Month: August 2022

Tuesday into Wednesday has witnessed heavy fighting between Kurdish YPG and Turkish forces along the Syrian border town of Kobane, at a moment Turkish President Erdogan’s planned large scale cross-border offensive looms. Already there are Turkish media reports claiming that a Turkish military convoy has entered Jarablus, northern Syria – with unverified social media photos circulating that purport to show convoys amassing.

Turkish shelling of Syrian Kurdish positions has reportedly killed and wounded civilians including a 14-year old child. And a series of airstrikes have hit Syrian government border posts, killing 17. However, it’s unclear how many among these were Syrian national troops, Kurdish militia fighters, or pro-government militia members who fight alongside the army.

“Seventeen fighters were killed in Turkish air strikes that hit several Syrian regime outposts… near the Turkish border,” one pro-opposition war monitor told Middle East Eye. Turkish military officials have said they’ve killed five Kurdish militants in the fresh assault.

Turkey’s defense ministry said one of its soldiers was killed in a Kurdish counter-strike with artillery. A statement said that on the Syrian side of the border “Thirteen terrorists were neutralized” in “retaliation”.

A Syrian government statement said meanwhile that “Any attack on a military outpost run by our armed forces will be met with a direct and immediate response on all fronts,” according to state-run SANA.

So far throughout the war in Syria, Turkey has conducted three major cross border operations going back to 2016, in efforts to prevent any level of Kurdish autonomy from forming, as part of what it deems border stabilization efforts. At the same time it has long supported jihadist groups which seek to ethnically cleanse Kurds, while at the same time trying to topple the Syrian government under Bashar al-Assad. 

Over the period, Turkey has seized hundreds of kilometers of Syrian sovereign territory and has effectively pushed the de facto border demarcating control some 30km deep into Syria. The United States, which has limited forces on the ground (most estimates are between 1,000 to 2,000 special forces soldiers), has tended to stay out of Turkey’s way, despite Kurds making up the bulk of the US-backed and trained Syrian Democratic Forces (SDF). 

Both Ukrainian 🇺🇦 and Russian 🇷🇺 Telegram are going full-out nuts that a war is starting between (Russian 🇷🇺 backed) Syria 🇸🇾 & (NATO (🇺🇸) backed) Turkey 🇹🇷 over the Kurds.

Big wars have a tendency of starting when large countries fight over smaller nations. pic.twitter.com/co5yrKoXre

— Jason Jay Smart (@officejjsmart) August 17, 2022

Interestingly, all of this comes as over the past week there have been substantial rumors of official contacts and talks between the Syrian and Turkish foreign ministries. For example, last week Turkish foreign minister Mevlut Cavusoglu for the first time publicly urged reconciliation between the Syrian government and the so-called “rebel” groups, even though Turkey has long used the very same jihadist groups as proxies to wage war on the Syrian state.

His comments were seen as an apparent easing of Ankara’s longstanding hostility towards al-Assad’s government and enraged the Syrian opposition and rebel groups. But this latest Turkish attack on Syrian border posts strongly signals continued hostility and friction between Ankara and Damascus for the immediate future.

There are a lot of irrational expectations surrounding today’s FOMC minutes.

On one hand the minutes are expected to detail the Fed’s dovish breakaway from forward guidance (as the Fed, like the BOE, finally admitted it has no clue what will happen next week let alone net year). On the other, the market is looking for clues on the rate path and the terminal rate… or in other words, forward guidance.

Sigh.

Then again, in a market as broken as this one, and where Powell cornered himself after he…

• classified 75bps as “extra ordinary” & highlighted the lagged effects of rate hikes
• spoke of growth slowdown and demand moderating rather than biggest focus on inflation
• referenced June SEP multiple times (i.e. not swayed by June’s CPI)
• spoke of terminal rate of 3.25-3.5% (mkt already there)
• moved to a data dependent outlook (forward looking not backward looking)

… it is hardly a surprise that we have seen one of the largest 20d easing in financial conditions on record, on par with the relief rally post the mid Feb 2016 lows (oil crash), on par with the rally post the Dec 24th crash in 2018, and almost as large as the post Pfizer vaccine news rally in November 2020.

The resultant surge in risk – which also sparked the latest meme stock meltup – prompted even Goldman to ask if this is what Powell really wanted.

So yes: the Fed Minutes have a lot to explain, although they probably won’t as the Fed is once again behind the curve this time in the latest market meltup, however since oil and gas prices are falling for now, we don’t expect any emergency intervention by Powell.

With that in mind, this is what Wall Street expects, courtesy of Newsquawk

• JULY OVERVIEW: The FOMC lifted rates by 75bps to 2.25-2.50%, as was expected, taking rates back to neutral for the first time since 2019. The only major tweak to the statement was its reassessment of the economy; the Fed now acknowledges that “recent indicators of spending and production have softened” (recall, it previously said that “overall economic activity appears to have picked up after edging down in the first quarter”). This change was to be expected given the softening in many key macro indicators.
• SEPTEMBER: The statement offered no clues about what the Fed will do at its September meeting and during the press conference Fed Chair Powell abandoned concrete forward guidance and said decisions will be dependent upon data and taken upon a meeting-by-meeting basis. We will look at the minutes to see if any participants were in favor of more stern forward guidance, but that seems unlikely given plenty of Fed speakers have spoken since and called upon the data-dependent approach. However, it is clear that appetite is currently between another 75bps hike or a slower 50bps hike (market pricing is now leaning towards 50bp after the latest CPI and PPI reports, but the minutes will not incorporate that data, so there is a risk of the minutes sounding more hawkish, but it also will not incorporate the hot July jobs report).
• RATE PATH: Governor Bowman had suggested rate hikes of a similar magnitude should continue until inflation returns to target, which SGH Macro’s Duy says “This could be a clever way to keep 75bp on the table without it really being on the table”. At the press conference, Fed Chair Powell was quizzed on the rate path, and he suggested the Fed wants to get to “moderately restrictive territory” by year-end, which to him implies a rate of 3.00-3.50%. Since then, other speakers have been maintaining their rate forecasts with Evans in line with Powell suggesting a rate of 3.25- 3.50%, while Kashkari leans more hawkish seeing rates at 3.9% by year-end – in fitting with Bullard who sees rates between 3.75-4.00%. Given the hot jobs report and cool CPI since the latest meeting, the minutes may be deemed quite stale given the Fed’s data-dependent stance. Nonetheless, any views on the outlook will be key, particularly on the terminal rate view after Powell noted it has evolved for all participants – but did not provide much clarity. Analysts at Credit Suisse expect the minutes to note, “officials expect the pace of rate hikes to slow unless inflation continues to run  at extremely elevated levels”. Adding, “Officials likely discussed the recent slowdown in growth data but refrained from the possibility of a rate cut next year”.

 

By Tsvetana Paraskova of OilPrice.com

Oil prices have given up in recent weeks all the gains they had made since the Russian invasion of Ukraine as market fears of recession intensified. 

There are signs of slowing economic growth, which could dent oil demand. But oil market participants and analysts are struggling to estimate how much demand could suffer in a recession that will be nothing like the 2008/2009 credit collapse and crisis. 

Bearish factors are dominating current market sentiment, but some analysts say that paper traders may have already priced in too much fear of recession. 

At the same time, the U.S. labor market is outperforming expectations, defying other gloomy signals that America’s economy is slowing. Moreover, annual inflation in the U.S. in July eased from the previous month due to lower gasoline prices. 

Still, bearish sentiment currently prevails on the oil market, as participants are paying more attention to recession fears, the steady Russian oil exports contrary to early expectations of massive losses in the region of 3 million bpd, and weaker Chinese factory activity and snap COVID-related lockdowns weighing on fuel demand. 

Imminent bullish signals include the hurricane season in the United States this month and next, where severe storms and hurricanes could force shut-ins at Gulf of Mexico production platforms or preemptive shut-ins at refineries along the Gulf Coast. Another bullish factor by the end of the year could emerge from the end of the U.S. SPR releases, currently expected to end in October. At the same time, U.S. oil producers are not boosting output too much—even at $100 oil—due to continued capital discipline, supply chain constraints, and cost inflation. The full effect of the EU ban on imports of Russian seaborne oil, expected to kick in at the end of the year, is also challenging to estimate, as is the impact of a possible price cap on Russian oil, which would allow insurance and other services for Russia’s crude if buyers commit to buy it at or below a certain price. 

Recession Fears

The oil market, however, is currently in the grip of concerns about a global recession and demand destruction. Recession fears in Europe have intensified amid the sky-rocketing energy prices and low supply of Russian pipeline gas which is forcing companies in some energy-intensive industries to curtail production. In the UK, the Bank of England warned last week that the country is expected to enter a recession from the fourth quarter of this year, which will last until the end of 2023. 

The net long speculative positions—the difference between bullish and bearish bets—in Brent and WTI had dropped to a very low level as of early August due to fears of a recession and softening global economic growth, SEB bank said in a research note earlier this week. 

The physical crude market is also losing steam due to fears of an economic slowdown or recessions, traders told Reuters this week. 

“The market is very bearish at this moment. No one is in a hurry to buy,” a trader based in Singapore told Reuters. 

Yet, the labor market in the U.S. remains strong, and the latest employment data far exceeded analyst estimates. Total nonfarm payroll employment rose by 528,000 in July, and the unemployment rate edged down to 3.5%, the U.S. Bureau of Labor Statistics said last week. The numbers smashed Dow Jones estimates of 258,000 job additions and a 3.6% unemployment rate.  

“The report throws cold water on a significant cooling in labor demand, but it’s a good sign for the broader U.S. economy and worker,” Michael Gapen, an economist at Bank of America, said in a note cited by CNBC. 

Some analysts say the 9% drop in WTI Crude futures last week was exaggerated, and the economic concerns could be overblown.  

Caroline Bain, chief commodities economist at Capital Economics in London, told Houston Chronicle: “The big picture,” she said, “is that the market could be pricing in too much recession fear.” 

The near-term oil price movement will be led by the economic picture, inflation, and interest rate hikes, but some bullish factors could tip the sentiment back to rallying prices. These include very low global spare capacity, OPEC+’s inability to pump much more than it is producing now, and the wild card Russia and its standoff with the West. It will become clearer in the coming months how Russian supply to the markets could be affected and whether Putin will simply stop selling oil to those countries who join a potential price cap on Russian oil. The proposed price cap includes allowing insurance and other services for Russia’s oil shipment, but Moscow has already said it would not export its oil if the price cap is set below its cost of production. 

While some analysts say that oil is headed even lower with recessions looming, others say this recession could be different and not lead to an actual drop in oil demand year over year.

Goldman Sachs, for example, revised down its Brent price forecast for this quarter to $110 a barrel, down from a previous projection of $140 per barrel, but it still believes the case for higher oil prices remains strong. 

“We believe that the case for higher oil prices remains strong, even assuming all these negative shocks play out, with the market remaining in a larger deficit than we expected in recent months,” Goldman Sachs’s strategists wrote in the note this week carried by Bloomberg.    

After more than two years of missteps and backpedaling over Covid-19 guidance that had a profound effect on Americans’ lives, the Centers for Disease Control (CDC) announced on Wednesday that the agency would undergo a complete overhaul – and will revamp everything from its operations to its culture after failing to meet expectations during the pandemic, Bloomberg reports.

Director Rochelle Walensky began telling CDC’s staff Wednesday that the changes are aimed at replacing the agency’s insular, academic culture with one that’s quicker to respond to emergencies. That will mean more rapidly turning research into health recommendations, working better with other parts of government and improving how the CDC communicates with the public. -Bloomberg

“For 75 years, CDC and public health have been preparing for Covid-19, and in our big moment, our performance did not reliably meet expectations,” said Director Rochelle Walensky. “I want us all to do better and it starts with CDC leading the way.  My goal is a new, public health action-oriented culture at CDC that emphasizes accountability, collaboration, communication and timeliness.”

As Bloomberg further notes, The agency has been faulted for an inadequate testing and surveillance program, for not collecting important data on how the virus was spreading and how vaccines were performing, for being too under the influence of the White House during the Trump administration and for repeated challenges communicating to a politically divided and sometimes skeptical public.”

A few examples:

• CDC Spreads Misinformation On Masking, Not Science
• CDC Admits No Record Of Naturally Immune Transmitting COVID-19
• CDC’s Masking Flip-Flop
• CDC Admits It Gave False Information About COVID-19 Vaccine Surveillance
• CDC Admits It Can’t Back Claim That Vaccines Don’t Cause Variants
• Causing Coronavirus Confusion Again

Walensky made the announcement in a Wednesday morning video message to CDC staff, where she said that the US has ‘significant work to do’ in order to improve the country’s public health defenses.

“Prior to this pandemic, our infrastructure within the agency and around the country was too frail to tackle what we confronted with Covid-19,” she said. “To be frank, we are responsible for some pretty dramatic, pretty public mistakes — from testing, to data, to communications.”

Expired: Trust the science

Wired: Trust the restructuring https://t.co/JL4G0JQOel

— zerohedge (@zerohedge) August 17, 2022

The CDC overhaul comes on the heels of the agency admitting that “unvaccinated people now have the same guidance as vaccinated people” – and that those exposed to COVID-19 are no longer required to quarantine.

Authored by Steve Watson via Summit News,

A senior White House climate advisor has been sanctioned by the National Academy of Sciences for violating its ethics policies.

Axios reports that Jane Lubchenco, the deputy director for climate and environment at the White House Office of Science and Technology Policy, has been pulled up by the NAS for editing a paper later found to contain technical errors, as well as having worked with the scientists involved in it, one of which turned out to be her brother-in law.

Now, how many studies and projects cited her work, justifying more grants, and drove policies???

— Mike (@mcposwusnr) August 16, 2022

Lubchenco was found to have violated NAS Code of Conduct Section 3, which states that “NAS members shall avoid those detrimental research practices that are clear violations of the fundamental tenets of research.”

The section also notes “Members should be fair and objective peer reviewers, maintain confidentiality when requested, promptly move to correct the literature when errors in their own work are detected, include all deserving authors on publications, and give appropriate credit to prior work in citations.”

Axios notes that Lubchenco commented “I accept these sanctions for my error in judgment in editing a paper authored by some of my research collaborators — an error for which I have publicly stated my regret.”

The report also notes that GOP Representatives Frank Lucas of Oklahoma, Stephanie Bice of Oklahoma and Jay Obernolte of California wrote an open letter in February calling for the White House to ” consider whether Dr. Lubchenco’s leading role in the Administration’s scientific integrity efforts undermines public confidence in future policy decisions.”

The Republicans also noted that “As an editor at the Proceedings of the National Academy of Sciences (PNAS), Dr. Lubchenco demonstrated a clear disregard for rules meant to prevent conflicts of interest in publishing peer-reviewed studies.”

 

“Now, Dr. Lubchenco is playing a leading role in developing and overseeing this Administration’s best practices for scientific integrity. Her violation of one of the core tenets of scientific integrity makes her current leadership role very troubling,” the GOP reps. added.

Lubchenco is still inhabiting the role at the White House and has been tweeting and retweeting material related to the so called green energy ‘transition’:

It was a long time coming. Now we can get even more accomplished https://t.co/MNiFUo6k07

— Jane Lubchenco (@JaneLubchenco46) August 12, 2022

YAY!!! https://t.co/qD5jmrU32T

— Jane Lubchenco (@JaneLubchenco46) August 12, 2022

*  *  *

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Ukrainian government officials are teasing the likelihood of more strikes and ‘sabotage operations’ inside Russian controlled Crimea, after having cheered on at least two recent large explosions at military sites. 

Kiev officials, including President Volodymyr Zelensky himself, are reportedly warning that all civilians should “stay away from potential targets” in Crimea. This follows the Kremlin on Tuesday admitting for the first time that the recent explosions were the “result of sabotage”. 

Following the latest incident, the Russia’s defense ministry said, “On the morning of Aug. 16, as a result of an act of sabotage, a military storage facility near the village of Dzhankoi was damaged.”

This is the clearest indication yet that in addition to the Dzhankoi munitions depot blast, the prior Aug.9 massive explosion at Russia’s Saky airbase, some 200km deep inside, was also a Ukrainian attack – as some Ukrainian officials had already leaked to US newspapers.

The Saky airbase incident had also set off discussion over whether US-supplied HIMARS rockets could reach that far. If indeed there were foreign weapons systems behind it, it could set the US and Russia on a dangerous path of escalation and collision as the proxy war could fast develop into direct confrontation between superpowers in Ukraine.

The Kremlin has warned even of nuclear confrontation among superpowers if the war is to spiral outside of Ukraine’s borders. But while Russia sees Crimea as its own, going back to a popular referendum among the pro-Russian population in 2014, both Kiev and the West view Crimea as still part of Ukraine’s sovereign territory which was illegally “annexed”. 

The Guardian publishes on its front page a straight-out Ukrainian government press release urging the West to give it even more weapons, written up by the paper’s resident MI6 stenographer Luke Harding.

Oh, and it would like you to pay for this service… pic.twitter.com/bXcabDlyCo

— Jonathan Cook (@Jonathan_K_Cook) August 17, 2022

According to fresh reporting in The Guardian, these Crimea sabotage events are part of a new broader strategy of creating “chaos” for Russian forces:

Ukraine is engaged in a counteroffensive aimed at creating “chaos within Russian forces” by striking at the invaders’ supply lines deep into occupied territories, according to a key adviser to the president, Volodymyr Zelenskiy.

Mykhailo Podolyak told the Guardian there could be more attacks in the “next two or three months” similar to Tuesday’s mysterious strikes on a railway junction and an airbase in Crimea, as well as last week’s hit on Russian warplanes at the peninsula’s Saky aerodrome.

Russia said a fire on Tuesday had set off explosions at a munitions depot in the Dzhankoi district of Crimea – an incident that Podolyak said was a reminder that “Crimea occupied by Russians is about warehouse explosions and high risk of death for invaders and thieves”.

According to the satellite images there were 23 planes located at Saky military airbase in Crimea. 12 Sukhoi Su-24, 10 Sukhoi Su-30CM and 1 Ilyushin Il-76. Still to be confirmed.pic.twitter.com/Ir8mEsZtje

— Altavista 🇪🇺🇺🇦 (@na_intel) August 9, 2022

Another standoff which threatens to escalate into international confrontation is ongoing at the Zaporizhzhia nuclear plant. Ukrainian officials have said that some 500 Russian troops are occupying it, which is Europe’s largest…

Russian-installed officials have accused Ukrainian forces of shelling the city of Enerhodar, where the Zaporizhzhia nuclear plant is located, according to Interfax news agency, while Ukraine blamed Russia for shelling the city of Nikopol, across the Dnieper river.

Over recent days, Zelensky has said his forces will target any Russian forces at the plant. “Every Russian soldier who either shoots at the plant, or shoots using the plant as cover, must understand that he becomes a special target for our intelligence agents, for our special services, for our army,” Zelenskiy said in a weekend address.

The Ukrainian president’s own recent words suggest that Russia’s accusations that it is the Ukrainian side shelling the nuclear plant are accurate. However, the West has been charging Russian forces with shelling the plant (which begs the question of why Russian forces occupying said plant would be shelling themselves).