Month: January 2025

While ‘Hard’ data has stabilized after its big run up in the second half of 2024, US Manufacturing PMI surveys remain in contractionary territory with S&P Global’s PMI limping lower to 49.4 and ISM’s PMI rising up to 49.3 to end the year. The ISM print was better than expected (49.3 vs 48.2 exp vs 48.4 prior)…

Source: Bloomberg

Prices Paid and New Orders jumped into year-end but Employment tumbled…

Source: Bloomberg

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence confirms that US factories reported a tough end to 2024, and have scaled back their optimism for growth in the year ahead.

“Production was cut at an increased rate in December amid disappointing inflows of new orders. While November had seen a near-stabilization of order books as uncertainty surrounding the election passed, reviving customer demand, this respite has proved temporary. Factories are reporting an environment of subdued sales and inquiries, notably in terms of exports.”

Williamson adds that while businesses were pleased that Trump got re-elected, they are now questioning just how great that new America can be…

“Many firms are generally anticipating that business will pick up in the New Year, with respondents pinning hopes on expectations that the new administration will loosen regulations, reduce tax burdens and boost demand for US-made goods via tariffs. Confidence has consequently risen from a low-point last June, having jumped higher in November on the election result. However, this optimism has been pared back somewhat in December, as firms are now reporting worries over higher input prices, and are concerned that inflation may pick up again, adding to speculation that interest rates will not be cut as much as previously thought likely over the coming year.”

Finally, we note that globally, according to JPMorgan’s latest PMI surveys, the global manufacturing sector fell back into contraction at the end of 2024, with output and new orders declining in December following slight increases.

Regional variations were again marked, with business conditions affected by the possibility of US tariffs being imposed in the coming year.

Perhaps most problematically, while input cost inflation accelerated to a four-month high in December, selling price inflation meanwhile eased to a nine-month low – crushing the prospect for corporate margins going forward.

With NATO on a collision course with a Trump-sized iceberg, its member states are scrambling to escalate conflicts with Russia to ensure the money keeps flowing, and Denmark is certainly doing its part by warning in late December that Russia’s navy may start escorting the so-called shadow fleet tankers through Danish straits to escalate provocations against NATO countries. Of course, Russia has done nothing of the sort, but with Denmark now in control of the narrative, the actual warships will belong to the West and will sail “defensively” in order to provoke Russia into doing just what the West plans on doing.

According to the Danish Defense Intelligence Service, threats against Denmark have become “more serious,” and Russia now has more options to challenge NATO’s members with “a more threatening military behavior.” This could include letting Russian warships escort tankers exporting millions of barrels of Moscow’s petroleum through the Baltic Sea, on which Russia, naturally, has numerous ports, and so Denmark’s “warning” is about as serious as saying the US may deploy more jack ups in the Gulf of Mexico.

“If this happens, it will increase the level of tension,” the agency said, not saying that an increase in the level of tension is precisely what the agency wants.

Ironically, all this takes place years after Europe intentionally turned a blind eye to smuggled Russian oil, well aware that if said oil was taken away fully from the market, crude prices would soar, which in a world riddled with inflation is not acceptable.

Twelve Northern European nations including Denmark earlier this week announced they would introduce checks on insurance policies of passing Russian tankers. This could be followed up with more tangible actions for ships falling short with their cover.

Denmark will play a crucial role in the implementation of those checks, as its narrow straits are a critical trade artery through which Russian oil has flowed largely unrestrained since the start of the full-scale war in Ukraine, helping fund President Vladimir Putin’s war economy.

Russia is also expected to display more risky behavior toward civil shipping and aviation, Denmark’s foreign intelligence service said. Its toolkit is likely to include military exercise activities near NATO territory, as well as jamming in large geographical areas “without regard to ships’ and aircraft’s communications and GPS signals,” according to the report.

A more threatening behavior toward Denmark’s and other NATO countries’ military aircraft and ships similarly “poses a risk of misunderstandings and minor collisions both in the Baltic Sea and in the Arctic,” it said.

Authored by Katabella Roberts via The Epoch Times,

Nick Clegg’s departure comes shortly before President-elect Donald Trump returns to the White House.

Meta’s Vice President of Global Affairs Nick Clegg said on Jan.2 that he is stepping down from his role at the social media giant after nearly seven years. He will be replaced by prominent Republican and longtime policy executive Joel Kaplan.

The announcement comes shortly before President-elect Donald Trump is set to take office.

In a statement on Facebook, Clegg, a former British deputy prime minister, described working at Meta as “an adventure of a lifetime.”

As a new year begins, now is the “right time” to move on, he said.

“I hope I have played some role in seeking to bridge the very different worlds of tech and politics – worlds that will continue to interact in unpredictable ways across the globe,“ Clegg wrote.

”I will be forever grateful to Mark and Sheryl Sandberg for taking me on in the first place – and to the many colleagues and teams I have had the good luck to work with ever since.“

During his time at the company, he led on key issues such as Facebook’s content policy, elections, and the establishment of an independent content oversight board.

Kaplan, his replacement, previously served as deputy chief of staff for policy under President George W. Bush.

He joined Facebook in 2011 as vice president of U.S. public policy, where he oversaw its relationships with policymakers at federal and state levels. He was later promoted to vice president of global public policy at Facebook.

Clegg praised Kaplan, whom he referred to as a good friend and close colleague in his statement.

“He will be able to build on what we have done together, and improve upon what I failed to get done,” Clegg said.

“Joel is quite clearly the right person for the right job at the right time—ideally placed to shape the company’s strategy as societal and political expectations around technology continue to evolve.”

Clegg said he will spend a few months “handing over the reins” to Kaplan and representing Meta at international gatherings in the first quarter of this year before moving on to new adventures.

The announcement comes after Meta CEO Mark Zuckerberg visited Trump at Mar-a-Lago in November, just months after publicly praising him over his response to July’s assassination attempt in Butler, Pennsylvania.

Meta also donated $1 million to Trump’s inaugural committee.

In what was at best a mediocre year (by its own standards) for Ken Griffin’s flagship hedge fund, Wellington, which generated a 2024 return of 15.1% and underperformed the S&P (which does not charge 2 and 20) by roughly 10%, Citadel invited clients to cash out their profits, but the vast majority opted to keep their money in the multistrategy hedge fund, Bloomberg reported.

The voluntary profit distribution offered in recent weeks had few takers, and out of the billions of dollars in profits Citadel made last year, only about $300 million is exiting the firm, the Bloomberg source said. In other words, the rich are so rich, they don’t even bother harvesting gains, let alone principal.

While it may not have been a stellar return, Citadel’s main Wellington hedge fund made money last year across all five strategies, equities, fixed income and macro, commodities, credit and convertibles and global quantitative strategies.

The latest proposal differed from recent years, when Citadel required investors to redeem profits rather than making it optional. The firm, which manages $66 billion of assets, previously gave clients the choice of whether to redeem profits but hasn’t done so in recent years.

Ironically, in a world where many investors would promptly send over their redemption letters to any other hedge fund that generate a measly 15% past year, Ken Griffin can seemingly go no wrong. Meanwhile, the ability to keep profits with high-performing hedge funds is a boon for investors, who are increasingly running out of options to allocate money to the most desired investment firms. The vast majority aren’t taking new money, and some are even returning capital; meanwhile new up and coming hedge fund managers are barely able to scrape a couple million dollars together as most of the capital flows is now going toward such multi-strat funds as Citadel, Balyasny, Millennium and DE Shaw.

And speaking of, DE Shaw is preparing to hand back billions of dollars to external clients after two of its biggest hedge funds produced double-digit returns last year.

In the past, Citadel has regularly returned profits – a total of $25 billion since 2017 – and the firm hasn’t been actively raising money for years. Its billionaire founder, Ken Griffin, recently told Bloomberg that the growth of multistrategy hedge funds was boosted by billions of capital returns to investors.

Multistrat funds, which rely on multiple teams of traders to make money – who often times trade against each other leaving the risk-management back office tearing out their hair over how to properly manage risk exposure – have gobbled up cash in recent years by delivering mostly steady gains even during periods of market volatility, driven by a broad variety of investing approaches in their trading teams. Their ability to charge higher fees, spend big to recruit the best traders and fuel their positions with borrowed money has made them the most influential force in the $4.5 trillion hedge fund industry.  

Authored by Paul Joseph Watson via Modernity.news,

Allstate CEO Tom Wilson received a measure of backlash after he insisted that Americans must respond to the New Orleans terror attack by accepting people’s “imperfections and differences.”

Wilson made the comments after ISIS supporter Shamsud-Din Jabbar drove into crowds in the early hours of New Year’s Day, killing 14 and injuring at least 35.

Jabbar posted a video online professing his support for Islamic State shortly before going on the rampage, according to authorities.

In remarks coinciding with the start of the Allstate Sugar Bowl in New Orleans, the corporation’s CEO suggested the attack was a reminder of the importance of political correctness.

NEW: Allstate CEO Tom Wilson says Americans need to overcome their “addiction of divisiveness” and “accept people’s differences” following the terror attack in New Orleans.

If only Shamsud Din Jabbar had heard this message two days ago!

The comment was made at the start of the… pic.twitter.com/WDPWZhPrru

— Collin Rugg (@CollinRugg) January 2, 2025

“Welcome to the All-State Sugar Bowl. Wednesday, tragedy struck the New Orleans community. Our prayers are with the victims and their families,” said Wilson.

“We also need to be stronger together by overcoming an addiction to divisiveness and negativity. Join Allstate, working in local communities all across America to amplify the positive, increase trust, and accept people’s imperfections and differences.”

“Together, we win.”

Some questioned who exactly the comments were supposed to be aimed at given that the only ‘divisiveness’ and ‘negativity’ on display was that which motivated Jabbar to carry out his heinous attack.

So according to @Allstate plowing through a crowd and k*lling 15 people is just an “imperfection”? pic.twitter.com/Gsy9fwDm22

— Libs of TikTok (@libsoftiktok) January 2, 2025

“So according to @Allstate plowing through a crowd and k*lling 15 people is just an “imperfection”?” remarked Libs of TikTok.

Allstate previously triumphed their advocacy for DEI policies in a year end report, boasting about how the company employed a declining number of white men.

In their year end report for 2023, @Allstate boasts about their dedication to DEI and having less White men in their company.

Were White men discriminated against in their hiring practices? https://t.co/0oFW8AYVdJ pic.twitter.com/ztHy7nWI8e

— Libs of TikTok (@libsoftiktok) January 3, 2025

Others asserted that they would be canceling their insurance policy with the company as a result of Wilson’s odd statements.

@Allstate my wife and I will be canceling our insurance with you first thing in the morning and we’ll have a new insurance company for our home and auto policies by noon. As well, my four sons and our two daughters all who have insurance with you. Pound salt.

— 1st Cav (@Cav1Cav) January 3, 2025

*  *  *

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

The federal government’s plan to impose “net neutrality” regulations went beyond its authority, a U.S. appeals court ruled on Jan. 2, the Epoch Times reported.The Federal Communications Commission (FCC) regulations, which bar internet service providers from blocking or limiting access to users, violate federal law because the providers provide an information service, not a telecommunications service, U.S. Circuit Judge Judge Richard Allen Griffin wrote for a unanimous panel of the U.S. Court of Appeals for the Sixth Circuit.

A federal law enables the FCC to impose strict requirements on telecommunications services but not information services.

Griffin referenced a recent U.S. Supreme Court ruling known as Loper Bright that struck down a doctrine that gave government officials wide leeway to interpret laws.

“We acknowledge that the workings of the Internet are complicated and dynamic, and that the FCC has significant expertise in overseeing ’this technical and complex area,‘” Griffin wrote. “Yet, post-Loper Bright, that ’capability,’ if you will, cannot be used to overwrite the plain meaning of the statute.”

The ruling strikes down regulations revived in a 3–2 vote by the FCC in 2024. The regulations were originally promulgated during the Obama administration but were revoked during President Donald Trump’s time in office. The commission voted with encouragement from President Joe Biden.

Industry groups brought the case, which had earlier prompted the Sixth Circuit to pause the regulations as judges considered whether they were lawful.

Following the decision, FCC Chairwoman Jessica Rosenworcel called for Congress to act.

“Consumers across the country have told us again and again that they want an internet that is fast, open, and fair,” she said in a statement. “With this decision it is clear that Congress now needs to heed their call, take up the charge for net neutrality, and put open internet principles in federal law.”

Continue reading at the Epoch Times

US equity futures posted modest gains suggesting stocks may finally halt a five-day losing streak, the longest since April, although we have seen early strength quickly turn to selling so it is unclear if today’s modest bounce will last. As of 8:00am, S&P 500 contracts rose a modest 0.2%, fading stronger gains earlier, while the Nasdaq 100 rose 0.3%. European stocks dropped while Asian equities rebounded to erase Thursday’s losses, boosted by gains in the region’s technology companies even as Mainland China shares sank again as Chinese yields plunged to a new record low. And speaking of yields, the 10Y TSY yield ticked lower, dipping 2 bps to 4.54% while the dollar slipped from the two-year high it set Thursday. The US economic data calendar includes December ISM manufacturing at 10am. Fed speakers scheduled for the session include Barkin (11am).

In premarket trading, Tesla rebounding partially from Thursday’s slump prompted by disappointing vehicle sales numbers. US Still plunged more than 9% after reports that President Joe Biden has decided to block Nippon Steel’s purchase of the company. Here are some other notable premarket movers:

• Block rose 2% after Raymond James turned bullish on the digital payments firm, expressing confidence in the company’s seller gross payments volume.
• Nu Skin Enterprises jumped 12% on a pact to sell its Mavely marketing technology platform.
• Stellantis dropped slips 1.6% as some EV models that had previously received US tax credits for electric vehicles and plug-in hybrids failed to make it into the new list under tougher rules.

Overnight, Bloomberg reported that Biden has decided to block the sale of US Steel to Nippon Steel, ending a $14.1 billion deal that has faced months of vocal opposition and raising questions over the future of a US industrial giant. The news sent the stock sliding by double digits. The president had indicated his opposition to the proposed acquisition, arguing US Steel should remain American owned and operated, though the White House has never said outright that he would block the deal.

Separately, investors will be watching the US House Speaker vote Friday to see if Mike Johnson will retain his position. Republican squabbling over his reelection could bode ill for Trump’s agenda, according to Tom Essaye, founder of the Sevens report.

It’s been a volatile start to the year for stocks, with the S&P 500 index posting intraday gains in the previous two sessions, only to close lower. US manufacturing data due later will give investors clues on the health of the economy while they look ahead to Trump’s inauguration 17 days away to reduce uncertainty over future US policy.

“We really need to see more of that clarity on January 20th for markets to have greater conviction,” said Laura Cooper, global investment strategist at Nuveen. “But I think US exceptionalism will continue to be the dominant theme at least in the first half of the year, regardless of what some of those policies that come through are.”

In Europe, the Stoxx 600 fell 0.3% while French stocks underperform their regional peers. Autos, consumer products and miners are the biggest laggards on growing concerns about Chinese demand. Stellantis NV fell as much as 3.8% as some EV models that had previously received US tax credits for electric vehicles were excluded under tougher rules. Here are some other notable European movers:

• Tullow Oil gains after an international body found it wasn’t liable for a $320 million tax assessment in Ghana, where its key oil assets are located
• Outokumpu falls as much as 2.2% after being downgraded at BNP Paribas Exane in a review of its steelmaking coverage; Voestalpine meanwhile falls as much as 2.4% after also receiving a downgrade in the same review
• Shares of European hearing-aid makers GN Store Nord and Demant drop after EssilorLuxottica’s acquisition of Pulse Audition, a French startup delivering AI-based noise reduction and voice enhancement

Earlier in the session, Asian equities rebounded to erase Thursday’s losses, boosted by gains in the region’s technology companies. Mainland China shares sank extending their worst start to the year since 2016. The MSCI Asia Pacific excluding Japan index rose as much as 0.8%, the most since Dec. 23, with TSMC, Xiaomi and SK Hynix contributing the most. South Korean shares led the gains in the region after five days of selling. Benchmarks also gained in Hong Kong, Taiwan and Australia, while India’s fell.  China’s stocks were mixed after a selloff on Thursday that saw mainland equities register their worst start to the year since 2016. China’s CSI 300 slumped 1.2%, while the Hang Seng Index rose 0.7%. The weakness was more prominent in the country’s small-caps stock after the CSI 2000 index marked its worst day in more than a week. The yuan fell to breach the psychological milestone of 7.3 per dollar for the first time since late 2023. The nation’s 10-year government bond yield slipped below 1.6% for the first time ever.

“There’s been many false dawns in China in recent months and it looks as though it’s unraveling again,” said Kenneth Broux, a strategist at Societe Generale. “We’ve seen three big days of selling which is not really conducive to sentiment.”

In FX, the Bloomberg Dollar Spot Index fell 0.2% from the two-year high it set Thursday, while the Swiss franc tops the G-10 FX leader board, rising 0.3% against the greenback. The onshore yuan weakened past 7.3 per dollar, a level that China had been defending since late last year.

In rates, Treasuries edged up, with US 10-year yields falling 2 bps to 4.54%. German government bonds underperform, more notably at the short-end of the curve with German two-year borrowing costs up 3 bps. Gilts advance.

In commodities, oil prices dipped with WTI falling 0.5% to $72.80 after a four-day rally. European natural gas prices are also in the red. Spot gold is steady near $2,656/oz on track for its biggest weekly gain since November. Bitcoin dropped for the first time in four days, trading below $97K.

Looking at today’s calendar, US economic data calendar includes December ISM manufacturing at 10am. Fed speakers scheduled for the session include Barkin (11am).

Market Snapshot

• S&P 500 futures up 0.3% to 5,938.50
• STOXX Europe 600 down 0.2% to 509.80
• MXAP up 0.2% to 181.45
• MXAPJ up 0.3% to 568.60
• Nikkei down 1.0% to 39,894.54
• Topix down 0.6% to 2,784.92
• Hang Seng Index up 0.7% to 19,760.27
• Shanghai Composite down 1.6% to 3,211.43
• Sensex down 0.9% to 79,236.01
• Australia S&P/ASX 200 up 0.6% to 8,250.49
• Kospi up 1.8% to 2,441.92
• German 10Y yield little changed at 2.38%
• Euro up 0.3% to $1.0297
• Brent Futures down 0.5% to $75.58/bbl
• Gold spot down 0.1% to $2,654.67
• US Dollar Index down 0.39% to 108.97

Top Overnight News

• President-elect Donald Trump is throwing more weight behind Mike Johnson’s speakership bid, as a handful of Republicans are weighing whether to block Johnson’s attempt to reclaim the gavel. Trump has argued publicly and privately that Johnson is the only Republican who can secure the 218 necessary to win the post, a critical step for both Trump and GOP lawmakers to quickly implement his agenda. Politico
• US House Speaker vote is scheduled for today, NBC reports that the first call should begin at around 12pm EST.
• Joe Biden will block the sale of US Steel to Nippon Steel. An announcement is expected today. The Washington Post said senior officials attempted to dissuade Biden, arguing it could damage relations with Japan. US Steel shares -8.5% in the premarket. BBG
• US President-elect Trump named a team to work in conjunction with US Treasury Secretary nominee Scott Bessent with Ken Kies to be Assistant Secretary for Tax Policy and he named Cora Alvi as Deputy Chief of Staff.
• China’s PBOC says it will cut interest rates this year “at an appropriate time” as it looks to shift and simplify its monetary policy framework toward a Fed/ECB-like focus on a single benchmark rate. FT
• China will sharply increase issuance of ultra-long treasury bonds in 2025 to spur business investment and consumer-boosting initiatives, a state planner official said on Friday, as Beijing cranks up fiscal stimulus to revitalize the faltering economy. RTRS
• Apple received another negative headline from China as reports suggest shipments of foreign-branded smartphones to the country (including the iPhone) slumped 47% Y/Y in November, down for the fourth straight month. RTRS
• The UN food price index came in at 127 in Dec, down 0.5% from Nov, as decreases in the price indices for sugar, dairy products, vegetable oils and cereals more than offset increases in meat. UN
• US EV sales jumped 12% in the fourth quarter, pushing the full-year total to a record 1.3 million, boosted by Trump’s threat to eliminate tax credits for plug-in cars, Cox Automotive said. Total car sales also rose. BBG
• Reserves in the US banking system fell to the lowest in over four years in the week through Jan. 1, as year-end dynamics forced lenders to pare balance-sheet intensive activities. At the same time, the Fed has been removing excess cash through its QT program. BBG
• Investors yanked a net $333 million from BlackRock’s iShares Bitcoin Trust ETF yesterday, the most withdrawn since the fund’s launch. BBG

A more detailed look at global markets courtesy of Newsquawk

APAC stocks were ultimately mixed with most major indices higher although the gains were capped amid the holiday closure in Japan and after the negative handover from the US where the dollar strengthened and Tesla deliveries disappointed. ASX 200 was underpinned with energy and gold miners leading the advances after recent gains in underlying commodity prices. KOSPI outperformed despite reports of a standoff between a military unit and South Korean investigative authorities attempting to arrest impeached President Yoon, while acting President Choi ordered to deploy market stabilising measures swiftly and boldly if volatility heightens. Hang Seng and Shanghai Comp traded mixed despite falling yields amid a report the PBoC is said to plan a policy overhaul as pressure mounts on the economy and would likely cut interest rates from the current level of 1.5% at an appropriate time. Nonetheless, some support was seen for Hong Kong tech stocks after an NDRC official said they will sharply increase funding from ultra-long treasury bonds this year to support “two new” programmes and will broaden the consumer trade-in initiative to include smartphones, while the mainland failed to benefit amid the ongoing US-China trade-related frictions.

Top Asian News

• PBoC is reportedly to plan a policy overhaul as pressure mounts on the economy and said it was likely it would cut interest rates from the current level of 1.5% at an appropriate time, while the report noted it would prioritise “the role of interest rate adjustments” and move away from “quantitative objectives” for loan growth in what would amount to a transformation of Chinese monetary policy, according to FT.
• China’s NDRC held a briefing regarding high-quality growth and announced it will sharply increase funding from ultra-long treasury bonds this year to support “two new” programmes, while it is to broaden the consumer trade-in initiative to include smartphones. NDRC expects consumption to maintain steady growth in 2025 and noted China’s economy is facing many new difficulties and challenges in 2025 but added there is ample room for macro policies in 2025. Furthermore, the NDRC deputy head announced an allocation of CNY 100bln in 2025 for two new and two major projects in advance, while it will push major reforms in 2025 to stabilise expectations, boost confidence and promote development, as well as step up efforts surrounding employment.
• South Korean investigative authorities visited President Yoon’s residence to attempt to carry out an arrest warrant but were prevented from carrying out the arrest amid a standoff with a military unit, while two South Korean military officials including the martial law commander were indicted and detained by prosecutors. Furthermore, South Korean acting President Choi ordered to deploy market stabilising measures swiftly and boldly if volatility heightens, as well as announced to prepare tax support measures for small and medium-sized firms to boost corporate investment.

European bourses opened modestly mixed, but quickly succumbed to some selling pressure to display a negative picture in Europe thus far. European sectors opened mixed, but now hold a slight negative bias. A broker upgrade for UBS has helped to prop up Financial Services; Consumer Products once again is towards the foot of the sector list, with Luxury names doing much of the dragging. US equity futures are modestly firmer, with modest outperformance in the NQ after trading lower in the prior session. Phone shipments within China -5.1% Y/Y at 29.61mln handsets in November (vs +1.8% Y/Y to 29.67mln units in October), according to CAICT; shipments of foreign branded phones including Apple (AAPL) iPhone within China -47.4% Y/Y at 3.04mln handsets in November (vs -44.3% Y/Y in October), according to Reuters calculations based on CAICT data.

Top European News

• UK Chancellor Reeves warned ministers to consider cuts to frontline services to fund above-inflation pay increases for public sector workers, according to The Times.

FX

• USD is giving back some of yesterday’s gains vs. peers with DXY returning to a 108 handle after topping out at 109 yesterday (highest since November 2022); currently around the 109.00 mark. For today’s data docket, focus will be on the December ISM manufacturing print which is expected to remain in contractionary territory at 48.4. Elsewhere, markets will be awaiting the outcome of the US House speaker vote (from around 17:00GMT, according to NBC).
• EUR has managed to claw back some lost ground vs. the broadly softer USD but is yet to undo a bulk of the damage yesterday which saw the pair slip from a 1.0375 peak to a 1.0224 low (lowest since November 2022).
• Japanese-specific newsflow remains on the light side with Japan way from market overnight. As such, the USD leg of the USD/JPY pair has been doing a bulk of the heavy lifting and therefore the broadly softer USD has dragged the pair lower. That being said, the pair has been unable to return to a 157 handle after delving as low as 156.44 yesterday.
• GBP is attempting to reverse some of yesterday’s heavy selling pressure which dragged the pair from a 1.2540 peak to a 1.2353 low. Whilst there was no specific catalyst for yesterday’s price action, desks pointed to a reversal of last year’s relative outperformance of the GBP vs. peers (ex-USD).
• Antipodeans are both firmer vs. the broadly weaker USD with AUD managing to overlook losses in iron ore. Newsflow for both has been light, however, attention was on events in China overnight amid reports of support measures from China’s state planner.
• RBI likely selling USD around 85.77-79 levels to support the INR, according to traders cited by Reuters.
• PBoC set USD/CNY mid-point at 7.1878 vs exp. 7.2868 (prev. 7.1879).

Fixed Income

• A relatively contained start for benchmarks, with USTs in a narrow 108-27+ to 109-01 band with the docket light until we get to the US morning when ISM Manufacturing PMI is due before the expected commencement of the vote concerning House Speaker Johnson at around 17:00GMT.
• Bunds hold a bearish bias as the benchmark pares some of the upside seen late-doors on Thursday. Currently, at the low-end of a 132.95-133.48 band, which remains entirely within but approaching the trough of Thursday’s 132.90-133.86 range.
• OATs are the EGB laggard, with pressure stemming from reports in Le Monde that French PM Bayrou is aiming for a 2025 budget deficit as a % of GDP of 5.4%, higher than the 5.0% targeted by Barnier’s failed administration.
• Gilts stand as the marginal outperformer, initially gapped higher at the open, but has since succumbed to the broader fixed income pressure; currently near the day’s trough at 92.24. Specifics include mortgage and money supply data for November from the BoE, metrics which came in below forecast across the board but spurred no real Gilt follow through.

Commodities

• Subdued trade in the crude complex as prices take a breather from the prior day’s surge, and amid a generally cautious risk tone. Brent sits in a USD 75.53-76.26/bbl parameter.
• Nat gas is slightly softer intraday in tandem with broader energy markets, with Dutch TTF front-month oscillating on either side of EUR 50/MWh.
• Mixed trade across precious metals with Palladium clearly benefitting from the softer Dollar, whilst silver ekes mild gains and gold trades subdued. Spot gold resides towards the middle of a current USD 2,649.95-2,665.40/oz range.
• Base metals are modestly higher but with price action contained to a tight range between 8,781.50-8,852.00/t awaiting the next catalyst.
• Goldman Sachs sees significant risks that TTF gas prices rally towards oil-switching economics in a EUR 63-84/MWh range in the coming months.
• Russian oil product exports from the Black Sea port of Tuapse are reportedly planned at 0.798mln/T in January (0.885mln/T scheduled in Dec.), via Reuters citing sources.
• Austria’s Grid Manager says other NatGas sources are compensating for the loss of Russian fuel via Ukraine, gas imports via Germany and Italy are sufficient, according to Bloomberg’s Stapczynski.
• Indonesia Minister says Indonesia is reviewing nickel ore mining quote, seeking to prevent further price falls.

Geopolitics

• Israeli PM Netanyahu will convene a meeting today to discuss the mandate of the Israeli delegation that will leave for Qatar, according to Journalist Stein.
• Israeli army noted sirens sounded in several areas of central Israel after a rocket was fired from Yemen, according to Sky News Arabia.
• Sky News Arabia correspondent reported huge explosions in Syria’s Aleppo amid Israeli raids.

US Event Calendar

• 10:00: Dec. ISM Manufacturing, est. 48.2, prior 48.4
  • Dec. ISM Employment, prior 48.1
  • Dec. ISM New Orders, prior 50.4
  • Dec. ISM Prices Paid, est. 51.8, prior 50.3

DB’s Jim Reid concludes the overnight wrap

Markets got 2025 off to a gloomy start yesterday, with the S&P 500 (-0.22%) extending its post-Christmas losses as various headlines added to the downbeat tone. The latest decline is now the 5th consecutive move lower for the S&P, making it the longest run of declines for the index since April. But as we mentioned yesterday, the first trading day has been a very poor guide to the rest of the year in recent times, so we shouldn’t extrapolate things too far. Indeed, both of the last two years saw the S&P 500 lose ground on the first day, before going on to rise more than +20% over the year as a whole.

Several factors helped to extend the selloff over the last 24 hours. First up, we had a lot of negative headlines out of Europe, as concerns mounted about the energy situation after the expiry of the transit deal between Russia and Ukraine. That meant European natural gas futures closed above €50/MWh for the first time since October 2023, and the end of the transit deal has also coincided with some very cold temperatures in northern Europe right now. So the fear is that higher gas prices are going to add to inflationary pressures, whilst gas storage has been falling faster than usual this year as well.

That backdrop saw the euro (-0.88%) close at its weakest level against the US Dollar since November 2022, ending the session at $1.0265. This continues the declining trend that’s been evident since late-September, as the prospect of US tariffs and a more hawkish Fed have put the currency under pressure. In the meantime, sterling saw even bigger losses, falling by -1.09% to $1.2380, which is its weakest closing level since April. And with inflationary pressures mounting, including from a weaker currency, sovereign bonds struggled across much of Europe, with yields on 10yr bunds (+1.2bps), OATs (+3.8bps) and gilts (+3.1bps) all moving higher. In fact, for another sign of the risk-off tone yesterday, the Franco-German 10yr spread moved up to 85.6bps, which is the widest it’s been since December 2, the day that the National Rally announced they’d back a motion of no confidence in Michel Barnier’s government.

That downbeat European narrative got a further push yesterday from the final manufacturing PMIs for December, which saw modest downward revisions compared to the flash prints. For example, the Euro Area manufacturing PMI came down a tenth to 45.1, and the UK reading came down three-tenths to 47.0. And in the UK’s case, that also leaves the manufacturing PMI at an 11-month low.

To be fair, the European equity performance was pretty good in the circumstances, with the STOXX 600 (+0.60%) and all the other major indices advancing. That was driven by an outperformance from energy stocks given the upward moves for energy commodities, and Brent crude oil ended the session up+1.73% at $75.93/bbl, marking its 4th consecutive move higher. That trend has continued this morning too, with Brent crude prices up another +0.28% to $76.14/bbl. But for US equities there was a much more negative story, with the S&P 500 (-0.22%) posting a 5th consecutive loss, driven by even deeper losses for the Magnificent 7 (-0.69%). In fact, Tesla (-6.08%) was the worst performer in the entire S&P 500 after they reported that their annual vehicle sales had fallen for the first time since 2011. The NASDAQ (-0.16%) and the Dow Jones (-0.36%) lost ground as well, with the small-cap Russell 2000 (+0.07%) outperforming as it posted a modest gain.

Whilst there were several negative headlines yesterday, a more positive story were some upside surprises in the US data. For instance, the weekly initial jobless claims fell to their lowest since April over the week ending December 28, coming in at just 211k (vs. 221k expected). That pushed the 4-week moving average down to 223.25k, and the continuing claims for the previous week also fell to their lowest since September, at 1.844m (vs. 1.890m expected). Separately, we had the final manufacturing PMI for December, which was revised up from the flash reading to 49.4 (vs. flash 48.3). So that was all coming in on the upside.

But even with those upside data surprises, it meant investors dialled back their expectations for rate cuts from the Fed over the next few months, so that meant risk assets lost a bit of support. Moreover, given the latest moves in energy prices, investors moved to raise their near-term inflation expectations, with the US 1yr inflation swap up +4.9bps yesterday to 2.57%. And after the jobless claims numbers were out, the 2yr Treasury yield (-0.2bps) moved off its intraday low of 4.20%, paring back that decline to end the session at 4.24%. It was a similar story for the 10yr yield (-1.0bps) too, which came off its intraday low of 4.51% to close at 4.56%.

Overnight, there have been some signs of a recovery, with advances for South Korea’s KOSPI (+1.78%) and Australia’s S&P/ASX 200 (+0.60%). And looking forward, US equity futures are also positive, with those on the S&P 500 up +0.14%. However, Chinese equities have continued to lose ground, with both the CSI 300 (-0.25%) and the Shanghai Comp (-0.69%) extending their 2025 losses. That comes as China’s 10yr government bond yield has fallen below 1.6% intraday for the first time ever this morning, whilst the FT reported comments from the People’s Bank of China that they would likely cut interest rates “at an appropriate time” this year. The article said that the PBoC would prioritise “the role of interest rate adjustments”, moving away from “quantitative objectives” for loan growth. Otherwise, Japanese markets remain closed for a holiday.

Looking forward, one thing to look out for today will be the start of the new session of Congress in the United States, including the vote to elect the Speaker of the House of Representatives. The incumbent Speaker Mike Johnson is trying to stay in post and has the endorsement of Donald Trump, but the Republicans have a very tight majority in the House, with a 220-215 margin over the Democrats. A few Republicans haven’t committed to voting for Johnson for Speaker, and two years ago it took 15 ballots over multiple days before Kevin McCarthy was elected. From a market standpoint, this will be an interesting test as to the unity of the new Republican majority as they seek to enact Trump’s second term agenda, as it’s a much tighter margin than they had after the 2016 election, when the Republicans began with a 241-194 majority in the House.

To the day ahead now, and data releases include the US ISM manufacturing print for December, German unemployment for December, and UK mortgage approvals for November. From central banks, we’ll hear from the Fed’s Barkin and the ECB’s Lane.

Update: 

President Biden has released a statement indicating that he will “block” Nippon Steel’s $14.9 billion takeover of US Steel.

Here’s the full statement: 

As I have said many times, steel production—and the steel workers who produce it—are the backbone of our nation.  A strong domestically owned and operated steel industry represents an essential national security priority and is critical for resilient supply chains.  That is because steel powers our country: our infrastructure, our auto industry, and our defense industrial base. Without domestic steel production and domestic steel workers, our nation is less strong and less secure.

For too long, U.S. steel companies have faced unfair trade practices as foreign companies have dumped steel on global markets at artificially low prices, leading to job losses and factory closures in America. I have taken decisive action to level the playing field for American steelworkers and steel producers by tripling tariffs on steel imports from China.  With record investments in manufacturing, more than 100 new steel and iron mills have opened since I took office, and U.S. companies are producing the cleanest steel in the world. Today, the domestic steel industry is the strongest it has been in years.

We need major U.S. companies representing the major share of US steelmaking capacity to keep leading the fight on behalf of America’s national interests. As a committee of national security and trade experts across the executive branch determined, this acquisition would place one of America’s largest steel producers under foreign control and create risk for our national security and our critical supply chains.

So, that is why I am taking action to block this deal. It is my solemn responsibility as President to ensure that, now and long into the future, America has a strong domestically owned and operated steel industry that can continue to power our national sources of strength at home and abroad; and it is a fulfillment of that responsibility to block foreign ownership of this vital American company. U.S. Steel will remain a proud American company – one that’s American-owned, American-operated, by American union steelworkers – the best in the world.  

Today’s action reflects my unflinching commitment to utilize all authorities available to me as President to defend U.S. national security, including by ensuring that American companies continue to play a central role in sectors that are critical for our national security. As I have made clear since day one: I will never hesitate to act to protect the security of this nation and its infrastructure as well as the resilience of its supply chains.

*   *   * 

Biden administration officials seem to have leaked the president’s impending decision, expected on Friday, to block Japan’s Nippon Steel from purchasing US Steel. The Washington Post was the first to report on the president’s planned move. 

The report states that two administration officials revealed President Biden chose to block the deal between Nippon Steel and US Steel, despite warnings from some senior advisers about potential negative consequences surrounding future foreign investment in US companies. 

On Dec. 23, the Committee for Foreign Investment in the United States, also known as CFIUS, notified the Biden administration it had not reached a consensus about whether Nippon’s potential purchase of US Steel would pose a national security risk, essentially leaving the decision up to the elderly president who doesn’t know what day it is.

The panel, chaired by Treasury Secretary Janet Yellen, said Nippon purchasing US Steel could reduce domestic steel production and pose “risks to the national security of the United States,” adding, “Potential reduced output by US Steel could lead to supply shortages and delays that could affect industries critical to national security.” 

CFIUS noted that Nippon’s global operations might not support ‘America First’ amid US Treasury trade actions against low-cost steel imports. They said this could leave “the US economy more exposed to dumping and unfair subsidization of steel.” 

On Monday, Nippon executives made a last-ditch attempt to sway Biden. The execs sent a proposal to the White House that would allow the government to veto any reduction in US Steel’s “production capacity.” 

For many months, Biden has publicly opposed Nippon’s $14.9 billion takeover of US Steel, ultimately siding with David McCall, the president of the United Steelworkers union. McCall has called Nippon’s bid as “bad for workers.” 

Meanwhile, President-elect Donald Trump has opposed the transaction and said he would support US Steel with tariffs and tax incentives. 

In premarket trading, shares of US Steel are down 6% in New York. 

If Nippon Steel’s purchase of US Steel is rejected due to national security concerns, foreign investors could reconsider allocating resources toward mergers, acquisitions, or investments in the United States.

 

 

 

Authored by Mike Shedlock via MishTalk.com,

Other than exports, no country wants to be like China.

China Overindebtedness, Overbuilding and Overcapacity

The Wall Street Journal reports China’s Economy Is Burdened by Years of Excess. Here’s How Bad It Really Is.

Destiny deferred

China’s rapid growth meant that for years forecasters expected China to overtake the U.S. as the world’s largest economy. As recently as 2019, some forecasters were expecting China’s GDP to eclipse the U.S.’s around 2030. Today, it is the U.S. powering the global economy and China that is battling stumbling growth. Few now expect China to catch up with the U.S. before midcentury, if it manages to at all.

Ticking time bomb

China is also facing demographic headwinds that will make it harder to restore its economic vigor. China’s working-age population is shrinking, reversing the demographic dividend that powered its economic ascent.

China’s Working-Age Population

China’s economy has for decades been powered by heady levels of investment. At first, that yielded modern infrastructure and propelled the expansion of China’s manufacturing engine and its megacities. But sticking with that strategy year after year has meant China today is beset by colossal debts, unneeded apartments and industrial overcapacity.

Debt as Percentage of GDP China

Debt: Borrowing by government, households and corporations in China is approaching 300% of its annual GDP. “Hidden” borrowing by local governments—debt held off the books on their behalf by opaque investment companies known as local government financing vehicles—is a major problem. On some measures, the scale of those debts and the burden of servicing them in China is more severe than in the U.S. before the financial crisis or in Europe in the depths of its own debt crisis a decade ago.

Real estate: China’s real-estate boom was unprecedented—and so is the ongoing bust. New construction and sales have cratered since the government took steps to rein in the bubble in 2020. It has struggled to stabilize the market, despite measures to ease purchase restrictions and offer cheap credit to would-be buyers.

One sign of the boom’s excesses: There are as many as around 80 million vacant units in China, according to the latest estimates at the end of November, equivalent to half the total housing stock of the entire U.S.

Share of Global Manufacturing

Industrial Overcapacity

In response to the slowing economy, and to transform China into a technological colossus, leader Xi Jinping has been funneling investment into China’s already huge factory sector. The result has been a surge in industrial capacity and two years of falling prices for Chinese producers, which are increasingly looking overseas to find buyers for goods they can’t sell at home. That is sparking trade spats with the U.S.-led West and emerging markets such as Brazil and India.

Debt Deflation Trap

China is in a debt deflation trap of its own making.

It makes sense to add capacity if the debt is productive and can be serviced.

China should write down debts but much of that is in State Owned Enterprises (SOE), and the political class will not take a hit or admit mistakes (just like everywhere else).

Mirage of Growth

Image WSJ

For decades, China depended on property bubbles for growth. With building now crumbling, all of that growth was a mirage.

I have been writing about China’s “ghost cities” where no one lives for a decade. They are a result of malinvestment.

Building those cities added to GDP, but it was really 100 percent waste.

World’s Biggest Property Bubble

On March 23, 2011 I noted World’s Biggest Property Bubble: China’s Ghost Cities Revisited; 64 Million Vacant Properties

The true state of affairs is China’s banks are insolvent. China is building units for which there is little demand and few can afford. China will have to print money to pay for all of this malinvestment. The idea the Yuan is undervalued fails to take into consideration any of this.

Bonds of China’s Largest Property Developer Crash

On August 10, 2023, I noted Bonds of China’s Largest Property Developer Crash to 25 Percent of Notional Value

Hello there Purchasing Power Parity (PPP) GDP advocates and China horn tooters in general, let’s discuss real estate.

It was a long time waiting for the inevitable.

Flashback Hoot of the Day: When Will China Overtake the US?

On August 6, 2023 In Flashback Hoot of the Day: When Will China Overtake the US? I discussed a bet that Michael Pettis made with the Economist on when China would pass the US in GDP.

The Economist made a bet with Pettis in 2012 that by 2018 China would pass the US. The Economist lost the bet by a mile. China is still not close to the US in GDP. A couple of my readers say not so, based on PPP.

Fundamentally, PPP is horrendously flawed. 

Purchasing Power Parity Silliness and the Myth China Passed the US in GDP

On August 8, 2023, I discussed Purchasing Power Parity Silliness and the Myth China Passed the US in GDP

Some of my readers claim China passed the US in GDP based on Purchasing Power Parity (PPP). The rationale is hugely flawed.

Michael Pettis: “Adjusting GDP for differences in purchasing power makes a great deal of sense in certain cases, but the way it is done is so filled with problems that it is extremely difficult to find any economist who takes these measures very seriously.“

What I Said in 2011

All this talk about how undervalued the Yuan is, how China will rule the world, and why the Yuan will be the next global reserve currency is pure silliness.

China’s growth is nothing more than a credit bubble on steroids. Cities are vacant, yet China keeps building, and building and building.

Savings Glut Thesis

There is still rampant belief that China is this big nation of savers, and US trade deficits are the other side of the coin.

Ben Bernanke, Larry Summers, and even Michael Pettis believe in the savings glut thesis. It is my one ongoing disagreement with Pettis.

But Pettis is slightly different in that he calls it a savings imbalance. I still disagree, but “imbalance” is closer.

I highly respect Michael Pettis, he taught me nearly everything I know about trade.

Here’s my question: China now has a debt to GDP ratio of nearly 300 percent. So where the heck is the saving either in China or here?

We can look at M2 or money supply and the massive wealth of people like Elon Musk, but printing money (yaun or dollars) is not savings.

What is Saving?

Saving is production minus consumption. China’s property bubble is a great example.

People alleged “saved” their money by investing in property bubbles. But entire cities are now worthless. China needs to spend money to tear them down.

That savings has been rendered worthless, but the debt remains, and the cities are now of negative value (they need to be torn down).

That China made a few billionaires in the process is not a savings glut, not a savings imbalance, and not net savings.

Ghost cities do not constitute savings. They do constitute savings destroyed. And the process is still ongoing.

Hoot of the Day

People are still predicting the demise of the US and destruction of the US dollar. Nonsensical US hyperinflation talk has been ongoing the whole time.

China is a manufacturing miracle but all China did was replace a property bubble with an even bigger manufacturing bubble to keep people employed.

We are now at a point where China is subsidizing exports to an extent the world has never before seen, just to keep it’s economy growing (on paper).

This is a better use for “saving” than property bubbles that have been more than 100 percent wiped out (again think of cleanup costs), but the return on these manufacturing investments is less than zero.

Who’s Paying the Price?

Chinese consumers paid the price of now less than worthless property bubbles.

Chinese consumers continue to pay the price of subsidizing exports.

China desperately needs a course correction but there are no signs China is about to do so.

So, What Country Wants to Be Like Germany Now?

On December 17, 2024, I asked So, What Country Wants to Be Like Germany Now?

The collapse of Germany shocks many. But I have been discussing why this was inevitable for over a decade.

The current chancellor has called for bailouts and subsidies to save jobs and prop up struggling carmakers, while Merz has floated a menu of supply-side measures such as lower taxes, less bureaucracy and steps that would make it cheaper for businesses to reach Berlin’s climate goals.

Shocked? I’m Not

This is all so predictable. The only thing debatably shocking is how it too so long.

Flashback April 11, 2013: Eurozone Math; One Size Fits Germany; Door Number Two

As a direct result of the unstable eurozone treaty, sovereign interest rate imbalances, Target II imbalance, and trade imbalances are out of control. Germany and the other European creditor countries are owed money that cannot be paid back.

Few have made the connection, but Germany and China are both following in the footsteps of Japan’s debt deflation trap.

Price deflation is a benefit. Debt deflation and writeoffs of debt are a curse.

We are in this mess because Central banks and governments fail to differentiate. Don’t be like central banks and confuse the two.

South Korea’s impeached President Yoon Suk Yeol resisted an arrest attempt by an anti-corruption agency on Friday, extending a period of political instability that began with his emergency declaration of martial law on December 3. In addition to political turmoil, economic uncertainty continues to mount ahead of President-elect Donald Trump’s second term of tariff wars, compounded by the nation’s worst aviation disaster on Sunday.

Here are the key developments that unfolded on Friday: 

• Arrest Attempt: The Corruption Investigation Office for High-ranking Officials (CIO), supported by 2,700 law enforcement officials, abandoned a five-hour standoff after being blocked by Yoon’s security team, including military personnel.

• Turmoil: Tensions escalated, and the CIO plans to summon Yoon’s security chief for questioning on Saturday.

• Opposition Calls for Action: Democratic Party member Park Chan-dae urged the CIO to retry the arrest and hold obstructing individuals accountable.

• Yoon’s Defense: His lawyers condemned the warrants as “illegal and invalid” and have filed a court challenge.

• Impeachment Trial: Yoon’s trial is set for January 14, with supporters rallying outside his residence as he defies CIO orders to cooperate.

• Domestic Market Reaction: Despite the political turmoil, financial markets showed resilience, with the Kospi index rising 1.8% and the won strengthening.

The CIO’s attempt to arrest Yoon was backed by 2,700 police officers surrounding his residence in Seoul’s Yongsan district. After a multi-hour standoff, the impeached president’s security team blocked police and investigators from executing the arrest warrant. 

While the Constitutional Court will take six months or so on whether to confirm the impeachment or reinstate Yoon, authorities are also investigating criminal charges for insurrection. Yoon has rejected numerous attempts by the CIO for questioning. 

“Executing the arrest warrant was virtually impossible due to the continued standoff,” the CIO wrote in a statement, adding, “Future measures will be decided after a review. We express our deepest regret over the suspect’s refusal to comply with legal procedures.”

Yoon’s lawyer released a statement that described the CIO’s authority to investigate insurrection as not valid and that attempting to “forcefully execute” arrest and search warrants by mobilizing police troops is unlawful. 

Who would’ve ever thought that Asia’s fourth-largest economy would transform into an epic banana republic just three days into the new year? 

SEOUL (@CNN) — 12:45PM — YOON ARREST STANDOFF — Hour 6 — This is what demonstration in *support* of South Korea’s suspended President Yoon Suk Yeol looks like. Prosecutors & corruption investigators are *still* trying to detain Yoon for questioning, a 1st for a sitting president. pic.twitter.com/LJPi5CK4U1

— Mike Valerio (@ValerioCNN) January 3, 2025

The turmoil is far from over: Park Chan-dae, the floor leader of the main opposition Democratic Party, advised the CIO to arrest Yoon as soon as possible, adding anyone obstructing should be arrested. 

It appears that the opposition Democratic Party wants a mugshot of the impeached president before the trial begins on January 14.

For more clarity on Yoon’s transition scenarios, Goldman analysts outlined the timeline as follows:

The benchmark Kospi stock index jumped nearly 2% in domestic markets, while the won rose about half a percent against the dollar on the day. 

Commenting on markets, Bloomberg’s Markets Live blog wrote:

The ~2% gain in the Kospi would be impressive enough if it came in a vacuum, or amid a global meltup. But the surge is all the more striking given the fresh political conflict. That signals that dip buyers decided South Korean valuations are simply too cheap to resist for long, so the bottom is likely in for the Kospi absent another full-blown constitutional crisis.

South Korean stocks started sliding in August, well before President Yoon’s December decision to impose martial law. That opened up a yawning gap between the tech-heavy Kospi and the Nasdaq which was bound to eventually lure in some speculative money.

Spot the divergence between Kospi and MSCI World Index….

Meanwhile, Graham Ambrose, managing director of Goldman’s equity franchise sales team in London, told clients last month…

Goldman Sees “Buying Opportunities” In South Korean Stocks After Martial Law Turmoil https://t.co/MOqqMNaAHO

— zerohedge (@zerohedge) December 3, 2024

Bottom-fishing Korean stocks amid an ongoing and potentially worsening political crisis appear risky but certainly worth watching for potential opportunities.