Month: July 2022

GM shares are slightly lower after the company released updated financial estimates on Friday morning in an 8-K. GM halted its stock about 45 minutes before the cash open and dropped an 8-K with updated guidance. 

GM raised its full year EBIT guidance and also reiterated its full year earnings guidance. The company said that during its Q2, vehicle wholesale volumes “were impacted by timing of certain semiconductor shipments and other supply chain disruptions”.

“As a result, we had a total of approximately 95 thousand vehicles in our inventory that were manufactured without certain components as of June 30, 2022, a majority of which were built in June. We expect that substantially all of these vehicles will be completed and sold to dealers before the end of 2022,” a company 8-K reads. 

The filing then went on to reaffirm the company’s full year guidance:

For the full year, we reaffirm our net income guidance range of between $9.6 billion and $11.2 billion, EBIT-adjusted guidance range of between $13.0 billion and $15.0 billion, EPS-diluted guidance range of between $5.76 and $6.76, EPS-diluted-adjusted guidance range of between $6.50 and $7.50, automotive net cash provided by operating activities guidance range of between $16.0 billion and $19.0 billion, and adjusted automotive free cash flow guidance range of between $7.0 billion and $9.0 billion, and also continue to expect a year-over-year wholesale volume increase of 25%-30% and GMNA EBIT-adjusted margins of 10%.

The company also released its Q2 sales figures, telling investors in a PR that it “sold 582,401 vehicles in the United States in the second quarter of 2022 and the company increased its sales and market share sequentially for the third consecutive quarter”. 

Among the company’s highlights for Q2 were:

• GM extended its leadership in full-size pickup truck retail market share for the 13th consecutive quarter, despite very low inventory, with 203,041 combined total sales of the Chevrolet Silverado and GMC Sierra. Their estimated retail market share was 44%. The Chevrolet Silverado remains the fastest growing full-size pickup truck in the industry (J.D. Power PIN), with Silverado HD recording its best first half in retail sales since 2007.

• Pent-up demand and improved availability helped drive large year-over-year increases in deliveries of the Chevrolet Camaro, up 63%; Chevrolet Colorado, up 52%; Chevrolet Malibu, up 563%; Cadillac XT4, up 116%; and Cadillac CT5, up 70%.

• GMC delivered its best-ever first half retail market share (J.D. Power PIN). Total sales of the GMC Canyon grew 40% and GMC Terrain grew 37% in the quarter. The GMC Sierra HD, which was up 31% in the quarter, delivered its best second quarter and first half on record.

• GM’s commercial, government and daily rental deliveries were up a combined 29%, with each category posting double-digit growth as customers took advantage of improved availability to refresh and expand their fleets, which reflects strong employment and the recovery in the travel and leisure industries. Sales to commercial and government customers were 73% of the fleet sales mix.

• Commercial demand was especially strong for full-size vans, up 12%; full-size pickups, up 14%; medium-duty trucks, up 13%; and midsize pickups up 65%.

• Electric vehicle sales were over 7,300 units, including some of the first deliveries of the BrightDrop Zevo 600 and GMC HUMMER EV Pickup, as well as the resumption of Chevrolet Bolt EV and Bolt EUV production.

• Cadillac LYRIQ production is accelerating, with initial deliveries in process. Orders for the 2023 model year sold out within hours and preorders for the 2024 model opened on June 22.

• GM will gradually increase production of the Cadillac LYRIQ and GMC HUMMER EV Pickup in the second half of 2022. Ultium Cells LLC begins producing cells in Ohio to support expanded EV manufacturing starting in August.

• GM’s sales incentives remained near record lows in the quarter at 2.3% of average transaction prices, according to J.D. Power PIN estimates.

• The second quarter SAAR was an estimated 13.4 million light vehicles compared to 17 million a year ago.

Steve Carlisle, GM executive vice president and president, North America commented: “GM’s sales and market share have grown each of the last three quarters, even with lingering supply chain disruptions. Our long-term momentum will continue to build thanks to the launches of groundbreaking new EVs like the GMC HUMMER EV and Cadillac LYRIQ, and the tremendous customer response to the Chevrolet Silverado and GMC Sierra.”

“We appreciate the patience and loyalty of our dealers and customers as we strive to meet significant pent-up demand for our products, and we will work with our suppliers and manufacturing and logistics teams to deliver all the units held at our plants as quickly as possible,” Carlisle concluded. 

It might seem like a rather odd move for the Bank for International Settlements (BIS) to make after Bitcoin has lost around 60% of its value in only six months, but the globalist institution is now allowing member banks to hold 1% of their reserves in the cryptocurrency (around $1.8 trillion total).  Is this about recognition of Bitcoin as a viable trade mechanism, or is there an agenda afoot?  

The BIS is known as the “central bank of central banks” for a reason; it has a long and notorious history as a kind of control hub, handing down orders to national central banks including the Federal Reserve.  Many times over the past decade we have seen central banks in various countries act in tandem with each other.  Even those banks that would normally be at odds politically still enact complimentary fiscal and monetary policies.  If you have noticed that many central banks around the world seem to be closely cooperating with each other, that is because they are.  

The BIS, a foreign body that is not elected, essentially dictates central bank decisions well outside the purview of individual governments.  This is not a conspiracy theory, it is a fact known for decades.

While many globalist institutions have sordid pasts, the history of the BIS is particularly ugly.  The banking outfit was exposed after WWII as a money laundering outfit for the Nazi regime.  They also smelted and hid stolen gold in cooperation with the Third Reich.  The exposure led to little action as the scandal was swept under the rug.  The IMF was formed in the place of the BIS and took over the role as the public face of global economic centralization, but the BIS remains a powerful institution to this day.

The interest of the BIS in Bitcoin is particularly fascinating as it follows a strange pattern among global banks, which is to vocally criticize cryptocurrencies in the media while quietly investing millions or billions of dollars into crypto technology and infrastructure.  This has been true of major banks from JP Morgan to Goldman Sachs along with numerous central banks including the Federal Reserve.  With the general public at least acclimated to the idea of crypto, it appears that many central banks are moving to capitalize on the trend.  Not so much by throwing heavy support behind individual coins or blockchain products, but by investing in infrastructure while creating their own versions of the technology.  

CBDCs (Central Bank Digital Currencies) are now being developed widely by a host of central banks as well as the IMF and BIS.  Their quiet support of crypto may be a way for them to pave a path toward their own fully centralized cryptocurrencies in the future.  

Though the privacy of most blockchain products is highly questionable, you can be certain that CBDCs will be the least private means of trade ever devised, with every single transaction tracked and cataloged.  It is also likely that central banks will retain the power to simply freeze digital accounts at will, thus depriving targeted citizens of their money and ability to survive in the normal economy.  With the removal of paper money, the last vestiges of anonymity in consumer trade will be lost (except for the black market).  

The rapid decline of Bitcoin and other coins actually serves the interests of the BIS, IMF and central banks very well.  The common argument among globalists is that the market value of crypto is far too unstable for the technology to act as a true currency and store of value.  Fiat money is hardly much better, of course, but they argue that central bank currencies have the benefit of “government promises.”  In other words, when a government backs a currency, this is supposed to create public faith in that currency’s trade value.

With many normal currencies starting to lose public faith because of inflation, central banks will have to present some kind of alternative system in the near term to maintain economic authority.  Hence, the subtle but expanding shift to CBDCs and blockchain technology.  

The “solution” that the BIS, IMF and other groups offer to currency devaluation is usually a basket system – A mechanism that locks multiple currencies into a single framework and homogenizes their values.  The IMF has been talking about doing this with paper currencies for many years using their Special Drawing Rights (SDR) basket.  It would not be surprising if they announced a similar plan for the large number of cryptocurrencies on the market also.  That is to say, they will claim that the best way to stabilize the buying power of cryptocurrencies like Bitcoin will be to collect all the major coins under a single umbrella along with CBDCs, and the bankers will no doubt control that umbrella.

This might sound like a far off development; something that would happen decades from now.  But many analysts are greatly underestimating the speed at which enormous economic changes are being made behind the scenes as inflationary crisis strikes.  The BIS taking on Bitcoin and allowing it to be held in reserves might seem like a small thing, but it has implications which are far reaching.   

Authored by Peter Tchir via Academy Securities,

On the bright side, it seems difficult to believe that the second half of 2022 can be as difficult as the first half was (difficult, but not impossible).

“Seasonal” Flows

There had been a lot of chatter that there was going to be large month-end and quarter-end rebalancing. That did not seem to materialize, and I’m not sure how many people are stuck long betting on that? I suspect the number is high, as many like to bet on start of month flows (often positive) and bet ahead of long weekends (often positive).

I was surprised that both TQQQ and ARKK had outflows yesterday. Both of these funds had seen reasonable inflows and yesterday seemed like an “ideal” “buy the dip” sort of day. If investors start to capitulate from these more volatile trades, we could see more pressure on markets (I am fixated, for better of worse, on these, when looking for capitulation.

I started hearing the 401k chatter yesterday. I am not sure how many people only look at their investments on a monthly or quarterly basis, especially in this type of market, where the moves are daily headlines, but if there is anyone who only looks at periodic statements, they could be in for a rude awakening.

Long Duration Assets

While I’m constructive on bonds (because I think the economy is decelerating faster than is being picked up in the current data, and far faster than “straight line extrapolation” models can register).

Having said that, I think buyers of “long duration” assets will be much more circumspect this time around. Cash flows, barriers to entry, etc., will impact what assets catch the long duration bid.

Which brings us to bitcoin.

I have 3 Rules of Bitcoin.

Rule #1, that “Bitcoin is smarter than me” is something I’m questioning as we see firm after firm being exposed, by, what seems to me,  to be incredibly poor risk management. 

But I’m really focused on Rule #2, “There are No Rules”. Yes, one of my 3 rules is that there are no rules, but I think that is particularly important right now.

Yesterday felt a bit like some sort of institution(s) who didn’t want to report bitcoin holdings on their quarterly report, got out. The overnight trading looks exactly what I’d expect if someone was trying to manipulate a market higher. Find a period of less liquidity (overnight, on quarter end), push hard to reclaim “support” levels (no purchase since late 2020, that was held, is in the money) and try and create some “buzz” around the bounce. That overnight trade is already fading, and I do not see where new adopters come into this market, at least not until it becomes clear that the risk of one firm locking access, does not spread any further. That some of the questions about stable coins get more definitive answers.

When I think of “long duration” assets, I currently do not think of bitcoin, and I think it is extremely fragile here and the risk of another rapid drop from here is extremely high!

Long Weekends

Enjoy your long weekend and if you missed Academy’s latest Around the World, I highly recommend it for a quick catch up an a variety of important geopolitical topics!

It is probably not a coincidence that around the time the stock of German energy giant and largest utility gas consumer, Uniper was plunging amid speculation it would have to be bailed out due to soaring nat gas prices…

One number to consider. Uniper probably is paying currently ~€30 million extra for the gas it’s buying in the spot market. Multiply that for 365 days: ~€11 billion. And that’s one single European utility. Now think about other big buyers of Russian gas. And start multiplying. https://t.co/6hKzinI7Pw

— Javier Blas (@JavierBlas) June 30, 2022

… Deutsche Bank’s chief FX strategist George Saravelos penned a note in which he said that he was becoming increasingly concerned about the unfolding energy situation in Germany.

Here’s why: two weeks ago, Russia reduced Nordstream gas flows by 60% on the back of an alleged disruption over Siemens part supplies (chart 1). While the immediate availability of gas in Germany is not an issue, the energy market is starting to price a risk of a complete disruption to gas supplies for winter, and year-ahead natural gas prices are making fresh record highs (chart 2).

Most concerning however, is the skyrocketing price of electricity. Prices for 2023 delivery have also soared to all-time highs and have now tripled from the start of the year (chart 3). French and Italian electricity prices are similarly soaring. Which brings us tot he abovementioned collapse in the share price of Germany’s largest utility gas consumer, which just dropped to record lows amid speculation of an imminent bailout (chart 4).

As the DB strategist admits, his underlying assumption this year was that gas supplies to Europe would continue: even though the Nordstream pipeline is set to shut for ten days during July 11-21 for regular maintenance, press reports suggest that authorities are attempting to find a solution on sanctions restrictions to move gas turbine components back to Russia. Yet the German government is stating that disruptions are politically motivated and there are risks supply may be completely shut off.

So, as Saravelos warns, if the gas shutoff is not resolved in coming weeks this would lead to a broadening out of energy disruption with material upfront effects on economic growth, and of course much higher inflation, or as he puts it, “beyond the market’s worries about slower global growth in recent months, what is unfolding in Europe in recent days is a fresh big negative supply shock.”

If so, it would clearly make the ECB’s job more difficult and their reaction function ambivalent. But as far as the EUR/USD exchange rate goes, it would provide clear downside as not only would the energy import bill rise due to even higher prices, but it would raise the risk of an imminent German recession on the back of energy rationing. So while DB’s EUR/USD forecasts imply a range-bound euro over the summer months, the bank’s chjef FX strategist is worried that the energy situation is providing clear downside risks.

As for July 22, or a Friday three weeks from today, fellow DB strategist Jim Reid asks whether this could be the most important day of the year: “while we all spend most of our market time thinking about the Fed and a recession, I suspect what happens to Russian gas in H2 is potentially an even bigger story. Of course by July 22nd parts may have be found and the supply might start to normalise. Anyone who tells you they know what is going to happen here is guessing but as minimum it should be a huge focal point for everyone in markets.”

As DB’s Jim Reid puts it “if you want the good news this morning it’s that H1 is now finally over. If you want the bad news it’s that there’s not much good news around as we start H2 and US equity futures are already down around a percent in the first few hours of the new half year. “

Indeed, just when you thoughts stocks couldn’t possibly slide any more after just concluding the worst first half in 52 years…

… and with investor and consumer sentiment at record lows, you’d be shocked to learn that futures and stocks started the new month and quarter by plumbing fresh lows as fears of soaring inflation and tumbling earnings boosted concerns about an imminent recession, and the resulting risk aversion lifted bonds and havens and sent risk sliding.  The “Big Short” Michael Burry said we may only be about halfway through the market’s decline…

Adjusted for inflation, 2022 first half S&P 500 down 25-26%, and Nasdaq down 34-35%, Bitcoin down 64-65%.
That was multiple compression. Next up, earnings compression. So, maybe halfway there.

— Cassandra B.C. (@michaeljburry) June 30, 2022

… while Goldman was also downbeat, seeing global equities selling off further in the near term. As of 730am, S&P 500 and Nasdaq 100 pointed to declines of 0.3%, having shaved off as much as a 1% drop earlier…

… while 10-year US Treasury yield slid below 3% to the lowest since early June as markets now price in a record 10bps in rate cuts in Q1 2023 with markets confident the Fed will have to pivot to defeat the coming recession. Every Group-of-10 currency fell against the dollar and the yen, traditional havens, while bitcoin reversed a modest attempt at a breakout that briefly pushed it back over $20K.

In premarket trading, shares of US chip companies fell after Micron Technology issued a downbeat forecast on weaker demand for phones and computers. Bank stocks are also lower in premarket trading, putting them on track for their fifth straight day of losses amid a broader slump in equity markets. Other notable premarket movers:

• Kohl’s (KSS US) plunges 15% in US premarket trading after CNBC reported it’s ending sale talks with Vitamin Shoppe owner Franchise Group.
• Semiconductor companies are falling on Friday after Micron Technology issued a weak forecast for the current quarter due to lower demand for phones and computers. Micron (MU US) -5.5%, Nvidia -1.3% (NVDA US), Qualcomm (QCOM US) -0.7%.
• Cryptocurrency-exposed stocks could be active again on Friday as Bitcoin dip buyers are triggering a rally for the largest digital token. Riot Blockchain (RIOT US), Marathon Digital (MARA US) edge up 2.4% and 2.6%, respectively, in premarket.
• XPeng (XPEV US) burning cash in the short-term is unavoidable, Nomura says in a note that downgrades the Chinese EV maker to neutral from buy. Shares down 0.2% premarket.

Risk assets continued to be the target of sellers Friday as recession worries overtake concern about runaway inflation. With Federal Reserve policymakers resolute on getting price growth back to their 2% target, investors are assessing the hit to the economy from harsh rate hikes.

“Inflation is the key focus of central bankers; investors losing money is way down their list of concerns,” Chris Iggo, chief investment officer at AXA IM Core, wrote in a note to clients. “Interest rate and inflation markets are taking the view that what is priced in terms of monetary tightening will be enough to bring inflation down, but in order for that to happen, there also needs to be a cost to growth.”

Meanwhile, both stocks and bonds were rocked by outflows this week, reflecting investor fears about hawkish central bank policy. About $5.8 billion exited global stock funds in the week through June 29, Bank of America said, citing EPFR Global data. Bonds had redemptions of $17 billion. Separately, global companies have pulled more debt sales in the past six months than in all of 2020. More than 70 deals have been postponed or canceled so far in 2022, according to data compiled by Bloomberg.

In Europe, markets reversed sharp opening losses with the Stoxx 600 briefly turning green before sliding 0.5% lower with retail and utility names supporting on the recovery. Bund yields rose after data showed euro-area inflation hit a fresh record, surpassing expectations.  Here are some of the biggest European movers today:

• European airlines rise on Friday, paring some declines from previous sessions, as oil is headed for the third straight weekly drop on concerns that a potential recession will hurt demand. Wizz Air rises as much as +10%, EasyJet +6.2%, British Airways owner IAG +4.4%
• Airbus shares rise as much as 4% after BofA analysts led by Benjamin Heelan added the aircraft manufacturer to the bank’s ‘3Q Best Ideas list,’ according to a note.
• SBB shares advance as much as 21.5% Friday, its largest intra-day gain since April 2017, after the company was included in Nasdaq Stockholm’s OMXS30 index.
• Sodexo shares gain as much as 5.6%, the most since April 8, after the French caterer reported 3Q revenue that beat the average analyst estimate. Morgan Stanley says Friday’s update is a “relief.”
• Maersk shares rise as much as 3.0% after JPMorgan upgraded the stock to overweight from neutral and placed it and Kuehne Nagel on their “positive Catalyst Watch” for Q2, citing increased confidence in the longevity of current earnings.
• European semiconductor stocks tumble after US memory- chip maker Micron 4Q outlook fell short of analyst expectations and said the industry demand environment has weakened. Chipmaker Infineon falls as much as 5.0%, ASML drops 4.9%
• La Francaise des Jeux shares decline as much as 9.0% after Citi cuts the stock to sell from buy, citing concession fee to be paid that is worse than Street expectations.
• Craneware declines as much as 12% after an offering of ~1.2m shares by holder Abry Partners VII priced at 1,600p, a 13% discount to last close.
• OVH Groupe shares drop as much as 6.5% after the analysts adjusted their estimates amid a softening demand outlook.

Earlier in the session, Asian stocks declined for a third day, as traders assessed recession risks in the global economy after weak US consumer spending and soft factories data from the region. Investors are also keeping an eye on developments from the Chinese President’s Hong Kong visit.  The MSCI Asia Pacific Index slid as much as 1.1%, adding to nearly 2% weekly loss, weighed down by tech and consumer discretionary stocks. Chipmakers including TSMC and Samsung extended their declines, contributing the most to the measure’s loss along with Australian miner BHP and Indian energy giant Reliance.  Taiwan’s benchmark was again the region’s notable underperformer as it is on course for a bear market following more than a 20% fall from its January high, dragged down by technology stocks. Equity benchmarks in Japan and South Korea slipped more than 1%. Stocks in mainland China retreated after meandering between gains and losses while Hong Kong was closed for a holiday as its new chief was sworn in by Chinese President Xi Jinping.  A further slide in June purchasing managers’ indexes in Asian countries except China and the drop in US consumer spending for the first time this year in May highlighted the fragile foundation of the world economy. Those data dimmed global economic outlook and further dented investor sentiment already weakened by ongoing worries about global central banks’ aggressive rate hikes to fight inflation. 

“Overall, weakened US consumer spending will lead to a drop in global demand. It will affect export-dominated markets like South Korea in particular,” said Cui Xuehua, a China equity analyst at Meritz Securities in Seoul. “Traders are also looking to see if there will be policies benefiting Hong Kong, such as a re-opening of borders and increased trade” as Xi visits Hong Kong. Asian stocks plunged about 18% during the first half of this year, capping the first six months with the worst annual drop since 2008. Asian equities have struggled to rebound from a low in May as global recession worries and aggressive tightening by central banks triggered heavy outflows of funds from emerging markets. Chinese stocks have remained a bright spot last month as Beijing winds down its stringent virus restrictions and investors expected regulatory and monetary support for key sectors.  

In Australia, the S&P/ASX 200 index fell 0.6% for the week, as the risk-sensitive Australian and New Zealand dollars slumped to their lowest levels in two years amid ongoing recession worries that boosted haven assets. After a late sell-off Friday, shares swung to a loss of 0.4% to close at 6,539.90, driven by declines in energy and material stocks, with a group of mining shares hitting the lowest since Nov. 22 following commodity price drops.  In New Zealand, the S&P/NZX 50 index fell 1.1% to 10,753.16

In FX, the Bloomberg Dollar Spot Index rose by around 0.3% as the greenback traded stronger against all of its Group-of-10 peers apart from the yen. Australian and New Zealand dollars plunged to new two-year lows. The euro fluctuated around $1.0450 after the latest data showed that euro-area consumer prices rose 8.6% from a year earlier in June — up from 8.1% in May. Economists surveyed by Bloomberg saw a gain of 8.5%. The yen rose and the nation’s bonds were steady to higher. One-week options in dollar-yen are once again overpriced as short-term risks make a strong case for long-gamma exposure. Bank of Japan’s quarterly Tankan report of confidence among Japan’s large manufacturers fell to 9 in June from 14 three months ago, the biggest drop since the peak of the pandemic.

In rates, the German curve bear-steepened, with long-end yields ~7bps cheaper after a manufacturing PMIs show notable softness in new orders. Cash Treasuries extended Thursday’s bull steepening move, with front-end and belly dropping over 10bp from prior day’s close while richer by ~4bps at the short end. Ten-year yields fell further to below 3%, breaching the 50-day moving average, while eurodollar strip bull flattens as recession risk and Fed rate cuts continue to be priced in for next year.  10-year yields dropped to as low as 2.937%, the lowest since June 6, before edging back above 2.95% in early US session, outperforming bunds by 5.5bps. The belly and front-end outperformance causing a steepening of 5s30s curve by 6bp on the day and 2s10s by 3bps; 5s30s peaks through 20bp and onto widest levels in a month. Two-year yield fell 10bp to 2.85%. The Eurodollar strip continues to bull flatten as rate hike premium is eased out of next year; Dec22/Dec23 spread drops to -63.5bp and fresh cycle lows.  German government benchmark yields rose after data showed euro-area inflation hit a fresh record, surpassing expectations. The Stoxx Europe 600 Index wavered between losses and gains. Gilts are relatively quiet. Most peripheral spreads are modestly wider to core.

In commodities, crude futures advance. WTI drifts 1.9% higher to trade near $107.73. Brent rises 2% near $111.23. Most base metals are in the red. LME copper briefly drops below $8,000 a ton for the first time since February 2021. Spot gold falls roughly $12 to trade near $1,795/oz. 

Looking to the day ahead, data releases include the flash Euro Area CPI reading for June, as well as June’s global manufacturing PMIs and the ISM manufacturing reading from the US, along with the UK’s mortgage approvals for May. From central banks, we’ll hear from the ECB’s Panetta and De Cos.

Market Snapshot

• S&P 500 futures down 0.4% to 3,774.25
• MXAP down 1.0% to 156.37
• MXAPJ down 1.0% to 519.11
• Nikkei down 1.7% to 25,935.62
• Topix down 1.4% to 1,845.04
• Hang Seng Index down 0.6% to 21,859.79
• Shanghai Composite down 0.3% to 3,387.64
• Sensex down 0.6% to 52,688.97
• Australia S&P/ASX 200 down 0.4% to 6,539.91
• Kospi down 1.2% to 2,305.42
• STOXX Europe 600 little changed at 407.16
• German 10Y yield little changed at 1.39%
• Euro down 0.2% to $1.0459
• Brent Futures up 0.8% to $109.95/bbl
• Gold spot down 0.7% to $1,794.17
• US Dollar Index up 0.26% to 104.95

Top Overnight News from Bloomberg

• The Bank of Japan’s decision to pass up an opportunity to ramp up its policy defenses points to a fear of triggering a further weakening of the embattled yen
• Japan’s state pension fund, the world’s largest, posted its first quarterly loss in two years as declines in global stock and bond markets during the three months through March weighed down the value of its assets
• After years of subdued price swings caused by central bank intervention, a key gauge of volatility in the 1 quadrillion yen ($7.4 trillion) government bond market has surged in recent weeks to the highest level since 2008. That’s boosting demand for JGB traders, with Nomura Holdings Inc. noting signs of intensifying competition for talent
• Copper sank below $8,000 a ton, hitting its lowest since early 2021, as deepening fears about a global economic slowdown drive a rout in industrial metals markets
• Chinese President Xi Jinping urged Hong Kong to shore up its economy after an era of “chaos,” in a landmark visit that offered few clear answers for how to balance Beijing’s demands for limiting perceived foreign threats with its desire to remain an international financial hub

A more detailed look at global markets courtesy of Newsquawk

Asia-Pacific stocks began the new trading month mostly in the red as the region digested a slew of data releases and amid headwinds from the US where Consumer Spending data disappointed and Atlanta Fed’s GDPnow model alluded to a recession.     ASX 200 was just about kept afloat by resilience in nearly all industries aside from the commodity-related sectors. Nikkei 225 fell beneath the 26,000 level after the latest Tankan survey mostly disappointed. Shanghai Comp. traded indecisively despite the stronger than expected Caixin Manufacturing PMI data which rose to its highest since May 2021 as sentiment in the mainland was constrained by falling commodity prices, as well as the absence of Hong Kong participants and Stock Connect flows.

Top Asian News

• Chinese President Xi said “one country, two systems” has been successful for Hong Kong over the past 25 years and said Hong Kong is a window and a bridge connecting the mainland to the world, while he added that Hong Kong has to defend against interference and focus on development, according to Bloomberg and Reuters.
• Hong Kong’s new Chief Executive Lee was sworn in and stated the National Security Law brought stability after chaos, while he added the government will strive to control and manage COVID-19 through scientific methods, according to Reuters.
• UK PM Johnson said China has been failing to comply with its commitments on Hong Kong and the UK intends to do all it can to hold China to account, according to Reuters.
• PBoC injected CNY 10bln via 7-day reverse repos with the rate at 2.10% for a CNY 50bln net daily drain, according to Reuters.
• World’s Top Pension GPIF Posts Quarterly Loss on Stock Rout
• Three Arrows Crypto Fund CEO Wants to Sell Singapore Mansion
• Kishida Says LNG Supply From Sakhalin Won’t Immediately Stop
• Japan Mulls LNG From Spot Market to Replace Russian Supply: METI

European bourses are back in the red after briefly recovering from opening losses. Sectors are mixed with no clear theme – Tech is the laggard and Utilities the outperformer. Chip stocks are after sources said TSMC has seen its major clients adjust downward their chip orders for the rest of 2022, whilst Micron’s guidance was underwhelming. Stateside, US equity futures remain in negative territory but off worst levels as the contracts coat-tail on some of Europe’s upside.

Top European News

• French government spokesperson said a possible cabinet reshuffle could take place Monday or Tuesday, according to Reuters.
• Euro-Zone Inflation Hits Record in Boost for Big-Hike Calls
• Food Inflation Gets a Break as Wheat, Corn and Soy Oil Tumble
• UK House Sales Slow as ‘Intense’ Market Starts to Cool

FX

• Dollar regroups after late month end fade amidst broad gains ahead of US manufacturing ISM and construction spending – DXY retests 105.000+ levels from 104.640 low yesterday.
• Yen bucks trend, but off recovery peaks as yields firm up and risk aversion wanes – Usd/Jpy around 135.500 vs 134.74 overnight base.
• Aussie underperforms and hits fresh 2022 trough sub-6800 and Kiwi under 0.6200 after decline in ANZ consumer sentiment.
• Pound undermined by downward revision to UK manufacturing PMI with Cable below 1.2100 and prone to test of Fib support if 1.2050 breached.
• Euro back on 1.0400 handle and propped by better than forecast Eurozone manufacturing PMIs and stronger than expected inflation metrics.
• Rand extends declines alongside Gold as SA power and pay issues rumble on – Usd/Zar above 16.3400, spot bullion below Usd 1800/oz.

Fixed Income

• Debt futures rack up more safe haven gains before recovery in risk sentiment and sharp reversal.
• Bunds recoil from 149.46 to 148.24, Gilts retreat to 113.79 from 114.52 and 10 year T-note pulls back from 118-29+ to 118-06 as benchmark yield retests 3% briefly.
• Bonds subsequently bounce off lows awaiting US manufacturing ISM and construction spending ahead of long Independence Day holiday weekend.

Commodities

• WTI and Brent front-month futures retrace some of yesterday’s losses with upside also spurred the recovery across the stock markets
• Libya’s NOC announced a force majeure over Es Sider, Ras Lanuf Ports and the El Feel oilfield, while it noted that oil production decreased as daily exports ranged between 365-408k BPD which is a decline of 865k BPD, according to Reuters.
• Spot gold is under pressure after the yellow metal breached USD 1,800/oz to the downside – with the next level to the downside at USD 1,786/oz, the May 16th low.
• Base metals are softer across the board as recession woes grapple with the risk-correlated market. LME 3M copper briefly fell beneath the USD 8,000/t for the first time since January.
• India raised the basic import tax on gold to 12.5% from 7.5%, according to BQ Prime citing a Gazette notification.

US Event Calendar

• 09:45: June S&P Global US Manufacturing PM, est. 52.4, prior 52.4
• 10:00: May Construction Spending MoM, est. 0.4%, prior 0.2%
• 10:00: June ISM Manufacturing, est. 54.5, prior 56.1

DB’s Jim Reid concludes the overnight wrap

If you want the good news this morning it’s that H1 is now finally over. If you want the bad news it’s that there’s not much good news around as we start H2 and US equity futures are already down around a percent in the first few hours of the new half year. Having said that it’s eminently possible that whatever age you are reading this you might ALL have now witnessed the worst first half of a year in your career either looking back or forward. So if you’ve survived that it might not all be bad news. Younger readers can come back to me after the awful H1 2055 and tell me I’m wrong.

Henry will put out some more stats in our usual month-end performance review shortly, which reads like a bit of a horror story, but for what it’s worth the S&P 500 has now seen its worst H1 total return performance in 60 years, and also in total return terms it’s fallen for two consecutive quarters for the first time since the GFC. Meanwhile 10yr Treasuries look set (with a final calculation imminent) to have recorded their worst H1 since 1788, just before George Washington became President.

As I mentioned in a previous chart of the day, bad H1’s for equities have tended to be followed by much better H2’s. But with increasing warnings that a recession is round the corner, it isn’t so obvious where things are headed this time round. Indeed, equities saw another significant selloff yesterday as those fears were magnified yet again by another weaker than expected round of data which genuinely puts the US at risk of a technical recession in H1 already. That included the US weekly initial jobless claims for the week through June 25, which although coming in inline at 231k (vs. 230k expected), did send the smoother 4-week moving average up to its highest level so far this year. Our preferred measure, namely containing claims, edged up but is not yet signalling a recession though.

Personal spending also came in at just +0.2% in May (vs. +0.4% expected), and the prior month was revised down three-tenths as well, whilst real personal spending (-0.4%) saw its first monthly decline of the year as well. That translated to a 0.3% MoM Core PCE reading, below expectations of 0.4%, while the YoY reading was 6.3%. The prospect of the Fed being forced into hikes to fight stubborn inflation while growth is rolling over appears to be something the markets will have to wrestle with sooner rather than later. Indeed, the Atlanta Fed’s 2Q GDP nowcast estimate was revised down from 0.3% to -1.0% which if proved correct will signal a technical recession as a minimum. Today’s ISM will be a big sentiment driver on this front.

Against the weak growth backdrop, the S&P 500 (-0.88%) continued its run of having declined every day this week, whilst Europe’s STOXX 600 (-1.50%) saw even sharper losses. Utilities (+1.10%) were the clear outperformer, as investors rotate into defensive sectors. In turn, the NASDAQ underperformed, closing down -1.33%, also finishing in the red every day this week to date. The S&P 500 lost -20.58% in the first half of the year, its worst first half performance since 1970. Meanwhile, the NASDAQ has fared even worse, declining -22.44% this quarter alone and -29.51% in the first half of the year, its worst first half in the data available in Bloomberg.

But in some ways the fear was more evident among sovereign bonds, which rallied significantly as investors continued to seek out safe havens and grew more doubtful about whether central banks would be able to persist in taking policy into aggressive territory. Indeed, the rate priced by Fed funds futures for the December 2022 meeting came down -6.5bps to 3.39%, and the rate priced by December 2023 came down an even larger -13.6bps to 2.96%. Those shifting expectations meant that yields on 10yr Treasuries fell back beneath 3% in the session for the first time in nearly 3 weeks, ultimately settling -7.6bps lower on the day at 3.01%. The decline in 10yr yields was split between breakevens and real yields, as both had a volatile session to end the quarter. Breakevens fell -4.7bps to 2.35%, their lowest levels since September. Other recessionary indicators were flashing warning signs of their own, with the near-term Fed spread down another -14.9bps to 142bps, meanwhile the 2s10s curve managed to eek out a marginal steepening, but is still flirting with inversion, closing at just 5.1bps. This morning, 10yr UST yields (-5.92 bps) are lower again, moving back below 3% to 2.95% with the 2s10 curve flattening -1bps at 4.13% as we type.

We saw much the same pattern in Europe yesterday, albeit with even larger moves lower in yields that sent those on 10yr bunds (-18.3bps), OATs (-15.2bps) and BTPs (-13.3bps) sharply lower. As in the US, European sovereign yield declines were driven by falling inflation compensation, with the 10yr German breakeven coming down by -12.3bps to 2.03%, which is its lowest closing level since Russia’s invasion of Ukraine began. That was echoed in a declining oil price with Brent crude down -1.60% yesterday at $109.52/bbl, meaning that oil prices saw a monthly decline in June for the first time since November 2021, back when the Omicron variant first emerged and travel restrictions started going back up again.

Speaking of energy prices, there were a few interesting headlines on that front yesterday, including a comment from President Biden that he is seeking more production from the Gulf states. Biden is set to travel to the Middle East from July 13-16, so that’s an important event on the geopolitical calendar, and ahead of that, we also saw the OPEC+ group move to ratify yesterday a further supply hike of +648k barrels per day in August. In Europe however there was more bad news on the energy side, with natural gas futures up a further +3.53% to a fresh three-month high of €144.51 per megawatt-hour. My colleague George Saravelos put out a fascinating blog yesterday (link here) that highlighted how worried he’s becoming on the gas supply situation, with year-ahead natural gas prices making fresh record highs and electricity prices skyrocketing. A key event as part of that will be the shutdown of the Nordstream pipeline from July 11-21 for regular annual maintenance, and press reports are suggesting that authorities are attempting to find a solution on sanctions restrictions to move gas turbine components back to Russia. So while we all spend most of our time thinking about the Fed and recessions, what happens to Russian gas over H2 is potentially an even bigger story. Mark July 22nd in your dairies to see whether the gas supply starts getting back to normal or not.

Asian equity markets are reversing early morning gains and are mostly down again. The Kospi (-1.04%) is the largest underperformer across the region followed by the Nikkei (-0.88%). Over in mainland China, the Shanghai Composite (-0.30%) and CSI (-0.20%) are down but are trimming losses, as the nation’s private factory activity rose at the fastest pace in 13 months in June (more on this below). Markets in Hong Kong are closed for a holiday marking the 25th anniversary of Chinese rule. Bucking the regional trend is Australia’s S&P/ASX 200 which is trading +0.26% higher at the time of writing. Outside of Asia, stock futures are once again sliding with contracts on the S&P 500 (-0.84%) and NASDAQ 100 (-0.86%) indicating a disappointing start in the US later today.

Early morning data showed that China’s Caixin/Markit manufacturing PMI advanced to 51.7 in June, returning to expansion territory for the first time in four months against a previous reading of 48.1 and well above analyst expectations for an uptick to 50.1. The recovery as suggested in the survey was propelled by a strong rebound in output, as the easing Covid restrictions sent factories racing to meet recovering demand.

Over in Japan, Tokyo’s June CPI rose +2.3% y/y (v/s +2.5% expected) and against a +2.4% increase in the prior month. Core CPI advanced +2.1% in June from a year earlier, notching the fastest pace of increase in seven years in a sign of broadening inflationary pressure in the world’s third largest economy. Separately, the unemployment rate in Japan surprisingly edged up to +2.6% in May from +2.5% in April. Meanwhile, sentiment at Japan’s large manufacturers deteriorated in the April-to-June period as the headline index worsened to a level of +9, a decline from the previous quarter’s reading of 14.

Looking at yesterday’s other data, French CPI came in at +6.5% as expected on the EU-harmonised measure in June, although German unemployment unexpectedly rose +133k in June (vs -5k expected) as Ukrainian refugees are now being included in those looking for work. Looking back to May however, the Euro Area unemployment rate hit its lowest level since the formation of the single currency at 6.6% (vs. 6.8% expected). Finally in the US, the MNI Chicago PMI came in at 56.0 (vs. 58.0 expected).

To the day ahead now, and data releases include the flash Euro Area CPI reading for June, as well as June’s global manufacturing PMIs and the ISM manufacturing reading from the US, along with the UK’s mortgage approvals for May. From central banks, we’ll hear from the ECB’s Panetta and De Cos.

Authored by Gabriella Hoffman via RealClearEnergy.org,

As small farming and ranching operations struggle to bounce back from the COVID-19 pandemic and supply-chain disruptions, the federal government is preparing to throw another hurdle their way. 

In March, the Security and Exchange Commission (SEC), a governmental outfit purporting to “promote a market environment that is worthy of the public’s trust,” proposed a new Environmental, Social, and Governance (ESG) rule. Billed as the “Enhanced and Standardization of Climate-Related Disclosures for Investors,” it would require registrants who do business with small operators “to include certain climate-related disclosures” called Scope 3 Emissions—indirect (upstream or downstream) emissions occurring in the value chain of the reporting company.

Farmers and ranchers, however, aren’t public companies nor “registrants” reporting to the agency. But the aforementioned provision will adversely affect their operations and impose steep costs and liabilities. 

First, the agency’s new rule is unenforceable as it cannot regulate non-financial goals like ESG—including Scope 3 greenhouse gas (GHG) emissions goals. Why? Political goals fall outside their purview. 

As spelled out in Section 13(a) of the Securities Exchange Act of 1934, the SEC can only create rules deemed “necessary or appropriate for the proper protection of investors and to insure fair dealing in the security.” ESG principles, as understood, don’t make businesses more secure—just more vulnerable to politicization. 

Unelected SEC staff cannot compel registrants to disclose information of their business partners. Only Congress is constitutionally authorized to craft bills relating to climate and environmental regulations—not the SEC. The Mercatus Center notes, “The SEC has therefore concluded that it is generally not authorized to order disclosures relating to environmental, sustainability, or other social goals except in response to ‘a specific congressional mandate.’”

Small owners and operators are already subjected to onerous regulations by local, state, and federal laws. Why put more strains on struggling businesses that feed and nourish us? It wouldn’t be fair. 

Demanding these smaller producers adopt more rigorous reporting regimes in this manner would also invite massive privacy concerns.

Unlike corporations, small and medium-sized agribusinesses typically run their operations out of their personal residences. For instance, disclosing data regarding individual operations and day-to-day activities—if made public— could invite threats by agriculture industry opponents and make them the target of radical environmentalists and animal rights activists intent on disrupting and stopping their operations altogether.

Unfortunately for the SEC, the courts have previously ruled against governmental agencies that force disclosure of sensitive personal data. The Eight Circuit Court of Appeals ruled in American Farm Bureau Federation v. EPA (2016) that the Environmental Protection Agency (EPA) disclosing spreadsheets containing personal information of farmers invites “substantial privacy interest of the owners while furthering little in the way of public interest that is cognizable under FOIA” and would “constitute a clearly unwarranted invasion of personal privacy.” 

If the agency goes down this route, registrants working with small companies won’t trust them to handle disclosures containing sensitive information going forward. And they shouldn’t.

Given constraints already placed on small agribusinesses, disclosing personal data would place an enormous financial strain on them. To meet new demands, farmers and ranches would have more time dedicated to collecting data and less time on their food products.

Farm management software (FMS), for instance, isn’t cheap nor heavily utilized by most farmers and ranchers. It’s reported software would cost these small businesses an additional $1,200 annually. Moreover, a 2018 survey of nearly 1,500 farmers found 69 percent still use non-computerized tools for their day-to-day operations compared to 16.5 percent who chiefly rely on FMS systems.

Ultimately, adopting a rigorous reporting data regime would make it impossible for these small businesses to focus on their bottom line: feeding, fueling, and clothing the U.S. and beyond.  

If this rule proceeds, the SEC will betray its mission to “protect investors, facilitate capital formation, and foster fair, orderly, and efficient markets.” Worse, the Scope 3 considerations would result in the closure of small businesses and force SEC registrants to seek food products from businesses outside the U.S—making our nation highly vulnerable to food insecurity. 

In response, a bipartisan group of 118 House members, including swing district Democrats Reps. Elaine Luria (D-VA) and Elise Stlokin (D-MI), have demanded the agency scrap the rule altogether ahead of its comment period deadline on June 17th, 2022. Trump-appointed SEC Commissioner Hester M. Piece has also voiced her opposition to the proposal because it would undermine the agency’s disclosure regime and harm the economy.

Farmers and ranchers are conservationists who are mindful of their environmental footprint. They don’t need to heed SEC directives to properly steward their lands.