Zero Hedge

WTI Rally Stalls On Crude Build, White House Hints At SPR Release

WTI Rally Stalls On Crude Build, White House Hints At SPR Release

Oil prices fell for the second day in a row (albeit very modestly today) as the 'WW3-on / WW3-off' headline-swings (supply) are wearing on traders, and less-and-less dovish expectations for The Fed weigh on demand expectations

"Oil traders are hunkering down as bears are increasingly afraid to bet on lower prices," Phil Flynn, senior market analyst at the Price Futures Group, told MarketWatch.

At the same time, "bulls are pulling in their horns until they get clarity on what the Israeli response may be."

Oil traders are waiting to see how the "diplomatic push for Israel to show restraint pays off," said Flynn.

Traders are expecting another crude build (the fourth in a row, albeit small), and a return to gasoline draws...

API

  • Crude +4.09mm (+600k exp)

  • Cushing -169k

  • Gasoline -2.51mm (-1.0mm exp)

  • Distillates -427k (-400k exp)

API reported a much bigger than expected crude build (and offset that with a large gasoline draw)...

Source: Bloomberg

WTI was hovering around $85.3 ahead of the API print and was thoroughly unimpressed by the mixed inventory data...

However, Joe and Jerome have a problem as pump-prices just keep going higher...

Source: Bloomberg

President Biden “wants to keep the price of gasoline affordable, and we’ll do what we can to make sure that that happens,” White House senior adviser John Podesta says at the BloombergNEF Summit in New York, responding to a question about a potential release of oil from the nation’s Strategic Petroleum Reserve amid forecasts that already rising prices at the pump will spike this summer.

  • JOE BIDEN'S APPROVAL RATING FALLS TO 38% FROM 40% IN MARCH - REUTERS/IPSOS POLL

Source: Bloomberg

Who could have seen that coming?

'Strategic' - "you keep using that word... I do not think it means what you think it does."

Tyler Durden Tue, 04/16/2024 - 16:40

The Fundamental Unraveling Of America

The Fundamental Unraveling Of America

Authored by Albin Sadar via American Greatness,

By now, it must be overwhelmingly apparent to every American citizen that what candidate Barack Obama promised on the campaign trail back in 2008 has come to pass. Obama touted a “fundamental transformation of America” if elected president and, once elected, he proceeded to accomplish that one huge goal.

It can certainly be argued that the country experienced a slow boiling of the frog during the eight years of Obama’s presidency and that, during that period, the pot neither got to boil too long nor did the frog feel the heat intensely enough to hop out. Hillary Clinton was anointed by the Democrats to follow Obama to continue the unraveling of America’s constitutional republic, replacing it with their own interpretation of a “democracy.”

But somehow, out of nowhere, a wrecking ball named Donald J. Trump collided with the original fundamental-transformation plan. However, that, as we all experienced, was only a temporary setback. Once the 2020 election was successfully rigged and stolen and a hand-puppet-Biden government was installed, Obama and his global handlers continued stirring and reheating the pot to the required boiling point.

As it turned out, this time around, turning up the heat also necessitated putting a lid on the pot because there was a real chance that the frog might finally catch on and attempt to jump out.

So, where are we now?

The pot continues to frantically boil, with the frog finally awakening to its fate - but trapped inside the pot.

And the only one capable of removing the lid is that same old why-won’t-he-just-go-away-already Trump.

Even with the onslaught of tactics straight out of the Jussie Smollett playbook (i.e., if you can’t find a crime, make one up), resulting in New York- and DC-style “fair” trials and verdicts, Trump continues to generate his own heat, resulting in the heads of Democrats boiling—and sometimes even exploding.

What is it about Trump and, more importantly, about the movement that he has inspired? One could say that the MAGA movement is the Tea Party supercharged. The latter was pushback against Obama’s early years in office, with a large portion of the country saying we see what “fundamental transformation” really means—pitting poor against rich, black against white, women against men, children against parents—and we say these are not the ideals upon which our country was founded nor for which it fought.

Can anyone stand in a cemetery and thoughtfully observe rows upon rows of simple, small, white crosses heading hundreds of graves which mark fallen soldiers and not reflect upon their noble sacrifices? Did these overwhelmingly young men and women not go off to war to fight tyranny overseas to preserve the God-given freedoms we peacefully enjoy here at home? What would any of them say today about their sacrifices? Would they really have gone off to fight to preserve the unraveled, fundamentally- transformed country in which we now find ourselves?

A country of:

  • wide-open borders, allowing an overwhelming influx of unvetted foreigners, along with human traffickers, drug-pushers, killer gangs, and dangerous diseases,

  • males claiming to be females to win swimming meets and track races against girls,

  • graphic sex literature being made available to kindergarten and young elementary school children,

  • boys and girls told they can medically and surgically change their sex if it “feels right,” even without parental consent,

  • Election Day becoming Election Season, where one party can keep counting ballots until they have manufactured their desired outcome

  • (and to round out this partial list),

  • vilifying, even jailing, the opposition party with whom your party disagrees,

Whenever Democrats and the far left in general talk about Trump supporters, they always sneer when saying the name “MAGA.” In other words, they never say the words for which the letters refer. Why not? They do not want people to hear that the opposition to what their leftist views are doing to this country comes from people who want to “make America great again.”

If you love this country, why would you not want to see it great, now and in the future? And the opposite is also true. If you do not love this country, why would you not want to change it or progress in a whole other direction, thus the need to manufacture a transformation?

When you marry someone, after you say, “I do,” do you then say, “Now that I have you, I want you to transform, to be a totally different person? I don’t love you per se; I love the person I can now turn you into.”

If you don’t love this country and don’t want to leave it, you will stay and fundamentally transform it. And to do so, you would have to unravel the very foundations upon which the country was built. Unravel the unity of We the People; unravel the belief of Nature and Nature’s God; unravel limited government—since these three principles alone are key to the true freedom made possible within self government.

This year’s election is our final wake-up call.

Good men and women need to be ever-vigilant to make sure that the Democrats, the Deep State, the RINOs, and the globalists do not have even the slightest chance to solidify their scheme to fundamentally transform this great nation by completely unraveling its foundations.

*  *  *

A version of this article appeared previously at AmericanThinker.com.

Tyler Durden Tue, 04/16/2024 - 16:20

Dollar & Yields Soar As Fed-Fears Trump WW3-Worries

Dollar & Yields Soar As Fed-Fears Trump WW3-Worries

Mixed data overnight out of China (GDP beat, Retail sales & Industrial production miss) was matched by an equally divergent day of macro in the US with ugly housing data but strong industrial production, but once again the markets were ping-ponged by Fed fears (rate-cuts-off - Fed Vice-Chair Jefferson and Powell both sang from the same 'higher for longer' hymnsheet with the latter finally admitting that "recent [inflation] data have clearly not given us greater confidence and instead indicate that is likely to take longer than expected to achieve that confidence") and MidEast tensions (WW3-on, but not yet - Israeli war cabinet plan is 'keep Iran guessing').

All of which pushed 2024 rate-cut expectations lower in the US...

Source: Bloomberg

In fact, the majority of investors now see 2 rate-cuts this year...

The odds of a June rate- cut have tumbled to just 15%...

Source: Bloomberg

...and 2025 rate-cut expectations plunged today - in a crescendo-like surge in volume that suggests stop-outs... (h/t @EdBolingbroke)

Source: Bloomberg

...and pushed the 2Y yield back above 5.0% for the first time since November...

Source: Bloomberg

Treasury yields were 5-6bps higher overall today (together) but on the week, for now, the short-end is slightly outperforming...

Source: Bloomberg

In fact, it's been a wild ride for all yields...

Stocks were volatile today amid the surge in yields and Powell's comments, with Small Caps lagging in the red along with a small loss for the S&P and Nasdaq unch. The last minute saw a big sell program hit to ruin most people's day...

Goldman's trading desk summed it up as follows: "Overall feels quiet though market volumes look elevated...skewed around -3% better for sale with LO’s leading more of the supply. "

MS rallied on earnings but BAC did not, with C catching down to GS...

Source: Bloomberg

MAG7 stocks went nowhere today...

Source: Bloomberg

Month-to-date, there seems like differentiation between what's being sold - Defensives and Cyclicals both down equally...

Source: Bloomberg

The dollar was the only other notable mover - rising for the fifth straight day to fresh highs since November - forming a 'Golden Cross' (50DMA crossing above the 200DMA)

Source: Bloomberg

Oil ended unchanged...

Source: Bloomberg

Gold managed small gains...

Source: Bloomberg

...ending at a new record closing high...

Source: Bloomberg

Crypto was oddly quiet...

Source: Bloomberg

Finally, Joe and Jerome have a problem...

Source: Bloomberg

Get back to work Mr. SPR!

Tyler Durden Tue, 04/16/2024 - 16:00

Aussie Govt Orders Facebook And X To Remove Muslim Knife Attack Video

Aussie Govt Orders Facebook And X To Remove Muslim Knife Attack Video

Parishioners and live stream audience members for the Christ The Good Shepherd Church in Sydney, Australia were enjoying a sermon by popular conservative Bishop Mar Mari Emmanuel when a young male Muslim assailant entered the church and stabbed him repeatedly with a knife.  The live stream clip was immediately shared far and wide on social media with X and Facebook being the easiest sites to view the video.

Bishop Mar Mari Emmanuel is a leader of the Assyrian Orthodox sect who has a global following. He has expressed stalwart conservative views on Islam, the LGBT community, and was vocal in his sermons against lockdowns and vaccinations during COVID-19.  Four other member of the church were injured while subduing the attacker; the young man also reportedly cut off some of his own fingers during the struggle. 

The Australia government through their "E-Safety Commissioner" has voiced concerns over the spread of the clip and has "ordered" Facebook and X to remove if from public access within 24 hours on the grounds that it will "make people emotional" and "cause disharmony."  How much power Australia's E-Safety Commissioner actually has to follow through on her threats remains to be seen. 

The identity of the attacker has yet to be revealed by authorities, but he is allegedly 16-years old and was recorded smiling after stabbing the Bishop while praising Allah.  Once again, westerners have been treated to a lesson in cultural diversity. 

The motivation behind Australia's effort to have the event removed from social media is blatantly transparent.  If the attack involved anyone other than a Muslim it is unlikely they would have an interest in censoring the video.  However, such horrifying incidents involving potential migrants create growing opposition to the open border policies of western progressive governments.  So, rather than addressing the root of the problem (mutually exclusive cultures), officials have decided it's better to hide it instead.  

Public outcry over the attack has led to protests in the streets of Sydney with many Australians becoming angry and tired of the special protections allotted to people with the "right beliefs" and ethnic background.  To their credit, the Sidney police have labeled the stabbing a terrorist attack with adequate evidence of religious motivation.  This, though, does not help if the attack is simply allowed to fade into the background until the next time the third world decides to force itself onto the western public. 

Tyler Durden Tue, 04/16/2024 - 15:45

Democracy Dies In Primaries

Democracy Dies In Primaries

Authored by Nick Troiano via RealClear Wire,

Hillary Clinton recently told voters unhappy with the two 2024 presidential candidates this year: “Get over yourself.” With that comment, she not only dismissed the tens of millions of voters who had no say in choosing Biden and Trump, but also the two-thirds of voters overall who are frustrated with a rematch they do not want.

There’s an exhausted majority of voters eager for something different, yet our broken system simply doesn’t allow it. Look no further than No Labels, whose attempt to field a bipartisan presidential ticket collapsed because no candidate was willing to be a “spoiler” in an election system that disadvantages, even prevents, new competition.

The real problem isn’t who we’re electing, it’s how we’re electing them. 

Not only did the vast majority of us have no say in choosing the two presidential candidates, a similarly tiny fraction of voters is deciding most of Congress. So far in 2024, nearly a third of U.S. House seats have already been decided by only 3% of eligible votes in the eight states that have held primaries for offices other than the presidency. In 2022, 8% of voters elected 83% of Congress.

Primaries have long been low-turnout affairs dominated by the extremes of both parties. But shockingly, millions of voters don’t have the right to vote in them – even though their taxpayer dollars fund them. In 22 states this year, 23.5 million independent voters are disenfranchised by closed primaries for president or state offices. 

Nationwide, there are more independents than Democrats or Republicans. Nearly half of veterans identify as politically independent, as do a majority of young people. Because of our primary system, we’re telling those who fought for our country and those who are the future of our country that their voices don’t matter.

The reason our elected leaders don’t seem to represent us is because, quite literally, most of us don’t elect them. 

How do we fix this broken system? With two powerful changes: One, allow all eligible voters – including independents – to cast ballots for any candidate, regardless of party, in every taxpayer-funded election. Two, require candidates to secure a majority of votes to win an election. 

Consider how the 2024 election might have been different had these principles been in effect. First, had the GOP required a majority winner in the 2016 primaries, Donald Trump might not have become the nominee with only a plurality (45%) of the vote. Second, without Trump’s victory that year, there would likely be no Biden rematch in 2024, and therefore no efforts to run candidates like Dean Phillips off primary ballots. Third, majority-winner elections using ranked choice voting would level the playing field for independent and third party candidates rather than dismissing them out of hand as spoilers.

Primary elections have evolved dramatically over the past century – leaving behind party bosses nominating candidates in private, smoke-filled rooms to embrace the ballot box. It’s time to continue that great American tradition. 

Nearly half a dozen states have already adopted some version of these two principles for either their presidential or statewide elections – a move that is supported by nearly three in four voters nationwide.

In 2020, Alaska voters approved an all-candidate primary that advances four candidates to the general election, where an instant runoff produces a majority winner. In 2022, this reform led to the election of a conservative governor, moderate Republican senator, and moderate Democratic representative in 2022 – all on the same ballot. Overall, the state saw a 60% increase in the number of voters who cast ballots in competitive elections where their vote actually mattered.

California’s top-two primary system – enacted more than a decade ago under then-Gov. Arnold Schwarzenegger – has also infused more competition into its elections than would otherwise exist, meaning more Californians are casting meaningful votes.  

This fall, citizen initiatives to open primaries are underway in Nevada, Arizona, Colorado, Idaho, Montana and South Dakota because voters want a functional, representative government.

The way we “get over” the frustrations of our current presidential rematch is by following the example of voters in these states who are demanding a better system that lives up to our nation’s ideals as a Democratic republic. 

Tyler Durden Tue, 04/16/2024 - 15:25

Blackstone CEO Jumps On 'The Next AI Trade' 

Blackstone CEO Jumps On 'The Next AI Trade' 

US power grid regulators and utilities are warning about energy shortfalls. Projections for US electricity demand growth over the next five years have doubled from about one year ago, primarily because of the expected explosion of artificial intelligence data centers, federally subsidized manufacturing plants, and the government-fueled electric vehicle transition. 

Source: NERC - 2022 Long-Term Reliability Assessment (as of December-2022). Grid Strategies - The Era of Flat Power Demand is Over (as of December-2023).

In recent months, Wall Street has received the memo about the tidal wave of new electricity demand from data centers powering technology like generative AI. We recently outlined to readers investment opportunities in powering up America for the digital age in "The Next AI Trade."

On Tuesday, Blackstone Chief Executive Officer Steve Schwarzman appeared to have also received the memo as Wall Street whistles the same tune about the AI boom threatening to overload the nation's power grid and the urgent need for an upgrade. 

Schwarzman told the audience at the Asia Pacific Financial and Innovation Symposium in Melbourne that a massive "land rush" is underway to build AI data centers.  

"This is like something I've never seen," he said via webcast, who was quoted by Bloomberg, adding, "The amount of money being invested in this area is breathtaking. It's happening now all over the world."

The co-founder and chairman of the world's largest alternative asset manager warned, "Different states in the US are starting to run out of electricity" and "the lack of capacity in the electric grids in the industrial world with AI and EVs is creating enormous investment opportunities."

In 2021, Blackstone purchased QTS Realty Trust, a company with more than 25 data centers in its portfolio across North America and Europe, for $10 billion. 

"You'll be able to create 20% returns building these data centers with 30-year contracts," he said, adding, "This is pretty amazing."

Schwarzman should also consider investment opportunities in the nuclear power plant space. Last month, we showed how a nuclear renaissance is underway in a note titled "In Historic Reversal, US To Restart A Shut Down Nuclear Power Plant For The First Time Ever." 

In "The Next AI Trade," we explain what equity exposure is needed to capitalize on powering up America for the digital age. 

Tyler Durden Tue, 04/16/2024 - 15:00

What If The Fed's Hikes Are Actually Sparking US Economic Boom?

What If The Fed's Hikes Are Actually Sparking US Economic Boom?

Authored by Ye Xie via Bloomberg,

As the US economy hums along month after month, minting hundreds of thousands of new jobs and confounding experts who had warned of an imminent downturn, some on Wall Street are starting to entertain a fringe economic theory.

What if, they ask, all those interest-rate hikes the past two years are actually boosting the economy? In other words, maybe the economy isn’t booming despite higher rates but rather because of them.

It’s an idea so radical that in mainstream academic and financial circles, it borders on heresy — the sort of thing that in the past only Turkey’s populist president, Recep Tayyip Erdogan, or the most zealous disciples of Modern Monetary Theory would dare utter publicly.

But the new converts — along with a handful who confess to being at least curious about the idea — say the economic evidence is becoming impossible to ignore. By some key gauges — GDP, unemployment, corporate profits — the expansion now is as strong or even stronger than it was when the Federal Reserve first began lifting rates.

This is, the contrarians argue, because the jump in benchmark rates from 0% to over 5% is providing Americans with a significant stream of income from their bond investments and savings accounts for the first time in two decades. “The reality is people have more money,” says Kevin Muir, a former derivatives trader at RBC Capital Markets who now writes an investing newsletter called The MacroTourist.

These people — and companies — are in turn spending a big enough chunk of that new-found cash, the theory goes, to drive up demand and goose growth.

In a typical rate-hiking cycle, the additional spending from this group isn’t nearly enough to match the drop in demand from those who stop borrowing money. That’s what causes the classic Fed-induced downturn (and corresponding decline in inflation). Everyone was expecting the economy to follow that pattern and “slow precipitously,” Muir says. “I’m like no, it’s probably more balanced and might even be slightly stimulative.”

Muir and the rest of the contrarians — Greenlight Capital’s David Einhorn is the most high profile of them — say it’s different this time for a few reasons. Principal among them is the impact of exploding US budget deficits. The government’s debt has ballooned to $35 trillion, double what it was just a decade ago. That means those higher interest rates it’s now paying on the debt translate into an additional $50 billion or so flowing into the pockets of American (and foreign) bond investors each month.

That this phenomenon made rising rates stimulative, not restrictive, became obvious to the economist Warren Mosler many years ago. But as one of the most vocal advocates of Modern Monetary Theory, or MMT, his interpretation was long dismissed as the preachings of an eccentric crusader. So there’s a little sense of vindication for Mosler as he watches some of the mainstream crowd come around now. “I’ve been certainly talking about this for a very long time,” he says.

Muir readily admits to being one of those who had snickered at Mosler years ago. “I was like, you’re insane. That makes no sense.” But when the economy took off after the pandemic, he decided to take a closer look at the numbers and, to his surprise, concluded Mosler was right.

‘Really Weird’

Einhorn, one of Wall Street’s best-known value investors, came to the theory earlier than Muir, when he observed how slowly the economy was expanding even though the Fed had pinned rates at 0% after the global financial crisis. While hiking rates to extremes clearly wouldn’t help the economy — the blow to borrowers from a, say, 8% benchmark rate is just too powerful — lifting them to more moderate levels would, he figured.

Einhorn notes that US households receive income on more than $13 trillion of short-term interest-bearing assets, almost triple the $5 trillion in consumer debt, excluding mortgages, that they have to pay interest on. At today’s rates, that translates to a net gain for households of some $400 billion a year, he estimates.

“When rates get below a certain amount, they actually slow down the economy,” Einhorn said on Bloomberg’s Masters in Business podcast in February. He calls the chatter that the Fed needs to start cutting rates to avoid a slowdown “really weird.”

“Things are pretty good,” he said. “I don’t think that they’re really going to help anybody” by cutting rates.

(Rate cuts do figure prominently, it should be noted, in a corollary to the rate-hikes-lift-growth theory that another camp on Wall Street is backing. It posits that rate cuts will actually push inflation further down, not up.)

To be clear, the vast bulk of economists and investors still firmly believe in the age-old principle that higher rates choke off growth.

As evidence of this, they point to rising delinquencies on credit cards and auto loans and to the fact that job growth, while still robust, has slowed. 

Mark Zandi, chief economist at Moody’s Analytics, spoke for the traditionalists when he called the new theory simply “off base.” But even Zandi acknowledges that “higher rates are doing less economic damage than in times past.”

Like the converts, he cites another key factor for this resilience: Many Americans managed to lock in uber-low rates on their mortgages for 30 years during the pandemic, shielding them from much of the pain caused by rising rates.

(This is a crucial difference with the rest of the world; mortgage rates rapidly adjust higher as benchmark rates rise in many developed nations.)

Bill Eigen chuckles when he recalls how so many on Wall Street were predicting catastrophe as the Fed began to ratchet up rates. “They’ll never go past 1.5% or 2%,” he intones, sarcastically, “because that will collapse the economy.”

Eigen, a bond fund manager at JPMorgan Chase, isn’t an outright proponent of the new theory. He’s more in the camp of those who sympathize with the broad contours of the idea. That stance helped him see the need to refashion his portfolio, loading it up with cash — a move that’s put him in the top 10% of active bond fund managers over the past three years.

Eigen has two side hustles outside of JPMorgan. He runs a fitness center and car repair shop. At both places, people keep spending more money, he says. Retirees, in particular. They are, he notes, perhaps the biggest beneficiaries of the higher rates.

“All of a sudden, all of this disposable income accrues to these people,” he says. “And they’re spending it.”

Tyler Durden Tue, 04/16/2024 - 14:40

Rate-Cut Hopes Plunge As Fed Chair Powell Admits "Lack Of Further Progress On Inflation"

Rate-Cut Hopes Plunge As Fed Chair Powell Admits "Lack Of Further Progress On Inflation"

Update (1330ET): In his most direct comments about The Fed's expected path for rates, Chair Powell just admitted that "recent data show lack of further progress on inflation" and the market did not like it much...

And 2Y yield tops 5% for first time since November...

With 2024 rate-cut expectations tumbling and a major volume crush in SOFR spreads for 2025 as it appears someone capitulated...

Powell added that it "will likely take longer for confidence on inflation" and in the meantime it "is appropriate to  let policy take further time to work."

*  *  *

Fed Chair Jerome Powell is scheduled to speak this afternoon and the big question is how many times will he said the word "patience", "confidence", and/or "we must get Biden re-elected."

Powell has been less hawkish than many of his peers on the FOMC - leaving all doors open for cuts 'at some point' this year, merely needing a little more confidence that they are really winning the inflation war.

The problem is - they are not anymore. As the following chart shows, inflation data has been surprising significantly to the upside for four months... and US macroeconomic data has also been surprising to the upside...

Source: Bloomberg

Neither of which provide any rate-cutting-leg to stand on for Powell and his pals.

Powell's comments today come after Fed Vice Chair Philip Jefferson suggested this morning that the central bank's key rate may have to remain at its peak for a while to bring down persistently elevated inflation.

Specifically, Jefferson's remarks to a Fed research conference excluded key phrases about gaining "confidence" in lower inflation and then cutting rates, but noted the central bank was facing a strong economy and little recent progress on the pace of price increases.

"if incoming data suggest that inflation is more persistent than I currently expect it to be, it will be appropriate to hold in place the current restrictive stance of policy for longer. I am fully committed to getting inflation back to 2%."

As Reuters reports, whether or not Powell follows in a similar vein, outside analysts and investors have been steadily marking down the likelihood and timing of Fed rate cuts as policymakers struggle to reconcile a gravity-defying economy with their assessment that monetary policy is "restrictive" and inflation likely on its way down.

The market has made its mind up - slashing expectations for 2024 to just 1.5 rate-cuts (half what The Fed's Dot-Plot is expecting)...

Source: Bloomberg

Of course, Biden has also expressed his opinion that there will be rate-cuts this year (by the election?)...

“Well, I do stand by my prediction that, before the year is out, there’ll be a rate cut,” Biden said last Wednesday at a White House press conference alongside Japanese Prime Minister Fumio Kishida, adding that today's CPI report could delay a rate cut by at least a month...

Will Powell feel the need to reiterate the importance for 'Fed independence' that he was spouting on about in his speech two weeks ago at Stanford Business School...

The Fed has been assigned two goals for monetary policy - maximum employment and stable prices.

Our success in delivering on these goals matters a great deal to all Americans. To support our pursuit of those goals, Congress granted the Fed a substantial degree of independence in our conduct of monetary policy. Fed policymakers serve long terms that are not synchronized with election cycles.

Our decisions are not subject to reversal by other parts of the government, other than through legislation.

This independence both enables and requires us to make our monetary policy decisions without consideration of short-term political matters.

Such independence for a federal agency is and should be rare. In the case of the Fed, independence is essential to our ability to serve the public.

And finally...

“One of Chair Powell’s responsibilities is to protect the public standing of the Fed,” said Vincent Reinhart, chief economist at Dreyfus and Mellon.

“The closer the FOMC acts to the election, the more likely it is that the public will question the Fed’s intent.”

Watch Fed Chair Powell speak live here (due to start at 1315ET):

Tyler Durden Tue, 04/16/2024 - 13:35

Israel War Cabinet Decides On Military Response To Iran Even As Blinken Pleads 'Not In Anyone's Interest'

Israel War Cabinet Decides On Military Response To Iran Even As Blinken Pleads 'Not In Anyone's Interest'

Update(1325ET): Israel's war cabinet has just decided on a response to Iran's weekend attack, according to a breaking report by the country's Kan public broadcaster. At this point it seems a matter of if not when - even as the US (and European countries) leans on Israel not to escalate. Below is the Hebrew media statement at the conclusion of Tuesday's high-level meeting (machine translation): 

Israel has decided how to respond to Iran's missile attack. This was reported Tuesday evening on Kan 11 evening news. Israel is now waiting to "seize an opportunity." The agreement came against the backdrop of significant disagreements in the Israeli leadership over the timing and nature of the response. Some ministers demanded to wait for agreement on the international coalition, while others thought it was necessary to respond immediately.

Axios at the same time is reporting that US Secretary of State Blinken just told a group of American Jewish leaders that the White House wants to see no further escalation, essentially signaling the Washington position that a return to status quo before the Saturday massive Iranian attack is desirable. 

The report cites Blinken as saying that "further escalation with Iran is not in the interests of either the U.S. or Israel, three people who attended the meeting told Axios." According to more details:

  • The U.S. assessment is that Iran would respond to any significant, overt Israeli strike on Iranian soil with a new round of missile and drone attacks, a senior U.S. official told Axios.
  • "We think it will be very hard to replicate the huge success we had on Saturday with defeating the attack if Iran launches hundreds of missiles and drones again — and the Israelis know it," another U.S. official said.

And via Al Jazeera Arabic: The Israeli Broadcasting Authority, according to a source: Ministers asked Netanyahu to slow down and wait for the formation of an alliance in the region against it.

This puts Biden in an interesting dilemma (largely of his own making): while the US military intercepted dozens of the drones and ballistic missiles which rained down over Israel on Saturday night, US pleadings to go ahead and "take the win" (as Biden put it to Bibi in a weekend phone call) are falling on deaf ears.

At the moment Iran is in the driver's seat, but Israel feels it must not let Tehran off 'scot-free' (in the words of the IDF spokesman). 

* * *

Israel's war cabinet reportedly met for several hours on Tuesday, and widespread speculation persists over a possible Israeli military response to Iran, but with few clear answers or indicators as yet revealed concerning what's coming next. What is clear is that the Netanyahu government is planning on 'something' big to hit back for the unprecedented Saturday night ballistic missile and drone attack launched from Iranian soil.

IDF spokesman Rear Adm. Daniel Hagari has told reporters Tuesday that Iran will not get off "scot-free". He said additionally, "We cannot stand still from this kind of aggression" and that "We will respond in our time, in our place, in the way that we will choose." The US and other Western allies are still publicly lobbying for restraint and a return to the status quo. This dangerous spiral was kicked off when Israeli flattened Iran's consulate in Damascus on April 1st, an unprecedented act of aggression on a diplomatically protected location.

Via Reuters: Israel's military displays what they say is an Iranian ballistic missile which they retrieved from the Dead Sea after Iran's attack.

Starting Monday US officials were cited in various media outlets offering their view that Israel won't strike Iran directly, but will launch significant operations against their proxies instead.

On Tuesday a senior Biden administration official reiterated what he said is the White House expectation that the coming Israeli response will be "limited" in scope. Another official said it is still possible that Israel will strike inside Iran directly, but not in a way that triggers all-out war, as cited in CNN:

There is US intelligence to suggest Israel is weighing a narrow and limited strike inside Iran because they feel like they have to respond with a kinetic action of some kind given the unprecedented scale of the Iranian attack, the second source said.

The sources have indicated the Biden administration has not been given forewarning or been briefed on Israel's exact plans. "We would hope that they would give us some warning so that we're prepared to protect our personnel, not just military but diplomatic throughout the region," the senior admin official said.

"But there's no guarantee they will give us they will give us a heads up and they know when they give us a head’s up, we're likely to again register our objection to whatever they're about to conduct," the official added to CNN.

If there is no Israeli response, then the US is "confident that there will be de-escalation" - but it remains that "any additional move now opens up a series of other possibilities, some of which are quite frightening," the official added.

Meanwhile there are claims that the US has signaled Iran that it should allow a 'symbolic' Israeli strike so that the situation can return to the status quo...

Tehran has continued to warn it is ready to hit back stronger and harder, with Ali Bagheri Kani, Iran's deputy foreign minister for political affairs, saying that should Israel retaliate then the response speed from Iran "will be less than a few seconds."

* * *

Below are some of the latest Israel-Iran related statements and headlines...

  • "Israel sent a message to the countries of the region that responding to the Iranian attack will not endanger the stability of these countries", according to Sky News Arabia.
  • The Israeli war cabinet is weighing a response to the recent Iran attacks; and is to meet again on Tuesday for a third straight day, via the FT
  • Iran's Foreign Minister said in a call with China's Foreign Minister that Iran is willing to exercise restraint and has no intention of further escalating the situation, according to Chinese state media.
  • US officials expect a possible Israeli response to Iran’s attack over the weekend to be limited in scope and most likely involve strikes against Iranian military forces and Iranian-backed proxies outside Iran, according to four US officials cited by NBC News.
  • Iraqi PM confirmed Iraq's interest in obtaining expertise and arms from the US, as well as keenness on security partnership during a meeting with US Defense Secretary Austin, according to Reuters.
  • Saudi Arabia acknowledged that it helped defend Israel against Iran whereby Saudi Arabia's royal family posted on its website about the country's role in defending Israel against the Iranian barrage, according to Jerusalem Post.
Tyler Durden Tue, 04/16/2024 - 13:25

'Oral Argument Favored Defendants' - Supreme Court Just Ended Hearing Obstruction Case Affecting J6 Defendants

'Oral Argument Favored Defendants' - Supreme Court Just Ended Hearing Obstruction Case Affecting J6 Defendants

Authored by Jonathan Turley,

Today, the U.S. Supreme Court will take up Fischer v. United States, a case that could fundamentally change many cases of January 6th defendants, including the prosecution of former president Donald Trump. The case involves the interpretation of a federal statute prohibiting obstruction of congressional inquiries and investigations.

The case concerns 18 U.S.C. § 1512(c)(2), which provides:

“Whoever corruptly—(1) alters, destroys, mutilates, or conceals a record, document, or other object, or attempts to do so, with the intent to impair the object’s integrity or availability for use in an official proceeding; or (2) otherwise obstructs, influences, or impedes any official proceeding, or attempts to do so, shall be fined under this title or imprisoned not more than 20 years, or both.”

Joseph Fischer was charged with various offenses, but U.S. District Judge Carl J. Nichols of the District of Columbia dismissed the 1512(c)2 charges. Judge Nichols found that the statute is exclusively directed to crimes related to documents, records, or other objects.

The D.C. Circuit reversed and held that Section 1512(c)(2) is a “catch all” provision that encompasses all forms of obstructive conduct. Circuit Judge Florence Pan ruled that the “natural, broad reading of the statute is consistent with prior interpretations of the words it uses and the structure it employs.” However, Judge Gregory Katsas dissented and rejected “the government’s all-encompassing reading.”

The Court will now consider the question of whether the U.S. Court of Appeals for the District of Columbia Circuit erred in construing 18 U.S.C. § 1512(c), which prohibits obstruction of congressional inquiries and investigations, to include acts unrelated to investigations and evidence.

The law itself was not designed for this purpose. It was part of the Sarbanes-Oxley Act of 2002 and has been described as “prompted by the exposure of Enron’s massive accounting fraud and revelations that the company’s outside auditor, Arthur Andersen LLP, had systematically destroyed potentially incriminating documents.”

Oral argument is today and Turley is be covering the arguments on X (Twitter)...

...Justice Sotomayor was quick out of the gate to pursue a tough line of questioning for the defense counsel on why the broader meaning is warranted...

...Justice Barrett continued the tough questioning by asking if the defendant can still be convicted for seeking obstructing by seeking to stop the certificates themselves. In this way, the Court could adopt a narrower meaning but still allow for possible prosecution...

...Justice Jackson has also questioned counsel closely on the use of "evidence" as a term since it does not appear in the actual provisions...

...Justice Sotomayor just said that this may be unique because no one tried to violently stop proceedings as on Jan. 6th...

The government is now up with its case...

...Chief Justice Roberts just delivered a haymaker for the Solicitor General by noting a recent decision and prior decisions that stress the need for narrow construction in this type of "otherwise" construction of provisions...

...Roberts is not buying the government's argument on getting around prior cases including one just issued on Friday. I have great respect for Prelogar but she is struggling on this point...

...The exchange has brought out Justice Gorsuch who is pressing on what "otherwise" really means under the government's view. Gorsuch is asking if a heckler at the State of the Union qualify. Ironically, that is precisely the hypothetical that we struggled with in my Supreme Court ask in discussing this case.

...“Would a sit-in that disrupts a trial or access to a federal courthouse qualify?” Justice Neil Gorsuch asked.

...Gorsuch also raised pulling a fire alarm in a reference to Rep. Jamaal Bowman of New York and asked if that was also a felony subject to 20 years...

...Gorsuch is carving up the government's argument on the lack of clear lines for protests and other examples...

...Now Justice Alito is raising an interruption of the Supreme Court. If that caused a delay of five minutes, would it also qualify as a violation of 1512(c)(2). Prelogar stumbled on this one. She tried to add an exception for a de minimus violation, but Alito notes that she was arguing plain meaning and this was qualify as a delay according to the plain meaning. Prelogar simply argues it would be hard to prove ...

...Prelogar fell back on saying how bad Jan. 6th was but that did not fly for good reason. The issue here is how to define this provision...

...Prelogar was a bit on the ropes and Justice Kagan stepped in with a breather question on what evidence they often use against J6 defendants.

...back to the oral argument, Prelogar admitted to Justice Alito that a minimal interference could potentially qualify, but questioned the likelihood of such a case. Alito hit her with how she would define minimal and said that the interruption of the Court "sounds minimal to me"...

...That is not going to satisfy the concerns of the justice as a type of "we know it when we see it" standard...

The Court just ended argument.

The three liberal justices offered support for the government and Justice Barrett seemed on the fence at points.

It is hard to tell where Barrett may end up.

However, there was clearly a skepticism from four justices, including Chief Justice Roberts.

The oral argument favored the defendants and could result in a wider impact on dozens of cases, including the prosecution of former President Trump.

The loss of the obstruction counts for Jack Smith would undermine his narrative (giving Trump new grounds to seek dismissal of two of the four counts in the federal prosecution against him for trying to overturn his 2020 election loss), but he could proceed on the remaining counts.

Tyler Durden Tue, 04/16/2024 - 13:20

Border Outranks Ukraine As Moderate Voter Priority In Swing States: Poll

Border Outranks Ukraine As Moderate Voter Priority In Swing States: Poll

Authored by Nathan Worcester via The Epoch Times (emphasis ours),

An April survey of swing, or moderate, voters in six battleground states suggests the impacts of an open southern border is concerning them more than events in Ukraine.

Federal law enforcement agents and officers keep watch as immigrants line up (R) to be transported from a makeshift camp between border walls between the U.S. and Mexico in San Diego, California, on May 13, 2023. (Mario Tama/Getty Images)

Commissioned by the conservative Heritage Foundation and executed by the non-partisan RMG Research, Inc., the poll revealed that 56 percent of those voters felt the $113 billion price tag for Ukraine support thus far was either too much or far too much. Just 14 percent thought the United States had not spent enough on military aid for Ukraine, while 16 percent rated the spending about right.

When asked to compare the importance of border security with that of Ukraine funding, 50 percent chose the border, while only 11 percent chose Ukraine; 29 percent said both were equally important.

“Heritage’s latest polling reveals that not only are moderate voters in battleground states more interested in securing our own borders, they believe we have already spent enough helping Ukraine—and rightfully so,” Kevin Roberts, the president of the Heritage Foundation, said in a statement accompanying the survey.

RMG interviewed 1,000 swing voters in Nevada, Georgia, Pennsylvania, Arizona, Wisconsin, and Michigan between April 2 and April 4.

Out of the voters surveyed, the majority—54 percent—were independent. 25 percent were Republicans and 20 percent Democrats.

“Swing voters were defined as likely voters who are either undecided on the presidential election, undecided on the generic congressional ballot, or expressed a different partisan preference on the presidential and congressional races,” a statement accompanying the survey read.

The voters RMG surveyed were tracking the border situation more closely than the conflict that heated up more than two years ago with Russia’s invasion of Ukraine.

Also, 22 percent reported following news from America’s southern border “very closely,” while just 10 percent described a similar level of attention to news from the Ukraine-Russia war.

The results come amid a fight in the legislative branch over further military aid to Ukraine. Republicans and conservatives have argued that additional funding for the country must be conditioned on additional border security spending.

“Most of House GOP WILL NOT vote for another dollar to Ukraine unless our border is SECURED,” Rep. Byron Donalds (R-Fla.) wrote on X, formerly Twitter, on April 11.

Rep. Byron Donalds (R-Fla.) during an interview with NTD at the Conservative Political Action Conference (CPAC) at Gaylord National Resort Hotel And Convention Center in National Harbor, Md., on Feb. 22, 2024, in a still from video released by NTD. (NTD)

A bipartisan group of lawmakers is pushing House Speaker Mike Johnson (R-La.) to advance a $95 billion aid package to Ukraine and Israel, citing Iran’s attack on Israel in their April 14 letter to the lawmaker. But some House Republicans have objected to the lack of border-related funding in that package, as well as the linkage of funding for Israel and Ukraine in the same bill.

“It’s antisemitic to make Israeli aid contingent on funding Ukrainian Nazis. These should be separate bills,” Rep. Marjorie Taylor Greene (R-Ga.) wrote on X on April 14.

In a recent press conference with Mr. Johnson, former President Donald Trump suggested Ukraine should be funded through a loan rather than aid.

The White House has rejected any standalone bill to fund Israel.

Republicans could be more likely to hold the line against the Biden administration and Democratic lawmakers if they perceive border funding as a winner, and Ukraine funding as a loser, among coveted swing voters. But the fight is far from over, with countervailing pressures on Mr. Johnson from his party’s Freedom Caucus and from top Democrats.

“The best way to help Israel against Iran and to help Ukraine against Russia is for [Speaker Johnson] and the House to pass the bipartisan, Senate-passed National Security Supplemental this week,” Senate Majority Leader Chuck Schumer (D-N.Y.) wrote on X on April 14.

Tyler Durden Tue, 04/16/2024 - 12:45

Brink Of Unrest? Migrants "Flood" NYC City Hall In Protest Of Losing Luxury Hotel Rooms 

Brink Of Unrest? Migrants "Flood" NYC City Hall In Protest Of Losing Luxury Hotel Rooms 

New York City could be on the cusp of social unrest as hundreds of migrants have flooded the grounds of City Hall in Lower Manhattan to protest the scaling down of their luxury hotel accommodations (funded by us, the taxpayers). 

The Babylon Bee's Ashley St. Clair posted on X a disturbing photo of migrants "flooding NYC City Hall to protest being moved to shelters instead of the luxury hotels." 

Elon Musk responded with "Wow," while another X user posted a video of angry migrants surrounding the City Hall complex building. Security is beefed up as the situation remains tense. 

The migrant protest comes one day after pro-Palestinian groups shuttered critical infrastructure nationwide across various metro areas of the US, including the Brooklyn Bridge. 

The risk of social instabilities nationwide is elevated as the Biden administration (through open southern borders), and a shadowy network of NGOs have facilitated the greatest invasion of illegal aliens this nation has ever seen. 

Allowing millions of unvetted people from third-world countries - some of which hate the United States - as well as are accustomed to violence - are ingredients to spark a perfect storm of social unrest if Democrats don't continue spending taxpayer funds on luxurious hotel rooms, fancy meals, and monthly stipends for illegals. 

Threats of migrant unrest are a national security threat that Democrats are too embarrassed even to acknowledge because their failed policies are sparking this mess. Democrats are risking the health and safety of law-abiding citizens and the nation as a whole to steal future elections and stack the Census. 

Tyler Durden Tue, 04/16/2024 - 12:25

Reflation Trade Is The New Bullish Narrative

Reflation Trade Is The New Bullish Narrative

Authored by Lance Roberts via RealInvestmentAdvice.com,

Economic “reflation” is becoming the next bullish narrative as equity valuation increases continue to outpace earnings gains, at least according to Gold Sachs and Tony Pasquariello.

“If GS is correct on the big calls, the macro backdrop is set to remain friendly: the US economy should continue to grow nicely above trend — picking up speed as the year moves along — with three adjustment rates cuts along the way.  to not obscure the moral of that story: the Fed is set to ease policy … into an upswing.  while Fedspeak this week had a somewhat hawkish bent, the house view for 2024 remains intact.”

Interest rates, gold, and commodity prices have increased in the past few months. Unsurprisingly, the bullish narrative to support that rise has gained traction. Interestingly, this “reflation” narrative tends to resurface by Wall Street whenever there is a need to explain the surge in commodity prices. Notably, the last time Wall Street focused on the reflation trade was in 2009, as noted by the WSJ:

“The most talked-about investing strategy these days isn’t stuffing money in a mattress, it’s the reflation trade — the bet that the world economy will rebound, driving up interest rates and commodities prices.”

While that “reflation trade” lasted for about two years, it quickly failed as economic growth returned to 2%-ish growth along with inflation and interest rates. As shown, oil and commodity prices have a very high correlation. The critical reason is that higher oil prices reduce economic demand. As consumption falls, so does the demand for commodities in general. Therefore, if commodity prices are to “reflate,” as shown, such will depend on more robust economic activity.

As such. The reflation trade hinges on a global resurgence of economic activity, usually associated with economies recovering from a recessionary period. However, the U.S. never experienced a recession. As discussed in “Deficit Spending,” despite numerous recessionary signals, like the inverted yield curve, manufacturing data, and leading economic indicators, the economy avoided recession due to massive governmental spending. To wit:

“One explanation for this has been the surge in Federal expenditures since the end of 2022 stemming from the Inflation Reduction and CHIPs Acts. The second reason is that GDP was so grossly elevated from the $5 Trillion in previous fiscal policies that the lag effect is taking longer than historical norms to resolve.”

While economists focus on the “reflation trade,” we must answer whether the support for more substantial economic growth exists. This is the sole determining factor in whether the “reflation trade” can continue.

Is Reflation Already Behind Us?

Interest rates and inflation have ticked up recently, driving investors into gold and commodities. However, the surge in precious metals and commodities is more of a function of speculative exuberance rather than an economic resurgence. As discussed in “Speculative Warnings,”

“In other words, the stock market frenzy to “buy anything that is going up” has spread from just a handful of stocks related to artificial intelligence to gold and digital currencies.“

Notably, the gold, commodities, and interest rate surge corresponded with more robust economic growth beginning in the third quarter of last year. That uptick in economic growth defied economists’ expectations of a recession. Such was because of the massive flood of monetary support from Government spending programs. However, that monetary impulse is now reversing.

As far as the “reflation trade” is concerned, as that monetary impulse recedes, so will economic growth, as shown. Even if the economy continues to grow at 2-2.5% annualized each quarter, the annual rate of change in growth will continue to slow.

Importantly, this assumes that the Government will keep “spending like drunken sailors” over that same period. However, if they don’t, the economic growth rate will slow even more quickly without increasing monetary spending.

It is important to remember that increasing debts and deficits do not elicit stronger long-term economic growth. As debt levels rise, economic growth rates will slow as money diverts from productive investment into debt service.

That reality should be unsurprising, as this is not the first time the Government has gone “all in” on a reflation trade. As noted above, following the Financial Crisis, the Government intervened with HAMP, HARP, TARP, and a host of other spending programs to “reflate” the economy.

Let’s review what happened with interest rates, inflation, and gold and commodity trade.

Past May Be Prologue

As noted in 2009, following the “Financial Crisis” and recession, the Government and the Federal Reserve engaged in various monetary and fiscal supports to repair the economy. While the economy initially recovered from the recessionary lows, inflation, economic growth, and interest rates remained subdued despite ongoing interventions.

That is because debt and artificially low interest rates lead to malinvestment, which acts as a wealth transfer mechanism from the middle class to the wealthy. However, that activity erodes economic activity, leading to suppressed inflation and a surging wealth gap.

During that same period, commodities and precious metals rose initially as the “reflation expectation” was widespread. However, debt-driven realities quickly undermined that assessment and those investments languished relative to equities, as the flood of liquidity and low rates made equities far more attractive to investment.

While the relative performance of precious metals and commodities has picked up in recent months, this is more likely a function of “irrational exuberance” in the financial markets. As discussed previously, the surge in speculative investment activity is not uncommon to markets, and currently, many asset classes are becoming highly correlated.

However, while there is a compelling narrative around gold and precious metals from an investment perspective, those chasing that trade have had many years of terrible underperformance. While this time could be different, the “reflation narrative” will most likely fall prey to the realities of excessive debt, which will pressure Governments to cut rates once again.

If the past is potentially prologue, likely, the bullish narrative of “reflation” may once again find future disappointment. Such is particularly the case as the economics of debt and poor policy choices continue to erode the middle class further.

Tyler Durden Tue, 04/16/2024 - 11:50

This Unhappy Global Dynamic Will Lead Markets And Market Analysis For Years To Come

This Unhappy Global Dynamic Will Lead Markets And Market Analysis For Years To Come

By Michael Every of Rabobank

Non Ducor, Duco

Who/what leads and who/what is led? That’s the question you should be asking yourself again today - even as most in markets think what they are paid to look at leads all rather than accept that life has (changeable) hierarchies.  

Yesterday saw a surprise leap in US retail sales: 0.7% m-o-m vs. 0.4% expected; ex-autos 1.1% vs. 0.5%; ex-gas and autos 1.0% vs. 0.3%; and the control group 1.1% vs. 0.4%. That followed Friday’s rise in the Michigan survey consumer inflation expectations from 2.9% to 3.1% (1-year) and 2.8% to 3.0% (5-year) and eclipsed the big dip in the Empire PMI. What leads/is led?

The New York Fed’s SCE labour market survey shows people want $81,800 to change jobs, up around $10,000 since March 2021. While those saying they were now unemployed vs. four months ago rose, so did the percentage who plan to retire early. What leads/is led?

The retail report pushed US bond yields much higher intra-day before partially reversing: there was almost a test of 5% in 2-years, while 10-years hit 4.66% and are still over 4.60%, a 2024 high, and +70bp since the start of a year which promised a rate-cuts frenzy. Indeed, Bloomberg reports one investment bank which had started 2024 flagging 275bps of Fed cuts and had trimmed that to 50bps, is sticking to that call while now making the case for the Fed to HIKE by 50bps – it’s not just Larry Summers anymore. Is that leading or being led?

In Asia, JPY is 154.3 (-9.4% year-to-date) with muttering of worse; KRW 1,391 (-7.8%) following the JPY lead; CNY 7.23 (-2.0%) with questions over how long it can continue to hold up if JPY and KRW fall down; IDR 15,848 (-2.9%), close to a record low; INR 83.45 (-0.3%), also close to a record low; THB 36.81 (-7.4%); PHP 56.89 (-2.7%); and MYR 4.79 (-4.2%). In EM space only MXN --its own entity, as Christian Lawrence regularly points out-- is at 16.72 (+1.5%). In other crosses, EUR/USD is just holding on to 1.06 (-3.8%), GBP to 1.24 (-2.3%), CAD testing 1.38 (-4.2%), AUD 0.64 (-5.7%), and NZD is already under 0.59 (-6.7%). Clearly, the dollar will keep leading others.       

However, Politico claims: ‘Trump trade advisers plot dollar devaluation’, “which could juice US exports but also fuel inflation.” Reportedly, this policy could shift, but for now they may “weaken the dollar unilaterally or through negotiations… using the threat of tariffs”. Yet Trump’s Wall Street faction is opposed to a weak dollar because it would hurt asset values, and his national security camp fear it would undermine global sanctions and the US dollar’s reserve status. So, who leads after the US election, and within a hypothetical Trump White House?

A Treasury Secretary can’t just lead the dollar lower in markets. They can jaw-bone, but if the Fed has higher rates than others, they are pushing a balloon underwater (and if inflation picked up further, how would the Fed not hike more?) The US can threaten tariffs, but they would push the dollar up. The US can’t lead a new global Plaza Accord because while some of the BRICS+ might like a weaker dollar (and higher commodity prices), Russia wants NO global dollar; and China will never allow a repeat of Japan 1985 - it won’t allow CNY higher to pivot to consumer-led growth. The article also notes everyone may run their own counter-policies anyway. Logically, Lighthizer might have to impose inbound capital controls, which Wall Street would hate, but the article is wrong in that moneymen love a weaker dollar, as all assets rise on it. And on the national security side, you have to enforce sanctions first (**cough** Iran **cough**). But if you can’t see our current dynamic leads towards the breakdown of the global system, you are misled.

Chinese data underline they won’t shift to consumer led growth, and CNY may be led lower. New home prices were -0.3% m-o-m, used home prices -0.5%, property investment -9.5% y-o-y and residential sales -30.7%. Industrial production was 4.5% y-o-y vs. 6.0% consensus; retail sales just 3.1% vs. 4.8%; and fixed investment 4.5% vs. 4.0%. Yet Q1 GDP was 1.6% q-o-q and 5.3% y-o-y, far higher than 4.8% expected, probably partly due to negative deflators pushing up real growth rates. 

From China to geopolitics, which continues to lead the headlines. Markets did what markets do best yesterday, shrugging off complex matters which they don’t understand in the hope that all will end well. Yet today, as I stressed would be the case in yesterday’s Global Daily, we are again at a moment of high geopolitical tension.

Israel will respond to Iran’s unprecedented attack on it with “clear and decisive” retaliation. We just don’t know when or how. The US has reportedly not opposed this but won’t join in, and the Israeli move may not be fully coordinated with it. Positively, Israel says it doesn’t aim to escalate to a regional war, and reports suggest it will minimize casualties while exacting significant damage: that implies a blow in the economic sphere, from a major cyberattack to a physical one on industrial (drones), nuclear, port (or energy) facilities(?) While energy remains a fat tail risk, it’s exactly the tactic Ukraine is using, despite White House anger. An Iranian official stated: “We do not want war, but we are ready for it if it is imposed on us, and our options are wide. We have the full will to respond militarily to Israel again, but in a stronger way and with weapons that have not been used previously.” In short, regional escalation risks remain. Oil is moving slightly higher again today; and were it to spike due to geopolitics, central banks would likely be led by it.

Ultimately, this crisis won’t be resolved until either Israel or Iran leads the other to accept their opposing redlines: either Israel can attack Iran whenever Iran’s proxies attack it, so the latter don’t; or Israel can never respond to Iran directly, so Iran’s proxies will attack it more freely. It’s hard to see how that gets settled without more violence, or the biting sanctions on Iran/the IRGC that nobody talking about de-escalation has yet offered as alternative. As the US leads on physical defence, it remains paralyzed on any offense despite the two being linked in any successful geostrategy.

As I continue to stress, that unhappy global dynamic will increasingly lead markets, and market analysis, in the years to come. Non ducor, duco.

Tyler Durden Tue, 04/16/2024 - 11:10

BofA Stock Slammed As Humans Actually Read Earnings Report, Notice Soaring Charge-offs

BofA Stock Slammed As Humans Actually Read Earnings Report, Notice Soaring Charge-offs

Update (1110ET): Just as we warned below, it seems the human-traders actually read the MS earnings report and saw chargeoffs soaring.

Bottom line: Bank of America managed to game expectations and reported numbers which mostly came just above estimates, which is also why the stock is higher premarket.

However, it is only a matter of time before the market notices that BofA is starting to take aggressive losses on its CRE/credit card exposure and it is unclear how much more of this lies ahead.

As such, don't be surprise if what is a modest move higher in the stock premarket reverses in the coming hours.

And sure enough, those early algo-driven gains quickly evaporated...

Which in context, pushed BofA down to almost two-month lows...

We hate to say 'we told you so' but "we told you so!"

*  *  *

With JPM, Citi and Wells already in the books, moments ago the last "big 4" money-center bank, Bank of America reported Q1 earnings which for the most part, were stronger than expected, however there were several troubling footnotes, including a sizable, $700MM FDIC special assessment and an unexpected surge in Commercial Real Estate net charge offs driven by the bank's long overdue recognition of Office losses.

Starting at the top, here is what Bank of America reported for the first quarter:

  • Total Revenue, net of interest expense, $25.82BN, down 2% from the $26.3BN reported a year ago, but also beating the $25.43BN estimate
    • Trading revenue excluding DVA $5.18 billion, beating the estimate $5.02 billion
      • FICC trading revenue excluding DVA $3.31 billion, beating the estimate $3.3 billion
      • Equities trading revenue excluding DVA $1.87 billion, beating the estimate $1.71 billion
    • Wealth & investment management total revenue $5.59 billion, beating the estimate $5.34 billion
  • Net income was $6.7 billion, down 12% from the $8.2 billion reported a year ago
  • This translates to Adjusted EPS of 83c, a 12% drop from the 94c a year ago, but beating the 77c estimate;
    • Worth noting here that BofA's effective tax rate hit about 8%, which is ridiculously low, and was thanks to tax credits, “primarily related to investments in renewable energy and affordable housing.” Without those, the ETR would have been about 26%. (The FDIC special assessment “and other discrete tax items” brought the tax rate down by another 1%, the bank adds).
  • Net interest income FTE rose to $14.19 billion, beating estimates $13.95 billion.

Also the bank said that results included a $700 million pretax “FDIC Special assessment" which reduced earnings by $0.07 per common share. 

Digging a little deeper into the asset quality we find the first rotten apple: a spike in charge offs to $1.5 billion as a result of the usual suspects: credit card losses and commercial real estate office weakness. Meanwhile, nonperforming loans increased $398 million to $5.9 billion from the fourth quarter, driven also primarily by the office segment of commercial real estate. More details below:

  • Provision for credit losses $1.32 billion, below the estimate $1.4 billion
    • Net charge-offs (NCOs) of $1.5BN increased compared to 1Q23 and 4Q23, driven primarily by credit card and commercial real estate office
      • Credit card loss rate of 3.62% in 1Q24 vs. 3.07% in 4Q23
      • Commercial net charge-offs of $470MM increased $191MM, driven by commercial real estate office
    • Net charge-off ratio of 58 bps vs. 32 bps in 1Q23 and 45 bps in 4Q234
    • Why were credit losses below the amount of charge-offs? Because like JPM, BofA reported a reserve release of $0.2B vs. net reserve build of $0.1B in 1Q23 and net reserve release of $0.1B in 4Q23
    • Nonperforming loans (NPLs) of $5.9B increased $0.4B from 4Q23, driven primarily by commercial real estate office. The bank also said that 61% of Consumer NPLs are contractually current... which means that 39% of Consumer NPLs are not current.
    • Commercial reservable criticized utilized exposure of $24.5B increased $1.2B from 4Q23

Here it is visually:

One can see the dramatic surge in commercial real estate charge offs in the next chart: it appears that banks are finally starting admit the CRE reality.

The bank was also kind enough to break down its Office exposure.

As for the weakness in consumer, the surge in credit card 30+ days past due is hardly inspiring confidence.

Before we dig deeper, here is a snapshot report of some other headline metrics:

  • Return on average equity 9.35%, beating the estimate 9.31%
  • Return on average assets 0.83%, matching the estimate 0.83%
  • Return on average tangible common equity 12.7%, below the estimate 13.1%
  • Basel III common equity Tier 1 ratio fully phased-in, advanced approach 13.4%, below the estimate 13.5%
  • Standardized CET1 ratio 11.8%, matching the estimate 11.8%
  • Non-interest expenses $17.24 billion, estimate $16.66 billion
  • Compensation expenses $10.20 billion, above the estimate $9.99 billion
  • Net charge-offs $1.50 billion, higher than the estimate $1.26 billion

Commenting on the quarter, CEO Brian Moynihan said in the earnings release that "we reported a strong quarter as our businesses performed well, adding clients and deepening relationships. We reached 36.9 million consumer checking accounts, with 21 consecutive quarters of net checking account growth. Our Wealth Management team generated record revenue, with record client balances, and investment banking rebounded. Bank of America’s sales and trading businesses continued their strong 2023 momentum this quarter, reporting the best first quarter in over a decade.”

Taking a closer look at the income statement, BofA reported net interest yield of 1.99%, up from a cycle low of 1.97% in Q4 and also beating the estimate 1.97%. That said, the NII yield was down 21bps YoY, and the actual NII print of $14.0, decreased notably $0.4B YoY, as higher deposit costs more than offset higher asset yields, higher NII related to Global Markets (GM) activity, and modest loan growth. Additionally, BofA noted that as of March 31, 2024, a +100 bps parallel shift above the interest rate yield curve was estimated to benefit NII by $3.0B over the next 12 months; a -100bps parallel shift was estimated to decrease NII by $2.9BN.

Turning to non-interest income, the bank’s trading unit was particularly strong in Q1 with Global Markets bringing in revenue of $5.88 billion — higher than the previous quarter and Q1 of last year. There was a similar pattern in BofA’s wealth management arm. The other two units — banking and its huge consumer arm — both brought in lower revenues than this time last year.

Looking at Global Markets, we find the following:

  • Revenue of $5.9B increased 5% from 1Q23, driven by higher investment banking fees and sales and trading revenue
  • Sales and trading revenue of $5.1B increased less than 1% from 1Q23; excluding net DVA, up 2%3
    • FICC revenue decreased 6% (ex. DVA, down 4%),3 to $3.2B, driven by a weaker trading environment in macro products, partially offset by improved trading in mortgages
    • Equities revenue increased 14% (ex. DVA, up 15%),3 to $1.9B, driven by strong trading performance in derivatives
  • Noninterest expense of $3.5B increased 4% vs. 1Q23, driven by investments in the business, including technology

Of note here is that equities traders at Bank of America just posted one of their best quarters on record, with a $1.87 billion revenue which was " driven by strong trading performance in derivatives". That’s a solid up-arrow for them from $1.62 billion this time last year.

Markets in summary:

Next up is Bank of America’s mighty US consumer banking arm, which as BBG notes, vies for the top spot with JPMorgan Chase, accounts for about 40% of the company’s revenue. It’s a massive operation and really the bank’s bread and butter. Here, total revenue of $10.2 billion was a decrease on this time last year, and deposits are down again.

However, the bank highlights a rise in combined credit and debit card spending of 5%. That’s similar to what we’ve heard from other banks like Citigroup, where the card-bolstered personal banking unit helped propel it to a beat on Friday.

As for BofA's Global Wealth and Investment management, it made $1 billion of net income from $5.6 billion of revenue; the bank cited another first for the unit: “Record client balances” hit almost $4 trillion, up 13% thanks to “higher market valuations and positive net client flows.” (AUM flows for the quarter hit $25 billion).

Turning to the balance sheet, total loans rose 1% YoY but dipped sequentially to $1.05 trillion, missing estimates of  $1.06 trillion...

... while total deposits of $1.946 trillion, came just above the estimate of $1.93 trillion.

Some more details from the balance sheet:

  • CET1 ratio of 11.8% increased 4 bps vs. 4Q234
    • CET1 capital of $197B increased $2B from 4Q23, driven by net income, partially offset by capital distributions to shareholders
    • Standardized RWA of $1,660B increased $9B from 4Q23
  • Book value per share of $33.71 improved 7% from 1Q23; tangible book value per share of $24.79 improved 9% from 1Q233
  • Average Global Liquidity Sources of $909B increased $12B, or 1%, from 4Q232

Bottom line: Bank of America managed to game expectations and reported numbers which mostly came just above estimates, which is also why the stock is higher premarket. However, it is only a matter of time before the market notices that BofA is starting to take aggressive losses on its CRE/credit card exposure and it is unclear how much more of this lies ahead. As such, don't be surprise if what is a modest move higher in the stock premarket reverses in the coming hours.

The full invest presentation is below  (pdf link).

Tyler Durden Tue, 04/16/2024 - 11:05

House Managers To Deliver Mayorkas Impeachment Articles To Senate

House Managers To Deliver Mayorkas Impeachment Articles To Senate

Authored by Mark Tapscott via The Epoch Times (emphasis ours),

U.S. Secretary of Homeland Security Alejandro Mayorkas at the U.S. Capitol, on April 10, 2024. (Samuel Corum/Getty Images)

Two counts of impeachment against Secretary of Homeland Security Alejandro Mayorkas, approved on Feb. 13 by the House of Representatives, are to be formally presented to the U.S. Senate today.

Eleven House members previously named as impeachment managers will walk from the lower chamber through Statuary Hall in the Capitol and then to the Senate in a brief ceremony that has been repeated only 17 times since the first Congress in 1789. House Democrats did so twice after impeaching former President Donald Trump in 2020 and 2021.

Eight of the 17 Senate impeachment trials resulted in convictions, while nine ended without convictions. A two-thirds majority of the Senate is required to convict an impeached officer of the federal government. Neither former President Donald Trump, former President Bill Clinton in 1998, nor President Andrew Johnson in 1868 were convicted.

Senate rules require the House managers to read the two counts in the Senate chamber. Then Senate Senate President Pro Tempore Patty Murray (D-Wash.) will swear the senators in as jurors. A written summons will be issued to Mr. Mayorkas for him to appear, which he may or may not choose to heed.

The senators will then have an opportunity to adopt rules governing how the trial will be conducted. The rules adopted by the Senate in 1986 were in place for the Clinton and Trump trials.

Senate Majority Leader Chuck Schumer (D-N.Y.) is expected to enter a motion either to dismiss or table the two impeachment counts against Mr. Mayorkas. Earlier this year, Mr. Schumer described the House impeachment action as a “sham.”

With public anger over the more than 8 million illegal immigrants allowed to enter the country under President Joe Biden, Mr. Schumer is determined to avoid a public trial during which the House managers can be expected to present evidence demonstrating Mr. Mayorkas acted at the direction of the chief executive.

Senate Republicans, led by senators Ted Cruz of Texas, Mike Lee of Utah, John Kennedy of Louisiana, Ron Johnson of Wisconsin, Eric Schmitt of Missouri, and Roger Marshall of Kansas will attempt to bring multiple points of order against Mr. Schumer’s motion.

If any one of the GOP points of order is approved by a simple majority of the Senate, the motion will be defeated and the trial will commence. But Ms. Murray is not obligated under Senate rules to recognize any of the senators offering points of order, so none of their objections may be heard on the Senate floor.

Should the Senate trial go forward, the House managers will present their evidence, and defenders of Mr. Mayorkas from among the Senate Democratic majority will respond. At some point thereafter, a rollcall vote will be taken, which is expected to fail to reach the required two-thirds for conviction.

At that point, Mr. Mayorkas will be able to continue performing his duties but he will go into the history books as only the second presidential cabinet member to be impeached.

The first was Secretary of War William W. Belknap, who resigned in 1876 after the House passed five counts of impeachment against him. The Senate failed to convict Mr. Belknap, who was appointed by President Ulysses S. Grant.

Article I of the measure accuses Mr. Mayorkas of a “willful and systemic refusal to comply with the law” and claims that “in large part because of his unlawful conduct, millions of aliens have illegally entered the United States on an annual basis with many unlawfully remaining in the United States.”

“His refusal to obey the law is not only an offense against the separation of powers in the Constitution of the United States, it also threatens our national security and has had a dire impact on communities across the country,” it reads.

Article II accuses Mr. Mayorkas of breaching the public’s trust by having “knowingly made false statements, and knowingly obstructed lawful oversight of the Department of Homeland Security, principally to obfuscate the results of his willful and systemic refusal to comply with the law.”

Senate Majority Leader Chuck Schumer (D-N.Y.) speaks to the press after the Democratic Party's weekly luncheon at the U.S. Capitol, on March 6, 2024. (Mandel Ngan/AFP via Getty Images)

The 20-page impeachment resolution contains two articles with multiple examples of laws Mr. Mayorkas is alleged to have ignored or refused to enforce and illustrations of his blocking congressional oversight, including not producing requested copies of documents.

Democratic House impeachment managers, led by Rep. Jamie Raskin (D-Md.), walk out of the Senate Chamber in the Capitol, on Feb. 13, 2021. (J. Scott Applewhite/AP Photo)

The House managers, all Republicans, include Mr. Green, House Foreign Affairs Committee chairman Reps. Mike McCaul of Texas, Andy Biggs of Arizona, Clay Higgins of Louisiana, Ben Cline of Virginia, Michael Guest of Mississippi, Andrew Garbarino of New York, August Pfluger of Texas, Harriet Hageman of Wyoming, Marjorie Taylor Greene of Georgia, and Laurel Lee of Florida.

ZeroPointNow Tue, 04/16/2024 - 10:30

"Only Good For WW3": Slovakia To Oppose Ukraine's NATO Membership Bid

"Only Good For WW3": Slovakia To Oppose Ukraine's NATO Membership Bid

Last October saw a significant shift in Slovakia's trajectory related to its stance on the Ukraine war, after the populist left-wing party Smer took the most votes in the country's national election. Its head, who ascended to his fourth term as prime minister, Robert Fico, advanced a platform of pursuing peace in Ukraine rather than continuing to pour weapons into an increasingly hopeless campaign to evict Russian forces from the country's eastern provinces. 

In the wake of US Secretary of State Antony Blinken earlier this month controversially declaring "Ukraine will become a member of NATO" - Slovakia under PM Fico is pushing back. He said in fresh comments at a press conference that Slovakia will stand firmly against any efforts to pursue Ukraine's accession into NATO.

via EPA

"Ukraine may say: ‘We want to join NATO.’ This will be their own decision. We are saying that we will not ratify [the documents on Ukraine’s accession to NATO] in parliament because Slovakia needs a neutral Ukraine. Slovakia’s interests will be threatened if Ukraine becomes a NATO member," Fico said.

However, while rejecting the idea of Ukraine being in NATO, he did say that Slovakia supports Ukraine's bid to become a member of the European Union. "The Slovak prime minister expressed hope that Brussels and Kiev begin talks on launching this process as soon as possible," Russian media indicated.

In separate comments days ago he explained that "Ukraine’s membership in NATO is only good for World War III. An independent Ukraine is enough for us."

Those remarks were made in a weekend radio interview, where he went on to explain of his plans for relations with Moscow: "In the aftermath of conflict, there’s a keen interest in re-establishing normalcy in relations with Moscow," he said.

"I want to pursue a policy of good, friendly relations with anyone interested in such a policy," Fico affirmed while highlighting the small country of Slovakia's geography.

Back in September, just ahead of his becoming prime minister again, Fico said that "Peace is the only solution" and explained,  "I refuse to get criticized and labeled as a warmonger just for talking about peace, whereas those who support war and killing are being called peace activists. We have it all messed up in our heads. We will not send a single bullet to Ukraine from the state stocks.”

Fico has also said the Ukraine war didn't start in 2022: "I say it loud and clear and will do so: The war in Ukraine didn’t start yesterday or last year. It began in 2014, when the Ukrainian Nazis and fascists started to murder the Russian citizens in Donbas and Luhansk."

A March opinion poll found that 51% of Slovakians think the West and/or Ukraine are responsible for the conflict. Half also said the United States posed a security threat to their country. Fico's opposition to arming Ukraine and his support for an immediate, negotiated peace echoes the stance of neighboring Hungary, led by Prime Minister Viktor Orban. Both countries have borders with Ukraine.    

Tyler Durden Tue, 04/16/2024 - 10:10

Johnson Unveils Separate Israel, Ukraine Funding Bills That MTG Calls A "Scam"

Johnson Unveils Separate Israel, Ukraine Funding Bills That MTG Calls A "Scam"

After months of pushback over packages to send US-taxpayer-funded foreign aid to Israel and Ukraine, House Speaker Mike Johnson unveiled a plan Monday evening to hold four different votes on bills which would decouple aid by country, including Taiwan. Johnson will also put forth a House-approved bill that could ban TikTok from the US, and a measure aimed at satisfying Republican foreign policy demands.

According to WaPo, a draft of Johnson's plan mirrors a Senate bill, but may not include humanitarian aid for Gaza. In February, the Senate approved a bill which allocates $95.3 billion in supplemental spending, including $60 billion for Ukraine, $14 billion for Israel, $9 billion to Gaza, and $5 billion towards Indo-Pacific allies against Chinese threats.

And while Johnson pretended that the Senate bill would be a 'non-starter' in the House without border security measures, there's zero in there for border security demanded by House Freedom Caucus Republicans as a condition of approving foreign aid.

"I hate this, that [Johnson’s] saying it and not following through with it, that the hill to die on was the border and he would not put Ukraine up without the border. Looks like that’s going down the tubes," said Rep. Ralph Norman (R-SC) following the meeting.

Johnson said after the meeting that "Every member ultimately will be able to vote their own conscience on all of these matters and everybody have the opportunity to weigh in," Johnson said following a Monday GOP conference meeting. "I think the final product will be something that everybody can take confidence in because they got to vote their district."

During Monday's meeting, Rep. Matt Gaetz (R-FL) suggested passing a rule that would instruct the Senate to take up a measure known as H.R.2 approved by House Republicans last year which would severely restrict migrant entry into the US, before taking up any House-passed national security package.

A seemingly defeated Rep. Chip Roy (R-TX) left Monday's meeting speechless, saying "It's just what it is."

That said, WaPo reports that it's possible Johnson may work in border security measures to the fourth bill, which is essentially a GOP wish list, or through an amendment process.

Scam!

Rep. Marjorie Taylor Grene, who's been threatening to introduce a measure to oust Johnson, called the plan a "scam" that she's "firmly" against. That said, she hasn't said yet whether she'll move against Johnson over concerns that it could jeopardize the Republican majority in the House.

"I support the majority and I want it next time. So I’m being careful," said Greene. "He’s definitely not going to be speaker next Congress if we’re lucky enough to have the majority."

Johnson responded to Greene, saying "I don’t spend my time worrying about motions to vacate. We’re having to govern here and we’re going to do our job. I don’t know how that shakes out."

Rep. Jim Jordan (R-OH) told Punchbowl News Monday night that he's opposed to the package of four bills, saying he received no clarity from Johnson over his intentions.

As Punchbowl further reports:

House Majority Whip Tom Emmer and his whip team are going to have quite the job of neutralizing conservative opposition. Johnson, Emmer and House Majority Leader Steve Scalise only have 72 hours to assemble a coalition to pass the rule and underlying bill — perhaps even using different groups of GOP lawmakers to do so.

There's no indication of when the bill text would be ready, however once it's unveiled House rules provide 72 hours for members to read it before voting. Complicating matters is a week-long break the House is scheduled to take on Thursday, while Johnson said the earliest the House could consider the bills is Friday if legislative text is released by Tuesday (today).

If the bills advanced to floor debate but the House still can't agree to pass them, Johnson may be out of options. To that end, House Democrats are collecting signatures for a petition which could trigger a vote on the Senate bill - which currently has the backing of 194 Democrats and one Republican.

Tyler Durden Tue, 04/16/2024 - 09:30

US Industrial Production Is Flat YoY In March

US Industrial Production Is Flat YoY In March

US Industrial Production rose 0.4% MoM in March - as expected - which was... wait for it... the same rise as in February after that data was revised notably higher. However, even with the revision and the subsequent rise, Industrial Production remains unchanged YoY...

Source: Bloomberg

We can't help but see the irony that after we highlighted the serial downward revisions in data last month, that all of a sudden February's Industrial Production data is revised drastically higher...

Source: Bloomberg

Capacity Utilization ticked modestly higher (from a downwardly revised 78.2% to 78.4% (below expectations)...

Source: Bloomberg

US Manufacturing also saw February's data revised higher (from +0.8% to +1.2% MoM) and March rose 0.5% MoM (better than the 0.2% rise expected). That lifted YoY Manufacturing up by 0.8%...

Source: Bloomberg

Soft and Hard manufacturing data in agreement that things are turning up...

Nothing but blue skies here for The Fed to cut rates into... not!

Tyler Durden Tue, 04/16/2024 - 09:27

Futures Rebound On Strong Earnings Even As Global Market Mood Remains Dismal

Futures Rebound On Strong Earnings Even As Global Market Mood Remains Dismal

S&P futures traded modestly in the green, erasing earlier losses and signaling a recovery after the S&P 500 fell more than 1% in the past two sessions, following stronger than expected earnings from index heavyweight UnitedHealth Group which soared 6% after reporting first-quarter profit that beat Wall Street’s expectations and affirmed its outlook for the year, despite the costs associated with a cyberattack on one of its subsidiaries that has roiled the health-care industry; other reporters such as Bank of America and Morgan Stanley also gained. of 8:45am, S&P futures gained 0.3%, after trading down 0.2% earlier this morning; Nasdaq futures also reversed an earlier loss and traded about 0.2% higher. Meanwhile, loans continued their ascent, with 10Y yields rising as highas 4.65% before modestly reversing, while 2-year Treasuries approached 5%. The dollar advanced for a fifth day, its longest run since January.

In premarket trading, Tesla fell as much as 2.6% in premarket trading as two of the electric carmaker’s top executives left in the carmaker’s largest-ever round of job cuts. Morgan Stanley rose 3% in the premarket after reporting wealth management net revenue for the first quarter that beat the average analyst estimate. Its equities trading revenue was also ahead of consensus. Here are some other notable premarket movers:

  • UnitedHealth Group rises 6% after reporting first-quarter profit that beat Wall Street’s expectations and affirmed its outlook for the year, despite the costs associated with a cyberattack on one of its subsidiaries that has roiled the health-care industry.
  • Hims & Hers declines 5% after Jefferies downgraded the telehealth firm to hold, saying expectations on the stock are now at a “more appropriate level.”
  • Intra-Cellular Therapies climbs 18% after posting positive top-line results from a late-stage trial of its investigative treatment for depression.
  • Live Nation drops 9% after Bloomberg reported that the Department of Justice was preparing to file an antitrust complaint against the company over its Ticketmaster business, citing three people familiar with the matter.
  • Macatawa Bank jumps 38% following a deal that will see Wintrust Financial acquire it for about $510.3m, or $14.85 a share, in an all-stock transaction.
  • Morgan Stanley rises 2% after posting a 1Q revenue beat.

Markets have slumped in recent days as economic data continues to underscores US economic strength, while conflict in the Mideast fans the risk of higher energy prices and inflation, frustrating hopes for imminent Federal Reserve interest rate cuts. With earnings season underway, there’s growing concern that the mega-cap leaders will struggle to justify their steep valuations.  

“Markets are looking for an excuse to take a breather and the combination of rising geopolitical risk alongside inflation fear and Fed anxiety is providing some decent ground for that,” said Florian Ielpo, head of macro research at Lombard Odier Asset Management.

As noted yesterday, traders are no longer fully pricing in a Fed rate cut before November, while UBS Group AG strategists warned there may be no pivot at all and that US policymakers will instead embark on a hiking cycle. Treasury 10-year yields have spiked more than 10 basis points to 4.65% since the start of the week. With stocks and bonds coming under pressure, the dollar pushed higher as investors piled into haven assets.

Recent data “has given the Fed pause for thought and the market has repriced quite significantly,” said Daniel Loughney, head of fixed income at Mediolanum International Funds. “We have a powerful dynamic whereby US growth and inflation dynamics are mingling with big-picture commodity and supply chain-related inflationary pressures.”

Meanwhile on the geopolitical front, top Israeli military officials have vowed to respond to Iran’s missile attack despite diplomatic calls for restraint.  

This year’s record rally has left markets especially vulnerable to a pullback, according to top Wall Street strategists. A survey from Bank of America Corp. found that investor allocation to equities is at the highest in over two years. Citigroup strategists counted $52 billion of long positions on the S&P 500, 88% of them loss-making. "Should the market turn negative, the move could be faster and larger due to the large, long positions already in the red," Citigroup strategist Chris Montagu wrote in a note.

Stocks outside the US were trading in the red, with equities in Europe tumbling 1% and Asian peers down 2%.

European stocks tumbled out of the fate, tracking losses in their Asian counterparts with the prospect of a higher-for-longer Federal Reserve, rising Middle East tensions and patchy Chinese economic data all playing their part. They have, however, since regained some losses. The Stoxx 600 is down 1.0%, after earlier sliding 1.4% and looking at its largest fall this year. All 20 sectors are in the red but basic resources are the worst performers after Chinese retail sales and industrial production rose less than expected in March. US equity futures are slightly lower.

Earlier in the session, Asian stocks dropped by the most in eight months, as worries deepened that US monetary policy will remain tighter for longer and the latest slew of data from China failed to spark hopes of an economic recovery. The MSCI Asia Pacific Index slid more than 2%, the most since Aug. 2. Tech hardware stocks including chipmakers TSMC and Samsung were the biggest drags on the benchmark, which was poised for its fifth-straight daily loss, the worst losing streak since August.

In FX, the Bloomberg Dollar Spot Index rises 0.2% to its highest since November, adding to Monday’s post retail-sales gain. The greenback has also bulldozed its way through emerging-market currencies, weakening many through closely-watched levels that forced some officials to step in to stem the losses. The pound is flat after the UK unemployment rate rose unexpectedly. Asian currencies are in focus after China’s fixing surprise paved a way for the yuan to weaken to key 7.30 level, while USD/JPY continues to trend toward 155.

In rates, treasuries fell with US 10-year yields rising 4bps to 4.64% while the UK February jobs report sent 10-year yields to highest levels since November. Fed Chair Powell is slated to participate in a moderated discussion with Tiff Macklem, Governor of the Bank of Canada at 1:15pm New York time, with no text expected. Treasury coupon sales this week include $13b 20-year bond reopening Wednesday and $23b 5-year TIPS new issue Thursday

In commodities, oil prices erased an earlier gain with WTI crude oil futures down ~0.5%, extending retreat from last week’s highs reached amid escalation of Middle East conflict; Israel has said it will respond to Iran’s weekend attack. Spot gold falls 0.5% to $2,370/oz.

US economic data slate includes March housing starts/building permits, April NY Fed services business activity (8:30am) and March industrial production (9:15am). Fed speakers include Jefferson (9am), Williams (12:30pm), Barkin (1pm), Powell (1:15pm) and Collins (4:30pm)

Market Snapshot

  • S&P 500 futures little changed at 5,100.00
  • STOXX Europe 600 down 1.4% to 498.77
  • MXAP down 2.0% to 169.96
  • MXAPJ down 2.0% to 518.74
  • Nikkei down 1.9% to 38,471.20
  • Topix down 2.0% to 2,697.11
  • Hang Seng Index down 2.1% to 16,248.97
  • Shanghai Composite down 1.6% to 3,007.07
  • Sensex down 0.7% to 72,898.76
  • Australia S&P/ASX 200 down 1.8% to 7,612.49
  • Kospi down 2.3% to 2,609.63
  • German 10Y yield little changed at 2.44%
  • Euro little changed at $1.0614
  • Brent Futures up 0.2% to $90.26/bbl
  • Gold spot down 0.5% to $2,371.27
  • US Dollar Index up 0.12% to 106.33

Top Overnight News

  • China’s March economic data disappoints, including retail sales (+3.1% Y/Y vs. the Street +4.8%) and industrial production (+4.5% Y/Y vs. the Street +6%), although GDP for Q1 ran ahead of expectations. RTRS 
  • China’s President Xi Jinping met German Chancellor Olaf Scholz in Beijing on Tuesday, saying China’s exports were easing global inflation and the clean energy transition at a time of tension with the EU over trade and the war in Ukraine. FT
  • UK wage growth was higher than expected in the three months to February, despite a weaker jobs market in which unemployment edged up, vacancies fell and more people chose not to work or look for work. The Office for National Statistics said average earnings, including bonuses, were 5.6% higher over the period than a year earlier, the same annual growth rate as in the three months to January. Analysts had expected annual growth to slow to 5.5%. FT
  • Israel’s response will “send a message”, but not cause casualties (options include hitting a facility in Tehran or launching a cyberattack). WaPo
  • Speaker Johnson will put four separate bills on the House floor this week (funding for Ukraine, Israel, Taiwan, and a ban of TikTok) and a draft of the legislation largely mirrors what was already passed in the Senate. NYT
  • UBS’s capital needs may rise by around $20 billion to reach new requirements the government is proposing in the wake of Credit Suisse’s collapse. BBG
  • International Paper agreed to buy UK rival DS Smith for £5.8 billion, creating a global leader in packaging. BBG
  • The Fed’s Mary Daly stressed there’s no urgency for rate cuts given “remarkable” US growth, a resilient labor market and still-elevated inflation. The “worst thing” the Fed can do is move unnecessarily fast, she said. Jerome Powell and Tiff Macklem speak on the North American outlook later. BBG
  • MSFT will invest $1.5B in the UAE AI firm G42, the latest example of the software giant providing capital throughout the AI industry. WSJ

A more detailed look at global markets courtesy of Newsquawk

APAC stocks were lower across the board with global risk appetite sapped by geopolitical concerns related to a potential 'imminent' response by Israel against Iran, while markets also digested mixed key releases from China. ASX 200 retreated with selling across all sectors and consumer discretionary front-running the declines. Nikkei 225 was among the worst hit and fell beneath the 38,500 level with the index shedding over 800 points. Hang Seng and Shanghai Comp. conformed to the downbeat mood despite better-than-expected Chinese GDP for Q1 which was negated by disappointing Industrial Production and Retail Sales data, while property sector woes persisted after home prices further deteriorated and with developer Times China (1233 HK) facing a winding-up petition filed by Hang Seng Bank.

Top Asian News

  • Chinese President Xi told German Chancellor Scholz during their meeting in Beijing that bilateral ties will continue to develop as long as both sides respect each other and seek common ground, while he added that they must view and develop bilateral relations in an all-round way from a long-term and strategic perspective.
  • China's stats bureau said economic conditions are still not stable and the external environment is complex, while it added that uncertainty is increasing and that consumer inflation will recover mildly. China's stats bureau also stated that China's property market is still in the middle of adjustments.
  • Japanese Chief Cabinet Secretary Hayashi said won't comment on forex levels or currency intervention and reiterated that it is important for currencies to move in a stable manner reflecting fundamentals, while he added that excessive FX volatility is undesirable and is prepared to take all measures on FX.
  • Fitch revises outlook for Chinese state banks to Negative from Stable; affirms ratings

European bourses, Stoxx600 (-1.4%), are entirely in the red, continuing the price action seen in Wall St. from the prior session and following a negative handover from APAC trade as geopols remain in focus and China data was mixed. European sectors are lower; Telecoms was initially propped by post-earning strength in Ericsson (+3.5%), though this ultimately faded. Basic Resources underperforms, given weakness in metals prices. For Luxury names, LVMH due to report after the European close. US equity futures (ES -0.1%, NQ -0.1%, RTY -0.3%) are lower, albeit to a lesser magnitude than European counterparts. A busy earnings slate will provide direction for markets today; United Health, UAL, Bank of America & Morgan Stanley are all due.

Top European News

  • ECB's Rehn says future rate decisions will ensure that policy rates will remain sufficiently restrictive for as long as necessary. If June assessment confirms inflation convergence towards target, could lower rates. Cut assumes there will be no further setbacks in geopolitics or energy prices. At the moment, there is a divergence between the US and European economy; naturally may take different kinds of decision in the coming period; ECB does not pre-commit to any rate path.
  • BoE's incoming Deputy Governor Lombardelli says decline in inflation is likely to be bumpy; sees two-sided risks. Evidence suggests that Brexit has had a negative economic impact via investment and trade. Inflation may rove more persistent than expected. Wage growth is slowing but remains high. Joins the MPC on July 1st, replacing Broadbent.
  • EU leaders are set to revive their capital markets union plan in search for defence funding, according to FT.
  • Morgan Stanley expects the ECB to deliver 75bps interest rate cuts in 2024 (prev. 100bps expected)
  • Deutsche Bank expects ECB to deliver 75bps of interest rate cuts in 2024 (prev. forecast 125bps)

FX

  • USD is firmer vs. all peers as the hawkish Fed repricing/strong US data continues to provide support. DXY has been as high as 106.43 with the next target via the 2nd Nov'23 peak at 106.51.
  • EUR/USD clinging onto 1.06 status after printing a 1.0603 low. In a week lacking in key EZ data and ECB speakers continuing to talk up a June cut, it is not obvious to see how price action can reverse.
  • GBP is flat vs. the USD and holding up better-than-peers with this morning's wage metrics potentially overshadowing a larger-than-expected increase in the unemployment rate. 1.2409 is the base for now.
  • 154.60 is the high watermark for the USD/JPY as the Fed/BoJ divergence play remains the key guiding force. 155 is the perceived line in the sand for the MoF and speculation continues to mount over an intervention by Tokyo.
  • The current risk environment is continuing to act as a drag for the antipodes. AUD/USD is managing to hold above the 0.64 mark with not too much follow-through at the time from Chinese data.
  • PBoC set USD/CNY mid-point at 7.1028 vs exp. 7.2475 (prev. 7.0979).
  • South Korean FX authority says closely monitoring FX market with caution on currency movement, supply and demand; excessive herd-like behaviour in FX market is undesirable.

Fixed Income

  • USTs are contained in a narrow nine tick band that is entirely within Monday's 107-18 to 108-22 parameters. Newsflow limited thus far as we await Israel's response to Iran, though the docket ahead is filled with several Fed speakers.
  • Bunds have been directionally in-fitting with USTs. Following the German ZEW data, Bunds were pressured by around 15 ticks to a new 131.55 session low, taking it below Monday's 131.58 base.
  • Gilts gapped lower by 18 ticks at the open following the latest labour/wage data, with focus on the hotter wage components; benchmark briefly pared as the internals were digested before ZEW hit and pressured the space again. Overall, Gilts continued to drift to a 96.44 base which marks a contract low and has seen the 10yr yield peak at 2.78%.
  • UK sells GBP 1.5bln 0.75% 2033 I/L Gilt: b/c 3.4% (prev. 2.97x) and real yield 0.440% (prev. 0.634%)

Commodities

  • Crude is subdued and off best levels, but still underpinned by geopolitical risks after reports of a potential 'imminent' response by Israel against Iran; Brent June trades between USD 89.82-90.84/bbl range.
  • Softer trade across precious metals amid a lack of retaliation by Israel thus far whilst the Dollar also edges higher; XAU sits in a USD 2,363-92/oz range.
  • Base metals are lower across the board amid the risk aversion and stronger Dollar. Chinese data overnight was mixed in which Chinese GDP for Q1 topped expectations, but was negated by disappointing Industrial Production and Retail Sales data.
  • El Nino weather event has ended, according to the Australian Bureau of Meteorology.

Geopolitics: Middle East

  • "Israel sent a message to the countries of the region that responding to the Iranian attack will not endanger the stability of these countries", according to Sky News Arabia.
  • The Israeli war cabinet is weighing a response to the recent Iran attacks; and is to meet again on Tuesday for a third straight day, via the FT
  • Iran's Foreign Minister said in a call with China's Foreign Minister that Iran is willing to exercise restraint and has no intention of further escalating the situation, according to Chinese state media.
  • US officials expect a possible Israeli response to Iran’s attack over the weekend to be limited in scope and most likely involve strikes against Iranian military forces and Iranian-backed proxies outside Iran, according to four US officials cited by NBC News.
  • Iraqi PM confirmed Iraq's interest in obtaining expertise and arms from the US, as well as keenness on security partnership during a meeting with US Defense Secretary Austin, according to Reuters.
  • Saudi Arabia acknowledged that it helped defend Israel against Iran whereby Saudi Arabia's royal family posted on its website about the country's role in defending Israel against the Iranian barrage, according to Jerusalem Post.

Geopolitics: Other

  • US judges North Korea to have the capability to manufacture biological weapons through genetically modified weapons, according to Yonhap.

US Event Calendar

  • 08:30: March Housing Starts 1.321m, est. 1.49m, prior 1.52m
  • 08:30: March Housing Starts -14.7% MoM, est. -2.4%, prior 10.7%
  • 08:30: March Building Permits 1.458m, est. 1.51m, prior 1.52m, revised 1.52m
  • 08:30: March Building Permits -4.3%MoM, est. -0.9%, prior 1.9%, revised 2.4%
  • 09:15: March Capacity Utilization, est. 78.5%, prior 78.3%
  • 09:15: March Manufacturing (SIC) Production, est. 0.2%, prior 0.8%
  • 09:15: March Industrial Production MoM, est. 0.4%, prior 0.1%

Central Banks

  • 09:00: Fed’s Jefferson Speaks at Monetary Policy Forum
  • 12:30: Fed’s Williams Moderates Event w/ François Villeroy de Galhau
  • 13:00: Fed’s Barkin Speaks on Economic Outlook
  • 13:15: Fed’s Powell Participates in Moderated Q&A
  • 16:30: Fed’s Collins Gives Speech on Economy

DB's Jim Reid concludes the overnight wrap

I picked an eventful couple of weeks in markets to be on holidays. The highlights of my trip were 1) accidentally mixing up my ski pass with one of my twins (he has the same name as me) which nearly caused us both to be booted off the slopes after the cameras picked up a six-year old on a lift with a 49-year old’s pass; 2) it going from freezing to boiling on the same day; 3) a Saharan dust storm covering the skies and slopes with orange sand; and 4) all three kids passing the “first star” stage at ski school albeit via two not passing initially and me having to pay for a couple of extra private lessons to ensure parity and less arguments and fighting within the family. In fact it's lovely to be back at work and to leave sibling rivalry behind me for a bit.

That said, my first 24 hours back have been far from quiet, with the S&P posting its weakest 2-day run since the regional banking stress last March (-1.20% yesterday after -1.46% on Friday). Equities had initially opened higher in the absence of any immediate escalation in the Middle East, but sentiment turned amid renewed concerns over Israel’s response to Iran’s weekend attack, with the rise in rates also weighing. The sell-off in sovereign bonds received extra momentum from a strong US retail sales print, which took the 10yr Treasury yields (+8.0bps) to their highest level in five months at 4.60%, despite a decent rally later in the US session from a 4.66% peak.

By contrast, when I left for my hols at Easter 10yr US yields were 4.20%. In fact, since 2007 they’ve only been higher than the current level for around 6-weeks straddling October last year. Alongside this we’ve moved from pricing in 2.9 Fed hikes this year just before Easter to only 1.75 as I type this morning. Powell speaks today so we'll see if he changes anything here.

I continue to believe that it’s going to be incredibly difficult to smoothly land this US economic cycle given we’ve moved from the biggest increase in money supply since WWII to the biggest contraction since the 1930. All with the associated lags. The least likely scenario was always likely to be US growth and inflation moving to trend with anything close to the 6.7 Fed cuts priced in at one point in January. Last year I believed the recession was the most likely outcome but as I said at the start of this year when we changed our view, I think I underestimated the true scale of the stock of stimulus/money still in the system even when the flow turned negative with the tightening of policy. Looser financial conditions since October have exaggerated this and contributed to a boost in activity, inflation and markets this year.

So it's possible that stimulus/liquidity is still working its way through the system and you can see that with Peter Sidorov’s recent work on credit conditions here and here. Peter’s work suggests that the US has benefited from more muted transmission of rate hikes but that there could still be an air pocket of US liquidity later in the year when we return nearer to the long-term money supply trend and finally remove the excesses created. If that’s correct then maybe cutting rates in preparation of that is actually the correct thing to do. However faced with inflation that is currently accelerating that would be very very difficult for the Fed to communicate and be comfortable doing. The lag of policy is incredibly difficult to assess in real time. So the most likely scenario is that rate cuts are delayed ( DB only have one cut in December for 2024 now. See here for more) but that in itself creates risks that rates will be left restrictive at the point where the boost from the earlier liquidity overhang runs out.

So a textbook perfect soft landing will still be very difficult to achieve in my opinion. Obviously a no landing but with decent economic growth could be fine for equities while it lasts so the above isn't meant to sound near-term negative but simply to outline the uncertainties that I still think are very large.

The added complication at the moment is the heightened uncertainty in the Middle East. This dominated the wires yesterday, as we saw multiple countries warn Israel against an escalation. For instance, French President Macron said that “We’re going to do everything we can to avoid flare-ups, and try to convince Israel that we shouldn’t respond by escalating, but rather by isolating Iran”. Similarly, UK Foreign Secretary Cameron said that “We’re saying very strongly that we don’t support a retaliatory strike.” And US President Biden said the US “is committed to Israel’s security” and “to a ceasefire that will bring the hostages home and prevent the conflict from spreading beyond what it already has”. Nevertheless, market pricing of geopolitical risk premium began to rise again following an Axios report that Israel’s defence minister Yoav Gallant told US Defence Secretary Lloyd Austin that Israel couldn’t allow ballistic missiles to be launched against it without a response. Later on, CNN reported that Israel’s war cabinet reviewed military plans for a potential response in a meeting on Monday, without clarity on whether a decision had been taken. Oil prices followed the shifting geopolitical sentiment, with Brent crude initially falling more than 1% to below $89/bbl intra-day, but rising to back above $90 by the close, and trading at $90.56 as I type.

Risk assets came under increased pressure following the Axios report, with the S&P 500 down -1.20% by the close. The heightened sense of alert saw the VIX index of volatility spike by another +1.9pts to 19.2, seeing its sharpest two-day rise since the regional banking stress last March. In Israel itself, equities posted further declines, with the TA-35 index down -1.23%, following a modest +0.27% gain on Sunday. By contrast, gold benefited in the risk-off mood (+0.55%), closing at a new record high of $2,357/oz.

The equity decline was led by tech stocks, with the NASDAQ down -1.79% and the Magnificent 7 (-2.44%) seeing its worst day since January. Tesla (-5.59%) extended its YTD decline to -35% amid news that it will cut over 10% of its workforce. But the broad turn in sentiment also saw the three largest mega caps – Microsoft (-1.96%), Apple (-2.19%) and Nvidia (-2.48%) – all post sizeable declines. Amid the outperformers, Goldman Sachs gained +2.92% after its earnings beat expectations. European markets had closed before the worst of the equity sell off, with the STOXX 600 (+0.13%) a little higher on the day. There was a divergence between the UK’s FTSE 100 (-0.38%), and other indices including Germany’s DAX (+0.54%) and France’s CAC 40 (+0.43%). Euro Stoxx futures are -1.40% this morning as I type with S&P 500 (-0.28%) and NASDAQ 100 (-0.26%) futures lower but not accelerating the losses too much.

Stocks had started Monday on the front foot, in part thanks to a strong US retail sales print that offered a fresh reminder about the strength of the US consumer. It showed retail sales were up +0.7% in March (vs. +0.4% expected), and the previous month was also revised up three-tenths. This also revived fears about a “no landing” though, leading investors to dial back the chances of rate cuts this year. The amount of cuts priced by the Fed’s December meeting came down by -1.8bps to 45bps, and it had moved as low as 37bps intra-day prior to the souring of the geopolitical sentiment.

The retail sales data exacerbated the bond selloff, and the 10yr Treasury yield (+8.0bps) closed at 4.60%, its highest level since November and is further +1bps higher overnight. At the front end, the 2yr yield was up +2.3bps to 4.92%, having been as high as 4.99% at its intraday peak. There were also fresh signs of concern about inflation, with the 2yr US inflation swap (+1.8bps) up to a one-year high of 2.65%.

This morning in Asia equity markets are extending declines. The KOSPI (-2.45%), Nikkei (-2.11%), S&P/ASX 200 (-2.12%) and the Hang Seng (-1.87%) are all seeing major losses. Chinese stocks are also slipping with the CSI (-1.02%) and the Shanghai Composite (-1.42%) lower after some mixed data.

The Chinese economy did make a stronger than expected start to the year, offering some relief to officials after they've unveiled a raft of fiscal and monetary policy measures to boost the economy. Q1 GDP grew at a +5.3% annual pace, beating analysts’ forecasts of +4.8% and relative to a +5.2% expansion in the previous quarter. On a quarter-by-quarter basis, GDP grew +1.6% in the first quarter (v/s +1.5% expected) following an upwardly revised growth of +1.2% in the prior quarter. However, industrial output for March grew +4.5% y/y missing Bloomberg expectations for a +6.0% increase while retail sales advanced +3.1% y/y, less than market expectations for +4.8% growth. C hinese house prices continued to fall in March, dropping - 2.7% from a year earlier and worse than a -1.9% drop in February, indicating that the nation’s property market is struggling to find a bottom. In addition, the PBoC unexpectedly weakened its yuan defense as it cut the yuan’s fixing by 49 pips to 7.1028 per dollar, its weakest level since March this year amid dollar strength.

In FX, the Japanese yen remains under pressure as it fell to its weakest level since June 1990 yesterday, crossing the 154 mark against the dollar despite repeated warnings from the government over potential currency market intervention. It's stable overnight however.

Looking back now at yesterday’s other data from the US, the Empire State manufacturing survey came in at -14.3 (vs. -5.2 expected), and there was also an upward move in the prices paid indicator, which rose to an 11-month high of 33.7. Otherwise, the NAHB’s housing market index remained at 51 in April, in line with expectations.

To the day ahead now, and central bank speakers include Fed Chair Powell, Fed Vice Chair Jefferson, the Fed’s Williams and Barkin, BoE Governor Bailey, the ECB’s Rehn, Villeroy and Vujcic, and Bank of Canada Governor Macklem. Data releases include US industrial production, capacity utilisation, housing starts and building permits for March, Canada’s CPI for March, UK labour market data for March, and the German ZEW survey for April. Today’s earnings releases include Johnson & Johnson, Bank of America and Morgan Stanley. Finally, the IMF will be releasing their latest World Economic Outlook.

Tyler Durden Tue, 04/16/2024 - 09:16

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