Month: March 2024

After a decade of NIRP and unlimited bond buying to keep the Japanese bond market – and economy – from disintegrating, the BOJ may have no choice but to hike rates as soon as next week. The reason: inflation in “deflationary” Japan is now not only on par with the US, but wage growth is surging and threatening to spark a wage-price spiral even as the clueless, cartoonish central bank is keeping rates negative, buying bonds and stocks to prop up the market, and generally doing everything in its power to unleash hyperinflation and currency collapse.

So with all attention on the Japanese labor union wage requests, overnight companies including Toyota, Honda, Nippon Steel and ANA Holdings all granted workers their biggest pay rise in more than three decades, underlining the inflationary trend and bolstering the case for the Bank of Japan to begin raising interest rates. Indeed, with the peak day arriving today for major companies to respond to union wage hike increases, media outlets have reported that most companies had already agreed to the full amount or more than labor unions wage hike requests without waiting for the March 13 deadline.

As the FT reports, galvanized by the sharp rise in living costs and a deepening labour shortage, the country’s trade unions have negotiated an increase in wages that is certain to exceed the rate of inflation, marking a milestone in a country where real wages have stagnated since the late 1990s.

With the shunto spring wage negotiations largely concluding on Wednesday, economists expect large companies to give their unionized workers an average wage increase of more than 4%, compared with 3.6% last year. That would be the biggest rise since 1992.

Perhaps the most iconic Japanese company of all, and the one which serves as an example for the rest of corporate Japan, Toyota said it had fully accepted its labor union’s request for a monthly pay increase of up to ¥28,440 ($193), the largest amount since comparable figures were first made available in 1999.

“We wanted to firmly cover for the impact from rising prices,” said Takanori Azuma, Toyota’s chief human resources officer, adding that the increases in monthly salary and bonus payments were at a record level.

Others went even further:

• Nippon Steel agreed to an 11.8% increase in base salary, exceeding its trade union’s request for the biggest jump in monthly pay since 1979.
• ANA gave its workers an average wage increase of 5.6% on Monday, the highest for the airline since 1991.
• Honda last month agreed to a 5.6% annual pay bump, the highest since 1989.
• NEC granted a 4.3% rise in base pay, the highest ever since the current wage negotiation system began in 1998.
• Mitsubishi Heavy Industries agreed to an 8.3% annual pay hike, its highest since 2005.

Combined with strong government pressure, the sharp rise in prices caused by the war in Ukraine and the global energy crisis had already led to large gains in wages during last year’s negotiations. But trade unions had failed to secure pay rises that would cover accelerating inflation while the gains did not spread evenly to small and medium-sized enterprises, which employ about 70 per cent of Japan’s workforce.

The wage negotiations had been closely followed by investors this year as solid wage growth is crucial for the Bank of Japan to muster enough confidence to begin unwinding its ultra-loose monetary policy measures. And despite recent weak economic data, which saw Japan’s economy enter a recession last month (only to be revised right back out yesterday) analysts believe the strong shunto results should allow the central bank to end its negative interest rate policy as soon as next week or April at the latest.

“It was extremely hard to demand higher wages when prices were not going up,” said Akihiko Matsuura, president of UA Zensen, one of the country’s largest trade unions with more than 1.8mn members in retail, food, chemicals and other sectors. “We need to bring 30 years of wage stagnation to an end.”

The union, which represents mostly workers at small and medium-sized businesses, has called for a 6% total wage increase, roughly double the rate of headline inflation, including 4% in base salary. Ahead of Wednesday, retailer Aeon agreed with the union to raise the hourly wage for roughly 400,000 of its part-time employees by an average of 7 per cent this spring in a sign that wage increases were trickling down to society at large.

“The big test is next year as to whether companies will fully respond to the demands of unions even when prices will not rise very much,” said Matsuura. Headline inflation averaged 3.2% last year but has slowed to 2.2% in January on the back of a decline in the imported cost of energy.

But even as inflation pressure declines, companies are still likely to face demands to raise wages as they struggle to find younger workers, further empowering the unions. Japanese workers rarely take to the streets to demand higher wages or better working conditions, but several strikes have occurred this year as companies have failed to meet the demands of unions.

Commenting on the upcoming BOJ actions, Bank of America said that “despite hand-wringing over March vs April”, the BOJ has “effectively made up its mind to move by the end of the spring” and expects that “even if the BOJ ends up holding in March, it will send a much more explicit signal that it is thinking of moving at its next policy meeting” on April 25-26. The bank also expects:

• Hike in the current policy rate of -0.1% to a range of 0 to 0.1%, and a removal of the commitment to keep long-term rates at 0.1%.
• removal of yield curve control.
• removal of the commitment to keep expanding the monetary base.
• formal end to risk asset purchases (mostly equity ETFs, it is unlikely the BOJ can ever stop backstopping the bond market)

Going back to the coming wave of higher wages, the Goldman exhibit below shows a list of companies with relatively large labor union memberships and for which wage hikes can be calculated based on media reports up to 5pm JST on March 13 (list includes some companies that have not announced a wage agreement yet).

Since many companies agreed to the full requested amount, the weighted average of the list broadly comes in line with the collected request data by the Japanese Trade Union Confederation (JTUC-RENGO) announced on March 7, calling for base pay rise of 4.3%, and headline wage hike of 5.9% including scheduled wage growth (weighted average basis). As noted above, they far surpass the 2023 final agreed wage hike of 2.1% and 3.6% respectively.

JTUC-RENGO will collect today’s agreement and release the aggregate initial wage hike data on the evening of March 15. Last year, many companies agreed to the full base pay rise request (+2.8%) on the peak reply day, but the initial aggregate data released by JTUC-RENGO came in at +2.33%. It could be the case that companies who could not meet the unions’ request or smaller companies were not covered in media reports on the peak reply day.

That said, this year’s wage agreement is undoubtedly strong, and the first impression from responses on March 13 is that there could be considerable upside to Goldman’s shunto forecasts (base pay rise: 2.5%, headline shunto wage growth: 4.1%). The ultimate agreement on base pay rise could settle above 3%, and truly supercharge Japanese inflation.

Here Goldman joins BofA and notes that with the strong wage agreement, “we see even stronger likelihood of BOJ removing NIRP at the March or April meeting, although this does not necessarily point to higher probability for the March meeting” although Goldman warns that signals by the BOJ are not sufficiently strong to suggest a March hike, and will continue to closely monitor communications by the BOJ. Either way, a rate hike is now just a matter of time. 

More in the full notes from BofA and Goldman.available to pro subs.

Oil prices surged higher this morning  after a Ukrainian drone struck one of Russia’s biggest refineries and API’s report overnight signaling shrinking US crude stockpiles.

API

• Crude -5.52mm (+400k exp)

• Cushing -998k

• Gasoline -3.75mm

• Distillates -1.16mm

DOE

• Crude -1.54mm (+400k exp)

• Cushing -220k

• Gasoline -5.66mm – biggest draw since Nov

• Distillates +888k

The official data showed a smaller draw than API (but not a build as expected). Gasoline stocks plunged…

Source: Bloomberg

The Biden administration continued its 600-700k barrel weekly addition to the SPR (13th week in a row)…

Source: Bloomberg

US Crude production decline once again…

Source: Bloomberg

WTI was hovering just above $79.50 ahead of the official data and dipped below on the smaller crude draw…

And as crude prices rise, wholesale gasoline prices are soaring… and so are pump prices…

Source: Bloomberg

There’s a risk that premium gasoline prices could reach a multi-year high this year, said Mukesh Sahdev, head of oil trading and downstream research at Rystad Energy AS.

“There’s not a lot President Biden can do in time for the election, if this happens” he said.

“Strategic petroleum reserves are low, and there are few levers for the US government to pull to lower gasoline prices.”

Of course, we are sure Biden will blame gas stations if prices go up.

Authored by Steve Watson via Modernity.news,

After over three years of complaining about Donald Trump contesting the 2020 election, a Rasmussen poll has found that a majority of Democrat voters oppose certifying the 2024 election should Trump emerge victorious.

The survey found that should Trump win the election in November, and at this point it is difficult to bet against it, fifty seven percent of Democrat voters would oppose certifying the result, and close to two thirds of voters who identify as ‘liberal’ would oppose the result.

That’s not very Democratic is it?

57% of Democrats think Democrats should refuse to certify the election if Trump wins.

Look at the Independent numbers.
31% say support. 57% say opposed. https://t.co/92DTn0XStn pic.twitter.com/AW3wymSEYE

— Rasmussen Reports (@Rasmussen_Poll) March 11, 2024

The poll asked the question “Some Democrats in Congress have said that if Trump wins this year’s election, they will vote against certifying the election results because of Trump’s role in the January 6, 2021, Capitol riots. Do you support or oppose Democrats refusing to certify the election results if Trump wins?”

The majority of Democrat voters said they would support the move.

Incredibly, in the same poll, just 24 percent of Democrat voters said Republicans should have objected to the 2020 results if they believed they were fraudulent.

It’s literally the same thing.

Liberals: “If we could just jail Trump, get rid of MAGA, end the Electoral College, stack the Supreme Court, ban voter ID, and censor free speech we could save democracy.”

— Dave Brown 🇺🇸 (@davebrownlive) March 5, 2024

In perhaps a more telling revelation, however, the poll found that overall, only 35 percent of all voters would support opposing certifying a Trump victory.

The survey also found that among those voters who strongly support Biden, close to three quarters disagree with the Supreme Court’s decision to prevent states from removing Trump from ballots.

72% of Biden Strong Approvers disagree with the SCOTUS in its decision to prevent states from removing Trump from ballots.

27% of them agree with SCOTUS. https://t.co/92DTn0XStn pic.twitter.com/fVE94jtXxb

— Rasmussen Reports (@Rasmussen_Poll) March 11, 2024

In other words Biden loyalists want to see his opponent unconstitutionally removed from the ballot.

Again, not very Democratic.

But as Democrats like to continuously remind Americans, it’s OK when they do it.

Meanwhile, a further ABC/Ipsos poll has revealed that more Americans trust Trump to lead the country than Biden on all the top voter issues.

Trump crushes Biden on all key issues.
ABC/IPSOS Poll👇 pic.twitter.com/Ps4VJNkiFP

— 🇺🇸Brenda🇺🇸 (@SmellyCat2Sunny) March 11, 2024

Trump polled higher than Biden on all issues except abortion and climate change.

Your support is crucial in helping us defeat mass censorship. Please consider donating via Locals or check out our unique merch. Follow us on X @ModernityNews.

Shares of Dollar Tree Inc. are sliding Wednesday premarket. The discount retailer missed fourth-quarter profit expectations and offered a dismal outlook for the first quarter as shoppers spend less. The retailer plans to shutter more than 600 stores.

Dollar Tree posted adjusted earnings for the fourth quarter of $2.55 per share on revenue of $8.63 billion. Analysts polled by Bloomberg had anticipated $2.66 per share on revenue of $8.67 billion.

Here’s a snapshot of the fourth quarter (courtesy of Bloomberg):

• Adjusted EPS $2.55, estimate $2.66

•  Loss per share $7.85 vs. EPS $2.04 y/y

• Net sales $8.63 billion, +12% y/y, estimate $8.67 billion

• Dollar Tree net sales $4.96 billion, +15% y/y, estimate $4.91 billion

• Family Dollar net sales $3.67 billion, +7.4% y/y, estimate $3.73 billion

• Gross profit margin 32.1% vs. 30.9% y/y, estimate 32.1%

• Dollar Tree gross margin 39% vs. 36.7% y/y, estimate 37.7%

• Family Dollar gross margin 22.8% vs. 23.6% y/y, estimate 24.7%

• Total location count 16,774, +2.7% y/y, estimate 16,793

• Dollar Tree Locations 8,415, +3.5% y/y, estimate 8,391

• Family Dollar locations 8,359, +1.9% y/y, estimate 8,368

While same-store sales increased by 3%, beating estimates of 2.8%, the retailer said the average ticket size declined by 1.5%, indicating consumers are pulling back on spending in the era of failed Bidenomics. 

As of last quarter, Dollar Tree operated 16,770 stores across 48 states and Canada. In the previous quarter, it “initiated a comprehensive store portfolio optimization review which involved identifying stores for closure, relocation, or re-bannering based on an evaluation of current market conditions and individual store performance, among other factors.” 

The store optimization strategy will result in the closure of 600 Family Dollar stores in the first half of this year. Additionally, 370 Family Dollar and 30 Dollar Tree stores will close over the next several years at the end of each store’s current lease term. 

Bloomberg Intelligence analysts Jennifer Bartashus and Jibril Lawal wrote in a note that store closures appear to be “a prudent decision, but echoes the move to close 400 stores in 2019.” 

The analysts added: “Nearly $2 billion in assorted impairment charges suggests widespread efforts to improve operations have had mixed results and that the right formula remains elusive.”

Shares of Dollar Tree are down nearly 7% in premarket trading in New York. 

Looking ahead, the company expects first-quarter sales earnings per share between $1.33 and $1.48, well below analysts surveyed by Bloomberg of $1.70. 

Authored by Michael Lebowitz via RealInvestmentAdvice.com,

Social media users claiming to be Bougie Broke share pictures of their fancy cars, high-fashion clothing, and selfies in exotic locations and expensive restaurants. Yet they complain about living paycheck to paycheck and lacking the means to support their lifestyle.

Bougie broke is like “keeping up with the Joneses,” spending beyond one’s means to impress others.

Bougie Broke gives us a glimpse into the financial condition of a growing number of consumers. Since personal consumption represents about two-thirds of economic activity, it’s worth diving into the Bougie Broke fad to appreciate if a large subset of the population can continue to consume at current rates.

The Wealth Divide Disclaimer

Forecasting personal consumption is always tricky, but it has become even more challenging in the post-pandemic era. To appreciate why we share a joke told by Mike Green.

Bill Gates and I walk into the bar…

Bartender: “Wow… a couple of billionaires on average!”

Bill Gates, Jeff Bezos, Elon Musk, Mark Zuckerberg, and other billionaires make us all much richer, on average. Unfortunately, we can’t use the average to pay our bills.

According to Wikipedia, Bill Gates is one of 756 billionaires living in the United States. Many of these billionaires became much wealthier due to the pandemic as their investment fortunes proliferated.

To appreciate the wealth divide, consider the graph below courtesy of Statista. 1% of the U.S. population holds 30% of the wealth. The wealthiest 10% of households have two-thirds of the wealth. The bottom half of the population accounts for less than 3% of the wealth.

The uber-wealthy grossly distorts consumption and savings data. And, with the sharp increase in their wealth over the past few years, the consumption and savings data are more distorted.

Furthermore, and critical to appreciate, the spending by the wealthy doesn’t fluctuate with the economy. Therefore, the spending of the lower wealth classes drives marginal changes in consumption. As such, the condition of the not-so-wealthy is most important for forecasting changes in consumption.

Revenge Spending

Deciphering personal data has also become more difficult because our spending habits have changed due to the pandemic.

A great example is revenge spending. Per the New York Times:

Ola Majekodunmi, the founder of All Things Money, a finance site for young adults, explained revenge spending as expenditures meant to make up for “lost time” after an event like the pandemic.

So, between the growing wealth divide and irregular spending habits, let’s quantify personal savings, debt usage, and real wages to appreciate better if Bougie Broke is a mass movement or a silly meme.

The Means To Consume 

Savings, debt, and wages are the three primary sources that give consumers the ability to consume.

Savings

The graph below shows the rollercoaster on which personal savings have been since the pandemic. The savings rate is hovering at the lowest rate since those seen before the 2008 recession. The total amount of personal savings is back to 2017 levels. But, on an inflation-adjusted basis, it’s at 10-year lows. On average, most consumers are drawing down their savings or less. Given that wages are increasing and unemployment is historically low, they must be consuming more.

Now, strip out the savings of the uber-wealthy, and it’s probable that the amount of personal savings for much of the population is negligible. A survey by Payroll.org estimates that 78% of Americans live paycheck to paycheck.

More on Insufficient Savings

The Fed’s latest, albeit old, Report on the Economic Well-Being of U.S. Households from June 2023 claims that over a third of households do not have enough savings to cover an unexpected $400 expense. We venture to guess that number has grown since then. To wit, the number of households with essentially no savings rose 5% from their prior report a year earlier.  

Relatively small, unexpected expenses, such as a car repair or a modest medical bill, can be a hardship for many families. When faced with a hypothetical expense of $400, 63 percent of all adults in 2022 said they would have covered it exclusively using cash, savings, or a credit card paid off at the next statement (referred to, altogether, as “cash or its equivalent”). The remainder said they would have paid by borrowing or selling something or said they would not have been able to cover the expense.

Debt

After periods where consumers drained their existing savings and/or devoted less of their paychecks to savings, they either slowed their consumption patterns or borrowed to keep them up. Currently, it seems like many are choosing the latter option. Consumer borrowing is accelerating at a quicker pace than it was before the pandemic. 

The first graph below shows outstanding credit card debt fell during the pandemic as the economy cratered. However, after multiple stimulus checks and broad-based economic recovery, consumer confidence rose, and with it, credit card balances surged.

The current trend is steeper than the pre-pandemic trend. Some may be a catch-up, but the current rate is unsustainable. Consequently, borrowing will likely slow down to its pre-pandemic trend or even below it as consumers deal with higher credit card balances and 20+% interest rates on the debt.

The second graph shows that since 2022, credit card balances have grown faster than our incomes. Like the first graph, the credit usage versus income trend is unsustainable, especially with current interest rates.

With many consumers maxing out their credit cards, is it any wonder buy-now-pay-later loans (BNPL) are increasing rapidly?

Insider Intelligence believes that 79 million Americans, or a quarter of those over 18 years old, use BNPL. Lending Tree claims that “nearly 1 in 3 consumers (31%) say they’re at least considering using a buy now, pay later (BNPL) loan this month.”More telling, according to their survey, only 52% of those asked are confident they can pay off their BNPL loan without missing a payment!

Wage Growth

Wages have been growing above trend since the pandemic. Since 2022, the average annual growth in compensation has been 6.28%. Higher incomes support more consumption, but higher prices reduce the amount of goods or services one can buy. Over the same period, real compensation has grown by less than half a percent annually. The average real compensation growth was 2.30% during the three years before the pandemic.

In other words, compensation is just keeping up with inflation instead of outpacing it and providing consumers with the ability to consume, save, or pay down debt.

It’s All About Employment

The unemployment rate is 3.9%, up slightly from recent lows but still among the lowest rates in the last seventy-five years.

The uptick in credit card usage, decline in savings, and the savings rate argue that consumers are slowly running out of room to keep consuming at their current pace.

However, the most significant means by which we consume is income. If the unemployment rate stays low, consumption may moderate. But, if the recent uptick in unemployment continues, a recession is extremely likely, as we have seen every time it turned higher.

It’s not just those losing jobs that consume less. Of greater impact is a loss of confidence by those employed when they see friends or neighbors being laid off.   

Accordingly, the labor market is probably the most important leading indicator of consumption and of the ability of the Bougie Broke to continue to be Bougie instead of flat-out broke!

Summary

There are always consumers living above their means. This is often harmless until their means decline or disappear. The Bougie Broke meme and the ability social media gives consumers to flaunt their “wealth” is a new medium for an age-old message.

Diving into the data, it argues that consumption will likely slow in the coming months. Such would allow some consumers to save and whittle down their debt. That situation would be healthy and unlikely to cause a recession.

The potential for the unemployment rate to continue higher is of much greater concern. The combination of a higher unemployment rate and strapped consumers could accentuate a recession.

After kneejerking lower by over $4,000 after yesterday’s hot CPI print, bitcoin has recovered all those losses and then some, to top a fresh record high of $73,600 this morning…

Source: Bloomberg

“Bitcoin wiped out overleveraged longs, retested the 2021 cycle high & then bounced back to $72,000,” popular trader Jelle summarized on X, adding that the landscape was now “looking good” for upside continuation.

As we noted on X, the rebound buying came after Bitcoin futures were clubbed like a baby seal on the CPI print:

“There it is: dumping of Bitcoin futures to push prices lower and at the same time record buying via bitcoin ETFs at an artificially lower pric…

…every day, rinse repeat.

Blackrock’s ETF just bought the most bitcoin in one day on record.”

Futs dumping, ETFs and spot buying, day after day, every day pic.twitter.com/3RjW7wzjAO

— zerohedge (@zerohedge) March 12, 2024

This should not be a total shock after BTC ETFs saw a stunning $1.045BN net inflows yesterday (a record 14,706 BTC demand) as insatiable demand for the cryptocurrency continues….

Source: Bloomberg

“The reasons behind the rally are pretty clear. A rampant demand for the physically-backed ETFs amid a low market depth backdrop,” said Manuel Villegas, digital assets analyst at Swiss private bank Julius Baer.

As issuers buy up large piles of Bitcoin to support their ETFs, the token’s overall circulating supply has begun to dwindle.

Bitcoin’s weekly issuance of roughly 6,300 tokens is “utterly dwarfed” when contrasted against the ETFs’ token demand from past weeks, Villegas said, the latter of which is about 40,000 tokens.

BTC ETF net inflows have now topped $11BN since inception…

The two largest ETFs from BlackRock and Fidelity Investments held in excess of 330,000 BTC as of March 13 — five times what miners added.

Today’s move in bitcoin pushes it closer to its inflation-adjusted record high…

Source: Bloomberg

Other cryptos were also bid, with Ethereum rebounding from yesterday’s decline, test8ng back up near $4100…

Source: Bloomberg

As Bloomberg reports, using Ethereum, the world’s most commercially successful blockchain ecosystem, is about to get much cheaper after the latest software upgrade of the network on Wednesday.

Referred by developers as Dencun, the update is expected to dramatically lower expenses for so-called Layer 2 networks — dozens of chains like Arbitrum, Polygon and Coinbase Global Inc.’s Base that link to Ethereum. A transaction that might have previously cost $1 to post may now cost one cent; another that used to cost cents would now be a fraction of a cent.

Finally, we note that while Bitcoin has been soaring recently, it is still relatively underperforming its performance ahead of previous ‘halvings’.

As CoinTelegraph reports, Bitcoin is yet to catch up to its growth trajectory from previous halving cycles, according to historical data shared by Ecoinometrics in a March 12 X post:

“If Bitcoin had followed a growth trajectory similar to the past two cycles we would expect one BTC to be worth anywhere between $100,000 to $300,000 per coin.”

Therefore, current price action still has room to run, particularly as the previous all-time high price can now act as the launchpad for more upside before the halving.

Looking ahead, according to a note to clients on Monday, wealth management firm Bernstein expects Bitcoin to break out to around $150,000 following the halving by mid-2025. Bernstein’s analysts Gautam Chhugani and Mahika Sapra now expect the BTC price to “break out” after the halving.

The elevated demand for spot Bitcoin exchange-traded funds (ETFs) has made them “more convinced” about their price target, which they first published in 2023. 

“We estimated $10Bn inflows for 2024 and another $60Bn for 2025. In the last 40 trading days since ETF launch on Jan 10, Bitcoin ETF inflows have crossed $9.5Bn already.”

“At this run rate, Bitcoin ETFs would surpass our 2025 inflow estimates within 166 trading days for [the] rest of 2024,” the analysts added. 

Bernstein also advised clients to invest in Bitcoin miners, as the recent underperformance “is probably the last window before halving.”

Bernstein’s price target is modest, however, compared to the expectations of Cathie Wood’s ARK Invest, which has “brought forward” its long-term Bitcoin price target of over $1 million.

This week the House will hold a vote on a bipartisan bill that would prevent the social media app TikTok from appearing in app stores unless it’s able to be “fully divested” from Chinese-owned parent company ByteDance.

Following a unanimous vote on March 7, The Protecting Americans from Foreign Adversary Controlled Applications Act (H.R.7521) advanced from the House Committee on Energy and Commerce, and will now receive a full vote on Wednesday at around 10 a.m. according to Reuters.

The bill was introduced on March 5 by 19 members of the House Select Committee on the CCP – including Chair Mike Gallagher (R-WI) and ranking member Raja Krishnamoorthi (D-IL).

The bill also has the support of President Biden, who said “I’ll sign it” if Congress puts it on his desk.

Trojan Horse?

The rushed bill, seemingly out of nowhere – and just weeks after the Biden campaign made a TikTok account (and posted to it) on Super Bowl Sunday, has raised concerns over government overreach.

On Tuesday, Rep. Thomas Massie (R-KY) noted on X, “The so-called TikTok ban is a trojan horse” that would give the President the power to “ban WEB SITES,” not just apps.

“If you think this isn’t a Trojan horse and will only apply to TikTok and foreign-adversary social media companies, then contemplate why someone thought it was important to get a very specific exclusion for their internet based business written into the bill,” he added.

If you think this isn’t a Trojan horse and will only apply to TikTok and foreign-adversary social media companies, then contemplate why someone thought it was important to get a very specific exclusion for their internet based business written into the bill: pic.twitter.com/LnHsmEgtt9

— Thomas Massie (@RepThomasMassie) March 12, 2024

A foreign adversary controlled application is defined as; a website or app that is “operated directly or indirectly”

by a “foreign adversary” by which the President and or Attorney General determines is a threat to the national security of the United States. pic.twitter.com/yWnq6Vigbw

— Patrick Webb (@RealPatrickWebb) March 13, 2024

Expanding on this was The Federalist‘s Sean Davis, who wrote in a lengthy post on X (emphasis ours):

Here’s what’s actually going on with the TikTok fight right now.

Deep State toadies are taking advantage of anti-China sentiment to transfer TikTok’s surveillance apparatus from China’s evil surveillance state to the U.S. government’s evil surveillance state.

TikTok isn’t going to be banned, because neither the CCP-run Chinese government nor the CCP-owned U.S. government wants to lose such a valuable tool for spying on Americans and poisoning the minds of their children. Instead, the corrupt U.S. intelligence bureaucracy wants control of TikTok, which is why it included the divestment mandate.

Only a handful of U.S. companies are capable of buying and managing TikTok, and they already function as appendages of the Deep State surveillance apparatus.

It’s not that the U.S. government wants to protect you from spying and data theft and manipulation. If only. No, the people behind the Russian collusion hoax, and the Kavanaugh hoax, and the natural origin COVID hoax, and the illegal warrantless spying, and the forced transing of your children—they want to be the ones spying on you and stealing your data and poisoning the minds of your children.

Now, should a spying and subversion tool used by our communist enemies to destroy us be banned? Yeah, obviously, for the same reason that we never would’ve allowed the Soviet Union to infiltrate our homes with their own radios and television sets during the Cold War. But that’s not what’s happening here.

Your government won’t even shoot down a Communist Chinese spy balloon, or prevent the Communist Chinese government from gobbling up your farmland, or stop the Communist Chinese government from stealing the products you make, dumping them into your market at below-market prices, and then driving you out of business. Heck, when the literal Chinese spy chief bought off the Biden family by funneling a million dollars to Hunter Biden, DOJ didn’t even bat an eyelash.

There’s no evidence anywhere that the regime that currently controls America has any interest in fighting off China’s attempts to cripple our country economically, militarily, or diplomatically. But suddenly they want you to believe they’re deeply concerned about TikTok.

I’m just not buying it, and neither should you.

Mea Culpa

While TikTok has been long accused of curating degenerate content to feed the minds of Western youth, this, and worse, is what all social media platforms have been doing for years.

And with regards to the ongoing chess game to decide the fate of TikTok – on one hand, the Wall Street Journal just reported that after company believed they had scored a recent victory, including the Biden campaign embracing the platform, “Behind the scenes in Washington, a bipartisan group of lawmakers and Biden administration officials had been quietly planning new legislation to ban TikTok or force its sale to a non-Chinese owner.”

On the other hand, Donald Trump – who has previously pushed to ban TikTok, came out against the bill (after meeting with Billionaire TikTok investor Jeff Yass who holds a 15% stake in ByteDance) – leading some to suggest that the former president had “sold out.“

We also learned from Politico that former Trump Aide Kellyanne Conway has begun lobbying for TikTok on behalf of the conservative Club for Growth – of which Yass is a large financial backer – and at whose retreat Trump praised Yass as “fantastic.”

So, lots of chess going on and forces at work.

Yet, after further consideration, this Tyler got it wrong. As ZeroHedge commenter PrintCash pointed out on Monday, this is both a free speech issue and a matter of limited government vs. legislative overreach that – based on the above, appears to set the stage for widespread abuse.

By Michael Msika, Bloomberg Markets Live reporter and strategist

Market gains in recent months have been heavily concentrated in the tech sector, but cyclicals have also been in favor. Now warning signs are flashing both in technicals and fundamentals for stocks whose fortunes depend on the business cycle.

Cyclicals have been keeping up with growth stocks over the past year, including the rally since the market bottom in late October. Both segments of the market are up nearly 25% over the period. That’s an outperformance of about 17 percentage points relative to defensive peers. In addition, cyclicals have reached overbought levels. It’s a bad combination, if history is any guide.

Fundamentals are not looking much better. True, the latest surge seems to have been on the back of improving macro-economic data, with PMIs showing signs of bottoming out, while economic surprises have also been rising. But cyclicals may already be pricing in way more economic expansion than the numbers suggest, leaving them vulnerable to setbacks.

While the economy may not weaken as much as could be expected in the face of monetary tightening, “it is too early to see this as the base case,” say Bank of America strategists led by Sebastian Raedler, who are keeping an underweight view on cyclicals versus defensives and expecting 15% underperformance as the economy loses traction. Within the groups, their favorite defensive overweights are food and beverages and pharma, while their preferred cyclical underweights are banks and autos.

The strategists see much of the good news already in the price, while economic resilience could prompt investors to lower their expectations for rate cuts this year. “Even if the current macro sweet spot were to continue for a while longer, we think equity market upside is capped in the low-to-mid single digits for the year as a whole,” they say.

Valuation levels are starting to look stretched, especially against defensives. Analysts have been raising estimates for cyclicals to reflect the better economic data, and relative forward P/E is well above the 10-year average. Meanwhile, based on price-to-book, cyclicals are now the most expensive they have been versus defensives in more than a decade.

For JPMorgan strategists, cyclicals are now “outright expensive” against defensives, even without tech, and their recent acceleration as well as consensus hopes for an earnings rebound could falter. In fact, weakness in the IFO business survey suggests that cyclicals’ earnings are set to soften versus defensives over the next few quarters. “This is in contrast to the prevailing view which argues that earnings for cyclicals will accelerate from here,” the strategists say, adding that autos, chemicals and transport are among the most sensitive to this.

Many investors want to buy the group now that PMIs appear to be bottoming out, the JPMorgan strategists note. Yet, they see the data flow as still mixed, while the US ISM recently weakened. “Cyclicals didn’t underperform when PMIs were weak last year in the first place, so why should they now benefit from any potential bottoming out?”

Over the past five months or so, industrials, construction, autos and travel and leisure have all surged between 26% and 30%; technology, at 35%, is the only group with a bigger gain. Banks have performed in line with the broader market, up about 17%, and commodity sectors are the only cyclical industries in the red over the period.

“For the more volatile stock-market phase we expect to see in the second quarter, consumer-related and defensive sectors in particular are likely to provide support to portfolios from a valuation point of view, while cyclicals and sectors with an above-average P/E ratio are likely to suffer,” says Unicredit strategist Christian Stocker.

US futures are trading modestly in positive territory and just shy of all time highs, after swinging between gains and losses as Europe trades higher and Asia closed weaker after US markets shrugged of a higher core CPI print and focused on the more constructive disinflation components (Super core 47bps vs 85bps). As of 7:50am, S&P futures traded +0.1% while Nasdaq futures were modestly red; earlier, Germany’s DAX hit 18K for first time, while EuroStoxx50 hit 5K for first time in 24 years.

Overnight newsflow was relatively quiet outside of early results from Japan’s wage negotiations which showed majority of companies agreeing to unions demands: previously, BOJ’s Ueda said wage negotiations were critical in deciding when to phase out its big stimulus program while Japan PM Kishida noted in Parliament that Japan has not emerged out of deflation, pushing back some expectations of BOJ exiting negative rates next week. UK Jan Industrial Production printed softer, Jan GPD/Manf Production in-line, and EZ Industrial Production printed weaker as well. Donald Trump clinched the Republican presidential nomination, setting up a combative election race with President Joe Biden. Elsewhere, US TSY 10Y yields are trading 1bp higher at 4.17% while bond yields across Europe ticked lower; the Bloomberg dollar index is fractionally lower, WTI crude is +$1.05 at $78.65, and bitcoin just hit a new all time high above $73,000.

In premarket trading, Nvidia shares rose again after the chipmaker rallied 7.2% and added $153 billion in market value on Tuesday. Tesla slipped after Wells Fargo downgraded the stock to underweight from equal-weight. Dollar Tree slumped after reporting fourth-quarter sales and profit that missed Wall Street’s expectations. The retailer also announced plans to close about 600 Family Dollar stores in the first half of the fiscal year.

• Beauty Health soars 21% after the skin-care company reported fourth-quarter sales that topped consensus estimates. The company named Marla Beck as CEO after a stint as interim CEO that began in November.
• Clover Health rises 9% after the Medicare Advantage insurer reported revenue for the fourth quarter that beat the average analyst estimate.
• Dollar Tree slumps 6% after issuing an annual sales outlook that fell short of the average analyst estimate at the midpoint of the forecast range.
• Eli Lilly rises about 1% after teaming up with Amazon.com Inc. to expand its nascent business of selling weight-loss drugs directly to patients.
• Petco (WOOF) rises 3% after the company reported comparable sales for the fourth quarter that topped the consensus estimate. Petco also said Ron Coughlin has stepped down as CEO/Chairman.
• Tesla (TSLA) falls 2% after Wells Fargo cuts the recommendation on the EV maker’s stock to underweight, saying there are fresh risks to EV volumes as price cuts are not having as much impact as before.
• ZIM Integrated Shipping (ZIM) falls 4% after the marine shipping company reported its fourth-quarter results and gave an outlook.

Traders held onto Fed rate cut bets for this year even after US inflation came in higher than expected on Tuesday. Futures are pricing in nearly 70% odds that the central bank will start easing in June and enact at least three quarter-point cuts over the course of 2024. Policymakers next gather March 19-20, where investors will key into the Federal Open Market Committee’s quarterly forecasts for rates, including whether fresh employment and inflation figures have prompted any changes.

“It’s going to be hard for the Fed not to be hawkish in the next meeting as the fight against inflation clearly isn’t won yet,” said Justin Onuekwusi, chief investment officer at wealth manager St. James’s Place. “That print does make you sit up and be alert of the risk inflation remain stubbornly high and that has massive feed-across right across portfolios. Markets may be underestimating impact of sticky inflation as they are still aggressively pricing a June rate cut.”

European stocks rise with the Stoxx 600 hovering near a record high and the Stoxx 50 breaching 5,000 for the first time in 24 years. Retail shares are leading gains after positive updates from Zalando and Inditex. Utilities and banks also outperform.  Here are some of the biggest movers on Wednesday:

• Zalando shares jump as much as 18%, the most in five years, after results that analysts describe as positive, with a beat on adjusted ebit for 2023 and updated targets for growth through 2028. RBC analysts say they are confident in the German company’s ability to capture growth as consumer demand recovers.
• Inditex shares climbed as much as 5.2% to a fresh record high after the Zara parent reported what analysts called strong results thanks to continued robust demand for its clothing collections. The Spanish retailer plans to increase its annual dividend by 28% to €1.54 per share. H&M and the broader retail index also gain.
• BNP Paribas rises as much as 3.4% after the lender forecast higher-than-expected profit and stepped up cost savings measures.
• Balfour Beatty shares gain as much as 10%, its biggest intraday gain since August 2022, after the construction and infrastructure group reported full-year adjusted earnings per share that came ahead of consensus expectations. Additionally, the company announced a share buyback of £100 million for 2024. Liberum noted the strength in the company’s Gammon Construction joint venture, with Jardine Matheson.
• E.On shares jump as much as 7%, most in more than a year, after it reported a positive update according to Jefferies, with outlook ahead of consensus. Company also announced CFO Marc Spieker will assume role of COO and Nadia Jakobi is set to become CFO.
• Keywords Studios shares gain as much as 13%, the most since May 2020, after the company maintained FY goals issued in January, offering reassurance in a video game industry marked by layoffs at bellwethers including Sony and Electronic Arts. Keywords provides external technical support to video-game makers.
• Vallourec shares gain 9.8% after ArcelorMittal said it’s buying a stake in the tubular steel company from Apollo Global Management for about €955 million. Analysts highlight the deal triggers M&A speculation around Vallourec, and Oddo BHF expects ArcelorMittal to launch a takeover bid once the six-month lock-up period expires.
• Adidas shares fall as much as 4.1% as a lack of a full-year guidance upgrade from the sportswear maker disappointed some analysts, even as results were in line with January’s pre-released figures. The focus turns to the German firm’s growth outlook for the first quarter, and whether it will indeed see a pick-up in trading in the second half of the year.
• Solvay drops as much as 5.2% after guidance for lower Ebitda in 2024. Analysts note that the chemicals company’s commitment to a stable or growing divided may offset negatives from falling Ebitda. Investors will focus on the soda ash price assumptions, Morgan Stanley said.
• Geberit falls as much as 4.8% after the Swiss maker of building materials missed earnings estimates. The stock had rallied ahead of the earnings, gaining almost 8% from the start of February through Tuesday.
• Stadler Rail shares fall 3.3% after the Swiss train manufacturer’s sales and operating margins came in lower than estimates. The company’s 2024 outlook also weighs on sentiment, according to Vontobel.

The European Central Bank is also poised to start rate cuts soon, with Governing Council member Martins Kazaks saying on Wednesday reductions could come “within the next few meetings.” Bank of France Governor Francois Villeroy de Galhau said borrowing costs may be cut in the spring, with June more likely than April for a first move.

In FX, the Bloomberg Spot Index slips to reverse modest earlier gains while the yen was the weakest of the G-10 currencies, falling 0.2% versus the greenback to 148.05; the krone led G-10 gains. “BOJ Governor Kazuo Ueda clearly indicated yesterday that wages were the last piece of information needed before the central bank could decide whether to end its negative interest rate policy next week, said David Forrester, a senior FX strategist at Credit Agricole CIB in Singapore. “So the partial tally of the spring wage negotiations this Friday will be a decisive factor for the BOJ and the JPY in the coming week.” The pound was flat.

In rates, treasuries edged lower, with US 10-year yields rising 1bps to 4.16%. Gilts fall after data showed the UK economy rebounded in January. UK 10-year yields rise 2bps to 3.96%. Gilts lag across core European rates as market digests an offering of 30-year inflation-linked debt and a wave of domestic data. US session includes 30-year bond reopening, following soft reception for Tuesday’s 10-year sale. Treasury auction cycle concludes with $22b 30-year bond reopening after $39b 10-year reopening tailed by 0.9bp, while Monday’s 3-year new issue stopped through by 1.3bp. WI 30-year yield at ~4.320% is roughly 4bp richer than February refunding, which stopped through by 2bp in a strong auction

In commodities, oil advanced after four days of losses as an industry report pointed to shrinking US crude stockpiles, offsetting wavering OPEC cuts. WTI rose 1.5% to trade near $78.70. Spot gold adds 0.2%. and trades near all time highs.

Bitcoin rises 3% to a record high above $73,000 with Ethereum (+2.7%) also catching wind.

To the day ahead now, and data releases include UK GDP and Euro Area industrial production for January. Central bank speakers include the ECB’s Cipollone and Stournaras. And in the US, there’s a 30yr Treasury auction taking place.

Market Snapshot

• S&P 500 futures little changed at 5,176.25
• STOXX Europe 600 little changed at 506.38
• MXAP down 0.3% to 176.21
• MXAPJ down 0.3% to 540.31
• Nikkei down 0.3% to 38,695.97
• Topix down 0.3% to 2,648.51
• Hang Seng Index little changed at 17,082.11
• Shanghai Composite down 0.4% to 3,043.84
• Sensex down 1.0% to 72,924.23
• Australia S&P/ASX 200 up 0.2% to 7,729.44
• Kospi up 0.4% to 2,693.57
• German 10Y yield little changed at 2.30%
• Euro little changed at $1.0929
• Brent Futures little changed at $81.99/bbl
• Gold spot up 0.0% to $2,158.75
• US Dollar Index little changed at 102.93

Top Overnight News

• US President Biden secured enough votes to clinch the Democratic presidential nomination and Donald Trump secured enough delegates to win the Republican nomination, according to Reuters.
• Eli Lilly (LLY) is partnering with Amazon Pharmacy (AMZN) to deliver prescriptions sold through direct-to-consumer website.
• Some of Japan’s biggest companies, including Toyota, Nissan, and Nippon Steel, hand out large wage hikes to their workers (the biggest increases in decades), paving the way for a BOJ rate hike next week. FT
• China is scrapping a string of infrastructure projects in indebted regions as it struggles to reconcile a need to save money with this year’s target for economic growth. FT
• Chinese state media has touted President Xi Jinping as a market-friendly reformer on par with the paramount leader Deng Xiaoping, in an apparent attempt to dispel skepticism over the country’s growth outlook. BBG
• The European Central Bank will lower borrowing costs in the spring, with June more likely than April for a first move, Bank of France Governor Francois Villeroy de Galhau said. BBG
• Putin says Russia is willing to resolve the Ukraine war “by peaceful means”, but insists Moscow would require security guarantees to do so. BBG
• Donald Trump and Joe Biden have both secured enough delegates to clinch their respective party nominations, cementing a November rematch. The 2024 election is expected to be one of the most expensive on record. BBG
• US crude stockpiles fell by 5.5 million barrels last week, the API is said to have reported, registering the first decline in seven weeks if confirmed by the EIA. Gasoline and distillate supplies also dropped. BBG
• Global dividends hit a record $1.66 trillion last year, according to Janus Henderson. Payouts were up 5%, with almost half the growth coming from the banking sector. It’s the third annual record for dividends and the fund manager expects another all-time high this year. BBG
• Hedge funds are unwinding short Treasury futures bets at a rapid clip, a sign that basis-trade positions are diminishing. This is probably due to asset managers pivoting into investment-grade credit. BBG

A more detailed look at global markets courtesy of Newsquawk

APAC stocks traded mixed as early momentum from the tech-led gains on Wall St was offset by Chinese developer default concerns and as participants digested Japanese wage hike announcements. ASX 200 was led higher by consumer stocks after China’s MOFCOM released an interim proposal to remove tariffs on Australian wine although the advances in the index were limited by losses in the mining sector as iron ore prices continued to tumble. Nikkei 225 swung between gains and losses with initial strength reversed amid firm wage hike announcements. Hang Seng and Shanghai Comp. were varied and price action was contained within relatively narrow ranges with the Hong Kong benchmark kept afloat by strength in auto names and tech, while the mainland was pressured amid developer default fears and with the US House set to vote later on the TikTok crackdown bill.

Top Asian News

• Country Garden Holdings (2007 HK) onshore bondholders said they have not received a coupon payment due on Tuesday, while the developer said funds for a CNY 96mln coupon payment due on Tuesday were not fully in place and it plans to do its best to raise money for payment within a 30-day grace period, according to Reuters.
• TikTok US executives told headquarters recently that a ban wasn’t an imminent risk, according to WSJ citing sources. However, it was separately reported that the US House plans to vote on the TikTok crackdown bill today at around 10:00EDT (14:00GMT).

European bourses, Stoxx600 (+0.2%), are modestly firmer, though with overall trade rangebound in what has been an uneventful session. The IBEX 35 (+1.3%) outperforms, led higher by post-earning strength in Inditex (+4.2%). European sectors are mixed; Retail outperforms, propped up by gains in Zalando (+13.5%) and Inditex. Autos is found at the foot of the pile, hampered by a poor Volkswagen (-0.8%) update. US equity futures (ES U/C, NQ -0.2%, RTY +0.1%) are trading around the unchanged mark, with slight underperformance in the NQ, paring back some of the strength seen in the prior session.

Top European News

• ECB’s Villeroy noted broad agreement in the ECB to start cutting rates in spring as the battle against inflation is being won, while he noted the risk of waiting too long before loosening monetary policy and unduly hurting the economy is now “at least equal” to acting too soon and letting inflation rebound, according to an interview with Le Figaro; In another batch of comments: Says the ECB is winning the battle against inflation; will remain vigilant on inflation but victory is within sight; Spring rate cut remains probably; more likely to cut rates in June than April.
• ECB’s Kazaks says ECB rate cut decision will come in the next few meetings; uncertainty remains high, and tensions in the labour market is still high.
• Citi expects BoE to start cutting rates in June (vs prev forecast of August).

Japan

• Japan Chief Cabinet Secretary Hayashi said it is important for wage hikes to spread to mid-sized and small companies, while he added they are seeing strong momentum for wage hikes. It was also reported that Toyota, Nissan, Panasonic, Hitachi & Nippon Steel were among the companies that have responded to unions’ wage hike demands in full.
• Japanese PM Kishida says will call for pay hikes exceeding last year at small and mid-sized firms during the meeting with labour union and management; Japan not yet emerging out of deflation.
• BoJ Governor Ueda says BoJ will consider tweaking negative rates, YCC, and other monetary easing tools if the sustained achievement of price target comes into sight. We must scrutinize whether positive wage-inflation cycle merges in deciding whether conditions for phasing out stimulus are falling into place. This year’s wage talks is critical in deciding timing on exit from stimulus. Unions have demanded higher pay, seeing many corporate management making offers that will stream in today and beyond. Will scrutinize the wage talk outcomes, as well as other data and information from hearings when making policy decisions.
• Japanese PM Adviser Yata says wage hikes this year likely to exceed last year’s; Must continue pay rises next year and thereafter to defeat deflation; must broaden pay hikes to workers nationwide and in every prefecture. When asked if solid wage offers could trigger end to NIRP in march, Yata says government will not meddle with the BoJ’s independent policy-making.
• BoJ is reportedly to mull ending all ETF purchases if price goal is in sight; likely to keep buying bonds to keep market stable and to intervene in the event of sharp yield upside, according to Bloomberg sources.
• Japan’s Business Lobby Keidanren Head Tokura says wage increases indicated in the preliminary survey of big firms’ wage talks are likely to exceed last years levels.
• Early signs of a strong outcome in this year’s annual wage talks have heightened changes the BoJ will end its negative interest rate policy next week, according to Reuters sources; “There seems to be enough factors that justify a March policy shift”.

FX

• Marginal upside for the USD which has seen DXY kiss the 103 mark in quiet trade. If the level is cleared, yesterday’s 103.17 will come into view.
• Uneventful price action for EUR with ECB comments unable to shift the dial. As such, the pair is sticking to a 1.09 handle and within yesterday’s 1.0902-43 range.
• GBP is steady vs. the USD and stuck on a 1.27 handle as in-line GDP metrics failed to inspire price action. For now, yesterday’s 1.2746-1.2823 range holds.
• JPY is marginally softer vs. the USD but with losses tempered by reports that the BoJ could end ETF purchases. Today’s 147.24-89 range sits within yesterday’s 146.62-148.18 parameters. More broadly, focus is on in
• AUD is holding up vs. the USD despite falling iron ore prices, with AUD/USD maintaining 0.66 status and within yesterday’s 0.6596-0.6627 range. Likewise, NZD/USD is unable to break out of yesterday’s 0.6133-6184 range. RBNZ’s Conway later today could help to decide direction.
• PBoC set USD/CNY mid-point at 7.0930 vs exp. 7.1775 (prev. 7.0963).

Fixed Income

• Gilts are the relative laggards, at lows of 99.68, with the paper unreactive to the UK’s GDP data (which was broadly in-line). The downside can be attributed to Gilts paring some of Tuesday’s outperformance following the labour data and a strong DMO sale.
• USTs are essentially unchanged in a quieter session for the US (on paper) after Tuesday’s marked CPI moves and a soft 10yr auction, despite the marked concession built in by the post-CPI reaction. Currently holds near session lows at 111-04.
• Bunds are slightly firmer after Tuesday’s marked US CPI-induced pressure. Specifics are relatively light thus far, but focus will be on the ECB Operational Framework Review (tentatively due today). Currently, Bunds hold around 133.24, with the peak for today at 133.27.
• Italy sells EUR 7.25bln vs exp. EUR 6-7.25bln 2.95% 2027, 3.50% 2031, 3.25% 2038 BTP Auction and EUR 1.25bln vs exp. EUR 1-1.25bln 4.0% 2031 BTP Green.
• Germany sells EUR 3.738bln vs exp. EUR 4.5bln 2.20% 2034 Bund: b/c 2.29x (prev. 2.10x), average yield 2.31% (prev. 2.38%) & retention 16.9% (prev. 17.5%)

Commodities

• Crude is firmer, taking impetus from Tuesday’s bullish private inventory data, with specifics light in the session thus far; Brent holds near session highs at +1.1%.
• Flat trade in gold and a mild upward bias in silver with the Dollar steady, calendar light, and with the ongoing geopolitical landscape potentially providing a modest underlying bid; XAU trades in a tight USD 2,155.86-2,161.66/oz range.
• Base metals are mixed with copper prices outperforming following reports that top Chinese copper smelters have reportedly reached an agreement to take action to curb falling fees.
• Azerbaijan oil production stood at 476k BPD in Feb (prev. 474k BPD in Jan), according to the Energy Ministry.
• Top Chinese copper smelters have reportedly reached an agreement to take action to curb falling fees, according to Reuters sources; smelters to cut output at loss-making plants.
• BP (BP/ LN) and ADNOC suspend USD 2bln talks to take Israel-based Newmed private, via Bloomberg.

Geopolitics: Middle East

• CIA Director Burns said there is “still a possibility” of a Gaza ceasefire deal but added that many complicated issues are still to be worked through.
• US may urge partners and allies to fund a privately run operation to send aid by sea to Gaza that could begin before a much larger US military effort, according to sources cited by Reuters.
• US Central Command announced that Houthis fired a close-range ballistic missile from Yemen toward USS Laboon in the Red Sea on March 12th but it did not impact the vessel, while CENTCOM forces and a coalition vessel successfully engaged and destroyed two unmanned aerial systems launched from Yemen.

Geopolitics: Other

• Ukrainian Army Chief Syrskyi and Ukraine’s Defence Minister Umerov held a phone call with US Defense Secretary Austin on weapons delivery to Ukraine, according to Reuters.
• A fire at oil refinery in Ryazan region extinguished, according to the governor cited by Reuters.

US event calendar

• 07:00: March MBA Mortgage Applications 7.1%, prior 9.7%

Government Agenda

• 4 p.m: US President Joe Biden delivers remarks in Milwaukee, Wisconsin on how his investments are rebuilding communities and creating jobs
• 11.15 a.m: US Secretary of State Antony Blinken meets with EU foreign affairs chief Josep Borrell

DB’s Jim Reid concludes the overnight wrap

Next stop on the global tour is Singapore as I’m about to board the plane from Melbourne here this evening. My vaguely fascinating fact about Singapore is that my grandfather was a civil engineer there in the 1920s and 1930s and helped build much of its rapid development at the time. He was Scottish and met my Dutch grandmother there and got married without speaking each other’s language and being able to understand each other. My wife says she’s done the same thing! His brother owned a very successful industrial company on the island and lost all his wealth and his company after the 1929 stock market crash. My entire family were eventually left penniless after the 1930s crash and then WWII. 90 years later and my kids have had the same impact on me!

I’m looking forward to landing in the pretty standard 35 degree heat that Singapore always seems to have on landing. Talking of the heat, even with another hot US inflation print, risk assets put in another strong performance yesterday, with both the S&P 500 (+1.12%) and Europe’s STOXX 600 (+1.00%) driven by strong tech gains (sound familiar?). The highs in the main indices came despite the latest US CPI report for February, which saw inflation come in strongly for a second month running, and led to growing fears that the last phase of getting inflation back to target would be the hardest. But despite the persistence of inflation, investors were remarkably unphased for the most part, and they continue to see a June rate cut as the most likely outcome.

In terms of the details of the report, headline CPI came in at a 6-month high of +0.44%, which meant the year-on-year measure actually ticked up a bit to +3.2% (vs. +3.1% expected). Alongside that, core CPI was at +0.36%, which also meant annual core CPI was also above expectations at +3.8% (vs. +3.7% expected). Some of the blame was placed on shelter inflation, which was up by a monthly +0.43%. But even if you looked at core CPI excluding shelter, it was still up by +0.30%, so it’s difficult to say that shelter was the whole story behind the ongoing persistence. See our US economists’ reaction to the print here.

For the Fed, there must be some concern even if markets show little of this. For instance, if you look at core CPI on a 3-month annualised basis, it rose to +4.2%, so it’s getting harder to explain this away as just one month of bad data. Bear in mind that this is pretty high by historic standards as well, and apart from the post-Covid inflation, 3m core CPI hasn’t been that high since 1991. Alongside that, there was evidence that the inflation was coming from the stickier categories in the consumer basket. In fact the Atlanta Fed’s sticky CPI series is now up by +5.1% on a 3m annualised basis, the fastest it’s been since April 2023. So the concern for markets will be that inflation is showing some signs of rebounding, or at the very least stabilising at above-target levels.

When it comes to the Fed, the report led investors to dial back the rate cuts priced this year by -6.1bps, and futures now see 85bps of cuts by the December meeting. There was also a bit more doubt creeping into the chance of a cut by June, with 78% now priced in, down from 86% the previous day. But even with this slightly hawkish repricing, June is still considered the most likely timing for the first cut, which helped to support risk assets even though the print was above expectations. For the Fed, the most important question now will be how this affects the PCE measure of inflation, which is what they officially target. We won’t find that out until March 29th (Good Friday), but we should get a bit more info from the PPI report tomorrow, which has several components that feed into PCE.

The report led to a selloff for US Treasuries, with the 2yr yield (+5.0bps) up to 4.59%, whilst the 10yr yield (+5.4bps) rose to 4.15%. The 10yr yield had peaked at 4.17% intra-day shortly after the latest 10yr Treasury auction which saw slightly soft demand, with bonds issued +0.9bps above the pre-sale yield.

The fixed income selloff was echoed in Europe too, even if the overall performance was better there, with yields on 10yr bunds (+2.7bps) and OATs (+1.6bps) rising by a smaller amount. At the same time, markets remain confident of an ECB cut by June (priced at 91% vs 95% the day before). This is consistent with the latest ECB commentary, with Austria’s Holzmann (strong hawk) saying that a June cut was more likely than April, while France’s Villeroy suggested that “there’s a very broad agreement” to cut rates by the June meeting.

Yesterday’s main outperformer in the rates space were 10yr gilts (-2.5bps), which came after the UK labour market data was a bit weaker than expected over the three months to January. Notably, wage growth slowed to an 18-month low of +5.6% (vs. +5.7 expected), and the unemployment rate ticked up to 3.9% (vs. 3.8% expected).

Although sovereign bonds struggled yesterday for the most part, there was a much better performance for equities. In the US, the S&P 500 (+1.12%) closed at a new record, with tech stocks and the Magnificent 7 (+2.88%) leading the advance. Nvidia was +7.16% higher. Likewise in Europe, the STOXX 600 (+1.00%) hit an all-time high, and there were new records for the DAX (+1.23%) and the CAC 40 (+0.84%) as well. That said, gains more moderate outside of tech, with the equal-weighted S&P 500 up by +0.26%, while the small-cap Russell 2000 (-0.02%) narrowly lost ground for a 3rd consecutive day.

This backdrop was mostly positive for other risk assets. US HY credit spread fell -6bps, closing just 3bps above their 2-year low reached in late February. Meanwhile, Bitcoin posted a new intra-day high just shy of $73,000, surpassing the market cap of silver. Marion Laboure and Cassidy Ainsworth-Grace’s new report this morning discusses the upcoming halving event’s impact on Bitcoin prices, along with the Dencun upgrade scheduled for Ethereum today (link here).

Asian equity markets are mixed this morning with the Hang Seng (+0.26%) and the KOSPI (+0.11%) edging higher while the Nikkei (-0.36%) continues to drift back from last week’s all time highs. Elsewhere, stocks in mainland China are also seeing losses with the CSI (-0.59%) and the Shanghai Composite (-0.26%) dragged lower by property developers as Country Garden Holdings Co. missed a 96-million-yuan ($13 million) coupon payment on a yuan bond for the first time. Outside of Asia, US stock futures are struggling to gain momentum with those on the S&P 500 (-0.03%) and NASDAQ 100 (-0.06%) flat. In early morning data, the unemployment rate in South Korea unexpectedly dropped to +2.6% in February from January’s 3.0% level (v/s +3.0% consensus expectation).

Although the CPI release was the main data focus yesterday, there was also the NFIB’s small business optimism index from the US. That f ell to a 9-month low in February of 89.4 (vs. 90.5 expected). And there were also further signs of softening in the labour market, as the share planning to increase employment was down to a net +12, the lowest since May 2020 at the height of the Covid-19 pandemic. Likewise, the share of firms with positions they weren’t able to fill hit a three-year low of 37%.

To the day ahead now, and data releases include UK GDP and Euro Area industrial production for January. Central bank speakers include the ECB’s Cipollone and Stournaras. And in the US, there’s a 30yr Treasury auction taking place.