Month: January 2024

Authored by Jack Phillips via The Epoch Times (emphasis ours),

A federal judge in California dismissed a lawsuit that sought to keep former President Donald Trump off the Republican primary ballot.

On Wednesday, [Clinton appointed] District Judge David Carter granted a motion to dismiss the lawsuit “with prejudice,” which means that it can’t be submitted to the same court again, according to court papers.

A plaintiff attempted to argue that they suffered “emotional injury” due to the breach of the U.S. Capitol on Jan. 6, 2021, and watched the events unfold on television, on the radio, and in various publications. They then argued that the incident caused them “severe emotional distress” and then filed a lawsuit to keep the former president from California’s ballots.

But the judge wrote that because the events occurred “more than two years before the plaintiff” filed suit, it was outside of the two-year statute of limitations.

The decision by Judge Carter, a Clinton-appointed jurist who has ruled against President Trump in a separate case, was posted online by former Republican National Committee for California chairwoman Harmeet Dhillon.

“The remnants of the last California case to keep President Trump off the ballot here were dismissed today by Judge David O. Carter!!” she wrote on X on Wednesday.

In recent days and weeks, there have been a number of lawsuits filed in different states to try and bar President Trump from appearing on the ballot ahead of the 2024 election. Those suits have claimed that the former president engaged in “insurrection or rebellion” against the United States under an interpretation of the Constitution’s 14th Amendment’s Section 3, which was written in the immediate aftermath of the U.S. Civil War.

At least two of those challenges have seen some success in Maine and Colorado, although there has been widespread speculation that higher courts or even the U.S. Supreme Court would strike those rulings down.

Days before Christmas, the Colorado Supreme Court ruled to keep the former president off the primary ballot in the state, which was promptly appealed to the Supreme Court. Last week, Maine Secretary of State Shenna Bellows, a Democrat, unilaterally decided to keep President Trump off the ballot, which was similarly appealed.

Ahead of the Supreme Court appeal, Trump campaign spokesman Steven Cheung said that “unsurprisingly, the all-Democrat appointed Colorado Supreme Court has ruled against President Trump, supporting a Soros-funded, left-wing group’s scheme to interfere in an election on behalf of Crooked Joe Biden by removing President Trump’s name from the ballot and eliminating the rights of Colorado voters to vote for the candidate of their choice.”

Legal analysts have suggested that the U.S. Supreme Court would take up those two cases and likely would rule against the plaintiffs at least on procedural grounds. However, it’s not clear whether the court will take up the more thorny questions presented under the 14th Amendment’s insurrection clause.

“It seems a certainty that SCOTUS will have to address the merits sooner or later,” Rick Hasen, a law professor at the University of California-Los Angeles, wrote on his website last month, referring to the Supreme Court.

Other Attempts

In California, California Secretary of State Shirley Weber included the former president on the primary ballot list alongside other GOP presidential challengers such as former U.N. Ambassador Nikki Haley and Florida Gov. Ron DeSantis. It came after Democrat Lt. Gov. Eleni Kounalakis wrote a letter suggesting that officials evaluate whether the former president is eligible to run in California.

“I urge you to explore every legal option to remove former President Donald Trump from California’s 2024 presidential primary ballot,” Ms. Kounalakis wrote on Dec. 20. “The constitution is clear: you must be 35 years old and not be an insurrectionist.”

But her letter drew pushback from Gov. Gavin Newsom, also a Democrat, who chided President Trump but described the challenges as a “political distraction.”

“In California, we defeat candidates at the polls,” he said. “Everything else is a political distraction.”

Other than Judge Carter’s decision this week, several other federal judges have dismissed attempts to block the former president from appearing on ballots. In a ruling issued in late December, U.S. District Judge Leonie Brinkema wrote that the plaintiffs—two activists—who filed a  lawsuit against President Trump in Virginia to keep him on that state’s ballot lacked standing.

“At least five additional federal courts have concluded that citizens attempting to disqualify individuals—including former President Trump—from participating in elections or from holding public office based on the January 6, 2021 attack on the United States Capitol lacked standing,” she wrote in a ruling.

In a statement, the Trump campaign hailed the decision, noting that federal courts in West Virginia, New Hampshire, Florida, Arizona, and Rhode Island along with state courts in Minnesota and Michigan have dismissed similar suits.

Wall Street analysts have downgraded Apple for the second time this week, citing a deteriorating outlook for iPhone sales and macro weakness. 

Piper Sandler analysts led by Harsh Kumar are the latest to downgrade Apple from “Overweight” to “Neutral” with a price target of $205, down from $220. 

“We are concerned about handset inventories entering into 1H24 and also feel that growth rates have peaked for unit sales. Handsets are ~51% of total revs,” Kumar wrote in a note to clients. He lowered his recommendation on Apple after being bullish since March 2020. 

He outlined several other reasons for his downgrade decision:

• Deteriorating macro environment in China could also weigh on handset business.

• Headwinds due to negative news around both the Watch and other ongoing legal battles could be a distraction.

• Difficult comps from 2023 paired with constant currency headwinds are expected to continue in 1H24 with interest rates remaining elevated.

Kumar’s downgrade was similar to that of Barclays analyst Tim Long, who slashed Apple from “Equal-Weight” to “Underweight” with a slight downshift in price target, from $161 to $160. The price target indicates Long expects a 17% share decline this year. However, Kumar’s $205 price target is more optimistic than Long’s $160 price target. 

Bloomberg data shows that the percentage of bullish analysts covering Apple has hit a three-year low. 

Apple shares have dropped about 6% since Long’s downgrade on Tuesday. 

Kumar’s Apple downgrade was part of a much larger note to clients, warning about a challenging first half of the year for the analog market, handset, and consumer end markets. 

“We are starting 2024 with a cautious stance and as such are downgrading 6 names in our coverage to Neutral from Overweight previously,” the analyst said.  

Here are the six downgrades the analyst made:

Meanwhile, the “Magnificent 7” (Apple, Microsoft, Google parent Alphabet, Amazon, Nvidia, Meta Platforms, and Tesla) index has been priced for perfection (the thinking is that the Fed slashing rates so fast it would imply the US is in a brutal recession in 2024 is somehow good for tech companies).

It’s not a great start to the new year when the world’s largest company, in terms of market capitalization, is hit with two downgrades in a matter of days. 

By Stefan Koopman, Senior Macro Strategist at Rabobank

Heavy Symbolism

European stocks fell further on Wednesday, taking a cue from the negative mood on Wall Street. The Stoxx 600 dropped almost 0.9%, even as the incoming flow of macro-economic data should actually have been supportive of risk appetite. The S&P 500 closed 0.8% down too, continuing its losing streak. This morning, however, the mood improves slightly, with European futures gaining about 0.3%. Yields are also retreating this morning, after the 10-year UST briefly surpassed 4% yesterday.

Geopolitics was, again, quite nasty. Iran said that the two bomb attacks in Kerman, which had a large number of casualties, were aimed at punishing its stance against Israel. The attacks came hours after the deputy leader of Hamas was killed in an apparent Israeli drone strike in Lebanon.

Islamic Jihad’s chief of staff is no more. pic.twitter.com/AnyMaxnXQP

— Aviva Klompas (@AvivaKlompas) January 4, 2024

Responsibility hasn’t been claimed yet, and it all still feels tail-risky in terms of direct US-Iran confrontation, but the symbolism of two explosions near the tomb of Iranian general Qasem Soleimani is quite heavy. Note too that the White House is reportedly reviewing options for a more robust military response to the attacks on shipping in the Red Sea, including strikes against Iran-backed Houthi targets in Yemen.

It all signals that the conflict between Hamas and Israel risk engulfing more of the region.

As expected, the minutes of the FOMC meeting on December 12-13 were not as dovish as Powell’s post meeting press conference. Instead, these contained a few hawkish reminders. The FOMC participants generally stressed the importance of maintaining a careful and data-dependent approach, reaffirming that it would be appropriate for policy to remain at a restrictive stance for some time until inflation was clearly moving down towards the 2%-target. That might take longer than anticipated. Meanwhile, the risk of fresh inflation flare-ups keeps the door open to new rate hikes. We continue to pencil in the first rate cut in June. Once started, we expect the Fed to continue with one cut of 25 bps per quarter. Please find Philip Marey’s write-up here.

As said, the macro-economic data should actually have been supportive of risk appetite. Unfilled job vacancies in America fell to 8.79m in November, the lowest since early-2021 and the fourth consecutive monthly drop. Over the previous four months, 707,000 openings disappeared, a sign of weakening demand for workers. The ratio of unemployed workers to job openings, known as the V/U-ratio, stabilised at a still-high 1.4, down from nearly 2 a year earlier.

Crucially, the quits rate, which tracks voluntary leavers as a share of employment, edged down to 2.2%. This is the lowest level since September 2020. Workers are no longer quitting their jobs in droves to seek better pay elsewhere. This suggests that wage growth will continue to moderate in the coming quarters, as employers face less pressure to attract and retain staff. The silver lining of it all is that the decline in openings and quits coincides with layoffs hanging around at a very low 1.0%. This bodes well for a soft landing with a relatively benign disinflation.

While the labor market is cooling down, so too is the manufacturing sector. The ISM index came in at 47.4 in December, indicating contraction for the 14th consecutive month, but this was still slightly above expectations. A crucial component of the index, the prices paid measure, came in at 45.2 and stayed below 50 for the eighth month in a row. That signals persistent disinflation in goods prices. Furthermore, although none of the six biggest manufacturing industries registered production growth in December, the survey comments also had some silver linings, with several industries projecting a pick-up in demand and solid business conditions.

Oil prices are sliding back again this morning, after surging yesterday to erase Tuesday’s losses, following a bigger than expected crude draw reported by API (but notably large product inventory builds).

Broad ‘risk-off’ sentiment in markets to start the year (and dollar strength) appear to be dulling any impact from possible supply disruptions in Libya for now.

API

• Crude -7.42mm (-3.00mm exp)

• Cushing +765k

• Gasoline +6.91mm

• Distillates +6.69mm

DOE

• Crude -5.50mm (-3.00mm exp)

• Cushing +706k – 11th weekly build in a row

• Gasoline -10.9mm – largest build ever

• Distillates -10.9mm – largest build since Jan 2019

Crude inventories declined for the second week in a row (more than expected) but gasoline and distillate stocks exploded higher…

Source: Bloomberg

Bloomberg’s Alex Longley notes one key thing to remember with all this data is that it essentially covers the final week of the year. That’s a time when the figures can get wonky for all kinds of reasons – tax purposes if you’re holding barrels in Texas, swaths of the country celebrating the holiday period, etc. So it’s worth taking some of the more extreme numbers with a grain of salt.

The Biden administration added 1.055mm barrels to the SPR last week – the largest addition since June 2020…

Source: Bloomberg

Stockpiles at the crucial Cushing hub continued to rise, now at their highest since July 2023…

Source: Bloomberg

Gasoline and Distillates stocks are at their highest since Q1 2022…

Source: Bloomberg

US crude production decline by 100k b/d last week but continues to hover near record highs…

Source: Bloomberg

WTI was hovering just below $72.50 ahead of the official data and extended losses after…

Crude earlier rallied as much as 1.8% as protesters in Libya shut output from from yet another oil field. The disruptions at the Sharara and El-Feel fields may take more than 300,000 barrels a day off the market.

Traders also are monitoring the volatile situation in the Red Sea, with Houthi militants claiming to have attacked another merchant ship this week.

Authored by Simon White, Bloomberg macro strategist,

Claims data just released imply an economy with few signs of an imminent recession.

The rise in yields is consistent with this outlook, although the Fed’s altered reaction function remains most pivotal for them.

The information content in claims comes from looking at a diffusion of them state by state.

When a rising percentage of states are seeing their claims – initial or continuing – notably weaken on an annual basis, this is very a reliable sign of an imminent recession.

This cycle, state claims were an indication that a downturn was on its way, but the measure has now decisively fallen back below the recession threshold — similarly for continuing claims.

Claims are a more reliable indicator of job market health than JOLTS (which came out on Wednesday), which has a very low response rate and sample size.

The inflection lower in claims also supports a positive skew to Friday’s payrolls data.

Recession risk is likely to mount as the year wears on, as the cumulative impact of higher rates increasingly bites.

But today’s data is another evidential bit of the jigsaw that recession risk is retreating for now.

Just as EV demand appeared to be nearing super-saturation, incentives for buying electric vehicles are starting to fall by the wayside.

There are now just 13 EV models that are eligible for a consumer tax credit of as much as $7,500 thanks to new Biden administration rules that took effect on January 1, according to Bloomberg. 

Previously, the number had stood closer to 24 models, but for the new year the tax credit excludes vehicles that use battery components manufactured by Chinese companies, the report says. 

“Automakers are adjusting their supply chains to ensure buyers continue to be eligible for the new clean vehicle credit, partnering with allies and bringing jobs and investment back to the United States,” said Treasury Department spokeswoman Ashley Schapitl.

She also commented that some companies were still in the process of submitted data to see if they qualify for the credit. 

Last month, the Treasury Department announced rules targeting battery components made by companies under Chinese jurisdiction or with at least 25% Chinese government ownership, the report says. 

These regulations, expanding in 2025 to include suppliers of essential battery materials like nickel and lithium, are part of President Joe Biden’s climate law, influenced by Senator Joe Manchin.

Manchin, pivotal in passing the Inflation Reduction Act, aimed to address concerns over U.S. taxpayer money subsidizing Chinese-made batteries.

As Bloomberg notes, depending on the manufacturing location of battery components and parts, vehicles may qualify for a $7,500 or $3,750 credit.

Eligible models for the full or partial credit include Tesla’s Model Y, Rivian’s R1T, Stellantis’s Jeep Wrangler 4xe, and Ford’s F-150 Lightning. However, Tesla’s Cybertruck, certain Model 3 versions, Nissan’s Leaf, Ford’s E-Transit van, and GM’s electric Blazer and Silverado lost credit access.

By Peter Tchir of Academy Securities

The Times They Are A-Changin’ – Impacting Market Signals & Correlations

We, the market, have collectively learned a few things in the past few years. Primarily lower yields = higher stocks. That was probably the single biggest lesson since COVID and ZIRP. Lower yields = higher stock prices.

We learned that stocks are “long duration” assets. We learned that tech stocks are even longer duration assets. The “everything” or “QE” trade became a dominant theme. It didn’t mean we didn’t experience “risk-off” days (bond yields lower, but stock prices lower), or “risk-on” days (bond yields higher, but stock prices higher), they just occurred with less frequency and they seemed to drive the market for shorter periods than in the past. The “traditional” risk-on or risk-off made a lot of sense. If the economy was doing well, bond yields should be higher, but stocks should be higher as well. And vice versa. Like, you know, bad news used to be bad, and good news used to be good.

The Role of Algos

I strongly believe that algo’s played a large role in enforcing this behavior of “lower yields = higher stock prices”. While AI needs to “learn” and be “taught”, I think many algo’s are much simpler. They are like sharks, almost mindlessly and mechanically, swimming through the water, looking for things to eat. This is neither an admonishment against algo’s nor praise for them, it is a simple fact about the market structure we live in.

The algo’s that identified “lower yields = higher prices” thrived. They likely bred other algos and certainly did well enough to be allocated more and more capital. As humans became committed to the concept of “lower yields = higher prices”, the algo’s still had first mover advantage, but that only helped solidify the relationship and possibly exaggerate it (make it larger than it should be). Throw in stop losses and even 0DTE options (zero day to expiration options) and we live in a world where moves can be fast and large, and often skewed to the “everything rally” trade.

Signals and Correlations Always Change and Are Moving Now

While the “everything rally” is far from dead, it seems very “last year.” I think sometimes when we go back and remember what the “tells” for the market were, we realize how varied they can be (anything from Chinese Treasury TIC data, to some survey of bank lending, etc) and how short-lived many are. Geopolitical may be short lived, but it is influencing markets right now.

Let’s start with yesterday’s price action on the 10-year treasury. Treasuries tried to “bounce” in price terms right after the series of 10 am numbers. Prices paid on ISM were “better” than expected (a weird piece of data to glom on to, but it seems to excite the inflation is over camp (I used to be a card carrying member, so I can relate). JOLTS seemed to confirm last month’s “surprising” drop in jobs available and the QUIT rate was lower, while the HIRE rate was also lower – both bad for those looking for the bottom of the employment cycle). But that move was short lived.

Markets were “fixated” on the FOMC minutes due out at 2pm. Treasury prices initially declined (the minutes were not as dovish as the press conference, which is an important signal), and then resumed their march higher. Maybe that could all be explained from the reaction (and pre-positioning) of the FOMC minutes, but I believe something else was at work here.

Treasuries were marching higher from about 11am until 2pm. Was that all in anticipation of “dovish” minutes? (which we didn’t get) Or, was something else going on?

Like headline after headline about bombings in the Middle East. That was on top of previous headlines about warships and supply chains (see Academy’s Warship SITREP, and latest Around the World).

We’ve tightened up the chart to just yesterday’s trading.

If this was an “everything” rally, stocks should have done much better than they did. They failed to pop on ISM/JOLTS (bad news is bad?), but more importantly (from a “changing” signal perspective) they faded as treasuries rallied all afternoon and stocks certainly didn’t behave as though the FOMC minutes were dovish (a correct interpretation).

Oil, popped earlier in the days (as soon as bombings hit the headline) and were well bid all day. Economic news was definitively NOT good for oil, yet oil was higher.

Signals and Correlations in Today’s World

Anyways, enough reminiscing about how things were, and let’s think about how to think about moves in today’s world. A world where geopolitical risk is high (markets don’t seem to care that according to reports, Xi says China firmly supports Iran in safeguarding security – which doesn’t seem good, especially given how much oil is allegedly finding its way from Iran to China).

I think we can start with the “safest” signal – oil.

Oil will rise and continue to rise as tensions intensify. The biggest risk, from my perspective is that the U.S. hits a point where it feels forced to curtail Iranian oil shipments. At some point, if this occurs, the Saudis may increase production, but that is unlikely to occur below $90 a barrel. I’m looking for oil prices to continue to move higher as this shifts from a traditional supply/demand story to a geopolitical interference risk story. I do like energy company stocks even better than oil, but both should work right now and are the major tell.

Stocks.

I like energy companies outright, so I’m almost getting the geopolitical risk for “free”.

I do not like the stock market here, as per previous T-Reports, and think higher energy prices, especially as a direct result of geopolitical tensions will weigh on stocks.

But what about bond yields, in their own right and how they will impact stocks?

Do NOT expect lower bond yields to be good for stocks. Bond yields are not going to be the main driver, certainly not every day, for stocks. Geopolitical risk is going to be a bigger factor and that will outweigh the impact bond yields have on stocks. If anything, we should see more “risk-on” and “risk-off” days, but look for some other signal to drive stocks as the bond/stock correlation isn’t the same as it was much of last year.

Finally, on the bond side of things, geopolitical tensions should help drive yields somewhat lower, at least initially. We could see the “classic” flight to safety trade in the early days, which seemed apparent yesterday.

My fear is that “flight to safety” doesn’t last.

• As oil prices go higher, will the Fed really shift to an easy money stance like they “normally” would in times of geopolitical stress/uncertainty? I do not think so, at least not initially.
• As tensions escalate, as munitions are used (and need to be replaced), as military activity across the globe increases, concerns about spending will rise.
• Now back to China TIC data. If China continues to deplete their inventory of bonds (largely through maturities rather than active selling), will that come back into focus?

The worst outcome, and one that I think is increasing in probability, is that we will see higher yields, higher oil prices and significantly lower stock prices.

If the algos that made all the $$$$$ by buying stocks whenever bond yields went lower start losing money, they will be shut down or constrained rapidly.

What happens when the “geopolitical” algos, algos trained or designed to trade geopolitical risk rather than Fed risk, gain in prominence? At exactly the time humans become concerned about this and positioning seems set up to trigger stock losses (sentiment seems to be skewed towards being long stocks and long bonds and neutral energy after that trade struggled much of last year).

Bottom Line

The Times They Are A Changin’ – Change with them! I’m the most bullish I’ve been on energy and energy stocks in sometime (probably toss all commodities into that mix).

I’m the most bearish I’ve been on equities and am targeting 4,500 on the S&P 500 sooner than later.

Credit spreads will widen in sympathy with equities, though this is largely an equity valuation and “set-up” problem (the set-up being the conditioning to lower yields = higher stocks) so credit should outperform equities quite handily here.

On bonds, maybe, maybe, just maybe, we get some “flight to safety” trade, so I’m only mildly bearish on bonds right now, but will sell any rally in bonds as I think the problems facing the bond market, from the geopolitical risk, will outweigh the “traditional” safety bid.

Happy New Year! (sarcasm meter on high).

Following US Manufacturing PMI’s disappointing decline in December, US Services PMI was expected to rise in December and it did, with the final print of 51.4 (up from the flash 51.3 and 50.8 in November).

Source: Bloomberg

The ‘soft’ services sector survey is the strongest since July 2023 – as ‘hard’ data plumbs 2023 lows.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said:

“Some New Year cheer is provided by the PMI signalling an acceleration of growth in the vast services economy, which reported its largest rise in output for five months in December. The improvement overshadows a downturn recorded in manufacturing to indicate that the overall pace of US economic growth likely accelerated slightly at the end of the year.

“Some support to financial services in particular is coming from the recent loosening of financial conditions amid growing hopes of interest rate cuts in 2024. Growth nevertheless remains subdued by standards seen over the spring and summer, with the struggling manufacturing sector dampening demand for business-to-business services and consumers remaining far less inclined to spend on luxuries such as travel and recreation than earlier in the year.

“The more challenging demand environment has dampened firms’ pricing power, squeezing service sector selling price inflation to the lowest for over three years on average during the fourth quarter. With sticky service sector inflation being a key area of concern among Fed policymakers, the slower rate of price increase in December is welcome news.“

However, at the composite level, on the price front, total input costs rose at a sharper rate in December as operating expenses at manufacturers and service providers increased at faster paces.

So – take your pick – cut rates because manufacturing recession or cut rates to keep the Services sector soaring? Because it’s an election year and we can’t be hiking right?