Fed Accompli Fail: Powell Pontification Prompts Puke In Stocks & Bonds

Inflation is not 'going gently into that good night'.

Instead, as PPI confirmed today after CPI yesterday, it is 'burning and raging at the dying of the light' of the Biden/Harris days...

Source: Bloomberg

In fact - while he was more ambiguous at The Fed presser, Fed Chair Powell admitted in his remarks today that all is not completely awesome, as he warned The Fed is in "no hurry" to cut rates... and inflation's on a "bumpy path".

"If the data let's us go slower, it seems like the right thing to do..."

Powell's remarks sent rate-cut expectations notably lower - December less than 50-50 now...

Source: Bloomberg

Interestingly, minutes before Powell spoke, JPMorgan CEO Jamie Dimon dropped some tape-bombs of reality:

• *DIMON: THINK THE CHANCE OF SOFT LANDING LESS THAN OTHERS THINK

• *DIMON: "NOT SO OPTIMISTIC" THAT INFLATION WILL GO AWAY QUICKLY

• *DIMON: GROWTH IS BEST POLICY TO FIX DEFICIT PROBLEM

• *DIMON: TRUMP INHERITING INFLATION THAT MAY NOT GO AWAY QUICKLY

Goldman notes that the background remains bullish for stocks from CTAs / Buybacks / Seasonals:

• CTA: Update for Equities - buyers of S&P in all short-term scenarios as momentum remains firmly positive and realized vol has reset: flat tape: +$4.8mm to BUY (+$7.5bn SPX to BUY).

• Buybacks: We are reaching full open window. Back of envelope we estimate ~$6B/day in demand.

• Seasonality: The typical pattern is to rally into the Inauguration (1/20/2025) before topping out in February.

Source: Goldman Sachs

But, Goldman's trading desk notes that there is a lot of selling still:

• Overall activity levels are down -15% vs. the trailing 2 weeks with market volumes up +8% vs the 10dma

• Our floor tilts -3% better for sale with both HFs and LOs leaning that way

• HFs are -7% better for sale, moderating after an earlier sell skew closer to 10% (which ranked in the 95th %-ile).  They are heavily for sale in HCare & Industrials with very modest demand for Macro Products, REITs and Energy.

• LOs are -5% better for sale.  Tech supply stands out, on a net basis larger than Comm Svcs & Industrials supply combined.  LOs are better to buy across Cons Disc, REITs & HCare

Stocks were already sinking before Powell spoke, but his reality check punched them to the lows with Small Caps clubbed like a baby seal...

The 'Trump Trade' saw some profit-taking today...

Source: Bloomberg

'Most Shorted' stocks fell once again - erasing the entire post-election squeeze higher...

Source: Bloomberg

RIVN was monkeyhammered lower after headlines that the Trump team would remove the EV tax credit

Vaxx makers were all slammed as Trump RFK Jr headlines hit...

Treasury yields exploded higher on Powell's comments, led by the short-end...

Source: Bloomberg

That prompted a major flattening in the yield curve...

Source: Bloomberg

The dollar knee-jerked higher on Powell's comments

Source: Bloomberg

Gold ended the day unchanged, bouncing back back from continued overnight selling in Asia...

Source: Bloomberg

This pattern is similar to that seen in 2016's sweep...

Bitcoin ended the day marginally lower after Powell's comments (pushed down first by PPI), but found support around $88,000...

Source: Bloomberg

Crude prices also ended unchanged - seemingly running out of fuel for any breakout trades... for now...

Source: Bloomberg

Finally, does this chart - showing initial jobless claims (inverted) tumbling to six-month lows and inflation surprise data soaring - support any kind of rate-cutting cycle?

Source: Bloomberg

How pissed will Trump be if Powell's first action is actually to hike rates?

Tyler Durden Thu, 11/14/2024 - 16:00

A Plan To Tame Inflation

Authored by Jeffrey Tucker via The Epoch Times,

There is finally some chance for honesty now, after four years of gaslighting, especially when it comes to economic conditions. For all this time, we’ve heard nothing from official spokespeople, agencies, and the national media that inflation is cooling, calming, disappearing, improving, and you name the verb. It’s been anything but worsening, at least that’s what we’ve been told. 

We emerge from the miasma of these terrible years and what happens? The newest inflation data appears and it is still awful, even worse than before. All told, the U.S. dollar’s purchasing power is down in official data by 22 cents over four years. 

That’s what we are being told, and that’s terrible enough. The reality is likely worse once you add in interest rates, shrinkflation, new fees, and housing insurance. That gets us closer to 40 cents and more. 

Let us please let go of any doubts about the cause.

Elon Musk summarizes:

“The excess government spending is what causes inflation! ALL government spending is taxation. This is a very important concept to appreciate. It is either direct taxation, like income tax, or indirect via inflation due to increasing the money supply.”

It comes down to the machinery that prints money. Congress authorizes spending, the government mints the debt, and the Fed buys it with money that it creates out of thin air. The result is that all existing monetary units are reduced in value, same as when you mix juice with water. 

It’s not that complicated actually, especially when the new money is distributed in the form of direct stimulus payments to individuals and businesses. That’s exactly what happened. 

Where do we stand right now? There is some heavy risk of a second wave coming next year. On the current trajectory, that is where we are headed. The Fed has fed another $1.1 trillion in fake money into the system in the last 12 months. The Treasury has created new debt as never before, probably in hopes of ginning up the GDP prior to the election. The trick did not work but now the public is stuck with the bill of $35 trillion. 

Inflation is a wicked beast that cannot be controlled directly. On the campaign trail, Trump spoke often about how it was the throttling of the energy sector that kicked off inflation. That is only partially true in the sense that the soaring price of oil and gas grew the costs of transportation. It was also a symptom rather than a cause. Plus, the price of oil and gas is actually not high right now in real terms. 

Yes, the plan of “drill baby drill” is necessary and should happen but it cannot fix the existing problem of inflation much less do much to forestall a second wave. Nor is there a viable fix in the idea of price control, even when it is masked as “anti-gouging” legislation. 

There is nothing government can do to directly control prices, much less force them from going up given the deep structural problems. 

There are ways to mitigate against the problem, or at least minimizing them. You can have a look at how Javier Milei did it in Argentina. He took the problem of massive hyperinflation and converted it to low inflation in a year. His is a case study.

The answer is:

1. end debt creation by dramatic spending cuts,

2. curb the actions of the central bank,

3. and inspire economic growth through deregulation and agency elimination. 

That’s three steps.

Let’s consider each. 

First, the end of debt creation is essential.

Every time Congress authorizes more spending than is in the bank, the Treasury has to float debt to make it happen. That is the statutory obligation. What that means is that Congress needs to pass a balanced budget, ideally right away. 

That comes down to the commission created by Elon Musk: the Department of Government Efficiency or DOGE. It is not an official department. It works as an outside advisory team. That’s excellent. They will likely push for a “Twitter-style” solution of firing 4 in 5 government workers to reduce costs directly. 

That’s a start but it is not enough. There also must be sweeping elimination of agencies, each of which can save tens of billions and possibly a trillion or more in total. That needs to happen immediately. It can happen through executive order or through legislation. One way or another, the spending in excess of revenue has to stop. 

Trump is not famous for being a budget cutter. He cared nothing for the topic in his first term. He was vulnerable after March 2020 to believing that multiple trillions could be spent without consequence to keep the economy floating during lockdowns. That was an error. He will never admit to it. 

This time, however, he has a strong reason to dramatically cut the federal budget. This much he can know for sure: every dime cut from the federal budget is likely to end the flow of money to people who are working to undermine his administration. In saying that, I’m in no way promoting the politics of revenge but rather drawing attention to political realities. Balancing the budget has the side benefit of defunding the opposition. 

Second, if the Treasury stops the T-bill tsunami, the Fed will not be called upon to sponge up the excess with money creation.

You can look at the charts over the last year and see how the Biden/Harris administration was spending and working with the Fed to promote more economic illusion going into the election. That was the whole point of the rate cuts. That really must come to an end. 

There is a danger that comes with taking away the punch bowl. It could mean a panic by the bond market and a push by the media to announce the Trump Recession. 

This is why it is imperative that the Trump team move quickly to explain that right now, the economy is in much worse shape than has been advertised. The pit is very deep and it would be good to dial back expectations of a quick recovery. 

We don’t need a falling rate of money growth. We just need stability now. That’s not going to stop the wave of price increases for the next year but it can stop it from getting worse and end it completely by 2026. There is at this point zero need to worry about “deflation,” despite what the financial press will be screaming. Quite frankly, deflation at this point would be a gift to American consumers in any case.

Third, Trump needs to fire up the wealth-creation engine of the American economy through dramatic, sweeping, historic levels of regulation torching plus the shock and awe of full agency elimination, same as in Argentina.

The Trump team needs a list of 100 agencies to eliminate immediately but that should just be a start. Another 100 should be on the chopping block. Without all the regulatory clogging that they cause, investment will soar. 

Tax cuts–income and capital–will assist here too. The crucial point is the focus on boosting supply and jobs as a way of outrunning inflationary forces. Here again, the financial press will scream about the economy “overheating” but that metaphor is worn out. The effect of economic growth on inflation is exactly the opposite. Economic growth can bury the effects of price increases. 

There is not a lot of time, and it is a bargain that the Trump administration will surely lose if it does not act decisively and quickly. The debt creation and money creation must end and the economic growth through agency elimination and deregulation must become the top priority. All of this has the added advantage of making Trump more popular with the people who elected him. 

There is no incompatibility between political success and economic rationality. In this case, the incoming Trump administration is very fortunate: they go together. 

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times or ZeroHedge.

Tyler Durden Thu, 11/14/2024 - 15:45

Israel & US Ramp Up Airstrikes On Syria As 'Counter Iran' War Expands

Israeli attacks on Syria have become daily, and now the United States is ramping up its own attacks in the northeast of the country as well.

On Thursday Israeli warplanes launched attacks on two residential buildings in the Damascus suburbs - one in Mazzeh and the other in Qudsaya, which lies west of the capital. Regional reports said that many people were killed, and Syrian state SANA posted photos of bombed-out apartments.

Israeli Army Radio in a rare acknowledgement appeared to confirm the Israeli attack while claiming the fresh attacks targeted the Syrian headquarters the Palestinian Islamic Jihad (PIJ) group, which is fighting alongside Hamas in Gaza, and has held Israeli citizens captive since Oct.7, 2023.

Getty Images

Al Jazeera reports on the rising death toll as emergency crews comb through the rubble: 

At least 15 people have been killed and 16 injured in Israeli attacks on suburbs of the Syrian capital, according to a Syrian military source cited by the SANA news agency.

We have reported earlier that one building was hit in the suburb of Mazzeh and the other in Qudssaya, west of Damascus.

Israel had launched multiple airstrikes on Syria last week as well, and in the past weeks has even struck coastal targets near Tartus and Latakia - an area where Russian military forces are present.

Israel's air war against Syria is nothing new, but more rare these days are US air raids on Syria. This week has already seen at least two separate actions by CENTCOM forces which are supporting Kurds in the Deir Ezzor region:

US Central Command announced that its forces launched strikes in Syria for a second day on Tuesday against “Iranian-aligned” targets, referring to Shia militias that operate in the country.

CENTCOM said in a press release that its forces “conducted strikes against an Iranian-backed militia group’s weapons storage and logistics headquarters facility.” It said the strikes came after a “rocket attack on US personnel at Patrol Base Shaddadi,” referring to a US occupation base in eastern Syria.

One war monitor said that at least five members of the Iran-aligned militia were killed in the US airstrikes. These locations which come under US attack often include Syrian national militias, or even Syrian Army personnel.

Four other militants were killed the day prior, Monday, when CENTCOM said it hit "nine targets in two locations associated with Iranian groups in Syria."

The week kicked off with regional reports of explosions at US bases, likely the result of missiles or mortars being used to attack US troops. Such attacks by militias in the area have been somewhat a regular occurrence, but these instances don't always make headlines in the West.

⚡️Scenes from Damascus now pic.twitter.com/GhQOsaz4SB

— War Monitor (@WarMonitors) November 14, 2024

All of this is part of the broader proxy war between the pro-Iran 'resistance axis' and the US-Israel-Gulf powers. Currently there are still some 1,000 or more US troops occupying eastern Syria. Trump during his first term said he wanted to bring the troops home, and it's unclear if this will remain a priority during his second administration.

The longer the Pentagon stays, that more that US troops are put in harm's way - for little strategic purpose other than 'securing the oil' - as Trump has said before. But the Syrian Kurds could soon make their own peace deal with Damascus, making it easier to force out the American presence. Turkey has also long wanted to see the US go.

Tyler Durden Thu, 11/14/2024 - 15:25

FEC Chairman: Biden DOJ Broke Federal Policies With Letter Targeting Musk

Authored by Eric Lendrum via American Greatness,

On Wednesday, the chairman of the Federal Election Commission (FEC) admitted that the outgoing Biden-Harris Department of Justice (DOJ) violated federal policies and illegally targeted “perceived political opponents” by sending a threatening letter to Elon Musk.

According to the Washington Examiner, FEC Chairman Sean Cooksey sent a letter to DOJ Inspector General Michael Horowitz, saying that the letter to Musk concerning his efforts to encourage people to support freedom of speech constituted an attempt “to intimidate and chill private citizens and organizations from campaigning on behalf of President Trump.”

Cooksey also recommended that Horowitz, along with the DOJ’s Office of Professional Responsibility (OPR), open investigations into the incident and “hold accountable any individuals responsible for any violations of federal law or department policies.”

The letter in question was sent to Musk by the DOJ just weeks before the election on November 5th.

In it, DOJ officials warned Musk’s America PAC that the pledge to give away $1 million every day to a randomly-selected voter who signed the PAC’s petition in support of freedom of speech was allegedly a violation of federal law.

The letter also accused Musk of making “a mockery of democracy.”

Musk defended his PAC’s actions, pointing out that participants at the time did “not need to register as Republicans or vote in the Nov. 5 elections.”

“The underlying motivation behind this stunt is obvious,” said Cooksey in his scathing letter to the DOJ.

“Employees of President Biden’s Department of Justice wanted to stop an independent political committee from campaigning for President Trump in crucial swing states just prior to election day.”

Cooksey further accused the DOJ’s Public Integrity Section of deliberately leaking the Musk letter to the New York Times, which was a violation of the department’s media policies.

“Writing such a letter and then leaking it also violates the department’s long-standing policy against the identification of uncharged parties and the disclosure of prejudicial information,” Cooksey continued.

Elon Musk, the founder and owner of Tesla and SpaceX, as well as the owner of the social media platform X (formerly known as Twitter), is the wealthiest man in the world. He was previously a Democrat who supported politicians such as Barack Obama, but has shifted further to the right in recent years, due primarily to the Democrats’ increasingly radical stances, including support for censorship and transgenderism. Musk gave his official endorsement of President-elect Donald Trump’s 2024 campaign following the assassination attempt against him on July 13th.

President-elect Trump has since announced that Musk, alongside businessman and former presidential candidate Vivek Ramaswamy, will lead an entirely new federal agency called the Department of Government Efficiency (DOGE), with the purpose of significantly reducing the size of the federal government over the course of the next two years. The agency plans to complete its work by July 4th, 2026, which will be the 250th anniversary of the founding of the United States.

Tyler Durden Thu, 11/14/2024 - 15:05

Watch: Fed Chair Powell Warns "Bumpy Path" Ahead For Inflation, 'No Hurry' To Lower Rates

On a day when producer prices confirmed what consumer prices warned yesterday - that the inflation genie is not back in the bottle - Fed Chair Jay Powell will be interviewed by WaPo reporter Catherine Powell at the Dallas Fed, presumably to reassure the world that he is 'independent', is not about to be fired by Trump, and that everything is awesome on the rate-cutting path.

Traders should expect Powell to reiterate the points he made at the FOMC press conference last week when he refused to provide specific guidance regarding the December meeting, stressed data-dependency and noted the Fed does not want to see further cooling in the labor market.

While hope remains high for the 'soft landing' narrative, today we see inflation resurgent at the same as jobless claims hit six-month lows...

Does that look like 'data' that would prompt The Fed to cut again in December?

Or will Powell be Burns 2.0?

Interestingly, minutes before Powell is set to speak, JPMorgan CEO Jamie Dimon dropped some tape-bombs of reality:

• *DIMON: THINK THE CHANCE OF SOFT LANDING LESS THAN OTHERS THINK

• *DIMON: "NOT SO OPTIMISTIC" THAT INFLATION WILL GO AWAY QUICKLY

• *DIMON: GROWTH IS BEST POLICY TO FIX DEFICIT PROBLEM

• *DIMON: TRUMP INHERITING INFLATION THAT MAY NOT GO AWAY QUICKLY

Watch live (due to start at 1500ET)

Full prepared remarks below:

Good afternoon. Thank you to the World Affairs Council, the Federal Reserve Bank of Dallas, and the Dallas Regional Chamber for the kind invitation to be with you today. I will start with some brief comments on the economy and monetary policy.

Looking back, the U.S. economy has weathered a global pandemic and its aftermath and is now back to a good place. The economy has made significant progress toward our dual-mandate goals of maximum employment and stable prices. The labor market remains in solid condition. Inflation has eased substantially from its peak, and we believe it is on a sustainable path to our 2 percent goal. We are committed to maintaining our economy's strength by returning inflation to our goal while supporting maximum employment.

Recent Economic Data

Economic growth

The recent performance of our economy has been remarkably good, by far the best of any major economy in the world. Economic output grew by more than 3 percent last year and is expanding at a stout 2.5 percent rate so far this year. Growth in consumer spending has remained strong, supported by increases in disposable income and solid household balance sheets. Business investment in equipment and intangibles has accelerated over the past year. In contrast, activity in the housing sector has been weak.

Improving supply conditions have supported this strong performance of the economy. The labor force has expanded rapidly, and productivity has grown faster over the past five years than its pace in the two decades before the pandemic, increasing the productive capacity of the economy and allowing rapid economic growth without overheating.

The labor market

The labor market remains in solid condition, having cooled off from the significantly overheated conditions of a couple of years ago, and is now by many metrics back to more normal levels that are consistent with our employment mandate. The number of job openings is now just slightly above the number of unemployed Americans seeking work. The rate at which workers quit their jobs is below the pre-pandemic pace, after touching historic highs two years ago. Wages are still increasing, but at a more sustainable pace. Hiring has slowed from earlier in the year. The most recent jobs report for October reflected significant effects from hurricanes and labor strikes, making it difficult to get a clear signal. Finally, at 4.1 percent, the unemployment rate is notably higher than a year ago but has flattened out in recent months and remains historically low.

Inflation

The labor market has cooled to the point where it is no longer a source of significant inflationary pressures. This cooling and the substantial improvement in broader supply conditions have brought inflation down significantly over the past two years from its mid-2022 peak above 7 percent. Progress on inflation has been broad based. Estimates based on the consumer price index and other data released this week indicate that total PCE prices rose 2.3 percent over the 12 months ending in October and that, excluding the volatile food and energy categories, core PCE prices rose 2.8 percent. Core measures of goods and services inflation, excluding housing, fell rapidly over the past two years and have returned to rates closer to those consistent with our goals. We expect that these rates will continue to fluctuate in their recent ranges. We are watching carefully to be sure that they do, however, just as we are closely tracking the gradual decline in housing services inflation, which has yet to fully normalize. Inflation is running much closer to our 2 percent longer-run goal, but it is not there yet. We are committed to finishing the job. With labor market conditions in rough balance and inflation expectations well anchored, I expect inflation to continue to come down toward our 2 percent objective, albeit on a sometimes-bumpy path.

Monetary Policy

Given progress toward our inflation goal and the cooling of labor market conditions, last week my Federal Open Market Committee colleagues and I took another step in reducing the degree of policy restraint by lowering our policy interest rate 1/4 percentage point.

We are confident that with an appropriate recalibration of our policy stance, strength in the economy and the labor market can be maintained, with inflation moving sustainably down to 2 percent. We see the risks to achieving our employment and inflation goals as being roughly in balance, and we are attentive to the risks to both sides. We know that reducing policy restraint too quickly could hinder progress on inflation. At the same time, reducing policy restraint too slowly could unduly weaken economic activity and employment.

We are moving policy over time to a more neutral setting. But the path for getting there is not preset. In considering additional adjustments to the target range for the federal funds rate, we will carefully assess incoming data, the evolving outlook, and the balance of risks. The economy is not sending any signals that we need to be in a hurry to lower rates. The strength we are currently seeing in the economy gives us the ability to approach our decisions carefully. Ultimately, the path of the policy rate will depend on how the incoming data and the economic outlook evolve.

We remain resolute in our commitment to the dual mandate given to us by Congress: maximum employment and price stability. Our aim has been to return inflation to our objective without the kind of painful rise in unemployment that has often accompanied past efforts to bring down high inflation. That would be a highly desirable result for the communities, families, and businesses we serve. While the task is not complete, we have made a good deal of progress toward that outcome.

Thank you, and I look forward to our discussion.

Tyler Durden Thu, 11/14/2024 - 14:45

Insurance Mogul Greg Lindberg Pleads Guilty To $2 Billion Fraud, Money Laundering Scheme

Authored by Aldgra Fredly via The Epoch Times (emphasis ours),

Insurance mogul Greg Lindberg has pleaded guilty to conspiracy in a $2 billion fraud and money laundering scheme that defrauded thousands of insurance policyholders, according to the Department of Justice (DOJ).

The Department of Justice building in Washington on March 28, 2023. Madalina Vasiliu/The Epoch Times

Lindberg pleaded guilty on Nov. 12 to one count of conspiracy to commit offenses against the United States and one count of money laundering in a scheme to defraud insurance regulators and policyholders.

The 54-year-old Tampa resident faces a maximum penalty of 15 years in prison for the two counts, the DOJ said in a Nov. 12 statement. Lindberg is the founder of Eli Global LLC and owner of Global Bankers Insurance Group.

Prosecutors said that Lindberg conspired to defraud various insurance companies and policyholders through a web of companies based in North Carolina, Bermuda, Malta, and elsewhere between 2016 and 2019.

According to his indictment, Lindberg allegedly deceived the North Carolina Department of Insurance and other regulators and evaded regulatory requirements designed to protect insurance policyholders.

The insurance magnate was accused of using insurance company funds for his personal benefit by purchasing real estate and “forgiving” more than $125 million in loans from his affiliated companies to himself.

It stated that Lindberg and his co-conspirators engaged in “circular transactions” among his affiliated companies to invest more than $2 billion in loans and other securities and then laundered the scheme’s proceeds.

Prosecutors alleged that Lindberg provided false statements about his insurance business to regulators and obscured the real financial health of his companies. The scheme has led to some of his insurance companies being put into rehabilitation and liquidation, it stated.

“Thousands of policyholders suffered substantial financial hardship as a result of Lindberg’s fraud scheme, which left multiple companies in or on the brink of liquidation,” DOJ Principal Deputy Assistant Attorney General Nicole Argentieri said in a statement.

“The Justice Department will not hesitate to hold corporate executives accountable when they threaten critical sectors of the economy, like the insurance industry, to enrich themselves.”

The Epoch Times reached out to Lindberg’s attorney but did not hear back by publication time.

In May, a federal judge convicted Lindberg and his consultant, John Gray, of conspiracy to commit honest services wire fraud and bribery concerning programs receiving federal funds. They face a maximum penalty of 30 years in prison for the charges. A sentencing date has not been set.

Lindberg and Gray were accused of trying to offer $1.5 million to North Carolina Insurance Commissioner Mike Causey in campaign contributions in exchange for the removal of the North Carolina Department of Insurance’s senior deputy commissioner, who was responsible for overseeing the regulation of Lindberg’s company.

Tyler Durden Thu, 11/14/2024 - 14:25

Trump Team To Nuke EV Tax Credit As Musk's Price-War Endgame Looms

The final chapter of the electric vehicle price war, sparked by Tesla's Elon Musk, hinges on President-elect Donald Trump's plan to eliminate the $7,500 consumer tax credit. Sources with direct knowledge told Reuters that the Trump team has discussed ending the EV tax credit as part of broader tax reform legislation.

Sources indicated that Tesla - the largest EV automaker in the US and the only one not reliant on EV credits for survival - told the Trump transition committee that it fully supports the federal government ending the subsidy.

Here's more from Reuters:

Repealing the subsidy, which has been a signature measure of President Joe Biden's Inflation Reduction Act (IRA), is being discussed in meetings by an energy-policy transition team led by billionaire oilman Harold Hamm, founder of Continental Resources, and North Dakota Governor Doug Burgum, the two sources said.

The group has had several meetings since Trump's Nov. 5 election victory, including some at his Florida Mar-a-Lago club, where Tesla chief executive Elon Musk has also spent considerable time since the election.

In mid-July, Trump stated at a campaign rally that he would "end the Electric Vehicle Mandate on Day One — thereby saving the US auto industry from complete obliteration, and saving US customers thousands of dollars per car." 

On X, around that time, Musk explained to the Whole Mars Catalog why repealing the tax credit would only benefit Tesla: 

Take away the subsidies. It will only help Tesla.

Also, remove subsidies from all industries!

— Elon Musk (@elonmusk) July 16, 2024

In October, the Alliance for Automotive Innovation, a trade group representing all automotive brands besides Tesla, penned a letter expressing to lawmakers in Congress how crucial the EV tax credit is in "cementing the US as a global leader in the future of automotive technology and manufacturing." 

In the markets, Rivian shares tumbled by 10% in the early afternoon, while Tesla shares fell by 3.5%.

We knew the playbook in July. Here it is again: "Musk's strategy to win the EV price war: Build the largest EV business with taxpayer dollars, popularize EVs, allow other startups and OEMs to enter the market, and then support politicians who want to end EV subsidies, crushing the competition and leaving Tesla reigning supreme." 

Tyler Durden Thu, 11/14/2024 - 13:20

Israel Said Seeking Lebanon Ceasefire By January As 'Gift' To Trump

It is no secret that Israeli leaders are overjoyed both at Donald Trump winning the US Presidency, and especially many of his very pro-Israel picks for foreign policy related positions in his administration. On Wednesday night The Washington Post issued an usual headline which says Israel is seeking to forge a Lebanon ceasefire plan as a "gift" the Trump.

"There is an understanding that Israel would gift something to Trump… that in January there will be an understanding about Lebanon," an unnamed Israeli official told the Post.

"A close aide to Prime Minister Benjamin Netanyahu told Donald Trump and Jared Kushner this week that Israel is rushing to advance a cease-fire deal in Lebanon, according to three current and former Israeli officials briefed on the meeting, with the aim of delivering an early foreign policy win to the president-elect," the report details.

Via Reuters

US special envoy for Lebanon Amos Hochstein has this week said "there is a shot" of securing a ceasefire deal in Lebanon soon. Axios wrote that "It would be a major achievement for Biden in his final months in office."

But clearly the Israelis are making it be known that they would rather deal with Trump in matters of war and peace in the region. Thus it's expected that the war raging in south Lebanon will at least go on into January.

Like with Ukraine, Trump is pledging to quickly bring to an end wars which have Washington involvement; however, in a phone call last month he told PM Netanyahu to “do what you have to do” against Hezbollah and Hamas.

One career US diplomat in the Middle East region was cited in WaPo as saying "Netanyahu has no loyalty to Biden and will be focused entirely on currying favor with Trump."

Starting days ago Israel began making contacts with the Trump transition team. On Sunday Israeli Strategic Affairs Minister Ron Dermer met with Trump at Mar-a-Lago resort. Dermer and Trump reportedly discussed Israel's plans for Gaza, Lebanon, and Iran over the course of the coming months. The Israelis notified the White House about the meeting in Florida.

A US-backed ceasefire plan currently being discussed would heavily rely on UN peacekeeping forces and Lebanese army soldiers deploying near the Israeli border to ensure Hezbollah doesn't move back in once the Israeli army departs.

"The ceasefire proposal begins with a 60-day implementation period, during which time the Lebanese army will deploy along the border and confiscate Hezbollah arms in southern Lebanon," Times of Israel described in late October.

Imagine if this had happened in a residential area of any major capital; the media would be in an uproar. Yet, when it occurs in Lebanon, we are met with silence.

Israeli Airstrikes an hour ago on Chiyah area, Beirut Suburbs. pic.twitter.com/HN3PtsQJpI

— Marwa Osman || مروة عثمان (@Marwa__Osman) November 13, 2024

"The IDF will be required to pull all troops from Lebanon within seven days of the end of hostilities, and will be replaced by the Lebanese Armed Forces (LAF)," the report added. UN peacekeeping troops will reportedly facilitate the transition, and some 10,000 Lebanese national army troops. This plan is being negotiated by Biden administration officials, but time is running out.

In the meantime Israel's airstrikes on positions in the south, Beirut, and even in the northeast have continued. They've even expanded, with the Bekaa Valley getting pounded and other parts of easter Lebanon getting hit. Israel has also kept up its ground offensive, and both sides have sustained losses.

Tyler Durden Thu, 11/14/2024 - 13:00

Europe Will Draw The Short Straw In The Next Trade War

By Elwin de Groot, head of macro strategy

The Short Straw?

That Europe will probably draw the short straw in a scenario of rising protectionism and potential trade tensions with the US has been a key theme in markets since Trump’s smashing victory. Overnight, the Associated Press has called a House majority for the Republicans, which only further supports the view that this will give the incoming Trump team the confidence to make swift and broad-ranging policy changes from day one. So swift that it could overwhelm its European partners, especially since they are distracted at home.

Since mid-September, when Trump’s star started to climb in earnest, the interest rate differential between the US and Europe has widened considerably and the euro-dollar has lost some 6% of its value (offsetting the impact of a 6% US import tariff on European goods, by the way).

What seems fairly obvious is that the US will use tariffs (and maybe other policies) to attract more business to the US and will pressure allies to redirect supply chains from China. Although many businesses, sectors or states may wish not to take sides, the US’s ability to apply statecraft pressure makes this unrealistic. Compared to Europe, China is more likely to retaliate in a tit-for-that fashion (as it has already reduced its price-sensitive imports from the US, replacing them with imports from, for example, Brazil).

China could –if really pressed– also unleash domestic demand stimulus, as it is not bound by a “Growth and Stability Pact” straightjacket.

Europe’s position, on the other hand, is much more fragile.

If the US opts to raise significant additional tariffs on Chinese goods, European exporters may partly benefit from substitution (assuming that US producers cannot make up for the entire gap between demand and imports from China that arises). But a universal tariff could be a serious headache for Europe as tit-for-tat is much more complicated. First and foremost because Europe would shoot itself in the foot (think of LNG imports from the US). At best Europe will be able retaliate partially, selectively and with some delay. It may also hope to enter negotiations that will lead to reduced tariffs or avoiding them altogether (think of large purchases of LNG, defence goods, etc.). Given that Trump has a knack for making deals this is not a completely unrealistic scenario either.

But is Europe truly in a position to negotiate? French president Macron is a lame duck with a coalition that depends on support from the extreme right, and Germany is facing elections in February. This could be fertile soil for a negative feedback loop. It could accelerate decisions in board rooms to either cut back on staff (following large-scale labor hoarding) or accelerate plans to move (uncompetitive) production out of the Eurozone. Bundesbank President Nagel yesterday warned that the implementation of Trump’s tariff plans could cost Germany 1% of economic output, suggesting that German growth could even slip into negative territory next year.

Germany’s export-driven model is ill-equipped to deal with rising protectionism. This week, the German IG Metall union reached a 25-month deal with employers in the electrotechnical sector. A one-time €600 payment, a 2% pay rise from April 2025 onwards, and another 3.1% from April 2026 plus increases in sector performance surcharges are – according to our estimates – worth some 5.5 to 6%. This is a smaller increase than in the previous 2-year wage deal, but it is still more consistent with a gradual slowdown in wage growth rather than a fast one. And whilst it provides clarity and stability and may support a consumer recovery (since it is above the projected inflation rate) it will not take away any concerns about competitiveness.

The pessimism isn’t hard to grasp, but it is perhaps also the kind of sentiment that is necessary to get things moving. For one, the German elections open up the possibility for a renewed freeze or reform of the constitutional debt brake. Yesterday, Chancellor Scholz pleaded for additional measures to boost the economy. The government’s advisors, who slashed their growth forecast for 2025 to 0.4% from 1.1% previously, are also urging the government to durably increase public spending in infrastructure, defense and education. But even the CDU’s Merz, who may well be the future Chancellor, told Süddeutsche Zeitung that he is open to a reform of the strict borrowing rules, as long as additional debt is used to finance investment and not consumption or social spending. It’s just an opening shot, but it does suggest there is some sense of urgency even among some of the staunchest budget hawks.

Ultimately, European joint debt issuance and/or a freezing of the freshly-revamped EU budget rules may be required to unlock the required funds to finance Europe’s ambition to regain strategic autonomy. However, this looks politically unfeasible in the near term. Therefore, the EU has already started to look at other resources. The FT reported Tuesday that cohesion funds may be used to fund investments in military infrastructure and defence industries under certain conditions. These cohesion funds amount to 30% of the EU budget, or €392 billion. However, so far, only some 5% of the budget for the period 2021-2027 has been spent, suggesting that Member States have struggled to find good purposes for these funds. So, this is potentially a significant funding source for one of the key pillars of the strategic agenda.

It’s easy to succumb to pessimism over Europe, and we certainly agree that some very challenging years lie ahead. But this time, Europe is not completely unprepared. The Commission has a host of tools that allows them to respond to trade tensions relatively quickly. And the Draghi and Letta reports offer a host of concrete ideas to act purposefully. In the past few days we have perhaps seen a first glimpse of the age-old adage that Europe needs a crisis to grow stronger.

Briefly returning to the US, inflation for October was fully in line with expectations. The headline inflation rate rebounded to 2.6% y/y from 2.4% in September, albeit largely due to base effects. Core inflation remains sticky at 3.3% with a slightly elevated month-on-month rate of 0.3% for several months. Services less rent of shelter rebounded to 4.5% from 4.4%; it slowed down a little in month-on-month terms but remains elevated at 0.4%. This mixed picture served both hawks and doves. Minneapolis Fed’s Kashkari took the data as “headed in the right direction” and consistent with the “easing path” that the Fed is on, whilst Dallas Fed’s Logan called for caution in the cutting pace. The market took the CPI report as a sign that a December cut is very much in play, with the likelihood rising to 68% from less than 50% the other day. The relatively strong market reaction to the “in-line” figures indicates that markets have been dominated by Trump news flow: a figure just north of consensus would have forced the Fed to weigh future risks to inflation – stemming from tariffs and tax cuts – in its near-term deliberations).

Tyler Durden Thu, 11/14/2024 - 12:40

WTI Dips After Crude Inventories Build To Highest In 3 Months

Oil price are trading higher this morning after treading water for two days (lower than pre-election) following API's report of a (unexpected) small crude inventory draw and despite a strong dollar.

However, the IEA on Thursday warned that the oil market faces a surplus of more than 1 million barrels a day next year, which could swell further if OPEC+ decides to press ahead with supply hikes.

"World oil supply is rising at a healthy clip. Following the early November US elections, we continue to expect the United States to lead non-OPEC+ supply growth of 1.5 mb/d in both 2024 and 2025, along with higher output from Canada, Guyana and Argentina," the report noted.

" ... Total growth from the five American producers will more than cover expected demand growth in 2024 and 2025 ... Our current balances suggest that even if the OPEC+ cuts remain in place, global supply exceeds demand by more than 1 mb/d next year."

In its Short-Term Energy Outlook released Wednesday the Energy Information Administration also predicted supply will exceed demand beginning in the second quarter of next year.

API

• Crude -800k

• Cushing -1.9mm

• Gasoline +300k

• Distillates  +1.1mm

DOE

• Crude +2.09mm

• Cushing -688k

• Gasoline -4.41mm

• Distillates -1.39mm

US Crude stocks unexpectedly rose last week according to the official DOE data (as opposed to the small draw reported by API). Product inventories tumbled though (as did stocks at the Cushing hub)...

Source: Bloomberg

Total US crude stocks are back at their highest since early August...

Source: Bloomberg

The Biden admin added 567k barrels to the SPR last week...

Source: Bloomberg

US Crude production dipped from record highs...

Source: Bloomberg

WTI was trading around $69 ahead of the official print.

“The coming weeks will be critical in shaping the near-term outlook for the oil market,” said Ole Hvalbye, an analyst at SEB AB. “The continued strength of the US dollar is exerting downward pressure on commodities overall, while ongoing concerns about demand growth are weighing on the outlook for crude.”

Tyler Durden Thu, 11/14/2024 - 11:08

Advance Auto Cuts Outlook, Prepares 700-Store Closure 

Advance Auto Parts reported a third-quarter loss, slashed its full-year outlook, and announced plans to close stores and distribution centers by summer 2025. The top automotive aftermarket parts provider for professionals and do-it-yourself consumers was pressured by soft demand for vehicle parts, as elevated inflation and broader economic pressures left fewer consumers repairing their vehicles. 

For the third quarter ending October 5, Advance Auto reported a narrowed quarterly loss of $6 million, or 10 cents per share, compared to $62 million, or $1.04 per share, in the same quarter one year ago. Analysts tracked by FactSet had forecast a profit of 49 cents per share for the quarter, making the loss a notable surprise.

Sales fell 3% to $2.15 billion, missing the FactSet consensus of $2.62 billion. Comparable sales slid 2.3%, while higher labor costs dented margins, but only partially offset by a reduction in marketing expenses. 

For the balance of 2024, Advance Auto provided investors with a downshift in guidance and now sees comparable sales -1%, versus the previous guidance of -1% to 0%. 

Advance Auto's board approved a restructuring plan to reduce its US footprint by 700 stores and four distribution centers by mid-2025. Plans to slash jobs were also in place, yet official figures were not given. Th company has about 5,000 stores nationwide.

"We are pleased to have made progress on our strategic actions, including the completion of the sale of Worldpac and a comprehensive operational productivity review of our business," Shane O'Kelly, president and chief executive officer, wrote in a statement. 

O'Kelly noted, "We are charting a clear path forward and introducing a new three-year financial plan, with a focus on executing core retail fundamentals to improve the productivity of all our assets and to create shareholder value."

Shares in New York were marginally lower in premarket trading. The company has lost 33% of its market value year-to-date (as of Wednesday's close). Three years of steep annual losses. 

Shares are trading at 15-year lows. 

Goldman's Kate McShane remains "Neutral" on Advanced Auto with a 12-month price target of $60. 

Meanwhile, inflationary headwinds and increasing competition from Chinese automakers have crushed the Western auto industry. 

Part suppliers such as BorgWarner and Aptiv have recently slashed annual sales forecasts due to lower vehicle production and consumers dialing back on spending. 

The takeaway appears to be consumers are opting out of repairing their cars. This comes as subprime consumers hit a proverbial brick wall. 

Tyler Durden Thu, 11/14/2024 - 10:45

Initial Jobless Claims Drop To The Lowest In 6 Months

At the exact same time that the latest PPI print came in well hotter than expected, Biden's outgoing Dept of Labor came out revealed even more hawkish data, reporting that as the impacts of the hurricanes has largely worn off, initial jobless claims dropped last week to 217k (from 221k) - below the 220K consensus estimate - and the lowest since May.

For the second week in a row, the biggest increase in claims was in California which was not only the outlier state this month, but its claims were estimated by the DOL. On the other end, the number of initial claims dropped the most in Florida and Georgia.

In fact, both North Carolina (Helene) and Florida (Milton) have seen claims revert to pre-Hurricane norms...

Continuing claims also fell from a downward revised 1884K (vs 1892K pre revision) to 1873K, but still holding near the highest since Dec 2022.

What is also notable is that as BBG's Michael McDonough notes, "job cut" discussions are not meaningfully increasing in S&P earnings calls:

So PPI hot, and jobless claims at a fresh six month low - not the kind of data that The Fed doves want to see to justify another rate-cut... although now that Trump is in the White House, we are confident the Fed will have far fewer scruples about calling it a "Fed Accompli" (sic) and ending its easing cycle after 2 rate cuts.

Tyler Durden Thu, 11/14/2024 - 09:16

Waste Of The Day: DOE Paid For Useless Asbestos Training

Authored by Jeremy Portnoy via RealClearInvestigations,

Topline: The Department of Energy spent $153,616 to train employees in asbestos safety between 2015 and 2022. But the company providing the classes was never certified by the Environmental Protection Agency, meaning most of the training must be redone at a cost of $93,175, per a new inspector general report.

Key facts: The DOE pays the Battelle Energy Alliance to run the Idaho National Laboratory, known for its research on nuclear energy. Asbestos professionals at the lab must be trained according to strict guidelines laid out in a 1990 federal law, as is the case for every public building.

Battelle Energy Alliance has paid its subcontractor, D&D Environmental Consulting, for 8,000 hours of asbestos training for 236 employees since 2007. Last year, a whistleblower told the DOE inspector general that D&D’s accreditation from the EPA had expired in 2015.

It took Battelle Energy Alliance until 2022 to check if the teachers were certified, according to the audit. Battelle then hired a new, accredited company to give its employees a “refresher” on asbestos safety, even though federal law requires that the training start over from scratch.

Since then, asbestos professionals have completed 243 construction projects at the lab despite never being fully trained by an accredited professional, auditors found.

Now, the 147 asbestos specialists currently on the staff must be retrained, which auditors said will take 3,776 hours.

Background: The DOE’s Idaho Operations Office is responsible for monitoring all contract performance at the Idaho National Laboratory. The office is run by Manager Lance Lacroix, who earned a salary of $189,000 last year, according to OpenTheBooks.com.

The laboratory racked up $1.82 billion in operating costs last year while employing over 6,000 full-time equivalents.

Search all federal, state and local government salaries and vendor spending with the AI search bot, Benjamin, at OpenTheBooks.com. 

Summary: If the federal government is going to spend 8,000 hours on training, it better get it right the first time around.

The #WasteOfTheDay is brought to you by the forensic auditors at OpenTheBooks.com

Tyler Durden Thu, 11/14/2024 - 09:15

PPI Unexpectedly Prints Hotter Than Expected Across The Board

After yesterday's in line - but really cooler than whispered - CPI which restored hope in a December rate cut, all eyes are on this morning's PPI print to boost dovish hopes that the Fed's easing cycle would remain on track. It was not meant to be, however, as the PPI came in hotter than expected across the board on both a monthly and annual basis.

Starting at the top, headline PPI rose 0.2% MoM (in line with the +0.2% expected) but September was revised higher from 0.0% to 0.1%; meanwhile on an annual basis, headline PPI rose 2.4%, higher than the 2.3% expected, with the last month also revised higher from 1.8% to 1.9%.

Unlike last month when a drop in energy prices weighed heavily on the headline PPI number, this month energy subtracted just 0.02% from the final print, the lowest detraction since July. Meanwhile, Services added a hefty 0.179% to the bottom line number.

Indeed, according to the BLS, most of the rise in final demand prices can be traced to a 0.% advance in the index for final demand services. Prices for final demand goods inched up 0.1%, the first increase in the index since July.

Taking a closer look at the components:

Final demand services: The index for final demand services increased 0.3 percent in October after rising 0.2 percent in September. Over three-fourths of the broad-based advance in October is attributable to prices for final demand services less trade, transportation, and warehousing, which moved up 0.3 percent. The indexes for final demand transportation and warehousing services and for final demand trade services also increased, 0.5 percent and 0.1 percent, respectively. (Trade indexes measure changes in margins received by wholesalers and retailers.)

Product detail:

• Over one-third of the rise in the index for final demand services can be traced to prices for portfolio management, which advanced 3.6 percent. The indexes for machinery and vehicle wholesaling; airline passenger services; computer hardware, software, and supplies retailing; outpatient care (partial); and cable and satellite subscriber services also moved higher.
• In contrast, margins for apparel, footwear, and accessories retailing fell 3.7 percent. Prices for securities brokerage, dealing, investment advice, and related services and for truck transportation of freight also declined.

Final demand goods: The index for final demand goods inched up 0.1 percent in October following two consecutive decreases. The advance can be traced to a 0.3-percent rise in prices for final demand goods less foods and energy. Conversely, the indexes for final demand energy and for final demand foods declined 0.3 percent and 0.2 percent, respectively.

Product detail:

• An 8.4-percent increase in the index for carbon steel scrap was a major factor in the advance in prices for final demand goods. The indexes for meats, diesel fuel, fresh and dry vegetables, and oilseeds also moved higher.
• In contrast, prices for liquefied petroleum gas fell 18.1 percent. The indexes for chicken eggs, processed poultry, and ethanol also decreased.

Even more problematic for the doves, however, is that core PPI jumped to +3.1% YoY (hotter than the 3.0% exp) with the prior month revised higher to 2.9% from 2.8%. This was the second hottest print going back to March 2023 with just the June outlier surge hotter than October...

... as sticky Services costs continue to rise.

The hotter than expected PPIs have pushed yields and the dollar higher, even as the market waits to see the details of what impact today's numbers will have on the Fed's preferred core PCE metric - according to UBS key PPI components to PCE look hot - although Bloomberg noted a big jump in air passenger services (3.2%), which suggests some upside risks (i.e., 0.3% core PCE).

The most notable takeaway from the data appears to be the increase in final demand for services in October, which is similar to the factors that increased CPI yesterday -- shelter, food and energy, which are components the Fed cannot control with interest rates.

Bottom line: this is a long way from the Fed's mandated 2%, and it's moving in the wrong direction, something which has not been lost on the market, where Treasury curves are flattening after the data, which suggests traders are wavering over the prospects of a December rate cut. That has yet to be reflected in rates markets -- bets have been trimmed but marginally, not enough to really change the swaps market outlook as of now. According to BBG's Vince Cignarella, sizeable block trades are going through Treasuries, mostly in the five-year tenor and some ten-year tenors, which looks like positioning for higher yields and flatter curves.

Tyler Durden Thu, 11/14/2024 - 08:49

Federal Judge Reverses Retirement Plan So Trump Can't Fill Seat

Authored by Zachary Stieber via The Epoch Times (emphasis ours),

U.S. District Judge Algenon Marbley will remain an active judge, he has informed the White House, reversing earlier plans to retire.

Marbley informed the White House of the reversal following President-elect Donald Trump’s win, the judge’s chambers confirmed to The Epoch Times.

U.S. District Judge Judge Algenon L. Marbley, left, and President-elect Donald Trump, right. U.S. District Court for the Southern District of Ohio; The Epoch Times

Marbley, who was appointed under President Bill Clinton, said in October 2023 that he would move to senior status once President Joe Biden picked his successor.

Judges with senior status can still hear cases but typically have a lower workload. The status is known as semi-retirement. When judges move to senior status, the president nominates a successor, who will go on active duty.

Biden never nominated a successor.

“A successor has not been confirmed, and I have therefore decided to remain on active status and carry out the full duties and obligations of the office,” Marbley told the White House in a letter after Trump’s win, news outlets reported.

Senior status can be taken by judges who are 65 years of age or older and have served at least 15 years on the bench. There is no mandatory retirement age for federal judges, and they are not required to take senior status.

Beginning in the Bush administration in 2001, the majority of judges retiring during a presidential term were appointed by the same party as the sitting president, research has found. In the first two years of the Biden administration, 65 percent of the judges taking senior status were appointed by Democrats.

“Non-political alternative explanations—such as judicial capacity and caseloads, the financial benefits of going senior, and the presence of cross-party appointments—simply cannot sufficiently explain recent trends,” Northwestern Pritzker School of Law professor Xiao Wang, who conducted the research said.

The move by Marbley, who was sworn in on Nov. 10, 1997, means there will be no vacancies for Trump to fill at the U.S. District Court for the Southern District of Ohio.

Four of the eight judges on the court were nominated by Trump in his first term. One was nominated by Biden.

Two-hundred and thirty-eight of Trump’s judicial nominees received confirmation in his four years in office, including 174 U.S. District Court judges.

The Senate has confirmed 213 judges nominated by Biden, with several months left in his term.

There are currently 47 vacancies on the federal bench, with 17 Biden nominees pending confirmation.

In addition to Marbley, 19 other judges have said they will move to senior status or fully retire pending a successor being confirmed.

Tyler Durden Thu, 11/14/2024 - 08:40

Futures, Dollar Gain Ahead Of PPI, Powell

US equity futures have reversed the weakness of the prior two days and are higher, led by small caps as bond yields stabilize after the recent rout sent the 10Y yield to 4.45%. As of 8:00am ET, S&P and Nasdaq futures are up 0.1%, as investors wait to see if upcoming price data and a speech from Jerome Powell will boost expectations for a December interest-rate cut. Mag7 stocks mixed, but Semis have caught a bid after falling 6.3% over the last four sessions: as JPM puts it the pair trade of long Software vs. short Semis is +14.5% over the last 5 sessions. Treasury yields ticked lower, after Wednesday’s CPI data kept alive the hope of a December rate cut; however, Trump trades keep on trucking and the dollar index extended its rally on track for its 7th consecutive weekly gain and the strongest gain since April 2022 while Bitcoin traded at about $91,000, holding close to Wednesday’s record high. Commodities are lower but WTI is flat despite an IEA report of a more than 1 million barrel oversupply in 2025, driven by weaker Chinese demand. Today’s macro focus is on Jobless data and PPI, the latter to seek confirmation of CPI trends from yesterday. There are four Fed speakers today, including Jerome Powell himself.

In premarket trading, Cisco Systems fell after the networking company firm gave a conservative outlook, while Nu Holdings dropped after the fintech company reported third-quarter net interest income that missed consensus estimates. Disney jumped more than 10% after posting fiscal fourth-quarter sales and profit that beat Wall Street estimates and forecast earnings growth for the next three years. Here are some of the biggest US movers before the opening bell:

• Advance Auto (AAP) drops 7% after posting net sales for the quarter that missed the average analyst estimate. The company plans to close about 500 stores.
• Beazer Homes (BZH) jumps 5% after the homebuilder reported quarterly revenue that beat the average analyst estimate.
• Capri Holdings (CPRI) falls 5% and Tapestry (TPR) gains 6% after the pair ended an $8.5 billion plan to merge following a US court order freezing the deal due to antitrust regulators’ objections.
• CNH Industrial (CNH) rises 4% after David Einhorn revealed a new position in the farm equipment company.
• Harrow (HROW) sinks 21% after the eye-care pharmaceutical company reported revenue and core earnings for the third quarter that disappointed.
• Ibotta (IBTA) drops 22% after the cash-back mobile app company provided a fourth-quarter outlook that trails analyst estimates.
• Sonos (SONO) rises 5% as the home speaker company reported a largely in-line quarter as it navigates through the customer backlash over its recent app update.
• Zeta (ZETA) rises 9% after the software company announced a $100 million share buyback, setting the stock up for a rebound from two days of heavy losses following a short call.

Investors are trying to balance a picture of easing inflation and falling rates against the possibility that President-elect Donald Trump will implement hardline pledges on taxes and tariffs, reigniting price growth next year. Confirmation of a Republican election clean sweep suggests more policy leeway for Trump and limits potential curbs on his power.

"We are seeing that there is a bit more discrimination between Trump trades,” said Amelie Derambure, senior multi-asset portfolio manager at Amundi. “There is expectation that Trump’s policies will be market friendly, growth friendly, will be impacting higher inflation but not massively, deregulation is going to be good for some sectors,” she said. “The assumption is we have good, soft Trump with no big negative impact priced by markets."

Traders’ eyes will now be on US PPI data which is expected to show headline and core producer prices rose year-over-year in October. Fed chief Jerome Powell is also due to speak later in the day.

European stocks reversed the recent rout as the Estoxx 50 advanced 1.4% over the early London session, supporting S&P futures. German industrial giant Siemens was the most significant outperformer, rising to a record high after a reassuring earnings print. France’s Alstom made a similar move, rallying on strong results. Among the biggest laggards, Merck KGaA slipped on weak sales and Stadler Rail plunged on a profit warning. Communication services and tech sectors lead gains after a pair of bullish outlooks from chip-equipment maker ASML Holding NV and German industrial giant Siemens AG, lifted the Stoxx 600 index by about 0.8% while the German DAX outperforms with a 1.2% gain. Here are the biggest movers Thursday:

• Siemens shares jump as much as 9%, hitting a record high, as analysts laud the German industrial group’s strong 4Q report, calling it a solid print amid macroeconomic challenges
• Burberry gains as much as 16% after the luxury-goods maker’s retail comparable sales for the first half surpassed expectations, with analysts particularly positive on the new CEO’s strategy
• Monte Paschi rises as much as 15% after Italy sold a 15% stake to investors including rival Banco BPM, Anima; Banco BPM meanwhile rises as much as 3.9% after buying a stake in Monte Paschi
• ALK-Abello gains as much as 8%, the most since August, after the Danish allergy drugmaker reported forecast-beating 3Q earnings, driven by solid tablet sales growth in the European market
• Alstom rallies as much as 8.1%, the most since May, with analysts viewing its results as a small beat and Citi highlighting probable relief after nervousness among investors ahead of the print
• Embracer shares rise as much as 12% as the Swedish gaming company’s plan to sell its Easybrain unit for $1.2 billion allowed analysts to look past its weak results and guidance
• 3i Group advances as much as 5.1%, the most in almost eight months, following the UK-listed private equity group’s first-half results. Analysts note the strong performance by Action division
• Stadler Rail plummets as much as 16%, the most on record and hitting a new low, after issuing a profit warning following a series of natural disasters, including floods in Valencia
• Merck KGaA shares slip as much as 2.4% to the lowest since July 19 after the German company reported third-quarter sales and earnings for the electronics business that missed estimates
• Shares in precious metals mining companies slid to two-month lows as a rallying dollar knocked gold prices lower for the fifth straight day, with bullion falling 1.2% in morning trading in Europe
• SMA Solar shares fall as much as 21% to their lowest in almost 10 years after the German renewable energy equipment manufacturer lowered its FY24 revenue and Ebitda guidance
• Capita shares drop as much as 7.8% after the outsourcing specialist was downgraded at Shore Capital. The broker sees Capita taking a hit from changes to national insurance contributions in the UK
• Swiss Re falls as much as 2.2% after the Swiss insurance group reported nine-month figures that were overall in line with pre-announced figures. The company’s Life & Health arm was a key disappointment

There was no bounce in Asia, where stock fell again, extending losses to the fifth straight session, as they were weighed by selling in Chinese shares and the region’s tech companies. The MSCI Asia Pacific index declined as much as 0.8%, with Chinese internet companies Alibaba Group and Meituan among the biggest laggards. A gauge of Chinese technology companies in Hong Kong lost more than 20% from its recent high. Chipmakers in the region also slipped, led by South Korea-based SK Hynix. Shares closed lower in mainland China and Hong Kong, where the market was open despite typhoon warnings. Investors are still watching for further measures from Chinese authorities to boost the world’s second largest economy, while monitoring President-elect Donald Trump’s cabinet appointments. In its latest steps, Beijing moved to cut taxes for homebuyers and developers. Stock benchmarks also dropped in Taiwan and Japan. Risk sentiment in the region took a hit as the dollar and US Treasury yields edged higher in Asian trading. Tencent Holdings’ shares fell 0.1% despite a 47% surge in quarterly profit and describing tentative signs of a Chinese economic bounce-back. Among other key China tech results, Meituan and JD.com are due to report later Thursday. Later this week, traders will also watch for Alibaba’s earnings, as well as Japan’s GDP figures and China’s retail sales.

Meanwhile, in FX the likelihood of so-called America-First policies has boosted the dollar more than 2% so far this month. Its gains are weighing on a raft of assets, sending gold prices near two-month lows and pushing the yen to the weakest since July, close to levels when Japanese authorities last intervened to prop up the currency. The dollar extended its rally versus major peers, follows confirmation of a Republican election sweep. Bloomberg Dollar Spot Index is up for a fifth day, 0.3% higher into early US session. The euro dropped as much as 0.5% to touch the lowest in more than a year, while MSCI’s index for emerging market currencies fell for a fifth day. USD/JPY was back above 156.

Analysts at BBH said that with Trump likely to have the wherewithal to carry out his agenda, the scope for rate cuts could be limited going forward. “Market pricing for the Fed has already adjusted, which is giving the dollar a huge lift,” they wrote, advising that “investors should continue to lean into dollar strength.”

Currently, money markets price around 19 basis points of rate cuts for December and several policymakers have urged a cautious approach. Fed Governor Adriana Kugler, for instance, said on Thursday that rate cuts should be paused if progress on inflation stalls.

In rates, treasuries are marginally richer across the curve with futures pushing higher into the early US session, unwinding losses seen at the start of Asia. The curve has held Wednesday’s sharp steepening move, which saw the biggest one-day widening move in the 5s30s spread so far this year. Treasury yields are slightly lower on the day across the curve, although remain within a couple of basis points of Wednesday’s close, while spreads broadly trade within one basis point of prior day. US 10-year yields trade around 4.44%, with bunds outperforming by 1.5bp and gilts slightly lagging in the sectoras traders added to their ECB interest-rate cut bets, boosting shorter-dated German bonds. German two-year yields fall 3 bps to 2.14%. US data includes PPI and weekly jobless claims.

In commodities, oil prices are steady, with WTI near $68.40 a barrel after the IEA said markets face a surplus of more than 1 million barrels a day next year. Spot gold falls another $26 to $2,546/oz. Bitcoin rises 3% and above $91,000.

On today's calendar, the main event will be a speech by Fed Chair Powell on the economic outlook. A text release at 3pm New York and a Q&A session is expected. US economic data calendar includes October PPI and initial jobless claims (8:30am). Fed speaker slate includes Kugler (7am), Barkin (9am), Powell (3pm) and Williams (4:45pm).

Market Snapshot

• S&P 500 futures little changed at 6,021.25
• STOXX Europe 600 up 0.5% to 504.25
• MXAP down 0.8% to 181.24
• MXAPJ down 0.8% to 574.03
• Nikkei down 0.5% to 38,535.70
• Topix down 0.3% to 2,701.22
• Hang Seng Index down 2.0% to 19,435.81
• Shanghai Composite down 1.7% to 3,379.84
• Sensex down 0.2% to 77,554.04
• Australia S&P/ASX 200 up 0.4% to 8,223.95
• Kospi little changed at 2,418.86
• German 10Y yield little changed at 2.40%
• Euro down 0.4% to $1.0520
• Brent Futures down 0.2% to $72.16/bbl
• Gold spot down 1.0% to $2,546.97
• US Dollar Index up 0.38% to 106.88

Top Overnight News

• USD strength piled more pressure on Asian stocks and currencies, with the yen slipping to its lowest level since July. Fears of imminent intervention are overstated, MLIV said. China supported the yuan for a second day. BBG
• The BOJ should raise interest rates at least to 1% to roll back an "abnormally" huge stimulus that is causing unwelcome falls in the yen, said Takeshi Shina, the shadow finance minister of the country's largest opposition party. Reuters
• A close aide to Prime Minister Benjamin Netanyahu told Donal Trump and Jared Kushner this week that Israel is rushing to advance a cease-fire deal in Lebanon, according to three current and former Israeli officials briefed on the meeting, with the aim of delivering an early foreign policy win to the president-elect. Washington Post
• Ukraine sovereign bond values spike as investors anticipate the incoming Trump administration will push for a quick end to the war. FT
• Global oil markets face a huge surplus of more than 1 million barrels a day next year on faltering Chinese demand, and even with the curtailed supply from OPEC+, the IEA said. Supplies from producers such as the US and Canada will surge by 1.5 million b/d. BBG
• ASML reaffirmed its bullish long-term revenue outlook on AI-driven demand, projecting sales in 2030 of up to €60 billion. Shares rallied. BBG
• Howard Lutnick and his allies are lobbying for him to be picked as Treasury secretary, as some advisers to President-elect Donald Trump quietly signal skepticism about the top contender, investor Scott Bessent. WSJ
• The incoming Trump administration is considering a plan to bypass Congress and unilaterally adopt some of the Musk/Ramaswamy spending cut proposals. Washington Post
• Pennsylvania Senate seat race will be subjected to a recount after the vote result was within the threshold for an automatic recount under state law, according to NBC.
• Disney Beat in FY4Q EPS and revenues with slight operating income miss; constructive FY25 adj EPS guide of HSD, well above expectations of 4%; Stock is trading +10% thus far in the premarket

A more detailed look at global markets courtesy of Newsquawk

APAC stocks were mostly subdued following the indecisive lead from Wall Street where stock markets were choppy after in-line CPI data and continued 'Trump trade' flows, while there was a lack of fresh major catalysts to drive price action. ASX 200 gained as strength in Tech and Financials picked up the slack from the weakness in the commodity-related sectors but with the upside capped by disappointing jobs data. Nikkei 225 wiped out all of its initial gains and returned to beneath the 39,000 level despite a weaker currency. Hang Seng and Shanghai Comp remained pressured despite the lack of fresh catalysts and ahead of tomorrow's activity data with weakness seen in property stocks, while tech names are mixed ahead of key earnings, although Tencent was an early outperformer in Hong Kong after its quarterly results beat estimates on the bottom line.

Top Asian News

• China reportedly armed itself for a potential trade war with Trump as Beijing has enacted sweeping laws since the US President-elect’s first term that would allow it to retaliate if threatened, according to FT.
• Japan is planning a JPY 13.5tln extra budget to fund the stimulus package with PM Ishiba looking to finalise the stimulus package on November 22nd, according to Sankei.
• NetEase (9999 HK) Q3 Revenue (USD) 3.7bln (exp. 3.65bln).

European bourses hold a positive bias, with only a couple of indices residing in the red. Indices opened mixed/modestly firmer and sentiment gradually improved into the morning; indices generally reside at highs. European sectors hold a positive bias vs initially opening mixed. Tech is by far the clear outperformer, lifted by strength in ASML (+4.5%) after it reiterated its 2030 sales outlook. Healthcare resides at the foot of the pile, with Merck (-2.4%) weighing on the sector. Basic Resources is also incrementally in negative territory, with underlying metals prices hit by the continued strength in the Dollar. US equity futures are modestly firmer across the board, but with slight outperformance in the RTY as it attempts to pare back the hefty losses seen in the prior session.

Top European News

• UK Chancellor Reeves is planning on introducing pension legislation changes to create a series of "megafunds" by pooling pension savings, according to Bloomberg.
• ECB's de Guindos says has seen good news recently on inflation, but not so good for economic activity. Says inflation has come down quite a lot, all indicators on core inflation are heading in the right direction. Recent data on prices heading towards 2% goal. If inflation converges towards the goal, monetary policy will respond accordingly.
• German VDMA Engineering Association sees 1.5% revenue growth in China for German engineering companies in 2024

FX

• DXY's bull run since the election has continued into today's session with the DXY up around 3 handles since election day. Just above the 107.00 mark at best, if the move continues the 2023 high sits at 107.35. Today's data slate sees the release of US PPI which will be used as an input for PCE. Fed speak includes Powell, Barkin, Williams & Kugler.
• EUR/USD's recent run of losses has extended with the pair slipping further onto a 1.05 handle with a current session low at 1.0507 (fresh YTD low). The next obvious target for the pair is 1.05. If cracked, the 2023 low sits at 1.0448. Looking ahead for the Eurozone, ECB's Lagarde and Schnabel are due to speak.
• JPY is softer once again vs. the broadly stronger USD. In terms of fundamentals for Japan, reports suggest that the nation is planning a JPY 13.5tln extra budget to fund its stimulus package. However, this has done nothing to turn the tide for the pair.
• GBP lower vs. the USD for a 5th consecutive session. For now, this remains more of a USD story rather than one of pure GBP weakness. Today's UK data slate is light. However, BoE's Mann and Bailey are due to speak.
• Both antipodes are softer vs. the USD with AUD in focus following slightly softer-than-expected jobs data overnight. That being said, the release is unlikely to force the hand of the RBA into cutting rates in the immediate future.
• PBoC set USD/CNY mid-point at 7.1966 vs exp. 7.2326 (prev. 7.1991).

Fixed Income

• A slightly softer start to the session with USTs at a fresh 109-06 contract low. Yields bid across the curve with the belly leading and a very slight flattening bias overall. Docket ahead has PPI and IJC, which could spur reactions given the relevance for PCE and insight into the labour-side of the Fed’s mandate respectively. Thereafter, markets will await Fed Chair Powell and then Williams.
• Bunds are in the red but well off worst levels, currently near a 131.79 peak having bounced from an early 131.28 trough, a low which printed overnight when newsflow was light. The second read of EZ GDP figures were unrevised, whilst the Employment figures were revised slightly higher; metrics which ultimately had little impact on price action.
• Gilts are underperforming, holding above the 93.00 mark currently but did go as low as 92.97 just after the open. Specifics for the UK are somewhat light, aside from a lot of press focus on Reeves’ upcoming speech on pension reform; on the subject of speakers, BoE’s Bailey is also on the Mansion House docket but before that we expect a text release from Mann.

Commodities

• Crude is subdued and in choppy trade but within tight ranges amid a lack of macro catalysts but with eyes on the ever-evolving geopolitical landscape. Brent Jan trades between a USD 71.79-72.46/bbl range.
• Pressure seen across all precious metals as the Dollar continues to ramp higher as DXY rises further above 106.50 to levels closer to 107.00.
• Hefty losses across the board for base metals amid the ongoing USD strength and potential implications from protectionism under a Trump admin.
• IEA OMR: raises 2024 world oil demand growth forecast to 920k BPD (prev. 860k BPD); 2025 forecast at 990k BPD (prev. 1mln BPD); says China is the main drag on global oil demand growth; Chinese demand contracted for a sixth straight month in Oct.
• Private Inventory Data (bbls): Crude -0.8mln (exp. +0.1mln), Gasoline +0.3mln (exp. +0.6mln), Distillate +1.1mln (exp. +0.2mln), Cushing -1.9mln.
• South African Mining Production YY (Sep) 4.7% vs. Exp. 2.2% (Prev. 0.3%); Gold Production YY (Sep) -3.7% (Prev. -4.6%)

Geopolitics

• "Syria reports the activation of the air defense system against a UAV in southern Homs in central Syria", according to Israel Radio Correspondent
• Iranian Foreign Minister Araqchi says Iran is ready to negotiate based on it's national interests & inalienable right
• Israeli army warned of striking buildings in Haret Hreik and Burj al-Barajneh in the southern suburbs of Beirut, while it was later reported that Israeli warplanes attacked Beirut's southern suburbs.
• Iraqi armed factions said they attacked a vital target in northern Israel with drones, according to Sky News Arabia.
• White House said US President Biden reinforced the need to back Ukraine in the meeting with President-elect Trump.

US Event Calendar

• 08:30: Oct. PPI Final Demand MoM, est. 0.2%, prior 0%
  • Oct. PPI Final Demand YoY, est. 2.3%, prior 1.8%
  • Oct. PPI Ex Food and Energy MoM, est. 0.2%, prior 0.2%
  • Oct. PPI Ex Food and Energy YoY, est. 3.0%, prior 2.8%
• 08:30: Nov. Initial Jobless Claims, est. 220,000, prior 221,000
  • Nov. Continuing Claims, est. 1.87m, prior 1.89m

Fed Speakrs

• 07:00: Fed’s Kugler Speaks on Economic Outlook
• 09:00: Fed’s Barkin Discusses Economy in Fireside Chat
• 15:00: Powell Speaks on Economic Outlook in Dallas
• 16:45: Fed’s Williams Speaks at NYFed Event

DB's Jim Reid concludes the overnight wrap

The past 24 hours saw investors growing more confident about a December rate cut after US CPI was in line with expectations. Admittedly, the report wasn’t actually that good compared with some recent months, as monthly headline CPI was the fastest in six months, and core CPI was still a bit faster than the Fed would ideally like. This helped to reassure investors that the Fed was still on a path towards at least a cut in December, but long-end yields rose to multi-month highs, as fears about upcoming tariffs and a potential re-acceleration of inflation lingered. The S&P 500 (+0.02%) was little changed, some but other “Trump trades” prevailed with the dollar rising to its highest in over a year and Bitcoin reaching at an all-time high of $93,413 in the US session yesterday. It was as low as $52,598 on September 6.

In terms of the details from the report, core CPI was at a monthly +0.28% in October (vs. +0.3% expected), so markets were relieved we didn’t get the +0.4% print some had feared. That said, it wasn’t all good news, as that’s the third consecutive reading which rounds to +0.3%. So the 3-month annualised rate of core CPI now stands at +3.6%, up from just +1.6% three months ago, when it felt like inflationary pressures were a lot more tame and the Fed were pivoting towards their 50bp rate cut in September. In the meantime, headline CPI was also broadly as expected at +0.24% (vs. +0.2% expected), but it wasn’t far from rounding up to +0.3% as well, and it was also the fastest headline CPI print since April. In turn, that pushed the 3m annualised rate up to +2.5%, whilst the year-on-year rate ticked up to +2.6%, ending a run of six consecutive monthly declines in the annual rate.

Nevertheless it could have been worse and investors dialled up the chance of the Fed cutting rates again at the December meeting, with futures now giving that an 82% probability. That was down to 59% just before the release, so there was a meaningful rise intraday. In turn, that led to a decent rally in front-end Treasuries, with the 2yr yield down -5.4bps on the day to 4.29%. However, 10yr yields rose +2.3bps to 4.45%, their highest since the start of July, and rising nearly 10bps from their intra-day low in the hour or so after the CPI release. And 30yr yields (+6.8bps) rose to their highest since May, with the 2s30s slope seeing its sharpest steepening YTD. There wasn’t a single clear driver for the long-end sell-off with strong corporate issuance so far this week potentially playing a role, while the “Trump trade” factor again appeared to dominate. Overnight, 2yr (+2.8bps) and 10yr USTs (+2.0bps) are trading at 4.313% and 4.471%, respectively, as we go to print.

In terms of post-election news, a Republican sweep was confirmed yesterday as the party has now secured 218 of the 435 seats in the House of Representatives, with nine seats still to be called. We also had further news on Trump’s cabinet picks, with Trump confirming senator Marco Rubio as his nominee for Secretary of State and nominating representative Matt Gaetz for Attorney General. However, we are still waiting on names for most of the key economic positions, including Treasury Secretary, Commerce Secretary and US Trade Representative.

Looking at the Fed, there was a fair amount of commentary from officials yesterday. For instance, Minneapolis Fed President Kashkari said that “I think that inflation is headed in the right direction”, and Dallas Fed President Logan said that “I think it behooves us to proceed cautiously at this point”. This tone of heightened uncertainty was echoed by Kansas City Fed President Schmid, who said that “it remains to be seen how much further interest rates will decline or where they might eventually settle”, while St Louis Fed President Musalem commented that officials should assess incoming data “judiciously and patiently”.

Even as investors grew more confident about a December rate cut, the US Dollar continued its relentless move higher yesterday. In fact, the dollar index (+0.43%) closed at its highest level in over a year, whilst the euro closed at a one-year low of $1.0569. To some extent, that could be explained by the fact that even as front-end nominal yields were moving lower, longer-dated real yields actually hit their highest in months. That included the 10yr real yield, which was up +2.5bps to a 4-month high of 2.09%, and the 30yr real yield (+6.0bps) also hit a 5-month high of 2.32%.

Meanwhile for equity markets, there was a fairly steady performance yesterday, with the S&P 500 (+0.02%) little changed. Tech stocks underperformed, with the NASDAQ (-0.26%) falling back and the Philadelphia Semiconductor index (-2.00%) posting its fourth decline in a row. Over in Europe, the story was also one of small moves in either direction, with the STOXX 600 (-0.13%) closing at a three-month low.

Elsewhere in Europe, sovereign bonds struggled a touch, with yields on 10yr bunds (+2.6bps) and OATs (+1.9bps) moving higher. Interestingly, that came as the CDU/CSU chancellor candidate Friedrich Merz, suggested he was open to reform of the debt brake yesterday. So that could open up the door to a potential fiscal expansion, and DB’s chief German economist Robin Winkler put out a note on this yesterday (link here), where he points out that Merz’s comments offer room for manoeuvre in potential coalition talks after the election, even if it remains unlikely that the CDU/CSU would endorse more debt-financed investment during the election campaign. Clearly, there’s also the question as to whether the electoral arithmetic would allow for a change in the constitution, as that would require a two-thirds majority. But he thinks there is a growing probability of a meaningful fiscal expansion after the election.

Asian equity markets are mixed this morning but with the Hang Seng (-1.47%) leading losses on tariff fears and with the Shanghai Composite (-0.86%) being pulled lower by property and tech stocks. Elsewhere, the KOSPI (+0.09%) is hanging onto gains but the Nikkei (-0.20%) has slipped lower as I've been typing, even with the Japanese yen (-0.37%) sliding for the fourth consecutive day, dropping to fresh multi-month low of 156.08 against the dollar. This decline has brought the yen closer to levels where Japanese authorities last intervened to support their currency. US futures are down around a tenth of a percent.

Early morning data showed that Australia’s unemployment rate remained steady at 4.1% for the third consecutive month in October as the number of employed people increased by 15,900. Economists had believed employers would add a net 25,000 jobs in October. Meanwhile, there is a slight drop in the participation rate from a record 67.2%, edging down to 67.1% in October.

To the day ahead now, and we’ll hear from plenty of central bank speakers, including Fed Chair Powell, the Fed’s Kugler, Barkin and Williams, ECB Vice President de Guindos, the ECB’s Schnabel, BoE Governor Bailey, and the BoE’s Mann. We’ll also get the ECB’s account of their October meeting. And US data releases include PPI for October and the weekly initial jobless claims. Lastly, earnings releases include Walt Disney.

Tyler Durden Thu, 11/14/2024 - 08:20

EM Assets Hit By Negative Macro Backdrop Amid Trump's Expected Tariff Flurry Sparking Strong Dollar

A Republican sweep has been priced into core markets - stronger US equities, higher Treasury yields, and a more robust dollar - largely pressuring emerging market equities and currencies lower. This time, President-elect Trump is expected to hit China with a barrage of tariffs early in his administration.

Given tariff risks and trade uncertainty, emerging market equities have been sliding as Trump's projected protectionist trade policies, higher rates, and stronger dollar imply a negative macro backdrop for EM assets. 

On Thursday, Bloomberg's Sebastian Boyd published a list showing Trump's tariff risks and trade uncertainty represent a negative growth hit for the rest of the world... 

• President-elect Donald Trump's campaign promises suggest that second-term tariffs may be very different from those in his first term — broader, steeper. Their impact will be complex and much will depend on how other countries and the EU respond. But we can extrapolate from history and make some assumptions.

• First, tariffs aren't close to priced in yet. If Trump proceeds with what he's vowed to do, we will see steep declines in emerging-market stocks and currencies. Equities in more developed countries will also fall, especially in Asia. Health- care stocks and US financials seem to be the best place to shelter.

• Tariffs are an inflationary tax on US imports. They push up prices, but also inflation expectations and Treasury yields. They will have negative effects on US companies and consumers, but we can assume that they will be tailored to minimize those effects.

• The impact of tariffs, even highly tailored ones, is likely to be strongly negative outside the US. After tariff announcements in Trump's first term, the dollar gained and emerging-market currencies and stocks fell, steeply in some cases. And the negatives rolled out beyond just the targeted countries and industries.

• However, retaliatory tariffs from other countries may also be targeted to produce maximum inconvenience for the US, especially in industries like soy-farming that are strong in Trump-voting areas.

• Trump's early experiments with taxing imports were gradual. He started with solar panels and washing machines. Then in March 2018, he imposed tariffs on steel and aluminum from a list of countries which he later expanded. 

• To measure the impact of those tariffs, I merged the S&P 500, Stoxx 600, MSCI Emerging Markets and MSCI Asia Pacific indexes, then removed the smallest 10% of companies by market capitalization, to create a universe of more than 2,000 names. I then measured share-price performance for the three- and six- month periods starting on the last day of February 2018.

• Chinese stocks saw steep losses. There are more than 400 Chinese stocks in my sample, and 38 of 59 industry sub-sectors fell in the first six months amid concerns that the trade war would widen. Chinese retailers and automakers were among the worst-affected, with a median decline of more than 30%, while apparel & textile products and medical equipment & devices escaped.

• There was a lot of collateral damage. In the interests of legibility, the chart above shows the 15 largest countries in our sample. Elsewhere, Turkish stocks fell a median 52% in the six months through August 2018. South Africa and Indonesia also had steep losses.

• In April 2019, Trump threatened a tariff on cars made in Mexico. In June, he backtracked, claiming the threats had worked. In the meantime though, the median loss on Mexican stocks was 16%. The median US stock in the sample slid 0.9%. The S&P 500 oil & gas index fell 10%.

• At the start of May that year, Trump's administration announced tariffs on $200 billion of Chinese goods. This time the impact was more limited than it had been in 2018. Over the next three months, Chinese stocks fell a median 7.8%, then bounced back to eke a median 0.6% over a six-month period.

In a separate note, Goldman's Tadas Gedminas and Teresa Alves told clients last week...

• This time around our expectation is that tariffs against China could be implemented relatively early in the administration, which would likely pose a challenge next year. But our prior work suggests that the market struggles to price this risk ahead of time, with most of the tariff-related price response taking place around actual announcements (as was primarily the case for CNH). This suggests that the market could still maintain the latest price action despite prevailing risks.

Since last Tuesday, the dollar has reigned supreme, while emerging markets and global stock ex-US have slipped into negative territory. 

EM asset underperformance will persist as long as the dollar remains strong. 

Tyler Durden Thu, 11/14/2024 - 07:45

Ron Paul: Make Money Free Again

Authored by Ron Paul via The Ron Paul Institute,

Two days after Donald Trump became the first American since Grover Cleveland to win nonconsecutive presidential elections, the Federal Reserve announced a quarter percent cut in interest rates.

Following this announcement, Fed Chairman Jerome Powell held a press conference where he said that he would not comply with any presidential request that he step down before his term ends in May of 2026.

Powell claimed that the president lacks the legal authority to fire the Fed chairman.

So, if President Trump tells Chairman Powell “you’re fired,” Powell could bring suit asking a court to review Trump’s action.

President Trump and Chairman Powell are at odds over President Trump’s desire to require the Federal Reserve to consult with the president before changing interest rates or taking other significant actions.

Powell is likely to do all he can to convince Congress to reject any legislation giving the president any type of official role in setting monetary policy.

After all, Chairman Powell is so protective of Fed autonomy that he opposes auditing the Fed on the grounds that it could threaten the Fed’s independence, even though there is nothing in the Audit the Fed legislation giving the president or Congress any new authority over the Fed’s conduct of monetary policy.

Requiring the Fed to consult with the president regarding monetary policy would likely increase price inflation and dollar devaluation. Politicians usually like low interest rates because they associate low rates with economic growth. Politicians also want the Fed to keep rates low so the federal government can keep racking up huge amounts of debt. Without a central bank that is ready, willing, and able to monetize the federal debt, the welfare-warfare state would not exist.

Despite the claims of Chairman Powell and other central bank apologists, the Fed has never been free of political pressure. Presidents were trying to influence the Federal Reserve long before Donald Trump began posting “mean tweets” about Jerome Powell. Requiring the Fed to consult with the president would at least make the president’s efforts to influence monetary policy open and transparent.

President Trump and other Fed critics such as Massachusetts Senator Elizabeth Warren think they are more capable of determining the “correct” interest rate than the Fed. This ignores the fact that interest rates are the price of money and like all prices are shaped by a variety of constantly changing factors. When the Fed manipulates interest rates, it distorts the signals sent to investors. The result is the boom- bust business cycle. The fiat system is also responsible for rising income inequality and the decline of the dollar’s purchasing power, which has lowered most Americans’ standard of living.

President Trump should work to eliminate the need for the Fed to keep interest rates low. He can do this by fighting for massive spending cuts, starting with the military-industrial complex.

He should also push Congress to pass the Audit the Fed bill.

Additionally, President Trump should support legalizing all competing currencies.

The forthcoming tax bill should include a provision exempting precious metals and cryptocurrencies from capital gains taxes.

The key to making America great again is to make money free again.

Tyler Durden Thu, 11/14/2024 - 07:20

Trump Will Be The Nail In ESG's Coffin

ESG is already dead, as we have been noting over the last couple of years. But with Trump taking office, it'll officially take custody of its death certificate.

Such was the topic of a new Bloomberg op-ed piece this week by John Authers, claiming that Trump is going to "bury" ESG once and for all. In the U.S., Environmental, Social, and Governance investing has taken a sharp downturn, falling victim to political polarization and failing to deliver on its promises.

Initially aimed at promoting sustainable and ethical business practices, ESG became embroiled in culture wars and now faces a retreat as American priorities shift toward a more nationalist, even mercantilist, approach to economics, the piece reminds us. 

Conservative leaders have demonized the term “ESG” to the point where prominent figures like BlackRock CEO Larry Fink have abandoned it, calling it “weaponized.” BlackRock, once a major advocate for ESG, has become a target for conservatives who associate the company with identity politics.

Heritage Foundation President Kevin Roberts even listed BlackRock among “decadent” institutions in his new book, sharing this label with organizations as disparate as the Boy Scouts of America and the Chinese Communist Party.

Authers notes that many investors have already grown skeptical, seeing ESG as a marketing gimmick, with big players like Invesco facing fines for “greenwashing.” Europe, in contrast, has tightened ESG standards, requiring fund managers to meet specific environmental thresholds for the ESG label, which complicates U.S. investments for European funds due to regulatory differences.

In the U.S., however, the SEC has scaled back ESG requirements, with its task force on the matter disbanded in September. This deregulation could accelerate if Trump returns to office, likely leading to further cuts to ESG-related mandates, Authers writes. 

A market shift away from ESG is already evident, as BlackRock’s clean energy ETF has declined significantly since its 2021 peak, with funds moving back toward traditional energy sectors.

Investor interest in ESG has waned considerably, as shown by declining search activity in the U.S. and a drop in ESG mentions during corporate earnings calls. Media coverage of ESG, which surged in 2016, has also fallen, reflecting dwindling public interest. Executives, once eager to discuss ESG initiatives, now mention it far less, a shift apparent in recent earnings call transcripts.

BlackRock’s own support for environmental and social proposals has sharply declined. While the company maintains a commitment to corporate governance, it backed only 4% of ESG proposals last year. With the shift away from ESG in corporate America, any hope of reshaping capitalism through ethical investing appears to be in retreat, leaving questions about what economic direction will replace it.

Recall just days ago we wrote that ESG fund managers are being told to 'keep their lawyers very close'. Aniket Shah wrote in a note last week: “We’d encourage all ESG fund managers to have a lawyer on the team, or on speed-dial.”

He continued: “Antitrust risk remains high for asset managers in ESG; there haven’t been any cases yet, thus there is no legal precedent. Further, legal risks regarding fiduciary duty will stay relevant as states enforce anti-ESG laws.”

Yahoo reports that Trump's victory has already hit green sector stocks, with wind-energy companies among the hardest hit.

Tyler Durden Thu, 11/14/2024 - 06:55