Month: September 2024

Yesterday, when we observed that the Labor Day holiday had spared US markets from a selloff that spread across the rest of the world on the first trading day of September, we said that we had a bad feeling about today.

And boy were we right: traditionally the worst month for stocks, bonds, gold and bitcoin, September started off with a bang – not a whimper – which saw the S&P plunge 2.4%, its biggest drop since the August 5 meltdown and the worst start to a month since May 2024 when the S&P plunged 2.8%.

Or in the immortal words of Ron Burgundy…

And while the move in the VIX was not nearly as stunning as the Aug 5 Volmageddon 2.0 event, the 7 vol spike from 15 to a session high of 21.99 – also the highest since August 5 – has left quite a few volatility sellers suffering another round of huge margin calls less than a month since the last one.

It wasn’t just the S&P: the Dow (which has become a meaningless index) also tumbled back under 41,000, but the biggest loser by far was the increasingly fragile Nasdaq, which crashed more than 3%, its biggest drop also since the August 5 collapse, and the 3rd biggest one-day drop in the past year…

… thanks to a sudden liquidation of the momentum leaders of 2024, the Mag7 which was most apparent in today’s performance of semiconductor stocks, which suffered their biggest drop since March 2020.

And while it is unclear what exactly sparked today’s rout (see “What’s Behind Today’s Tech Carnage: Goldman’s Trading Desk Explains“) that won’t cheer NVDA longs who are watching their favorite stock plunge a massive 10% and a whopping 18% in just the past week…

… wiping out more than $280 billion in value, which makes it the biggest one-day market cap loss in history, surpassing Meta’s previous record of $251BN in market cap lost after its February 2022 earnings report.

And while the tech sector was crushed, there was no rotation out of it today, with small caps plunging 3%, their biggest drop also since August 5…

… and while it’s not a small cap just yet, the 8% plunge in Boeing – on merely a downgrade (from Wells Fargo of all banks) – shows just how truly jittery the market has become.

While normally on days like today – when favorite names are getting blown out – the most shorted names rise, not even that worked today, and in a repeat of the Aug 5 plunge, the Goldman most shorted basket tumbled 4% erasing almost half the gains from the past month.

Notably, today’s carnage wasn’t confined to stocks: commodities were also hammered, with Brent tumbling almost 5%, back under $74, and wiping out all 2024 gains, as WTI flirted with $70/barrel…

… on fears China’s economy will pass recession and proceed straight to depression just as Libya restarts its own oil supply firehose, while seemingly nobody cares at all about potential geopolitical risk factors around the world.

Even gold, that stalwart outperformer in 2024 and the best performing asset of the year, wasn’t immune from today’s selloff, and after trading above $2500 for much of of the past 2 weeks, the yellow metal dipped back under.

Amid this carnage, which was at least in part sparked by the a stagflationary ISM print, which saw employment and new orders tumble…

… while prices paid jumped, and hinted at a rebound in the CPI…

… coupled with absolutely devastating commentary from the US PMI report, which hinted not so much at a recession as a manufacturing depression…

“A further downward lurch in the PMI points to the manufacturing sector acting as an increased drag on the economy midway through the third quarter. Forward looking indicators suggest this drag could intensify in the coming months.

“Slower than expected sales are causing warehouses to fill with unsold stock, and a dearth of new orders has prompted factories to cut production for the first time since January. Producers are also reducing payroll numbers for the first time this year and buying fewer inputs amid concerns about excess capacity.

“The combination of falling orders and rising inventory sends the gloomiest forward-indication of production trends seen for one and a half years, and one of the most worrying signals witnessed since the global financial crisis.

“Although falling demand for raw materials has taken pressure off supply chains, rising wages and high shipping rates continue to be widely reported as factors pushing up input costs, which are now rising at the fastest pace since April of last year.”

… the one thing that actually did work was treasuries, with 10Y yields sliding almost 10bps and back to where they were just after the Aug 5 crash.

Yet while stocks – and bonds – have fully priced in more than 200bps of Fed rate cuts over the next 12 months, a pace of easing that is unheard of outside recessions, the risk or rather reality, is that on Friday the Kamala BLS will report a much stronger jobs number than most expect… and why not: the BLS already kitchen-sinked just how ugly the jobs market was with its 818K downward revision, so it can once again start making up numbers.

Putting it all together: today was brutal for most, but with the Nasdaq wiping out 3.1% or about 75% of its average September loss from the past decade in one trading day, it is likely that much of the pain is already in the history books. And we are confident that the BTFD crew will be up early tomorrow ready to start buying it all right back up…

Authored by Naveen Athrappully via The Epoch Times (emphasis ours),

The median down payment for buying a home in the United States has jumped to an all-time high, driven by factors like high home prices and mortgage rates, according to a report by real estate brokerage Redfin.

“The typical down payment for U.S. homebuyers hit a record high of $67,500 in June, up 14.8 percent from $58,788 a year earlier,” according to an Aug. 28 news release. Year-over-year down payment costs have been rising continuously over the past months, with June recording the 12th straight month of increase.

Redfin said the spike in down payment was being influenced by current market conditions where “higher-priced, turnkey homes” located in desirable neighborhoods are likely to get sold. Turnkey homes are fully renovated properties that an investor can buy and rent out immediately.

The median price of a U.S. home was also at a “record” high of $442,525. With elevated home prices and mortgage rates, buyers need to put down more money in down payment.

“Investors are still coming in with all-cash offers on homes that need to be renovated. Traditional buyers are putting up large down payments to try and lower their mortgage payment,” said Annie Foushee, a Redfin agent in Denver.

“These buyers will often utilize the help of family members to put down more than they could on their own.”

The down payment a typical homebuyer made in June was 18.6 percent of the home price, the highest level in more than a decade. Almost three in five buyers paid more than 10 percent of the property price as a down payment in June.

More than 30 percent of home purchases in June were made all-cash, up from last year. Redfin Senior Economist Sheharyar Bokhari pointed out that the “percentage of all-cash sales generally follows the same trend as the rise and fall of mortgage rates. When rates are down, the percentage of all-cash sales is down too, and the opposite is true when rates go up.”

“That means we may start to see all-cash purchases level off a little now that mortgage rates have started to come down from recent highs.”

According to real estate data provider ATTOM, Barnstable Town, Massachusetts, had the highest median down payment percentage for home purchases among all U.S. metros in the first quarter of this year at 23.6 percent.

Naples-Immokalee-Marco Island, Florida, and San Francisco-Oakland-Hayward, California, had rates above 23 percent. Los Angeles-Long Beach-Anaheim, California; Boulder, Colorado; Santa Rosa, California; and Oxnard-Thousand Oaks-Ventura, California are the other metros that came over 20 percent.

Housing Affordability

Higher down payment is one of the factors contributing to the affordability crisis in the housing sector.

Data from the National Association of Realtors (NAR) show that in June, to afford a median-priced existing single-family home, a person had to make monthly payments of $2,303, which is almost double the $1,206 in payments from 2021.

Monthly payments now eat up more than a quarter of an individual’s income. To simply qualify for the home, the person needs to have an income of $110,544, up from $57,888.

A key factor making home loans expensive is mortgage rates, which have jumped from 3.01 percent to seven percent during this period.

In recent months, rates have declined from their peak in late October. The average 30-year fixed-rate mortgage rate was 6.35 percent for the week ending Aug. 29.

Sam Khater, chief economist at Freddie Mac, said mortgage rates declined in the recent week due to “expectations of a Fed rate cut.”

“Rates are expected to continue their decline, and while potential homebuyers are watching closely, a rebound in purchase activity remains elusive until we see further declines.”

Even when rates come down, high home prices could continue to be the norm, keeping housing costs elevated.

In a recent interview with The Epoch Times, Jessica Lautz, NAR deputy chief economist and vice president of research, said the organization was “forecasting that home prices will continue to grow based on the lack of inventory and demand for home ownership.”

A former top aide to New York’s Democratic Governor Kathy Hochul has been arrested Tuesday on federal criminal charges in a political bombshell. She is accused of acting as an undisclosed agent of China and the Chinese Communist Party. She’s been identified as Linda Sun, who had previously served as Hochul’s deputy chief for a year, following stints in other positions at the state government level.

The significant list of allegations includes that she worked to advance CCP interests in sate government, and in return received huge sums of money and oversaw the facilitation of millions of dollars in transactions connected to Chinese government business interests.

Perhaps most alarming is that she’s alleged to have on multiple occasions blocked the ability of representatives of the Taiwanese government from meetings with NY government officials. Her husband, Chris Hu, has also been arrested, implicated in the conspiracy.

The couple was arrested by the FBI at their posh Long Island home on Tuesday, estimated to be a house worth over $4 million, which has luxury cars in the garage, including a 2024 Ferrari.

The indictment states that while “acting at the request of PRC government officials and the [Communist Party of China] representative, Sun engaged in numerous political activities in the interests of the PRC and the CCP.”

She allegedly engaged in “blocking representatives of the Taiwanese government from having access to” the NY governor’s office. Sun is also accused of lobbying to successfully change Gov. Hochul’s messaging related to China and Taiwan. She even tried to facilitate an official trip of the NY governor to China.

Prosecutors say the couple laundered the proceeds of their alleged schedule to buy a $4.1 million home in Manhasset, Long Island, a $2.1 million condominium in Honolulu, and luxury automobiles that include at 2024 Ferrari. —CNBC

“As alleged, while appearing to serve the people of New York as Deputy Chief of Staff within the New York State Executive Chamber, the defendant and her husband actually worked to further the interests of the Chinese government and the CCP,” U.S. Attorney Breon Peace announced Tuesday.

“The illicit scheme enriched the defendant’s family to the tune of millions of dollars. Our Office will act decisively to prosecute those who serve as undisclosed agents of a foreign government,” he added.

NY Governor Hochul’s Deputy Linda Sun demanding “equity” in the US.

Turns out, she was a Chinese spy.

pic.twitter.com/aQBGCdkJza

— End Wokeness (@EndWokeness) September 3, 2024

Other ‘benefits’ received from the Chinse government included employment from the Chinese government given to Sun’s relatives, luxury high-end meals delivered to her parents in China, event tickets, and the promotion of a family friend’s business. A list of the key charges against her include:

• violating and conspiring to violate the Foreign Agents Registration Act
• visa fraud
• alien smuggling
• money laundering conspiracy

Her husband Chris has been charged with the following violations:

• money laundering conspiracy
• conspiracy to commit bank fraud
• misuse of means of identification

The governor’s office has immediately tried to distance Hochul from Sun, even though it looks like her deputy chief of staff was highly influential:

Hochul’s press secretary Avi Small, in a statement to WNBC News 4 in New York City, said, “This individual was hired by the Executive Chamber more than a decade ago.”

“We terminated her employment in March 2023 after discovering evidence of misconduct, immediately reported her actions to law enforcement and have assisted law enforcement throughout this process,” Small said.

BREAKING: Former aide to New York Gov. Kathy Hochul charged with acting as an agent of the Chinese government.

Former deputy chief of staff to Hochul Linda Sun was charged with alien smuggling and money laundering conspiracy.

She was also charged with conspiring to violate the… pic.twitter.com/urz9c9nvm6

— Collin Rugg (@CollinRugg) September 3, 2024

Apparently the investigation has been on for some time, given Sun’s high level position in Hochul’s office began in September 2021. She had held a series of positions in the state government from 2012 to 2023. She had also held a staff position in the administration of former Governor Andrew Cuomo. Her latest position was as Deputy Director of the New York State Department of Labor.

By Mish Shedlock

China is going all in on exports to revive growth led by EVs. Trump vows to strike back with 60% tariffs.

Accelerated Global Trade War

The Wall Street Journal comments China Is Starting a New Trade War.

China is cranking up its massive export machine again, and this time there’s nowhere for competitors to hide.

A Massachusetts startup called CubicPV bet on silicon wafers, a high-tech component in solar panels. Buoyed by President Biden’s climate legislation enacted two years ago, with billions of dollars in tax credits and government loans, CubicPV announced plans in late 2022 for a $1.4 billion wafer plant in Texas.

Since then, China has nearly doubled its output of silicon wafers, way more than it needs. The extra wafers had to go somewhere—and they went overseas, pushing prices down by 70%. CubicPV had to halt its production plan early this year, putting engineers and other employees out of work, citing “a distorted market as a result of China’s overcapacity.”

The European Union’s recent decision to impose tariffs on imported Chinese electric vehicles is only the latest sign of deepening tensions. The U.S. earlier this year hiked levies on Chinese steel, aluminum, EVs, solar cells and other products. Turkey has jacked up duties on Chinese EVs, while Pakistan raised tariffs on Chinese stationery and rubber.

Chinese leader Xi Jinping ordered officials to double down on the country’s state-led manufacturing model, with billions of dollars in fresh subsidies and credit. He used a slogan to make sure officials got the message: “Establish the new before breaking the old,” or xian li hou po in Chinese.

China has added capacity to produce some 40 million vehicles a year, even though it sells only around 22 million at home. It’s on track to make around 750 gigawatts of solar cells this year, despite only needing 220 gigawatts domestically in 2023. And it is expected to account for 80% of the world’s new supply this year in basic chemicals such as ethylene and propylene, used to make garbage bags, toys and cosmetics—even though prices in China have been falling for 19 months, a sign of oversupply.

The International Trade Commission, a federal agency that analyzes trade issues, in June gave its initial go-ahead to an antidumping petition backed by American solar manufacturers who allege solar cells and modules made by Chinese companies are sold in the U.S. for below market value and unfairly subsidized.

Other parts of the world are bearing more of the brunt. European automakers have axed more than 10,000 jobs as more Chinese EVs arrive. Antonello Ciotti, chairman of PET Europe, a trade association for European makers of chemicals used in polyester fibers for clothing and recyclable containers, said European PET producers shed hundreds of jobs as firms slashed costs and production to deal with Chinese imports. The EU late last year imposed antidumping duties on certain imports of Chinese PET.

“Everybody makes stuff in China,” said Joerg Wuttke, former president of the European Chamber of Commerce in China and now a partner at Washington consulting firm DGA Group. “But nobody makes money.”

Two Guiding Principles

Two principles have guided Xi’s thinking, Chinese policy advisers say. The first is that China must build an all-encompassing industrial supply chain that can keep the domestic economy running in the event of severe sanctions by the U.S. and other Western countries. In the top leader’s views, advisers say, industrial security sits at the core of China’s stability as tensions with the developed world rise.

The second is a deep-rooted philosophical objection to U.S.-style consumption, which Xi sees as wasteful.

China’s first fear is well founded in reality. US sanctions on chips and AI technology have forced China to go it alone. It’s a US mistake to think it can cut off China from leading technology.

Should the US succeed, China would and could cut the supply or rare earth minerals the US needs to make phones, missile guidance systems, EVs, wind turbines, and advanced chips.

What About Dumping?

China is on track to make around 750 gigawatts of solar cells this year, despite only needing 220 gigawatts domestically in 2023.

But the US grows more corn and soybeans than it can eat.

If every country produced only what it could consume, global trade would be zero.

China has access to minerals needed to make solar panels and batteries for EVs. To meet energy goals, the US should be thrilled to get cheap solar panels.

But to save a few hundred jobs (that vanished anyway), Biden upped tariffs and mandated installers use US-made panels.

Another Green Energy Company Declares Bankruptcy

On August 10, I commented Another Green Energy Company Declares Bankruptcy, Thank Biden’s Tariffs

The attempt to force production of solar panels in the US resulted in prices so high that few wanted them.

No only did production vanish so did installation jobs.

Eh Tu Canada?

Reuters reports Canada to Impose 100% Tariff on Chinese EVs, Including Teslas

Canada, following the lead of the United States and European Union, said on Monday it will impose a 100% tariff on imports of Chinese electric vehicles and announced a 25% tariff on imported steel and aluminum from China.

“What is important about this is we’re doing it in alignment and in parallel with other economies around the world,” Trudeau said on the sidelines of a three-day closed-door cabinet meeting in Halifax, Nova Scotia.

Undaunted, China is accelerating production of EVs.

Ford Cancels Plans for Electric SUV, Expects a $1.9 Billion Loss

Please note Ford Cancels Plans for Electric SUV, Expects a $1.9 Billion Loss

Say goodbye to a vehicle that never should have been conceived in the first place. Customers don’t want it.

Huge losses are exactly what one should expect when government rather than customers drive business decisions.

Despite huge subsidies, Ford still cannot make ends meet on EVs.

Yet, due to government coercion, Ford is forced to try, try, and try again. If and when Ford succeeds, it will have more production capacity than it needs because EVs have less parts and are easier to build.

At least $5 billion, and just for Ford alone, is now a sunken cost for an EV schedule that never should have been attempted.

Thank you President Biden, AOC, Elizabeth Warren, and everyone else who created this mess.

J.D. Vance’s Knockoff Theory of Manufacturing

The Wall Street Journal author Allysia Finley comments on J.D. Vance’s Knockoff Theory of Manufacturing

J.D. Vance isn’t weird, but his ramblings on economics are. The senator earlier this year dismissed economics as “fake” in a rant about modern refrigerators. He expounded at a rally last week in Henderson, Nev.: “We believe that a million cheap knockoff toasters aren’t worth the price of a single American manufacturing job.”

Pace Mr. Vance, U.S. manufacturing jobs aren’t leaving for China. They are shifting from the Rust Belt, Northeast and West Coast to Sunbelt states such as Nevada, Arizona, Texas and Florida, which have young and growing workforces, cheaper energy, lower taxes, right-to-work laws and proximity to trade partners, especially Mexico.

It’s true that U.S. manufacturing employment has declined since the start of the century. Mr. Vance blames China’s entry into the World Trade Organization, which gave Beijing increased access to the U.S. market. But that’s only part of the story. Technology also increased labor productivity, enabling manufacturers to produce more with fewer employees.

The combination of cheap Chinese imports and more efficient U.S. manufacturing kept prices down and increased Americans’ purchasing power. In the two decades before the pandemic, prices for clothes, furniture, appliances, toys and televisions declined, often sharply.

Twenty years of falling prices lifted living standards for tens of millions of Americans. Some 90% of American adults own a smartphone, and nearly the same percentage have air-conditioning in their home. Most who don’t have AC live in the North, where they rarely need it. More than 80% of homes have washers and dryers, and about a third have two refrigerators.

Americans are better off owing to millions of cheap toasters, smartphones, refrigerators and washing machines. But what about manufacturing workers who lost their jobs because of them? Such is the march of progress, from the invention of the cotton mill to the modern assembly line. Americans have long adapted by moving or finding other work.

Cheap labor isn’t the reason manufacturers are building new factories in the Sunbelt. Wages for manufacturing workers in Texas now rank among the highest in the country. Instead, they are foremost seeking a business-friendly environment, something China increasingly lacks, and a large pool of industrious workers who can pass a drug test.

Mr. Vance’s toaster line may win some votes, but his prescription for higher tariffs won’t bring back Midwest manufacturing jobs.

Someone gets it. Thank you Allysia Finley.

Massive Failure of Sanctions

On September 4, 2023, I noted US Sanctions Fail Again, China Now Produces Its Own Advanced Computer Chips

Trump and Biden both tried to cut off China’s supply of advanced microchips. The US wanted to knock Huawei out of the 5G market. Now, instead of China using US chips, it is producing its own chips.

China is far behind the US in chip technology. However, it is doing much better than the US expected.

China is producing some chips that the US dis not want China to have at all.

February 19, 2024: US Impounds Thousands of German Vehicles Over One Tiny Part Made in China

The US Blacklisted Xiaomi

On May 21, 2024 I commented  The US Blacklisted Xiaomi Three Years Ago Now it Makes EVs

Just three years ago, the Chinese company Xiaomi decided to build cars. It succeeded where Apple failed.

The US forced Xiaomi into a new sector after the U.S. government blacklisted it in January 2021 for what it said were ties to China’s military.

Attempt to Prohibit China’s Access to AI

On August 26, I commented China Gains Secret Access to Nvdia Microchips by Renting Computers

The US has blocked export of Nvdia chips to China. But where there’s profit, there’s a way.

Reason for the US failure goes back to my September 19, 2023: Lesson of the Day: Sanctions Don’t Work Because They Create New Markets

It is the best interest of middlemen in Greece, Russia, India, China, and Dubai to tell Biden to go to hell, so they do.

Critical Materials Risk Assessment by the US Department of Energy

Please consider a Critical Materials Risk Assessment by the US Department of Energy

The US Department of Energy has placed some of the rare earth minerals we need for weapons systems, windmills, batteries, and aircraft on a critical materials list.

Nearly all of them are mined or refined in China. Yet Biden just blocked production in the US.

Shades of Smoot Hawley and Global War Threats

Trump has threatened to escalate a global trade war against not just China, but the whole world with a 60 percent tariff on China and 10 percent on everyone else. He believes tariffs can replace the income tax.

It would be the biggest trade war since the 1930 Smoot-Hawley Tariff Act worsened the Great Depression. China could respond by cutting off US access to rare earth minerals. The word is on a collision course with China no matter who wins in November.

When trade ends, wars start.

Politically active venture capitalist David Sacks penned an excellent read on the ‘global struggle against authoritarianism,’ in which he points out the hypocrisy displayed by Western nations during key moments in recent history, as well as the ‘new iron curtain’ targeting anyone in support of secure borders or freedom of speech.

IN THE GLOBAL STRUGGLE AGAINST AUTHORITARIANISM, THE WEST’S REAL ENEMY IS ITSELF

American politicians speak constantly about the indispensable role of the United States in leading the free world against authoritarianism. If that is true, why is the White House so silent in the…

— David Sacks (@DavidSacks) September 2, 2024

Republished in its entirety:

IN THE GLOBAL STRUGGLE AGAINST AUTHORITARIANISM, THE WEST’S REAL ENEMY IS ITSELF

American politicians speak constantly about the indispensable role of the United States in leading the free world against authoritarianism. If that is true, why is the White House so silent in the face of new global threats to free speech?

In January, American citizen Gonzalo Lira died in a Ukrainian prison for posting YouTube videos; the State Department didn’t lift a finger to help. Last week, Telegram founder Pavel Durov was arrested in France for the crime of insufficient content moderation.

Now Brazil has banned X for resisting the diktats of a tyrannical judge, who salivates over the possibility of jailing @elonmusk. The EU is one step behind, with Eurocrat Thierry Breton pursuing a criminal investigation against Elon for “platforming disinformation,” which Breton defines to include a conversation with Donald Trump.

In the UK, the government of Keir Starmer imprisons critics of open borders with more zeal than it prosecutes violent crime. In Canada, Justin Trudeau crushed a trucker protest against vaccine mandates by asserting sweeping new powers to freeze bank accounts.  

At no point has the White House expressed concern about this new iron curtain that seems to be descending across the West. Quite the contrary, Mark Zuckerberg confirmed that the Biden-Harris administration repeatedly pressured Meta to censor during Covid. Worse, the FBI primed Facebook to censor true stories about Biden Family corruption by suggesting that Hunter Biden’s laptop was Russian disinformation (even though the FBI knew it was authentic).

Barring court intervention, TikTok will shut down in the U.S. on January 19, 2025 thanks to a new power authorized by Congress to ban websites and applications that the President determines are subject to the influence of a foreign adversary. X may not be far behind if liberal elites and deep state apparatchiks like Robert Reich and  Alexander Vindman get their wish. They have called for the U.S. to adopt Brazil’s and the EU’s approach and “rein in” Elon Musk.

Hypocritically, the same voices demanding this crackdown are also the loudest in proclaiming the West to be engaged in a “war on authoritarianism” against countries like Russia and China. But whatever their other sins, Russia and China are in no position to deprive American citizens of their free speech rights; only our own government can do that.

Similarly, if Western leaders truly wanted to prevent authoritarianism, the easiest place to start would be at home, protecting the civil liberties of their own citizens. Instead they seem obsessed with deflecting the public’s attention onto foreign enemies, as Orwell depicted in the Two Minutes Hate in 1984.  

As this battle over free speech heats up in an election year, where do the candidates stand? Donald Trump has declared his support for free speech whereas Kamala Harris has said nothing and can be expected to continue her administration’s policy of tacit approval of creeping censorship. In just two months, Americans will decide. Do we actually lead the free world in standing up for free speech, or do we accept the authoritarianism we claim to detest so much?

By Michael Every of Rabobank

Due to the US Labor Day holiday yesterday, markets were quieter than usual. The world wasn’t.

Germany reeled from the far-right AfD and far-left BSW taking 42-49% of the vote in two eastern states. It could even have been worse: only a late “computer glitch” removed a seat the AfD looked to have won in Saxony, preventing it having a 1/3 blocking minority over the appointment of key state officials. Both there and in Thuringia, all other parties will have to combine to keep the AfD out of power, but that means huge political compromises as well as the populist pro-Russia, anti-Ukraine BSW in office. While some in markets may assume this is noise not signal, we are under a year from a federal election, and Germany’s political class arguably still doesn’t grasp how much public anger there is at their epic geostrategic policy errors of relying: on Russia for energy, with alternatives now meaning German industry is uncompetitive; on China for exports, as trade flows invert and deindustrialise them; and on the US for security, just as the US tires of the role and its cost. Nor does it know what to do next. Unlike in the US, it isn’t market positive to imagine electoral gridlock, especially when the same is true in France at the same time.

Then things got worse economically, risking the same politically after a lag. The German manufacturing PMI survey was 42.4. Worse, auto giant VW said it may shut German factories for the first time in its 87-year history, shed part of its 300,000 local workforce, and definitely end its job security programme in place since 2009: a clash with powerful unions seems likely. As the CEO put it, “The economic environment has become even tougher and new players are pushing into Europe. Germany as a business location is falling further behind in terms of competitiveness.” Head of brand Thomas Schäfer added: “The situation is extremely tense and cannot be overcome by simple cost-cutting measures.” Note this is the same VW who lobbied the EU against imposing tariffs on Chinese EVs undermining their domestic market share over fears of “retaliation” in the Chinese market.

Such a threat, of “severe economic retaliation”, was also made to Japan by China if it further restricts sales and servicing of chipmaking equipment to Chinese firms (after being pushed by the US). This could include China cutting access to minerals needed for auto production. In short, Japan either sells China tech that allows it to move up the value chain to the point where it can push Japanese firms out of global markets, as with Germany; or China punishes Japanese auto makers, gaining a greater Chinese share of that market… which seems set to happen anyway on current trends.

Relatedly, key Dutch tech firm ASML is also being pressured by the US to further restrict its business with China. On Friday, PM Schoof say the government will consider the economic interests of ASML when deciding on tighter export rules for chipmaking equipment; the US will have its own considerations; and so will China.

Meanwhile, Turkey announced that it is applying to join the BRICS. Of course, it also wants to join the EU. And while it is a member of NATO, it’s also looking longingly at the Shanghai Cooperation Organisation (SCO). It also wants to join a local library and a gym, where it promises it won’t skip leg day. More seriously, BRICS membership is going to be a lot easier to obtain than that of the EU, and a lot less impactful, and the same is true of SCO membership vs. NATO.

To underline that point, BRICS member Egypt is sending 10,000 troops to Somalia to hold joint military exercises, a threat to the unrecognised breakaway state of Somaliland backed by Ethiopia, as it allows it direct access to the sea, or perhaps to Ethiopia directly given its plans to dam the Nile, which Egypt rejects. Would-be BRICS member Turkey just signed a deal with Somalia to allow oil and gas exploration in its waters, which involves areas Somaliland claims, as well as to boost Somalia’s naval power; Morocco — a phosphate giant and EU trade partner that exports more autos to it than China— is also applying to join the BRICS, and it is siding with Ethiopia; and nearby the Houthis, backed by BRICS member Iran, continue to attack commercial shipping, including an oil tanker belonging to Saudi Arabia, another BRICS member. In short, you might think EU meetings get acronymic and acrimonious, but that’s nothing compared to what’s going on in the BRICS.

That’s as in the B in BRICS, Brazil, the Supreme Court has backed one of its justice’s earlier ban on the app Twitter/X in the country, a move applauded by President Lula. On one hand, we have the argument of the importance of national sovereignty over bullying billionaires and US corporations. On the other hand, we have (sometimes offensive) free speech vs. the (sometimes offensive) words of politicians and judges. How does this clash play out? The same question might also be asked in the EU, UK, and US, of course. Indeed, in the latter, the attorney general of Minnesota, Keith Ellison, ironically, just tweeted “obrigado Brasil” (Thanks, Brazil), to 1m views.

So, AFD, BSW, PMI, VW, ASML, BRICS, EU, NATO, SCO and, if you want, X. Not a bad acronymic haul for one day: but what does it spell out?

That’s up to the reader. Nothing much, or a great deal, depending on how you look at things and how you are trading them. I lean towards the latter personally. Yet the letters themselves, as an anagram, have their own hidden messages. If you leave out X, they include the likes of:

• Cowardliness swamps ovum fact bib
• Cowardliness swamp vat of cubs IBM
• Cowardliness swamps if VAT cub mob
• Cowardliness avows facts bump IBM
• Cowardliness swift vamp scuba mob
• Cowardliness swift vamp cub sob am

If you also use X, they include:

• Ambidextrous scowls if BMW vans cap
• Ambidextrous wolf scans vis BMW cap
• Ambidextrous fawns vows cap climbs

Doesn’t that actually read as well as some of today’s hot (or superficial) market takes, especially the ones that just say RATE CUTS?

By Irina Slav of OilPrice

The Yemeni Houthis reportedly hit two tankers in the Red Sea on Monday, one of them Saudi-flagged.

According to a Reuters report citing U.S. military sources, which said one of the targets hit on Monday was a Panama-flagged vessel named Blue Lagoon I and the other was Saudi-flagged Amjad. The Houthis took responsibility for the Blue Lagoon I hit, Reuters reported, but made no mention of the Saudi-flagged vessel.

Yesterday, the Houthis targeted the Saudi oil tanker “Amjad”, which was loaded with two million barrels of crude oil and was heading from Ras Tanura in Saudi Arabia to Ain Sokhna in Egypt. The map below shows the location of the ship about an hour ago according to kpler, which… https://t.co/FJSfbelnvT

— Anas Alhajji (@anasalhajji) September 3, 2024

According to an AP report, Blue Lagoon I had been traveling to an undisclosed location from the Russian port of Ust Luga, broadcasting that it carried Russian crude on board. The Houthis had previously said they would not target Russian or Middle Eastern ships.

There was no major damage to either of the tankers, which were close to each other when they were hit. Both were able to continue on their way after the strikes. The Saudi-flagged vessel has a capacity for up to 2 million barrels of crude while Blue Lagoon I can carry up to 1 million barrels.

The AP cited the Joint Maritime Information Center, a unit set up to track the Houthis’ activity in the Red Sea and led by the U.S. Army, as saying that the Blue Lagoon I tanker “was targeted due to other vessels within its company structure making recent port calls in Israel.”

“These reckless acts of terrorism by the Houthis continue to destabilize regional and global commerce, as well as put the lives of civilian mariners and maritime ecosystems at risk,” the U.S. Central Command said, as quoted by the AP.

The Houthis have been targeting vessels passing through the Bab el Mandeb strait since last November in reaction to Israeli bombings of Gaza. Initially, the group said it would only target Israeli ships and those sailing under flags of Israeli allies but it has since expanded its campaign. An attempt by the U.S. and some European allies to put an end to the attacks has so far failed to produce any results.

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The Houthis have targeted more than 80 merchant ships with missiles and drones since Israel’s war on Hamas in Gaza started in October. This continued turmoil in the Red Sea shows how the West’s “credibility and deterrence” is quickly eroding. 

Where is the rightful outrage from environmentalists? Thousands of tons of crude oil will now pour into the Red Sea.
This is a clear sign of the collapse of American credibility and deterrence. Letting the Iranian proxy Houthis shut off a major maritime seaway is an epic fail.… https://t.co/ThmzZ5FAED

— ErikDPrince (@realErikDPrince) August 24, 2024

Given the increasing risks in the southern Red Sea and one of the world’s critical maritime chokepoints, oil markets are ignoring and instead focusing on weak China data. 

“Brent/WTI heavy down 2% … following through on weak China data, OPEC headlines last week …. despite Libyan export halt. Timely call this Thursday after GIR lowered Brent range to $70-85 last week,” Goldman’s Ryan Novak told clients this AM. 

Just four months after Goldman analysts warned clients that copper markets were “moving into extreme tightness,” the bank has now exited its long-term bullish position on the base metal and slashed its 2025 price forecast by nearly $5,000. This seismic shift comes amid overwhelmingly weak economic data from China this summer and elevated levels of refined copper production being exported from the world’s second-largest economy into global markets.

“Copper rally delayed. In copper we’ve observed significant price elasticity of both supply and demand this summer. As a result, the sharp copper inventory depletion we had expected will likely come much later than we previously thought,” Goldman’s Samantha Dart and Daan Struyven wrote in a note to clients at the start of the week. 

The analysts delayed their end-2024 copper target of $12,000 a ton to post-2025, implying a 2025 copper forecast of $10,100 a ton, still above current prices on the London Metal Exchange of around $9,200 but below previous estimates of $15,000. 

Dart commented on the depressing economic data out of China this summer, showing sliding demand for the base metal as an economic recovery never really lifted off. 

“In copper, China inventories, which typically draw from 2Q, built instead, as a result of a price-driven YoY decline in apparent China demand. From a macro perspective, China’s July data were disappointing , with our GS China Current Activity indicator showing only 3.6% annualized growth in the month, well below the Government’s target of “around 5%”. With China typically responsible for 2/3 of commodities demand growth before the pandemic, we believe it’s challenging to build significant deficits in these markets without strong China demand.”

Here’s more from the analysts on what they say will be a “copper rally delayed”: 

In copper we’ve observed significant price elasticity of both supply and demand when prices spiked this past spring. Specifically, refined copper production remained elevated despite mine supply issues in key copper producing countries. On the demand side, China apparent copper consumption dropped YoY in March and deepened that drop into early summer. As a result, even with China end-user) green metals demand realizing stronger than we expected, China copper inventories built in 2Q24, in sharp contrast with seasonal trends and the copper inventory depletion we had previously expected for 2024. As a result, and given the continued weakness in China’s property sector, we believe that copper inventory depletion – and its accompanying price rally – will likely come much later than we previously thought. Accordingly, we delay our end-2024 copper target of $12,000/t to post-2025, a timing closer to our expected peak in global copper mine production. This implies an average 2025 copper forecast of $10,100/t, still well above this year-to-date’s $9231/t, but significantly below our previous $15,000 expectation.

Further, given rising global visible copper inventories summer to date and the ongoing China growth concerns, we take this opportunity to close our long-standing long copper trading recommendation with a potential gain of 41% and will look to potentially re-open this trade at a later time. We maintain our structural view that green metals demand growth and the long-cycle’s nature of copper supply, along with its declining investment, will ultimately set the stage for inventory depletion and, hence, scarcity pricing.

In mid-May, around the time LME copper prices hit nearly $11,000 a ton, Jeff Currie, who led commodities research at Goldman Sachs for nearly three decades and now serves as the chief strategy officer of the energy pathways team at Carlyle Group, said the copper trade was the best he has ever seen in his entire career. 

The premise behind the copper trade was expected deficits due in part to the rapid shift towards electrification, whether that’s electric vehicles and data centers powering artificial intelligence, as well as reshoring manufacturing trends. Plus, there were concerns about sliding mine supplies.

By late July, as LME copper prices slipped below $10,000, Goldman analyst Adam Gillard suggested that a “surplus market” could pressure prices of the base metal lower. At the time, we noted the all-important multi-month ascending trend line in copper’s chart was broken.

Also, this was around the time when the market started getting spooked by China exporting copper deflation to global markets.

LME Asia copper inventories have surged to the highest levels since 2016. 

Goldman’s shift in ultra-bull view on copper markets follows China’s ongoing property downturn and mounting domestic challenges to reignite an economic recovery as hard-landing fears remain elevated. 

Ahead of Friday’s payrolls report, there were rising expectations that the economic rebound observed in the past two weeks – and following the dismal July jobs report – would persists. Alas, those hopes were promptly crushed moments ago when shortly after a dismal US Manufacturing PMI report, which printed in its final iteration at 47.9, below the prelim print of 48.0 and below the 48.1 estimate, the more closely watched Manufacturing ISM report came in even uglier, printing at the 5th consecutive contractionary level of 47.2, which while a modest rebound from the 2024 low of 46.8 hit last month, missed estimates of a 47.5 print. And while the two surveys have frequently diverged in the past, there is clear agreement between the two since the early summer: the US manufacturing sector is imploding, and the economic contraction is accelerating.

The contraction was broad based, with the index posting declines in the all important New Orders, Production, and Employment.

While the Employment subindex did post a modest rebound – while still stuck deep in contraction – which suggests that Friday’s jobs report will come stronger than expected, the bad news is that new orders declined at their fastest rate since June 2023.

And while most output subindexes remain deep in contraction territory, one continues to rise: the one that should not be doing that: we are talking of course about prices paid which rose again, from 52.9 to 54.0, beating estimates of 54.0, and resuming its ascent since the start of 2023. In fact, compared to an 8-month lagging CPI print, one can be assured that we have seen the lowest CPI prints for this cycle.

Adding insult to injury, the closely watched ISM New Orders/ Inventory ratio suddenly plunged back to recession levels…

… because inventories unexpectedly soared the most last month (back over 50 from 44.5) in the past decade as end-demand suddenly disappears…

… signaling that the manufacturing pipeline is now hopelessly clogged, price liquidations are imminent and mass layoffs are about to begin!

While traditionally a 50 print in the ISM is the cutoff for contraction, the highly politicized ISM report was quick to claim that a “manufacturing PMI above 42.5 percent, over a period of time, generally indicates an expansion of the overall economy”: spoiler alert: it does not, but it is an election year, so anything goes. In any case, not even the ISM was able to put much more lipstick on this pig and explained that this “contractionary expansionary” print was hardly the stuff expansions are made off with ISM chair Tim Fiore saying that “the past relationship between the Manufacturing PMI® and the overall economy indicates that the August reading (47.2 percent) corresponds to a change of plus-1.3 percent in real gross domestic product (GDP) on an annualized basis.”

Translation: we are this close to stall speed…. and the survey respondents by large agreed:

• “A noticeable slowdown in business activity. Staffing and production rationalization has been triggered. Previous optimism about future growth has been dashed.” [Chemical Products]
• “Backlog has dropped in half as invoicing remains strong, but orders have slowed significantly. Hoping to see orders pick back up for the fourth quarter and into 2025 but expect third quarter to remain slow for incoming orders.” [Transportation Equipment]
• “After a slow start and lower year-over-year sales volume during the first half of the year, we are now seeing a mild increase in year-over-year sales volume, along with more steady growth.” [Food, Beverage & Tobacco Products]
  “Business outlook is good. Recovery from the electronics slowdown is strong for the second half of the year.” [Computer & Electronic Products]
• “New order intake is sluggish at best. Interestingly, even though orders are down, inquiries are up. Customers have indicated capital has been approved for equipment purchases, but they were directed to put projects on hold until the fourth quarter of 2024. This indicates the uncertainty around the election. We anticipate a strong end of the year, with a rise in backlog going into 2025.” [Machinery]
• “Our order levels are on a slow, steady decline; it looks like the trend will continue through the end of the year. We are downsizing through attrition and not hiring backfills, but there have been no layoffs to date. The bright spot is a few customer programs have helped increase orders for parts, resulting in some production areas to be very busy while others have little work. Redeploying people where we can.” [Fabricated Metal Products]
• “Business is cooling down, and we don’t expect a rebound until after the election is over. As we build our 2025 budget, we continue to have deep concerns about the added environmental costs on energy.” [Paper Products]
• “Order book remains strong for now. We are preparing for a slowdown in U.S. auto sales. We are running overtime to keep pace, as hiring hourly employees has been difficult. Some walk off the job within hours because they cannot handle factory work.” [Primary Metals]
• “High interest rates are curtailing consumer spending on large discretionary spending for furniture, cabinetry, flooring and decorative trim, which has affected our industry sales potential. At the same time, pent-up demand seems to be growing for housing and remodeling. Interest rate cuts may not happen soon enough to have an impact this year.” [Wood Products]

But if the ISM was bad, than the final August S&P PMI report was downright apocalyptic and as the following comments from Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, made clear:

“A further downward lurch in the PMI points to the manufacturing sector acting as an increased drag on the economy midway through the third quarter. Forward looking indicators suggest this drag could intensify in the coming months.

“Slower than expected sales are causing warehouses to fill with unsold stock, and a dearth of new orders has prompted factories to cut production for the first time since January. Producers are also reducing payroll numbers for the first time this year and buying fewer inputs amid concerns about excess capacity.

“The combination of falling orders and rising inventory sends the gloomiest forward-indication of production trends seen for one and a half years, and one of the most worrying signals witnessed since the global financial crisis.

“Although falling demand for raw materials has taken pressure off supply chains, rising wages and high shipping rates continue to be widely reported as factors pushing up input costs, which are now rising at the fastest pace since April of last year.”

Bottom line: core outputs sinking as input costs and inflation expectations are once again surging: not exactly the ‘data-dependence’ that dovsh Fed members are hoping to see. But at least the Fed Chair will finally see that “stag” and the “flation” he had so much trouble spotting just a few months ago…