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Futures Slide Amid Renewed Recession Fears After China Doubles Down On “Covid Zero”

Futures Slide Amid Renewed Recession Fears After China Doubles Down On "Covid Zero"

One day after futures ramped overnight (if only to crater…

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11 months ago

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Futures Slide Amid Renewed Recession Fears After China Doubles Down On "Covid Zero"

One day after futures ramped overnight (if only to crater during the regular session) on hopes China was easing its highly politicized  Zero Covid policy after it cut the time of quarantine lockdowns, this morning futures slumped early on after China's President Xi Jinping made clear that Covid Zero isn't going anywhere and remains the most “economic and effective” policy for China during a symbolic visit to the virus ground zero in Wuhan, in which he cast the strategy as proof of the superiority of the country’s political system. That coupled with renewed recession worries (market is again pricing in a rate cut in Q1 2023) even as monetary policy tightens in much of the world to fight supply-side inflation, sent US futures and global markets lower. S&P futures dropped 0.2% and Nasdaq 100 futures were down 0.4% after the underlying index slumped on 3.1% on Tuesday. The dollar was steady after rising the most in over a week while WTI crude climbed above $112 a barrel, set for a fourth session of gains. In cryptocurrencies, Bitcoin dipped below the closely watched $20,000 level on news crypto hedge fund 3 Arrows Capital was ordered to liquidate.

The Nasdaq's Tuesday’s slump added to what was already one of the worst years in terms of big daily selloffs in US stocks. The S&P 500 Index has fallen 2% or more on 14 occasions, putting 2022 in the top 10 list, according to Bloomberg data.

Not helping the tech sector, on Wednesday morning JPMorgan cut its earnings estimates across the sector, especially for companies exposed to online advertising, citing macroeconomic pressures, forex and company-specific dynamics.

One of the chief drivers for overnight weakness, China's Xi said during a trip Tuesday to Wuhan where the virus first emerged in late 2019 that relaxing Covid controls would risk too many lives in the world’s most populous country. China would rather endure some temporary impact on economic development than let the virus hurt people’s safety and health, he said, in remarks reported Wednesday by state media. As a result, China’s CSI 300 Index extended loss to 1.4% after the headline, while the yuan drops as much as 0.2% to trade 6.7132 against the dollar in the offshore market.

Among key premarket movers, Tesla slipped in US premarket trading. The electric-vehicle maker laid off hundreds of workers on its Autopilot team as it shuttered a California facility, according to people familiar with the matter. Carnival slumped as Morgan Stanley analysts warned that the London and New York-listed cruise vacation company’s shares could lose all their value in the event of another demand shock. Pinterest gained 3.7% as the company’s co- founder and CEO Ben Silbermann quit and handed the reins to Google and PayPal veteran Bill Ready in a sign the social-media company will focus more on e-commerce. Also, despite the pervasive weakness, the Energy Select Sector SPDR Fund ETF (XLE) rebounded off key support (50% Fibonacci) relative to the SPDR S&P 500 ETF (SPY). That said, energy was alone and most other notable movers were down in the premarket:

  • Carnival (CCL US) shares fall 8% premarket as Morgan Stanley analysts warned that the cruise vacation firm’s shares could lose all their value in the event of another demand shock.
  • Nio (NIO US) shares drop 8.2% after short-seller Grizzly Research published a report on Tuesday alleging that the electric carmaker used battery sales to a related party to inflate revenue and boost net income margins. The company rejected the claims.
  • Upstart Holdings (UPST US) shares slump about 9% after Morgan Stanley downgraded the consumer finance company to underweight from equal-weight amid rising cyclical headwinds.
  • Ormat Technologies (ORA US) rallies as much as 5% after the renewable energy company is set to be included in the S&P Midcap 400 Index.
  • 2U (TWOU US) shares rise 16% premarket. Indian online-education provider Byju’s has offered to buy the company in a cash deal that values the US-listed edtech firm at more than $1 billion, a person familiar with the matter said.
  • Watch Amazon (AMZN US) shares as Redburn initiated coverage of the stock with a buy recommendation and set a Street-high price target, saying “there is a clear path toward a $3 trillion value for AWS alone.”
  • Shares in data center REITs could be active later in the trading session after short-seller Jim Chanos said in an FT interview that he’s betting against “legacy” data centers. Watch Digital Realty (DLR US) and Equinix (EQIX US), as well as data center operators Cyxtera Technologies (CYXT US) and Iron Mountain (IRM US)

Investors are growing increasingly skeptical that the Fed can avoid a bruising economic downturn amid sharp interest-rate hikes. Evaporating consumer confidence is feeding into concerns that the US might tip into a recession. Naturally, Fed officials sought to play down recession risk. New York Fed President John Williams and San Francisco’s Mary Daly both acknowledged they had to cool inflation, but insisted that a soft landing was still possible.

“It seems the market is in this tug of war between on the one hand the hope that we are close to the peak in inflation and rates, and on the other hand the challenge of a slowing economy and potential recession,” Emmanuel Cau, head of European equity strategy at Barclays Bank Plc, said in an interview with Bloomberg TV. “Central banks are walking a very tight line and to a certain extent dictate the mood in the markets.”

European equities snapped three days of gains, trading poorly but off worst levels with sentiment also hurt by China remaining committed to its zero-Covid approach. Spanish inflation unexpectedly surged to a record, dashing hopes that inflation in the euro zone’s fourth-biggest economy had peaked, and emboldening European Central Bank policy makers pushing for big increases in interest rates. The ECB should consider raising interest rates by twice the planned amount next month if the inflation outlook deteriorates, according to Governing Council member Gediminas Simkus, as calls not to exclude an outsized initial move grow. German benchmark bonds rose, while 10-year Treasury yields slipped to 3.16%. DAX lags, dropping as much as 1.8%. Real estate, autos and miners are the worst performing sectors.

In notable moves in European stocks, Hennes & Mauritz (H&M) gained after the Swedish low-cost retailer’s earnings beat analyst estimates. Just Eat Takeaway.com NV tumbled to a record low after Berenberg analysts rated the stock sell, saying the food delivery firm’s UK business will remain under pressure. Here are some of the biggest European movers today:

  • Just Eat Takeaway shares plunge as much as 21% after Berenberg initiated coverage with a sell rating, saying the firm’s UK business will remain under pressure and a sale of its Grubhub unit is unlikely to satisfy the bulls.
  • Carnival stocks slumped over 12% in London as Morgan Stanley analysts warned that the cruise vacation firm’s shares could lose all their value in the event of another demand shock.
  • Pearson drops as much as 6.1% after the education company was cut to sell at UBS, which reduced forecasts to reflect a weak outlook for 2022 college enrollments.
  • Grifols shares plunge as much as 13% on a media report the Spanish plasma firm is weighing a capital raise of as much as EU2b to cut its debt.
  • Diageo shares fall after downgrades for the spirits group from Deutsche Bank and Kepler Cheuvreux, while Pernod Ricard also dips on a rating cut from the latter.
  • Diageo declines as much as 4.2%, Pernod Ricard -3.7%
  • Fluidra shares fall as much as 8.4% after Santander cut its rating on the Spanish swimming pools company. The bank’s analyst Alejandro Conde cut the recommendation to neutral from outperform.
  • H&M shares rise as much as 6.8% after the Swedish apparel retailer reported 2Q earnings that beat estimates. Jefferies said the margin beat in particular was reassuring, while Morgan Stanley said it was a “positive surprise” overall.
  • Ipsen shares rise as much as 3.1% after UBS analyst Michael Leuchten said that accepting palovarotene refiling priority review should be a net present value and confidence boost.

Asian stocks fell, halting a four-day gain, as renewed angst over the outlook for global economic growth and inflation help drive a selloff across most of the region’s equity markets. The MSCI Asia Pacific Index dropped as much as 1.5%, led by consumer discretionary and information sectors. Chinese equities in particular took a hit, as the CSI 300 Index fell 1.5% Wednesday after Xi Jinping reiterated his firm stance on Covid zero. Tech-heavy indexes in markets such as South Korea and Taiwan took the brunt of Wednesday’s drop amid lingering concerns that monetary tightening in much of the world to fight inflation will cause an economic slowdown. While Federal Reserve members have played down the risk of a US recession, gloomy data such as US consumer confidence have damped investor sentiment.

“Volatility is going to be the enduring feature of the market, I suspect, for the next couple of quarters at least until we get a firm sense that peak inflation has passed,” John Woods, Credit Suisse Group AG’s Asia-Pacific chief investment officer, said in an interview with Bloomberg TV. “Markets, I think, have aggressively priced in quite a serious or steep recession.”  China’s four-day winning streak came to a halt, putting its advance toward a bull market on hold.  “We will continue to see a risk of targeted lockdowns, and that spoils the initial euphoria seen in the markets from the announcement on relaxation of quarantine requirements,” said Charu Chanana, market strategist at Saxo Capital Markets. “Still, economic growth will likely be prioritized as this is a politically important year for China.” 

Japanese equities decline as investors digested data that showed a drop in US consumer confidence over inflation worries and increased concerns of an economic downturn.  The Topix Index fell 0.7% to 1,893.57 in Tokyo on Wednesday, while the Nikkei declined 0.9% to 26,804.60. Toyota Motor Corp. contributed the most to the Topix’s decline, decreasing 1.8%. Out of 2,170 shares in the index, 1,114 fell, 984 rose and 72 were unchanged. “There are concerns about stagflation,” said Hideyuki Suzuki a general manager at SBI Securities. “The consumer sentiment from the University of Michigan, which provides one of the fastest data points, has already shown poor figures.”

Stocks in India tracked their Asian peers lower as brent rose to the highest level in two weeks, while high inflation and slowing global growth continued to dampen risk-appetite for global equities. The S&P BSE Sensex fell 0.3% to 53,026.97 in Mumbai, while the NSE Nifty 50 Index declined by an equal measure. Both gauges have lost more than 4% in June and are set for their third consecutive month of declines. The main indexes have dropped for all but one month this year. Twelve of the 19 sub-sector gauges compiled by BSE Ltd. eased, led by banking companies while power producers were the top performers.   Investors will also be watching the expiry of monthly derivative contracts on Thursday, which may lead to some volatility in the markets.  Hindustan Unilever was the biggest contributor to the Sensex’s decline, decreasing 3.5%. Out of 30 shares in the Sensex, 10 rose and 20 fell.

The Bloomberg Dollar Spot Index inched up modestly as the greenback traded mixed against its Group-of-10 peers; the Swiss franc led gains while Antipodean currencies were the worst performers and the euro traded in a narrow range around $1.05. The relative cost to own optionality in the euro heading into the July meetings of the ECB and the Federal Reserve was too low for investors to ignore and has become less and less underpriced. The yen strengthened and US and Japanese bond yields fell.

In rates, fixed income has a choppy start. Bund futures initially surged just shy of 200 ticks on a soft regional German CPI print before fading the entire move over the course of the morning as Spanish data hit the tape, delivering a surprise record 10% reading for June and more hawkish ECB comments crossed the wires. Treasuries and gilts followed with curves eventually fading a bull-steepening move. Long-end gilts underperform, cheapening ~4bps near 2.75%. Peripheral spreads are tighter to core. 

Treasuries are slightly higher as US trading day begins, off the session lows reached as bund futures jumped after the first monthly drop since November in a German regional CPI gauge. Yields are lower across the curve, by 1bp-2bp for tenors out to the 10-year with long-end yields little changed; 10-year declined as much as 5.3bp vs as much as 8.2bp for German 10- year, which remains lower by ~3bp. Focal points for the US session include a final revision of 1Q GDP, comments by Fed Chair Powell, and anticipation of quarter-end flows favoring bonds. Quarter-end is anticipated to cause rebalancing flows into bonds; Wells Fargo estimated that $5b will be added to bonds, with most of the flows occurring Wednesday and Thursday.

In commodities, crude futures advance. WTI drifts 0.3% higher to trade near $112.13. Base metals are mixed; LME tin falls 5.6% while LME zinc gains 0.4%. Spot gold falls roughly $5 to trade near $1,815/oz

Looking ahead, the highlight will be the panel at the ECB Forum that includes Fed Chair Powell, ECB President Lagarde and BoE Governor Bailey. We’ll also be hearing from ECB Vice President de Guindos, the ECB’s Schnabel, the Fed’s Mester and Bullard, and the BoE’s Dhingra. On the data side, releases include German CPI for June, Euro Area money supply for May, and the final Euro Area consumer confidence reading for June. From the US, we’ll also get the third reading of Q1 GDP.

Market Snapshot

  • S&P 500 futures little changed at 3,829.00
  • STOXX Europe 600 down 0.8% to 412.69
  • MXAP down 1.3% to 159.96
  • MXAPJ down 1.6% to 531.04
  • Nikkei down 0.9% to 26,804.60
  • Topix down 0.7% to 1,893.57
  • Hang Seng Index down 1.9% to 21,996.89
  • Shanghai Composite down 1.4% to 3,361.52
  • Sensex little changed at 53,204.17
  • Australia S&P/ASX 200 down 0.9% to 6,700.23
  • Kospi down 1.8% to 2,377.99
  • German 10Y yield little changed at 1.59%
  • Euro little changed at $1.0510
  • Brent Futures down 0.4% to $117.46/bbl
  • Gold spot down 0.2% to $1,816.09
  • U.S. Dollar Index little changed at 104.55

Top Overnight News from Bloomberg

  • The Fed’s Loretta Mester said she wants to see the benchmark lending rate reach 3% to 3.5% this year and “a little bit above 4% next year” to rein in price pressures even if that tips the economy into a recession
  • The ECB should consider raising interest rates by twice the planned amount next month if the inflation outlook deteriorates, according to Governing Council member Gediminas Simkus, as calls not to exclude an outsized initial move grow
  • ECB has “ample room” to hike in 25bps-50bps steps to “whatever rate we think, we consider reasonable,” Governing Council member Robert Holzmann said in interview with CNBC
  • Swedish consumers are gloomier than they have been since the mid-1990s, as prices surge on everything from fuel to food and furniture
  • China’s President Xi Jinping declared Covid Zero the most “economic and effective” policy for the nation, during a symbolic visit to Wuhan in which he cast the strategy as proof of the superiority of the country’s political system
  • NATO moved one step closer to bolstering its eastern front with Russia after Turkey dropped its opposition to Swedish and Finnish bids to join the military alliance

A more detailed look at markets courtesy of Newsquawk

Asia-Pac stocks were pressured amid headwinds from the US where disappointing Consumer Confidence data added to the growth concerns. ASX 200 failed to benefit from better than expected Retail Sales and was dragged lower by weakness in miners and tech. Nikkei 225 fell beneath the 27,000 level as industries remained pressured by the ongoing power crunch. Hang Seng and Shanghai Comp. conformed to the negative picture in the region although losses in the mainland were initially stemmed after China cut its quarantine requirements which the National Health Commission caveated was not a relaxation but an optimization to make it more scientific and precise.

Top Asian News

  • Chinese President Xi said China's COVID prevention control and strategy is correct and effective and must stick with it, via state media. Shanghai will gradually reopen museums and scenic sports from July 1st, state media reports.
  • US Deputy Commerce Secretary Graves said the US will take a balanced approach on Chinese tariffs and that a clear response on China tariffs is coming soon, according to Bloomberg.
  • China State Council's Taiwan Affairs Office said it firmly opposes the US signing any agreement that has sovereign connotations with Taiwan, according to Global Times.
  • BoJ Governor Kuroda said Japanese Core CPI reached 2.1% in April and May which is almost fully due to international energy prices and Japan's economy has not been affected much by the global inflationary trend so monetary policy will stay accommodative, according to Reuters.
  • Japanese govt to issue power supply shortage warning for a fourth consecutive day on Thursday, according to a statement.

European bourses are on the backfoot as the region plays catch-up to the losses on Wall Street yesterday. Sectors are mostly lower (ex-Energy) with a defensive tilt as Healthcare, Consumer Products, Food & Beverages, and Utilities are more cushioned than their cyclical peers. Stateside, US equity futures trade on either side of the unchanged mark with no stand-out performers thus far, with the contracts awaiting the next catalyst.

Top European News

  • UK expects defence spending to reach 2.3% of GDP and said PM Johnson will announce new military commitments to NATO, according to Reuters.
  • UK Weighs Capping Maximum Stake in Online Casinos at £5
  • Europe Is the Only Region Where Earnings Estimates Are Rising
  • European Gas Prices Rise as Supply Risks Add to Storage Concerns
  • Gold Steady as Traders Weigh Fed Comments on US Recession Risks
  • Choppy Start for Euro-Area Bonds on Mixed Inflation

FX

  • Dollar mostly bid otherwise as rebalancing demand underpins - DXY pivots 104.500 within 104.700-350 confines.
  • Franc outperforms on rate and risk considerations - Usd/Chf breaches 0.9550 and Eur/Chf approaches parity.
  • Euro erratic in line with conflicting inflation data - Eur/Usd rotates around 1.0500.
  • Aussie and Kiwi undermined by downturn in sentiment - Aud/Usd loses 0.6900+ status, Nzd/Usd wanes from just over 0.6250.
  • Yen rangy following firmer than forecast Japanese retail sales and BoJ Governor Kuroda reaffirming intent to remain accommodative - Usd/Jpy straddles 136.00.
  • Nokkie welcomes oil worker wage agreement with unions to avert strike action, but Sekkie hampered by softer Swedish macro releases pre-Riksbank policy call tomorrow - Eur/Nok probes 10.3000, Eur/Sek hovers around 10.6800.
  • Rand rattled by decline in Gold and ongoing SA power supply problems, but Rouble rallies irrespective of CBR and Russian Economy Ministry divergence over deflation.

Central Banks

  • ECB's Lane said there are two-way inflation risks: "on the one side, there could be forces that keep inflation higher than expected for longer. On the other side, we do have the risk of a slowdown in the economy, which would reduce inflationary pressure", via ECB.
  • ECB's Holzmann said "We will have to make an assessment where the economic development is going and where inflation stands and afterwards there’s ample room to hike in 0.25 and 0.5 levels to whatever rate we think, we consider reasonable" via CNBC.
  • ECB's Simkus said if data worsens, then he wants a 50bps July hike as an option, 50bps hike is very likely in September; ECB's fragmentation tool should serve as a deterrent, via Bloomberg.
  • ECB's Herodotou said EZ inflation will peak this year, via CNBC.
  • ECB's Wunsch said government aid may spell more rate hikes, via Bloomberg; 150bps of hikes by March 2023 is reasonable
  • ECB is said to be weighting whether or not they should announce the size and duration of their upcoming bond-buying scheme, according to Reuters sources.
  • Fed's Mester (2022, 2024 voter) said on a path towards restrictive interest rates; July debate between 50bps and 75bps hike, via CNBC. Mester said if inflation expectations become unanchored, monetary policy would have to act more forcefully; current inflation situation is a very challenging one, via Reuters.
  • SARB Governor said a 50bps hike is "not off the table", Via Bloomberg
  • CBR Governor said she does not see risks of deflation; sees room to cut rates; sticking to policy of floating RUB exchange rate.
  • PBoC will step up implementation of prudent monetary policy, will keep liquidity reasonably ample.

Fixed Income

  • Bunds unwind all and a bit more of their hefty post-NRW CPI gains as other German states show smaller inflation slowdowns and Spanish HICP soars.
  • Gilts suffer more pronounced fall from grace in relative terms and US Treasuries slip from overnight peaks in sympathy.
  • UK debt and STIRs also await testimony from MPC member elect to see if newbie leans dovish, hawkish or middle of the road
  • 10 year benchmarks settle off worst levels within 147.37-145.14, 112.66-11.85 and 117-12+/116-27 respective ranges awaiting comments from ECB, Fed and BoE heads at Sintra Forum.

Commodities

  • WTI and Brent front-month futures traded with no firm direction in early European hours before picking up modestly in recent trade.
  • US Private Inventory (bbls): Crude -3.8mln (exp. -0.6mln), Cushing -0.7mln, Distillate +2.6mln (exp. -0.2mln) and Gasoline +2.9mln (exp. -0.1mln).
  • Norway's Industri Energi and SAFE labour unions agreed a wage deal for oil drilling workers and will not go on strike, according to Reuters.
  • OPEC to start today at 12:00BST/07:00EDT; JMMC on Thursday at 12:00BST/07:00EDT followed by OPEC+ at 12:30BST/07:30EDT, via EnergyIntel.
  • Libya's NOC suspends oil exports from Es Sider port.
  • Spot gold is under some mild pressure as the Buck and Bond yields picked up, with the yellow metal back to near-two-week lows
  • Base metals are mixed but off best levels after President Xi reaffirmed China's COVID stance – LME copper fell back under USD 8,500/t

US Event Calendar

  • 07:00: June MBA Mortgage Applications, prior 4.2%
  • 08:30: 1Q PCE Core QoQ, est. 5.1%, prior 5.1%
  • 08:30: 1Q GDP Price Index, est. 8.1%, prior 8.1%
  • 08:30: 1Q Personal Consumption, est. 3.1%, prior 3.1%
  • 08:30: 1Q GDP Annualized QoQ, est. -1.5%, prior -1.5%

Central Banks

  • 09:00: Powell Takes Part in Panel Discussion at ECB Forum in Sintra
  • 09:00: Lagarde, Powell, Bailey, Carstens Speak in Sintra
  • 11:30: Fed’s Mester Speaks on Panel at ECB Forum in Sintra
  • 13:05: Fed’s Bullard Makes Introductory Remarks

DB's Jim Reid concludes the overnight wrap


I'm finishing this off in a taxi on the way to the Eurostar this morning and I made the mistake of telling the driver I was slightly pressed for time. He seems to be taking the racing line everywhere and my motion sickness is kicking in.

A little like this car journey, it's been another volatile 24 hours in markets, with a succession of weak data releases raising further questions about how close the US and Europe might be to a recession. That saw equities give up their initial gains to post a decent decline on the day, whilst there was little respite from central bankers either, with sovereign bonds selling off further as multiple speakers doubled down on their hawkish rhetoric. That comes ahead of another eventful day ahead on the calendar, with investors primarily focused on a panel featuring Fed Chair Powell, ECB President Lagarde and BoE Governor Bailey, as well as the flash German CPI print for June, who are the first G7 economy to release their inflation print for the month, which will provide some further clues on how fast central banks will need to move on rate hikes. Just as we go to print the NRW region of Germany has seen CPI print at 7.5% YoY, way below last month's 8.1%. This region is around a quarter of GDP so it could imply the national numbers will be notably softer when we get them later. The energy tax cuts were always going to come through in June so some respite was always possible but at first glance this seems materially below what might have been expected.

This comes after a significant sovereign bond selloff in Europe once again yesterday as President Lagarde reiterated the central bank’s determination to bring down inflation, and described inflation pressures that were “broadening and intensifying”. And although Lagarde stuck to the existing script about the ECB raising rates by 25bps at the next meeting, we also heard from Latvia’s Kazaks who said that “front-loading the increase would be a reasonable choice” in the event that the situation with inflation or inflation expectations deteriorates. Lagarde did nod to this in part, saying that if the ECB was “to see higher inflation threatening to de-anchor inflation expectations, or signs of a more permanent loss of economic potential that limits resources availability, we would need to withdraw accommodation more promptly to stamp out the risk of a self-fulfilling spiral.” Separately on fragmentation, Lagarde said that they could “use flexibility in reinvesting redemptions” from PEPP starting July 1 in order to deal with the issue.

For now, overnight index swaps are only pricing in a +31.3bps move in July from the ECB, so still closer to 25 than 50 for the time being. Meanwhile the rate priced in by year-end rose also by +7.9bps as investors interpreted the comments in a hawkish light. That supported a further rise in yields, with those on 10yr bunds up another +8.1bps yesterday, following on from their +10.7bps move in the previous session. That’s now almost reversed the -21.9ps move over the previous week, which itself was the third-largest weekly decline in bund yields for a decade, and brought the 10yr yield back up to 1.63%, so not far off its multi-year high of 1.77% seen last week. A similar pattern was seen elsewhere, with 10yr yields on 10yr OATs (+9.6bps), BTPs (+4.2bps) and gilts (+7.2bps) all moving higher too.

Things turned near the European close with some poor US data releases piling on to some lacklustre confidence figures in Europe. Earlier in the day the GfK consumer confidence reading from Germany fell to -27.4 (vs. -27.3 expected), taking it to another record low. Separately in France, consumer confidence fell to 82 on the INSEE’s measure (vs. 84 expected), which we haven’t seen since 2013. Then in the US, the Conference Board’s measure fell to 98.7 (vs. 100.0 expected), which is the lowest since February 2021. The Conference Board’s one-year ahead inflation expectations hit a record high of 8.0%, surpassing the June 2008 record of 7.7%, adding to the pessimism. Along with waning confidence, the Richmond Fed’s Manufacturing Index registered a -19, its lowest since the peak onset of the pandemic, versus expectations of -7 and a prior of -9, showing that production data has weakened as well. This put a serious damper on risk sentiment which drove Treasury yields and equities lower intraday during the New York session.

10yr Treasury yields ended down -2.8bps after trading as much as +5.5bps higher during the European session. They are down another -4bps this morning. Concerningly as well, there was a fresh flattening in the Fed’s preferred yield curve indicator (which is 18m3m – 3m), which came down another -9.1bps to 165bps, which is the flattest its been since early March.

With that succession of bad news helping to dampen risk appetite, US equities gave up their opening gains to leave the S&P 500 down -2.01% on the day. Tech stocks saw the worst losses, with the NASDAQ (-2.98%) and the FANG+ (-3.74%) seeing even larger declines. And whilst there was a stronger performance in Europe, the STOXX 600 ended the day up just +0.27%, having been as high as +0.95% in the couple of hours before the close.

We didn’t hear so much from the Fed ahead of Chair Powell’s appearance today, although New York Fed President Williams said that at the upcoming July meeting “I think 50 to 75 is clearly going to be the debate”. Markets are continuing to price something in between the two, although since the last Fed meeting futures have been consistently closer to 75 than 50, with 69.0 bps right now.

Those sharp losses in US equities are echoing across Asia this morning. The Hang Seng (-1.86%) is leading the losses followed by the Kospi (-1.82%), the Nikkei (-1.07%) and the ASX 200 (-1.06%). Over in mainland China, the Shanghai Composite (-0.77%) and the CSI (-0.80%) are slightly out-performing after yesterday’s surprise move by China to slash the quarantine period for inbound travellers (more on this below). Looking ahead, US stock index futures point to a positive opening with contracts on the S&P 500 (+0.18%) and NASDAQ 100 (+0.19%) mildly higher.

Earlier today, data released showed that Japan’s retail sales advanced for the third consecutive month in May (+3.6% y/y) but lower than the consensus of +4.0%, but with the previous month's data revised up to +3.1% (vs +2.9% preliminary). Meanwhile, South Korea’s consumer sentiment index (CSI) fell sharply to 96.4 in June (vs 102.6 in May), sliding below the long-term average of 100 for the first time since Feb 2021. Separately, Australia’s retail sales put in another strong performance as it climbed +0.9% m/m in May, surpassing analyst estimates of a +0.4% increase.

Oil has fallen back slightly overnight after three sessions of gains with Brent futures down -0.84% at $116.99 and WTI futures (-0.64%) at $111.04/bbl as I type.

Just after we went to press yesterday, it was also announced that China would be shortening the required quarantine period for inbound travellers to one week from two. So although China is still very-much committed to a Covid-zero strategy for the time being, this step towards loosening rather than tightening restrictions is an interesting development that helped support Chinese equities in yesterday’s session towards the close which filtered through into early northern hemisphere risk performance.

In terms of other data yesterday, there were signs that US house price growth might finally be slowing somewhat, with the S&P CoreLogic Case-Shiller index up by +20.4% in April, which is down slightly from the +20.6% gain in March. So still a long way from an absolute decline, but that marks a reversal in the trend after the previous 4 months of rises in the year-on-year measure.

To the day ahead now, and the highlight will likely be the panel at the ECB Forum that includes Fed Chair Powell, ECB President Lagarde and BoE Governor Bailey. We’ll also be hearing from ECB Vice President de Guindos, the ECB’s Schnabel, the Fed’s Mester and Bullard, and the BoE’s Dhingra. On the data side, releases include German CPI for June, Euro Area money supply for May, and the final Euro Area consumer confidence reading for June. From the US, we’ll also get the third reading of Q1 GDP.

Tyler Durden Wed, 06/29/2022 - 08:00

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Zero Young Healthy Individuals Died Of COVID-19, Israeli Data Show

Zero Young Healthy Individuals Died Of COVID-19, Israeli Data Show

Authored by Lia Onely via The Epoch Times,

Zero healthy individuals under…

Published

29 mins ago

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May 29, 2023

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Zero Young Healthy Individuals Died Of COVID-19, Israeli Data Show

Authored by Lia Onely via The Epoch Times,

Zero healthy individuals under the age of 50 have died of COVID-19 in Israel, according to newly released data.

“Zero deceased of 18–49 years of age with no underlying morbidities,” the Israel Ministry of Health (MOH) said in response to a formal request from an attorney.

Officials noted that the statement only applies to COVID-19 deaths where the MOH conducted an epidemiological investigation and had received information about the underlying diseases.

“Zero is a very, very clear number, and cannot be subject to interpretation,”  Yoav Yehezkelli, a specialist in internal medicine and medical management, and former lecturer in the Department of Emergency and Disaster Management at Tel Aviv University in Israel, told The Epoch Times.

“Why were all the extreme measures of school closures, vaccination of children, and lockdowns needed?” he added.

The MOH did respond to a request for comment.

Freedom of Information Request

The information was sparked by a freedom of information request filed by attorney Ori Xabi, who has been filing several such requests as he seeks to obtain information from the MOH regarding the COVID-19 pandemic and COVID-19 policies.

Xabi asked to know the average age of people who died of COVID-19, segmented by vaccination status at the time of death; how many COVID-19 patients with no underlying morbidities under the age of 50 died; and the annual number of cardiac arrest cases between 2018 to 2022.

According to the MOH response, the average age of vaccinated COVID-19 patients who died was 80.2 years. The average for the unvaccinated was 77.4 years.

The MOH emphasized that the data they have about the underlying diseases of patients is partial since it relies on information provided by the patients or their relatives, if they chose to do so. And then, only in cases in which the MOH conducted an epidemiological investigation.

Therefore “the available information does not necessarily reflect the health status of the patient” the MOH wrote adding that they do not have access to the patients’ medical records.

It is not clear why the MOH responded to Xabi’s request using only cases where the MOH had conducted an epidemiological investigation, and which was limited to deceased patients where the families had cooperated, since in 2020 the MOH told the Israeli Knesset—the Israeli parliament—that they use an intelligence system that provides the MOH with extensive information about deceased patients that included “underlying diseases.”

A document (pdf) from the Knesset Research and Information Center, dated June 7, 2020, stated that the MOH provided data to the Special Committee for the New COVID Virus about COVID-19 deaths—298 by that day at 4:30 p.m.—at the request of Yifat Shasha-Biton, a member of the Knesset, and the chair of that committee.

The ministry’s intelligence system has data on gender, age, district of residence, and the underlying diseases of the deceased, according to the document. The system showed that about 94 percent of the deceased were 60 years or older and that there were no deceased with zero underlying diseases.

In addition, on May 4, 2020, the Medical Directorate of the MOH in a letter (pdf) issued instructions to the heads of the hospitals and the medical departments of the Health Maintenance Organizations—national health care organizations—on how to fill out COVID-19 death notices, directing them to include underlying diseases.

In a December 22, 2020 letter (pdf) the Medical Directorate to the managers of the hospitals stated that for every COVID-19 patient who died during the acute phase or due to complications of the illness later, or people who were positive for COVID-19 who died, a death notice and a summary of the case “must be sent to the COVID war room of the MOH.”

They said the purpose was “to improve surveillance.”

“It’s a bit naive” for the MOH to say they do not have the full data and access to the death certificates said Yehezkelli, who was also a founder of a team that advises the MOH’s director general.

Yet this response from the MOH is meaningful, said Yehezkelli as “it finally reveals the truth.”

A health worker administers a dose of the Pfizer-BioNTech COVID-19 vaccine to a pregnant woman at Clalit Health Services, in Tel Aviv, Israel, on Jan. 23, 2021. (Jack Guez/AFP via Getty Images)

‘False Presentation’

Studies and other data, including a study led by Stanford epidemiologist John Ioannidis, show that COVID-19 mortality, even with the original variant, was largely age-dependent.

“It was definitely a disease that actually only endangered the elderly,” Yehezkelli said.

Over the age of 60, mortality doubled every 5 years while under that age mortality was negligible, and “now we really see that it was zero under the age of 50, at least.”

The MOH’s response showed that the average age of the COVID-19 deceased is about 80 years of age, which also indicates that “this is a disease of the elderly, almost exclusively,” said Yehezkelli.

“That only means that what we were told for 3 years was not true,” he said.

There may not have been many young people who got seriously ill, yet the MOH had emphasized cases of pregnant women hospitalized in critical condition and young healthy people who died because of COVID-19. It was not the true situation, he said.

“They created a false presentation of a very severe epidemic that affects the entire population and therefore the entire population should also be vaccinated, regardless of age,” said Yehezkelli.

If we are talking about people under the age of 50 that means that no pregnant women actually died of COVID-19, he said.

The justification given for vaccinating pregnant women, young people, and children was that they too are affected by COVID-19.

It was known back then that this was not the case “and we now see it clearly,” Yehezkelli said, asserting that the MOH has “lost the public’s trust” by making a “false presentation” of the dangers of COVID-19.

Cardiac Arrest Data

In response to Xabi’s recent FOI, the MOH provided the number of cardiac arrest cases from 2018 to 2020. They added, “The information for the years 2021–2022 does not exist in the office.”

The MOH explained that “The registration of the causes of death of deceased persons is carried out, in accordance with the notification of death,” by the Central Bureau of Statistics, adding “the data for the years 2021–2022 have not yet been transferred to the Ministry of Health.”

A study published in April 2022 that analyzed the dataset of the Israel National Emergency Medical Services (EMS) found a 25 percent increase in EMS calls due to cardiac arrests among 16- to 39-year-olds between January–May 2021.

The COVID-19 vaccine rollout began in December 2020.

Retsef Levi, a professor at the Massachusetts Institute of Technology Sloan School of Management, was one of the researchers of the study.

The MOH objected to the findings of the study in a post on Twitter where they said that “there is no connection between the EMS calls that were analyzed in the study and the COVID vaccines.”

In a MOH webinar on Oct. 8, 2021, about the effectiveness and the safety of the COVID vaccines, Dr. Sharon Elroy-Pries, the head of Public Health Services at the Israel MOH said regarding Levi’s study: “This is one of the biggest fake news I have seen.”

“The National Center for Disease Control did a very comprehensive analysis—including of the data of that study, [which were] EMS calls,” she said adding that “there was nothing. No more [cases of] heart attacks. No more calls to the ER.”

She continued by saying that “in the mortality data from the beginning of 2021, you don’t see an increase in mortality except for COVID mortality. That is, if we look at excess mortality in the State of Israel we see it precisely at the peaks that were peaks of [COVID] morbidity in the State of Israel.”

“When you remove the … morbidity from COVID at all ages, one sees either the same mortality rate as in previous years, or less,” she said, adding “there is no increase in heart attacks here.”

Sharon Alroy-Preis, the head of Public Health Services at the Israel Ministry of Health at the Health Committee meeting to discuss special powers to deal with COVID-19 in Jerusalem on Feb. 6, 2023. (Dani Shem Tov / Knesset)

In a February 2023 meeting of the Health Committee of the Knesset for extending the COVID special powers law, Elroy-Pries reiterated that the MOH does have access to COVID mortality data.

“COVID has killed over 12,000 people in the State of Israel,” she said at the meeting, explaining further that this figure is known since “from the beginning of the epidemic, the Medical Directorate received people’s death certificates.”

When asked about whether there is an increase in cardiac arrest cases in Israel among young people, Elroy-Pries said, “We do not see an increase in the death of young people,” adding “We’re checking it. We’re looking for it.”

Levi said to The Epoch Times that the MOH attacked him personally and the EMS, and asked “If they don’t have data for 2021 and 2022 [according to the FOI], then how can they know that they don’t have an increase [in cardiac arrests]?”

When the MOH says things that are contrary to science, said Levi, or are “contrary to the facts on a regular basis, you must ask yourself the question: are they doing it because they didn’t bother to read the science, or are they doing it even though they … read the science.”

“Both scenarios are very serious,” he added.

Vaccines Saved ‘Millions Around the World’: MOH

The MOH did not reply to a request for comment from The Epoch Times.

Yet about 2 hours after sending the request on May 25, the agency posted on its Twitter account a statement regarding Xabi’s FOI.

“Following the manipulation that has been taking place in recent days regarding one of the Ministry of Health’s [reply to] Freedom of Information requests, we will clarify that the answers to the requests submitted under the Freedom of Information Law are, naturally, answered directly to the specific question that was asked.

“In this case, the ministry was asked about mortality data and underlying diseases. The Ministry of Health ‘does not have’ access to the medical file [of patients], therefore information is only based on cases where an epidemiological investigation was carried out and the person or his family answered the question [regarding underlying morbidities]. Therefore, this is very limited information. This was of course clearly written in the answer [to the FOI].

“We will clarify: So far, 356 young people (18–49 years of age) have died of COVID.

“Of these, only about half have documentation of an epidemiological investigation (184 deceased).

“And only 7.5% (27 deceased) included an answer to the question regarding underlying diseases. The answer was provided based on this information.

“The Ministry of Health is committed to maintaining the health of all citizens and making the information available in the Ministry transparently. This is how we acted [so far] and will continue to act.

“We must not forget that the COVID epidemic has so far killed more than 12,500 people in Israel, caused severe and critical morbidity, and post-COVID symptoms that accompany some of those recovering to this day.

“The vaccination campaign began in the midst of a third lockdown that resulted from an increase in morbidity and mortality and the opening of the economy was made possible thanks to the activation of the green passport, which its purpose was to reduce the risk of infection in mass events.

“The vaccines have saved thousands of people in the state of Israel and millions around the world—the attempt to rewrite history is dangerous.”

Following an administrative appeal filed by Xabi and colleagues, the MOH committed to publishing all-cause mortality segmented by vaccination status and age by the end of this month.

This appeal is an ongoing case that followed a FOI request submitted to the MOH on Oct. 10, 2021, which was not answered within the time frame according to Israeli law, and the data provided by the agency during a number of hearings since has been incomplete.

Tyler Durden Mon, 05/29/2023 - 06:20

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‘The Official Truth’: The End Of Free Speech That Will End America

‘The Official Truth’: The End Of Free Speech That Will End America

Authored by J.B.Shurk via The Gatestone Institute,

If legacy news corporations…

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May 29, 2023

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'The Official Truth': The End Of Free Speech That Will End America

Authored by J.B.Shurk via The Gatestone Institute,

If legacy news corporations fail to report that large majorities of the American public now view their journalistic product as straight-up propaganda, does that make it any less true?

According to a survey by Rasmussen Reports, 59% of likely voters in the United States view the corporate news media as "truly the enemy of the people." This is a majority view, held regardless of race: "58% of whites, 51% of black voters, and 68% of other minorities" — all agree that the mainstream media has become their "enemy."

This scorching indictment of the Fourth Estate piggybacks similar polling from Harvard-Harris showing that Americans hold almost diametrically opposing viewpoints from those that news corporations predominantly broadcast as the official "truth."

Drawing attention to the divergence between the public's perceived reality and the news media's prevailing "narratives," independent journalist Glenn Greenwald dissected the Harvard-Harris poll to highlight just how differently some of the most important issues of the last few years have been understood. While corporate news fixated on purported Trump-Russia collusion since 2016, majorities of Americans now see this story "as a hoax and a fraud."

While the news media hid behind the Intelligence Community's claims that Hunter Biden's potentially incriminating laptop (allegedly containing evidence of his family's influence-peddling) was a product of "Russian disinformation" and consequently enforced an information blackout on the explosive story during the final weeks of the 2020 presidential election, strong majorities of Americans currently believe the laptop's contents are "real." In other words, Americans have correctly concluded that journalists and spies advanced a "fraud" on voters as part of an effort to censor a damaging story and "help Biden win." Nevertheless, The New York Times and The Washington Post have yet to return the Pulitzer Prizes they received for reporting totally discredited "fake news."

Similarly, majorities of Americans suspect that President Joe Biden has used the powers of his various offices to profit from influence-peddling schemes and that the FBI has intentionally refrained from investigating any possible Biden crimes. Huge majorities of Americans, in fact, seem not at all surprised to learn that the FBI has been caught abusing its own powers to influence elections, and are strongly convinced that "sweeping reform" is needed. Likewise, large majorities of Americans have "serious doubts about Biden's mental fitness to be president" and suspect that others behind the scenes are "puppeteers" running the nation.

Few, if any, of these poll results have been widely reported. In a seemingly-authoritarian disconnect with the American people, corporate news media continue to ignore the public's majority opinion and instead "relentlessly advocate" those viewpoints that Americans "reject." When journalists fail to investigate facts and deliberately distort stories so that they fit snugly within preconceived worldviews, reporters act as propagandists.

Constitutional law scholar Jonathan Turley recently asked, "Do we have a de facto state media?" In answering his own question, he notes that the news blackout surrounding congressional investigations into Biden family members who have allegedly received more than ten million dollars in suspicious payments from foreign entities "fits the past standards used to denounce Russian propaganda patterns and practices." After Republican members of Congress traced funds to nine Biden family members "from corrupt figures in Romania, China, and other countries," Turley writes, "The New Republic quickly ran a story headlined 'Republicans Finally Admit They Have No Incriminating Evidence on Joe Biden.'"

Excoriating the news media's penchant for mindlessly embracing stories that hurt former President Donald Trump while simultaneously ignoring stories that might damage President Biden, Turley concludes:

"Under the current approach to journalism, it is the New York Times that receives a Pulitzer for a now debunked Russian collusion story rather than the New York Post for a now proven Hunter Biden laptop story."

Americans now evidently view the major sources for their news and information as part of a larger political machine pushing particular points of view, unconstrained by any ethical obligation to report facts objectively or dispassionately seek truth. That Americans now see the news media in their country as serving a similar role as Pravda did for the Soviet Union's Communist Party is a significant departure from the country's historic embrace of free speech and traditional fondness for a skeptical, adversarial press.

Rather than taking a step back to consider the implications such a shift in public perception will have for America's future stability, some officials appear even more committed to expanding government control over what can be said and debated online. After the Department of Homeland Security (DHS), in the wake of public backlash over First Amendment concerns, halted its efforts to construct an official "disinformation governance board" last year, the question remained whether other government attempts to silence or shape online information would rear their head. The wait for that answer did not take long.

The government apparently took the public's censorship concerns so seriously that it quietly moved on from the collapse of its plans for a "disinformation governance board" within the DHS and proceeded within the space of a month to create a new "disinformation" office known as the Foreign Malign Influence Center, which now operates from within the Office of the Director of National Intelligence. Although ostensibly geared toward countering information warfare arising from "foreign" threats, one of its principal objectives is to monitor and control "public opinion and behaviors."

As independent journalist Matt Taibbi concludes of the government's resurrected Ministry of Truth:

"It's the basic rhetorical trick of the censorship age: raise a fuss about a foreign threat, using it as a battering ram to get everyone from Congress to the tech companies to submit to increased regulation and surveillance. Then, slowly, adjust your aim to domestic targets."

If it were not jarring enough to learn that the Office of the Director of National Intelligence has picked up the government's speech police baton right where the DHS set it down, there is ample evidence to suggest that officials are eager to go much further in the near future. Democrat Senator Michael Bennet has already proposed a bill that would create a Federal Digital Platform Commission with "the authority to promulgate rules, impose civil penalties, hold hearings, conduct investigations, and support research."

Filled with "disinformation" specialists empowered to create "enforceable behavioral codes" for online communication — and generously paid for by the Biden Administration with taxpayers' money — the special commission would also "designate 'systemically important digital platforms' subject to extra oversight, reporting, and regulation" requirements. Effectively, a small number of unelected commissioners would have de facto power to monitor and police online communication.

Should any particular website or platform run afoul of the government's First Amendment Star Chamber, it would immediately place itself within the commission's crosshairs for greater oversight, regulation, and punishment.

Will this new creation become an American KGB, Stasi or CCP — empowered to target half the population for disagreeing with current government policies, promoting "wrongthink," or merely going to church? Will a small secretive body decide which Americans are actually "domestic terrorists" in the making? US Attorney General Merrick Garland has gone after traditional Catholics who attend Latin mass, but why would government suspicions end with the Latin language? When small commissions exist to decide which Americans are the "enemy," there is no telling who will be designated as a "threat" and punished next.

It is not difficult to see the dangers that lie ahead. Now that the government has fully inserted itself into the news and information industry, the criminalization of free speech is a very real threat. This has always been a chief complaint against international institutions such as the World Economic Forum that spend a great deal of time, power, and money promoting the thoughts and opinions of an insular cabal of global leaders, while showing negligible respect for the personal rights and liberties of the billions of ordinary citizens they claim to represent.

WEF Chairman Klaus Schwab has gone so far as to hire hundreds of thousands of "information warriors" whose mission is to "control the Internet" by "policing social media," eliminating dissent, disrupting the public square, and "covertly seed[ing] support" for the WEF's "Great Reset." If Schwab's online army were not execrable enough, advocates for free speech must also gird themselves for the repercussions of Elon Musk's appointment of Linda Yaccarino, reportedly a "neo-liberal wokeist" with strong WEF affiliations, as the new CEO of Twitter.

Throughout much of the West, unfortunately, free speech has been only weakly protected when those with power find its defense inconvenient or messages a nuisance. It is therefore of little surprise to learn that French authorities are now prosecuting government protesters for "flipping-off" President Emmanuel Macron. It does not seem particularly astonishing that a German man has been sentenced to three years in prison for engaging in "pro-Russian" political speech regarding the war in Ukraine. It also no longer appears shocking to read that UK Technology and Science Secretary Michelle Donelan reportedly seeks to imprison social media executives who fail to censor online speech that the government might subjectively adjudge "harmful." Sadly, as Ireland continues to find new ways to punish citizens for expressing certain points of view, its movement toward criminalizing not just speech but also "hateful" thoughts should have been predictable.

From an American's perspective, these overseas encroachments against free speech — especially within the borders of closely-allied lands — have seemed sinister yet entirely foreign. Now, however, what was once observed from some distance has made its way home; it feels as if a faraway communist enemy has finally stormed America's beaches and come ashore in force.

Not a day seems to go by without some new battlefront opening up in the war on free speech and free thought. The Richard Stengel of the Council on Foreign Relations has been increasingly vocal about the importance of journalists and think tanks to act as "primary provocateurs" and "propagandists" who "have to" manipulate the American population and shape the public's perception of world events. Senator Rand Paul has alleged that the DHS uses at least 12 separate programs to "track what Americans say online," as well as to engage in social media censorship.

As part of its efforts to silence dissenting arguments, the Biden administration is pursuing a policy that would make it unlawful to use data and datasets that reflect accurate information yet lead to "discriminatory outcomes" for "protected classes." In other words, if the data is perceived to be "racist," it must be expunged. At the same time, the Department of Justice has indicted four radical black leftists for having somehow "weaponized" their free speech rights in support of Russian "disinformation." So, objective datasets can be deemed "discriminatory" against minorities, while actual discrimination against minorities' free speech is excused when that speech contradicts official government policy.

Meanwhile, the DHS has been exposed for paying tens of millions of dollars to third-party "anti-terrorism" programs that have not so coincidentally equated Christians, Republicans, and philosophical conservatives to Germany's Nazi Party. Similarly, California Governor Gavin Newsom has set up a Soviet-style "snitch line" that encourages neighbors to report on each other's public or private displays of "hate."

Finally, ABC News proudly admits that it has censored parts of Robert F. Kennedy Jr.'s interviews because some of his answers include "false claims about the COVID-19 vaccines." Essentially, the corporate news media have deemed Kennedy's viewpoints unworthy of being transmitted and heard, even though the 2024 presidential candidate is running a strong second behind Joe Biden in the Democrat primary, with around 20% support from the electorate.

Taken all together, it is clear that not only has the war on free speech come to America, but also that it is clobbering Americans in a relentless campaign of "shock and awe." And why not? In a litigation battle presently being waged over the federal government's extensive censorship programs, the Biden administration has defended its inherent authority to control Americans' thoughts as an instrumental component of "government infrastructure." What Americans think and believe is openly referred to as part of the nation's "cognitive infrastructure" — as if the Matrix movies were simply reflecting real life.

Today, America's mainstream news corporations are already viewed as processing plants that manufacture political propaganda. That is an unbelievably searing indictment of a once-vibrant free press in the United States. It is also, unfortunately, only the first heavy shoe to drop in the war against free speech. Many Chinese-Americans who survived the Cultural Revolution look around the country today and see similarities everywhere. During that totalitarian "reign of terror," everything a person did was monitored, including what was said while asleep.

In an America now plagued with the stench of official "snitch lines," censorship of certain presidential candidates, widespread online surveillance, a resurrected "disinformation governance board," and increasingly frequent criminal prosecutions targeting Americans who exercise their free speech, the question is not whether what we inaudibly think or say in our sleep will someday be used against us, but rather how soon that day will come unless we stop it. After all, with smartphones, smart TVs, "smart" appliances, video-recording doorbells, and the rise of artificial intelligence, somebody, somewhere is always listening.

Tyler Durden Sun, 05/28/2023 - 23:00

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Never Short a Dull Market; AI is Sexy, But Everyone Hates Oil

There’s an old adage of Wall Street, which says: "never short a dull market." And while AI is getting all the press these days, the oil market is about…

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May 28, 2023

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There's an old adage of Wall Street, which says: "never short a dull market." And while AI is getting all the press these days, the oil market is about as dull as it gets. This, of course, brings the energy sector to the top of my contrarian alert list.

This is not to say that I'm buying oil-related assets with both hands. It just means that, at this point, it makes more sense to look at energy as a value asset, as it is oversold and ripe for a move up whenever the right set of variables required to deliver such a move line up just right.

In the current world, the variables could line up just right as early as today.

There are No Oil Bulls Left

Nobody loves oil.

The level of bearishness expressed by futures traders is at least equal to where it was during the pandemic, and after the Silicon Valley Bank (SIVB) collapse. The International Energy Agency (IEA), forecasts that, of the expected $2.8 trillion in energy investments for 2023, roughly $1.7 trillion will be allocated to low carbon energy sources, including nuclear, solar, and other potential sources. Only $1.1 trillion will be invested in fossil fuels.

And according to the Financial Times, auctioneers in Texas are trying to unload two brand new fracking rigs, which together cost $70 million, for a starting combined bid of just below $17 million.

Supply is the Primary Influence on Oil Prices

Meanwhile, oil companies are quietly merging with competitors, and exploration outside the United States is continuing aggressively, with new discoveries being frequently announced. 

Simultaneously, the U.S. active rig count is slowly falling, led by natural gas. The price of gasoline is steadily rising, as the market begins to price in future supply reductions. Just in my neck of the woods, regular unleaded is up some $0.32 in the last week alone.

That doesn't sound like an industry that's planning on fading away. It sounds like an industry that's hunkering down and waiting for better times and preparing to squeeze supply in order to boost prices.

Charting the Oil Sector

The price chart for West Texas Intermediate Crude, the U.S. benchmark (WTIC), shows the depressed price picture which has led investors to walk away. And, until proven otherwise, there are plenty of sellers at the $75-$80 price area, where a sizeable Volume by Price bar highlights the point of resistance.

At first glance, there little difference in the general price behavior for Brent Crude, the European benchmark. (BRENT) where there is a resistance band defined by VBP bars between $80 and $90. A closer look reveals an uptick in Accumulation Distribution (ADI) and the semblance of some nibbling in On Balance Volume (OBV). It's subtle, but it's there.

The oil stocks are far from a bull trend. The Energy Select Sector SPDR ETF (XLE) is trading below its 200-day moving average, facing resistance put from $78 to $90 (VBP bars).

So why bother? Simply stated, OPEC has an upcoming meeting on June 3-4. The cartel is not happy about the prices and the way things are evolving. The Saudi oil minister recently warned bearish speculators to "watch out." And my gut is doing flips when I think about oil, as I see gasoline prices creep up when I drive to work.

But mostly, it's because there are no oil bulls left. This is what we saw in the technology sector a few months ago before its current rally. In early 2023, the tech sector was pronounced dead. The stories were all about the technology sector shuddering as the economy slowed. How about this one, from March 2023, which breathlessly announced a 5.2% decrease in semiconductor sales on a month to month basis and an 18.5% year to year drop?

Yet, as validated by the recent AI-fueled rally, the bad news first marked a bottom, while preceding a significant move up in tech shares.

Never short a dull market.

I've recently recommended several energy sector picks. You can have a look at them with a free trial to my service. In addition, I've posted a Special Report on the oil market which you can gain access to here.

Bond and Mortgage Roller Coaster Reverses Course

Expect negative news about the effect of rising mortgage rates on the homebuilder industry. That's because, as the chart below illustrates, there is a tight and very close correlation between rising bond yields, mortgage rates, and the homebuilder stocks (SPHB).

Moreover, the rise above 3.75% on the U.S. Ten Year Note yield (TNX) has triggered headlines about mortgage rates climbing above 7%. What the news isn't reporting is that, once bond yields roll over, which they are likely to do at some point in the future when the economy shows more signs of slowing and the Fed finally admits that they must pause, is that mortgage rates will drop and demand for new homes will once again pick up. Thus, we will see the homebuilders pick up where they left off.

As things stood last week, SPHB seems to have made a short term bottom.

For now, expect a continuation of the backing and filling in the homebuilder stocks. But, if I'm right and bond yields reverse course, the homebuilders are likely to rally again.

For an in-depth comprehensive outlook on the homebuilder sector click here.

NYAD Holds Above 200-Day Moving Average. SPX Joins NDX in Breaking Out. Liquidity is Shrinking.

The New York Stock Exchange Advance Decline line (NYAD) tested its 200-day moving average on an intra-week basis but did not break below the key technical level. On the other hand, NYAD remained below its 50-day moving average, which is still an intermediate-term negative.

Moreover, with the major indexes (see below) breaking out to new highs, we remain in a technical divergence as the market's breadth is lagging the action in the indexes. This is of some concern, given the fade in the market's liquidity, as I point out below.

The Nasdaq 100 Index (NDX) extended its recent breakout, closing the week well above 14,200. The current move is unsustainable, so some sort of pullback and consolidation are likely over the next few days to weeks. Both ADI and OBV remain encouraging.

What's more bullish is that the S&P 500 (SPX) finally broke out above the 4100–4200 trading range on 5/24/23. On Balance Volume (OBV) is perking up while the Accumulation Distribution (ADI) indicator is very encouraging.

We may be seeing a shift from a short-covering rally to a fear-of-missing-out buyer's rally.

VIX Holds Steady

The CBOE Volatility Index (VIX) remained below 20, as it has since March 2023. This remains a positive for the markets, as it shows short sellers are staying away at the moment.

When the VIX rises, stocks tend to fall, as rising put volume is a sign that market makers are selling stock index futures to hedge their put sales to the public. A fall in VIX is bullish, as it means less put option buying, and it eventually leads to call buying, which causes market makers to hedge by buying stock index futures. This raises the odds of higher stock prices.

Liquidity is Getting Squeezed

The market's liquidity is now in a downtrend. The Eurodollar Index (XED) is now below 94.5, and looks weak. A move above 95 will be a bullish development. Usually, a stable or rising XED is very bullish for stocks.

To get the latest up-to-date information on options trading, check out Options Trading for Dummies, now in its 4th Edition—Get Your Copy Now! Now also available in Audible audiobook format!

#1 New Release on Options Trading!

Good news! I've made my NYAD-Complexity - Chaos chart (featured on my YD5 videos) and a few other favorites public. You can find them here.


Joe Duarte

In The Money Options

Joe Duarte is a former money manager, an active trader, and a widely recognized independent stock market analyst since 1987. He is author of eight investment books, including the best-selling Trading Options for Dummies, rated a TOP Options Book for 2018 by Benzinga.com and now in its third edition, plus The Everything Investing in Your 20s and 30s Book and six other trading books.

The Everything Investing in Your 20s and 30s Book is available at Amazon and Barnes and Noble. It has also been recommended as a Washington Post Color of Money Book of the Month.

To receive Joe's exclusive stock, option and ETF recommendations, in your mailbox every week visit https://joeduarteinthemoneyoptions.com/secure/order_email.asp.

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