Month: November 2024

CNBC and other mainstream networks are screaming about a meeting between Elon Musk and Iran’s ambassador to the United Nations, which happened Monday, but is only now being revealed by the NY Times and others. They are questioning just how involved Musk is in America’s national security affairs.

The MSM is deeply concerned about such unofficial diplomacy, given Musk is closely advising President-elect Donald Trump and his transition team. And yet, this is how diplomacy among influential figures often happens:

Elon Musk, a close adviser to President-elect Donald J. Trump, met with Iran’s ambassador to the United Nations on Monday in New York in a session that two Iranian officials described as a discussion of how to defuse tensions between Iran and the United States.

The Iranians said the meeting between Mr. Musk and Ambassador Amir Saeid Iravani lasted more than an hour and was held at a secret location. The Iranians, who spoke on the condition of anonymity because they were not authorized to discuss policy publicly, described the meeting as “positive” and “good news.”

Indeed it is good news when “enemies” and rivals of the United States can be engaged positively, in search of efforts to achieve peace in a region on the brink of exploding into bigger war, with the alternative being more endless death, destruction, and runaway escalation.

While the Trump team has not issued official comment, it’s a great sign that Trump seems serious about deal-making toward ceasefire in places like Gaza, Lebanon, and Syria. According to more from the NY Times:

Karoline Leavitt, the transition spokeswoman for the incoming Trump-Vance administration, said in a statement: “The American people re-elected President Trump because they trust him to lead our country and restore peace through strength around the world. When he returns to the White House, he will take the necessary action to do just that.”

Of course, the Iranian ambassador to the UN is not hard to find. He has over the years been interviewed and engaged by countless independent media sources – and understandably the Islamic Republic might be distrustful of neocons and hawks on both sides of the aisle.

Given the Biden administration for much of the past year has been talking big about ceasefire, but with nothing to show for it, the fact that Musk is engaging Tehran from behind the scenes on behalf of the incoming Trump administration can only be a win in a regional conflagration where so many lives have already been lost on all sides.

“An early direct meeting between a senior Iranian official and Mr. Musk raises the possibility of a change in tone between Tehran and Washington under the Trump administration, despite a charged history between the president-elect and Iran,” the Times continues, admitting that yes – this is something to be hopeful about. “One of the Iranian officials said that it was Mr. Musk who had requested the meeting and that the ambassador picked the site.”

De-escalation, especially on the nuclear front, is a good thing (but try convincing the mainstream media and Washington foreign policy gate-keepers…)

Important & straightforward talks with DG @rafaelmgrossi this morning.

As a committed member of NPT we continue our full cooperation with the IAEA. Differences can be resolved through cooperation and dialogue. We agreed to proceed with courage and good will.

Iran has never… pic.twitter.com/bwLLzrKzwE

— Seyed Abbas Araghchi (@araghchi) November 14, 2024

But that aside, this is what the mainstream is most worried about

Mr. Musk has emerged as the most powerful private citizen in the Trump transition, and has sat in on nearly every job interview. During a call last week with Ukraine’s president, Volodymyr Zelensky, the president-elect handed the phone to the billionaire. Mr. Musk has played a key role in providing communications capability to Ukraine in the war with Russia.

If all of this puts the warring sides on a potential path toward de-escalation, then it’s something to welcome, instead of the usual sham accusations of ‘foreign influence’ or ‘compromise’ leveled by those usual deep state interests which have more to gain from perpetuating war and from the constant flow of arms that fuel it.

Authored by Lance Roberts via RealInvestmentAdvice.com,

Paul Tudor Jones recently voiced concerns that rising U.S. deficits and debt and increasing interest rates could lead to a fiscal crisis. His perspective reflects the long-standing fear that sustained borrowing will trigger inflation, raise interest rates, and eventually overwhelm the government’s ability to manage its debt obligations. In short, his thesis is that interest rates will rise as the Government goes broke. However, a closer look at historical precedent and current fiscal dynamics suggests these concerns are overstated. Contrary to Jones’ warnings, the U.S. economy has structural strengths that make an imminent fiscal collapse unlikely.

 

Paul Tudor Jones’ warnings are not unusual, but like James Grant’s views, they are not well supported by longer-term data. The chart below shows the long-term view of short and long-bond interest rates, inflation, and GDP.

The Fundamentals Of Interest Rates

Interest rates rose during three previous periods in history.

1. During the economic/inflationary spike in the early 1860s

2. The “Golden Age” from 1900-1929 saw inflation rise as economic growth resulted from the Industrial Revolution.

3. The most recent period was the prolonged manufacturing cycle in the 1950s and 1960s. That cycle followed the end of WWII when the U.S. was the global manufacturing epicenter.

The current surge in inflation, and ultimately interest rates, was not a function of organic economic growth. It was a stimulus-driven surge in the supply/demand equation following the pandemic-driven shutdown. As those monetary and fiscal inflows reverse, that support will fade. In the future, we must understand the factors that drive rates over time: economic growth, wages, and inflation. Visually, we can create a composite index of GDP, wages, and inflation versus interest rates.

As can be seen visually, the correlation between the economic composite and rates is high. The long-term trend lines suggest normalization of the economy and rates at 2.5%, assuming no recession.

However, Jones’s primary argument for not owning debt has nothing to do with the actual drivers of interest rates.

Debt and Interest Rates: A Complex, Nonlinear Relationship

Paul Tudor Jones argues that higher debt will increase interest rates and create unsustainable borrowing costs. In the interview, he repeated the “debt bears” mantra: the U.S. will eventually go bankrupt. However, his concerns overlook several critical economic realities.

First, the U.S. is a sovereign issuer of the world’s reserve currency. As such, the U.S. government cannot run out of money in a manner that a business or individual can. Debt rollovers, global demand for Treasuries, and flexible monetary policy all work to prevent a fiscal collapse. I am not suggesting that rising deficits and debt levels are NOT challenging. As we will explain momentarily, debt impedes economic growth. However, rising debt and deficit levels do not make bankruptcy inevitable.

Secondly, rising government debt has not correlated with higher interest rates over the past few decades. Since 1980, total U.S. debt as a share of GDP has surged from 156% to nearly 353%. However, economic growth and interest rates slowed during that period. Despite increasing debt, slower economic growth reflects the diversion of productive capital into non-productive debt service. In other words, debt is “deflationary” as it retards economic prosperity.

Lastly, the U.S. is not alone in this current cycle. Major economies like Germany, Switzerland, and Japan have successfully issued long-term debt at near-zero or even negative interest rates. These cases demonstrate that investor demand for government bonds often outweighs concerns about debt levels, particularly when governments offer stability. The U.S. Treasury market is the most significant and liquid globally. That means there will likely continue to be a high demand for U.S. debt, even with increased debts and deficits. As countries seek high levels of safety and liquidity to store their fiscal reserves, the U.S. Treasury will remain the asset of choice.

Inflation Risks Remain Under Control

Jones’s concern about inflation resulting from high deficits overlooks the complex interplay of fiscal and monetary policy and structural economic factors. Inflation can indeed rise if government spending outpaces the economy’s productive capacity. However, recent inflationary pressures in the U.S. were driven largely by supply chain disruptions, energy shocks, and pandemic-related spending rather than chronic deficits.​

To understand inflation shock, we can remodel our economic composite above to represent the drivers of inflation. Wage growth provides consumers with more money to spend. As consumers spend more money, economic demand increases, increasing prices. As economic demand strengthens, borrowing costs increase to reflect stronger demand for loans, passed on through higher prices. Therefore, unsurprisingly, inflation has an 85% correlation to economic growth, rising wages, and higher rates.

The fallacy in Jones’s argument should be evident. Interest rate increases, without a subsequent rise in economic growth and wages to support higher borrowing costs, slows economic activity. Slowing economic growth leads to increased unemployment, thereby reducing inflation and interest rates.

The Japan Experience

Furthermore, Jones’ example of the “Japan experience” with debt fails to support his concerns. In Japan, high debt levels did not lead to runaway inflation or surging interest rates. Despite a 250% debt-to-GDP ratio, Japan faced persistent deflation and falling interest rates for the past 30 years. The debt problem was compounded by weak demand and an aging population. Those factors, when combined, suppressed inflationary pressures despite aggressive monetary easing​

In advanced economies with robust institutions and stable financial systems, inflation risks from deficits are more manageable than Paul Tudor Jones suggests.

I am certainly not ignoring the current fiscal challenges. Those are undeniable, with the national debt nearing 120% of GDP and deficits projected to persist due to rising healthcare and Social Security costs. However, those levels suggest economic growth will weaken, inflation will ease, and interest rates will decline over time.

Debt Rollovers and Fiscal Sustainability

Contrary to Jones’ assertion that debt will become unmanageable, debt rollovers are a standard practice for governments with large borrowing needs. The U.S. Treasury regularly issues new debt to refinance maturing obligations, spreading repayment costs over time. Historical data shows that even when debt levels rise temporarily, they can stabilize through economic growth, moderate inflation, and fiscal adjustments.​

A research paper by Paul Goldsmith-Pinkham suggests that higher debt levels do not inherently raise fiscal costs. As long as real interest rates remain below the economy’s growth rate, governments can roll over debt without increasing the debt burden. This scenario has played out in the U.S. in recent years, with strong post-pandemic growth helping to offset the cost of higher borrowing.​

Reality: The U.S. Is Unlikely to Face a Fiscal Crisis Anytime Soon

Jones’ prediction that rising debt will lead the U.S. toward financial ruin underestimates the resilience of the American economy and the tools available to policymakers. The U.S. enjoys several structural advantages—such as the global demand for Treasuries, the dollar’s reserve currency status, and the Federal Reserve’s ability to manage liquidity—that make a debt crisis highly unlikely. While rising deficits and interest rates present challenges, the U.S. has ample capacity to manage its debt sustainably, especially if economic growth remains near long-term trends.

However, given the impact of rising debt, increasing deficits, and demographic headwinds (the 3-D’s), which retards economic prosperity over time, Central Banks will continue to suppress interest rates to keep borrowing costs down.

As with James Grant’s analysis, the problem with Paul Tudor Jones’ assumption that rates MUST go higher is three-fold:

• Central Banks will continue to buy bonds to maintain the current status quo but will become more aggressive buyers during the next recession. The Fed’s next QE program to offset the next economic downturn will likely be $6 trillion or more, pushing the 10-year yield towards zero.

• All interest rates are relative. The assumption that rates in the U.S. will move substantially higher is likely wrong. Higher yields on U.S. debt attract flows of capital from countries with low to negative yields, pushing rates lower in the U.S. Given the current push by Central Banks globally to suppress interest rates to keep nascent economic growth going, an eventual one percent yield on U.S. debt is not unrealistic.

• The budget deficit balloon. Given Washington’s lack of fiscal policy controls and promises of continued largesse, the budget deficit is set to swell above $2 Trillion in coming years. This will require more government bond issuance to fund future expenditures, which will be magnified during the next recessionary spat as tax revenue falls.

If you need a roadmap, refer to the chart of Japan above.

Historical evidence suggests that interest rates will be lower, not higher, unless the Government embarks on a massive infrastructure development program. Such would potentially revitalize the American economy and lead to higher rates, more substantial wages, and a prosperous society.

However, outside of that, the path of interest rates in the future remains lower.

Elon Musk could be on his way to becoming the first trillionaire by the end of the decade, as two of his private companies soar in value, while his public company, Tesla, recently surpassed a trillion dollars in market capitalization. 

A new report from the Financial Times cites people familiar with the discussions, stating that Musk’s SpaceX—the world leader in rocket launches and high-speed space internet (via Starlink)—is preparing to launch a tender offer in December to sell existing shares at $135 each. This indicates that the rocket company’s valuation has surged by another $40 billion, reaching $250 billion, up from $210 billion earlier this year.

Starship rocket booster caught by tower pic.twitter.com/aOQmSkt6YE

— Elon Musk (@elonmusk) October 13, 2024

The people said Musk’s artificial intelligence startup xAI recently raised $5 billion at a valuation of $45 billion, doubling in just a few short months. Soaring values in Musk’s private companies have added to his overall net worth. 

Musk’s cozy relationship with the Trump administration will likely result in Tesla winning the multi-year EV price war. A Reuters report from Thursday detailed how Donald Trump was planning to eliminate the $7,500 consumer tax credit for EVs. In return, this would destroy Musk’s competition, such as Rivian, Luicid, and legacy automakers.

As we previously noted, “Musk’s strategy to win the EV price war: Build the largest EV business with taxpayer dollars, popularize EVs, allow other startups and OEMs to enter the market, and then support politicians who want to end EV subsidies, crushing the competition and leaving Tesla reigning supreme.”

Meanwhile, ‘the Trump bump’ in equity markets sent Tesla shares over the trillion-dollar market cap level this past week.

According to the Bloomberg Billionaires Index, Musk’s net worth has risen to $306.5 billion, up $77.5 billion on the year – primarily because of the latest Tesla price surge. 

In September, wealth-tracking website Informa Connect published a report forecasting Musk could become the world’s first trillionaire by 2027. This news is likely disheartening for struggling WeWork co-founder Adam Neumann, who famously said in 2019 that he wanted to live forever and become the first trillionaire. 

Musk’s dominance in space, EVs, AI, and media—with no other billionaire even close to his level of success, and more importantly, to his contributions to the nation’s success in this global technology race—has only infuriated far-left, anti-American Democrats…

If you’re wondering how bitter the Left is at @elonmusk for trying to save America, Maddow is straight up demanding the Kamala administration (not gonna happen!) cancel all SpaceX govt contracts. Because “national security.” pic.twitter.com/kihdzhkAZS

— Buck Sexton (@BuckSexton) November 5, 2024

… who are now calling for the dismantling of Musk’s companies. 

Authored by Jeffrey A. Tucker via The Epoch Times (emphasis ours),

Commentary

The original “Jetsons” series from 1962–1963 is not easy to find in syndication. That’s too bad. It was a wonderful show. 

The theme of this animated show (“cartoon”) was that in the future the technology would make life much more convenient but all the usual problems would still be there. The kids would still be annoying and expensive but ultimately del ightful, the job still arduous even if it is only a few hours a week, the boss would still be officious, people would still get sick, and all the normal dynamics of human life would still be there. 

The original Jetsons was the opposite of transhumanism. All that would really change is that everything would be speedier. The cars would fly. We would live in the clouds. We would have a video phone. Robots would do the chores. Teachers would be electronic. We would travel with ease. Buildings would appear much more quickly, and be torn down too. 

There would still be cops on the beat, thieves on the loose, lessons to learn at school, and teenage daughters that spend too much money. Hilariously, the little robots flying around always had puffs of smoke coming out of them as if powered by natural gas. You still had to fuel them. 

That’s what made the series so delightful. The future promises to be wonderful but not solve all our problems. Human nature itself would still be present, unchanged, and present the usual challenges and dilemmas. The series both ramped up our expectations and dialed them back. 

It was oddly realistic. We did (eventually) get video phones, electronic teachers, and work itself would be lessened in physical difficulty and time spent. But that would only leave us with the same old problems of quirky personalities, family instability, problems with coworkers, and capital depreciation (everything was always being repaired). 

In that way, the series perfectly captured the culture of a time and its forward vision. 

I wrote a book about it (“It’s a Jetsons World”). It was the height of techno-enthusiasm. I tried to be realistic but I was caught up in the moment, and was a bit too optimistic and had not considered the downside of digital everything. 

In particular, I had not thought through the implications of such a speedy conversion from analogue to digital and just how fragile that would be. Nor had I considered the surveillance angle much less the way our information would become commodified and sold to governments to oppress us even more. Finally I had not imagined that the corporate leadership of the new digital world would be so compromised by involvement in government. 

It struck me that all this new technology represented nothing but liberation. I was wrong about that and had not taken seriously the first lesson of the Jetsons show, namely that all the problems would remain present despite all the technological changes. 

In my book, I mention briefly that the series was rebooted twenty years later, in the mid-eighties. It had better production values, and some new characters. The biggest change was that the mood was darker. The gadgets changed from happy and friendly to vaguely burdensome even to the point of being menacing. 

The machines started talking back and even pushing back. Humans were less in charge and machines more so. They became a source of oppression rather than a universal force of emancipation. They seemed almost to have volition. In a brilliant anticipation of “artificial intelligence” humans seemed to lose some modicum of control as the machinery became ever more imposing. 

I never liked the rebooted series probably because it was suggesting something that I did not want to hear. I did not believe back in 2011 when my book came out that my glorious phone and my wonderful websites would eventually turn on me. But, as it turns out, the reboot of the series was precisely right, as we began to learn some twenty years later. 

It’s long past time that we all take a more critical look at the technologies that define our current times. The National Security Administration and the government generally have become major customers of all the main platforms, including Amazon with its acres of servers for sale and Microsoft which sells so much to the state. 

That’s just the start of it. Big tech giants have been found to be promoting, without being asked, visions of the world that are contrary to what a majority of Americans favor, as well as engaging in censorship surrounding key elections, showing themselves to be far from neutral. 

For making available a relatively censorship-free venue, Elon Musk’s X has been pilloried by lawfare of all sorts, and became a pariah in the tech world simply by showing support for Trump over the censors. 

There are ways to push back by simply saying no. I used to love these home appliances made by Google, Amazon and the like until I realized that, of course, they are, in effect, tools of surveillance. Yes, they are always listening, else they could not hear when you call them to attention. Once you think about it, the denials are preposterous. 

Because I was such a fan, one company kept sending more appliances to me. I had three in my home in addition to the main one, and started giving them out to friends. One day it dawned on me that this company was not being sweet and generous but rather had its own self-interest going on. I dreaded it because I had gotten used to them all, but I unplugged them all and threw them out. 

Thereafter I would have to check the time by looking instead of yelling and have to stop and start music by standing up and moving around the room. It turned out to be just fine. I missed nothing about these contraptions. In fact, it was the reverse. I found myself relaxing precisely because I did not have a surveillance device in my home! It felt private for the first time in many years. 

Try it out yourself! I took a hammer to mine. It felt good. 

I’ve turned off as many notifications as possible on my phone and experienced blessed peace as a result. I’ve learned to eschew all “smart” products and choose old-fashioned ones. I’m much happier as a result. Similarly, there is a case for storing up some silver dimes and cash in case the empire of digits goes down. 

There are many ways to secede from all the nonsense. It just takes a bit of effort. 

What I want is to go back to the first iteration of “The Jetsons” when the technology was fun while hoping to avoid the second interaction when the technology became a menacing threat to the good life. 

Speaking of which, can Trump please restore the old Smithsonian Museum of Arts and Industry in Washington, D.C.? It was the first one erected. It was a glorious homage to the practical arts that made America great. It was closed and replaced in the Obama years with a “Museum of the Future” filled with junk no one wants to see. The great things that filled the museum are now stored in a government warehouse somewhere. Maybe Trump can bring it back! 

We’ll see. I don’t believe a president can solve all the problems with technology today. That leaves it to the rest of us to be more attentive and not find ourselves blindly stumbling into a dystopian world created by a bunch of irresponsible and freedom-hating tech titans. We should be in charge of the machines and not the reverse. 

It’s good to be reminded of that from time to time. 

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times or ZeroHedge.

In the latest surprising development accompanying Donald Trump’s return to the presidency, the New York Times has reported that Trump advisor Elon Musk quietly met with Iran’s United Nations ambassador on Monday to discuss how the United States and Iran might ease tensions.  

News of Musk’s peace-seeking overture came after Trump caused widespread dismay among America-First conservatives and libertarians by nominating an assortment of anti-Iran hawks and zealous backers of the State of Israel to important foreign policy and national security positions. Those selectees included Sen. Marco Rubio for Secretary of State, Fox News host Pete Hegseth for Secretary of Defense, and New York Representative and campus speech-policer Elise Stefanik for UN ambassador. 

Given Israeli Prime Minister Benjamin Netanyahu’s long-held ambition to enmesh America in a war with Iran, Trump’s decision to surround himself with extreme advocates for Israel dampened hopes that he would make good on his campaign pledge to bring peace to a long-smoldering Middle East that’s been ravaged by escalating and widening warfare since the Oct. 7 2023 Hamas invasion of southern Israel. However, the revelation of Musk’s meeting with Iranian UN Ambassador Amir Saeid Iravani bolstered hopes of an earnest Trump pursuit of “peace through strength.” 

According to the Times report, which cited anonymous Iranian officials, the meeting was initiated by Musk, and was held at a secret New York location of the Iranians’ choosing. The Iranians characterized the discussion as “positive” and “good news.” Iravani was said to have made a direct business appeal to the world’s richest man, urging him to pursue an exception to America’s dense thicket of sanctions that bar companies from doing business with Iran. 

Trump communications director Steven Cheung deflected an inquiry about the meeting: “We do not comment on reports of private meetings that did or did not occur,” he said. However, transition team spokeswoman Karoline Leavitt issued a statement that seemed to implicitly confirm the meeting, telling the Times: 

“The American people re-elected President Trump because they trust him to lead our country and restore peace through strength around the world. When he returns to the White House, he will take the necessary action to do just that.”

Iranian foreign minister Abbas Araghchi took to social media on Wednesday to reiterate his government’s interest in pursuing peace. Following a meeting with International Atomic Energy Agency director general Rafael Mariano Grossi, Araghchi wrote, “Differences can be resolved through cooperation and dialogue. We agreed to proceed with courage and good will. Iran has never left the negotiation table on its peaceful nuclear program.”

“The reason why Elon’s outreach is so important is that Tehran is on the cusp of deciding whether to prepare for Trump’s sanctions escalation by expanding Iran’s nuclear and missile program and potentially even retaliating against Israel’s October 26 strikes through a massive attack on the country,” wrote the Quincy Institute’s Trita Parsi on X. “This could, of course, set off a major war that could engulf the US.”

During his first administration, Trump — who has received $200 million in campaign contributions from pro-Israel billionaires — withdrew the United States from a painstakingly-negotiated agreement between Iran and several Western nations that imposed unprecedented restrictions and transparency on the country’s nuclear program. Iran remains a party to the Nuclear Non-Proliferation Treaty. Meanwhile, Israel — which possesses an estimated 90 or more nuclear warheads — has refused to join, which makes every dollar of American aid to Israel illegal under US law.    

Trump also ordered the assassination of Iranian general Qassim Suleimani, a move that was condemned at the time by Tulsi Gabbard, whom Trump this week selected to serve as his Director of National Intelligence. Calling it an “illegal and unconstitutional act of war,” Gabbard asked, “Is our country’s national security better off because of Donald Trump’s actions and decision? And the answer to that is no.”  

Musk’s involvement in high-stakes Middle East diplomacy underscores the extraordinary role he’s playing in the Trump transition, as the Times noted: 

Mr. Musk has emerged as the most powerful private citizen in the Trump transition, and has sat in on nearly every job interview. During a call last week with Ukraine’s president, Volodymyr Zelensky, the president-elect handed the phone to the billionaire. Mr. Musk has played a key role in providing communications capability to Ukraine in the war with Russia.

Given his early personnel decisions, Trump will face intense pressure from aggressive interventionists in the mold of his previous national security advisor John Bolton. To an even greater extent than before, his new administration will pit America First principles against what George Washington would have characterized as a dangerous, “passionate attachment” to Israel. 

It’s something like an immovable object meeting an unstoppable force. To ensure America First prevails, here’s hoping Musk can quickly demonstrate a mastery of political science that’s as extraordinary as his command of the physical sciences — millions of lives and trillions of dollars hang in the balance. 

The Empire State Fed Manufacturing Survey of general business conditions exploded higher in November. The headline general business conditions index shot up forty-three points to 31.2, its highest reading in nearly three years. New orders and shipments rose substantially

Source: Bloomberg

That is the second largest MoM jump in the survey’s sentiment in history (beaten only by the massive stimmies in June 2020 of the COVID lockdowns)…

Source: Bloomberg

“Manufacturing activity grew strongly in New York State in November, with firms reporting sharp increases in new orders and shipments. Price increases remained steady and modest while firms remained optimistic about future conditions.”

~Richard Deitz, Economic Research Advisor at the New York Fed

But, while New York businesses seem to love Trump (we don’t know when the survey was taken but still, it’s a funny move to ascribe to a business-unfriendly Democrat win?), US Industrial Production declined 0.3% MoM in October (-0.4% exp) and was revised lower for September

Source: Bloomberg

…and Manufacturing contracted for the second straight month (4th of the last 5)…

Source: Bloomberg

Bear in mind that September’s Industrial Production was revised lower – the ninth downward monthly revision in the last ten months…

Source: Bloomberg

Finally, capacity utilization tumbled to just 77.1% – its lowest since April 2021…

Source: Bloomberg

A bone for the doves!

Shares of vaccine makers slumped in premarket trading, extending losses for a second day after President-elect Donald Trump nominated Robert F. Kennedy Jr. as the Secretary of Health and Human Services. Wall Street analysts told clients this development has sparked vast uncertainty across the biotechnology sector. 

The 70-year-old Kennedy has been a longtime health advocate, and Trump said he would let Kennedy “go wild” should he win the November 5 election.

“He’s going to help make America healthy again. … He wants to do some things, and we’re going to let him get to it,” Trump said during his victory speech.

However, making America healthy again will require a complete overhaul of the FDA and USDA. Kennedy could dismantle the longstanding cozy relationships between big pharma and the federal government during Trump’s second term. This very prospect spooked vaccine stocks in premarket trading in New York, extending losses from Thursday.

US Premarket: 

• Moderna (-2.2%), Novavax (-2.6%) and BioNTech (-2.1%) extended losses from Thursday’s decline

EU Cash: 

• In Europe, shares of European vaccine makers such as Sanofi and GSK traded lower

“Healthcare/Pharma in focus this morning (GSXEPHAR), following Robert F Kennedy being confirmed as Trump’s nominee for health secretary which sparked a pharma and specifically vaccine makers sell off into the close yesterday. To this point, Kennedy has been vocal on vaccines in the past, seen as one of the most prominent anti-vaxxer’s in the US. Hence witnessing a -3sd move in our Pharma basket,” Goldman’s Martin Ehigiator told clients on Friday morning.

Deutsche Bank analyst Emmanuel Papadakis told clients this morning that his team slashed GSK’s rating to “Hold” following the news. 

“We consider vaccines to be amongst the greatest scientific achievements to impact public health: unfortunately this view is not shared by the nominee,” Papadakis said. 

Kennedy’s track record of questioning experimental mRNA vaccines and taking on government bureaucracies overseeing the vaccine industry has caught the attention of many Americans… 

He stated earlier this year:

“Something is wrong with that whole system … 

“When you feed a baby, Bobby, a vaccination that is like 38 different vaccines and it looks like it’s meant for a horse, not a10-pound or a 20-pound baby… do you ever see the size of it, its massive, then you see the baby all of a sudden starting to change radically. I’ve seen it too many times.”

And, of course, Kennedy taking on big pharma’s corruption in federal agencies and the entire public health sector is just bad news for profits. Wall Street analysts outlined this very clearly to clients (courtesy of Bloomberg): 

RBC Capital Markets

• Analyst Brian Abrahams says Kennedy’s selection may have “far- reaching and difficult-to-project implications for the biotechnology sector”
• This, Abrahams says, adds a “considerable layer of uncertainty and challenging investability until there is greater clarity on his likelihood of actually gaining the role, his directives, and who else will lead the other key federal healthcare agencies”
• There is uncertainty over whether Kennedy will ultimately take the role, and that could mitigate potential risks, though Abrahams says it looks “more likely than not he will”

JPMorgan

• Analyst Chris Schott says it is difficult to evaluate the exact impact Kennedy would have on the biopharma industry at this point, but is not surprised the sector has come under pressure due to Kennedy’s previously stated views
• With the HHS secretary overseeing organizations with around 80,000 employees along with various federal and state laws, Schott expects it would take time to enact major changes

Wells Fargo

• Analyst Larry Biegelsen says Kennedy’s recent policy ideas are not focused on medtech; this could result in the sector “being relatively well positioned within healthcare”
• However, while current policy ideas do not directly impact devices, they “may indirectly or they could in the future,” Biegelsen says
• For example, Kennedy’s concerns about vaccines may “lead to a reduction in vaccination rates which would negatively impact device companies that make the syringes for vaccines,” Biegelsen says

TD Cowen

• Analyst Rick Weissenstein says he continues to believe Kennedy will not be confirmed by the Republican-controlled senate, but notes Trump could use a recess appointment to get him into office
• “If Trump manages to make a recess appointment, RFK Jr.’s term would only last for about two years at the most, though Kennedy Jr. could be appointed again through the same recess appointment or through the regular senate confirmation process”

RBC’s Abrahams noted, “Whether RFK ultimately takes the seat is still uncertain,” adding, “The Senate may push back.” 

Kennedy founded the nonprofit Children’s Health Defense about a decade ago, one of the most well-funded organizations focusing on children’s health. 

Meanwhile, CNN’s Sanjay Gupta melted down over Kennedy’s new possible role to head up HHS. 

“I can’t think of any single individual who would be more damaging to public health than RFK,” Gupta said.

CNN freaking out about @RobertKennedyJr taking over HHS: “Somebody said to me today, ‘I can’t think of any single individual who would be more damaging to public health than RFK'” pic.twitter.com/r4742BvIwF

— Tom Elliott (@tomselliott) November 14, 2024

In other words, Kennedy would disrupt and ban big vaccine companies from controlling the airwaves with advertising dollars, and in return, ad revenues for CNN and other MSM outlets would plummet. 

Also, Stephen Colbert threw a tantrum overnight because this meant the late-night show’s ad revenues from big pharma would implode.

CNN freaking out about @RobertKennedyJr taking over HHS: “Somebody said to me today, ‘I can’t think of any single individual who would be more damaging to public health than RFK'” pic.twitter.com/r4742BvIwF

— Tom Elliott (@tomselliott) November 14, 2024

Colbert was big pharma’s cheerleader. 

Stephen Colbert, winning hearts and minds of the vaccine hesitant pic.twitter.com/fa98vRrcRj

— Daily Caller (@DailyCaller) September 29, 2021

Before the 2020 election Stephen Colbert was doing skits encouraging people to be skeptical of Big Pharma and its motives.

After the election he was dancing like a fool while surrounded by people dressed as syringes. pic.twitter.com/9IXtxKRi7M

— MAZE (@mazemoore) March 29, 2024

Why does the only remedy for illness always seem to be vaccines and medicines from big pharma? Well, it’s a big business. Eating healthy and exercising doesn’t make Wall Street money. It’s time for reform. 

By Russell Clark, author of the Capital Flows and Asset Markets substack

America Created The Trade Imbalance

Donald Trump has rallied against nations that run trade surpluses with the US, accusing them of stealing American jobs. Prior to the 1980s, the US ran a flat current account (of which the trade balance is the largest component). Moving from the gold standard was a key driver in the ability for trade deficits to open up. But why does only the US run such large trade deficits?

Korea offers a good explanation of how America created the trade deficit. The Korean example pretty much generalizes across east Asia, and unlike Japan in 1980s, or China now is not seen as a threat, so it allows for more rational analysis. During the boom years of Korea in the early 1990s, it was running a close to flat trade balance. It was importing as much as it was exporting.

Korea’s problem was that it had come to rely on global (read American) financing. We can most clearly see this using BIS data. This looks at claims of foreign banks by Koreans versus claims by Koreans on foreign banks. When the number rises, it means foreign banks are more heavily participating in the Korean financial system.

Surges in lending in 1997 and 2007, preceded the Asian Financial Crisis and Global Financial Crisis. When the flow of capital turned, the Korean Won suffered, and economic activity in Korea weakened dramatically.

Koreans (and in fact Asian, Latin American, Russians and most emerging markets) learned that foreign (mainly American) financing could not be relied on, so nations needed to have strong exports, and to build up foreign reserves. In this respect they were following in the steps of Japan. Prior to Japan, almost all foreign reserves were held as gold, but Japan started to build US treasury reserves, in part to try and slow the strengthening of the Yen.

The rest of the world followed suit, and by 2013, we can count 12 trillion in foreign reserves.

Talk of foreign reserves, and currency movements tend to obscure the simplicity of what is really happening. Governments learned that financial markets can be volatile, and so made a choice to reduce their consumption, and build up savings. Someone had to lend to them, and that was the US. Unlike a bank, this lending happened via trade balance, where the US consumed more that it made. The problem, as we see above with Korea, is when lending nations, like Korea also start to become borrowers. When there are only borrowers, someone is going to not get a loan, and the cycle breaks down. So far, China has been happy to be a lender, in so far it has a record trade surplus.

Trump’s trade policies seem to be focused on getting the trade surplus in balance. I can also safely assume, that he does not plan to achieve this through austerity and recession. For Asian nations they are faced with a tricky choice. Relying on exports, and building foreign reserves leaves them exposed politically, and at risk of tariffs and trade wars. The better option is to stimulate. Japan is probably ahead of the curve in this respect. They have embarked on very stimulatory policy, although relied too heavily on Yen weakness.

But despite Yen weakness Japanese foreign reserves are declining. When I was there in May, it was booming.

We have already seen an inflection in the long term trend of Treasuries versus gold. What happens when China realizes it has no option but to stimulate?

In a strange way, perhaps China’s refusal to stimulate is perhaps the most bullish thing in the market. Collapsing Chinese yields have coincided with great strength in US assets.

In contrast to China, US 30 year treasury yields are looking to test 5% again in my view.

If China chooses to stimulate to reduce its trade surplus, then even higher yields look likely to me. I think Asians have been slow to realize that the game has changed, although Shinzo Abe and Japan seemed to understand it early on.

Stimulus is the only game in town now. When China stimulates, who will be left to lend to the US?

If the omniscient chaps at BofA are right, the soft landing narrative is about to crash as they forecast a well below consensus tumble in retail sales this morning…

Source: BofA

…but notably this is mainly due to seasonals, apparently. Seasonal adjustments are likely to impact the October retail sales report. The Census Bureau’s projected seasonal factor (SF) for October 2024 is considerably less favorable than the October 2023 SF. Meanwhile, the October SF in the BAC card data is little changed from last year.

Source: BofA

So, given all that, what happened!?

Well, a lot!

• The headline retail sales print beat expectations rising 0.4% (+0.3% exp).

• Core retail sales (ex-autos and gas) disappointed, rising just 0.1% (+0.3% exp).

• But the Control Group – which is used for GDP calculations – tumbled 0.1% MoM (+0.3% exp).

BUT – the disappointments are likely driven by major upward revisions to the prior month

• Headline September revised up from +0.4% MoM to +0.8% MoM.

• Core revised up from +0.7% to +1.2% MoM.

• Control Group revised up from +0.7% MoM to +1.2% MoM.

Source: Bloomberg

The driver of the headline beat was all cars and food…

Core retail sales growth slowed on a YoY basis…

Source: Bloomberg

On a non-seasonally-adjusted basis, retail sales jumped 6.8% MoM…

Source: Bloomberg

A big outlier of an adjustment for an October… it’s almost as if they wanted to make the numbers look bad on purpose…

This is odd: Census Bureau used a surprisingly weak – and a big negative outlier – seasonal adjustment factor for retail sales. If comparable adj factor had been used as prior Octobers, retail sales would have been a 1% increase pic.twitter.com/TbtKyyNQop

— zerohedge (@zerohedge) November 15, 2024

The Control Group data is ‘noisy’ – September was revised up to its strongest MoM jump since Jan 2023 (but this was the second monthly decline in nominal retail sales in three months)…

Source: Bloomberg

A real Goldilocks of a data set there – hot headline, cool core, ugly control group – take your pick, dove or hawk!

US equity futures drop, and global stocks slide after Fed chair Jerome Powell signaled the Federal Reserve was in no rush to cut interest rates, and unease built over the composition of Donald Trump’s cabinet. As of 8:00am ET, S&P futures were down 0.5%, off session lows; and pointing to a second day of declines; Nasdaq 100 futures were down 0.9% with Mag 7 mostly lower: AAPL, MSFT and META are all 1.0% lower. Drugmakers Moderna, Novavax and BioNTech all slid in New York premarket trading after Trump picked vaccine-skeptic RFK Jr, as his Health secretary. Domino’s Pizza Inc. was among the prominent gainers, after Buffett took a small stake in the restaurant chain. Europe’s Stoxx 600 index slipped 0.3%, on track for its fourth weekly drop, with pharma sector among the biggest laggards, while the MSCI Asia Pacific Index climbed as much as 0.7%, snapping a five-day loss. Bond yields are modestly lower, and the USD retreated, trimming its weekly gain, as some market participants took profit before key data later on Friday and ahead of speeches from Federal Reserve policymakers despite Powell’s clearly hawkish comments. Commodities are mixed, with oil flat, reversing an earlier loss of -1.4%; base metals are lower, while precious metals rise.

Today, we will receive a slew of growth data: more clarity on the Fed’s path may emerge Friday, with retail sales data due and a host of Fed officials set to speak. Bank of America real-time credit and debit card data suggest a big miss in today’s retail sales print. We also get the October Industrial Production data.

In pre-market trading, Moderna and other vaccine makers fell in premarket trading after President-elect Donald Trump said he was tapping vaccine skeptic Robert F. Kennedy Jr. to lead the Department of Health and Human Services. Moderna -2%, Novavax (NVAX) -1%. Domino’s Pizza rose 6% after Berkshire Hathaway bought stock in the pizza chain as Chairman Warren Buffett cut back on some long-held investments. Here are some other notable movers:

• Alibaba ADRS (BABA) rises 3% as a profit beat offset revenue that came in below analyst estimates.
• Applied Materials (AMAT) drops 8% after the semiconductor capital equipment company gave an outlook that raised concerns over chip spending.
• Despegar.com (DESP) rises 13% after the online travel booking services company reported third-quarter revenue that beat estimates.
• Palantir (PLTR) gains 2% after the AI software maker said it was transfering its stock listing to Nasdaq from NYSE.

The S&P has now given up about a third of the trough-to-peak gains notched after the US presidential election, as some of the optimism over corporate growth under Trump fades. There’s also realization that interest rates will fall less quickly than anticipated, with recent data showing still-elevated inflation pressures and Powell confirming the Fed may take its time easing policy.

“Equity markets seem to be adjusting to the new rate cut trajectory but it doesn’t seem to be a game changer,” said Mathieu Racheter, head of equity strategy at Julius Baer Group Ltd. “Some controversial cabinet announcements obviously do not help the market.”

Powell’s remarks have pushed odds on a December rate cut to less than 60% from roughly 80% a day earlier. Yields on two-year Treasuries steadied after jumping in the previous session in response. The higher-for-longer rates view is supportive for the dollar, however. The greenback stayed below two-year highs hit on Thursday, but is set for its seventh straight weekly gain. More clarity on the Fed’s path could emerge later Friday, as the US releases retail sales data and a host of Fed officials are set to speak.  

In Europe the Stoxx 600 index slipped 0.3%, on track for its fourth weekly drop, with pharma sector among the biggest laggards, after Trump named RFK Jr to the top health-policy role. Vaccine makers Sanofi, GSK Plc and AstraZeneca Plc fell after the news. Generali and Aegon are both among the biggest gainers, both on their respective solid earnings. Here are the biggest movers Friday:

• Generali advance as much as 5.7%, the best performing stock on the Stoxx 600 Insurance Index, after the Italian insurer beat profit estimates and analysts said it’s on track to meet targets
• Aegon shares rise as much as 4.1% to hit their highest level since May, after the financial services and insurance company lifted its operating-capital generation guidance for the full year
• Evotec surges as much as 23% after the German drug developer received a non-binding proposal from Halozyme Therapeutics to acquire the company for €11 per share, valuing the firm at €2b
• Continental shares rise as much as 3% to their highest intraday value since June as UBS says the planned spinoff of the German car parts firm’s automotive division looks increasingly likely
• Land Securities shares rise as much as 3% after the property investment firm upgraded its guidance. Shore Capital noted management is more confident about an improvement in rental growth
• TT Electronics jumps as much as 39%, the biggest gain in four years, after rejecting takeover proposals tabled by fellow London-listed firm Volex, which has slumped as much as 11% this morning
• InterContinental Hotels edge up as much as 1.1%, hitting a new record-high, after analysts at Barclays upgraded the stock and said they now prefer the hotelier over its rival Whitbread
• European vaccine makers trade lower on Friday, weighing on the broader healthcare sector, after US President-elect Donald Trump said he’s tapping Robert F. Kennedy Jr. to run the Department of Health and Human Services
• Cargotec falls as much as 9.5% after the Helsinki-listed company signed an agreement to sell its MacGregor business to funds managed by Triton for an enterprise value of €480m

Earlier, in Asia the MSCI Asia Pacific Index climbed as much as 0.7%, snapping a five-day loss. Samsung Electronics provided the biggest boost as the South Korean chipmaker rose the most in four years. Mizuho Financial Group and Toyota Motor were among the other notable contributors to the advance. China’s CSI 300 Index dropped despite signs of resilience in the nation’s economy as concerns over a deepening rift with the US outweighed signs of economic stabilization. “Concerns over the Trump administration continue to suppress market risk appetite,” said Ken Chen, an analyst at KGI Securities, referring to Chinese equities. “In addition, some investors interpreted authorities’ appeal to build a slow bull market as an intention to cool down the rally, so they chose to take profit when they can.”

The dollar retreated, trimming its weekly gain, as some market participants took profit before key data later on Friday and ahead of speeches from Federal Reserve policymakers. The market pivoted from Trump trades to the Fed’s cautious tone on interest-rate cuts. Traders pared back December Fed rate-cut odds after Chair Powell’s remarks on economic resilience, stabilizing Treasury yields after Thursday’s swings. The yen outperformed G-10 FX near 155.20/USD on intervention speculation.

In rates, treasuries are mixed with front-end outperforming, recouping some of the losses from late Thursday after comments by Powell curbed wagers on a December rate cut. The yield curve is steeper, likewise reversing part of the flattening reaction to Powell. Front-end yields are richer by more than 3bp with 30-year slightly cheaper on the day; 2s10s and 5s30s curves are nearly 3bp steeper near session wides, erasing about half of Thursday’s flattening. Two-year USTs outperform comparable bunds and gilts, with US yields down 2bps to 4.32%; the US 10-year is little changed around 4.43%, Germany’s also little changed while UK 10-year yield is ~1bp lower on the day. Friday’s US session includes four Fed speakers and retail sales data.  

In commodities, oil and gold headed for a weekly drop, weighed down by the stronger dollar. WTI crude drops 1.1% to $67.94, gold steadies at $2,566/oz.

Another of the so-called Trump trades, Bitcoin, also gave up some gains. It hit a record $93,000 level earlier this week on hopes of crypto-friendly policies from the new US administration, but has since dipped back to $87,000.  “Much of the good news is already priced into Bitcoin. What the market needs now are concrete political steps from the Trump administration,” said Jochen Stanzl, Chief Market Analyst at CMC Markets. “Otherwise, as with many US equities, a cooling-off is overdue for this ‘Trump trade’ as well.”

Looking at today’s US economic data calendar we get November Empire manufacturing, October retail sales and import/export price indexes (8:30am New York time), October industrial production (9:15am) and September business inventories (10am). Fed speaker slate includes Goolsbee (8:30am, 2:05pm), Collins (9am, 10:30am), Williams (1:15pm) and Barkin (3pm)

Market Snapshot

• S&P 500 futures down 0.6% to 5,940.50
• MXAP up 0.4% to 182.01
• MXAPJ up 0.2% to 575.59
• Nikkei up 0.3% to 38,642.91
• Topix up 0.4% to 2,711.64
• Hang Seng Index little changed at 19,426.34
• Shanghai Composite down 1.5% to 3,330.73
• Sensex down 0.1% to 77,580.31
• Australia S&P/ASX 200 up 0.7% to 8,285.15
• Kospi little changed at 2,416.86
• STOXX Europe 600 down 0.4% to 504.95
• German 10Y yield little changed at 2.35%
• Euro up 0.4% to $1.0571
• Brent Futures down 1.1% to $71.79/bbl
• Gold spot up 0.0% to $2,565.78
• US Dollar Index down 0.13% to 106.53

Top Overnight News

• US President-elect Trump picked RFK Jr to be Health and Human Services Secretary and said North Dakota Governor Burgum will be the Interior Secretary. It was separately reported that a US private funds group asked Trump to review harmful rules, preserve pro-growth taxes and promote alternative assets: Reuters.
• China’s October economic data was mixed, with solid retail sales (+4.8% Y/Y, about 100bp ahead of the Street’s +3.8% forecast and up from +3.2% in Sept) but soft industrial production (+5.3% vs. the Street +5.6%) and continued pressure in real estate. Reuters
• Japan’s Q3 GDP slowed vs. Q3, but it still came in ahead of expectations while consumption rebounded, keeping the BOJ on track to continue tightening policy. WSJ
• Kazuo Ueda will speak on Monday in what may be his last major scheduled speech before next month’s BOJ meeting. The head of one of Japan’s largest labor unions said workers need to see consistent gains in real wages for the BOJ to continue raising interest rates. BBG
• Musk met with Iran’s UN Ambassador and discussed ways for Tehran and Washington to defuse tensions. NYT
• The UK economy cooled by more than expected last quarter, with most industries experiencing subdued growth amid growing concerns over Labour’s first budget. In September, GDP shrank 0.1% — consensus was for 0.2% growth. BBG
• The euro area’s GDP will increase by 1.3% next year and 1.6% in 2026, the European Commission said. That’s slightly stronger than what the IMF predicted last month and notably higher than the 0.8% seen by officials for 2024. BBG
• Senate Republicans are skeptical of Donald Trump’s aggressive new tariff plans — especially lawmakers from states with large agriculture industries that could bear the brunt of likely foreign retaliation. Politico
• Franklin Resources will begin taking over parts of its Western Asset Mgmt. and cutting costs following a recent exodus of assets. BBG
• Gold’s decline may continue on momentum-driving sales before bottoming, MLIV said. CTAs could sell an additional 15% of their holdings in the coming sessions, TD Securities said. Gold ticked up on the day. BBG
• Fed’s Collins (2025 voter) says a December rate cut is “certainly on the table but is not a done deal”, according to WSJ. Expects lower rates will be warranted. Says Fed policy is restrictive. Does not see signs of new price pressures. There will be more data between now and December meeting.
• US Treasury’s semi-annual currency report found no major US trading partners manipulated currency to gain unfair trade advantage in four quarters through June 2024 as no major trading partners met all three criteria for enhanced analysis during the review period. However, the monitoring list of trading partners whose currency practices ‘merit close attention’ includes China, Japan, South Korea, Singapore, Taiwan, Vietnam and Germany.

A more detailed look at global markets courtesy of Newsquawk

APAC stocks traded with a predominantly positive bias albeit with gains capped following the uninspiring handover from Wall Street and as participants digested recent earnings releases and mixed Chinese activity data. ASX 200 was led by outperformance in Utilities and with gains in nearly all sectors aside from Healthcare amid headwinds for the latter following pressure in the industry stateside after US President-elect Trump picked vaccine sceptic RFK Jr as HHS Secretary. Nikkei 225 rallied on the back of recent currency weakness and with outperformance seen in some financial names after Japanese megabanks’ earnings results, while GDP data was mostly either inline or better than expected. Hang Seng and Shanghai Comp ultimately gained but saw mixed price action throughout the day after various data releases in which Industrial Production disappointed but Retail Sales topped forecasts, while Chinese Home Prices showed a steeper Y/Y drop although the M/M decline moderated. Participants also digested tech earnings and the PBoC’s largest daily liquidity injection via reverse repos in over four years which is meant to counteract factors including maturing MLF loans and tax payments.

Top Asian news

• China’s Finance Ministry will reduce export tax rebate rate for refined oil products, photovoltaics, batteries, and select non-metallic mineral products from 13-9% from Dec 2024. Will cancel the export tax rebate for aluminium and copper products, and chemically modified animal, plant, or microbial oils and fats.
• Alibaba (BABA/ 9988 HK) reportedly mulling offering USD 5bln in bonds.
• China’s MOFCOM is releasing a dual-use item export control list, which will be effective from December 1st; does not involve adj. to specific scope of export control.
• Hong Kong revises 2024 GDP forecast to 2.5% (prev. forecast at 2.5-3.0%)
• PBoC injected CNY 981bln via 7-day reverse repos with the rate at 1.50% which was the largest daily cash injection through reverse repos since February 2020, while it stated that Friday’s cash injection through reverse repos was meant to counteract factors including maturing MLF loans and tax payments.
• China’s stats bureau said domestic demand is still insufficient but noted major economic indicators recovered ‘markedly’ in October and China’s consumer expectations improved, while they will consolidate the trend in economic recovery, step up policy adjustments and expand domestic demand. Furthermore, it stated that recent policies have shown positive effects on the economy and it is increasingly confident of achieving the 2024 economic growth target but noted that consumption growth still faces some constraints.
• Japanese Finance Minister Kato said they will take appropriate action against excessive FX moves, while he added that one-sided, sharp moves were seen in the FX market and it is important for FX rates to move stably reflecting fundamentals.

European bourses began the session on a mostly lower footing, in a continuation of the losses seen on Wall St. in the prior session; a paring of the strength seen in Europe on Thursday may also be at play. Since the cash open, sentiment gradually improved, but indices now display a mixed picture in Europe. European sectors are mixed vs initially opening with a strong negative bias. Energy is towards the top of the pile, with Banks and Insurance following just behind. Healthcare is by far the clear underperformer, with several heavyweights within the sector seeing notable downside after US President-elect Trump picked vaccine sceptic RFK Jr as HHS Secretary. US equity futures are entirely in the red, with slight underperformance in the tech-heavy NQ, in a continuation of the negative price action seen in the prior session; which was ultimately sparked by a hawkish-leaning Powell. US finalises USD 6.6bln chips subsidy award for TSMC, according to the US Commerce Department.

Top European news

• European Commissions sees EZ economic growth at 0.8% in 2024, 1.35% in 2025, 1.6% in 2026. Sees EZ inflation at 2.4% in 2024, 2.1% in 2025, 1.9% in 2026. Sees German GDP to expand by 0.7% in 2025 (prev. forecast 1.0%). GDP growth expected to accelerate to 1.3% in 2026 (remains below EZ avg. of 1.6%). German economy contract 0.1% this year vs 0.1% growth in spring forecast.
• Germany’s SPD leader says they do not need to wait for a new gov’t to begin debt brake reform, willingness to reform from the opposition leader is a good starting point, via Handelsblatt.

FX

• DXY is pulling back after another surge on Thursday which saw a high of 107.07, with hawkish Powell keeping the buck afloat in late hours. Ahead, US retail sales and a number of Fed speakers. Comments from Fed’s Collins who noted that a December rate cut is “certainly on the table but is not a done deal”, had little impact on the index.
• EUR is benefitting from a softer Dollar and seeing a rebound from yesterday’s worst levels (1.0496 low) as the pair attempts to climb back to yesterday’s best (1.0582).
• GBP is relatively flat and unable to benefit from the pullback in the Dollar following downbeat GDP data across the board.
• JPY is the G10 outperformer after a week of underperformance with desks citing pre-weekend profit-taking, whilst Japanese GDP data mostly matched or topped estimates. USD/JPY overnight hit a fresh weekly high of 156.74 before pulling back to a current 155.40 low.
• Antipodeans are modestly firmer as DXY pulls back from its weekly highs, in turn offering some reprieve to peers alongside the base metals complex.
• PBoC set USD/CNY mid-point at 7.1992 vs exp. 7.2482 (prev. 7.1966).
• Indonesia’s Central Bank says it has conducted “triple intervention” within the FX market to maintain market confidence.

Fixed Income

• USTs are under slight pressure as markets continue to digest the hawkish tone from Powell. As it stands, USTs have climbed above the overnight low at 109-06, and currently sits below its session high at 109-16+. Yields are currently firmer across the curve with the short-end leading after the Fed Chair. US Retail Sales and Fed speak is due.
• Bunds spent first part of the morning with a very slight negative bias, in-fitting with USTs. Benchmarks seemingly derived some support most recently from the latest Commission forecasts. EZ-specific updates have been fairly limited, but the docket ahead sees Lane, Cipollone & Panetta.
• Gilts are the modest outperformer as the morning’s GDP data serves as a dovish impetus. Though, market pricing hasn’t really changed with just a ~20% chance of a December cut. Up to a 93.89 peak, having surpassed the 93.85 from Thursday but is yet to test the 94.00 mark.
• UK DMO plans to hold three syndicated Gilt sales in the January-March 2025 period; intends to sell a new 10yr Gilt and 20-25yr I/L syndication in February and March.

Commodities

• Crude is lower across the board heading into the end of the week amid efforts to reach a ceasefire between Israel and Lebanon whilst Iran attempts to cool tensions with the US. Brent Jan also trades towards the lower end of its USD 71.33-72.39/bbl range.
• Mixed trade across precious metals this morning despite the substantial pullback in the Dollar, with some potential tailwinds emanating from attempts to cool geopolitical tensions amid efforts to reach a ceasefire between Israel and Lebanon whilst Iran attempts to cool tensions with the US. Spot gold yesterday briefly dipped under its 100 DMA (2,545.21/oz) to a USD 2,536.71/oz low.
• Mixed trade across base metals with a positive bias in recent trade as prices recover alongside the pullback in the Dollar. 3M LME copper trades on either side of USD 9,000/t in a current USD 8,997.50-9,077.50/t range. Copper caught a slight bid following news that China’s Finance Ministry will cancel the export tax rebate for aluminium and copper products.

Geopolitics: Middle East

• The Senior Advisor to Iran’s Khamenei says “we support any ceasefire decision taken by the Lebanese government and resistance”.
• Israeli source says Hezbollah’s response to the American outline is expected “within days”, according to Kann News.
• Iran provided written assurances to the US administration in October that it was not seeking to kill Presidential contender Trump, via WSJ citing a US official; assurances which were intended to cool tensions between the US and Iran.
• Iran is preparing for Operation Sincere Promise 3 to respond to the Israeli attack, according to Sky News Arabia citing a Member of the Expediency in Iran.
• Israeli army issues new warnings to evacuate buildings in Burj al-Barajneh and Ghobeiry in the southern suburb of Beirut, according to Sky News Arabia.
• Israeli forces push deeper into Lebanon in a widening war campaign, while the expanding ground operation risks protracted conflict but could build leverage for ceasefire talks, according to WSJ.
• Hezbollah said it targeted a military base in Israel’s Tel Aviv and targeted a gathering of Israeli enemy forces in the Kiryat Shmona settlement with a barrage of rockets, according to Sky News Arabia.
• Elon Musk and Iran’s ambassador reportedly discussed how to ease US and Iran tensions, according to NYT. Iran’s ambassador told Musk during the meeting on Monday that sanctions waivers should be obtained from the Treasury Department, while Iranian sources said the meeting was positive, according to Al Arabiya.

Geopolitics: Other

• US President-elect Trump said they will avoid what happened before with their military in Afghanistan and will deal with the situation in Ukraine better, as well as work to reach a solution to the crisis.
• US President Biden administration official said the US must be prepared to expand its nuclear weapons force, while the decision on expanding US nuclear force will be left to President-elect Trump, according to WSJ.
• US and UK brought into force an amendment to the 1958 agreement between the two countries for cooperation in the uses of atomic energy in defence which will make the agreement enduring in its entirety, according to the US State Department.
• North Korean leader Kim guided a test of attack drones and ordered the mass production of suicide drones.
• Taiwan President Lai is planning to stop in Hawaii and maybe Guam during a visit to Pacific allies in the coming weeks, according to sources cited by Reuters.
• China’s Coast Guard said with China’s permission, the Philippines sent a civilian ship to transport supplies to its ‘illegally’ beached warship at the Second Thomas Shoal.
• The US plans additional sanctions to restrict Russia’s energy trade, plans to prohibit banks from dealing with Gazprombank, according to Nikkei.

US Event Calendar

• 08:30: Oct. Retail Sales Advance MoM, est. 0.3%, prior 0.4%
  • Oct. Retail Sales Ex Auto MoM, est. 0.3%, prior 0.5%
  • Oct. Retail Sales Control Group, est. 0.3%, prior 0.7%
• 08:30: Oct. Import Price Index MoM, est. -0.1%, prior -0.4%
  • Oct. Import Price Index YoY, est. 0.3%, prior -0.1%
  • Oct. Export Price Index MoM, est. -0.1%, prior -0.7%
  • Oct. Export Price Index YoY, est. -1.7%, prior -2.1%
• 08:30: Nov. Empire Manufacturing, est. 0, prior -11.9
• 09:15: Oct. Industrial Production MoM, est. -0.3%, prior -0.3%
  • Oct. Capacity Utilization, est. 77.1%, prior 77.5%
  • Oct. Manufacturing (SIC) Production, est. -0.5%, prior -0.4%
• 10:00: Sept. Business Inventories, est. 0.2%, prior 0.3%

Central Bank speakers

• 08:30: Fed’s Goolsbee on CNBC
• 09:00: Fed’s Collins Gives Opening Remarks
• 10:30: Fed’s Collins Appears on Bloomberg TV
• 13:15: Fed’s Williams Gives Opening Remarks

DB’s Jim Reid concludes the overnight wrap

Risk assets struggled for momentum yesterday, with the S&P 500 (-0.60%) losing ground as investors reflected on some sticky inflation data and increasingly elevated valuations. The initial catalyst for that was the US PPI inflation for October, where the core PPI reading was stronger than expected, which added to fears that inflation could become stuck above the Fed’s target. Then later in the session, that narrative was reinforced by some hawkish comments from Fed Chair Powell, which added fresh doubts about the likelihood of a December rate cut. By the close, that meant futures had dialled back the probability of a December cut to 62%, down from more than 82% the previous day. Moreover, those moves have seen further momentum overnight, with the probability of a December cut down to 59% this morning, whilst the 10yr Treasury yield is currently at a 4-month high of 4.46%, and S&P 500 futures (-0.32%) are pointing to further losses.

In terms of Powell’s remarks, he explicitly said that the economy “is not sending any signals that we need to be in a hurry to lower rates”, and that its strength “gives us the ability to approach our decisions carefully”. Indeed, yesterday we found out that the weekly initial jobless claims fell to their lowest level since May, at 217k. So there was plenty of support for that message of economic strength, and it was a much more hawkish message from Powell relative his Jackson Hole speech in August, where he said that the “time has come for policy to adjust”. He also noted that yesterday’s PPI data was stronger than the Fed had pencilled in, seeing the data as consistent with a +2.8% yoy core PCE print.

Whilst the PPI data wasn’t that alarming by the standards of the high inflation of 2022-23, the problem was it showed inflation remaining stubbornly above levels consistent with the Fed’s target. For instance, the core PPI reading was at +0.3% (vs. +0.2% expected), which pushed up the year-on-year measure to +3.1% (vs. +3.0% expected). Moreover, that comes on the back of core CPI staying at +0.3% for a third month running, so the concern is that inflation is getting stuck at those levels. Now it’s worth noting that the Fed officially target the PCE measure of inflation, rather than the CPI or PPI measures, and we don’t get the PCE numbers until the end of the month. But we know several categories from the PPI release feed into the PCE, and those were on the stronger side, with sizeable increases in airfares and portfolio management prices. So one to look out for when the October PCE is released on November 27.

Against that backdrop, there were growing signs that investors were becoming more concerned about inflation. For instance, the US 2yr inflation swap up +0.7bps on the day to 2.63%, which is its highest in almost six months. In turn, that led to a notable rise in front-end Treasury yields, with the 2yr yield (+5.9bps) closing at 4.35%, its highest since July, having been near flat on the day before Powell’s comments. However, yields declined at the long end, with 10yr and 30yr yields -1.5bps and -4.9bps lower, respectively. So in some ways it was a mirror image of the curve steepening seen the previous day. One theme that persisted was dollar strength however, and the dollar index (+0.18%) posted a fifth consecutive advance to reach a one-year high.

For US equities, Powell’s comments reinforced what had already been a more challenging day, with the S&P 500 (-0.60%) seeing its largest decline so far this month. The NASDAQ (-0.64%) and the Magnificent 7 (-1.30%) saw sizeable declines, with Rivian (-14.30%) and Tesla (-5.77%) among the worst performers after Reuters reported that president-elect Trump plans to eliminate the consumer tax credit for electric vehicles. The small-cap Russell 2000 (-1.37%) lost ground for a third consecutive day, which marked its worst 3-day run since early August. By contrast in Europe, equities saw a strong rebound from the last couple of days, with the STOXX 600 up +1.08%, alongside gains for the DAX (+1.37%), the CAC 40 (+1.32%) and the FTSE MIB (+1.93%).

On the rates side in Europe, sovereign bond yields saw consistent declines, with those on 10yr bunds (-4.6bps), OATs (-5.6bps) and BTPs (-8.6bps) all moving lower. That also followed the release of the accounts from the ECB’s October meeting, where they delivered another 25bp rate cut. It said that if the slowdown in various indicators were just temporary, then an October rate cut would be like bringing forward a December cut, and so “there was little risk associated with cutting, especially given that interest rates would remain in restrictive territory”.

Overnight in Asia, we’ve had a mixed set of data out of China this morning. On the positive side, retail sales came in stronger than expected, with a +4.8% year-on-year reading in October (vs. +3.8% expected). However, industrial production was a bit weaker than expected at +5.3% year-on-year (v.s +5.6% expected). So Chinese equities have been steady against that backdrop, with the CSI 300 (-0.03%) and the Shanghai Comp (+0.02%) hovering either side of unchanged.

Elsewhere in Asia, we also had Japan’s Q3 GDP data overnight, which was a bit faster than expected with an annualised quarterly gain of +0.9% (vs. +0.7% expected). That’s helped support the Nikkei (+0.87%) to a stronger gain this morning, although it wasn’t all good news in the release, as Q2 growth was revised down to an annualised pace of +2.2% (vs. +2.9% previously). In turn, the Japanese Yen is losing ground for a 5th consecutive day against the US dollar, and this morning is trading at 156.45, which is its weakest level since July.

To the day ahead now, and data releases include US retail sales, industrial production and capacity utilization for October, along with UK GDP for Q3. Central bank speakers include the Fed’s Collins and Williams, and the ECB’s Lane and Cipollone. Lastly, the European Commission will release their latest economic forecasts.