Month: November 2024

Hot on the heels of AMZN, AAPL, and INTC malarkey, this morning’s jobs data was shitshow… and the manufacturing PMIs just rubbed more salt in that wound.

Of course, it was all shrugged off as ‘hurricane and strike’-related because Bidenomics is freaking awesome, yo!

Source: Bloomberg

However, the machines and their human friends went to town on it, sparking utter chaos across all asset classes.

The initial reaction was a huge kneejerk lower in Treasury yields, the dollar, and VIX; and a spike higher in stocks, crypto, and gold as rate-cut expectations soared.

The odds of a 25bps cut next week spiked significantly…

Source: Bloomberg

But then, everything started to unwind as traders realized that the jobs number was not bad enough (net of hurricanes) to prompt a ‘growth scare’, but was bad enough to give Powell enough cover to cut rates next week and push inflation even higher.

First things first, expectations for rate-cuts in 2024, and even more so 2025, started to tumble – back to unchanged (108bps cuts expected to end 2025)…

Source: Bloomberg

Futures trod water overnight with the big tech earnings chopping them around but once the algos got a look at payrolls everything went vertical. However, as the day wore on and yields spiked, stocks saw derisking…

The surge in stocks today managed to get The Dow and Small Caps into the green for the week (but then the selling pressure hit). S&P and Nasdaq were the biggest losers on the week…

Under the hood in equity-land, INTC, AAPL, and AMZN were the big movers from earnings last night.

INTC is up bigly on modestly better guidance (despite admitting the AI project is failing on its goals)…

AMZN bounced back from weakness after earnings (AWS growth slowing) to put in a big day…

AAPL did not bounce back from its post-earnings plunge…

‘Most Shorted’ Stocks were instantly squeezed higher at the open, but spent the rest of the day giving it all back…

Source: Bloomberg

Some modest profit-taking in the ‘Trump Trade’ today…

Source: Bloomberg

VIX ended higher on the day and significantly higher on the week as the vol term structures gets jiggy around next week’s mega risk catalysts…

Source: Bloomberg

Stocks were not quite as whipsawed as bonds. the 2Y yield crashed 15bpas on the payrolls print… only to rip all back higher to close up 3bps on the day…

Source: Bloomberg

A chaotic week in bond-land for sure. By the end of the week, all yields were higher with the belly lagging and the long-end the least gly horse in the glue factory…

Source: Bloomberg

The dollar puked lower on the ‘dovish’ bad data then spent the rest of the day ripping higher to end the week higher…

Source: Bloomberg

Gold’s price action this week was also wild – hitting a new record high before getting monkeyhammered yesterday and today to end the week red. That was gold’s worst week since June…

Source: Bloomberg

Bitcoin followed a similar trajectory to gold this week – driving higher to new record highs before getting clubbed like a baby seal the last two days…

Source: Bloomberg

Oil ended the week lower despite recovering most of the Sunday night futures collapse (Israel-Iran optics)…

Source: Bloomberg

Finally, something remains afoot in the financial plumbing world. SOFR-Swap Spreads are blowing out (signaling some credit/liquidity stress)…

Source: Bloomberg

…and reverse repo usage is collapsing (liquidity needs?)

Source: Bloomberg

Is that why USA sovereign risk is blowing out?

Source: Bloomberg

On that cheery note, have a great weekend.

A far-left LGBTQ+ activist was indicted for grand larceny and falsifying business records in New York after being accused of looting $100,000 from a woke Brooklyn nonprofit while serving as the head of the organization.

The former executive director, Dominique Morgan, of the OKRA Project, a nonprofit used to pay bail funds for the Black trans community, siphoned money from the nonprofit and splurged it on Mercedes-Benz payments, home renovations, luxury clothing purchases, and restaurant meals. 

Brooklyn District Attorney Eric Gonzalez wrote in a statement that Morgan, a Black trans person, was charged with one count of second-degree grand larceny and 23 counts of first-degree falsifying business records. Morgan was released without bail and ordered to return to court in mid-December. If convicted of the top count, the defendant faces five to 15 years in prison. 

“It is alleged that between July 14, 2022, and July 27, 2022, the defendant had approximately $99,000 transferred to her personal account in order to purportedly use those funds to pay for bail. Instead, she used the money on a $19,000 California Closet renovation, car payments for a Mercedes Benz, purchases at apparel stores and other expenses including meals,” DA Gonzalez wrote in a statement.  

Gonzalez continued, “When asked by OKRA for proof of the payments toward bail, she allegedly submitted purported bail receipts for 23 individuals who were supposedly arrested in Fulton County, Georgia, and Douglas County, Nebraska. An audit by OKRA revealed that those receipts were fraudulent and that no such persons were arrested in those counties at the time.”

NEW: Dominique Morgan, an LGBTQ activist and former executive director of a nonprofit that supports Black Trans people, was just indicted for siphoning nearly $100,000 in donations meant for bailing people out of jail and using it for her own personal expenses.

Is anyone… pic.twitter.com/zI4CHhud5O

— Libs of TikTok (@libsoftiktok) October 30, 2024

In 2021, Apple was incredibly proud to promote rainbow iWatches, featuring Morgan, the trans activist, in a press release… 

Morgan also worked with these brands. 

Apple was most likely boosting its DEI score with an ad featuring Morgan. Great job, Apple. 

By Remix News

Volodymyr Zelensky accused Poland of finding more reasons not to help Ukraine on key issues, including refusing to shoot down Russian missiles or hand over MiG fighter jets to Kyiv. His choice of words, which hints at cowardice on Poland’s part, is likely to further inflame tensions between the two countries, which have been steadily growing apart.

Authored by Louis-Vincent Gave via Evergreen Gavekal blog,

TLT.US, the long-dated US treasury ETF, is back trading below its 200-day moving average, and on current form is looking at its fourth year running of negative price returns.

Not that this sell-off reflects any lack of retail investor enthusiasm for US bonds. Quite the contrary.

As US treasuries pulled back, flows into TLT.US went parabolic – and the ETF’s market cap rose from US$10bn in 2019 to US$60bn today.

But long-dated bonds continue to sell off. And like successes, sell-offs usually have many fathers.

When it comes to today’s bond bear market, it’s possible to point to four main explanations.

1) Essentially, the market is slowly realizing that the post-2008 “new normal” era of depressed nominal growth is well and truly over. The real estate bubbles have been digested, while bank and consumer balance sheets have been repaired.

Consequently, the world’s major central banks will not push interest rates back to zero any time soon. Zero rates were a historical aberration that need not be repeated. In this case, why own long bonds that yield less than short-term bills? Giving up today’s higher T-bill yields for the hopes of lower treasury note yields down the road makes little sense. This explanation for the sell-off is by far the likeliest. Incidentally, this means that we could now see a little bit of a rally in the oversold bond markets, as data to be published in the coming weeks looks to come in soft. Following Hurricanes Helene and Milton, jobless claims are likely to pick up, while production numbers may show some temporary softness on the back of short-term supply chain disruptions.

2) It’s the issuance. Any debate about how to tackle the US government’s runaway budget deficit has been notably absent from the US electoral campaign. The deficit did not feature in either the presidential or vice presidential debates. And when challenged on the topic, the presidential candidates have typically fallen back on worn-out tropes like “slashing inefficiencies” or “getting the rich to pay their fair share.” Meanwhile, the outstanding stock of US government debt continues to grow. According to the International Monetary Fund, US government spending will hit US$13trn a year by 2029 (compared with US$2.5trn when Bill Clinton left office). And these forecasts do not factor in proposed additional spending by Donald Trump or Kamala Harris.

Against this backdrop, in the past few weeks an assortment of legendary investors—Paul Tudor Jones, Stanley Druckenmiller, Leon Cooperman— have taken to the airwaves to warn about the unsustainability of the current fiscal path. This illustrates how the zeitgeist surrounding the US fiscal situation may be changing. In the new zeitgeist, investors are more likely to sell rallies in bonds than to buy dips.

3) It’s the inflation. One of the more interesting developments in the past year is how resilient inflation has proved to be. Sure, inflation rolled over hard from its 2022-23 highs. But given easier year-on-year comparisons, the balance-sheet recession in China, the pull-back in oil prices and much lower prices for wheat, corn and other foods, you might have expected inflation absolutely to collapse. Yet the consumer inflation rate has remained above 2.4%.

That is the past. What happens now that the world’s major central banks, except the Bank of Japan, are cutting interest rates? Now that oil inventories are severely depleted? Now that the US and EU seem set to embrace higher tariffs and reject China’s cheap industrial goods? In the shorter term, it also appears that Helene and Milton might also prove inflationary, with higher used car prices, and higher car and house insurance premiums.

4) It’s the shifting geopolitical environment. Last week saw both the IMF meeting in Washington and the Brics summit in Kazan in Russia. The timing clash was probably not an accident. Clearly, Brics leaders such as Vladimir Putin and Xi Jinping, and perhaps even Narendra Modi, are keen to underscore that there is an “old” Western world and a “resurgent” Global South. And this Global South is keen to dedollarize its trade, create new settlement systems not reliant on Swift, and diversify its central bank holdings. Given these aims, perhaps it should be no surprise that precious metals have climbed to new highs while long-dated US treasuries have sold off.

Putting this all together leaves investors with some fairly straightforward questions.

• Will global growth roll over from here? In the short term, US data could soften in the aftermath of the two recent hurricanes. But in the longer term, an easing of fiscal policy seems to be on the cards regardless who wins the US presidential election. Meanwhile in China, the government is pushing most of its stimulative buttons. So the two largest contributors to global growth over recent years seem likely to add more growth in 2025 than they did in 2024.

• Will the US government tighten its belt and take it easy on debt issuance? This seems highly unlikely.

• Will inflation continue to decelerate? Given the growing belief that trade tariffs are the answer to the world’s ills, this also seems unlikely.

• Will the geopolitical environment brighten? Perhaps. Donald Trump is promising to put an end to the Ukraine war if he’s elected, and may even seek some kind of deal with China. But for now, betting in line with the underlying trend of ever more decoupling would seem to make sense

In continuing signs that the U.S. consumer is tapped, Nissan is planning on cutting production of its main U.S. models by 30%, according to a new report from Nikkei, which says the cuts could jeopardize the automaker’s 2024 global sales targets. 

Nissan forecasts a 99% drop in quarterly operating profit to 995 million yen ($6.52 million) and a 12% decline to 500 billion yen for the year, citing weakening U.S. market earnings, the report says.

The company’s target of 3.65 million vehicles sold for 2024 is now at risk, it says. 

Nikkei reports that Since September, Nissan has gradually reduced production, notifying dealerships and suppliers. Its North American unit confirmed inventory adjustments for key models. 

Production of the Rogue SUV, accounting for 30% of U.S. sales, and the Frontier pickup (10%) is being cut. The Rogue is manufactured in Smyrna, Tennessee, and the Frontier in Canton, Mississippi. Those two plants collectively reduced output by 40,000 vehicles in September and October. Initially planned through October, these cuts now extend to December.

In the July-September quarter, Nissan’s U.S. sales dipped 2%, with gasoline-only Rogue sales dropping 20%. September U.S. production fell 24% year-over-year, impacting Rogue units built both in the U.S. and Fukuoka, Japan.

With electric vehicle demand softening but hybrid interest rising, Nissan faces competitive pressure from Toyota and Honda, both of which offer hybrids in the U.S. Inventory days have ballooned to 100 days for Nissan, compared to Toyota’s 30 and Honda’s 50, prompting Nissan to increase sales incentives, adding 30% above industry averages.

Nissan aimed to stabilize inventories by September and cut costs with new models, yet sales for April-September fell 4% globally, totaling 1.59 million vehicles.

The ongoing U.S. market decline suggests Nissan may need to revise its full-year forecast again. North American struggles include slow EV rollout and stalled plans for new EV production at the Canton plant, which has been postponed indefinitely, the report concluded. 

Via SchiffGold.com,

The presidential election is on November 5th, and radical economic promises abound. The very next day, the Fed will meet to decide on more interest rate cuts. Gold and silver are holding all-time highs. With all these factors and more, after Halloween, we will see just how spooky things can get for the US economy.

Markets are trying to figure out who will win the election.

• “Trump Trade” advocates think that a second Trump administration is coming, and a bullish indicator as his promises for deregulation and lower corporate taxes come to fruition.

• Contrasted with Kamala Harris’s constitutionally questionable plan to give handouts to African-Americans as her support with the demographic wanes, markets appear to prefer the former

…but as Peter Schiff recently pointed out on his podcast, bullish market sentiment doesn’t mean the economy is in good shape. 

It’s in big trouble regardless of who wins. While Trump is more likely to reduce the size of the government, neither candidate seems likely to fully reverse our staggering budget deficits. We have low interest rates and a growing economy, but a completely dead manufacturing base and a commercial real estate market that’s teetering on the brink. Trump has promised to eliminate the income tax and replace it with tariffs, but you can’t do that in a country that doesn’t produce anything. As Peter Schiff said:

“It’s not like all these companies are going to start manufacturing in America–they can’t. Because if they manufactured in America, the prices would be so high that they couldn’t sell the product. That’s why they left in the first place. They left to stay competitive. And…if they come back under the current environment, they won’t be. So we need massive deregulation.”

US Manufacturing Employees Since 1970, US Bureau of Labor Statistics

In Japan, the dovish new Japanese prime minister is reversing his previous position and signaling that Japan shouldn’t raise interest rates. The dying yen carry trade has momentarily reincarnated since imploding in August amidst tremendous yen volatility and crashing Japanese equities. However, it isn’t the prime minister’s choice to raise rates or not, and of course, politicians make all kinds of comments during election season. Japanese central bank governor Kazuo Ueda was classically vague about which direction the Bank of Japan would go in the coming months.

Even after the Fed slashed the federal funds rate, and is expected to cut further, mortgage rates are still stubbornly up. The 10-year Treasury Yield has ticked higher this month, and combined with high inflation, mortgage rates are responding. Even with a lower cost of borrowing, out of control inflation will keep getting worse with more rate cuts, as borrowing becomes more attractive even as goods and services become less and less affordable.

10-Year Treasury Yields, 2023-2024 (MacroTrends.net)

With the Fed’s interest rate-cutting bonanza and a money supply that has risen for 11 straight months, higher inflation is a guarantee for cash-strapped and over-indebted consumers who are already stretched thin — regardless of what happens to Japanese yen and in the US election.

The inflationary period in 1970 came after a two-year lag in money supply growth, portending a massive decline in the dollar’s purchasing power in the next 24 months no matter who wins this November.

The spooky economy will just keep getting spookier. And unfortunately, neither Kamala Harris’s plan to “invest” in African Americans, nor Trump’s plan to replace the income tax with tariffs overnight, are anywhere close to being viable solutions that can save it.

By Stefan Koopman, Senior macro strategist at Rabobank

Imagine securing a record-breaking majority, meticulously briefing every major policy shift you want to make, doing everything economists and central bankers had once begged you to do, start thinking about spending and investment in a strategic way, pre-announcing key decisions well in advance – only to emerge as a knockoff of Liz Truss.

As we outlined in our post-Budget special, there’s a straightforward diagnostic for assessing how fiscal announcements impact bond yields and exchange rates. An uptick in yields alongside a steady currency is not a ‘spooked’ market: it’s exactly what you’d expect – and what you’d want? – from fiscal loosening. And while it’s tempting to compare a yield with Germany’s, please keep in mind here that Germany and its ultra-low bund yields are NOT the benchmark for sound fiscal policy – it’s the benchmark of fiscal masochism that damages a country long-term.

So while we initially thought the Reeves’ budget might be faring better than Truss’s with the market, yesterday’s market reaction proved otherwise. Gilt yields rose sharply across the curve, more than in other G10 economies, and the currency depreciated instead of appreciated. It seems the UK bond market is still caught in a case of “post-Truss stress disorder”. The second it’s faced with a bit of uncertainty and unfamiliar territory, investors are playing it safe: de-risk first, ask questions later. Fair enough – it’s still small beer compared to what we’ve seen in 2022, but when the correlation between yields and currency flips, it’s a red flag.

That being said, we think the sell-off is overdone. Yes, the Budget implies some fiscal loosening, but only if you compare it to the Office for Budget Responsibility’s March projections. Those projections were crafted by a government that knew it was on its way out. The unrealistically deep spending cuts, reminiscent of Osborne’s severe austerity measures, were never going to fly, but do complicate the current fiscal narrative. Consider this: the OBR forecasts that the current deficit – defined as the gap between day-to-day spending (excluding capital investment) and current revenues – will shrink from £55.5bn this year to a surplus of £10.9bn in four years. Furthermore, the £100bn increase in capital spending over the parliamentary term is merely to maintain a stable ratio of public investment to GDP. Isn’t this precisely what policymakers and economists have been advocating for?

The risk of stickier inflation is not necessarily a UK problem. My colleague Elwin de Groot notes that Eurozone inflation figures yesterday confirmed what data from several member states had already flagged the other day: that core and services inflation remain relatively sticky and that food and energy inflation were the key contributors to the rebound in headline inflation to 2% y/y in October from 1.7% in September.

Some of that rebound had been expected due to a less favorable base comparison. However, food prices did rise significantly more sharply than expected (more than 7% m/m on a seasonally-adjusted annualised basis). If this does not reverse in the next month, it could be a sign that businesses have resumed the passing-on of cost increases to consumers. This would also be consistent with a pick-up in consumer spending, a hint of which we received Wednesday with the unexpected Eurozone growth pickup in Q3.

However, it is too early draw any strong conclusions yet. The key message from yesterday’s Eurozone HICP report was above all that core inflation and in particular services sector inflation remain persistent albeit gradually losing pace. Services inflation stayed put at 3.9% y/y – which has basically been the average rate since November 2023. On an annualised basis, seasonally adjusted prices rose some 3.8% m/m. As long as the economy doesn’t fall off a cliff and growth of negotiated wages remains in the range of some 3-4% (which in a relatively tight labor market usually translates to even slightly higher growth of employee compensation), services inflation is likely to remain on a path of gentle decline.

In the past two days, the market has pared back its ECB rate cut pricing for December, although it is still pricing for some 20% chance of a 50bp cut rather than a 25bp one. Since the comment made in the October ECB meeting that “everything pointed in the right direction” [for inflation], the actual October inflation data may serve as a reality check. We maintain our view of a 25bp cut in December.

In the US, PCE inflation slowed to 2.1% year-on-year in September, marking the lowest annual rate since February 2021. Core PCE inflation, however, remained steady at 2.7% for the third consecutive month, printing on the high side with a 0.254% monthly increase. Personal spending rose by 0.5%, driven not only by income growth but also by a decline in the personal saving rate, which fell to 4.6% in September. As the labor market shows signs of cooling – with fewer job openings, slower hiring, and a decrease in voluntary quits – the sustainability of this trend of under-saving is in question.

This cooler market is also exhibiting fewer inflationary pressures. The Q3 Employment Cost Index data revealed that private sector wages and salaries grew at an annualized rate of 3.1%. With a target inflation rate of 2% and trend productivity growth somewhere between 1% and 2%, wage growth at 3.1% is not inflationary and could easily justify a ‘normal’ 25 basis point cut by the Federal Reserve next week.

Performance artist Alexandria Ocasio-Cortez is at it again…

Let’s first review the antics of AOC. First she staged outrage at an empty parking lot to protest Donald Trump.

You mean this @aoc lot where she staged her sadness and dismay at an empty parking lot gate? #aoc actually staged her grief in front of a gate to an empty parking lot. pic.twitter.com/pcF35lXOph

— Scott Adams (@scottadamsshow) June 28, 2019

Then she suggested she was almost raped and/or murdered on Jan. 6 despite being nowhere near the Capitol building.

AOC: I was almost rqped and kiIIed on January 6th in the Capitol building.

Reality: She wasn’t even there. pic.twitter.com/hAQuGqd2Ri

— End Wokeness (@EndWokeness) October 28, 2024

Then she faked being in handcuffs at an abortion protest.

The funniest part about this video of AOC being escorted out by Capitol Police is her pretending to be in handcuffs. She is a professional victim. pic.twitter.com/Sw4TuxEbKz

— Caleb Hull (@CalebJHull) July 19, 2022

And now, for her latest act – AOC just put out a campaign ad in “Arabic” that’s instead “Pure gibberish.”

How hard is it to ask an intern: “is this legible?”

I know team Trump doesn’t care about our lives or communities either, but at least they don’t pretend to.

— AHMED | أحمد (@ASE) October 29, 2024

As the Telegraph notes, “her Arabic campaign material features characters that have been placed in reverse order and are disconnected from each other – a fundamental mistake in Arabic script. The language’s letters should be in a smooth form from right to left.“

According to Meir Javedanfar, a professor of Iranian studies at Reichman University, “Much like her knowledge of the Middle East, the Arabic on Alexandria Ocasio-Cortez flyers is gibberish and written backwards.”

Amazing…

The Democratic Party has proven through countless lost opportunities that it doesn’t give a shit about Arab or Muslim communities, about actual Arab people, all it cares about are optics.

And even the optics, in this case, are shamefully embarrassing.

— AHMED | أحمد (@ASE) October 29, 2024

 

Minutes after the BLS reported the biggest drop in manufacturing jobs since the COVID lockdowns, S&P Global reported its US Manufacturing PMI rose to 48.5 in October (still in contraction) from 47.3 in September (as ‘hard data’ has exploded higher this month. ISM’s Manufacturing PMI was worse than expected, dropping from 47.2 to 46.5 in October – the lowest since June 2023…

That is the fourth straight month of contraction (sub-50) for the Manufacturing PMI

Source: Bloomberg

The ISM Manufacturing Prices Index spiked back higher in October as both new orders and employment remain in contraction sub-50)…

Source: Bloomberg

Commodity prices are UP!

Stagflation, much?

The responses from ISM survey participants was a shitshow:

• “Right-sizing continues. Contingency plans have been formulated to anticipate trade policies that will impose tariffs on key materials.” [Chemical Products]

• “Market demand has significantly decreased in the second half of 2024 and is expected to be soft through the first quarter of 2025. Although inflation has stabilized and returned to historical levels, and interest rates are decreasing, there appears to be a general pessimism in the economy that is driving customers to be more restrictive in their capital expenditures, including investment in commercial vehicles. Uncertainty in the outcome of the upcoming election has resulted in several risk analysis studies to be prepared, particularly focused on the future of the electric vehicle (EV) migration and trade restrictions/penalties.” [Transportation Equipment]

• “Sales have been very slow the past six months. Interestingly, though, inquiries are up more than 30 percent from a year ago. This indicates there is pent-up demand, but customers are skittish about national and global economic conditions. We are hearing directly from customers that they need to order equipment to satisfy their requirements but are going to keep projects as long as possible before pulling the trigger.” [Machinery]

• “Business levels remain depressed. It feels like a ‘wait and see’ environment regarding where the economy is heading; customers don’t want to commit to inventory, which is resulting in lower order levels.” [Fabricated Metal Products]

• “This has been an interesting fourth quarter already. The port strikes, hurricanes and election will all affect us in some way. Our industry is energy intensive, so our largest concern is the national and state mandates toward electrification. Electrical components were already in short supply, and with the substation and power line damages, we expect the electrical supply chain will be even worse.” [Paper Products]

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, offers some optimism…

“The US manufacturing downturn extended into its fourth successive month in October, marking a disappointing start to the fourth quarter for the goods-producing sector. Although the rate of decline moderated, order books continued to deteriorate at a worryingly steep pace, and a further build-up of unsold stock hints at further production cuts at factories in the coming months unless demand revives.

“The survey does, however, provide some encouragement that the current soft patch could prove short-lived. Hurricanes have been blamed for supply disruptions, which should therefore ease in November, and manufacturers are feeling more positive about the outlook than at any time since May, hoping that demand will pick up once the uncertainty generated by the Presidential Election clears.

“It’s notable that orders for investment goods such as plant and machinery have fallen especially sharply in recent months. Headcounts have also been cut for a third straight month, underscoring the reluctance among firms to expand in the face of heightened geopolitical uncertainty, with firms citing tensions around the US election as well as intensifying international conflicts. There is therefore some potential upside to the manufacturing sector if the political environment becomes more conducive to spending and investment after the election.”

Hope springs eternal!! But The fed will cut 25bps next week because jobs/ISM and ignore the surge in Prices Paid and Core PCE?