” for a security deal with NATO and progress depends on the U.S., Foreign Minister Sergei Lavrov said Friday, keeping up pressure after a week of high-level talks with the West failed to yield noticeable progress
• Turkey’s newly appointed finance chief said the country’s inflation will peak months earlier and at a level far lower than predicted by top Wall Street banks
• The global pressures driving inflation higher represent a “major change in trends” and will keep price growth high for the foreseeable future, Bank of Russia Governor Elvira Nabiullina said
• North Korea appears to have fired two ballistic missiles into waters off its east coast-- in what could be its third rocket-volley test in less than 10 days -- hours after issuing a fresh warning to the Biden administration

A more detailed look at global markets courtesy of Newsquawk

Asian equity markets weakened amid headwinds from the US where all major indices declined led by losses in tech and consumer discretionary amid a slew of hawkish Fed speak, while mixed Chinese trade data added to the cautiousness in the region. ASX 200 (-1.1%) traded lower as tech and consumer stocks mirrored the underperformance of stateside peers and with nearly all industries on the back foot aside from utilities and gold miners. Nikkei 225 (-1.3%) briefly gave up the 28k level amid a firmer currency and source reports that BoJ policy makers are said to debate how soon they can begin signalling a rate hike. In terms of the notable movers, Fast Retailing was the biggest gainer after it reported a record Q1 net, followed by Seven & I Holdings which also benefitted post-earnings, while Hitachi Construction was at the other end of the spectrum after news that parent Hitachi will offload half its majority stake. KOSPI (-1.4%) eventually underperformed after the Bank of Korea hiked rates by 25bps for a third time in the current tightening cycle to 1.25%, as expected. BoK also noted that CPI is to stay in the 3% range for a while and BoK Governor Lee made it clear that rates will continue to be adjusted which has fuelled speculation of similar action at next month’s meeting. Hang Seng (-0.2%) and Shanghai Comp. (-1.0%) were also pressured with participants digesting the latest trade figures which showed weaker than expected Imports although Exports topped estimates. Nonetheless, the downside was somewhat limited amid ongoing expectations for PBoC easing to support the economy as the Fed moves closer towards a rate lift off and with some encouragement after Evergrande averted its first onshore debt default whereby bondholders approved a six-month postponement of bond redemption and coupon payments. Finally, 10yr JGBs retreated beneath the 151.00 level following the source report that suggested debate within the BoJ on how soon a rate increase can be signalled which could occur ahead of the 2% price target, while this coincided with an increase in the 5yr yield to a 6-year high and a weaker than previous 20yr JGB auction.

Top Asian News

• Chinese Developer R&F Downgraded to Restricted Default by Fitch
• Macau Cuts Casino License Tenure, Caps Float as Controls Tighten
• Inflation Irks Asia as Japan Yields Hit Six-Year High, BOK Hikes
• China Builders’ Dollar Bonds Slump Further; Logan, KWG Lead

The major cash equity indices in Europe remain subdued but off worst levels (Euro Stoxx 50 -0.7%; Stoxx 600 -0.6%) as the downbeat APAC mood reverberated into the region amid a slew of hawkish Fed speak, while the mixed Chinese trade data added to the concerns of a slowdown ahead of next week’s GDP metrics. Newsflow had overall been quiet during the European session ahead of the start of US earnings season, but geopolitical tensions remain hot on the radar after North Korea fired its third missile of the year (albeit landing outside Japan’s EEZ), whilst Russia closed all communication channels with the EU and exerted some time-pressure on Washington with regards to Moscow’s security demands. Back to trade, a divergence is seen between Europe and the US as the former catches up to the late accelerated sell-off on Wall Street yesterday; US equity futures have been consolidating with mild broad-based gains seen across the ES (+0.2%), YM (+0.2%), NQ (+0.2%) whilst the RTY (Unch) narrowly lags. Delving into Europe, the UK’s FTSE 100 (-0.1%) is cushioned by gains across its Oil & Gas and Financial sectors as crude oil prices and yields clamber off intraday lows, whilst the SMI (-0.3%) sees some losses countered by its heavyweight healthcare sector. Sectors in Europe are mostly in the red with a slight defensive tilt, although Oil & Gas stands as the top gainer and the only sector in the green. The downside meanwhile sees Tech following a similar sectorial underperformance seen on Wall Street and APAC overnight. In terms of individual movers, DAX-heavyweight SAP (-0.3%) conforms to the losses across tech after initially rising as a result of upgraded guidance and the announcement of a share buyback programme of up to EUR 1bln. The most notable mover of the day has been EDF (-17.5%) as the Co. withdrew guidance after noting the impact of new French price cap measures is forecast to be around EUR 8.4bln on FY22 EBITDA.

Top European News

• EDF Slumps by Most on Record on Hit From Price Cap
• U.K. Economy Surpasses Pre-Pandemic Size With November Surge
• German Recovery Lags Rest of Europe on Supply Snarls, Inflation
• HSBC Markets Chief Georges Elhedery To Take Six-Month Sabbatical

In FX, another lower low off a lower high does not bode well for the index and Buck more broadly, but some technicians will be encouraged by the fact that chart supports in the form of a Fib retracement and 100 DMA have only been breached briefly. Meanwhile, Friday may provide the Greenback with a prop via pre-weekend position squaring and US data could lend a hand if upbeat or better than expected at the very least. For now, the DXY is restrained between 94.887-626 confines, with the upside capped by a major trendline that falls just below 95.000 around 94.980, and the Dollar also hampered by pressure emanating outside the basket from the likes of the Yuan, crude oil and other commodities.

• CAD/JPY/GBP - The Loonie has reclaimed 1.2500+ status in line with a rebound in WTI towards Usd 83/brl, but still faces stiff trendline resistance vs its US counterpart at 1.2451 and probably conscious that several multi-billion option expiries roll off either side of the 1.2500 level today. Conversely, the Yen has cleared the psychological 114.00 hurdle with some fundamental impetus coming from hawkish BoJ source reports contending that policy-setters are contemplating how soon the Bank can telegraph a rate hike that is likely to be delivered prior to inflation reaching its 2% target. Elsewhere, Sterling remains elevated above 1.3700, though unable to scale 1.3750 even with tailwinds from stronger than forecast UK GDP and IP or a narrower than feared trade gap amidst ongoing political uncertainty.
• CHF/EUR/NZD/AUD - All narrowly divergent and contained against their US rival, with the Franc straddling 0.9100 and Euro holding within a 1.1483-51 range and immersed in hefty option expiry interest spanning 1.1395 to 1.1485 (see 7.01GMT post on the Headline Feed for details). On the flip-side, the Aussie and Kiwi have both lost a bit more momentum after probing 0.7300 and approaching 0.6900 respectively yesterday, and Aud/Usd appears to have shrugged off robust housing finance data in the run up to China’s trade balance revealing sub-consensus imports.
• SCANDI/EM - Firmer than anticipated Swedish CPI and CPIF metrics have not offered the Sek much support, as the stripped down core ex-energy print was in line and bang on the Riksbank’s own projection. However, the Huf has been underpinned by hot Hungarian inflation and the Cnh/Cny in wake of the aforementioned Chinese trade data showing a record surplus for December and 2021 overall. In Turkey, the Try is flattish following the latest CBRT survey that predicts a weaker year-end Lira from current levels, but above record lows and still well above target CPI, while in Russia the Rub is benefiting from Brent’s rise above Usd 85.50/brl (in keeping with the Nok) against the backdrop of geopolitical and diplomatic strains as the country’s Foreign Minister declares that all lines of communication with the EU have ended.

In commodities, WTI and Brent front-month futures have been on an upward trajectory since the Wall Street close, with the former now above USD 83/bbl (vs 81.58/bbl low) and the latter north of USD 85.50/bbl (vs 83.99/bbl low) in European hours. Overall market sentiment has been a non-committal one amid a lack of fresh macro catalysts, however, geopolitical updates have been abundant: namely with Russia’s punchy rhetoric surrounding its security demand from NATO and Washington, whilst North Korea fired what is said to be ballistic missiles which landed just outside Japan’s Exclusive Economic Zone (EEZ). On the demand side of the equation, eyes remain on China’s economic and COVID situations, with the import figures indicating China's annual crude oil imports drop for the first time in 20 years, whilst the nation grounded further flights between the US due to its zero-COVID policy. On the supply side, reports suggested that China will release oil stockpiles in the run-up to the Lunar New Year (dubbed as the largest human migration). The release is part of a coordinated plan with the US and other major consumers, according to the reports, which cited sources suggesting China will likely ramp up its releases if prices top USD 85/bbl. Turning to metals, spot gold is trading sideways and prices waned after again hitting the resistance zone around USD 1,830/oz flagged earlier this week. LME copper meanwhile remains under USD 10,000/t – subdued by the sharp slowdown in Chinese imports suggesting weaker demand, albeit annual imports of copper concentrate hit a historic high in 2021. The trade data also indicated a fall in iron ore imports as a factor of the steel production curbs imposed last year to tackle pollution and high iron ore prices.

US Event Calendar

• 8:30am: Dec. Import Price Index YoY, est. 10.8%, prior 11.7%; MoM, est. 0.2%, prior 0.7%
  • Export Price Index YoY, est. 16.0%, prior 18.2%; MoM, est. 0.3%, prior 1.0%
• 8:30am: Dec. Retail Sales Advance MoM, est. -0.1%, prior 0.3%
  • Dec. Retail Sales Ex Auto MoM, est. 0.1%, prior 0.3%
  • Dec. Retail Sales Ex Auto and Gas, est. -0.2%, prior 0.2%
  • Dec. Retail Sales Control Group, est. 0%, prior -0.1%
• 9:15am: Dec. Industrial Production MoM, est. 0.2%, prior 0.5%
  • Capacity Utilization, est. 77.0%, prior 76.8%
  • Manufacturing (SIC) Production, est. 0.3%, prior 0.7%
• 10am: Nov. Business Inventories, est. 1.3%, prior 1.2%
• 10am: Jan. U. of Mich. Sentiment, est. 70.0, prior 70.6; Expectations, est. 67.0, prior 68.3; Current Conditions, est. 73.8, prior 74.2
  • U. of Mich. 1 Yr Inflation, est. 4.8%, prior 4.8%; 5-10 Yr Inflation, prior 2.9%

DB's Jim Reid concludes the overnight wrap

There was no rest for markets either yesterday as the tech sell-off resumed in earnest, which came as fed funds futures moved to price in a 93% chance of a March rate hike, the highest closing probability to date. At the same time, however, the US dollar continued to weaken and has now put in its worst 3-day performance in over a year, having shed -1.25% in that time. And all this is coming just as earnings season is about to ramp up, with a number of US financials scheduled to report today ahead of an array of companies over the next few weeks.

Starting with sovereign bonds, yields on 10yr Treasuries fell a further -3.9bps yesterday, their biggest decline since mid-December, to their lowest closing level in a week, at 1.704%, with most of the price action again happening during the New York afternoon. Lower inflation breakevens helped drive the decline, with the 10yr breakeven down -3.4bps after the producer price inflation data for December came in softer than expected. Indeed, the monthly gain of +0.2% (vs. +0.4% expected) was the slowest since November 2020, and in turn that left the year-on-year measure at +9.7% (vs. +9.8% expected), which is actually a modest decline from the upwardly revised +9.8% in November. As with the previous day’s CPI reading though, there was a more inflationary interpretation for those after one, as the core PPI measure came in at a monthly +0.5% as expected, leaving the year-on-year change at an above-expected +8.3% (vs. +8.0% expected). So something for everyone but no massive surprises either way.

The latest inflation data came as numerous Fed speakers continued to match the recent hawkish tone, which helped strengthen investor conviction in the odds of a March hike as mentioned at the top. Philadelphia Fed President Harker said at an event that “My forecast is that we would have a 25 basis-point increase in March, barring any changes in the data”, and that he had 3 hikes pencilled in but “could be convinced of a fourth if inflation is not getting under control.” Separately, we heard from Governor Brainard, who appeared before the Senate Banking Committee as part of her nomination hearing to become Fed Vice Chair. She signalled that she would be open to a March hike as well, saying that they would be in a position to hike “as soon as asset purchases are terminated”, which they’re currently on course to do in March. Even President Evans, one of the most dovish members of Fed leadership, said a March rate hike and multiple hikes this year were a possibility. As it happens, today is the last we’ll hear from various Fed speakers for a while, as tomorrow they’ll be entering their blackout period ahead of the next FOMC announcement later in the month.

Staying on the Fed, Bloomberg reported overnight that President Biden has picked three nominees for the vacant slots. They include Sarah Bloom Raskin, previously Deputy Secretary of the Treasury, who’s reportedly going to be nominated to become the Vice Chair of supervision, as well as Lisa Cook and Philip Jefferson, who’d become governors. Cook is an economics professor at Michigan State University, and Jefferson is an economics professor at Davidson College in North Carolina. All 3 would require Senate confirmation, and bear in mind those choices haven’t been officially confirmed as of yet.

Over on the equity side, the main story was a further tech sell-off that sent both the NASDAQ (-2.51%) and the FANG+ index (-3.72%) lower for the first time this week, and taking the former to a 3-month low. That weakness dragged the S&P 500 (-1.5%) lower, though despite the stark headline numbers, it was only just over half of the shares in the index that were in the red on the day. Meanwhile in Europe, the STOXX 600 (-0.03%) also saw a modest decline, though the STOXX Banks (+1.10%) hit a fresh 3-year high after advancing for the 8th time in the last 9 sessions. Sovereign bond yields echoed the declines in the US too, with those on 10yr bunds (-3.1bps), OATs (-3.3bps) and BTPs (-4.6bps) all moving lower.

Following that tech-driven fall overnight on Wall Street on the back of those hawkish comments, Asian stock markets are trading lower this morning. Japan's Nikkei (-1.42%) extended the previous session’s losses while briefly falling over -2%, as the Japanese Yen found a renewed bid amid the risk-off mood. Additionally, the Kospi (-1.37%) widened its losses, after the BOK lifted borrowing costs by 25bps to 1.25% amidst rising concerns about inflationary pressure. That takes the benchmark rate back to pre-pandemic levels after the central bank's 25bps rate increase in August and November last year. Meanwhile, the Korean government unveiled a supplementary budget worth 14 trillion won in size to continue providing support to the economy. Elsewhere, the Hang Seng index (-0.86%), CSI (-0.60%) and Shanghai Composite (-0.53%) have all moved lower as well. Data released in China showed that exports went up +20.9% y/y in December (vs +20.0% market expectations) albeit imports in December rose +19.5% y/y less than +28.5% as anticipated. That meant that they posted a trade surplus of $94.46bn last month, above the consensus forecast for a $74.50bn surplus. Looking ahead, futures on both the S&P 500 (-0.19%) and DAX (-0.79%) are pointing to further losses later on.

Elsewhere in markets, yesterday saw another surge in European natural gas futures (+13.71%), albeit still at levels which are less than half of the peaks seen in mid-December. The latest moves came as Russia’s deputy foreign minister Sergei Ryabkov said that talks with the US had reached a “dead end”, amidst strong tensions between the two sides with Russia rejecting any further expansion of NATO as well as calls to pull back its forces from near Ukraine’s border. In response, the Russian ruble weakened -2.31% against the US dollar yesterday, whilst the MOEX stock index (-4.05%) suffered its worst daily performance since April 2020.

Turning to the Covid-19 pandemic, the decline in UK cases continued to accelerate yesterday, with the number of cases over the past week now down -24% relative to the previous 7-day period. Looking at England specifically, the total number of Covid-19 patients in hospital is now down for a 3rd day running, and in London the total number in hospital is down to its lowest level since New Year’s Eve.

To the day ahead now, and data releases include US retail sales, industrial production and capacity utilisation for December, along with the University of Michigan’s preliminary consumer sentiment index for January and the UK’s GDP for November. Central bank speakers include ECB President Lagarde and New York Fed President Williams. Lastly, earnings releases include Citigroup, JPMorgan Chase, Wells Fargo and BlackRock.

10 civilian members of an Afghani family including seven children were killed in a US drone strike on Sunday, according to NBC News (!?), which spoke with relatives of the Ahmadi family who said they were hoping to make it onto an evacuation flight out of Kabul before the United States ended its withdrawal from the country.

"They were 10 civilians," said Emal Ahmadi, whose 2-year-old toddler, Malika was among those killed. "My daughter ... she was 2 years old," he said.

More via NBC News:

That day, Ahmadi's cousin, Zemari Ahmadi, 38, had just pulled up at home from work, with his 13-year-old son, Farzad, his youngest of three, racing to greet him. (Other reports have said Farzad was 12, but both Ahmadi and another relative told NBC News he was 13.)

Farzad, who had just learned to drive, wanted to park his father's car, a wish Zemari was happy to oblige as other family members gathered around.

It was in that moment that Ahmadi said an explosion tore through the vehicle, killing Zemari, Farzad and eight other family members, as was first reported by The New York Times and The Washington Post.

According to Pentagon spokesman John Kirby, Washington is "not in a position" to dispute reports that the Sunday drone strike killed civilians, however he claimed that one of the family members belonged to radical Islamic group, ISIS-K.

Malika and two other toddlers were the youngest family members killed, along with Ahmadi's nephews Arwin, 7, and Benyamin, 6, and Zemari's two other sons, Zamir, 20, and Faisal, 16, Ahmadi said.

Zemari was a technical engineer for Nutrition and Education International, a nonprofit working to address malnutrition based in Pasadena, California.

Just a day before his death, he had been helping to prepare and deliver soy-based meals to women and children at refugee camps in Kabul, Steven Kwon, president of NEI, told NBC News in an email.

One colleague and friend of six years to Zemari said he was devastated, while also describing Ahmadi as a "good man with good ethics."

Also killed in Biden's drone strike was Ahmad Naser - a former officer in the Afghan Army and contractor with the US military, according to his cousin. Naser was days away from his wedding when he was killed.

Instead, there will be a funeral.

"They were all buried," said 31-year-old Yousef. "We're all ruined. The family is gone."

According to an evidence-free statement by US Central Command, however, there "were substantial and powerful subsequent explosions resulting from the destruction of the vehicle," suggesting that there was a "large amount of explosive material inside that may have caused additional casualties."

That said, we tend to doubt that that a car full of children would be headed to the airport to set off another suicide bomb, following the previous week's attack that left 169 Afghan civilians and 13 members of the US military dead.

Authored by Bryce Coward via Knowledge Leaders Capital blog,

Yesterday at the annual Jackson Hole Economic Symposium, Federal Reserve Chairman Jerome Powell reiterated that the Fed is in no hurry to either taper asset purchases immediately or aggressively. Additionally he made crystal clear that even when the Fed does eventually start tapering asset purchases (likely November or December), it should not be taken as signaling interest rate hikes will follow on some preset course. Indeed, Fed Chairman Powell continues to lean into the idea that inflation is will prove to be transitory and so there is no rush to tighten policy, especially with the employment part of the mandate still far from being achieved.

This strong dovish guidance flies in the face of what many investors have been expecting, which was for the Fed to commence asset tapering sooner rather than later and for rate hikes to potentially commence in 2022 rather than the middle of 2023 or later. The reiteration of the more dovish Fed stance opens the door inflation expectations to turn back up, since the Fed is not so eager to front run rises in inflation with more restrictive policy. And, if inflation expectations turn back up (blue line), we could see a re-steepening of the yield curve (red line).

The shape of the yield curve has been highly influential recently in relative performance trends between various areas of the market. From last summer through May of this year, the steepening of the yield curve coincided with healthy outperformance of cyclical stocks. Since May, the flattening of the curve has coincided with more defensive (or at least high quality) leadership out of the tech and health care sectors. The logic goes, therefore, that a re-steepening of the curve should coincide with a shift back to cyclicals. Indeed, that shift may be in the early innings.

For example, the the more cyclical and smaller skewed S&P 500 equal weight index has started to outperform the S&P 500 again, right on queue with the yield curve re-steepening.

Same goes for industrial stocks.

Same goes for materials stocks.

And, same goes for financial stocks.

So, our take is a relatively simple one. If dovish Fed policy continues to look past “transitory” inflation and remains in no hurry to tighten policy, we may very well witness an un-rotation out of technology and back into cyclicals in the back half of 2021…and wouldn’t that be painful for those who chased tech late into its recent rally?

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