Three years ago, I said to an American Professor from the US Army War College in Washington, in respect to the campaign to return American lost Blue Collar jobs to Asia, that these jobs would never return. They were gone for good.
He retorted that that was precisely so, but I was missing the point, he said. America did not expect, or want, the majority of those humdrum manufacturing jobs back.
They should stay in Asia.
The Élites, he said, wanted only the commanding heights of Tech. They wanted the intellectual property, the protocols, the metrics, the regulatory framework that would allow America to define and expand across the next two decades of global technological evolution.
The real dilemma however, he said was:
“What is to be done with the 20% of the American workforce that would be no longer needed: that was no longer necessary to the functioning of a tech-led US economy?”
In fact, what the Professor said was but one facet of a fundamental economic dilemma. From the seventies and eighties onwards, US corporations were busy offshoring their labour costs to Asia. Partly, this was to cut costs and increase profitability (which it did) — but it also represented something deeper.
From the outset, the US has been an expansionary empire ever digesting new lands, new peoples, and their human and material resources. Forward motion, the continuous military, commercial, and cultural expansion became the lifeblood of Wall Street and of its foreign polity. For, absent this relentless expansion, the civic bonds of American unity fall into question. An America not in motion is not America. This forms the very essence of US leitkultur.
Yet it only added further to the dilemma highlighted by my friend above. The expansion was accompanied by a flood of Wall Street credit expansion across the globe. The debt burden exploded, and has become top heavy, balancing unsteadily on a pinhead of genuine underlying collateral.
It is only now – for the first time since WW2 – that this relentless US strategic expansionary impulse has been challenged by the Russia-China axis. They have declared ‘enough’.
Yet, there was always another side to this dynamic of western structural transition. Its foundations, as the Professor suggested, no longer lay with the socially necessary labour contained in manufacturing drab products such as cars, telephones, or toothpaste. But rather, the core of it largely has come to reside in highly flammable debt-leveraged speculations on financial assets like stocks, bonds, futures, and especially derivatives, whose value is securitised indefinitely. In this context, the 20% (or more likely 40%) of the workforce, simply becomes redundant to this highly complex, hyper-financialised, networked economy.
So, here we have the second dilemma: Whilst the structural shrinking of the work-based economy inflates the financial sector, the latter’s complex volatility can only be contained through a logic of perpetual monetary doping (perpetual liquidity injections), justified by global emergencies, requiring ever greater stimulus.
How to face this dilemma? Well, there’s no going back. That’s not an option.
In this context, the Pandemic regimen becomes symptom of a world so far removed from any real economic self-sufficiency – adequate to sustain its existing workforce – that the dilemma may only be resolved (in the view of the élites) through facilitating the continuing attenuation of the old economy, whilst financial assets must be replenished with regular additions of liquidity.
How to manage it? With the gradual abolishing of the traditional labour content to commodities (either from automation, or off-shoring), corporations have used the woke ideology to reinvent themselves. No longer do they produce just ‘things’ – they manufacture social output. They are stakeholders in society, ‘manufacturing’ socially desirable outcomes: diversity, social inclusivity, gender balance and climate responsible governance. Already, this transition has produced a cornucopia of new ESG liquidity flowing through calcified economic arteries.
And the Pandemic, of course, justifies the monetary stimulus, whilst the follow-on climate ‘health’ emergency is prepared in order to legitimise further debt expansion, for the future.
Financial analyst Mauro Bottarelli summarised the logic of this as follows:
“A state of semi-permanent health emergency is preferable to a vertical market crash that would turn the memory of 2008 into a walk in the park.”
Professor of Critical Theory and Italian at Cardiff University, Fabio Vighi, has noted too the “Incurability” of what he calls “the Central Banker’s Long-Covid” condition” — that the injection of such a huge monetary stimulus as we have seen, was only possible by turning the engine of Main Street ‘off’, as such a cascade of liquidity ($6 Trillion) could not be allowed to flow willy-nilly into the Main Street economy (in the view of the Central Bankers), as this would cause an inflationary tsunami à la Weimar Republic. Rather, its’ main thrust has served to further inflate the virtual world of ever more complex financial instruments.
Inevitably however, coupled with supply-chain bottlenecks, the gush of liquidity has caused Main Street inflation to rise, and hence imposed further hurt on the ground. The aim of managing the manufacturing attenuation on the one hand (small business ‘lockdown’), whilst liquidity flowed freely to the financialised sphere (to postpone a market crash) has failed. Inflation is accelerating, interest rates will rise, and this will bring adverse social and political consequences in its wake: i.e. anger, rather than compliance.
At the heart of the predicament for those who run the system is that, should they to lose control of liquidity creation – either as a result of interest rate rises, or from increasing political dissent – the ensuing recession would take-down the entire socio-economic fabric below.
And any severe recession would likely wreak havoc on the western political leadership, too.
They have opted therefore instead, to sacrifice the democratic framework, in order to roll out a monetary regime rooted in a cult of corporate-owned science & technology, media propaganda, and disaster narratives – as the means to progress towards a technocratic ‘aristocratic’ takeover over the heads of the people. (Yes, in certain ‘circles’, it is thought of as a newly rising aristocracy of money).
Professor Vighi again:
“The consequences of emergency capitalism are emphatically biopolitical. They concern the administration of a human surplus that is growing superfluous for a largely automated, highly financialised, and implosive reproductive model. This is why Virus, Vaccine and Covid Pass are the Holy Trinity of social engineering.
‘Virus passports’ are meant to train the multitudes in the use of electronic wallets controlling access to public services and personal livelihood. The dispossessed and redundant masses, together with the non-compliant, are the first in line to be disciplined by digitalised poverty management systems directly overseen by monopoly capital. The plan is to tokenise human behaviour and place it on blockchain ledgers run by algorithms. And the spreading of global fear is the perfect ideological stick to herd us toward this outcome”.
Professor Vighi’s point is clear. The vaccine campaign and the Green Pass system are no stand-alone health disciplines. They are not about ‘the Science’, nor are they intended to make sense. They are primordially connected to the élites’ economic dilemma, and serve as a political tool too, by which a new monetary dispensation can displace democracy. President Macron spoke the unstated out loud, when he said: “As for the non-vaccinated, I really want to piss them off. And we will continue to do this, to the end. This is the strategy”.
Italian PM Draghi similarly has escalated attacks on the unvaxxed, making vaccines mandatory for all the over 50s, and imposing significant restrictions on anyone over 12. Again, though ‘following the science’ is the mantra, these measures make no sense: the Omicron variant predominantly infects the double vaxxed, not the unvaxxed.
Two days ago, a leading Nobel Prize winning Virologist, Dr Montagnier and a colleague, confirmed this “obsolete” aspect of vaccine mandates. Writing in the Wall Street Journal, they write:
” … mandating a vaccine to stop the spread of a disease requires evidence that the vaccines will prevent infection or transmission (rather than efficacy against severe outcomes like hospitalization or death). As the World Health Organization puts it, “if mandatory vaccination is considered necessary to interrupt transmission chains and prevent harm to others, there should be sufficient evidence that the vaccine is efficacious in preventing serious infection and/or transmission.” For Omicron, there is as yet no such evidence.
The little data we have suggest the opposite. One preprint study found that after 30 days the Moderna and Pfizer vaccines no longer had any statistically significant positive effect against Omicron infection, and after 90 days, their effect went negative—i.e., vaccinated people were more susceptible to Omicron infection. Confirming this negative efficacy finding, data from Denmark and the Canadian province of Ontario indicate that vaccinated people have higher rates of Omicron infection than unvaccinated people”.
This is rarely, if ever, admitted. Both Macron and Draghi are desperate: They need to ‘liquify’ their economies – and soon.
Indeed, Dr Malone, the father of the mRNA vaccines, wrote of those who point out such inconsistencies and illogicalities – just two months before his Twitter account was suspended – in a rather prophetic Twitter post:
“I am going to speak bluntly,” he wrote.
“Physicians who speak out are being actively hunted via medical boards and the press. They are trying to delegitimize us and pick us off, one by one.”
He finished by warning that this is “not a conspiracy theory” but “a fact.” He urged us all to “wake up.”
As the Telegraph has noted, British Scientists on a committee that encouraged the use of fear to control people’s behaviour during the Covid pandemic have admitted its work was “unethical” and “totalitarian”. The scientists warned in March 2021 that ministers in the UK needed to increase “the perceived level of personal threat” from Covid-19, because “a substantial number of people still do not feel sufficiently personally threatened”. Gavin Morgan, a psychologist on the team, said: “Clearly, using fear as a means of control is not ethical. Using fear smacks of totalitarianism”.
Another SPI-B member said:
“You could call [it] psychology ‘mind control’. That’s what we do … clearly we try and go about it in a positive way, but it has been used nefariously in the past”. Another colleague cautioned that “people use the pandemic to grab power, and drive through things that wouldn’t happen otherwise … We have to be very careful about the authoritarianism that is creeping in”.
The problem goes deeper than a little ‘nudge psychology’ however. In 2019, the BBC established the Trusted News Initiative (TNI), a partnership that now includes many main-stream media. TNI was ostensibly designed to counter foreign narrative influence during election times, but it has expanded to synchronise all elements of messaging, and to eliminate deviation across the broad realm of media and tech platforms.
These synchronised ‘talking-points’ are more powerful (and insidious) than any ideology, as it functions not as a belief system or ethos, but rather, as objective ‘science’. You cannot argue with, or oppose, Science (with a capital ‘S’). Science has no political opponents. Those who challenge it are labelled “conspiracy theorists,” “anti-vaxxers,” “Covid deniers,” “extremists,” etc. And, thus the pathologized New Normal narrative also pathologizes its political opponents: stripping them of all political legitimacy. The aim obviously, is their forced compliance. Macron made that plain.
Separating the population on the basis of vaccination status is an epoch-making event. If resistance is quashed, a compulsory digital ID can be introduced to record the ‘correctness’ of our behaviour and regulate access to society. Covid was the ideal Trojan horse for this breakthrough. A global system of digital identification based on blockchain technology has long been planned by the ID2020 Alliance, backed by such giants as Accenture, Microsoft, the Rockefeller Foundation, MasterCard, IBM, Facebook, and Bill Gates’ ubiquitous GAVI. From here, the transition to monetary control is likely to be relatively smooth. CBDCs would allow central bankers not only to track every transaction, but especially to turn off access to liquidity, for any reason deemed legitimate.
The Achilles’ heel to all this however, is the evidence of genuine popular resistance to the suppression by the tech platforms of all dissenting opinion (however well-qualified its source); by the refusal to allow people informed choice about their medical treatment; and by arbitrary restrictions that may involve loss of livelihood being imposed by decree, and underpinned by emergency laws, restricting popular protest.
But more significantly and paradoxically, the Omricon variant may cut the legs from under those political leaders intent on doubling-down. It is quite possible that this mild (barely lethal), yet highly contagious variant, may prove to be Nature’s ‘vaccine’, giving us a wide measure of immunity – ostensibly better than that offered by the ‘vaccines’ from Science!
Already, we observe European states are confused and at odds with each other – taking diametrically opposed policy lines: some ending restrictions, and some decreeing more and more. Other countries, like Israel, are reducing restrictions and shifting to a herd immunity policy.
Of course, the corollary to the collapse of the technocratic initiative to liquify the over-leveraged economy might well be recession. That unfortunately, is the logic of the situation.
Loonie Slides After Bank Of Canada Keeps Rate Unchanged, Says “Economic Slack Now Absorbed”
Loonie Slides After Bank Of Canada Keeps Rate Unchanged, Says "Economic Slack Now Absorbed"
For once, the majority of forecasters was correct, and moments ago the Bank of Canada kept rates unchanged at 0.25, in line with that 24 of 31 analyst
For once, the majority of forecasters was correct, and moments ago the Bank of Canada kept rates unchanged at 0.25, in line with that 24 of 31 analysts expected. The bank also said that while it is keeping holdings on its balance sheet constant, once it begins rising interest rates, it "will consider exiting the reinvestment phase and reducing the size of its balance sheet by allowing roll-off of maturing Government of Canada bonds."
In its statement, the Bank of Canada said that with overall economic slack now absorbed, "the Bank has removed its exceptional forward guidance on its policy interest rate" but the Bank is continuing its reinvestment phase, keeping its overall holdings of Government of Canada bonds roughly constant
Looking ahead, the Governing Council expects interest rates will need to increase, with the timing and pace of those increases guided by the Bank’s commitment to achieving the 2% inflation target.
Some more from the BoC:
The global recovery from the COVID-19 pandemic is strong but uneven. The US economy is growing robustly while growth in some other regions appears more moderate, especially in China due to current weakness in its property sector. Strong global demand for goods combined with supply bottlenecks that hinder production and transportation are pushing up inflation in most regions. As well, oil prices have rebounded to well above pre-pandemic levels following a decline at the onset of the Omicron variant of COVID-19. Financial conditions remain broadly accommodative but have tightened with growing expectations that monetary policy will normalize sooner than was anticipated, and with rising geopolitical tensions. Overall, the Bank projects global GDP growth to moderate from 6¾ % in 2021 to about 3½ % in 2022 and 2023.
On inflation, the BoC said that "CPI inflation remains well above the target range and core measures of inflation have edged up since October. Persistent supply constraints are feeding through to a broader range of goods prices and, combined with higher food and energy prices, are expected to keep CPI inflation close to 5% in the first half of 2022. As supply shortages diminish, inflation is expected to decline reasonably quickly to about 3% by the end of this year and then gradually ease towards the target over the projection period. Near-term inflation expectations have moved up, but longer-run expectations remain anchored on the 2% target. The Bank will use its monetary policy tools to ensure that higher near-term inflation expectations do not become embedded in ongoing inflation."
The central bank also said that it will keep its holdings of Government of Canada bonds on its balance sheet roughly constant at least until it begins to raise the policy interest rate. At that time, the Governing Council will consider exiting the reinvestment phase and reducing the size of its balance sheet by allowing roll-off of maturing Government of Canada bonds.
A redline comparison of the BoC statement:
Commenting on the move, Bloomberg's Ven Ram writes that this is a lot more dovish outcome from the Bank of Canada than one might have imagined. Not only did the central bank hold its rate, but it didn’t paint itself into a corner on when it may push the button: “Looking ahead, the Governing Council expects interest rates will need to increase, with the timing and pace of those increases guided by the Bank’s commitment to achieving the 2% inflation target.”
Add to that this guidance on balance-sheet runoff: “The Bank will keep its holdings of Government of Canada bonds on its balance sheet roughly constant at least until it begins to raise the policy interest rate. At that time, the Governing Council will consider exiting the reinvestment phase and reducing the size of its balance sheet by allowing roll-off of maturing Government of Canada bonds.”
Net-net this isn’t screaming, “Buy the loonie” and sure enough, in immediate reaction, the canada 2Y yields declined and the loonie weakened, dropping from 1.2560 before the BOC to 1.2640 before paring some of the losses, amid some trader disappointment that the bank did not hike.
* * * Earlier:
In what may be a teaser of what to expect from the Fed later today, the Bank of Canada rate decision is due at 10:00am EST followed by Governor Macklem press conference at 11:00am EST. While the bank is expected to leave rates unchanged, there is the risk of a surprise rate hike. Indeed, about a quarter, or 7/31 analysts, surveyed by Reuters expect a hike. If left unchanged, attention turns to guidance.
Below is a recap of what to expect from the BOC courtesy of Newsquawk
- The Bank of Canada is expected to leave rates unchanged at 0.25% although there is the risk for a hike with 7/31 surveyed analysts expecting a 25bp hike to 0.50% at the January meeting, ahead of the current BoC guidance for the middle quarters of 2022.
- If the rate is left unchanged, attention turns to guidance to see whether this is bought forward to the end of Q1 (ie March).
- Market pricing looks for rates to be left unchanged, although this has unwound heavily from last week which saw up to a 90% chance of a 25bp hike in January after the BoC survey and CPI data.
- The MPR will also be released, analysts at TD securities see 2022 growth being revised lower, while inflation is expected to be revised 0.1% higher for 2022 but revised down by 0.1% in 2023.
LIFT-OFF: The latest Reuters survey saw analysts generally believe the BoC will leave rates unchanged in January, although 7 of 31 surveyed expect a hike will occur. Therefore, the expectation for January is for rates to be left unchanged, although the risk of a hike is there. If the rate is left unchanged, attention will turn to its forward guidance, which currently looks for lift-off “sometime in the middle quarters of 2022”. If it is bought forward to the end of Q1, it will signal a March lift-off is coming. Analysts are currently split on whether the BoC will hike in March with 16/31 calling for rates to be left unchanged again, while the other 15 expect it will rise to 0.50% or more, however, all analysts noted the risk to the pace of rate hikes this year is that they come faster than expected. The median forecast is for the BoC to raise rates to 0.75% by the end of Q2 2022.
SURVEYS: The Business Outlook Survey sounded the alarm on inflation with 67% of firms expecting inflation to be above 3% over the next two years, although most predict it will return to target within one to three years. It also noted that demand and supply bottlenecks are expected to keep upward pressure on prices over the year ahead. However, the overall survey saw a continued improvement in business sentiment to see the indicator hit a record high, although it was held back by labour shortages and supply chain issues. Note, the Canadian labour market is back at pre-pandemic levels and has been for a while. A separate BoC survey showed consumer inflation expectations hitting a record high of 4.89% over the next year, noting most people are more concerned about inflation post-COVID than before, where consumers believe it is more difficult to control. Analysts at ING highlight that the latest survey saw respondents note they expect supply disruptions through H2 this year and that labour shortages are constraining output. ING write “where the economic outlook is robust, the jobs market is red hot and inflation is at generational highs, we see little reason for the BoC to delay tightening monetary policy.” Meanwhile, ING adds that Ontario has announced a three-step plan to allow a full reopening from COVID restrictions from the end of January “which should be the final green light for the central bank to hike rates 25bps”.
INFLATION: The latest CPI report saw the headline M/M and Y/Y metrics in line with expectations, although the core Y /Y measure saw a sharp rise to 4.0%, while the BoC eyed measures rose to 2.93% from 2.73%. Analysts at RBC, who expect the Bank to leave rates unchanged at this meeting, say “Inflation trends have evolved largely in line with the BoC’ s forecasts from the October Monetary Policy Report (4.8% vs actual 4.7% for Q4)”. However, this still shows price growth above the 2% target rate and RBC’s own tracking suggests not all that pressure can be explained by pandemicrelated distortions. As such, RBC expects rates to rise soon and believe the BoC will use this meeting to signal the start of lift-off.
MPR: The MPR will also be released, analysts at TD securities see 2022 growth being revised lower, while inflation is expected to be revised higher for 2022, before being revised marginally lower in 2023. In October, the MPR saw 2021 growth at 5.1%, 2022 at 4.3%, and 2023 at 3.7%. CPI was seen at 3.4% for 2021, while 2022 is expected to be revised higher to 3.5% (prev. 3.4%), and 2023 CPI is expected to be revised down to 2.2% from 2.3%. In the October MPR, the output gap was estimated at about -2.25% to -1.25% and is expected to close sometime in the middle quarters of 2022
Mainstream Suddenly Realizes Raising Interest Rates In A World Buried In Debt Might Be A Problem
Mainstream Suddenly Realizes Raising Interest Rates In A World Buried In Debt Might Be A Problem
Authored by Michael Maharrey via SchiffGold.com,
The Federal Reserve is talking about raising interest rates. But the US economy is buried under
The Federal Reserve is talking about raising interest rates. But the US economy is buried under piles of debt. I’ve been asking how this is going to work for months. Apparently, the question has finally occurred to the mainstream.
A CNBC article declared, “Fed rate hikes will intensify a global debt crisis, research warns.”
Well, yeah. Duh.
According to the study came from a UK non-profit the Jubilee Debt Campaign, debt payments rose in developing countries by 120% between 2010 and 2021. They are currently at their highest levels since 2001.
The sharp increase in debt payments is hindering countries’ economic recovery from the pandemic, the report suggested, and rising US and global interest rates in 2022 could exacerbate the problem for many lower income countries.”
The study and the CNBC article are really a pitch for debt cancellation, but their narrative swerves into an unpleasant truth for US policymakers. Raising interest rates in a world awash in red ink is going to be a problem. And not just for “developing countries.”
In December alone, the federal government spent $508 billion. The was the highest December spending level ever. Through the first three months of fiscal 2022, the federal government has already spent $1.43 trillion. That’s a record for the first quarter of any fiscal year.
Raising interest rates will drastically increase the cost of servicing all of that debt. And it will increase the cost of borrowing more money for the Biden spending coming down the pike.
In the fiscal year 2020, Uncle Sam spent $345 billion in net interest payments alone, despite near-zero interest rates. The nonpartisan Committee for a Responsible Federal Budget found that even a 2% increase in interest rates would cause net interest payments to rise to a whopping $750 billion. And this estimate was calculated before the passage of the American Rescue Plan and the Bipartisan Infrastructure Bill. That was followed up with a big surge in interest rates on US Treasuries. In other words, $750 billion underestimates the cost.
On top of that, American consumers are buried under debt. Consumer debt jumped 11% year-on-year in November. It was the biggest single-month jump in consumer debt in 20 years. Total consumer debt now stands at over $4.41 trillion. And that doesn’t include mortgages.
Revolving debt – primarily credit card balances – grew by a staggering 23.4% year-on-year in November. That was the biggest increase since 1998.
And that’s not all. Businesses and corporations are also leveraged to the hilt.
The year 2020 set a record for corporate debt issuance with $2.28 trillion of bonds and loans, comprising both new bonds and bonds issued to refinance existing debt.
All of this debt is a feature of the Fed’s loose monetary policy - not a bug.
The Federal Reserve and the US government have built a post-pandemic “economic recovery” on stimulus and debt. It is predicated on consumers spending stimulus money borrowed and handed out by the federal government or running up their own credit cards.
Now, the Fed is threatening to turn off that easy money spigot. How is that going to work? How will consumers buried under more than $1 trillion in credit card debt pay those balances down with interest rates rising? With rising rates, minimum payments will rise. It will cost more just to pay the interest on the outstanding balances.
Overleveraged companies have the same problem.
And so does the US government.
This does not bode well for an economy that depends on borrowing and spending to sustain itself.
The only reason Americans can borrow money is because the Fed is enabling them. It holds interest rates artificially low. That’s how the economy works. And that’s why I think the Fed will ultimately relent on any move it makes toward tighter monetary policy. As Peter Schiff put it, the Fed can’t do what it’s claiming it will do.
Futures Surge After Microsoft Reversal With All Eyes On Fed
Futures Surge After Microsoft Reversal With All Eyes On Fed
Yesterday, after Microsoft stock initially slumped despite beating across the board as the skeptical market latched on to even the smallest weakness to hammer the stock, dragging…
Yesterday, after Microsoft stock initially slumped despite beating across the board as the skeptical market latched on to even the smallest weakness to hammer the stock, dragging down both the Nasdaq and S&P futures close to session lows, we said that the reaction was premature and would reverse, as the earnings release did not include guidance and would promptly reverse once the company revealed its cloud guidance in its conference call a little over an hour later. Well, that's precisely what happened and after first tumbling as much as 5% after hours, the 2nd largest US company (MSFT has $2.2 trillion in market cap) reversed all losses and is now trading solidly in the green, sparking broader tech momentum, lifting the Nasdaq as much as 2.1% this morning and (briefly) helping traders forget that today at 2pm the Fed is expected to unveil a March rate hike and balance sheet runoff a few months later.
Indeed, contracts on the Nasdaq 100 led broad-based gains - which would have been gaping losses had MSFT failed to reverse late on Tuesday - as U.S. stock futures rallied, with investors bracing for the Federal Reserve’s decision and preparing for a slew of earnings from companies including Tesla, Intel and Boeing. Nasdaq 100 futures jumped as much as 2.1% while S&P 500 and Dow Jones futures also rallied. The VIX fell from a one-year high, snapping six days of gains. Elsewhere, the Stoxx Europe 600 rose 2% in the biggest jump in seven weeks. 10Y TSY yields rose to 1.79% with the Fed’s policy announcement in the limelight; the dollar was slightly higher, as was Bitcoin while Brent oil traded just shy of $90 on its way to triple digits.
Of course, the big event today is the Fed policy statement at 2pm ET and press conference 2:30pm, which are expected to ratify expectations for rate increases beginning in March
- Short-term interest rate futures price in just 1bp of rate-hike premium for January meeting but fully price in 25bp for March
- Commentary on shrinking the central bank’s balance sheet is also anticipated
We will have a detailed post on what to expect from the Fed shortly.
“We expect inflation to remain high and interest rates to rise more than investors are expecting today,” said Norbert Frey, head of portfolio management at Fuerst Fugger Privatbank. “A rising interest rate environment is leading to a revaluation of all business models and we think 2022 can be a year of value stocks.”
While equities have had had a rocky start to 2022 as bond yields rose with investors anticipate tighter policy from the Fed, while Russia-U.S. tension added to investor concerns. Now, strategists from Goldman Sachs Group Inc. to Citigroup Inc. are saying it’s time to buy the dip.
“Any further significant weakness at the index level should be seen as a buying opportunity, in our view,” Goldman strategists including Peter Oppenheimer wrote in a note on Wednesday.
In U.S. premarket trading, Microsoft Corp rose, with analysts positive on the software maker’s outlook for growth for its Azure cloud-computing services. Shares gained 4.1% in U.S. premarket trading after initially tumbling before the market heard the company's strong cloud guidance, with analysts positive on the software maker’s outlook for growth for its Azure cloud-computing services. Analysts also highlighted the company’s commercial bookings and a supportive IT spending backdrop. Texas Instruments shares also rose 4% after the chipmaker gave a first-quarter forecast that was stronger than expected, with analysts noting the company’s conservatism amid a still supportive demand backdrop. Texas Instruments also reported its fourth-quarter results. Other notable premarket movers:
- Cryptocurrency-exposed stocks in Europe and the U.S. are trading higher as Bitcoin kept regaining ground ahead of the Federal Reserve decision. Marathon Digital (MARA US) +6%, (RIOT US) Riot Blockchain +5%, (COIN US) Coinbase +3.4%.
- Electric vehicle stocks climb in U.S. premarket trading ahead of Tesla’s fourth-quarter results due Wednesday after the market close. Rivian (RIVN US) +3.5%; Tesla (TSLA US) +4.4%; Nikola (NKLA US) +3.6%.
- Moderna’s (MRNA US) stock valuation “makes a lot more sense” after more than halving since Deutsche Bank initiated in October, prompting the broker to upgrade the vaccine maker to hold from sell. Shares gain 4.6% premarket.
- Capital One (COF US) reported adjusted earnings per share for the fourth quarter that beat the average analyst estimate. Shares dropped postmarket, with higher expenses “the only wrinkle” in the bank’s quarter, according to Vital Knowledge.
- Stride (LRN US) shares gained 7% postmarket Tuesday after the technology-based education company boosted its revenue forecast for the full year. The guidance beat the average
Global stocks have shed about 7% in January, on track for the worst month since the pandemic roiled markets back in 2020. Some strategists are optimistic about the outlook following the declines.
“The growth-policy trade-off may be less favourable, yet we think a lot of bad news is now priced in,” Emmanuel Cau, head of European equity strategy at Barclays Plc, wrote in a note. “Starts of policy normalisation typically bring higher volatility but rarely terminate bull markets, although higher-than-usual P/E multiples mean equities are more rates-sensitive this time.”
In the latest developments involving Russia and Ukraine, president Joe Biden said he would consider personally sanctioning Vladimir Putin if he orders an invasion of Ukraine, escalating efforts to deter the Russian leader from war. In response, Russian Foreign Minister Sergei Lavrov signaled that Moscow will respond to any “aggressive” action by the U.S. and its European allies as Germany and France pursue efforts to broker a peaceful resolution to the tensions over Ukraine.
European equities rally, brushing off geopolitical tensions, with most indexes clawing back roughly 3/4 of Monday’s sharp sell off to rise over 2%. Europe’s Stoxx 600 adds as much as 2% with travel, energy, miners and autos leading what is broad sectoral support. Here are some of the biggest European movers today:
- Vestas Wind Systems shares rise as much as 6%, reversing an earlier decline, after guidance for 2022 was met with relief. Handelsbanken analysts said the guidance miss was unsurprising, and the market likely feared it would be worse.
- Other European renewables stocks -- which have been hit hard in the recent selloff -- gain after Vestas’ update, rebounding after declines triggered by Siemens Gamesa’s profit warning last week.
- Travel and leisure is the best-performing sector among Stoxx 600 groups on Wednesday. Airlines including Lufthansa and IAG lead gains, with the German carrier upgraded to buy at Stifel.
- AutoStore advances after being raised to buy at Citi. The upgrade follows a slump of more than 50% amid uncertainty regarding patent litigation and a broader sell-off in tech stocks.
- De Longhi rises as much as 8.9%, the most intraday since March 2021, after Equita upgrades to buy from hold, citing recent underperformance and more confidence in the company’s coffee business.
- Essity falls the most since Oct. 2020 after the Swedish hygiene products manufacturer reported weaker-than-expected earnings and announced further price hikes in 2022.
- Orpea shares continued their descent after its CEO was summoned to the French minister for elderly policy. The French nursing home operator also denied reports it had offered a journalist money to not publish a book critical of the company.
- Barry Callebaut shares fell, reversing earlier gains, after reporting 1Q sales. Citi noted “some more caution” on commodities amid waning supply of cocoa beans.
Earlier in the session, stocks in Asia were mixed after slumping across the board in the previous session, as investors awaited the Federal Reserve’s policy decision. The MSCI Asia Pacific Index was down 0.1%, on track to fall for a fourth day, with advances in communication services and financials offsetting losses in technology shares. Benchmarks in China, Hong Kong and Singapore were among the gainers, while Japan’s Topix Index fell deeper into correction territory. Asian equities have tumbled this month amid heightened volatility on the prospect of U.S. monetary-policy tightening, with the Fed expected to telegraph a March interest-rate hike on Wednesday. Worries over rising rates sent a gauge of the region’s tech hardware stocks to its lowest in months on Wednesday, with chipmakers TSMC and Samsung Electronics among the biggest drags. “There’s a lot of noise in the market right now, and I don’t think anyone’s confident that this is the bottom, because we aren’t sure about Fed policy yet,” said Kyle Rodda, analyst at IG Markets. Despite the broader drop in tech shares, Tencent advanced on dip-buying, helping to boost the Hang Seng Tech Index. The CSI 300 Index whipsawed to narrowly avoid entering a bear market
Fixed income takes a back seat. Curves adopt a modest bear steepening theme with gilts underperforming both bunds and USTs by 1-2bps. Eurodollars bear flatten a touch ahead of today’s FOMC meeting. Peripheral and semi-core spreads narrow with Italy, Belgium and France outperforming.
Treasuries are under pressure in early U.S. trade with U.S. stock index futures higher by 1%-2%, European benchmarks by 2%-3%, with travel, energy, miners and autos leading a broad advance. Front-end yields cheaper by more than 2bp with most curve spreads within 1bp of Tuesday’s close; 10-year yields around 1.785%, outperforming gilts by ~1bp. Focal point of U.S. day is Fed policy decision and Chair Powell news conference. Auction cycle pauses for Fed, concluding with 7-year notes Thursday. The stellar 2Y & 5Y auctions are underwater after stopping through (the 5Y produced record-low dealer award), There is no Fed POMO today. IG dollar issuance slate empty so far and expected to remain slim; Treasury auctions resume with $53b 7-year note sale on Thursday, following strong demand for 2- and 5-year notes earlier this week.
In FX, Bloomberg Dollar Spot is little changed but mixed price action across much of G-10. USD/JPY rises through 114, EUR/USD dips back onto a 1.12-handle. Commodity currencies trade well as crude futures drift back toward Monday’s highs.
Bitcoin extended its gains for the week, trading near $38,000.
In commodities, WTI adds 0.6%, regaining a $86-handle after the latest APIR report showed a draw in U.S. stockpiles and investors tracked tensions over Ukraine for signs the conflict may disrupt supplies. Brent climbs to about $89. Spot gold trades a tight range near $1,846/oz. Most base metals are well bid, lead by LME copper and tin; aluminum underperforms.
Looking at the day ahead now, the main highlight will be the aforementioned Federal Reserve decision and Chair Powell’s subsequent press conference, whilst there’s also a policy decision from the Bank of Canada. On the data side, we’ve got US new home sales for December, along with the preliminary December reading of wholesale inventories. Meanwhile earnings releases include Tesla, Abbott Laboratories, Intel, AT&T and Boeing.
- S&P 500 futures up 1.2% to 4,399.50
- STOXX Europe 600 up 1.8% to 467.79
- MXAP down 0.1% to 186.79
- MXAPJ little changed at 612.28
- Nikkei down 0.4% to 27,011.33
- Topix down 0.3% to 1,891.85
- Hang Seng Index up 0.2% to 24,289.90
- Shanghai Composite up 0.7% to 3,455.67
- Sensex up 0.6% to 57,858.15
- Australia S&P/ASX 200 down 2.5% to 6,961.63
- Kospi down 0.4% to 2,709.24
- German 10Y yield little changed at -0.08%
- Euro down 0.2% to $1.1284
- Brent Futures up 0.8% to $88.92/bbl
- Gold spot down 0.1% to $1,846.69
- U.S. Dollar Index up 0.15% to 96.09
Top Overnight News from Bloomberg
- Federal Reserve policy makers are poised to signal plans for their first interest rate hike since 2018 and discuss shrinking their bloated balance sheet as they seek to restrain the hottest inflation in nearly 40 years
- The Treasury market appears more likely to respond in a logical way to Wednesday’s Federal Reserve communications because of indications that the past week’s U.S. stock-market bloodbath cleared out a crowded camp of bets on higher yields
- The employment cost index, which Federal Reserve Chair Jerome Powell cited in December as a key reason for the central bank’s pivot to a more aggressive stance on inflation, is seen registering a fourth-quarter gain nearly on par with the record increase in the prior three months
- Lithuanian Central Bank Governor Gediminas Simkus warned that Europe’s economy would suffer a significant blow if tensions escalate further between Russia and Ukraine, urging politicians to step up efforts to deter hostilities
- OPEC and its allies are expected by delegates to stick to their plan and ratify another modest production increase next week as they try to satisfy rebounding oil demand
A more detailed look at global markets courtesy of Newsquawk
In Asian trading, APAC markets were subdued ahead of the FOMC and holiday-quietened conditions. Nikkei 225 (-0.4%) oscillated around the 27k level after record daily COVID-19 cases. KOSPI (-0.4%) faded opening gains with attention on earnings. Hang Seng (+0.2%) and Shanghai Comp. (+0.7%) were mixed as PBoC liquidity efforts and government support signals were offset as Evergrande default woes resurfaced.
Top Asian News
- Foreigners Cash Out of Key Asian Emerging Markets Before Fed
- China to Start Three-Year Crackdown on Money Laundering
- China Criticizes U.S. Diplomats Seeking Exit Over Covid Rules
- China South City Bonds Rally as Consent Given to Extend 2022s
European bourses are firmer in an extension of yesterday's upside, with the Stoxx 600 +2.0% on the session but still lower on the week. US futures are firmer across the board with the NQ, +2.0%, outpacing and benefitting from MSFT post earnings, +4.0% in pre-market. European sectors are all in the green with Travel & Leisure outperforming amid broker action while Oil & Gas is a relatively close second given crude action. EU antitrust decision against Intel (INTC) has been annulled in part by the EU General Court. Microsoft (MSFT) Q2 2022 (USD): EPS 2.48 (exp. 2.31), Revenue 51.73bln (exp. 50.88bln). Co. sees Q3 product revenue between USD 15.6bln-15.8bln and expects Azure revenue growth to increase significantly, while it guides Q3 rev. USD 48.5bln-49.3bln (implied) vs exp. USD 47.7bln. +4.0% in the pre-market.
Top European News
- Inflation Outlook No Reason for ECB to Change Track: Simkus
- Italy Asks Firms Not to Meet With Putin Amid Ukraine Crisis
- Finland ‘Wise’ to Sell Long-Maturity Debt Ahead of ECB Tapering
- Europe Travel Stocks Gain on Airlines Boost; Lufthansa Upgraded
In FX, Loonie loving risk recovery and WTI revival in run up to likely BoC hike. Aussie rebounds in absence of those away for a national holiday. Greenback stands firm awaiting something hawkish from the Fed. Kiwi hovering ahead of NZ CPI. -Pound pensive before Partygate findings are published. Rouble unable to benefit from Brent bounce as Russia begins big drills in Black Sea to keep geopolitical tensions elevated.
In commodities, WTI and Brent March futures have continued grinding higher despite quiet news flow as focus remains on geopolitics and the benchmarks also benefit from equity action. At best, WTI and Brent have surpassed USD 86.00/bbl and USD 89.00/bbl respectively thus far. Spot Gold remains contained amid relatively rangebound USD action while Silver is buoyed ahead of USD 24.00 /oz and touted resistance marks. US Private Energy Inventory Data (bbls): Crude -0.9mln (exp. -0.7mln), Gasoline +2.4mln (exp. +2.5mln),
Distillates -2.2mln (exp. -1.3mln), Cushing -1.0mln. Qatar's Emir is to meet US President Biden on Monday to discuss Afghanistan and contingency plans to supply natural gas to Europe in the event of a Russian invasion of Ukraine. Qatar Emir and US President Biden are to discuss additional Qatari gas supplies to Europe in the case of a Russian-Ukraine conflict at next week's discussions, via Reuters sources; Qatar has little spare gas for Europe as most gas is pre-sold.
- US State Department said the US hasn't seen the de-escalation that is necessary if diplomacy and dialogue with Russia is to prove successful, while US Department of Defense Spokesman Kirby said the US will not rule out adding further troops to the already 8,500 on alert.
- Ukraine Foreign Ministers says the proposals the US will send to Russia do not raise Ukraine's objections; subsequently, Moscow says received some answers to security guarantee proposals, but not in written form - awaiting further details.
- Ukrainian President Zelensky said the situation in the east is under control and they are working to establish that the meeting of Presidents of Ukraine, Russia, Germany, and France takes place as soon as possible.
- Russian navy has commenced large-scale training in the Black Sea, according to Ifax.
- UK Foreign Minister Truss, when question if they would sanction Russia's Putin, says they are not ruling anything out.
- Ukraine envoy to Japan said that they are fully committed to a diplomatic solution to the current tensions with Russia, while the envoy also stated that a full-scale war is very difficult to expect although they may see more localised conflict.
US Event Calendar
- 7am: Jan. MBA Mortgage Applications, prior 2.3%
- 8:30am: Dec. Advance Goods Trade Balance, est. -$96b, prior -$97.8b, revised -$98b
- 8:30am: Dec. Retail Inventories MoM, est. 1.5%, prior 2.0%; Wholesale Inventories MoM, est. 1.2%, prior 1.4%
- 10am: Dec. New Home Sales MoM, est. 2.1%, prior 12.4%; New Home Sales, est. 760,000, prior 744,000
- 2pm: FOMC Rate Decision
DB's Jim Reid concludes the overnight wrap
With markets awaiting today’s policy decision from the Federal Reserve, yesterday marked another volatile session that saw the resumption of the equity selloff as investor jitters remained at the prospect of monetary policy tightening alongside burgeoning geopolitical tensions. Indeed, in many ways it was a repetition of Monday’s session with a further bout of wild intraday swings. At the start, the S&P 500 sold off heavily after the US open to hit an intraday low of -2.79%, with the index back in correction territory. Then it recovered to actually move back into the green for a few minutes, before selling off in the last hour to finish the day down -1.22%, closing -9.18% off its all-time highs reached at the start of the year. With Fed policy so acutely driving risk assets in recent weeks, it sets up an interesting day of communications ahead for the FOMC.
On that front, the Fed are expected to telegraph the start of their latest hiking cycle today, and our US economists write in their preview (link here) that the meeting statement and Chair Powell’s subsequent press conference should confirm that lift-off in the policy rate is likely at the following meeting in March. It comes as the unemployment has now fallen back beneath 4% for the first time since the pandemic began, while CPI in December hit +7.0% year-on-year for the first time since 1982. Our economists’ baseline is for that March hike to be the first of 4 this year, although as they’ve written recently (link here) there is the tail risk of a more aggressive pace still. The market agrees: pricing liftoff for March and 3.96 total hikes through the rest of the year. Balance sheet policy will be of particular focus. Our US econ team believes the Fed will begin QT in Q3. The year-to-date selloff of real rates and equity markets began with the Fed surprising markets by how much they were already considering an early and aggressive use of QT to augment their tightening of policy, so any incremental information will be devoured. While it’s likely too early for the Fed to deliver specific QT details today, our economists believe it’s possible Chair Powell begins to socialise a range of potential QT outcomes to start the give-and-take involved with guiding market expectations. Also of interest will be whether Powell is asked about the possibility of a larger +50bps increase in rates at some point, which had been the topic of some speculation before the latest selloff should the Fed need to tighten financial conditions quickly.
Back to the equity selloff, and there wasn’t a consistent sectoral revival story to tell yesterday, with the volatility sending the VIX higher for a 6th consecutive session to 31.16pts, the longest run of gains in over a year. Tech ended the day as the worst performer, down -2.34%, after rallying in the middle of the session, and the NASDAQ finished the day down -2.28%. Energy (+3.96%) was the key outperformer on the other hand, followed by financials (+0.47%) as the only other sector that managed to finish the day higher. Those moves came as oil rebounded from Monday’s losses, with Brent crude (+2.24%) and WTI (+2.75%) both advancing. After the close we also got earnings from Microsoft, which beat analyst sales and earnings expectations. The stock was slightly higher in after-hours trading on the growth prospects of the company’s cloud computing services. Later today we’ll get Tesla’s earnings and Apple’s tomorrow.
Amidst the equity volatility, sovereign bonds were comparatively subdued again yesterday, with yields on 10yr Treasuries down a paltry -0.2bps to 1.77%. The yield curve managed to flatten, with the 2s10s slope down -4.8bps yesterday to 74.8bps, its lowest closing level in almost a month. This is one of a number of classic late-cycle indicators Jim mentions in the chartbook, and it’s worth noting that on average the 2s10s curve has flattened by around 80bps following the first year of a hiking cycle, so if the Fed does hike in March and the curve follows that historic playbook, we could be looking at an inversion within the next 12-18 months.
Overnight in Asia, equities are putting in a more mixed performance, with the Nikkei (-0.21%), the Kospi (-0.33%) and the Hang Seng (-0.14%) seeing modest falls, whilst the Shanghai Comp is up +0.14%. Futures are pointing to a more positive session in the US and Europe today however, with those on the S&P 50 (+0.20%) and the DAX (+0.49%) both moving higher.
Back in Europe, markets followed a very different playbook yesterday. Having not been open at the time of the late US recovery on Monday, European equities advanced across the board following their rout at the start of the week, and the STOXX 600 rose +0.71%. Meanwhile, with the ECB’s Governing Council not meeting until next week, sovereign bonds also diverged from the US, with yields on 10yr bunds (+2.7bps), OATs (+2.7bps) and gilts (+3.8bps) all moving higher on the day.
With tensions remaining high between Russia and the West over Ukraine, President Biden said in response to a question that the US would consider personal sanctions against President Putin in the event of a Russia invasion. Sanctions against heads of state are an extremely rare step, but the US and others have already threatened severe sanctions if an invasion took place.
On the data side, the Conference Board’s consumer confidence index for January fell a bit less than expected to 113.8 (vs. 112.2 expected). It came as the present situation reading rose to 148.2, but the expectations measure fell to 90.8. Separately in Germany, the Ifo’s business climate indicator in January rose to 95.7 (vs. 94.5 expected), marking the first increase in the indicator after a run of 6 consecutive monthly declines.
Finally, the IMF released their World Economic Outlook update yesterday, in which they downgraded their global growth forecast for 2022 to +4.4% (vs. +4.9% in October). That included cuts to the projections for both the advanced and emerging market economies, with the US and China among those seeing the biggest downgrades. Indeed, the US forecast for this year was cut to +4.0% (vs. +5.2% in October), and China’s was cut to +4.8% (vs. +5.6% in October). One marginal respite was that 2023 did see a modest upgrade, with global growth now projected at +3.8% (vs. +3.6% in October).
To the day ahead now, and the main highlight will be the aforementioned Federal Reserve decision and Chair Powell’s subsequent press conference, whilst there’s also a policy decision from the Bank of Canada. On the data side, we’ve got US new home sales for December, along with the preliminary December reading of wholesale inventories. Meanwhile earnings releases include Tesla, Abbott Laboratories, Intel, AT&T and Boeing.
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