Tl;dr: Headline and Core CPI printed ‘as expected’ (which is likely disappointing for the whisper numbers and remember the last CPI printed ‘cooler than expected’). Goods inflation continues to slow but Services inflation continues to soar (highest in over 40 years). Shelter costs continue to soar.

*  *  *

Expectations for this morning’s headline CPI ranges from +6.3% to +6.8% YoY, with consensus seeing a 0.1% decline MoM – something the world and his pet rabbit has bid stocks up into anticipating this as the signal for an about face by The Fed on their higher for longer narrative as it ‘proves’ inflation has peaked.

The headline print came in right as expected with a 0.1% decline MoM (leaving the YoY print at +6.5% as expected)…

Source: Bloomberg

While Goods inflation tumbled to its lowest since Feb 2021, Services inflation soared to its highest since Sept 1982…

Source: Bloomberg

Energy was the biggest driver of the decline in the YoY print along wioth Goods costs (while Services continues to rise)…

Services and Food costs rose on a MoM basis…

With shelter still rising on a MoM basis…

Core CPI rose 0.3% MoM as expected, leaving the YoY rise at +5.7% – lowest since Dec 2021…

Source: Bloomberg

Shelter was biggest contributor to Core CPI 0.3% gain: the increase in the shelter index in December at 0.8% is biggest since 1990s.

• Dec rent inflation 8.35%, Y/Y up from 7.91% in Nov

• Dec shelter inflation 7.51% up from 7.12% in Nov

It is also about 12 months behind market reality.

Real average weekly earnings continue to decline – this is the 21st month in a row that Americans’

Source: Bloomberg

Finally, it appears CPI is tracking the decline in M2 velocity (with a lag) rather well…

Source: Bloomberg

It seems the ‘not cooler than expected’ CPI print is disappointing the pre-emptive market.

By Ven Ram, Bloomberg markets live reporter and analyst

There is little to over-egg the importance of the US inflation reading for December that we will get today. The markets have been relatively quiet ahead of the release, which isn’t a surprise given it will be the last the Federal Reserve gets to see before it reviews rates next month.

While there is rather a wide scatter of forecasts, pretty much everyone and their crystal ball seem to agree that we will get annual inflation declining below 7% for the first time in more than a year — a pretty significant milestone in itself if it proves to be accurate. Recent moves suggest that positioning heading into the data is bullish Treasuries as well as stocks but bearish the dollar, which of course raises the prospect of “sell on news.”

Consistent with that speculation, interest-rate traders are factoring in only a 26% chance of a move larger than 25 basis points when the Fed meets on Feb. 1. The nub, though, shouldn’t be lost on the markets: unless today’s print is persuasively mild, the Fed has every reason to perhaps gravitate toward a larger hike if only to get its rate to more restrictive levels sooner and then pause rather than drag its feet and get in smaller steps to its intended destination. (A 6.5% print consistent with the median forecast is still way too high from the Fed’s perspective, though it would welcome the direction of travel.)

And with 17 of 19 participants having indicated their preference for a Fed funds rate above 5%, getting there sooner will make the prospect of a soft landing more viable than would be the case otherwise. While Fed St. Louis President James Bullard isn’t a voting member this year, one would think that his advocacy of front-loading the increases would still be a persuasive refrain for the rest on the committee. A bigger move would also keep those all-important inflation expectations under check — and the Fed has an impressive speaker line-up after the CPI print to drive home its message.

Whatever your persuasion on the margin of increase, the markets will be holding their collective breath early in the New York day.

US futures are trading near session highs after earlier fluctuating between gains and losses ahead of make-or-break inflation data which many expect will show price pressures continuing to ease. S&P 500 futures traded 0.1% higher as of 7:30am ET, just shy of 4,000, one day after the S&P 500 clocked this year’s first back-to-back gains on Tuesday and Wednesday. The gains stem from bets that cooling inflation ill give the Federal Reserve room to slow its pace of rate hikes, a take substantiated by Boston Fed chief Susan Collins, who said she was leaning toward a quarter-point move at the bank’s Feb. 1 meeting. Treasuries steadied after gains in Wednesday’s session, with the 10Y trading at 3.52%, while a gauge of dollar strength edged lower as investors looked beyond the drumbeat of hawkish comments from Federal Reserve officials. The yen rallied on a report that the Bank of Japan will look into the side effects of its ultra-loose monetary policy. Commodities are mostly higher with the dollar weaker.

Yesterday, the Fed’s Collins supported a 25bps hike, inline with market expectations coming into CPI. US air traffic was disrupted by a FAA system outage but is back online; US reopening names continue to rally, once again in sympathy with China. Media is flagging the rallies in meme stocks, which may mean that the retail investor is coming back to the market after having sold a near record >$3bn last week. Today’s focus is on the CPI print and the balance of this note includes analysis of the print with views from around the firm, including monetization methods.

“Markets are positioned for a CPI reading which will not disturb their march forward”, said Andrea Tueni, head of sales trading at Saxo Banque France. But “the last three publications generated a lot of volatility across markets so there’s a lot at stake,” he added.

Among premarket movers, Tesla fell 2% after Bloomberg reported that an expansion of the company’s plant in Shanghai has been delayed, putting a roadblock in the way of its ambitions to increase its market share in China. Bed Bath & Beyond shares surged another 26%, extending Wednesday gains, after a rally in other so-called meme stocks. Here are other notable premarket movers:

• Spotify shares fall 2.2%, Roku (ROKU US) declines 3.1%, Unity Software (U US) down 2.8% after Jefferies downgraded them in a note on US media outlook, while upgrading Netflix and JAKKS. Netflix shares gain 1.6% after Jefferies raised the recommendation to buy from hold, citing upside surprises to 2024 operating margin.
• Tesla fell 1.2%, erasing earlier gains, after Bloomberg reported that an expansion of the US electric carmaker’s plant in Shanghai has been delayed.
• Bed Bath & Beyond shares surge 21% in US premarket trading, extending Wednesday gains after a rally in other so-called meme stocks.
• Marathon Digital shares advance 8.6%, leading cryptocurrency-exposed stocks higher as Bitcoin rallies to break back above the $18,000 level, extending gains for a ninth consecutive session — its longest streak since July 2020.
• Oramed’s US shares plunge 71% after the company’s experimental oral insulin failed in a late-stage clinical trial of Type 2 diabetes patients.
• Keep an eye on chemicals after KeyBanc Capital Markets said that it sees a favorable risk skew in the sector’s stocks for 2023, although with only modest upside. The broker downgrades DuPont de Nemours to sector weight.
• Citi says it continues to favor US exchange operators over brokers into 2023, in a note cutting Virtu Financial (VIRT US) to neutral.

Every aspect of Thursday’s CPI report will be scrutinized, with extra attention on core inflation, which excludes food and energy and is seen as a better indicator than the headline measure. The projected 5.7% increase would be well above the Fed’s goal, helping explain its intention of keeping rates higher for longer. But the year-over-year price growth would also show moderation.

“Core inflation remains well above target,” said Ronald Temple, chief market strategist at Lazard Ltd. “Having been late to act, the Fed is unlikely to pause the tightening cycle until inflation is definitively under control.”

There was a note of caution in the morning note from JPM’s Market Intelligence team, which warned that most of a CPI miss may already be priced in:

The SPX is +4.2% since last Friday, leading to multiple conversations as to whether a cooler CPI print is priced in. That seems to be the view from my client conversations, with most thinking we see a spike on the print and then fade from there. Their rationale? The print will confirm the deflationary narrative, but it will not be low enough to materially reprice bonds lower. To clarify, this CPI print should not change Fed expectations for 25bps hikes in both February and March. Further, any subsequent Fedspeak is likely to be hawkish given that financial conditions are now looser than at Jackson Hole (is it possible that the Fed could keep 2023 meetings as “live meetings” after they pause?). While recognizing that inflation expectations are lower now, the Fed’s concern is likely to be that, given the relative strength of the US Consumer, that you could see inflation accelerate higher if lending conditions ease.

Thinking about today’s session, I do think there is still the ability for the market to experience another rally despite the moves coming into the print. Longer-term, earnings are the next key catalyst and if Q4 GDP is stronger than expected, this should be reflected in earnings since EPS growth tends to be more correlated to nominal growth rather than real growth.

European equity indexes rose with the Stoxx 600 up 0.7% and reaching highest since last April as traders bet US inflation will show further signs of cooling. The CAC and FTSE have gain 0.6% while the DAX adds 0.5%. Real estate, autos and travel are the strongest performing sectors. Here are the biggest European movers:

• Whitbread jumps as much as 4.9%, hitting the highest since February 2022, with analysts saying its “positive” trading update implied improvements in 2023 and 2024 performance
• Vodafone shares rise 3% after BofA upgraded to buy, saying easing energy costs and the telecom’s improving price traction should result in positive revision to earnings estimates
• Asos shares soar the most since October, after the struggling fast-fashion retailer said it was making headway in plans to turn around its performance
• Boozt gains as much as 11%, rebounding from the previous day’s 9.9% plunge, after the Swedish online retailer beat expectations in its 4Q report; a “positive relief,” DNB says
• Logitech shares drop as much as 19% in early trading, the most since April 2011, after its second guidance cut in three quarters. The moves pull peers, including GN Store Nord and Demant, lower
• Ubisoft shares tumble as much as 22% after forecasting an operating loss, delaying the Skull & Bones title for a sixth time, and saying recent game launches “have not performed as well as expected”
• Halfords drops as much as 24%, the most since June 2022, as Peel Hunt trimmed its rating to add from buy, noting labor shortages and cost pressures couuld squeeze profit
• Signify shares slumped as much as 6% after the company lowered its full-year guidance once again on Covid-19 disruptions in China

Earlier in the session, Asian stocks advanced, as miners in Australia climbed on demand optimism ahead of highly-awaited US inflation data.  The MSCI Asia Pacific Index rose as much as 0.8% to the highest since August before paring. Japan’s MUFJ, AIA in Hong Kong and Australia’s BHP boosted the index the most while the Chinese tech rally took a pause.  The stock benchmark in Australia was a notable winner in the region, advancing 1.2% to the highest in five weeks, as miners rallied amid hopes China’s reopening will spur demand for metals. Equities in Japan posted moderate gains helped by financials after a report said the Bank of Japan is reviewing the side effects of its ultra-easy monetary policy. Benchmarks in Hong Kong and mainland China fluctuated between gains and losses as traders digested Chinese inflation data. Trading volume was 14% lighter than average ahead of key consumer price data from the US due later Thursday. 

“Continued rerating triggered by improved sentiment is carrying markets higher,” said Lorraine Tan, director of equity research at Morningstar Asia. “Inflation pressure is easing and interest rates should be peaking within the next six months.”  While consensus view is that US prices have peaked, investors will scrutinize the upcoming inflation report for any indication of the Federal Reserve’s future rate hike path.  Asian equities have outperformed US peers so far 2023 amid reversals in the dollar strength and China’s Covid Zero policy. Easing concerns over China’s regulatory risks and property sector have also lured investors back to the region.  “A lot of things that have been bothering me were reversed,” Ajay Kapur, head of APAC and Global EM strategy at Bank of America Securities, told Bloomberg TV, referring to China’s policy turnaround in November. “I’m still quite constructive.” Elsewhere in Asia, the Indonesian benchmark rose, one day after entering a technical correction.

Japanese stocks edged higher as investors assessed reports on the Bank of Japan’s plans and awaited US inflation data that may influence Federal Reserve policy. The Topix rose 0.4% to close at 1,908.18, while the Nikkei was little changed at 26,449.82. The yen gained 0.7% against the dollar after a Yomiuri report that the BOJ is considering further policy tweaks at its meeting next week. Mitsubishi UFJ Financial Group contributed the most to the Topix gain, increasing 5% after the Yomiuri report. Out of 2,162 stocks in the index, 786 rose and 1,257 fell, while 119 were unchanged. “US CPI is definitely one factor to watch, but the BOJ’s YCC change last December still has a lingering effect,” said Hiroshi Matsumoto, senior client portfolio manager at Pictet Asset Management. “It seems that stocks had been oversold on the policy change, and the market is still recovering from it.” 

Australia stocks jumpe to a five week high, buoyed by miners. The S&P/ASX 200 index rose 1.2% to close at 7,280.40, its highest level since Dec. 6. The benchmark outperformed regional stock gauges, boosted by banks and miners. Materials shares have been climbing on bets that China’s reopening will fuel demand for metals. Read: China Reopening Sends Australian Mining Stocks Near Record High In New Zealand, the S&P/NZX 50 index rose 0.2% to 11,664.88.

India’s benchmark stock index dropped for a third day ahead of key economic data including retail inflation. Bharti Airtel and Reliance Industries declined amid rising worries over the impact of 5G services on telecom companies’ pricing recovery. The S&P BSE Sensex fell 0.3% to 59,958.03 in Mumbai, while the NSE Nifty 50 Index declined 0.2%. For the week, the benchmark gauge is flat, helped by a sharp rally on Monday.  Small and mid-cap stock gauges also declined. BSE Ltd.’s 20 sector sub-gauges were mixed, with capital goods firms leading the advance while oil & gas companies were worst performers. Software exporter Infosys, which reported December quarter earnings after close of trading, posted higher-than-expected profit, while raising sales forecast.   Consumer price inflation probably rose 5.9% in December from a year ago, according to a Bloomberg survey, and little changed from the previous month. Data for industrial output in November will also be released after close of markets.

In Fx, the Bloomberg Dollar Index is down 0.2% with the JPY a clear outperformer among the G-10’s. SEK is the weakest. The Bloomberg Dollar Spot Index extended losses in the European session as the yen rallied by as much as 1.2%, to 130.89 per dollar. The greenback traded mixed against the other Group-of-10 peers, with moves confined to narrow ranges.

• The yen’s rally followed after the Yomiuri newspaper said policy makers will consider adjusting their bond purchases and make further policy tweaks if they believe they are necessary, without giving any attribution. The cash 10-year yield remained pinned against the 0.50% ceiling while the 15- year yield added 8bps
• The euro inched up to a day high of 1.0775. Bunds climbed, led by the belly, and Italian bonds outperformed. Money markets added to ECB tightening wagers, paring some of Wednesday’s late declines after policymakers Rehn and De Cos warned of significant rate hikes
• The pound traded higher against the dollar. The Bank of England’s Catherine Mann is due to speak Thursday, with money markets easing wagers on the scope for further rate hikes

In rates, the treasuries curve extends Wednesday’s flattening move with long-end outperforming ahead of 30-year auction, following a wider rally across core European rates led by gilts. US session events include December CPI report and several Fed speakers.  US long-end yields richer by about 3bp, flattening 2s10s, 5s30s spreads by 1.5bp and 2bp vs Wednesday’s close; the 10-year trades around 3.52%, trailing bunds by 2.5bp, gilts by 5.5bp in the sector. UK gilts outperform as deteriorating macro backdrop continues to take BOE rate-hike premium out of the UK swaps market. In US, December inflation data is expected to build a case for a downsized 25bp rate hike at the February policy meeting. The US auction cycle concludes with $18bn in 30-year reopening at 1pm; Wednesday’s 10- year auction stopped through by 0.5bp with strong participation metrics. WI 30-year yield at ~3.640% is ~13bp cheaper than December’s result reflecting curve-steepening in the interim. UK and German bonds are marginally higher having pared most of their earlier advance.

In commodities, oil rose for a sixth day on hopes US inflation is cooling and as China’s crude buying ramps up before the Lunar New Year holidays. WTI was up 0.9% to trade above $78. Spot gold rises roughly $8 to trade near $1,884/oz. Base metals are mixed.

In crypto, bitcoin rose above the $18k mark, with today’s action bringing it back towards its 14th December best, which itself is just shy of USD 18.5k. Coinbase is reportedly considering exiting the Japanese market, via Nikkei.

Looking the day ahead now, the main data highlight will be the US CPI release for December, whilst other data includes the weekly initial jobless claims. From central banks, we’ll hear from the Fed’s Harker, Bullard and Barkin, as well as the BoE’s Mann, and the ECB will be publishing their Economic Bulletin.

Market Snapshot

• S&P 500 futures little changed at 3,990.25
• MXAP up 0.7% to 163.37
• MXAPJ up 0.3% to 537.24
• Nikkei little changed at 26,449.82
• Topix up 0.4% to 1,908.18
• Hang Seng Index up 0.4% to 21,514.10
• Shanghai Composite little changed at 3,163.45
• Sensex down 0.2% to 59,967.65
• Australia S&P/ASX 200 up 1.2% to 7,280.40
• Kospi up 0.2% to 2,365.10
• STOXX Europe 600 up 0.6% to 450.19
• German 10Y yield little changed at 2.17%
• Euro little changed at $1.0766
• Brent Futures up 0.4% to $82.99/bbl
• Brent Futures up 0.4% to $82.99/bbl
• Gold spot up 0.4% to $1,883.84
• U.S. Dollar Index down 0.14% to 103.04

Top Overnight News from Bloomberg

• Overnight volatility remains high in the majors as traders await the release of the US CPI data. While dollar-topside bets lose traction across, it’s the shift in the pound’s volatility skew that gains attention while yen bullish exposure meets another catalyst
• The euro’s rally against the dollar has stalled over the past month at resistance around its May high. Bulls are hoping Thursday’s US inflation data will provide enough ammunition for it to breach that barrier and resume its progress toward $1.10
• Consumers’ expectations for inflation over the next 12 months declined to 5% in November from 5.4% in October, the ECB said Thursday in a statement summarizing the results of its monthly survey
• Kazakhstan said local brokerages that snapped up Russian sovereign debt last year did so largely on behalf of clients who were Kazakh and Russian residents
• Britain’s markets watchdog has warned of potential “systemic defaults” among wholesale brokers in the City of London that may be unfit to weather sudden shocks and longer periods of stress
• HSBC Holdings Plc lost its bid to topple a reputation-bruising decision that it illegally rigged the Euribor benchmark, in a setback that removes part of the gloss from a procedural victory that overturned millions of euros in European Union fines
• China hasn’t updated its daily Covid reports for three days, adding to global concerns that the information vacuum is masking the true impact of the world’s biggest outbreak.

A more detailed look at global markets courtesy of Newsquawk

APAC stocks traded mixed as the major indices failed to fully sustain the early momentum from Wall St. ASX 200 was led higher by outperformance in the commodity-related industries and the top-weighted financial sector, while the latest trade data showed a wider trade surplus.  Nikkei 225 faded early gains after a report that the BoJ is to review the side effects of its monetary easing. Hang Seng and Shanghai Comp swung between gains and losses with the Hong Kong benchmark initially boosted by the reopening play which helped energy, auto and casino names. However, Chinese markets then failed to sustain the early moment amid losses in tech and as participants digested mixed inflation data from the mainland in which CPI matched estimates but factory gate prices fell by more than expected.

Top Asian News

• PBoC injected CNY 65bln via 7-day reverse repos with the rate kept at 2.00% and CNY 52bln via 14-day reverse repos with the rate kept at 2.15% for a CNY 115bln net daily injection.
• US and Taiwan intend to focus on five areas this weekend during their first round of negotiations towards a trade agreement and indicated a readiness for subset deals as the sides make progress, according to WSJ.
• BoJ is to review the side effects of its massive monetary easing at its policy meeting next week due to skewed interest rates in markets despite last month’s tweak in its bond yield control policy, according to Yomiuri.
• TSMC Offers Mixed Outlook, Lower Spending for Tough Year Ahead
• China’s Covid Zero Enforcement Army Faces Unpaid Wages, Job Loss
• Fosun Is Said to Weigh Sale of Belgian Diamond-Grading Firm IGI
• HSBC Loses Fight at EU Top Court Over Euribor Rigging Charge

European bourses are firmer across the board, Euro Stoxx 50 +0.5%, though price action has been fairly contained in slim pre-CPI newsflow. US futures are essentially unchanged, ES -0.1%, ahead of December’s CPI and Fed speak before and after the key data. TSMC (2330 TT) Q4 (TWD) net 295.9bln (exp. 289.4bln), rev. 625.5bln (prelim. 625.5bln), says smartphone and PC demand dropped more severely than expected. Guides Q1 (TWD) rev. 16.7bln-17.5bln (exp. 16.4bln) and sees H1 revenue down mid-to-high single digit percentage. Tesla’s (TSLA) expansion of its Shanghai plant has been delayed, according to Bloomberg sources; cites concerns in Chinese government over CEO Musk’s Starlink having such a large presence in China.

Top European News

• ECB Consumer Expectations Survey: Inflation is seen at 5% (vs. prev. view of 5.4%) over the next 12 months; 3 year inflation is seen at 2.9% vs. prev. view of 3.0%.
• UK and EU are preparing to enter an intense phase of negotiations from next week, via Bloomberg citing sources; aim of this is to move into the negotiating “tunnel”, ahead of the April N. Ireland agreement anniversary.
• A Third of Dublin’s Office Supply Dormant After Cuts
• Arbonia Falls After Margin Warning; Modest Downgrade Needed: ZKB
• Apollo-Backed Gaming Firm Lottomatica Weighs $1 Billion IPO
• RBC Sees Tough Year For Business Services, Cuts Three Stocks

FX

• Yomiuri Yen revival keeps Greenback grounded awaiting US CPI data.
• USD/JPY probes 131.00 vs almost 133.00 on Wednesday and DXY tethered to pivotal 103.000 level.
• Pound perks up on 1.2100 handle as Dollar drifts, Euro consolidates around 1.0750 axis and Aussie pivots 0.6900 with support from a wider than forecast trade surplus.
• PBoC set USD/CNY mid-point at 6.7680 vs exp. 6.7698 (prev. 6.7756)
• S. African Finance Minister says they want to resolve the Eskom issue ASAP, part of this is sorting the balance sheet. Appropriate announcement will be made on February 22nd.

Fixed Income

• Bonds wane after an early bull run to and through new big figure levels for Bunds and Gilts at 138.45 and 104.14 respectively.
• US Treasuries more reserved ahead of inflation report as T-note holds just under w-t-d peak and resistance within a 114-11/22 range.

Commodities

• Upside for the crude space has occurred this morning seemingly without a fresh specific catalyst or driver, with the space perhaps taking advantage of a pre-CPI softening in the USD and the somewhat constructive European risk tone.
• Lifting WTI Feb’23 to a new WTD peak of USD 78.29/bbl, though this is someway shy of last week’s USD 81.50/bbl best.
• China’s customs officials in the Guangdong province reportedly received notice from the local gov’t that they can clear Australian coal shipments, via WSJ citing sources.
• Morgan Stanley expects Brent prices to remain range-bound for remainder of Q1, around current USD 80-85/bbl range.
• Spot gold is similarly taking advantage of the USD’s pullback but remains slightly shy of yesterday’s USD 1886/oz best thus far, while base metals are softer across the board.
• Magnitude 6.4 earthquake strikes Coquimbo, Chile, according to EMSC.

Geopolitics

• US Defence Secretary Austin said China’s military is engaging in provocative behaviour around Taiwan to try to establish a new normal, but added that he seriously doubts Chinese provocations are a prelude to an imminent invasion of Taiwan, according to Reuters.
• Taiwan’s Defence Ministry said five Chinese air force planes crossed the Taiwan Strait median line in the past 24 hours, according to Reuters.

US Event Calendar

• 08:30: Dec. CPI MoM, est. -0.1%, prior 0.1%
  • CPI YoY, est. 6.5%, prior 7.1%
  • CPI Ex Food and Energy MoM, est. 0.3%, prior 0.2%
  • CPI Ex Food and Energy YoY, est. 5.7%, prior 6.0%
  • Real Avg Hourly Earning YoY, prior -1.9%, revised -2.1%
  • Real Avg Weekly Earnings YoY, prior -3.0%, revised -3.3%
• 08:30: Jan. Initial Jobless Claims, est. 215,000, prior 204,000
  • Continuing Claims, est. 1.71m, prior 1.69m
• 14:00: Dec. Monthly Budget Statement, est. -$65b, prior -$21.3b

Central Bank Speakers

• 08:45: Fed’s Harker Discusses the Economic Outlook
• 11:30: Fed’s Bullard Discusses the US Economy and Monetary Policy
• 12:40: Fed’s Barkin Speaks in Richmond

DB’s Jim Reid concludes the overnight wrap

Morning from Copenhagen on a big day for global markets. Both the worst and best days for the S&P 500 in 2022 came on days of a CPI release. As such, it’s inevitable that today’s US CPI has the ability to shape the next month.

Indeed, after a long run of inflation surprising on the upside, the latest releases have seen two downside surprises on CPI in a row for the first time since the pandemic, which has led to growing hopes that the Fed might achieve a soft landing after all. Furthermore, core inflation has also been increasingly subdued, with the most recent number for November showing monthly core inflation at a 15-month low. Those readings helped to bolster the case for the Fed to downshift their rate hikes last month, and if we did get a third downside surprise today, clearly that would add further fuel on market speculation about a Fed pivot later in the year.

In terms of what to expect today, our US economists think that falling gas prices over December will take headline CPI into negative territory at just -0.15% on the month (vs. -0.1% consensus). They also expect core CPI to remain subdued at +0.22% on a monthly basis (vs. +0.3% consensus), which would be only slightly above the 15-month low of +0.20% in November. If those forecasts are right, then that would take year-on-year growth in CPI down to +6.3% (vs. +6.5% consensus), its lowest in over a year, whilst core CPI would be down to +5.6% (vs. +5.7% consensus). As ever, the individual components will be in focus, particularly the stickier ones that change less frequently.

Ahead of that release, growing optimism about the inflation outlook led to a major rally in sovereign bonds yesterday, particularly in Europe. For instance, yields on 10yr OATs (-14.1bps), BTPs (-18.7bps) and gilts (-14.8bps) all plummeted, and although there was a contract roll on the 10yr bund, the generic series on Bloomberg was also down -10.4bps. In part that was driven by a fresh decline in natural gas prices, which were down -5.56% yesterday to €65.45/MWh, just above their one-year closing low last week.

That rally got further support later in the session by a Bloomberg report which said that German Chancellor Scholz was supportive of a new joint EU financing instrument to help the EU compete against US green subsidies. That helped spreads tighten in particular, with the gap between Italian and German 10yr yields now down to 183bps, which is down by a significant -28.9bps since the start of the year. And the optimism was also clear from other European assets, with the Euro closing at its highest level since May at $1.076, just as the iTraxx Crossover index tightened -10.0bps to levels last seen in April.

In the US, Treasuries rallied as investors looked forward to the CPI release, with 10yr yields down -7.9bps to 3.539% and are down another -1.5bps in Asia at 3.524%. However, the moves have been much more subdued at the front end, with the 2yr yield only down -2.9bps (unch overnight), and there was little sign from Fed funds futures that investors were adjusting their policy outlook either. Indeed, the terminal rate priced in for June was little changed ahead of the CPI today, up just +0.4bps to 4.947%. The lack of movement was despite Boston Fed President Collins saying that she was leaning toward downshifting to a 25bps hike in the February meeting.

For equities, this benign economic backdrop led to further advances, with the S&P 500 up another +1.28%. 22 of 24 industry groups finished up on the day with 80% of overall constituents gaining yesterday. Tech stocks outperformed in that, with the NASDAQ (+1.76%) advancing for a 4th consecutive session for the first time since September. As an example of the swing back, Tesla (+3.68% yesterday) is now up +13.99% from the recent lows on January 3rd. Back in Europe, there were similar gains, with the STOXX 600 (+0.38%), the DAX (+1.17%) and the CAC 40 (+0.80%) all seeing robust advances, which brought the YTD performance for the DAX up to +7.36%.

Asian equity markets have failed to extend the overnight gains on Wall Street though with the Hang Seng (-0.33%), the Shanghai Composite (-0.23%) and the CSI (-0.08%) surrendering their opening gains whilst the Nikkei (+0.10%) and the KOSPI (+0.34%) are just in positive territory. Outside of Asia, US stock futures are fluctuating between gains and losses with contracts on the S&P 500 (+0.04%) just above flat while those on the NASDAQ 100 (-0.05%) trading fractionally lower ahead of the key inflation report.

Data overnight from China showed that inflation accelerated to +1.8% y/y in December, in line with market expectations, driven by rising food prices despite economic activity remaining soft due to Covid. It followed the prior month’s reading of +1.6%. However, factory gate prices (producer prices) dropped -0.7% y/y in December (v/s -0.1% expected), but up from a fall of -1.3% in November. Elsewhere, Australia’s trade surplus unexpectedly grew in November to A$13.20 billion (v/s +A$11.30 billion expected), compared with last month’s revised reading of A$12.74 billion. The figure was at its highest level since a record high hit in June.

In the FX market, the Japanese yen (+0.77%) is strengthening against the dollar this morning, trading at $131.43 following the news that the Bank of Japan (BOJ) will review the side-effects of its ultra-loose policy at next week’s policy meeting.

Elsewhere, several commodities have put in a pretty decent performance over the last 24 hours. For instance, Brent crude oil prices were back up by +3.21% to $82.67/bbl, having risen every day so far this week. They are up another +0.17% in Asia. Separately, copper prices were up +2.17% last night to their highest level since June, having been supported by growing optimism about Chinese demand given the reopening.

Lastly, there wasn’t much data of note yesterday, although Italian retail sales for November unexpectedly grew by +0.8% (vs. -0.3% expected).

To the day ahead now, and the main data highlight will be the US CPI release for December, whilst other data includes the weekly initial jobless claims. From central banks, we’ll hear from the Fed’s Harker, Bullard and Barkin, as well as the BoE’s Mann, and the ECB will be publishing their Economic Bulletin.

Authored by Philip Giraldi via The Ron Paul Institute,

Even though one has become accustomed to seeing the United States government behaving irrationally on an epic scale with no concern for what happens to the average citizen who is not a member of one of the freak show constituencies of the Democratic Party, it is still possible to be surprised or even shocked. Shortly before year’s end 2022 an article appeared in the mainstream media and was quite widely circulated. The headline that it was featured under in the original Business Insider version read “A nuclear attack would most likely target one of these 6 US cities — but an expert says none of them are prepared.” The cities were New York, Washington DC, Los Angeles, Chicago, Houston and San Francisco.

The article seeks to provide information and tips that would allow one to survive a nuclear attack, repeating commentary from several “experts” in emergency management and “public health” suggesting that a nuclear war would be catastrophic but not necessarily the end of the world. One should be prepared. It observes that “those cities would struggle to provide emergency services to the wounded. The cities also no longer have designated fallout shelters to protect people from radiation.” It is full of sage advice and off-the-cuff observations, including “Can you imagine a public official keeping buildings intact for fallout shelters when the real-estate market is so tight?” Or even better the advice from the Federal Emergency Management Agency (FEMA)’s “nuclear detonation planning guide” that for everyday citizens in a city that has been nuked: “Get inside, stay inside, and stay tuned.” Dr. Ron Paul asks “Are they insane? They act as if a nuclear attack on the United States is just another inconvenience to plan for, like an ice storm or a hurricane.”

The article argues that the six cities would be prime targets as they are centers for vital infrastructure. The bomb blasts would kill hundreds of thousands or even millions of Americans with many more deaths to follow from radiation poisoning, but the article makes no attempt to explain why Russia, with a relatively sane leadership, would want to start a nuclear war that would potentially destroy the planet. Also, the targeting list of the cities provided by the “experts” is itself a bit odd. Surely Russia would attack military and government targets as a first priority to limit the possible retaliation while also crippling the ability of the White House and Pentagon to command and control the situation. Such targets would include both San Diego and Norfolk where the US Atlantic and Pacific fleets are based as well as the various Strategic Air Command bases and the underground federal government evacuation site in Mount Weather Virginia.

Reading the article, one is reminded of the early years of the Cold War that sought to reassure the public that nuclear war was somehow manageable. It was a time when we elementary school children were drilled in hiding under our desks when the air raid alarm went off. Herman Kahn was, at that time, the most famous advocate of the school of thought that the United States could survive the “unthinkable,” i.e. a nuclear war. An American physicist by training, Kahn became a founding member of the beyond neocon nationalist Hudson Institute, which is still unfortunately around. Kahn, who served in the US Army during the Second World War as a non-combat telephone lineman, started has career as a military strategist at the RAND Corporation. Kahn endorsed a policy of deterrence and argued that if the Soviet Union believed that the United States had a devastating second-strike capability then Moscow would not initiate hostilities, which he explained in his paper titled “The Nature and Feasibility of War and Deterrence.” The Russians had to believe that even a perfectly coordinated massive attack would guarantee a measure of retaliation that would leave them devastated as well. Kahn also posited his idea of a “winnable” nuclear exchange in his 1960 book On Thermonuclear War for which he is often cited as one of the inspirations for the title character of Stanley Kubrick’s classic film Dr. Strangelove.

The appearance of the Business Insider article dealing with a cool discussion of the survivability from a nuclear war suggests that the nutcases are again escaping from the psychiatric hospital here in the US and are obtaining top jobs in government and the media. While one continues to hope that somehow someone will wake up in the White House and realize that the deep dark hole that we the American people find ourselves in mandates a change of course and a genuine reset, there is little daylight visible in the darkness.

My particular concern relates to the entangling relationships that have kept our country permanently at war in spite of the fact that since the Cold War ended in 1991 no potential adversary has actually threatened the United States. Now, the federal government appears to be in the business of cultivating dangerous relationships to justify defense spending and placing the nation on the brink of what might prove to be catastrophic. The current US mission to “weaken Russia” and eventually also China in order to maintain its own “rules based international order” includes such hypocritical and utterly illegal under international law anomalies as the continued military occupation of part of Syria to deny that country’s leaders’ access to their oil fields and best agricultural land. A recent UN humanitarian agency investigation determined that the Syrian people are suffering and even starving as a result of that and US imposed sanctions that the Biden Administration maintains against all reason and humanity.

At the present time, however, the most entangling of all relationships, even more than with Israel, has to be the engagement of the US in the proxy war being fought against Russia on behalf of Ukraine, which is exactly what threatens to turn nuclear if someone blinks at the wrong time. Billions of dollars in direct aid as well as billions more in the form of weapons stripped from arsenals in Europe and the US have been given to the corrupt regime of President Volodymyr Zelensky while Zelensky continues to work assiduously to milk the situation and draw Washington into a deeper war directly confronting Moscow.

In fact, by some reckonings the war has already begun, with the US and its allies clearly dedicated to crippling the Russian economy while also getting rid of President Vladimir Putin. The 101st Airborne is now in place in Romania next to Ukraine to “warn” the Kremlin while the Pentagon has recently admitted that some American military personnel are already in Ukraine, contrary to the denials by White House spokesmen. The British have also revealed that some of their elite Special Ops personnel are on the ground. And there are reports that more American soldiers will soon be on the way, ostensibly to “track the weapons” being provided to Zelensky, which will include US-made, Patriot Missile batteries some of which might even be placed in NATO member Poland to provide air cover over Western Ukraine, a definite act of war as seen by Russia, which has warned that such a move would mean that the US and its allies had “effectively become a party” to the war in Ukraine and there will be “consequences.” “Consequences” means escalation.

The soldier-“trackers” mission may be in response to reports that weapons provided by NATO have been corruptly sold or given to third countries by the Ukrainians. The several US initiatives taken together could produce a rapid escalation of the conflict complete with dead Americans coming home in body bags and an inevitable direct US involvement in combat roles that could lead anywhere, but at this point it is the Russians who are acting with restraint by not targeting the NATO and US “advisers” who are already active in Ukraine.

Suspicion is also growing that the United States “green-lighted” in advance recent cruise missile attacks carried out by Ukraine against military targets deep inside Russia. Since the attacks, the White House has declared that Ukraine has “permission” to attack Russia and has basically conceded to the unbalanced Zelensky the right to make all the decisions and run the war that the US is largely funding, which is a formula for disaster. It is already known that Ukraine is receiving top level intelligence provided both by the US and also other NATO states. The precision attacks on Russia suggest that the Ukrainian army was given the coordinates of possible active targets, something that the US would be capable of providing but which would have been beyond the abilities of Ukraine, which possesses no satellite surveillance capability. If it is true that the White House was involved in escalating the conflict it would be a very dangerous move, inviting retaliation by Moscow.

To be sure, some idiots in Washington, mostly of the neocon variety, continue to see war against Russia as something like a crusade for world freedom. Rick Newman, Yahoo’s top Finance Columnist, observes how “Budget hawks in Congress are worried about granting President Biden’s request for an additional $38 billion in aid for Ukraine to help defeat the invading Russians.” He concludes “They’re right. Thirty-eight billion isn’t enough. Make it $50 billion. Or even $100 billion. The more, the better, until the job is done.”

Apparently, the bellicose Rick does not quite get that Russia has made clear that if it is about to be defeated by force majeure it will go nuclear. And Congress and the White House don’t seem to get it either, with both the Republican and Democratic parties oblivious to the real danger that confronts the American people. Nuclear war? Sure! Just hide in your basement, if you have one, and tune in.

European natural gas prices have plunged to pre-Ukraine invasion levels on mild winter. Heating demand across the EU has declined, allowing fuel storage tanks to continue injections and remain above seasonal levels. This bodes well for the energy-stricken continent, but new weather forecasts suggest a late-month return to winter. 

The benchmark Dutch TTF futures contract for February was down to 65.80 euros a megawatt-hour or more than 6% on the session. On the eve of Russia’s invasion last February, the contract sold for about 88 euros. 

Several factors have allowed the EU to skirt around an energy crisis, including alternatives to Russian NatGas, such as increased imports of US LNG, widespread conservation efforts for residential and business customers, and a very mild winter. 

NatGas stockpiles across the continent are well above a 12-year mean for this time of the year. The percentage of NatGas full has yet to fall from around 83% since Christmas. 

Meanwhile, new weather models are pointing to a possible flip back to colder temperatures next week for parts of Europe. Natgas traders will be focused on the severity of the cold and the impacts on heating demand. 

The return of wintry conditions follows a record-warm start to the year, which provided relief from an energy crunch that has hammered Europe for months. The mild weather curbed demand for heating, allowing some countries to top up natural gas stockpiles at a time when they’d usually be tapping supplies.

Most of Britain will see below-average temperatures by the end of next week, with snow possible in northern areas, according to the country’s Met Office. –Bloomberg

 A few models show the possible cold snap for parts of the EU next week. 

📉 It’s been a mild start to the year, but colder air is on the way back to the UK

❄️ Many of us will see the return of overnight frosts, and snow is possible in some areas by early next week pic.twitter.com/8GLpCWgWpU

— Met Office (@metoffice) January 11, 2023

🔵❄ Vers un net refroidissement la semaine prochaine sur l’#Europe occidentale, dont la #France, ou plutôt retour à un temps classique d’#hiver après des semaines trop douces. Possibilité de #neige jusqu’en plaine à surveiller ! pic.twitter.com/wR7YzywqW1

— Anthony Grillon 🌪 (@AnthoGrillon) January 11, 2023

Colder temperatures could be arriving in North West EU in days. 

However, Ole Hansen, head of the commodity strategy at Saxo Bank A/S, pointed out that “despite the risk of a colder end to January and early February, the abundance of gas in Europe will continue to curb the upside risk, even with increased demand from Asia.” 

Authored by Chris Summers via The Epoch Times,

Attempts to ban Joe Rogan or get him removed from Spotify for hosting “maverick” voices during the pandemic have “backfired,” a committee of British MPs has been told.

The Digital, Culture, Media and Sport sub-committee on online harms and disinformation has been set up to look at the “role of trusted voices in combating the spread of misinformation” and “ensure the public has sufficient access to authoritative information on matters of national debate.”

Tracey Brown, director of the charity Sense about Science, was one of three scientific experts who were questioned by MPs on Tuesday about lessons that could be learned about the dissemination of factual information, especially about COVID-19.

Brown told the committee:

“Joe Rogan, and ‘The Joe Rogan Experience’ podcast—who got 12.8 million subscribers, 200 million listeners—had a lot of guests on who … were a bit maverick in their thinking.”

“But he was taking an audience of people who were beginning to ask questions about how reliable was the vaccine information. And it wasn’t just about saying vaccines are rubbish, it wasn’t just an anti-vax campaign. He was actually asking a lot of questions that were on a lot of people’s minds,” said Brown.

She said there could have been a conversation with Rogan about the “calibre” of some of his guests, but she said it created an “opportunity” to reach an audience of 200 million people.

Brown said:

“Instead, what happened was a group of epidemiologists in the [United] States wrote to Spotify trying to get him banned and of course, that fed a huge load of conspiracy that was so much harder for us to follow and to get our hands on and to deal with, and I think it really backfires when people in authority try to do that.”

Bob Ward, policy and communications director at the Grantham Research Institute on Climate Change and the Environment, said there was a need for more scientific experts to go to “the coalface” and “engage with the sceptics.”

He said:

“That’s where we really need to focus because our current set-up, where we’re relying on too many gatekeepers who are making bad decisions or the wrong decision, isn’t serving our purposes.”

Ward said: “You gave the example of the January 6th insurrection in the United States and what we’ve seen in Brazil. Hand on heart, could we say that could never happen here in the UK?”

“I wouldn’t be confident in saying we would never have that happen here. And so better that we learn from the dangers that others have experienced and act preemptively rather than wait until they get as bad there and then go, ‘Oh dear, we should have done something.’”

Misinformation and Disinformation

Ward added: “Let me make a distinction here. Misinformation is inaccurate or misleading information. Disinformation is misleading and inaccurate information which is spread specifically to deceive.”

The chairman of the committee, Damian Green, asked Ward:

“If you model you project into the future … and sometimes you’re going to get it wrong. I mean, we all remember the projections of tens of thousands of deaths from BSE [Bovine Spongiform Encephalopathy, or Mad Cow Disease] and things like that which turned out not to be true.”

Ward replied:

“Well, that’s because modelling is generally misunderstood. I mean, modeling is used in scenarios in situations where you cannot give probabilities … Largely what was happening is the modeling was presented, by the media and other sources, as if these were predictions of an inevitable outcome. Whereas actually, what they were saying is, no policy will get you here. These policies will get you here.”

Chris Smith, clinical director in virology at the University of Cambridge, said: “Social media and the internet has been an amazing thing and it has transformed the world. But what it has also done is to break all of the existing models that meant there was good curated information of responsible reporting and there were editorial practices, because it basically hands a megaphone to anybody.”

He said: “The way these algorithms are created on things like Twitter is they will find you people who agree with you. So if you say something, it will go and find a bunch of people who say the same thing as you and it makes you friends with them. So even if you previously had nobody listening to a thing you said and no one would have believed you, suddenly you’re introduced to enormous loads of people who appear to share your opinion, which reinforces your self-belief.”

Smith said he posted on social media that he had just taken the Pfizer vaccine and he said, “Someone sent me back the circuit diagram for the microchips that were in the vaccine that I had just received and that Bill Gates was now using to control me.”

He went on: “I thought this is quite intriguing because it didn’t look like any microchip circuit diagram I’d ever seen. So I went and looked it up. And it was actually the wah pedal for a guitar.”

Patients lie on beds in a hallway in the emergency department of Zhongshan Hospital, amid a COVID-19 outbreak in Shanghai, China, on Jan. 3, 2023. (Staff/Reuters)

Smith said, “Anyone who doesn’t have the intelligence, or the necessary background education, to pick that apart and realise and see it for what it is, would have been potentially seduced by that piece of disinformation … and potentially put off of getting vaccinated.”

Smith went on to explain how viruses work and he pointed out that in the 1890s there was an outbreak of a virus called OC43—which was better known as Russian flu—which “spread like wildfire” after jumping from cows to humans, and killed a large number of people.

He said: “I guarantee if I go and test 100 people off the streets out there I’ll find probably about five or 10 of them with it today. And they will have the symptoms of the common cold. So what happens is that these things start off as a dramatic splash in the water and then the ripples slowly subside as we become better bedfellows with the virus and the virus becomes better bedfellows with us and we adapt to it.”

Smith said: “What we’re in a situation with COVID right now is … we’ve adapted and we’re now in a position where it’s causing a common cold-type manifestation across most of the world, except in China, where people haven’t spent the last three years catching it. Unlike this country where about 90 percent of the population is having it more than once, no one really has had it in China. Now they’re all getting it, so it’s like it was here three years ago.”

Just when you thought this timeline couldn’t possibly get any dumber.

Patently absurd scenes took place during and after hundreds of police began clearing climate change protesters out of an abandoned village on Wednesday in a showdown over the expansion of an opencast lignite mine that has highlighted tensions around Germany’s climate policy during the country’s ongoing energy crisis.

The protesters formed human chains, made a makeshift barricade out of old containers and chanted “we are here, we are loud, because you are stealing our future” as dumbounded police in helmets moved in. Some threw rocks, bottles and pyrotechnics although nobody is reported to have superglued themselves to something else. According to Reuters, police also reported protesters were lobbing petrol bombs.

The demonstrators, wearing masks, balaclavas or biosuits (and all probably in their mid teens, with purple hair and extremely bored) have been protesting against the Garzweiler mine, run by energy firm RWE in the village of Luetzerath in the brown-coal district of the western state of North Rhine-Westphalia.

Of course, climate activist and patron saint of idiots everywhere, Greta Thunberg, who recently was dethroned as the world’s “green” oracle by the up and coming sex symbol Sophia Kianni, and desperate to once again be in the spotlight plans to join the demonstration on Saturday, a spokesperson for Luetzerathlebt environmentalist group told Reuters. By then, however, it will be too late.

Economy Minister Robert Habeck of the Greens called for no further violence after police and protesters scuffled.

“Leave it at that – from both sides,” he told reporters. but police say the standoff – a true modern-day version of Kent State… well, not really – could take weeks to resolve.

As the officers moved in, some activists perched on the roofs or the windows of the abandoned buildings, chanting and shouting slogans, because that’s what they do; sometimes they also throw tomato soup at precious paintings and superglue themselves to random stuff.

Lutzerath this morning pic.twitter.com/t48S3ytUtZ

— alex thomson (@alextomo) January 10, 2023

Others hung suspended from wires and wooden frames, or were holed up in treehouses to make it harder for police to dislodge them after a court ruling allowed for the demolition of the village now otherwise empty of residents and owned by RWE. Which of course only made the bored, purple-haired teenagers even angrier.

Julia Riedel, who said she has been camping in the village for two-and-a-half years – because jobs are for wimps, not for courageous crusaders against evil companies that deliver electricity – said the demonstrators had taken up their positions “because the issue here is whether the climate will cross the tipping point or not.”

Actually, the issue is that Julia is a spoiled little brat who needs some purpose in her life, which is otherwise a miserable and empty existence, even if that purpose is to make Greta Thunberg’s puppetmaster parents even richer.

Luckily police, who had water cannon trucks on standby, led away and carried some protesters from the site. It’s unclear if Julia was among them.

The project has underscored Germany’s dilemma over climate policy, which environmentalists say has taken a back seat during the energy crisis that has hit Europe after Russia’s invasion of Ukraine, forcing a return to dirtier fuels.

It is particularly sensitive for the Greens party, now back in power as part of Chancellor Olaf Scholz’s coalition government after 16 years in opposition. Many Greens oppose the mine’s expansion, but Habeck has been the face of the government’s decision.

“The empty settlement of Luetzerath, where no one lives any more, is the wrong symbol in my view,” Habeck said with reference to the demonstration.

#Luetzerath pic.twitter.com/XxM1gQLkxl

— Kristian Frigelj (@Kri_Fri) January 11, 2023

Some disagreed: Birte, a 51-year-old midwife who joined the protest on Sunday, was in tears as police led her away. She said it was important for politically moderate citizens to attend the protest, to show “that these are not just young, crazy, violent people, but that there are people who care”.

As it turns out, it was mostly young, crazy, violent people.

Police have urged the protesters to leave the area and remain peaceful, but since protesters would have to go back to their empty lives devoid of meaning and purpose, they refused.

“It’s a big challenge for the police and we need a lot of special forces here to deal with the situation. We have aerial rescue specialists,” said police spokesperson Andreas Mueller. 

“These are all factors that make it difficult to tell how long this will last. We expect it to continue for a least several weeks.” Of course, once temperatures turn subzero in Europe, the confrontation between will be over in seconds.

Meanwhile, a Reuters eyewitness saw police using heavy machinery to start dismantling high barricades. RWE said earlier on Wednesday it would start to dismantle Luetzerath, and had begun building a fence around the area.

“RWE is appealing to the squatters to observe the rule of law and to end the illegal occupation of buildings, plants and sites belonging to RWE peacefully,” RWE said.

Not lost on any third party observers is just how idiotic the whole scene looks from outside: the fallout of Russia’s invasion of Ukraine has prompted Scholz’s government to change course on previous policies for Germany, a country which solemnly pretended to be enamored with the idiocy that is the “green new deal”, so much so that the Greens actually believed their own lies, and so did the people… the same people have now pay the highest price for power and heat since the Weimar republic.

And so, from a symbol of progressive green-isn, Germany has regressed to the dismal era of flourishing fossil fuel, crushing the idealistic hopes and visions of an entire generation of idiots. Among German’s relapses include firing up mothballed coal power plants and extending the lifespan of nuclear power stations after Russia cut gas deliveries to Europe in an energy standoff that sent prices soaring.

Of course, it wouldn’t be Germany if it didn’t demonstrate it has learned absolutely nothing, and as a virtuous offset to its pissing on progressives dreams and ideals, the government has brought forward the date when all brown coal power plants will be shut down in North Rhine-Westphalia, to 2030 from 2038, acceding to a campaign promise from the Greens. In other words, much more idiocy awaits the German virtue signalers.

Authored by Conor Gallagher via NakedCapitalism.com,

It seems like yesterday that the western media was up in arms that Italian Prime Minister Giorgia Meloni and her Putin-loving Brothers of Italy (Fdl) party were going to march Italy right out of the EU and NATO.

Unfortunately, Italy’s economy and foreign policy are controlled by the EU and NATO, respectively, and Meloni never showed any desire to rock the boat, immediately pledging fealty to both as soon as the Fdl emerged as frontrunners in the September election.

The problem for Meloni and the country is that those two commitments are now working in tandem to destroy Italians’ standard of living – a long-running process that is now being sped up.

NATO’s proxy war against Russia in Ukraine is driving energy prices through the roof. Gas bills for a median Italian household jumped so much (23.3 percent) in December compared to November that the National Consumer Union was warning  of “heart attack bills.” The hikes are hitting consumers and industry alike and causing the government to scale back its meager social spending promises in order to shovel money at the energy problem.

Good news. Inflation in the €zone declined by more than expected in December to 9.2%. Energy prices and (energy-intensive) food prices are still the main drivers. pic.twitter.com/8DBU5qyMLj

— Philipp Heimberger (@heimbergecon) January 7, 2023

Despite NATO’s Ukraine war being the driver of Eurozone inflation, the European Central Bank is determined to keep hiking interest rates even if that means recessions for bloc countries and another debt crisis for Italy. The ECB raised its benchmark interest rate by 50 basis points In December, but also signaled that more hikes would follow in the coming months, which triggered a sell-off of Italian government bonds.

Italy’s borrowing costs have risen to over four percent and are causing alarm in Rome. Meloni said the ECB should avoid making “choices that make things worse.” Deputy Prime Minister Matteo Salvini called the ECB’s decisions “unbelievable, baffling, worrying.” Italian Defense Minister Guido Crosetto criticized the ECB and its president Christine Lagarde for blindly following economic theory despite the harm it will inflict on businesses and workers.

“You have to justify this politically to your European citizens. You are not a Martian,” he said. Crosetto even resorted to accusing the ECB of aiding Russia with its rate hikes. The situation for Italy could worsen as growth slows and interest rates rise further. According to FT:

The new Italian government had “given little cause for concern for investors for now,” said Veronika Roharova, head of euro area economics at Swiss bank Credit Suisse. “But concerns may resurface if growth slows, interest rates continue to rise and [debt] issuance is picking up again.”

Economists are now widely expecting all three of those to occur. Two-thirds of economists polled by FT predicted the ECB would start cutting rates in 2024 – likely after Italy and other states in the EU are in a recession. Again from FT:

The ECB will start shrinking its €5 trillion bond portfolio by €15 billion per month from March by replacing only partially matured securities, putting further pressure on Italian borrowing costs. Ludovic Subran, chief economist at German insurer Allianz, said the eurozone risked a repeat of the 2012 bond market collapse “as fiscal options differ across countries without the heavy lifting of the ECB”.

Italy’s borrowing costs have already risen sharply since the ECB started raising interest rates over the summer. The 10-year bond yield has climbed above four percent (the level at which investors say panic sets in), nearly quadrupling the level of a year ago, and 2.1 percentage points above the equivalent yield on German bonds.

According to Bloomberg, such conditions “threaten to unlock the same Pandora’s box that fueled the euro crisis of 2010-12, when the currency bloc nearly split apart as more-indebted countries faced a sudden, harsh tightening of financial conditions as investors sold off their bonds.”

Meloni and the Fdl thought they could pursue policies that married Brussels-prescribed neoliberalism and conservative nationalism, but the current situation shows just how difficult such a strategy is. It’s hard to be nationalist when you don’t control your economy or foreign policy.

Meloni did nearly everything the EU wanted. She declared fealty to the EU and NATO, broke campaign promises in order to scale back meager social spending plans, and appointed pro-EU Atlanticists to key positions like economy minister and foreign minister.

She continued the neoliberal economic reforms of her predecessor, the former vice chairman and managing director of Goldman Sachs International and ECB president, Mario Draghi. She promised to implement further reforms so as not to jeopardize 200 billion euros (a sum that looks paltry in the face of the gathering economic storm) from the European recovery plan.

But the EU always wants more. Brussels and Rome are again at loggerheads over reforms to the European Stability Mechanism (ESM), which was set up in 2012 after the sovereign debt crisis and aims to help bail out countries in exchange for strict reforms (think Greece-level austerity and privatization).

Italy may soon require assistance from the ESM, but the reforms include “a stronger role in future economic adjustment programmes and crisis prevention. In addition, the application process for ESM precautionary credit lines will be easier, and the instruments will be more effective.”

Italy is the only eurozone country that is yet to ratify the ESM reform with many in the country fearful that it would increase the risk of a restructuring of Italy’s national debt, the loss of what little economic sovereignty Italy has left, and a further deterioration in standard of living.

***

A brief background on the makeup of the ESM: it’s comprised of a Board of Governors with a representatives from each of the 19 ESM shareholder countries. After that, it gets a little convoluted. The ESM provides this illustration to clarify things: 

The management board of the ESM is composed of the following:

• Pierre Gramegna, the former Minister of Finance of the Grand-Duchy of Luxembourg;

• Christophe Frankel, the former Head of Financial Markets at Crédit Foncier de France in Paris;

• Rolf Strauch, a former European Central Banker in the Directorate General Economics on fiscal, monetary, and structural policies and an economist at the Deutsche Bundesbank;

• David Eatough, previously an investment banker at Credit Suisse;

• Kalin Anev Janse, a former corporate finance advisor at McKinsey & Company and investment banker at JPMorgan;

• Sofie De Beule-Roloff, with a background in hotel and HR management;

• and Nicola Giammarioli, formerly an IMF executive board member. 

***

Should Italy need assistance from the ESM, it is hesitant to hand over even more of its economic sovereignty to such a group. The Meloni government instead wants the ESM to become a fund to boost investment across the EU and help soften the impact of sky-high energy prices. The suggestion has gained little traction with the rest of the bloc, and the standoff over the ESM reforms could get quite ugly if/when Italy requires assistance.

There are few tragedies that leap to mind in this mess for Italy. The first is that for the past quarter century Italy has followed Brussels’ neoliberal economic playbook, which has only made its situation worse.  According to economist Philipp Heimberger: 

The mistakes that were made 40 years ago took place in an environment of rising interest rates. Since then, the Italian state has been carrying a heavy interest-rate backpack. If we exclude the burden of interest rates, however, the Italian state consistently ran budget surpluses from 1992 up to the Covid-19 crisis. Even Germany, Austria and the Netherlands recorded a comparable ‘primary’ budget surplus less frequently than Italy. The Italian state has not been as ‘profligate’ as is often claimed: it has consistently collected more in taxes than it has spent. IMF data show that Italy implemented the most severe fiscal consolidation packages of all advanced economies between 1992 and 2009, especially when it comes to spending cuts.

A flexibilisation of the labour market since the 1990s brought a sharp increase in fixed-term contracts, a pushback against trade unions and a decline in real wages compared to Germany and France. These measures not only reduced inflation in the 1990s. Cheap labour has increased the labour-intensity of production, thereby reducing the incentives for labour-saving investment by companies. Private investment, however, is key to rising productivity and is particularly crucial in high-tech sectors. Productivity growth is in turn the basis for growth and rising incomes. Market-liberal labour market reforms have thus arguably done more harm than good to Italy’s productivity growth.

The second tragedy is that Italian workers continue to get hosed, which has also been happening for the past quarter century. In 2000 the standard of living in Italy was comparable to that of Germany. Today, Italy’s per capita income levels are 20 percent below Germany’s. During that same time Italy has become one of the most unequal societies in Europe.

While wealthier Italians (what economist Stefano Palombarini calls the country’s “bourgeois bloc”) support the country’s neoliberal transition and find a voice in every Italian government, the working class has been abandoned by every Italian political party for 30 years.

Ever since the Italian Communist Party – long one of the most powerful in Europe – finally capitulated to CIA efforts to destroy it in the 1990s, Italy’s working class have lacked a political home, and the neoliberal project continues no matter who is in government. That fact has taken a toll as the turnout in Italy’s September election was the lowest since World War Two. Many of those who didn’t bother to go to the polls were working class voters.

Meloni and the Fdl were able to emerge victorious because they were able to, at least momentarily, deflect attention away from the neoliberal policies. Stefano Palombarini writes in Jacobin:

It claims the living conditions of the working classes are not being undermined as a result of neoliberal policies and reforms, but because of threats to national identity, the wave of migration, the explosion of crime, the model of the traditional family being called into question, etc. It goes without saying that the promise of protection against artfully created and largely imaginary enemies is bound to severely disappoint the socially weaker fraction of the right-wing bloc; even so, it has allowed them to reach power.

The problem remains that since Brussels calls the shots in Italy’s economy, workers are stuck in the only major European country where wages have lost value in real terms since the 1990s. One party that appeared to truly want to do something for Italy’s workers was the Five Star movement, which took power in 2018. Its draft budget plan called for an increase in the public deficit, a tax amnesty for lower incomes, pension reform allowing early retirement, and a basic income for citizens.

The EU, to put it mildly, was not a fan and threatened Italy with the dreaded excessive deficit procedure. Therein lies the rub: how do you appeal to a wide swath of the Italian electorate by reversing the decline in their living standards while remaining inside the straitjacket of EU rules?

One route for the Fdl was to try to emulate Poland’s Law and Justice Party (PiS), which took power in 2015 and has remained there ever since by combining neoliberalism and nationalism. But that still requires offering workers at least a little something – something that the Fdl is unable to do or unwilling to try. Instead, Meloni’s government is getting rid of one of Five Stars few achievements (a measly citizens’ wage that provides the unemployed an average of 567 euros a month). 

Despite criticism of its conservative social policies, the Law and Justice Party enjoys widespread support from the working class due to its popular programs, including an increase in pension payments, subsidizing children’s school supplies and monthly payments to families per child, from the second child onward.

But even the PiS’ combination of neoliberalism and conservative nationalism has its limits, as Poland is also locked in a battle with Brussels over the release of EU funds. Recall that Meloni and the Fdl were the recipient of not-so-subtle threats from EU officials ahead of the Italian election.

NEW – EU Commission President on the upcoming elections in Italy, where a right-wing victory is expected:

“We will see. If things go in a ‘difficult direction’ – I have spoken about Hungary and Poland – we have tools.” pic.twitter.com/PxtvpXyCua

— Disclose.tv (@disclosetv) September 23, 2022

The aristocratic Ursula Von der Leyen was presumably referring to the problems facing Hungary and Poland’s access to EU funds because of their refusals to toe the bloc’s line and/or the ECB’s ability to engineer a debt crisis in Italy.

Despite campaigning as a nationalist, Meloni backed down when she first formed her government. We’ll see how she proceeds now in her standoff with the EU that wants more control over the Italian economy.

Authored by Sophia Lam via The Epoch Times (emphasis ours),

Large groups of workers staged protests on Jan. 7 at a pharmaceutical manufacturing company in Chongqing, a megacity in the southwest of China. The protests erupted after thousands of workers were abruptly laid off by Zybio, Inc., a manufacturer of COVID-19 test kits.

Videos posted online show angry workers demolishing boxes of COVID-19 test kits, vandalizing the company’s offices, and clashing with police in riot gear. Protesters threw plastic boxes, water bottles, and cones at police, who ran from protesters—a rare occurrence in China.

The unrest began when Zybio suddenly laid off nearly 8,000 employees, according to workers interviewed by the Chinese language edition of The Epoch Times. The employees were notified that they could leave for the Chinese New Year, which is still two weeks away, effectively ending their employment.

Zybio is a leading manufacturer of in vitro diagnostic reagents and equipment based in the Dadukou District of Chongqing, according to the company’s website. Many of those laid off had been recruited by Zybio last year to meet an urgent demand for tests under China’s zero-COVID policies.

That demand did not materialize, as China abandoned the three-year-long measures abruptly in early December, ending massive mandatory PCR testing.  The halting of mandatory testing hit the pharmaceutical manufacturer hard.

Layoffs Were the Last Straw

Xiaodong (pseudonym), a Zybio worker, confirmed to the Chinese language edition of The Epoch Times that the protests were sparked by the company’s abrupt layoffs.

The last three years have seen Chongqing—which has a population of over 30 million—battered by lockdowns, November’s massive protests, and December’s COVID-19 surge. Coming shortly before the Chinese New Year, the sudden layoffs were the last straw for many workers.

Speaking with The Epoch Times on Jan. 7, Xiaodong accused Zybio of not keeping its promises.

“The company told us to leave, but it didn’t tell us when to come back and if it would pay us our wages,” Xiaodong said.

According to Xiaodong, in addition to higher wages, Zybio had promised a 3,000 yuan (about $438) bonus to workers who would work for the company before and after the Chinese New Year.

Xiaodong, who began working for the company in June, believed that it had a large order at the beginning of December and recruited 6,000 to 7,000 workers at that time.

“[Zybio] recruited more workers at the beginning of December,” Xiaodong said, “They said that they would pay the bonus in three installments: the first installment of 1,000 yuan (about $146) would be paid if we worked until Jan. 21 and other installments would be paid if we worked until Feb. 15.”

“I was assigned to make nucleic acid extractors in July. We earned pretty good income in November, about 8,000 yuan to 9,000 yuan ($1,170 to $1,316) for the month,” Xiaodong said. That was the month with the highest income, he said. In October, he earned over 6,000 yuan (roughly $877).

However, the company’s income fell when the Chinese regime announced the lifting of lockdowns and the halting of mandatory PCR testing. The massive layoffs this month involved about 80 percent of the company’s total workforce, according to Xiaodong.

From PCR to Antigen Testing

China’s sudden relaxation of pandemic restrictions left the country in chaos. Chinese citizens complained of a shortage of medicines, hospitals were overwhelmed with patients, and crematories operated around the clock as bodies piled up.

As the recent spike of COVID-19 swept across the country, residents and doctors in rural areas and remote townships in China complained of a shortage of medicines and antigen testing kits, according to interviews with the Chinese language edition of The Epoch Times.

Zybio pivoted from PCR tests to antigen tests, which offer less accurate, but more rapid results. However, it was not enough to save the Chongqing factory, which a Radio Free Asia report described as “now-defunct.”

“Some provinces no longer imposed PCR testing in November, so the company [Zybio] began to manufacture antigen testing kits. The problem now is that it gets no more orders for these products,” said Xiaodong.

‘Don’t Create Any Trouble’

The layoffs were handled in a perfunctory manner, infuriating workers, according to Xiaodong.

“No management showed up or explained to us what was happening. Only a person from the recruitment company came and shouted at us, using a loudspeaker, and told us just to leave. He said: ‘You just go as you’re told to do so! Don’t create any trouble!’”

Riot police and the head of the Dadukou District government were present during the protests on Jan. 7, according to Xiaodong.

The protestors dispersed after Zybio agreed to pay workers.

“The factory said that it would pay us our wages for December on Jan. 7 and our January income on Jan. 8,” Xiaodong said. He said that Zybio offered 1,000 yuan ($146) as a bonus to workers who still wanted to stay with the company.

At the end of the video footage, police can be heard saying that the protesters are suspected of “disrupting public order” and that organizers will be arrested if they don’t leave immediately.

The Epoch Times’ multiple calls to Zybio were not answered.

Ning Haizhong and Gu Xiaohua contributed to this report.