Month: March 2024

The fourth ZeroHedge Debate on the war in Ukraine concluded last night, and we have received candid feedback from readers, with one reader calling it an “Overton Window debate.” Point taken, but here’s why you should watch:

Members of Congress rarely want to debate — even rarer in person and for 2 hours — trust us… we’ve asked. Thus, we have tremendous respect for Senator Ron Johnson and fmr Congressman Joe Walsh – who had the balls to defend their beliefs without reciting rehearsed talking points for a 3-minute Fox/CNN hit.

They are a rare breed on Capitol Hill. Perhaps we can get to a world where they are the norm instead of the exception.

Until then, enjoy these highlights:

Senator Ron Johnson: Ukraine can’t ask us for money when they’ve got no plan

“Enough of this fantasy. If you want any funding for Ukraine, tell me how you’ll spend it to try to bring the war to an end.”

LIVE FROM WASHINGTON, D.C.

Senator Ron Johnson: Ukraine can’t ask us for money when they’ve got no plan

“Enough of this fantasy. If you want any funding for Ukraine, tell me how you’ll spend it to try to bring the war to an end.”

Source: My Panel on @ZeroEdge pic.twitter.com/Yy5SOE1U64

— Mario Nawfal (@MarioNawfal) March 7, 2024

Former Congressman Joe Walsh: Ukraine must push Russia back

“Putin is a f*** thug who invaded a sovereign country.

That sovereign country wants to fight for its sovereignty.

What does victory mean? As much as possible Russia is pushed back. As much as possible Russia is weakened to the point they can’t do this again.”

LIVE FROM WASHINGTON D.C.

Former Congressman Joe Walsh: Ukraine must push Russia back

“Putin is a f*** thug who invaded a sovereign country.

That sovereign country wants to fight for its sovereignty.

What does victory mean? As much as possible Russia is pushed back. As much… pic.twitter.com/xCa4SnpDtx

— Mario Nawfal (@MarioNawfal) March 7, 2024

“Unconscionable Level of Meddling” — The Nuland Call

The leaked 2014 call between (newly retired) then-Under Secretary of State, Victoria Nuland, and then-U.S. ambassador to Ukraine, Geoffrey Pyatt, made headlines at the time in several US-based media outlets. That said, for the most part, they refrained from discussing its content and instead focus on Nuland’s expletive remark of “Fuck the EU” and highlight that Russian hackers were likely the leak’s source. ZeroHedge covered the call’s less lurid but more substantive contents at the start of the war:

Space Worm (ZeroHedge contributor) from Mar 2022:

Nuland: “So I don’t think Klitschko should go into the government. I don’t think it’s a good idea. I don’t think it’s necessary.” This is followed by a distressed sigh from Pyatt and he asks for clarification, implying this is his first time hearing this. He later mentions that Nuland should speak to Klitschko one-on-one. (2:06) Pyatt: “just knowing the dynamic that’s been with them where Klitschko’s been the top dog… I think you reaching out directly to him helps with the personality management.” 

• A couple months prior, Klitschko had announced a campaign for the presidency and early polls showed him as the most popular opposition candidate. During the time of the phone call, he was still campaigning, making headlines in US outlets:

• A little over a month later, despite his populist support, Klitschko announced that he would be withdrawing from the race and running for Mayor of Kiev. It appears Nuland was successful in “corner office-ing” him out of national and into local government.

Reacting to the infamous leaked 2014 call, Walsh brushed off the call as an instance of “Realpolitik” while Sen. Johnson deemed Nuland’s activity as an “unconscionable level of meddling [in Ukrainian affairs].”

Senator Ron Johnson and fmr Congressman Joe Walsh react to the leaked 2014 Victoria Nuland call in which she appeared to orchestrate regime change in Ukraine: pic.twitter.com/dxqM1xKTta

— Liam Cosgrove (@cosgrove_iv) March 7, 2024

Senator Ron Johnson: Ukraine has no choice but to negotiate with Putin

“The only way the war ends is in a negotiated settlement. I’m not going to like the settlement. Ukrainians aren’t going to like it. 

But every day the settlement gets worse and worse. More Ukrainians die. These are people sent to the frontline to be cannon fodder.

U.S. policy should be directed toward bringing Putin to the negotiating table, not mindlessly fuelling a bloody stalemate.”

Senator Ron Johnson: Ukraine has no choice but to negotiate with Putin

“The only way the war ends is in a negotiated settlement. I’m not going to like the settlement. Ukrainians aren’t going to like it.

But every day the settlement gets worse and worse. More Ukrainians die.… pic.twitter.com/1JSxcHIQni

— Mario Nawfal (@MarioNawfal) March 7, 2024

Watch the full debate below and subscribe to the ZeroHedge Rumble channel as we work to improve our debate series:

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Authored by Simon White, Bloomberg macro strategist,

The stock market is entering its topping phase. That’s not necessarily a reason, however, to hit the sell button as market tops typically persist long after fundamentals have ceased to support them, making them fraught with risks. The current market has yet to display the majority features present at previous tops, suggesting it can keep grinding higher — perhaps even culminating in a blow-off in prices — despite growing skepticism in the rally.

Markets exhibit asymmetric behavior at tops and bottoms. The latter are points in time, but tops are a process, often lasting many months. The most recent ones: the pandemic in 2021, the subprime crisis in 2007, the 2000 tech bubble and the savings and loan crisis in 1990 lasted many months – with the exception of the pandemic – and endured mounting disbelief before they finally gave way.

The stark difference between market tops and bottoms can be seen in the following chart. It shows the median bull market and the median bear market of the last 70 years. We can see clearly that market tops take many months to build, forming an inverted U-shape, and spending a significant amount of time within 20% of their peak price.

Markets bottoms on the other hand are V-shaped and are much more sudden affairs. They sell off abruptly but also recover rapidly, and spend considerably less time within 20% of their low price.

This is not just a US phenomenon. Stock markets globally spend more time being overbought than oversold. The percentage of days indexes spend with their 14-day RSI above 80 (an estimate of overboughtness) is much higher than the percentage of days when it is below 20 (for oversoldness) across global equity markets, with the effect more pronounced in EM, such as Brazil and China.

Market tops obey a variation of the Anna Karenina principle, in that every one is alike, but they all end in their own way. Each typically displays many of the following features at their climactic point:

• weakening leading economic indicators, with coincident indicators yet to decline

• signs of over-extension in corporate activity

• worsening excess liquidity

• stretched breadth and price technicals

• extreme bullish sentiment, and absence of bears

• nosebleed valuations

Only some of the above are currently present, indicating the market is entering its topping phase, but one that could last several months yet.

Take economic data. The leading indicator for the US has started to turn down but from a high level, while coincident data is still increasing. Leading data, such as building permits and new orders-to-inventory ratios from PMIs, remain in a rising trend.

Credit markets and corporate actions typically display more signs of excess at market tops than is seen today. M&A, IPO and share buyback activity surge. Capex spending is rife, and more elaborate and questionable offerings are devised to take people’s money. We saw all of this at the last market top in 2021, as ultra-loose monetary policy and gallons of pandemic cash caused a wave of corporate activity and gave birth to Ponzi schemes, such as many SPACs.

Today, though, and for now capex is muted, SPACs are out of favor, while IPO and M&A activity is far below the excesses seen at the tail-end of the pandemic.

Still, every cycle has its own quirks, and in this one it remains to be seen to what extent private credit is hiding the skeletons in the closet.

When it comes to excess liquidity, it has yet to roll over (as discussed in recent columns), which will act as a tailwind for stock prices.

Furthermore, measures of market breadth, such as advance-decline lines, the percentage of stocks above their 200-day moving average, or the net number of stocks making new 52-week highs (shown in the chart below) are elevated, but not as extreme as the levels seen during prior market tops.

Sentiment is, however, reflective of a market in its topping phase. Bloomberg’s measure of individual stock sentiment is high (chart below), while the AAII’s (American Association of Individual Investors) net bullish indicator gauging retail-investor sentiment is not yet as stretched, but is still elevated. More glaringly though is AAII’s bear sentiment indicator, which is very low and suggests most stock bears have thrown in the towel, typical at market tops.

Also beginning to shout “topping market” is valuations. Multiples have been driving US returns, but even more egregiously in the tech sector. P/Es are driving tech returns more than they have at any time since the run-up to the tech bust in 2000 (outside of some very brief periods).

The S&P’s cyclically-adjusted P/E ratio is high, but still under its 2000 and 2022 peaks. However, the price-to-sales ratio is becoming faintly ludicrous, especially in the tech sector, where it’s at all-time highs at almost 9x, with some firms’ considerably more (Nvidia’s is at 36x …).

Valuations are of course execrable timing devices, but they are emblematic of how market tops can run and run long after any rational justification can be made for them doing so — other than that there’s a greater fool ready to take your position.

Previous tops have lingered well past their widely perceived sell-by date. The 2007 market kept going long after various subprime mortgage-bond prices had fallen, funding spreads had blown out, and hedge funds had shuttered, while in 2000 stocks continued their ascent despite growing evidence many companies were neither bringing in revenues nor making any profits.

It is unlikely this top will be much different, in the process creating much angst for bulls worried they’ll get out too early, while at the same time virtually eliminating bears, incandescent that the market is defying all sense and reality.

Market tops ultimately please no-one, which is why they outlast widespread disbelief. We’ll likely need to see more signs of a weaker economy, deteriorating liquidity, stretched technical indicators and corporate excess before the current top enters it endgame.

As previewed earlier, there were no notable surprises in the ECB’s announcement, which kept all three key rates unchanged (Marginal Lending 4.75% Refinancing 4.5%, Deposit 4.0%).

More importantly, while some were expecting the ECB to change its guidance, it did not and instead it kept the language unchanged to wit: “The Governing Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner” adding that “based on its current assessment, the Governing Council considers that the key ECB interest rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution to this goal. The Governing Council’s future decisions will ensure that policy rates will be set at sufficiently restrictive levels for as long as necessary.”

Furthermore, the governing council reiterated that “rate decisions will be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission.”

Some other highlights:

Financial Conditions

• Financing conditions are restrictive and the past interest rate increases continue to weigh on demand, which is helping push down inflation.

Inflation

• The ECB said that it has revised inflation expectations down, in particular for 2024 which mainly reflects a lower contribution from energy prices. Staff now project inflation to average 2.3% in 2024, 2.0% in 2025 and 1.9% in 2026. The projections for inflation excluding energy and food have also been revised down and average 2.6% for 2024, 2.1% for 2025 and 2.0% for 2026.

Besides the downward revision to inflation, the ECB also revised down their growth projection for 2024 to 0.6%, “with economic activity expected to remain subdued in the near term. Thereafter, staff expect the economy to pick up and to grow at 1.5% in 2025 and 1.6% in 2026, supported initially by consumption and later also by investment.”

To summarize:

HICP Inflation projections:

• 2024: 2.3% (prev 2.7%)
• 2025: 2.0% (prev 2.1%)
• 2026: 1.9% (prev 1.9%)

GDP projections:

• 2024: 0.6% (prev 0.8%)
• 2025: 1.5% (prev 1.5%)
• 2026: 1.6% (prev 1.6%)

On net, while the ECB failed to provide some near term rate cut guidance, and in fact the verbal guidance was unchanged from before, what the market viewed as a dovish signal was the ECB’s revision to its 2025 inflation forecast from 2.1% to 2.0%, and matching the ECB’s inflation mandate. 

The bottom line is that much of the statement was a reiteration of the previous, with the guidance for policy and language around APP/PEPP the same, with no explicit tip toward policy easing. However, as the market reaction indicates, the key development was the latest macroeonomic projections. where inflation forecasts were revised lower across the board for headline and core. It is those alterations that spark a dovish reaction seen across both EGBs where yields are sliding and the EURUSD where the kneejerk reaction has been lower.

And now all attention turns to Lagarde’s press conference. 

In the real world labor market, 2024 has been a shitshow of layoffs…

1. Everybuddy: 100% of workforce
2. Wisense: 100% of workforce
3. CodeSee: 100% of workforce
4. Twig: 100% of workforce
5. Twitch: 35% of workforce
6. Roomba: 31% of workforce
7. Bumble: 30% of workforce
8. Farfetch: 25% of workforce
9. Away: 25% of workforce
10. Hasbro: 20% of workforce
11. LA Times: 20% of workforce
12. Wint Wealth: 20% of workforce
13. Finder: 17% of workforce
14. Spotify: 17% of workforce
15. Buzzfeed: 16% of workforce
16. Levi’s: 15% of workforce
17. Xerox: 15% of workforce
18. Qualtrics: 14% of workforce
19. Wayfair: 13% of workforce
20. Duolingo: 10% of workforce
21. Rivian: 10% of workforce
22. Washington Post: 10% of workforce
23. Snap: 10% of workforce
24. eBay: 9% of workforce
25. Sony Interactive: 8% of workforce
26. Expedia: 8% of workforce
27. Business Insider: 8% of workforce
28. Instacart: 7% of workforce
29. Paypal: 7% of workforce
30. Okta: 7% of workforce
31. Charles Schwab: 6% of workforce
32. Docusign: 6% of workforce
33. Riskified: 6% of workforce
34. EA: 5% of workforce
35. Motional: 5% of workforce
36. Mozilla: 5% of workforce
37. Vacasa: 5% of workforce
38. CISCO: 5% of workforce
39. UPS: 2% of workforce
40. Nike: 2% of workforce
41. Blackrock: 3% of workforce
42. Paramount: 3% of workforce
43. Citigroup: 20,000 employees
44. ThyssenKrupp: 5,000 employees
45. Best Buy: 3,500 employees
46. Barry Callebaut: 2,500 employees
47. Outback Steakhouse: 1,000
48. Northrop Grumman: 1,000 employees
49. Pixar: 1,300 employees
50. Perrigo: 500 employees

But, according to the government-supplied data…

The number of Americans filing for jobless benefits for the first time last week was flat at 217K (SA) while claims declined on an NSA basis to four month lows…

Source: Bloomberg

Continuing Claims ticked back above 1.9mm for the first time since November…

Source: Bloomberg

And WARNs have surged recently as claims haven’t…

As a reminder, if you doubt the accuracy of the Biden admin’s data, here’s what the most recent FOMC Minutes said:

“While the recent trends prior to the meeting had been remarkably positive, Fed officials judged that some of the recent improvement “reflected idiosyncratic movements in a few series.”

Even they aren’t buying it.

But, Pantheon Macro expects that to change soon…

“Claims are still very low by historical standards.

We expect that to change soon.

The WARN numbers, capturing advance notice of plant closures and mass layoffs, have jumped recently and point to initial claims rising significantly over the next few months”

Of course, we know the solution…

Dear BLS: you’re going to have to rig state level WARN data next cause it’s, well, diverging pic.twitter.com/YWvyULOqNQ

— zerohedge (@zerohedge) February 23, 2024

Ah, Bidenomics!!

Ahead of Powell’s second day of testimony to lawmakers, US equity futures traded near session highs reversing earlier losses recorded during Asia session, when Japan’s Nikkei fell from all-time high on mounting expectations for a BoJ rate hike. As of 7:50am, S&P futures traded up 0.2% while Nasdaq futures rose 0.4%, while Europe’s Stoxx 600 index rose 0.4% to touch a new record. On Wednesday Powell reiterated that the Fed is in no rush to cut interest rates but that it will likely be appropriate to begin lowering borrowing costs “at some point this year” which of course is not news but the market once again pretended to act surprised. The comment spurred a slide in yields and a jump in gold to a fresh record high during Asian trading hours. The Japanese yen was on course for its best day this year, rising 1% versus the greenback as speculation surged that the Bank of Japan will hike rates in March. Not only did the January wage data top expectations, but Japan’s biggest union federation has also demanded its biggest pay hike since 1993. The Bloomberg Dollar Spot Index falls 0.2%. The euro was little changed ahead of the ECB decision. Treasuries are steady, with US 10-year yields at 4.10%. Oil prices declined, with WTI falling 0.7% to trade near $78.60. Spot gold rises 0.4%, having hit another record high in Asian trading hours. Bitcoin traded around $67,000 just shy of record highs.

In premarket trading, chipmakers’ shares advanced led by Micron Technology Inc. which surged more than 3% after receiving an upgrade from Stifel. Here are some other notable premarket movers:

• ADT (ADT) falls 9% after an offering of 65m shares by a holder priced at $6.50 apiece, representing a ~13% discount to last close.
• Avangrid (AGR) gains 7% after its owner, Spanish utility Iberdrola, offered about $2.5 billion to buy all the shares it doesn’t already own in the US subsidiary.
• Bilibili (BILI) drops 7% after the Chinese video-streaming platform reported fourth-quarter average daily active users that fell short of Wall Street’s expectations.
• Eli Lilly (LLY) slips less than 1% after Danish rival Novo Nordisk presented data showing its weight-loss drug amycretin helped patients in an early-stage clinical trial shed 13% of their weight in 12 weeks.
• Emergent Bio (EBS) sinks 16% after the company reported adjusted losses for the fourth quarter that were wider than analysts expected.
• Full Truck Alliance (YMM) ADRs gain 4% after the freight-dispatch platform reported fourth-quarter net revenue that beat estimates.
• Honest Co. (HNST) soars 26% after the personal-care company reported fourth-quarter revenue and net income that topped consensus estimates.
• Micron Technology (MU) rises 3% after Stifel raised its rating to buy, saying that average analyst estimates for 2025 are “wrong and too low” for the chipmaker.
• New York Community Bancorp (NYCB) falls 3% after the commercial real estate lender issued a statement to clarify and update certain details a day after it received an equity investment of more than $1 billion.
• OneSpan (OSPN) soars 29% after the cybersecurity firm posted beats for fourth-quarter profit and sales.
• Victoria’s Secret (VSCO) sinks 28% after the beleaguered lingerie maker’s full-year sales guidance fell short of analysts’ expectations.
• Yext Inc. (YEXT) jumps 17% after the infrastructure software company gave an outlook for adjusted full-year earnings that is ahead of expectations.

The ECB is set to keep borrowing costs steady for a fourth meeting on Thursday, with analysts unanimously predict the deposit rate will be held at a record 4%. Like their US counterparts, ECB chief Christine Lagarde is in no hurry to begin loosening monetary policy. Traders are bracing for the likelihood of the first quarter-point rate cut to be delivered either in June or July, while also expecting a total of at least three such reductions this year.

Michael Metcalfe, head of global macro strategy at State Street Global Markets, said equity markets had reacted calmly so far this year to the paring of rate-cut bets, with just three reductions now expected — in line with the Fed’s own projection. But he said traders will be looking to see if the Fed points to even fewer cuts. “Markets could be in a bit of a holding pattern because they’ve reached the point now where they’re in line with the Fed,” Metcalfe said, adding traders had “put the ball back into the Fed’s court.”

Also overnight, the yen rose as much as 1% after accelerated wage growth and remarks from a BOJ board member. Tokyo’s Nikkei 225 index dropped, while the two-year government note yield climbed to the highest level since 2011.
The moves spark concern that higher rates at home will lure back Japanese money that’s currently parked in overseas markets. “Japanese demand for foreign assets and for Treasuries in particular has held solid, but this cannot be taken for granted once Japanese yields get to potentially more attractive levels,” State Street’s Metcalfe said.

Looking at today’s main US event, Fed Chair Powell will testify before the Senate Banking Committee on Thursday, where he reiterated the central bank is in no rush to cut interest rates, while adding that it will likely be appropriate to begin lower borrowing costs “at some point this year.” Powell also signaled officials would scale back plans to make banks hold more capital — a move that appeared to catch even seasoned industry lobbyists off-guard. That was enough to spur the biggest two-day rally in Treasuries since early February, keeping benchmark 10-year yields near a one-month low set on Wednesday. Powell’s testimony, due at 10 a.m. New York time, will come after weekly labor data that’s forecast to show initial jobless claims picked up slightly from the previous period.

US weekly employment benefits data are also due, and will set the stage for Friday’s monthly non-farm payrolls data.

In politics, Donald Trump challenged President Joe Biden to a debate after Nikki Haley dropped out of the Republican presidential race.

European stocks pared opening declines to trade higher on the day, with the benchmark Stoxx 600 index rising above 500 points for the first time ever, as large caps extend rally. The index’s rally to a record high has been fueled by optimism around global economic growth and easing monetary policy. Tech as well as auto stocks have led gains this year, while investors’ favorites Novo Nordisk, ASML and SAP all made record highs. Stoxx 600 up 0.3% at 499.93 points. Here are the most notable market movers:

• Novo Nordisk shares surge as much as 5.8% after data showed the weight-loss drug amycretin helped patients in an early-stage clinical trial shed 13% of their weight in 12 weeks.
• Anglo American shares gain as much as 3.5% after Morgan Stanley upgrades to overweight on an improving investment case.
• Virgin Money shares surge as much as 37% after Nationwide Building Society offered to buy the company for 220p/share.
• Bachem shares jump as much as 16% after the Swiss biochemical manufacturer reported better-than-expected 2023 results.
• Rentokil shares soar as much as 20% after the UK-based pest controller reported full-year results and a plan to recover organic growth in the US.
• ITV shares jump as much as 7.6% after the British broadcaster gave a stronger-than-expected advertising revenue outlook and announced a new cost savings program that will bring £50m benefit a year.
• Teleperformance shares tumble 18% to the lowest since Dec. 2016, after the French call center operator’s full-year results leave analysts feeling “deflated.”
• Hugo Boss shares drop as much as 20% after the German retailer’s outlook fell short of analysts’ expectations. RBC says the miss is likely due to softer consumer sentiment.
• Entain shares slip as much as 5.8% after the gambling group flagged a potential £40m hit to 2024 Ebitda from regulatory changes in the UK and the Netherlands.
• Lufthansa shares slip as much as 1.8% after the German airline group said it expected flat Ebit in 2024, impacted by labor strikes. Morgan Stanley notes that commentary around demand is positive.
• Ferragamo shares drop as much 7.7% after the Italian fashion group reported mixed full-year results that suggested the company’s turnaround story still has a way to run.
• Nordnet shares slide as much as 5.8% after SEB Equities cuts to hold, saying the wealth management firm is too reliant on a return to historical levels of retail trading customers.

In FX, the Bloomberg Dollar Spot fell 0.2%, declining for a fifth consecutive day, setting the currency up for its longest losing streak since October. The euro is little changed ahead of the European Central Bank decision.  The Japanese yen is on course for its best day this year, rising 1% versus the greenback as speculation surged that the Bank of Japan will move in March to raise interest rates. Not only did the January wage data top expectations, but Japan’s biggest union federation has also demanded its biggest pay hike since 1993

In rates, treasuries are steady, with US 10-year yields at 4.10% trailing bunds by around 1.5bp in the sector while gilts lag. US Treasury yields are richer by up to 1bp across long-end of the curve which outperforms slightly on the day. Gilts are underperforming, led by the short-end as UK business say they expect to face stubbornly high wage growth.  Bunds outperform ahead of ECB rate decision at 8:15am New York time. JGBs extended recent declines on heaviest futures volumes of the year so far as conviction grows that the Bank of Japan will start raising interest rates in March.

In commodities, oil prices decline, with WTI falling 0.7% to trade near $78.60 after West Texas Intermediate jumped 1.3% Wednesday amid further tensions in the Middle East, including the first confirmed deaths of commercial crew after Houthi militants began attacks in the region. Spot gold rose 0.4% climbing to a peak of $2,161.48 an ounce, having hit another record high in Asian trading hours.

Bitcoin rose, but held off record peaks.

Looking at today’s calendar, US economic data calendar includes February Challenger job cuts (7:30am), January trade balance, 4Q final nonfarm productivity, initial jobless claims (8:30am), 4Q household change in net worth (12pm) and January consumer credit (3pm). Fed speakers scheduled include Powell’s testimony before the Senate Banking Committee (10am) and Mester (11:30am, 1:15pm)

Market Snapshot

• S&P 500 futures little changed at 5,111.00
• STOXX Europe 600 little changed at 498.54
• MXAP up 0.3% to 175.99
• MXAPJ up 0.3% to 531.57
• Nikkei down 1.2% to 39,598.71
• Topix down 0.4% to 2,718.54
• Hang Seng Index down 1.3% to 16,229.78
• Shanghai Composite down 0.4% to 3,027.40
• Sensex little changed at 74,080.55
• Australia S&P/ASX 200 up 0.4% to 7,763.71
• Kospi up 0.2% to 2,647.62
• Brent Futures down 0.3% to $82.72/bbl
• Gold spot up 0.4% to $2,156.24
• U.S. Dollar Index down 0.16% to 103.20
• German 10Y yield little changed at 2.34%
• Euro little changed at $1.0899

Top Overnight News

• The BOJ’s governor and one of its board members said on Thursday the economy was moving towards the central bank’s 2% inflation target, in comments that heightened market expectations of an imminent end to negative interest rates. RTRS
• Japan’s largest industrial labor group said on Thursday that 25 of its member unions have so far had their wage demands met in full from management, agreeing to raise full-time workers’ pay 6.7% during annual wage talks that end next week. The pay hike was the biggest since the UA Zensen, an umbrella group that represents 2,237 unions, was established in 2012, likely adding to the momentum of the ongoing negotiations. Strong wage growth is expected to pave the way for the central bank to normalize monetary policy. RTRS
• China’s import/exports for the Jan/Feb period exceed expectations – exports came in at +7.1% (vs. the Street +1.9%) while imports rose 3.5% (vs. the Street +2%). China’s FX reserves for Feb came in at $3.225T, a bit ahead of the Street’s $3.217T forecast. RTRS
• China is scrutinizing regional banks’ bond trading over concern they are speculating, rather than lending to boost the economy, people familiar said. BBG
• Tonight Biden will propose a dramatic expansion in the number of drugs Medicare can negotiate pricing on (from 20 under the current rules to 50) along with other measures aimed at curbing pharmaceutical costs for Americans. The Hill
• Joe Biden’s top economic aide, Lael Brainard, successfully pressed to adjust a White House Treasury yield forecast in a way that resulted in a slightly rosier outlook in the president’s forthcoming budget plan, people familiar said. BBG
• Robinhood is seeing as much as 25% of total trading volume coming outside of traditional market hours as investors take advantage of extended days on the retail-brokerage platform. Consumers have traded more than $10 billion in volume overnight since Robinhood launched its 24-hour, five-day-a-week trading capabilities last May — data the firm hasn’t previously announced. BBG
• Apple has been asked by the EU to explain why it prevented Fortnite video-game maker Epic Games from launching its own online marketplace on iPhones and iPads in Europe and whether this breaches EU technology rules, antitrust regulators said. RTRS
• Exxon Mobil said it filed a contract arbitration claim related to Hess Corp’s, opens new tab proposed sale of its Guyana oil properties, and suggested it may counter Chevron Corp’s pending deal for the assets. RTRS

A more detailed look at global markets courtesy of Newsquawk

APAC stocks were mixed as participants second-guessed central bank policies and digested Chinese trade data.
ASX 200 finished higher but with trade choppy after disappointing home loans and trade data from Australia. Nikkei 225 initially climbed to a fresh record high but then slumped amid increasing hawkish BoJ speculation. Hang Seng and Shanghai Comp. were subdued with heavy losses in WuXi Biologics and Wuxi Apptec after the US Senate’s Homeland Security Committee voted to move forward with a bill that could restrict business with Chinese biotech companies, while the mainland was cautious despite the stronger-than-expected Chinese trade data, as the double-digit rise in exports had already been flagged by officials and with data likely to be influenced due to seasonality factors owing to the Lunar New Year holiday.

Top Asian news

• Chinese Foreign Minister Wang Yi said China has maintained continuity and stability of its policy towards the US, while he added that only by respecting and recognising differences can exchanges continue. Wang said they have to point out that the US’s wrong perception of China has continued and challenges facing the US are in itself not China, according to Reuters.
• HKMA advised banks to take extra care when lending to property speculators, according to SCMP.
• US Senate’s Homeland Security Committee voted to move forward with a bill that could restrict business with Chinese biotech companies like BGI and WuXi AppTec (603259 CH) on national security grounds.
• BoJ Board Member Nakagawa said Japan’s economy making steady progress towards the achievement of the price target and given the risks and uncertainties, she would like to gather information without any pre-set idea and make the appropriate monetary policy decision. Nakagawa said if they judge that sustained achievement of price goal foreseen, they will decide whether or not to tweak YCC, risky asset buying and other policy means, while she added the main scenario is that expectations of rising wages will underpin consumer sentiment, but there is risk that real income will undershoot and weigh on demand, economy and prices.
• BoJ Governor Ueda says fully possible to seek exit from stimulus while striving to achieve 2% target, says will mull adjusting easing if they can achieve price target and chance of reaching target is gradually rising. Will consider rolling back massive stimulus programme once positive cycle of wages and inflation is confirmed.
• Japan’s Rengo wage demand this year reportedly at 5.85% (4.49% in 2023), via Bloomberg.
• Chinese regulators are scrutinizing regional banks’ bond buying amid concerns the banks are speculating on securities as opposed to lending to boost the economy, according to Bloomberg sources.

European bourses, Stoxx600 (+0.1%) began the session entirely in the red, though sentiment has since improved, with the Euro Stoxx 50 (+0..2%) modestly firmer, ahead of the ECB announcement today. European sectors are mixed; Healthcare is the clear outperformer, propped up by gains in Novo Nordisk (+5.1%), which is on its Capital Markets Day. Insurance is also firmer today, assisted by post-earning strength in Aviva. Autos is found at the foot of the pile, hampered by Continental (-4.1%). US Equity Futures (ES U/C, NQ +0.1%, RTY -0.1%) are tentative and trade on either side of the unchanged mark, with direction generally mirroring the price action seen in Europe.

Top European news

• German Economic Institute DIW says GDP expected to contract by 0.1% in Q1 (vs -0.3% in Q4 2023); 2024 forecast cut to 0% (prev. +0.6%), 2025 forecast upgraded to +1.2% (prev. +1.0%).
• BoE Monthly Decision Maker Panel – One-year ahead CPI inflation expectations declined further to 3.3% in February, down from 3.4% in January. Three-year ahead CPI inflation expectations fell to 2.8% in the three months to February, 0.1pp lower than reported in the three months to January. Expected year-ahead wage growth remained unchanged at 5.2% on a three-month-moving-average basis. Businesses expect their output price inflation to decline over the next year.
• Britain’s renewable scheme gets more than GBP 1bln from Governments upcoming auction.

FX

• DXY is on the backfoot following yesterday’s selling pressure, with JPY strength possibly acting as a drag on the USD. There is not much in the way of support until 103, below which lies the Feb low at 102.90. NFP on Friday looms large.
• EUR is steady vs. the USD and lingering around the 1.09 mark after matching yesterday’s best at 1.0907. If the ECB comes in “hawkish”, next upside target is via the Jan 24th peak at 1.0932.
• JPY the clear outperformer following yesterday’s hawkish source reporting, BoJ commentary today and details over Rengo wage demands. USD/JPY has declined from a session high of 149.39 to a trough of 147.82, which coincides with the 50DMA.
• Antipodeans are both notably firmer vs. the USD. AUD potentially garnering support via Chinese trade metrics and rising iron ore prices. AUD/USD has eclipsed its 50DMA at 0.6585 with all eyes on a test of 0.66; not breached since Feb 2nd – 0.6610 was the high that day.
• PBoC set USD/CNY mid-point at 7.1002 vs exp. 7.1898 (prev. 7.1016).

Fixed Income

• USTs are incrementally firmer but steady overall at the low-end of slim 111-11 to 111-17+ bounds. Continued upside brings 111-20+, 7th Feb high into play. If the bearish action returns support resides at 111-01+, 110-23 & 110-21 from the last three sessions. Docket ahead features a number of US data points around the ECB and thereafter Fed’s Powell & Mester. Just before Mester, the 3, 10, 30yr refunding announcement is due.
• Bunds began the European session on a weaker footing, with hawkish impetus potentially taken from BoJ commentary and Rengo demands. Thereafter, soft German Industrial Orders and a significant upward revision seemingly pushed Bunds below the 133.00 handle to the current 132.93 trough. Following the strong French outing, Bunds lifted back above 133.00 to a peak at 133.29.
• Gilt price action is in-fitting with peers as action settles somewhat post-budget, the Chancellor’s media round added little this morning, though he did hint that income tax and national insurance could be combined as an alternative to abolishing NI. Gilts currently holds around 99.20.
• Spain sells EUR 6.058bln vs exp. EUR 5.5-6.5bln 3.50% 2029, 0.50% 2031, 3.25% 2034 Bono & EUR 0.51bln 0.25-0.75bln 2.05% 2039 I/L
• France sells EUR 12.997bln vs exp. EUR 11.5-13bln 3.50% 2033, 1.25% 2034, 1.25% 2038 and 3.25% 2045 OAT

Commodities

• Crude is softer on the session, failing to benefit from the weaker Dollar, and reports that ceasefire talks were unsuccessful have also failed to lift the complex; currently, Brent Apr is just under USD 82.50/bbl.
• Precious metals vary with spot gold continuing to rise to fresh ATHs above USD 2,150/oz as the upward momentum holds, whilst a subdued Dollar and heightened geopolitics only provide tailwinds. Spot silver takes a breather after yesterday’s gains; XAU posts an intraday range between USD 2,144.26-2,161.59/oz.
• Base metals are firmer trade across the board with the complex seemingly seeing tailwinds from the constructive Chinese Trade data overnight; 3M LME copper reclaimed a USD 8,600/t handle.

Geopolitics: Middle East

• US Central Command said an anti-ship ballistic missile was launched from Houthi-controlled areas in Yemen towards M/V True Confidence while transiting through the Gulf of Aden, while the multinational crew reported three fatalities, at least four injuries and significant damage to the ship, according to Reuters.
• US military said it conducted self-defence strikes against two unmanned aerial vehicles in Yemen, according to Reuters.
• Several people have died in an explosion at Iran’s Bandar Abbas Refinery (320k BPD capacity), via IRNA
• “Mediators tried to bridge the gap between Hamas and Israel, but their efforts were unsuccessful”, according to Al Jazeera sources. “Israel rejected Hamas’ request for a permanent ceasefire, the withdrawal of the army from the Gaza Strip and the unconditional return of displaced persons”.
• Hamas delegation has left Cairo, ceasefire negotiations to resume next week, according to Al-Qahera News citing an official source

OTHER

• Chinese Foreign Minister Wang said they resolutely oppose all acts of power and bullying, while it will vigorously safeguard sovereignty, security, and development of the country. Wang commented that maintaining and developing Sino-Russian relations is a strategic choice based on the fundamental interests of both nations and China is willing to work with Russia to foster new drivers of cooperation and consolidate friendship. Furthermore, he stated that Taiwan election results cannot change the historical trend that it will return to the ‘motherland’ and pro-Taiwan independence forces are the biggest factors undermining peace and stability in the Taiwan Strait.
• North Korean leader Kim inspected military training and ordered an upgrading of war preparations, according to KCNA.

US Event Calendar

• 07:30: Feb. Challenger Job Cuts YoY, prior -20.0%
• 08:30: 4Q Unit Labor Costs, est. 0.7%, prior 0.5%
• 08:30: 4Q Nonfarm Productivity, est. 3.1%, prior 3.2%
• 08:30: March Initial Jobless Claims, est. 216,000, prior 215,000
• 08:30: Feb. Continuing Claims, est. 1.88m, prior 1.91m
• 08:30: Jan. Trade Balance, est. -$63.5b, prior -$62.2b
• 12:00: 4Q US Household Change in Net Wor, prior -$1.31t
• 15:00: Jan. Consumer Credit, est. $10b, prior $1.56b

Central Bank Speakers

• 10:00: Fed Chair Powell Testifies Before Congress
• 11:30: Fed’s Mester Gives Speech on Economic Outlook
• 13:15: Fed’s Mester on CNBC

Authored by Tom Ozimek via The Epoch Times (emphasis ours),

A controversial bill that would let illegal immigrants receive the same kind of homebuyer assistance as U.S. citizens has advanced in the California state legislature, drawing criticism from those who object to granting perks to people who break the law by entering the country illegally.

The measure, Assembly Bill 1840, was first introduced in mid-January, and after several amendments, it advanced last week to the Committee on Housing and Community Development, where it awaits further action.

Assembly Bill 1840 would change existing law to allow illegal immigrants to be eligible for the California Dream for All Fund, which provides interest-free loans for a down payment on a home for first-time buyers.

The bill was introduced by California Assemblyman Joaquin Arambula, a Democrat, who last month told GV Wire, a Fresno-based news outlet, that he “wanted to ensure that qualified first-time homebuyers include undocumented applicants.”

Last week, as the bill advanced to committee after amendments, Mr. Arambula told the Los Angeles Times that, historically, homeownership has been the main way people accumulate generational wealth in the United States.

“The social and economic benefits of homeownership should be available to everyone,” he said, arguing that it’s wrong to exclude people from the benefits of the California Dream for All Fund program just because they’re illegal immigrants.

Some lawmakers expressed opposition to the measure as it moves closer to becoming law.

“Assembly Bill 1840 is an insult to California citizens who are being left behind and priced out of homeownership. I’m all for helping first-time homebuyers, but give priority to those who are here in our state legally,” California Sen. Brian Dahle, a Republican, said in a post on X, formerly Twitter.

More Details

The California Dream for All Fund program, administered by the state’s Housing Finance Agency, provides loans for 20 percent of a home’s value but no greater than $150,000.

Qualifying homebuyers repay the loans when selling or transferring the property plus 20 percent of any appreciation in its value. Applicants who earn less than their county’s area median income get a slight break, having to pay 15 percent of the appreciation. If a home doesn’t appreciate in value, only the principal will be paid back, meaning the loan is technically interest-free.

The proposed bill seeks to amend Section 51523 of the California Health and Safety Code to include a subsection that reads: “An applicant under the program shall not be disqualified solely based on the applicant’s immigration status.”

Mr. Arambula has defended the program, arguing in the interview with GV Wire last month that it won’t affect the state budget because the loans are supposed to be paid back with an appreciation fee.

Even though the net impact of the program on the state budget is technically neutral-to-positive, some critics argue that it sends the wrong message and effectively rewards illegal immigration.

“We have a huge housing crisis in California and anything we can do to get people into housing we should do. However, we should help our own first. This next generation of people growing up can’t afford a house. I’ve got two kids in their early 30s and most of their friends do not own houses,” San Diego County Supervisor Jim Desmond, a Republican, told NBC 7 San Diego.

Mr. Desmond has been a vocal critic of policies that he says create incentives for people to enter the country illegally.

“You incentivize illegal immigration by providing free healthcare, free unemployment benefits and tons of other freebies,” he wrote in a recent post on X, reacting to a post by California Gov. Gavin Newsom, a Democrat, who called on Congressional Republicans to back President Joe Biden’s border deal.

“It’s no wonder we are getting thousands of people by the day. This is on you as much as the Federal Government,” Mr. Desmond added.

Mr. Desmond said on March 3 that over 5,000 illegal immigrants had been released in San Diego County over the past 10 days.

“What’s striking about the people being dropped here by the Border Patrol is about 70 percent of them are single males,” he told Fox News.

While many of the new arrivals are being taken to the airport by local nongovernmental organizations to fly out to someplace else in the country, Mr. Desmond lamented that “in the meantime, our airport is now the new migrant shelter.”

His remarks come as the United States remains in the throes of an illegal immigration crisis of historic proportions, with some border patrol officials and others warning of a national security risk.

Military-Aged Men Crossing Border

The head of the Border Patrol union recently warned about the sharp rise in the number of military-aged Chinese men crossing the U.S.–Mexico border illegally.

National Border Patrol Council President Brandon Judd said in a recent interview on “Just the News, No Noise” TV program that he believes some of them may be spies working on behalf of China’s communist regime to infiltrate the United States.

“At best, they’re here for a better life,” Mr. Judd said. “At worst, they’re here to be part of the Chinese government to infiltrate our own country.”

His remarks came as U.S. Customs and Border Protection (CBP) released its latest data for January encounters with illegal immigrants who crossed the border into the United States.

Aside from showing that Border Patrol agents encountered a record number of illegal immigrants (242,587) in January 2024 compared to any previous January, the CPB numbers show an alarming trend in the number of military-aged Chinese nationals entering the country illegally.

Border Patrol agents encountered 5,717 single Chinese adults in January, more than twice the number of any other January on record, CBP data shows. In December 2023, that figure rose to a record of 7,581, while the total since January 2023 stands at 64,979.

Some analysts say that deteriorating economic conditions in China, along with human rights abuses and policies such as strict COVID-19 lockdowns, are likely driving the increase.

The San Diego Sector has seen a more than 500 percent jump in the number of Chinese nationals entering the country illegally, according to Jason Owens, the chief of the U.S. Border Patrol.

Rudy Blalock contributed to this report.

Dramatic footage shared on social media platform X shows the moment a United Airlines’ Boeing 737 from Houston to Fort Myers had to declare an emergency just minutes into its flight after flames erupted from one of its engines.  

🇺🇸 BOEING SUFFERS ANOTHER MID-AIR ENGINE FIRE

The United Airlines flight had to make an emergency landing in Texas minutes after take-off when flames began shooting from one of its engines.

This is the second mid-air engine fire to affect Boeing in the U.S this year, after a… https://t.co/HxaPH1RHeB pic.twitter.com/SKbHofwcZj

— Mario Nawfal (@MarioNawfal) March 7, 2024

“I remember there was just this bright, flashing light that came through the window, and it sounded like a bomb went off, and then it was just a strobe of fire out the window,” David Gruninger, who was on his way back to Florida on a connecting flight, told local media outlet ABC 13.

According to the flight tracking website FlightAware, Flight 1118, with 167 passengers on board, took off from George Bush Intercontinental Airport at 6:40 pm local time. Just minutes after takeoff, the plane returned to the airport because of the engine issue. 

“The plane was nosediving, and the pilot was bringing the plane back up,” passenger Elliot Trexler said, adding, “The plane was also rocking back and forth a lot.”

“And then it just turned into chaos. People were screaming and crying and trying to figure out what was going on,” Gruninger said.

Radio transmission from the pilots described “our left engine, our number one engine,” experienced an issue while climbing through about 10,000 feet. 

The plane trip from hell lasted about 33 minutes after takeoff. Pilots landed safely around 7:31 local time—United credited passengers with $200 and a $15 meal voucher. 

This adds to the incompetency crisis plaguing Boeing jets following the door plug that ripped off an Alaska Flight 1282 Boeing 737 Max 9 plane earlier this year. The Federal Aviation Administration’s audit of the incident revealed that Boeing and Spirit AeroSystems have “failed to comply with manufacturing quality control requirements.” 

“The incompetency crisis continues as diversifying the flight industry moves full speed ahead,” one X user said. 

 

 

 

Absent some major shock, the ECB is set to keep rates unchanged for a fourth meeting on Thursday, with analysts unanimously predict the deposit rate will be held at a record 4%. Like her US counterparts, ECB chief Christine Lagarde is in no hurry to begin loosening monetary policy. Traders are now bracing for the likelihood of the first quarter-point rate cut to be delivered either in June or July, while also expecting a total of at least three such reductions this year.

As Bloomberg’s Ven Ram writes in his ECB preview, the risk-reward equation is asymmetrically skewed toward a tactical rally in euro-area bonds after today’s ECB meeting; he adds that of key interest to investors will be whether the ECB tweaks its statement to signal an upcoming interest rate cut and what it does with its macroeconomic projections.

With the ECB having well telegraphed its intent on the likely date for a first policy loosening, the market’s central assumption is that June is when it will occur. So the question is whether the ECB will prepare the ground for that formally by altering its guidance. Any tweak will be reflected here:

“Based on its current assessment, the Governing Council considers that the key ECB interest rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution to this goal. The Governing Council’s future decisions will ensure that its policy rates will be set at sufficiently restrictive levels for as long as necessary.”

The ECB may modify it to something along the lines of:

“Based on its current assessment, the Governing Council considers that the key ECB interest rates needn’t be as restrictive as they are now going forward, with the timing of any rate cut dependent on incoming data, particularly on wage inflation.”

The big question, though, is whether it chooses to introduce that language this month or at its meeting next month.

The ECB will also tell us how it thinks the macroeconomy is evolving, and it’s virtually assured that the ECB will lower its inflation forecasts for this year from 2.7% amid the rapid deceleration in price pressures. Bloomberg Economics estimates that the growth forecast for this year will be cut to 0.6% from 0.8%.

Earlier this week, Ram wrote that in his view, the next 25-basis point move in German front-end yields is lower, given that the market is fully braced for a policy reduction in June rather than in April. Since then, the two-year yield has declined about five basis points, and it is hard to see the ECB upsetting that calculus today.

Finally, as is customary, here is the ING Economics market scenario analysis.

By Michael Msika, Bloomberg Markets Live reporter and analyst

Markets are showing signs of consolidation after a powerful four-month rally on both sides of the Atlantic. Stretched positioning means a breather may be in order, but major reasons to sell are still absent.

Investors have been increasing their exposure to stocks, yet market breadth looks ok, with a still-narrow rally leaving scope for equity gains to broaden out. While the Stoxx 600 is hovering near overbought levels, only about 15% of individual members are actually overbought.

According to Goldman Sachs, this narrow breadth isn’t a worry when looking at history, as the rest of the market tends to catch up with the handful of stocks that have led the rally. Yet, it could trigger some episodes of volatility. 

“Investors sometimes worry that this may pave the way to a market drawdown, but it does not always,” say Goldman strategists including Lilia Peytavin. Twelve-month aggregate equity returns are positive in 71% of instances following narrow rallies, with an average return of about 8%. Still, “when there is a drawdown, it tends to be deeper.”

Looking at our thematics dashboard, there’s been a bit of rotation away from the hedge fund crowded trades and the Magnificent 7 recently, and toward higher risk themes like most shorted, debt sensitivity and high beta. The overall picture is of high upward momentum with more overbought flags appearing.

Things are looking a bit more stretched in futures, with Citi quant strategist Chris Montagu saying investors have a “complete disinterest in taking a bearish view.” Futures positioning reflects markets “that are both extended and turning increasingly one-sided,” he says, adding that bullish positioning in Nasdaq futures is near the highest in three years, while high levels of profit on Euro Stoxx 50 and DAX long positions creates an elevated risk of profit taking.

For Deutsche Bank strategists, equity positioning is “well above average but not yet extreme.” Gains are supported by strong data and rising economic forecasts, while big buyback announcements are spurring demand for stocks, they say. Meanwhile, volatility control funds have continued to increase exposure to equities, something that Tier1Alpha strategists say has been a tailwind.

“Vol control funds added an additional $7 billion in buying requirements to their books last Friday, bringing the two-day total to just over $30 billion,” the strategists say, noting this has created an upward bias in a low volatility regime. They expect favorable conditions to remain in place for at least the first half of this week as vol control funds catch up on their residual rebalancing. After that, there may be some modest selling before fresh inflows around the middle of March. 

While there’s no panic out there, risks of a short-term pullback have increased, so thinking about hedging may not be a bad idea, especially as volatility continues to be sold in both the US and Europe. What’s more is that hedging opportunities look attractive, both on a short and longer-term basis.

“One-month ATM volatility on both the Stoxx 600 and the S&P 500 is low vs. the past 5-year history, providing cheap hedges in case of a reversal,” according to Goldman strategist Cecilia Mariotti. Meanwhile, Bank of America strategists recommend that investors “lock in long-term lows in US and EU equity volatility where derivatives most underprice markets’ ability to drift.” 

As if the cost of healthcare rising wasn’t enough on its own, some doctors offices are now charging their patients for administrative tasks, according to a new report from Fox News.

Doctors say administrative tasks are “taking more time away from patient care”, according to the article, which they say hurts their bottom line. 

Medical experts informed FOX Business that some are now charging patients for services such as email consultations and additional paperwork, aiming to offset losses from decreased in-person visits.

Robert Pearl, a former CEO of Permanente Medical Group and Stanford University professor, told Fox News that doctors often apply a concierge fee for such access to medical care, a trend gaining momentum as patients sidestep office visits due to fears of escalating out-of-pocket expenses.

Moreover, PwC researchers project a significant 7% surge in health care costs in 2024, marking the most substantial increase in a decade, according to Pearl.

Pearl said: “You find yourself saying, ‘Oh my gosh, if I see the doctor, I got to pay $300, $400, $500. I can’t afford that. Let me send an email.”

“Ultimately, the economics are driving a change that’s basically sapping more and more of the doctor’s time,” he added. 

The National Patient Advocate Foundation (NPAF) expresses concern that such measures will further complicate access to care for some patients, the report says. 

NPAF spokesperson Caitlin Donovan said: “There’s going to ultimately be people who say, ‘I’m not going to reach out to my doctor because I don’t want to get charged for this.”

“We want there to be trust between the patient and the provider going both ways because that means that there’s going to be better outcomes,” she said. 

Pearl responded: “They don’t have enough time to do the job they’re required to do. And this is an opportunity to say, ‘OK, well, if I have to fill out all these forms, I better charge for them, because if I don’t charge for them, I have even less time with my family or to do the activities that I needed in my particular life.'”

Both parties think that AI could wind up leading to the solution.