Authored by Katabella Roberts via The Epoch Times,

Vice President Kamala Harris said on Monday that she expects and “would require” social media companies to work with the Biden administration to prevent so-called misinformation and disinformation, and to “protect democracy.”

During an interview with NPR that aired on Monday, Harris was asked for her thoughts regarding the changes made at Twitter since Elon Musk took over the platform.

“I think about this issue a bit differently, which is my deep and profound concern about how misinformation and disinformation have infiltrated information streams in our country,” Harris said.

The vice president pointed to her four years as a member of the Senate Intelligence Committee, during which she was actively involved in the investigation into alleged Russian interference with the 2016 elections.

Harris said that reports on the matter, both classified and public, showed that there was a “profound amount of intentional disinformation and misinformation targeting specific demographics to take advantage of what might be preexisting disparities and skepticism about the role and importance of government.”

She added that this was allegedly done to weaken American democracy.

President Joe Biden and Vice President Kamala Harris in a file photo. (Office of the POTUS)

Big Tech Must ‘Cooperate’ With Government

“When I see how social media is used in that way, it causes me a very deep level of concern,” Harris said. “So, what I would say about any social media site is this: I fully expect and would require that leaders in that sector cooperate and work with us who are concerned about national security, concerned about upholding and protecting our democracy, to do everything in their power to ensure that there is not a manipulation that is allowed or overlooked that is done with the intention of upending the security of our democracy and our nation.”

The vice president’s comments come amid reports of federal government collusion with Big Tech companies to censor users. White House officials have denied claims that the administration colluded with social media companies to censor free speech on multiple topics, including COVID-19.

Rep. Jim Jordan (R-Ohio) on Dec. 14 wrote to the five largest tech giants—Apple, Amazon, Alphabet, Meta, and Microsoft—demanding documents relating to their alleged censorship practices and the “nature and extent of your companies’ collusion with the Biden Administration.”

“Big Tech is out to get conservatives, and is increasingly willing to undermine First Amendment values by complying with the Biden Administration’s directives that suppress freedom of speech online,” Jordan wrote.

“This approach undermines fundamental American principles and allows powerful government actors to silence political opponents and stifle opposing viewpoints. Publicly available information suggests that your companies’ treatment of certain speakers and content may stem from government directives or guidance designed to suppress dissenting views,” he added.

Then Twitter CEO Jack Dorsey addresses students during a town hall at the Indian Institute of Technology (IIT) in New Delhi, India, on Nov. 12, 2018. (Anushree Fadnavis/Reuters)

Dorsey Says Government Seeking to Control Public Conversation

That letter came as Twitter CEO Elon Musk has taken to the platform in recent weeks to unveil the so-called “Twitter Files,” which detail how conservative commentators had their tweets censored by the platform and how staffers worked to suppress a New York Post article about Hunter Biden’s laptop ahead of the 2020 election.

Following the release of the files, former Twitter CEO Jack Dorsey wrote in a blog post that social media must “be resilient to corporate and government control.”

Dorsey added that governments seek to control and shape the public conversation and will use “every method at their disposal” to do so, which the businessman said includes the media.

“It’s critical that the people have tools to resist this, and that those tools are ultimately owned by the people. Allowing a government or a few corporations to own the public conversation is a path toward centralized control,” Dorsey added.

For all the liberals who couldn’t handle Elon Musk’s liberation of Twitter and the end of widespread censorship of their opposition touted over the last few months about ditching their Teslas for other electric vehicles. One EV that progressives fell in love with was the Chevrolet Bolt. 

My pronouns are he/him, I believe in science, and I support Dr. Fauci. @elonmusk’s continued bad actions kept me from buying a @Tesla and now I am ecstatic to have a @UAW-made @chevrolet Bolt EUV in my driveway! pic.twitter.com/8Jj3kLjaEB

— Eric Sorensen (@ERICSORENSEN) December 12, 2022

For those who made the switch to the Bolt … we have bad news: General Motors Company has recalled 140,000 Bolts in North America because of fire risk. 

Here’s more from Reuters on the recall:

The U.S. automaker said the recall covers various 2017 through 2023 model year Chevrolet Bolt EV vehicles due to rare instances of front seatbelt pretensioner exhaust gases coming in contact with floor carpeting fibers, after a vehicle crash, which could cause a fire.

About 120,000 U.S. vehicles and 20,000 Canadian vehicles are impacted by the recall.

Not only is there recall due to fire risk, but also Bolt owners have to deal with extreme ‘winter range anxiety‘ as colder temperatures can reduce range by as much as 32%. Teslas vehicles, on average, lost around 16.5% of range in cold weather.

This isn’t the first fire risk for Bolts. There has been a series of other recalls where General Motors asked Bolt owners to park “at least 50 feet” from other vehicles due to battery fire risks. 

Authored by Charles Hugh Smith via OfTwoMinds blog,

In my analysis, this is a fatally flawed misreading of structural trends and cycles.

Is it time to get out of the stock market? It depends on the time frame of reference, of course. The market excels at throwing Bulls and Bears alike off the bus with counter-trend rallies and cliff-dives, so the short-term answer may be different from the weekly answer or the monthly answer.

So let’s stipulate a longer time frame of quarters or even years: is it time to get out of the stock market?

There’s a solid case for the answer being “yes.” 

There are two primary dynamics in play:

1) the end of hyper-financialization and hyper-globalization, both of which drove speculation and goosed profits for decades, and

2) the end of central-bank free money for financiers, i.e. ZIRP (zero interest rate policy) a.k.a. historically low cost of capital.

The bullish case for stocks and bonds boils down to this one claim: the Federal Reserve will have to “pivot” from raising rates and reducing financial liquidity free money for financiers to reducing rates and “printing” money again (increasing liquidity).

This claim is based on two assumptions:

1) inflation was driven solely by Covid-lockdown stimulus and supply-chain disruptions, and these are dissipating. Inflation will drop dramatically going forward, so the Fed can “pivot” away from fighting inflation.

2) The 2020s are a continuation of the Bull Market that started in 1981, a multi-decade era in which Big Tech leads the market ever higher, and low interest rates, low inflation, low commodity prices, hyper-financialization and hyper-globalization drive stable growth of credit, consumption and profits.

In my view, both assumptions are false.

The trend / cycle has turned, and inflation is systemic due to structural scarcities / depletion, the higher costs of reshoring, friend-shoring, re-industrializing, etc., and the decline of globalization’s deflationary impulse: there are no more pools of cheap labor and materials that can be readily exploited.

The Fed has very little control of these structural sources of systemically higher costs. Their only lever of control is to increase the cost of capital / credit, which adds an inflationary source to the other structural sources.

As I’ve endeavored to explain, no cycle or trend lasts forever, and the 40-year uptrend has ended. Now a different cycle and trend is developing.

The basic reason is diminishing returns: a little credit injected into a credit-starved economy can have a dramatic impact on growth and prosperity.

But shoving more credit into a debt-saturated economy will have no positive effect at all. Rather, since all debt accrues interest, it has a negative effect by reducing disposable income via bigger interest payments.

Introducing some globalization (competition and new products) into a stagnant, sclerotic economy can boost growth and prosperity, but pushing hyper-globalization in an economy already hollowed out by globalization won’t have any positive effect at all.

That’s where we are: the status quo “solutions” remain financialization (The Fed Will Save Us) and globalization (find a cheaper pool of labor to exploit and a no-environmental-standards place to stripmine the Earth).

Due to diminishing returns, financialization and globalization are now problems, not solutions. We can’t indebt / exploit our way out of the holes dug by financialization and globalization.

The Bear case is based on the fundamentals of a slowing global economy that can’t be saved by increasing financialization and globalization and the impacts of higher costs due to scarcities, depletion, higher costs of capital and de-globalization / reshoring.

The 40-year long Bull market was based on costs continually dropping due to technology, financialization (declining interest rates and ever-expanding credit and money supply), globalization, and expanding workforces, production and consumption.

These trends have reversed. Costs are rising, technology is no longer leading growth, globalization is ebbing, workforces are shrinking and consumption is constrained by scarcities, depletion and higher costs.

The status quo (growth at any cost) has no solutions. Its “solutions” (doing more of what’s failed) only exacerbate The End of Growth. (But trading carbon credits will save us by skimming billions in profits from a shrinking economy! Uh, yeah, sure.)

The Bear case also has a technical-analysis facet.

Many analysts have noted discrepancies in various financial indicators. For example, the VIX is the “fear indicator,” and it hasn’t spiked to levels that reflect capitulation / liquidation–i.e., a tradeable bottom.

Sentiment is supposedly bearish but few have actually sold.

Speculative fever is still running hot. As a friend pointed out, when speculations such as dogecoin (with no utility other than speculation) are still worth billions of dollars, the collapse of speculative frenzy that marks market bottoms is nowhere in sight.

Consumers have borrowed money to fund their spending as inflation chewed up the purchasing power of their earnings, and this eventually forces a reduction in spending when they run out of credit and/or more of their income is devoted to higher interest payments.

The “money creation machine” of the housing bubble has popped due to the return of mortgage rates to historic norms (6.5% to 7.5%).

Labor shortages due to demographics are pushing wages and benefits higher.

How can companies increase profits as sales slow, costs soar and consumers are tapped out? The short answer is they can’t.

Their only response is to lay off workers to reduce costs or in the case of small business, close their doors. This reduces earnings and consumption.

Other that bloated Big Tech, corporations have already cut their staffing to the bone and hollowed out their training. There’s very little left to trim without eroding functionality and utility. Once those decay, the rot spreads quickly to revenues and then to profits.

A factor that I see as woefully under-appreciated is the End of Speculative Fever. Much of the stock market gains of the past two decades have flowed not to real improvements in productivity but speculations founded on the recruitment of a “greater fool” to pay more for an asset than the current owner.

Speculation dependent on extreme leverage and mismatches of duration, liquidity and risk are just as prone to collapse as fraudulent leverage (cough, FTX, cough).

Once the herd mood shifts from greed / complacency to fear, liquidity dries up and sellers can no longer find buyers.

This was Alan Greenspan’s mea culpa after the 2008 Global Financial Meltdown. He admitted the Fed assumed markets would always remain liquid. But in panics, few are willing to buy on the way down, and those who try are quickly wiped out.

Once buyers get skittish, they vanish. With liquidity gone, markets crash.

Complacency and speculative fever remain firmly in place. The classic signals of a tradeable bottom–a spike in VIX to 90 or 100, a capitulation that reflects speculative fever has downshifted into fearful caution–have not happened.

That’s the fundamental case for exiting the stock market.

The Bullish case rests entirely on the assumption that the Fed can flip a switch and the 40+-year Bull market will resume.

In my analysis, this is a fatally flawed misreading of structural trends and cycles.

*  *  *

This essay was first published as a weekly Musings Report sent exclusively to subscribers and patrons at the $5/month ($50/year) and higher level. Thank you, patrons and subscribers, for supporting my work and free website.

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US stocks were set to rise for a second straight day on Wednesday with risk appetite staging a modest comeback amid dismal trading volumes as investors digested the hawkish turn from major central banks over the past week. S&P 500 futures were up 0.5% at 7:30 am ET, while Nasdaq futures gained 0.2%. The dollar reversed earlier losses, while global bonds steadied from the previous day’s selloff as some of the shock following the Bank of Japan’s unexpected increase in its yield trading band ebbed; the US 10Y yield held steady around 3.67%.

On Tuesday, the S&P 500 index snapped a four-day losing streak although the Nasdaq 100 fell for a fifth day in its longest stretch of declines since October, as higher-for-longer interest rates continued to weigh on sentiment. Major US tech and internet stocks are modestly higher on Wednesday, as global bonds steadied from the previous day’s selloff. Bank stocks are also higher in thin premarket trading putting them on track to gain for a second straight day after snapping a four-day losing streak. In corporate news, Core Scientific became the latest crypto company to file for bankruptcy as the industry reckons with a plunge in digital asset prices. Here are the biggest premarket movers:

• Nike shares jump 13% as analysts hiked their price targets after its quarterly sales beat estimates. They said the robust update demonstrated the brand’s strength despite a tough macroeconomic backdrop.
• Tesla shares gain as much as 2.1% after Elon Musk confirmed that he will resign as CEO of social-media firm Twitter when a successor is found and focus on engineering teams, amid worries that the billionaire is spreading himself thin between the companies. Cathie Wood ramped up purchases of Tesla shares in the fourth quarter, despite rising concerns over Musk’s ability to manage businesses
• FedEx shares climb 4.2% after its second-quarter earnings beat analysts’ estimates as price increases and cost cuts offset weakening demand trends.
• Alphabet shares rise as much as 0.9% along with other big tech stocks, with Evercore analysts saying that, while they still see the Google parent as “highly attractive” for long-term investors, they are lowering their estimates and price target amid ongoing weakness in demand for online advertising and cloud computing.
• Starbucks stock declines 0.8% after it was downgraded to hold at Jefferies. The brokerage overall maintains a positive view on the US restaurant and foodservice distribution sector, but turns more selective to reflect greater chance of a recession in 2023, also downgrading Brinker and Red Robin to hold and upgrading Chefs’ Warehouse to buy.
• Adaptive Biotechnologies shares jump 8.2% after the disease-testing instruments maker is upgraded to overweight from neutral at Piper Sandler on broker’s optimism about the company’s minimal residual disease business and potential catalysts in immune medicine in 2023.
• Morgan Stanley analysts led by Vikram Purohit assumed coverage of Halozyme Therapeutics with a recommendation of overweight, citing attractive “defensive properties.”

Dust started to settle on Japan’s shock decision to raise the upper limit of its 10-year bond yield, though the move has set in motion wagers the BOJ will join its peers next year in raising interest rates. Already, surging yields have shrunk the worldwide stock of negative-yielding debt to about $686 billion, from a $18.4 trillion peak reached two years ago. This number is likely to drop further as Japanese two-year yields rose above zero for the first time since 2015 and the 10-year benchmark approached the new upper yield limit, forcing the BOJ to step in with a bond-buying operation. Treasury yields were flat after surging 20 basis points this week.

For Japanese investors, however, the latest policy move may change their calculus for the better. With the yields they can earn on domestic bonds suddenly more attractive, they may look to repatriate some of $3 trillion that Bloomberg data shows is held in foreign equities and debt. “Japanese buyers are already overweight dollar cash and other currencies. They will use it to buy yen and Japanese government bonds as domestic yields rise,” Deutsche Bank strategist George Saravelos told clients, predicting currency markets to see the biggest impact.

In key US news, Ukraine chief comedian and president, Volodymyr Zelenskiy, visits DC today and Joe Biden will unveil almost $2 billion in Ukraine aid. Zelenskiy’s first trip abroad since the invasion will include a prime-time address to Congress. His plea for more advanced weapons is set to be answered with a Patriot missile battery, a significant boost in US support.

• Elon Musk confirmed he’ll step down as CEO after he finds a successor, though he plans to retain control over the engineering teams. Musk said Twitter was on course to have negative cash flow of $3 billion before recent cost-cutting measures. It’s now poised to post revenue of $3 billion, next year, he said, and should reach cash flow breakeven too.  
• Sam Bankman-Fried will be flown to the US from the Bahamas today to face criminal charges linked to the FTX implosion. He’ll be escorted by FBI agents on a private plane, a person familiar said. His legal team is in talks with prosecutors about a possible bail deal, which could include home detention or electronic monitoring, the NYT reported.

While December is traditionally a good month for stock performance, with the S&P 500 index gaining 1.2% on average over the past 30 years and declining just 14 times over the past 50 years, this December is proving to be an exception, and is set to be one of the worst final months of the year for the US benchmark since 1957, as pressure from hawkish central banks and recession risks weigh on the gauge. The S&P 500 has dropped about 6% this month — on par with the losses it sustained in December 2002; only December 2018’s 9% decline was bigger.

“When we look at the equity market response to these incremental monetary policy moves, it always strains belief that we should see future repricing of equity market on the back of what are relatively small central bank moves — even the ECB move,  said Wouter Sturkenboom, Northern Trust Asset Management chief investment strategist for EMEA & APAC. “We were a little surprised the US equity market responded as strongly as it did.”

Global bond yields surged this week after the Bank of Japan unexpectedly increased its yield trading band. The moved followed a surprisingly hawkish tone from the European Central Bank last week. With the 2Y JGB yield rising above 0%, the stock of negative yielding debt is about to drop to zero.

“Even if questions remain about where the Federal Reserve will finally drive borrowing rates, a lot of the 2022 bearish leverages have been already priced-in and we expect stock markets to stabilise following this year’s sell-off,” said Pierre Veyret, technical analyst at ActivTrades. “That said, investors will need further evidence of Fed chairman Jerome Powell’s economic “soft landing” to drive equities to new highs.”

European stocks followed US futures and rebounded from a six-week low with all sectors rising as low average volumes show holiday trading pattern is materializing. In Europe, retailers, real estate and energy are the strongest performing sectors. Euro Stoxx 50 rises 0.9%. S&P futures and Nasdaq contracts rise 0.5% each. Here are some of the biggest European movers today:

• Tremor International shares rise as much as 11% after a Sky News report that the digital-ad company is exploring a sale and is working with Goldman Sachs bankers to solicit interest.
• Interparfums shares rise as much as 8% to their highest since March after the French perfume maker announced a deal to develop and market all perfume and cosmetics lines under the Lacoste brand.
• Philips shares rise as much as 5.5% after the Dutch maker of medical devices provided an encouraging update on tests to assess the safety of its DreamStation sleep-therapy devices.
• Adidas and Puma shares gain more than 9% after Nike’s robust quarterly sales update that beat expectations in all regions except for China.
• Avio plunges as much as 11% after the Italian space company said an anomaly occurred on the VV22 satellite-launch flight, leading to the loss of the mission.
• Billerud falls as much as 5.4%, extending losses into a third day, after DNB cut its recommendation to hold from buy, seeing “tailwinds turning into headwinds” with higher cost inflation and “evidence of softer prices.”

Earlier in the session, Asian stocks headed for a fifth session of declines, as traders assessed adjustments to monetary policy in Japan and a jump in Covid cases in China. The MSCI Asia Pacific Index was little changed after moving between a gain of 0.4% and a loss of 0.3%. While industrial and tech shares weighed on the gauge, Australian miners provided support on higher gold prices. Japanese banks gained after the Bank of Japan doubled its yield cap on Tuesday, although benchmarks fell.

Moves across the region were driven by thin trading into year-end, with benchmarks in China and Hong Kong inching back from a two-day fall. In addition, a surge in Covid infections in China has affected trading desks. India stocks led losses in the region. Looking ahead, traders will keep an eye on US consumption data out Thursday. “With the recent Federal Reserve meeting bringing about an upward revision in US core PCE forecasts in 2023, the data will be looked upon to reflect the pace at which pricing pressures moderate,” Jun Rong Yeap, market strategist at IG Asia, wrote in a note

Japanese stocks fell for a fifth day after the Bank of Japan doubled its cap on 10-year yields, sparking a jump in the yen. The Topix fell 0.6% to close at 1,893.32, while the Nikkei declined 0.7% to 26,387.72. The yen retreated slightly against the dollar after surging almost 4% Tuesday. Toyota Motor Corp. contributed the most to the Topix decline, decreasing 2%. Out of 2,163 stocks in the index, 452 rose and 1,631 fell, while 80 were unchanged.  Prospects of higher yields pushed the Topix Banks Index up 2.6%, adding to the gauge’s jump of more than 5% on Tuesday. The measure was the biggest gainer among the benchmark’s industry groups while automakers, real estate and tech extended declines. “The effects of the BOJ’s surprise move are still lingering,” said Shogo Maekawa, chief global strategist at JPMorgan Asset Management. “While banking and insurance stocks continue to rise, sectors like real estate that are negatively impacted by rising interest rates, and stocks exposed to the strong yen are falling.”

India stocks fell to a one-month low, erasing early gains, as risk-off mood weighed on the domestic market. The S&P BSE Sensex fell 1% to 61,067.24, the lowest since Nov. 10, while the NSE Nifty 50 Index declined by a similar measure.  Investor sentiment is worsening due to global concerns, including Bank of Japan’s surprise hawkish tilt, and rising Covid cases in China, said Jayesh Bhanushali, assistant vice president at IIFL Securities. Foreign investors have been adding fresh short positions in index futures and “there is panic in the market as global economic outlook is bleak,” he said. India’s health minister held a review meeting to look into the country’s covid situation, and has asked officials to stay alert. Of the BSE Ltd.’s 19 sectoral gauges, all but 2 fell, with an index of healthcare-related stocks rising 2.3%. Reliance Industries Ltd. contributed the most to the index’s decline, decreasing 1.4%. 

In FX, the Bloomberg Dollar Spot reversed earlier losses and gain  modestly as most Group-of-10 peers were steady against the greenback, with the exception of the pound and the New Zealand dollar. NZD and GBP are the weakest performers in G-10 FX, NOK and AUD outperform. Yen trades around 131.80 per dollar.

• The pound underperformed most of its G-10 peers as data released Wednesday showed UK government borrowing surged in November. The budget deficit stood at £22 billion ($26.8 billion) –- the highest monthly total in records stretching back to 1993 and almost triple the £8.1 billion reading a year ago. UK business confidence rose at the fastest rate in 20 months as labor market pressures showed signs of easing, the festive trading period exceeded expectations and businesses became more optimistic about the outlook for the economy
• Japan’s longer-dated benchmark bond yields extended yesterday’s surge and the 10-year yield climbed toward the central bank’s new 0.5% cap as speculation deepened that the BOJ will push forward with policy normalization. The yen steadied near the strongest level in more than four months against the dollar

In rates, treasuries are slightly richer across the curve with gains led by front-end, extending steepening momentum of 2s10s, 5s30s spreads which trade through Tuesday highs. The 2-year Treasury yield shed 3bps while longer segment of the curve was steady, making the 2-10-year segment the steepest in five weeks. 10-year yields were around 3.68%, flat vs. Tuesday’s close and outperforming gilts by 2.5bp — bunds trade broadly inline; front-end outperformance steepens 2s10s, 5s30s spreads by 1.8bp and 2.8bp on the day with 5s30s topping through -2bp and widest since Dec. 1. Bund yields steadied after the jump in longer dated global yields yesterday following the BOJ’s surprise tweak to its yield curve control. The Italian curve bull-steepened as yields fell 6-8bps. Gilts underperformed USTs and bunds at the 10-year mark. Peripheral spreads tighten to Germany with 10y BTP/Bund narrowing 6.1bps to 210.6bps.

In commodities, WTI drifts 1.1% higher to trade near $77, rising for a third session. Spot gold falls roughly $5 to trade near $1,813/oz. Iron ore rose for a second day as China’s abrupt Covid Zero reversal and a steady stream of supportive policies improved the likelihood of a recovery in the housing sector. Amyris is among the most active resources stocks in premarket trading, gaining 2%. 

To the day ahead now, and data releases include the US Conference Board’s consumer confidence reading for December, as well as November’s existing home sales and the Canadian CPI reading for November. A 20-year bond auction is scheduled for 1pm New York. Finally, we get the latest earnings from Micron Technology.

Market Snapshot

• S&P 500 futures up 0.4% to 3,865.00
• STOXX Europe 600 up 0.9% to 427.80
• MXAP little changed at 155.41
• MXAPJ up 0.2% to 502.40
• Nikkei down 0.7% to 26,387.72
• Topix down 0.6% to 1,893.32
• Hang Seng Index up 0.3% to 19,160.49
• Shanghai Composite down 0.2% to 3,068.41
• Sensex down 1.0% to 61,089.36
• Australia S&P/ASX 200 up 1.3% to 7,115.09
• Kospi down 0.2% to 2,328.95
• German 10Y yield little changed at 2.29%
• Euro little changed at $1.0626
• Brent Futures up 1.1% to $80.84/bbl
• Gold spot down 0.1% to $1,815.26
• U.S. Dollar Index little changed at 103.98

Top Overnight News from Bloomberg

• In a span of 18 hours last week, years of rigid intransigence from the European Union’s two most rebellious nations started to break. First Hungary and then Poland agreed to fix their democracies’ shortcomings in exchange for gaining access to billions of euros of the bloc’s funds. If they make good on those promises, it will also be a testament to the new-found powers of the bond market
• The Russian exodus triggered by Vladimir Putin’s invasion of Ukraine has put the currencies of former Soviet republics at the top of global rankings this year. Georgia and Armenia in the Caucasus mountains, as well as Tajikistan in Central Asia, are among the best performers against the US dollar after tens of thousands of Russian citizens settled there since February, bringing the equivalent of billions of dollars in savings with them
• The BOJ’s shock decision to tweak its yield-curve control ceiling has boosted policy-normalization bets, fueled expectations for higher and more volatile yields and may also damp demand for US Treasuries
• Japan’s investors are fleeing Treasuries at an unprecedented pace, and central bank Governor Haruhiko Kuroda’s policy shift may reinforce the trend which is bringing a global era of negative yields closer to an end
• BOJ Governor Haruhiko Kuroda is facing mounting criticism over his latest shock policy decision, with several prominent economists calling it a blow to BOJ credibility and traders rushing to test the central bank’s new red line on bond yields
• The BOJ’s policy adjustments could be the first step toward an exit from its decade-long aggressive monetary easing, according to Takatoshi Ito, a contender to succeed Governor Haruhiko Kuroda
• China’s broad budget deficit hit a record so far this year, showing how damaging the now abandoned Covid Zero policy and the ongoing housing slump have been to the economy and to the government’s finances

A more detailed look at global markets courtesy of Newsquawk

Asia-Pac stocks traded mixed following a mostly positive lead from Wall Street and with news flow on the quieter side. ASX 200 outperformed and was lifted by gains across gold miners after the yellow metal topped USD 1,800/oz. Nikkei 225 remained pressured by the recent JPY strengthening, whilst the region overlooked reports that Japan maintained its overall economic view in December. Hang Seng and Shanghai Comp gave up earlier gains but remained within tight parameters

Top Asian News

• China reported zero new COVID deaths in the mainland on Dec 20th vs five a day earlier; reported 3,101 new COVID cases in the mainland on Dec 20th vs 2,722 a day earlier.
• “China will no longer take measures to isolate people from overseas and go to isolation facilities from January 3, 2023” according to HKSTV; “The policy optimized to 0+3 also means that China will fully open up from 2023 in the new year.”
• China’s Foreign Ministry says, on their plan to improve quarantine for overseas travellers, they will provide more convenience when appropriate.
• PBoC injected CNY 19bln via 7-day reverse repos with the rate maintained at 2.00%; injects CNY 141bln via 14-day reverse repos with the rate maintained at 2.15%; daily net injection CNY 158bln.
• China State Planner is holding a meeting to study measures to deal with excessive hog price decline, according to Reuters.
• Japanese Foreign Minister Hayashi is to delay his trip to China to late-January or later, according to TV Asahi.
• Japan maintained its overall economic view in December; the economy is recovering moderately, said Japan needs to pay close attention to China’s COVID situation, via Reuters.
• Japanese Economy Minister Goto acknowledged that the BoJ’s Tuesday decision was not meant to be a tweak or exit from monetary policy, according to Reuters.
• IMF said the BoJ’s YCC tweak is “a sensible step”, according to Reuters.
• Japanese government to set assumed interest rate at a record low of 1.1% for compilation of FY23/24 budget, according to Reuters sources.
• South Korean Finance Minister sees 2023 GDP growth at 1.6% (vs 2022 estimate of 2.5%) and 2023 CPI growth at 3.5% (vs 2022 estimate of 5.1%), according to Reuters.

European bourses have eked out a marginal extension of their initial upside, Euro Stoxx 50 +0.9%, with both newsflow and the schedule ahead sparse. Sectors are firmer across the board, with outperformance in Retail post-Nike and in Real Estate after recent pronounced pressure. Stateside, futures are similarly bid, ES +0.6%, with specific ex-corporate updates focused on gov’t funding & Ukraine. FedEx (FDX) Q2 23 (USD): Adj. EPS 3.18 (exp. 2.80), Revenue 22.8bln (exp. 23.7bln). FY23 capex view cut by 400mln to 5.9bln. Cost reduction initiatives accelerated, identifies additional 1bln above Sept. forecast. Weak profit guidance.
Nike Inc (NKE) Q3 2022 (USD): EPS 0.85 (exp. 0.65), Revenue 13.32bln (exp. 12.57bln). North America 5.83bln (exp. 5.35bln). Greater China 1.79bln (1.81bln). Executive expects FY revenue to grow in the low teens in constant currency (prev. low double-digit growth); expects around 700bps of FX headwinds. Executive says North American Black Friday and Cyber Week performance set highs for demand and traffic; in Greater China, demand grew mid-teens outpacing the sports industry.

Top European News

• Interparfums Jumps to March Highs After Lacoste License Deal
• Tremor International Jumps After Sky Report It’s Exploring Sale
• Shell Says Exports Resume at Prelude LNG Plant in Australia
• Greece’s Gas Grid Eyes Links to New LNG Facilities, CEO Says
• Russia and Iran Are Building a Trade Route That Defies Sanctions

Geopolitics

• Naval exercises of Russia and China with practical rocket and artillery firing will start in the East China Sea on Wednesday, according to Interfax.
• IAEA Chief Grossi is to visit Russia on Thursday, according to a Russian diplomat.

FX

• DXY has managed to attain an incremental foothold at 104.00, with peers generally contained in tight ranges given the limited newsflow.
• However, NZD is the stand-out laggard and below 0.63 after poor domestic data.
• JPY has finally run out of impetus and USD/JPY has paused for breath towards the lower-end of 131.51-132.36 parameters.
• EUR, CHF and CAD all reside in sub 50-pip ranges at present.
• While GBP is marginally softer after the ONS reported the highest borrowing requirement for November on record.
• PBoC set USD/CNY mid-point at 6.9650 vs exp. 6.9644 (prev. 6.9861)

Fixed Income

• An early recovery bounce has seemingly run out of steam ahead of US 20yr supply, with Bunds and Gilts fading from respective 136.00+ and 101.50+ peaks.
• Stateside, USTs are directionally in-fitting and similarly contained pre-supply, the curve is steepening slightly but with yields mixed.
• BoJ unscheduled operation: offered to buy JPY 100bln in 3-5yr JGBs and JPY 100bln in 5-10yr JGBs, according to Reuters.

Commodities

• A contained session for the crude complex, with the benchmarks within sub-USD 2/bbl parameters in limited newsflow.
• A modest extension to fresh peaks occurred in proximity to commentary from the Russian Defence Ministry that oil tanks were destroyed in Kharvic, Ukraine.
• US Private Inventories (bbls): Crude -3.1mln (exp. -1.7mln), Cushing +0.84mln, Gasoline +4.5mln (exp. +2.1mln). Distillate +0.828mln (exp. +0.3mln).
• Indonesia is to ban the export of bauxite from June 2023; a move to encourage the development of onshore bauxite processing, according to the Indonesian President, according to Reuters.
• Russia decreased oil exports by 11% M/M between Dec 1-20th, according to Kommersant.
• India has imposed anti-dumping duty on stainless steel tubes and pipe imports from China for five years, according to a government notification.
• Spot gold is little changed overall but has experienced some very modest pressure as the DXY continues to scramble for a foothold at 104.00 and broader equity/crude upside advances somewhat from initial levels.

US Event Calendar

• 07:00: Dec. MBA Mortgage Applications, prior 3.2%
• 08:30: 3Q Current Account Balance, est. -$222b, prior -$251.1b
• 10:00: Dec. Conf. Board Consumer Confidence, est. 101.0, prior 100.2
  • Expectations, prior 75.4
  • Present Situation, prior 137.4
• 10:00: Nov. Existing Home Sales MoM, est. -5.2%, prior -5.9%

DB’s Jim Reid concludes the overnight wrap

If there’s anyone still out there, hopefully your hearts will be slightly warmed by the Christmas miracle we’ve had at home. My 7-year-old daughter Maisie, who has been battling a very rare hip disease called Perthes for over 2 years, went for her 4-monthly scan and check up on Monday. The X-ray showed that her hip ball was now in the process of regrowing and after 14 months of being in a wheelchair, and after a major operation, is now allowed to start walking and running again. My wife was in tears as she rung me from the hospital, and I must admit I did shed at least one tear too. She is still not allowed to jump until the regrowth stage develops further but that’s academic relative to the main news. We’ll have to wait and see how close to normal she’ll be as she goes through her childhood. The best case is probably a relatively normal life until she needs hip replacement at some point as an adult. Given I need two new knees that’s not the end of the world. Despite 14 months in a wheelchair, she’s so far outperforming the average of kids with this condition, and we can only think her love of swimming has helped as this is the only activity she could do. She’s been going 3-4 times a week for a year now. If she hated swimming we would probably be in a far worse position now. So a lovely Christmas present for all the family. The only drawback is that arguments in the car over the last 14 months have been reduced as having accessible parking rights have allowed us to park in big easy-to-get-in spaces. Now we’ll have to go back to tight spaces again and a lot of shouting at each other as opinions differ as to whether the other person is parking well or not.

Just as we were driving home for Christmas, the BoJ news that Henry brought you yesterday has continued to reverberate around financial markets over the last 24 hours. The biggest move was that the Japanese Yen saw its largest daily gain of the 21st century so far against the US Dollar, with a +3.93% move higher that’s unrivalled since 1998. The yen is now trading at 132.22 per dollar, which is somewhat off its peak of 130.58 yesterday afternoon, but still a very large gain having been above 137 prior to the BoJ’s announcement. Japanese equities are also continuing to struggle, with the Nikkei underperforming other indices in Asia this morning with a -0.68% decline, whilst yields have climbed further overnight, with the 10yr Japanese government bond yield up +7.1bps to 0.48%.

As a reminder, the big surprise was the change in the yield curve control policy, which has a target for the 10yr JGB yield to remain around zero. Previously, the BoJ committed to keeping that yield within a band of 0.25 percentage points either side of zero, and would conduct purchases as necessary to keep it in that range. But yesterday that band was doubled to 0.5 percentage points either side, removing the effective cap on yields that had kept them from moving above the 0.25% mark. Adrian Cox, Henry Allen and our chief Japan economist Kentaro Koyama have this morning put out the latest in our “101 series”, aimed at explaining specialist topics to generalists, on the yield curve control move. See it here.

The BoJ’s announcement served as the catalyst for a fresh selloff globally, with sovereign bonds slumping across the world. That’s because the BoJ’s decision has several broader implications. For instance, if it does mark the start of a move away from ultra-loose monetary policy in Japan, then that could see Japanese investors shed their foreign bond-holdings in favour of domestic ones that now attract a higher yield. Indeed, yesterday’s decision prompted growing speculation that we could see a BoJ rate hike at some point in 2023. And if the prospect of that still seems absurd, just remember it was only last December that ECB President Lagarde said “it is very unlikely that we will raise interest rates in the year 2022”, and they’ve since done 250bps worth of hikes. We’ve also seen a big reduction in the quantity of global debt with a negative yield following the BoJ’s move, with Bloomberg’s index down to $686bn yesterday, which is down from $14tn only a year ago, and a peak above $18tn in late-2020.

In terms of what happens now, our chief Japan economist Kentaro is of the view (link here) that the uptrend in underlying inflation and the upcoming change of leadership at the BoJ (Governor Kuroda’s term ends early next year) mean that there’s certainly the possibility of another policy revision. A key factor will be the shunto wage talks in the spring, where a wage hike of over 3% could trigger a further move towards policy normalisation. Our main scenario at present looks for a withdrawal of YCC in Q3 2023 on the assumption of high wage growth. In the meantime, our rates strategists have written about the implications for their views (link here).

Yields spiked across the globe after the move with those on 10yr Treasuries up +9.8bps to 3.68%, and this morning they’ve risen a further +2.6bps to +3.71% as we go to print. The rise in yields was most pronounced at the long-end of the curve, meaning that the 2s10s steepened +9.8bps yesterday to -57.7bps, which is the first time in over a month it’s closed above -60bps. Meanwhile in Europe, it was the 5th day running that sovereign bonds lost ground, with yields on 10yr bunds (+10.1bps), OATs (+12.1bps) and BTPs (+9.4bps) all seeing sizeable increases once again. French bonds have been a favourite of Japanese investors so that might explain the relative weakness.

For equities there was a less consistent pattern, with a number of the major indices swinging between gains and losses throughout the day. By the close the S&P 500 (+0.10%) was up for the first time in the last 5 sessions. Energy (+1.52%) was the best performing industry yesterday, with Media (+0.83%) and Materials (+0.65%) also performing. The NASDAQ was marginally better than unchanged (+0.01%), breaking a 4-day slide of its own, whilst the VIX volatility index fell -1.0pt on the day to 21.5 as the entire volatility curve fell back. Meanwhile in Asia overnight, Japanese equities are underperforming as mentioned at the top, but elsewhere we’ve seen a similar pattern to the US of modest gains and losses, including for the CSI 300 (+0.05%), the Hang Seng (+0.23%), the Shanghai Comp (-0.19%) and the Kospi (-0.18%). In Europe the performance was more negative however, with the US afternoon rally coming after Europe had closed, and leaving the STOXX 600 down -0.40%.

There were two major off-cycle earnings announcements after the US close with FedEx (+4.8% in after-mkt trading) beating analysts’ estimates, as price increases and cost savings counteracted declines in package volumes. The company projected lower costs, but also lower demand over the next fiscal year. At the same time, Nike (+12.8% in after-mkt trading) rose sharply as high quarterly sales and gross margins overcame another quarter of inventory buildup. While margins have been compressed by inventories, they have not been less than initially feared. As we look toward next year, the build of inventories is a key area of concerns for retailers as demand slows. Helped by those earnings, US equities futures are extending their gains with contracts on the S&P 500 up +0.47% this morning.

Looking at yesterday’s data, there was a bit of respite on the inflation side, with German PPI in November falling to +28.2% year-on-year (vs. +31.1% expected), which is its lowest level since February. Over in the US, data on housing starts showed a modest decline in November to an annualised rate of 1.427m (vs. 1.4m expected), with building permits seeing a much sharper decline to an annualised 1.342m (vs. 1.48m expected). There was weakness in both single family and multi-family housing permits but excluding the pandemic period, single family permits were at their weakest levels since 2016.

To the day ahead now, and data releases include the US Conference Board’s consumer confidence reading for December, as well as November’s existing home sales and the Canadian CPI reading for November. Finally, earnings releases include Micron Technology.

With Ukraine’s Zelensky reportedly in the air en route to Washington where he’s is to deliver a “very special” in-person speech to US lawmakers, it’s being widely reported Wednesday morning that President Biden is expected to announce the US will deliver the Patriot missile defense system, along with another $2 billion in defense aid.

An admin official quoted in Axios said Zelensky’s visit to Washington is expected to last just “a few short hours,” and marks the first known trip the Ukrainian leader has taken outside the country since the war began. He’s expected to hold an “in-depth, strategic discussion” with Biden, and the Congressional address is set for 7:30pm EST.

The unnamed official further said the White House wants to put on a “big show of bipartisan support for Zelensky” in hopes of shoring up political “momentum” for continued assistance to Kiev, which is also coming in the form of the enormous omnibus spending package which includes $45 billion in military, economic, and other foreign aid to Ukraine.

White House Press Secretary Karine Jean-Pierre said in a statement that the Ukrainian president’s visit will be received with “strong, bipartisan support for Ukraine.”

She said “The visit will underscore the United States’ steadfast commitment to supporting Ukraine for as long as it takes, including through the provision of economic, humanitarian, and military assistance.”

Zelensky in the meantime tweeted confirmation while en route…

On my way to the US to strengthen resilience and defense capabilities of 🇺🇦. In particular, @POTUS and I will discuss cooperation between 🇺🇦 and 🇺🇸. I will also have a speech at the Congress and a number of bilateral meetings.

— Володимир Зеленський (@ZelenskyyUa) December 21, 2022

Meanwhile, some initial reaction coming out of Moscow…

• PUTIN: INTERBALLISTIC MISSILES SARMAT WILL BE DEPLOYED FOR COMBAT DUTY IN NEAREST FUTURE
• RUSSIAN DEFENCE MINISTER SHOIGU: WE ARE READY FOR TALKS
• RUSSIAN DEFENCE MINISTER SHOIGU: JOINT FORCES OF WEST ARE FIGHTING RUSSIA IN UKRAINE
• WEST TRIES TO OVERLOOK NUCLEAR BLACKMAIL, INCLUDING OVER ZAPORIZHZHIA NUCLEAR POWER STATION
• WEST TRIES TO DRAG ON THE FIGHTING IN UKRAINE
• RUSSIAN DEFENCE MINISTER SHOIGU: WE ARE FIGHTING TO SAVE PEOPLE IN UKRAINE FROM GENOCIDE AND TERROR
• MILITARY POTENTIAL OF UKRAINE IS BEING DESTROYED

It will be interesting to see whether Zelensky’s appearance before Congress is greeted with the same level of enthusiasm from all corners of the GOP.

The GOP wouldn’t fund a $5 Billion Border Wall but have happily sent $130 Billion to Ukraine over 9 months.

— Mostly Peaceful Memes (@MostlyPeacefull) December 20, 2022

developing…

Lack of snow cover on fields and a cold blast down through the Great Plains and into Texas and the South could result in damage and even death of winter wheat crops.

The coldest air of the season is about to pour down from Canada, bringing dangerously cold temperatures where parts of Kansas could reach as low as -15F. The state is one of the top growers of red winter wheat. 

According to Bloomberg, citing an ag report via forecaster Maxar, winter wheat fields across southwest Kansas, northwest Texas, and Oklahoma lack snow cover, increasing the incidence of winter kill. Snow cover on fields insulates the wheat and protects crops from cold. 

“Wheat will be at risk of winter kill in areas lacking adequate snow cover – most notably in eastern Colorado and western Kansas.

“Many areas will see a white Christmas, although it will be a cold one,” Arlan Suderman, chief commodities economist at StoneX, wrote in a note to clients Monday. 

In response to the imminent cold snap and the prospects of winter kill, hard red winter wheat futures are up more than 1% to $8.525 a bushel.

Here’s what ag watches on Twitter are saying about winter kill risks:

Thursday’s low temps. Some Winter kill expected. pic.twitter.com/NZkVCckQQ2

— Allen Motew (@QTweather) December 19, 2022

It seems that the US #wheat winter kill story is getting some traction…why not the previous week? I mean #natgas priced that cold snap in many days ago…and grains are waking up only now.

— Andrey Sizov (@sizov_andre) December 19, 2022

Be safe! It gets treacherous out there soon. Note Chicago area of nearly 2 feet in the afternoon forecast. Stay tuned! Kansas wheat in N and E gets some cover but W and S virtually none. Winter-kill likely. pic.twitter.com/yEnRvNLjCx

— Allen Motew (@QTweather) December 19, 2022

StoneX’s Suderman warned: 

Commodity Weather Group warns that 20% of the national winter #wheat acreage will be susceptible to winter kill this week, including 45% of the hard red winter wheat crop, but that could rise to 30% of national crop in a worst-case scenario if snowfall fails further east. #oatt

— Arlan Suderman (@ArlanFF101) December 19, 2022

Some ag producers are already reporting what appears to be some of the first signs of winter kill. 

Looks worse in my picture than it actually is pic.twitter.com/TZM48hNDDf

— James Strand (@Jamesstrand22) December 19, 2022

Authored by Michal Karnowski via Remix News,

As Christmas and the New Year approached, we had hoped to have the issue of Poland settling its dispute with the European Commission to obtain its EU recovery fund allocation might have been settled.

It was not to be. The issue is complex, and sovereignty really is at stake. Any course taken will be risky, and there can be no surprise that many are gravely concerned about the long-term consequences of a compromise, but a compromise is probably the best way out at this time.

First of all, there is the matter of the economy. Yes, Poland could borrow the money on the markets, but the cost of borrowing for a country bordering Ukraine and with a high rate of inflation would make that very expensive and hard to actually manage. Moreover, this is not just a question of the EU recovery fund.

The dispute could all too easily spill over to blocking Poland’s EU budget funds, which would be financially ruinous for the country. 

It is also worth admitting the political reality that despite the many successes of the conservative government in Poland, the judicial reform and the conflict with the European Union have cast a shadow over them. Like it or not, the judicial reform has been stalled, and so dying in a ditch to realize this goal makes little sense. 

What this means is that the ruling block must get out of the quagmire it finds itself in regarding the EU. The immediate goal is maintaining conservative rule, which remains Poland’s best shot at guaranteeing its sovereignty. To give power away now in defense of judicial legislation would most likely result in a government led by Donald Tusk, which would represent a government that is most likely to make Poland little more than a German vassal state. It is better to take a step back in order to avoid this scenario. 

It looks as if the pro-patriotic block is standing at a crossroads.

It can either get out of the quagmire and recover its strategic initiative, or be forced into the disadvantageous position of trying to resist the European Commission. It is also worth remembering that the ruling block has been immune to criticism of supposed “Polexit” because it has always pursued a middle way of defending sovereignty while looking for opportunities to engage with Europe. Poles value membership in the EU and do not want to hear about any Polexit. 

This is why the compromise the government negotiated is worth defending. It gives us a chance to get out of gridlock. It is a chance doubly worth taking, as the EU itself is having to reassess its ways as a result of the corruption scandal and the war in Ukraine.

The details of the agreement should not cause alarm. The European Court of Justice has ruled that judges may not question the verdicts and status of other judges, and there is no way that the Polish constitutional court would allow that. 

The alternative to this agreement is stark.

It would lead to continued gridlock and likely electoral defeat. The very critics of this compromise would be the first to wail at this outcome — an outcome that would mean Tusk giving Brussels and Berlin all they want.

It is not pleasant to have to defend this difficult deal with Brussels, but its adoption could be the difference between election victory and defeat.

By Tsvetana Paraskova of Oilprice.com

Norwegian production of crude oil and natural gas was below government forecasts in November, according to preliminary data from the local regulator published on Tuesday.  

Norway’s crude oil production averaged 1.74 million barrels per day (bpd) in November, data from the Norwegian Petroleum Directorate (NPD) showed today. That was 8.7% below the forecast of 1.905 million bpd and slightly below the October crude oil output of 1.749 million bpd.

Natural gas production was 1.8% below government forecasts and averaged 346.4 million cubic meters per day, also slightly down compared to the October production.  

Going forward, Norway is expected to increase both its crude oil and natural gas production in the short term.  

Last week, Equinor started pumping oil from the second development phase of the giant Johan Sverdrup oilfield, which will raise production from Western Europe’s biggest oilfield by more than 180,000 barrels per day (bpd). 

“Johan Sverdrup accounts for large and important energy deliveries, and in the current market situation, most of the volumes will go to Europe,” said Geir Tungesvik, Equinor’s executive vice president for Projects, Drilling & Procurement.    

Johan Sverdrup produces 535,000 bpd, and with Johan Sverdrup 2, the giant oilfield will produce 720,000 bpd at plateau.

At this rate of production, Johan Sverdrup alone could be capable of meeting 6-7% of the daily oil demand in Europe, Equinor says.

Increased supply from Johan Sverdrup, most of which will go to Europe, is welcome news for the EU which has to replace 500,000 bpd or possibly more of seaborne imports of Russian crude oil now that the EU embargo on imports by sea has taken effect.  

Natural gas production in Norway, which supplies around 25% of the gas consumed in the EU and the UK, is expected to rise by 8 percent in 2022 compared to 2021, government estimates showed earlier this year.

This summer, Norway’s authorities approved applications from operators to boost production from several operating gas fields, to allow higher gas production as its key partners, the EU and the UK, scrambled for gas supply ahead of the winter.

Ukraine is bracing for yet more Russian attacks on its energy infrastructure, and has accused Moscow of intentionally unleashing additional suffering on the population headed into Christmas. 

“Repairs continue but the situation remains really difficult,” Ukrainian Prime Minister Denys Shmyhal said in a briefing before other government ministers.

“Russian terrorists will do everything to leave Ukrainians without electricity for the New Year,” he claimed.

“It is important for them for Christmas and the New Year to take place in darkness in Ukraine,” and then warned:

 “That’s why we should prepare for new attacks.”

Kyiv Governor Oleksiy Kuleba has described the power crisis as being at its worst since the war began, with some 80% of the entire capital region being without electricity for a second day in a row, after drone strikes hit power stations Monday.

“The situation with electricity supplies remains critical,” Kuleba said in a written announcement. “I want to stress that with every shelling by the enemy, the complexity and duration of the repairs increase.”

Meanwhile Ukrainian officials have accused Russia of trying to “steal” Christmas, on a day where drones continued to hit the national power grid:

Kyiv officials on Monday illuminated a Christmas tree in the city center, refusing to let Russia “steal” the festive season from Ukrainian children.

The day, which started with swarms of attacks on critical infrastructure in the Ukrainian capital, ended with the unveiling of the 12-meter (40-feet) high artificial tree decorated with white peace doves. 

A few dozen residents braved the sub-zero temperatures to admire the tree located next to the Saint Sophia Cathedral and its emblematic golden domes — and take selfies.

National energy operator Ukrenergo said it is fast working to restore services but initially this will allow power to less than half the population.

“Supplies to critical infrastructure are a priority. We expect that today we will be able to turn on equipment to enable the security of supplies to be increased, reduce the capacity deficit and connect more consumers,” it said Tuesday. There were reports that many neighborhoods saw power restored later in the day and into night hours, amid rolling emergency blackouts.

Trudging home in icy conditions during #Kyiv #blackout. Temperature -5 C, but heating still on at home. Water also unaffected. Power out for 24 hours, most of time no Internet and very little news. Listened to radio. pic.twitter.com/ENYrVhJq3l

— Euan MacDonald (@Euan_MacDonald) December 20, 2022

Across the border, in Russia’s Belgorod region, emergency crews are also working to restore power after a rare Sunday cross-border attack launched by the Ukrainian military left thousands in the dark. At the same time, temperatures continue to plunge headed into the colder winter months in both countries.

By Michael Kern of OilPrice.com

Russia is training Belarussian pilots to fly combat jets with “special warhead” capabilities, Belarusian state-controlled media announced during Russian President Vladimir Putin’s visit to the country on Monday, his first in three years.

The meeting comes amid heightened concerns that Russia is planning a new assault on Ukraine, possibly from Belarusian territory, despite the fact that Belarus President Aleksandr Lukashenko late last week declared his country was not a puppet of Putin’s.

Late on Monday, Belarus’ official news agency BeITA, stated that an agreement had been reached over training for Belarussian army aircraft, “which have already been refitted to carry and possibly use air-launched ammunition with special warheads”.

To sweeten the deal, Putin has appointed Belarus head of the Collective Security Treaty Organization (CSTO) beginning in January 2023.

“Taking into account the situation evolving along the border perimeter, we discussed some important details of cooperation in the sphere of military security. I thank you, Vladimir Vladimirovich [Putin] for our finding mutual understanding and support […],” Lukashenko was quoted as saying. 

What worries Ukraine and Western officials most, however, was Lukashenko’s statement that “Today we’ve commissioned an S-400 [air defense missile] complex that you have handed over to Belarus. And most importantly the Iskander complex, which you’ve also handed over to us after promising it half a year ago.”

Lukashenko continued: “You’ve just touched upon a very sensitive matter (we are not its authors) concerning the training of our crews [for the aircraft] capable of carrying special weapons and special ammunition. I have to tell you that we’ve prepared the aircraft. It turned out we’ve had such aircraft since the Soviet times. We tested them in the Russian Federation. We are now working with Russians to train the crews able to fly these aircraft that carry special ammunition.”

Lukashenko appeared to be suggesting that the training and the “special warheads” were not directed at Ukraine and were not meant to pose a threat to Ukraine. 

The Belarusian leader’s statements of thanks to Putin come after his assertions last week that his country remains completely sovereign from Russia.