Category: zerohedge

Seizing assets? Two can play at that game…

Just days after Washington voted to authorize the REPO Act – paving the way for the Biden administration confiscate billions in Russian sovereign assets which sit in US banks – it appears Moscow has a plan of its own (let’s call it the REVERSE REPO Act) as a Russian court has ordered the seizure of $440 million from JPMorgan.

The seizure order follows from Kremlin-run lender VTB launching legal action against the largest US bank to recoup money stuck under Washington’s sanctions regime.

As The FT reports, the order, published in the Russian court register on Wednesday, targets funds in JPMorgan’s accounts and shares in its Russian subsidiaries, according to the ruling issued by the arbitration court in St Petersburg.

The assets had been frozen by authorities in the wake of the western sanctions, and highlights some of the fallout western companies are feeling from the punitive measures against Moscow.

Specifically, The FT notes that the dispute centers on $439mn in funds that VTB held in a JPMorgan account in the US.

When Washington imposed sanctions on the Kremlin-run bank, JPMorgan had to move the funds to a separate escrow account. Under the US sanctions regime, neither VTB nor JPMorgan can access the funds.

In response, VTB last week filed a lawsuit against the New York-based group to get Russian authorities to freeze the equivalent amount in Russia, warning that JPMorgan was seeking to leave Russia and would refuse to pay any compensation.

The following day, JPMorgan filed its own lawsuit against the Russian lender in a US court to prevent a seizure of its assets, arguing that it had no way to reclaim VTB’s stranded US funds to compensate its own potential losses from the Russian lawsuit.

Yesterday’s decision sided with VTB, ordering the seizure of funds in JPMorgan’s Russian accounts and “movable and immovable property,” including its stake of a Russian subsidiary.

JPMorgan said it faced “certain and irreparable harm” from VTB’s efforts, exposed to a nearly half-billion-dollar loss, for merely abiding by U.S. sanctions.

The order was the latest example of American banks getting caught between the demands of Western sanctions regimes and overseas interests. Last summer, a Russian court froze about $36mn worth of assets owned by Goldman following a lawsuit by state-owned bank Otkritie. A few months later the court ruled that the Wall Street investment bank had to pay the funds to Otkritie.

The tit-for-tat continues.

Authored by Simon Black, Bloomberg macro strategist,

Sovereign yields in China have been falling in recent months, in marked contrast to almost every other major country. This is a key macro variable to watch for signs China is ready to ease policy more comprehensively as its tolerance is tested for an economy that is becoming increasingly deflationary. Further, vigilance should be increased for a yuan devaluation. Though not a base case, the tail-risk of one occurring is rising.

Year of the Dragon in China it may be, but the economy has yet to exhibit the abundance of energy and enthusiasm those born under the symbol are supposed to possess. China failed to exit the pandemic with the resurgence in growth seen in many other countries, and the outlook has been lackluster ever since.

But we are entering the crunch phase, where China needs to respond forcefully, or face the prospect of a protracted debt-deflation. The signal is coming from falling government yields. They have been steadily falling all year, at a faster pace than any other major EM or DM country. Indeed yields have been rising in almost every other country.

That’s a problem for the yuan. The drop in China’s yields is adding pressure on the currency. Widening real-yield differentials show that there remains a strong pull higher on the dollar-yuan pair.

The question is: will this prompt a devaluation in the yuan? The short answer is less likely than not, but it can’t be discounted, and the risks are rising as long as capital outflows continue to climb.

We can’t measure those directly in China as the capital account is nominally closed. But we can proxy for them by looking at the trade surplus, official reserves held at the PBOC, and foreign currency held in bank deposits. The trade surplus is a capital inflow, and whatever portion of it that does not end up either at the PBOC or in foreign-currency bank accounts we can infer is capital outflow.

This measure is rising again, as more capital typically tries to leave the country when growth is sub-par, as it is today.

So far, China appears to be managing the decline in the yuan versus the dollar. USD/CNY has been bumping up against the 2% upper band above the official fix for the pair. But China is stabilizing the yuan’s descent through the state-banking sector. As Brad Setser noted in a recent blog, the PBOC has stated that it has more or less exited from the FX market. Instead, that intervention now takes place unofficially using dollar deposits held at state banks.

China has plenty of foreign-currency reserves to stave off continued yuan weakness (more so than is readily visible, according to Setser), but there is always the possibility policymakers decide to ameliorate the destructive impact on domestic liquidity from capital outflow by allowing a larger, one-time devaluation. There is speculation this is where China is headed, and that it is behind its recent stockpiling of gold, copper and other commodities.

However, there are risks attached to such a move, given it might be detrimental to the more normalized markets that China covets in the name of financial stability, as well potentially prompting a tariff response from the US.

A devaluation is a low, but non-zero, possibility that has risen this year. Either way, the drop in bond yields underscores that China will soon need to do something more dramatic to avert the risk of a debt deflation.

In the past, the current rate of decline in sovereign yields has led to a forthright easing response from China, with a rise in real M1 growth typically seen over the next six-to-nine months.

But M1 growth in China has singularly failed to bounce back so far despite several hints that it was about to. This is likely a deliberate policy choice as rises in narrow money are reflective of broad-based “flood-like” stimulus that policymakers in China have explicitly ruled out as recently as January, in comments from Premier Li Qiang. Policymakers are laser-focused on not re-inflating the shadow-finance sector, which continues to be squeezed.

Shadow finance led to unwanted speculative froth in markets, real estate and investment that China does not want to see reprised. But its curbs have been too successful. Credit remains hard-to-get where it is needed most, typically the non state-owned sectors.

The slowdown this fostered was amplified by China’s response to the pandemic. Rather than supporting household demand, policymakers in China supported the export sector, leading to a surge in outward-bound goods.

Stringent lockdowns prompted households to become exceptionally risk averse, increasing their savings, and being reluctant to spend even after restrictions were lifted, lest the government decided to paralyze the economy again at some future time.

This also caused the real estate sector to implode, prompting multiple piecemeal easing measures to support housing prices and indebted property developers, to little avail so far: leading indicators for real estate such as floor-space started remain muted or weak, while the USD-denominated debt of property companies continues to trade at less than 25 cents in the dollar.

China has a large and growing debt pile that is only set to get worse as its demographics continue to deteriorate. The alarming chart below from the IMF projects public debt (including local government financing vehicles) in China to accelerate way ahead of that in the US in the coming years, to around 150% of GDP by the end of the decade. Total non-financial debt is already closing in on 300% of GDP.

Source: IMF

This raises the risk of a debt-deflation, when the value of assets and the income from them fall in relation to the value of liabilities. Debt becomes increasingly difficult to service and pay back, leading to lower consumption and investment, entrenched deflation and derisory growth that is difficult to escape.

Woody Allen once quipped that mankind is at a crossroads, one road leads to despair and utter hopelessness and the other to total extinction. China’s choices are not yet that stark, but the longer it waits to deliver an emphatic response to its predicament, they may soon become that way.

The world’s largest global diversified miner, BHP Group, is making a monster bet on surging future copper demand with the proposed takeover of Anglo American Plc. The bet is based on the thesis that the world’s power grids need a major overhaul and that the electrification of the economy will unleash new demand for base metals. This also comes as market observers have warned about an impending shortfall of global copper mining supply.

According to Bloomberg, BHP proposed an all-share deal valued at £31.1 billion ($38.9 billion). The transaction depends on Anglo spinning off its South African iron ore and platinum businesses to its shareholders. The offer is conditional and non-binding at £25.08 a share, or about a 14% premium to Anglo’s closing share price on Wednesday. 

Anglo shares in London jumped 13% to £24.89, giving the company a market capitalization of about £30.5 billion. 

BHP’s proposed acquisition of Anglo would dwarf its 2023 takeover of Australian copper producer OZ Minerals. The top miner believes copper demand will double over the next three decades. 

Copper is a critical base metal for infrastructure and renewable energy. BHP bets that the world’s power grids must be upgraded as fossil fuel demand slides and the global economy’s electrification ramps up. 

If the deal closes, BHP will become the world’s biggest copper producer (controlling roughly 10% of the global copper mining supply), which comes as some market observers are warning about supply shortfalls. 

About a year ago, billionaire mining investor Robert Friedland explained to Bloomberg TV in an interview that copper prices are set to soar because the mining industry is failing to increase supply ahead of ‘accelerating demand.’ He warned: 

“We’re heading for a train wreck here.” 

Friedland is the founder of Ivanhoe Mines Ltd. He continued, “My fear is that when push finally comes to shove,” copper prices might explode ten times. 

Jefferies’ commodity desk recently warned, “Disruptions have significantly increased, and a market deficit is now increasingly likely. We could be at the foothills of the next copper cycle.”

BofA recently warned, “The copper supply crisis is here.” 

Let’s not forget about our note titled “The Next AI Trade,” which explains the investment opportunities in upgrading the nation’s grid as generative AI data centers increase power demand. 

And Jefferies is on it: “Copper Demand in Data Centers.” 

Back to BHP, the company said in a statement to London Stock Exchange that the takeover would increase its “exposure to future-facing commodities through Anglo American’s world-class copper assets” as well as “complementing BHP’s iron ore and metallurgical coal portfolios.” 

Jefferies analysts commented on the proposed takeover, indicating BHP might face competition in its pursuit of Anglo. 

“Our analysis suggests that Anglo consists of an undervalued portfolio of multiple tier 1 assets several of which are in low-risk jurisdictions (Australia, Chile, Peru and Brazil),” Jefferies said.

Jefferies Christopher LaFemina said:

“We would be surprised if this is BHP’s final offer,” adding, “We estimate that a price of at least £28/sh would be necessary for serious discussions to take place, and a takeout price of well above £30 per share would be the outcome if other bidders were to get involved.”

A successful takeover would mark the first mega mining deal in more than a decade and signify the importance of critical metals and their use in upgrading the world’s power grid. 

After today’s stagflationary GDP print, which came below the lowest Wall Street estimate even as core PCE came in above the highest estimate…

… there has been an outcry of horror from Wall Street’s traders, analysts and strategists as the BEA once again steamrolled all over Wall Street’s benevolent forecasts for a soft, or no, landing and crash-landed right into stagflation nation.

Below we excerpt from some of the most notable kneejerk responses and comments:

Ian Lyngen at BMO Capital Markets, on the potential implication of the core PCE inflation gauge this morning on tomorrow’s monthly release:

“The question has quickly become whether this is due to revisions from Jan/Feb or if tomorrow’s monthly core-PCE report will reveal a stronger-than-consensus (+0.3%) print.”

Ira Jersey, Bloomberg Intel chief Rates strategist

“The rate market is keenly focused on the PCE deflator beating expectations in 1Q. We still target 4.70% as a key technical level for 10-year Treasury yield. A break of that targets the cycle highs around 5%.”

“It looks like the fiscal drag on the economy may have begun with federal government consumption actually a drag on GDP this quarter. Not huge, but any negative print is still a shift from the past few years. But 2.5% consumption growth still isn’t anywhere near recession, and services consumption growing at 4% suggests a more pronounced slowdown could be a long way off.”

Sebastian Boyd, Bloomberg analyst

Bond traders can read the GDP data in two ways. The growth number was a big miss, but prices rose faster than expected. Of course this is the first pass at the data, but if it holds up then it shows the US economy is considerably weaker than thought, which would open the way to earlier interest rate cuts. On the other hand, the Fed is more likely to focus on inflation than growth, and the price index, especially the core price index, doesn’t offer any comfort on that front. Two-year yields initially fell, but are now much higher on the day. Stock futures are down; the dollar is spiking. Keep an eye on the yen.

Lindsay Rosner, head of multisector fixed income investing at GSAM

“The report has a disappointing headline and consumption line item, but at this point, inflation concerns weigh more than GDP softness for the Fed.”

Quincy Krosby, Chief Global Strategist at LPL Financial:

“The softer first read of Q1 GDP could shift — again- the Fed’s timetable for initiating the rate easing cycle, with July coming back into play. If the PCE report due tomorrow similarly suggests the downward path of inflation has begun to once again momentum, it could serve as a catalyst for the market.”

Dan Suzuki, deputy CIO at Richard Bernstein Advisors,

“The GDP print is not as bad a print as it appears on the surface.  The main drags were in goods demand (which we already knew based on the manufacturing PMIs), government spending and exports. I think it was actually pretty encouraging to see solid investment spending in both capex and housing, while weaker net exports reflect the robust domestic demand for imports, even as economic growth outside the US has been a bit more tepid.”

Enda Curran, Bloomberg Fed watcher and commentator

“The other political takeaway from today’s data is that just six months out from the presidential election, it looks like the economy is finally slowing down. The details of the data are overall robust — but it’s the headline that counts for politicos.”

Rubeela Farooqi, chief US economist at High Frequency Economics:

“The outlook going forward is uncertain. Strength in the labor market is likely to keep household spending and growth positive for now. However, a delay in Fed rate cuts to counter sticky inflation could be headwinds for consumption and the growth trajectory over coming quarters.”

Olu Sonola, head of US economic research for Fitch Ratings:

“The hot inflation print is the real story in this report. If growth continues to slowly decelerate, but inflation strongly takes off again in the wrong direction, the expectation of a Fed interest rate cut in 2024 is starting to look increasingly more out of reach.”

Jan Hatzius, Goldman economist

Real GDP rose 1.6% annualized in the advance reading for Q1 (qoq ar)—0.9pp below consensus and the first quarter below 2% since the second quarter of 2022. The composition was not as soft, as the contribution from inventories (-0.4pp vs. GS +0.2pp) and foreign trade (-0.9pp vs. -0.4pp) accounted for the bulk of the miss. Indeed, domestic demand growth proceeded at a strong pace of +2.8% annualized. This reflected a double-digit pace of residential investment growth (+13.9%) and solid growth in consumption (+2.5%) and business fixed investment (+2.9%), the latter reflecting gains in two of the three capex subcategories (equipment +2.1%, intellectual property +5.4%, structures -0.1%). Government spending growth slowed more than we expected to +1.2% (vs. GS +1.9% and Q4 +4.6%), reflecting a surprising decline in federal (-0.2%) and a smaller-than-forecast rise in state and local (+2.0%) spending.

Alan Detmeister, UBS economist

We had 3.5% so were slightly less surprised than the consensus. The months that go into the Q1 number released today will be used in the 12-month change on Thursday, however the weighting across those months is quite different with the January monthly change getting much more weight in today’s quarterly number than it does in the 12-month change released tomorrow (and the opposite for the March monthly change). Nonetheless the 0.2pp upward surprised on the annualized Q1 core PCE price change definitely increases the risk of an upward surprise to the 12-month change tomorrow. (Treating months equally it would suggest tomorrow’s estimate of the 12-month change around 5bp higher than what we have.)  It is more difficult to say anything on the March monthly because it is quite possible that today’s surprise was upward revisions to January or February, so again today’s data raises the upside risk on March, but hard to say how much.

Source: Bloomberg

After new home sales soared (thanks to prior downward revisions) and existing home sales plunged in March (along with the collapse in housing starts and permits in March), this morning’s pending home sales data was expected to rise very modestly MoM (less than in February) but remain lower on a YoY basis.

In an odd turn of events, pending home sales beat on a MoM (SA) basis (+3.4% vs +0.4% exp) but missed on a YoY (NSA) basis (-4.5% vs -3.0% exp). Sales were up 0.1% YoY on a seasonally-adjusted basis…

Source: Bloomberg

This is the 28th straight month of YoY declines for non-seasonally-adjusted pending home sales.

That leaves pending home sales hovering just off record lows…

Source: Bloomberg

The gains were led by the South and the West, and, to a lesser extent, the Northeast, with the MidWest seeing sales slump 4.3$ MoM. All regions are lower on a YoY basis.

While the pending-sales index reached a high point, “it still remains in a fairly narrow range over the last 12 months without a measurable breakout,” NAR Chief Economist Lawrence Yun said in a statement.

“Meaningful gains will only occur with declining mortgage rates and rising inventory.”

And given the tight correlation with mortgage rates, it looks like pending home sales are set to continue their downward slope…

Source: Bloomberg

As a reminder, the pending-home sales report is a leading indicator of existing-home sales given houses typically go under contract a month or two before they’re sold.

The Supreme Court will hear oral argument today over former President Donald Trump’s claim that he’s immune from criminal prosecution for official acts he undertook while in office.

Listen live here (due to start at 1000ET):

LISTEN LIVE: Supreme Court hears case on whether Trump has presidential immunity from prosecution
https://t.co/zGSnfhqCJq

— PBS NewsHour (@NewsHour) April 25, 2024

As The Epoch Times’ Sam Dorman reports, besides altering longstanding precedent, the decision could bear heavily on, and delay the criminal prosecutions President Trump is facing before the election.

An appeals court in Washington rejected his attempt to claim immunity in the Justice Department’s prosecution of his activity on Jan. 6 and in response to the 2020 presidential election.

The Supreme Court is set to review that decision and potentially establish a broader definition of presidential immunity.

The Supreme Court here has three main options:

1. to uphold the appeal court’s rejection of President Trump’s immunity claims,

2. to accept his claims,

3. or remand the matter back to U.S. District Court Judge Tanya Chutkan with a refined test on what presidential acts are immune from prosecution.

Nixon v. Fitzgerald, a Supreme Court case from 1973, established that presidents enjoy absolute immunity from civil liability for actions that fell within the “outer perimeter” of their official duties.

Experts speculated to The Epoch Times that the justices could extend that same framework to criminal liability.

This is the second major oral argument the justices are hearing about attempts to punish President Trump for his conduct following the 2020 presidential election.

They heard oral argument in February over Colorado’s attempt to disqualify him from the state’s ballot, and issued a unanimous judgment in opposition.

A week before President Trump’s appeal is reaching the Supreme Court, the justices also heard oral argument over how the DOJ applied a financial reform law to Jan. 6 defendants. That same law forms part of DOJ’s indictment against President Trump.

Separation of Powers is a major issue that will likely loom large in both the oral argument and eventual opinion.

President Trump has argued that judicial review of his official acts would be inappropriate, while Special Counsel Jack Smith said granting criminal immunity would upset the balance of power and allow presidents to get away with egregious wrongdoing.

Authored by James Rickards via DailyReckoning.com,

Does the Fed even matter that much to the real economy and investor portfolios?

That’s an important question that doesn’t get nearly enough scrutiny. It’s possible that neither the Fed nor the reporters who cover the Fed want to ask hard questions about what the Fed really does.

Could it be the case that the emperor has no clothes?

Financial journalists often refer to a Goldilocks economy (“not too hot, not too cold, just right!”) as a tribute to the Fed’s finesse in handling rates. It’s also called the “soft landing” scenario because the Fed supposedly tamed inflation without causing a recession.

These narratives have no factual foundations; they’re just stories designed to get you to buy stocks and pump up stock prices.

The truth is the Fed is always behind the curve and doesn’t finesse the economy. And there’s no such thing as a soft landing; the economy does not gradually shift gears. It’s either growing fast or going into recession.

So where does the Fed stand today? Will it start cutting rates as Wall Street keeps (wrongly) predicting?

Wall Street Keeps Getting It Wrong

The Fed will not cut rates at its May or June meetings. Wall Street’s been predicting rate cuts for almost two years and they’ve been wrong every time. They’re predicting a June rate cut, and they’ll be wrong again.

A rate cut at the July 31 meeting is possible but is in jeopardy now due to inflation going up again in the latest report. We’ll have three more months of inflation, unemployment and GDP data between now and then.

If the Fed does cut rates in late July, it won’t be for good reasons. It’ll be because the economy has fallen into a recession. But given the boost to U.S. growth from out-of-control government spending in an election year, the recession may be postponed. So don’t count on a July rate cut either.

There’s no Fed meeting in August. The next meeting after that is Sept. 18. The Fed may be ready for a rate cut by then but here’s the problem: The Sept. 18 date is just seven weeks before the election on Nov. 5. The Fed pretends it’s non-political but in fact, it is highly political.

A rate cut in September will be viewed as helping Biden by boosting the economy and hurting Trump. At the same time, Trump is the likely winner based on currently available polling data and trends.

The Fed won’t want to be in the position of appearing to boost Biden and hurt Trump if Trump is going to win. Trump will make the Fed Public Enemy No. 1 and that’s the last thing they want. So the Fed will take a pass in September.

There’s no Fed meeting in October. The next two Fed meetings after that are on Nov. 7 and Dec. 18, both safely after the election. The Fed could cut rates at both meetings. But the Fed has painted itself into a corner on that.

The Fed’s Running out of Time

Beginning at the FOMC meeting on March 20, the Fed promoted the narrative that there would be three rate cuts before the end of the year. If they don’t cut in May, June, July or September (for reasons noted above) and there are no meetings in August or October, then the Fed would have at most two rate cuts this year, in November and December.

In short, the Fed is running out of meetings in which to conduct three rate cuts and may have to settle for two.

The Fed’s reckless promise and the dictates of the calendar are what are driving the stock market. The stock market’s fixated on the Fed, but the Fed doesn’t know what they’re doing. That’s a recipe for volatility and a sharp reversal of the first-quarter gains.

So why doesn’t the Fed just get on with it and start cutting rates in May? They could make an announcement and hire a band to play “Happy Days Are Here Again.”

The Fed thought they had won the battle when inflation dropped from 9.1% (CPI year-over-year) in June 2022 to 3.0% in June 2023. Nice job, Fed. It was when that June 2023 reading came out in July 2023 that the Fed put in one last rate hike, and then stopped dead. Since then, it’s been a countdown to rate cuts.

The problem is that inflation isn’t done. From the 3.0% in June 2023, inflation rose to 3.7% in August, and 3.7% again in September 2023. Inflation fluctuated between 3.1% and 3.4% until recently. March inflation came in at 3.5%, a full 0.3 percentage points higher than in February.

Oil’s up 24% in 4 Months

That’s not all that’s going up. The price of oil was $68.50 per barrel last Dec. 12 and is over $83.00 per barrel today. That’s about a 21% increase in just four months.

That oil price shock hasn’t worked its way through the supply chain yet. It has resulted in some price increases, but more are in the pipeline. This oil price spike will keep inflation at current levels or higher in the months ahead. The Fed is looking for signs that inflation is coming down but they’re not going to get them, as shown in the latest inflation report.

The price of one gallon of regular gasoline (regular, national average) was $3.64 as of yesterday, April 22. It was $3.57 on April 4, $3.55 on April 3, $3.54 on March 28, $3.52 on March 4 and $3.51 on April 4, 2023.

Put differently, gas prices are higher than they were last week, last month and last year.

That’s a bad sign for Biden politically, but it’s a worse sign for the Fed in terms of inflation. That gas price rise isn’t over because the wholesale price of oil is still on the rise. And oil prices affect far more than the price of gas at the pump.

Higher oil prices mean higher transportation costs whether by truck, train, plane or ship since all goods have to be transported to market. That means the price of everything is going up.

Other factors driving inflation from the supply side include the Key Bridge collapse in Baltimore, the closing of the Red Sea/Suez Canal shipping route and continued fallout from Ukraine war sanctions. Some of these supply side constraints may be deflationary in the long run, but they are definitely inflationary in the short run.

Running on Fed Happy Talk

The stock market has been running on Fed Happy Talk. That situation may end abruptly on June 12 if the Fed doesn’t cut rates and signals that rate cuts are not to be expected in the near future and perhaps not before the end of the year.

By then, we may be facing one of the worst economic outcomes possible: recession + inflation = stagflation.

Anyone under the age of 60 probably has no acquaintance with stagflation.

The U.S. last experienced this in 1977–1981. I remember that period well. It was great for leveraged holders of hard assets such as gold and real estate.

It was a nightmare for holders of stocks. (The long-term bull market in stocks did not start until August 1982.)

Investors might keep that winning hard asset portfolio allocation in mind as events unfold between now and June.

A New York Court of Appeals has overturned Harvey Weinstein’s 2020 conviction on felony sex crime charges, for which he was sentenced to 23 years in prison.

In a 4-3 decision, the court found that the trial judge in the disgraced mogul’s case had made a critical error, allowing prosecutors to call a series of women as witnesses who said that Weinstein had assaulted them, but whose accusations weren’t part of the charges against him, the NYT reports.

In 2020, Lauren Young and two other women, Dawn Dunning and Tarale Wulff, testified about their encounters with Weinstein under a state law that allows testimony about “prior bad acts” to demonstrate a pattern of behavior. But the court in its decision on Thursday said that “under our system of justice, the accused has a right to be held to account only for the crime charged.”

…

Citing that decision and others it identified as errors, the appeals court determined that Mr. Weinstein, who as a movie producer had been one of the most powerful men in Hollywood, had not received a fair trial. The four judges in the majority wrote that Mr. Weinstein was not tried solely on the crimes he was charged with, but instead for much of his past behavior. -NYT

The decision was determined by one vote on a majority female panel of judges, who in February held a searching public debate over the fairness of the original trial.

Weinstein was convicted of raping aspiring actress Jessica Mann at a DoubleTree hotel in 2013 when she was 27-years-old, and forcing oral sex on former production assistant Mimi Haleyi, then 28, at his apartment in 2006.

Now, Manhattan DA Alvin Bragg, who’s currently prosecuting former President Donald Trump, will have to decide whether to seek a retrial of Weinstein – who remains in an upstate prison in Rome, NY at the moment. It’s unclear how the decision will affect his future. In 2022, he was convicted by a California court of raping a woman in a Beverly Hills hotel and sentenced to 16 years in prison. The jury found Weinstein guilty of rape, forcible oral copulation, and sexual penetration by foreign object involving a woman known as Jane Doe 1.

The 2022 jury acquitted Weinstein of a sexual battery charge made by a massage therapist who treated him at a hotel in 2010, and was unable to reach a decision on two allegations, including rape, involving Jennifer Siebel Newsom, the wife of California’s Democratic governor Gavin Newsom. She was known as Jane Doe 4 in the trial, and had testified to being raped by Weinstein in a hotel room in 2005.

Weinstein was convicted of sexually abusing over 100 women – and was convicted of assaulting two of them in the New York case.

“That is unfair to survivors,” said actress Ashley Judd, the first actress to come forward with allegations against Weinstein, the NYT‘s Jodi Kantor reports. “We still live in our truth. And we know what happened.”

 

Weaker than expected growth and hotter than expected prices… the perfect example of a central banker’s nemesis: Stagflation…

…and the market is very unhappy about it.

Olu Sonola, head of US economic research for Fitch Ratings:

“The hot inflation print is the real story in this report. If growth continues to slowly decelerate, but inflation strongly takes off again in the wrong direction, the expectation of a Fed interest rate cut in 2024 is starting to look increasingly more out of reach.”

Rate-cut expectations have dropped back near cycle lows (for 2024 and 2025)…

Source: Bloomberg

Treasury yields are soaring, led by the short-end…

Source: Bloomberg

With 2Y back above 5.00% (will it hold)…

Source: Bloomberg

Stocks are getting spanked…

Commodities are less anxious with oil sliding a little, gold rallying modestly even with the dollar rising…

Source: Bloomberg

Crypto is heading lower…

Source: Bloomberg

What time is the Biden press conference to confirm there will be rate-cuts this year?

If the Biden admin was to have any hopes of the Fed cutting rates and monetary easing ahead of the election, the tires would need to start falling off the US economy right… about… now… Which is why we didn’t find it at all surprising that moments ago the Biden Bureau of Economic Analysis reported that in Q1, US GDP unexpectedly collapsed to just 1.6%, down more than 50% from the Q4 print of 3.4%, the lowest print since Q2 2022 when the US underwent a brief technical recession (one which the NBER never admitted of course), and a huge miss to the 1.6% estimate.

Almost as if on purpose, the GDP printed below the lowest estimate (that of SMBC Nikko) which was at 1.7% (the highest forecast was 3.1% from Goldman Sachs which was off by the usual 50%), and was a 3-sigma miss to estimates.

But while a collapse in the US economy is just what the “soft landers” wanted, the huge GDP miss was just half the story because at the same time, the BEA reported that the GDP Deflator (price index) came in at 3.1%, hotter than the 3.0% expected and almost double the 1.6% in Q4. Worse, the all important core PCE for Q1 soared from 2.0% to 3.7%, blowing away estimates of 3.4% (we will get a more accurate core PCE print tomorrow for the month of March) and suggesting that the US is about to not only not pass go, and overshoot soft-landing island completely, but crash-land straight into a stagflationary recession…

… unless the Fed does something, although what it can do – with inflation rising and growth slowing – is anyone’s guess.

Taking a closer look at the absolute data, the BEA said that the increase in the first quarter primarily reflected increases in consumer spending and housing investment that were partly offset by a decrease in inventory investment. Imports, which are a subtraction in the calculation of GDP, increased.

• The increase in consumer spending reflected an increase in services that was partly offset by a decrease in goods. Within services, the leading contributors to the increase were health care as well as financial services and insurance. Within goods, the leading contributors to the decrease were motor vehicles and parts as well as gasoline and other energy goods.
• The increase in housing investment was led by brokers’ commissions and other ownership transfer costs as well as new single-family housing construction.
• The decrease in inventory investment was led by decreases in wholesale trade and manufacturing.  

Compared to Q4, the deceleration in GDP in Q1 reflected decelerations in consumer spending, exports, and state and local government spending and a downturn in federal government spending. These movements were partly offset by an acceleration in housing investment. Imports accelerated.

Digger deeper into the data, we find that it was once again the slowdown in consumption that was the biggest culprit, with Personal Consumption rising 2.5%, a big drop from the 3.3% in Q4 and below the 3.0% expected. Taking a step back we find that consumption has now missed on 6 of the past 10 prints.

As discussed extensively here, while the consumption missed, it was still positive, and reflects the latest drop in the savings rate, to 3.6% in the first quarter from 4% in the fourth quarter of last year, as consumers continue to drain their bank accounts and max out their credit cards. Economists have been wondering how long that can go on, but so far it shows no signs of abating. The (until recently) relentless rise in equity prices may be playing a role here.

In terms of actual components we find the following picture:

• Personal Consumption added 1.68% to the bottom line GDP print, or more than 100% of it. This was down notably from 2.20% in Q4.
• Fixed Investment rose modestly, to 0.91% of the bottom line contribution, up from 0.61% in Q4.
• The Change in Private inventories continued to detract from GDP for the 2nd quarter in a row, reducing the bottom line GDP print by 0.35%, a modest improvement from the -0.47% in Q4.
• Net trade was a big delta, and after contributing 0.25% to the Q4 3.4% GDP print, in Q1 it subtracted 0.86% from the actual print.
• Finally, government continues to be a contribution but in Q1 it added just 0.21%, a big drop from the 0.79% in Q4 and the lowest since Q2 2022 when it reduced GDP by 0.29%.

And visually:

That was the GDP side of things, what about the inflation/PCE? Well, this is where things get really bad, because after PCE came in hot in Q4, it came in even hotter in Q4, as GDP prices, the prices of goods and services purchased by U.S. residents, increased 3.1% in Q1 after increasing 1.9%, and above the 3.0% estimate. Excluding food and energy, prices increased 3.2% after increasing 2.1%.

Turning to the all important PCE, Personal consumption expenditures prices increased 3.4% in the first quarter after increasing 1.8% in the fourth quarter. And the punchline: excluding food and energy, the all important core PCE price index increased 3.7% after increasing 2.0%, and coming far hotter than the 3.4% estimate; in fact it came in above the highest estimate!

This, according to Fed-whisperer Nick Timiraos, implies that the March core PCE number which is reported tomorrow, must be higher than +0.22, closer to +0.3% (which is precisely where the estimate is), and would imply upside revisions to Jan and Feb.

Commenting on the report, Fitch economist Olu Sonola writes that “the hot inflation print is the real story in this report. If growth continues to slowly decelerate, but inflation strongly takes off again in the wrong direction, the expectation of a Fed interest rate cut in 2024 is starting to look increasingly more out of reach.”

The bottom line: while a sharp slowdown in growth would have been just the “bad news is good news” the market was desperately hoping for, throw in the unexpected surge in prices and suddenly the threat of a full-blown stagflationary shock is once again front and center… at least until tomorrow, when we wouldn’t put it past this admin to come out with another fabricated core PCE print which makes no sense and somehow comes in well below the 0.3% MoM estimate.