Authored by Dave DeCamp via AntiWar.com,

The House Foreign Affairs Committee on Tuesday narrowly voted down a bill that would audit the tens of billions of dollars that Congress has approved to spend on the war in Ukraine. The bill was rejected by the Democrat-led panel in a vote of 26 to 22. The legislation was introduced by Rep. Marjorie Taylor Greene (R-GA) and a small group of Republicans who oppose US aid to Ukraine, but it received strong support from more hawkish Republicans.

Republican Reps. Thomas Massie (KY), Matt Gaetz (FL), Barry Moore (AL), and Andrew Clyde (GA) cosponsored Greene’s bill. Greene has said that she will reintroduce the measure in the next Congress when Republicans have a majority in the House. “It’s official the Democrats have voted NO to transparency for the American people for an Audit for Ukraine,” Greene wrote on Twitter after the vote. “But we take over in January! This audit will happen!”

Rep. Michael McCaul (R-TX), who is expected to head the House Foreign Affairs Committee in the next Congress, has come out in favor of the audit bill. “The era of writing blank checks is over,” McCaul said, according to The Washington Post.

McCaul has been critical of the Biden administration for not sending longer-range weapons to Ukraine and wants to encourage Ukrainian strikes on Crimea despite the risk of escalation. But he represents the mainstream Republicans who want to keep arming Ukraine but agree there should be more oversight.

Democrats have been critical of the growing Republican calls for more oversight of the Ukraine aid. Rep. Adam Smith (D-WA), the head of the House Armed Services Committee, even dismissed the concerns as “Russian propaganda” and said the calls from Republicans to increase oversight “makes me a little crazy.”

Meanwhile also on Tuesday night, Congress unveiled the 2023 National Defense Authorization Act (NDAA), worth $858 billion, $45 billion more than what President Biden requested for the military spending bill. The House is expected to vote on the legislation this week, and it could be brought to the floor as soon as Thursday. Once the House approves the bill, it will be sent to the Senate, then to President Biden’s desk for his signature.

Biden’s initial defense budget request: $813 billion
House Armed Services Committee version: $839 billion
Senate Armed Services Committee version: $847 billion
Final version, just released: $859 billion

Oddly, this one budgetary process always seems to go in the same direction

— Michael Tracey (@mtracey) December 7, 2022

The massive $858 billion bill represents an 8% increase from the 2022 NDAA, which was also larger than what Biden requested. The $858 billion includes $817 billion for the Pentagon, and the remaining funds go toward military spending for other departments.

Notable amendments packed into the NDAA include $10 billion in military aid for Taiwan that will be dispersed over five years. The aid is in the form of Foreign Military Financing, a State Department program that gives foreign governments funds to purchase US-made military equipment.

The NDAA also includes $800 million in the Ukraine Security Assistance Initiative, a program that allows the US government to purchase weapons for Ukraine. But the vast majority of spending on the Ukraine war will come through emergency funding, and the White House is hoping Congress approves a new $37.7 billion tranche of Ukraine aid during the lame-duck period.

Rep. Gerry Connolly was one of the Democrats who shut down @RepMTG’s resolution to audit the 80 billion+ taxpayer dollars flowing into the pockets of Ukrainian warlords.

“I support transparency and accountability,” Connolly claimed, “but not now.” pic.twitter.com/pkrPbU9vQY

— Max Blumenthal (@MaxBlumenthal) December 7, 2022

The NDAA includes $11.5 billion in new investments for the Pacific Deterrence Initiative, a program to build up in the Asia Pacific to confront China. The Pentagon has identified China as its main focus, and the NDAA includes investment in new technology research and development that US military leaders say is meant to counter Beijing.

Update(1228ET): The Daily Mail is calling it a “deal soaked in blood” after the governments of Saudi Arabia, the UAE, and Russia confirmed that Brittney Griner’s release for notorious convicted arms trafficker Viktor Bout came via Saudi/UAE mediation efforts led by Crown Prince Mohammed bin Salman (MbS). Foreign ministry statements by both countries, hours after the now freed American and Russian walked past each other on a UAE airport tarmac, revealed the following per a leading Mideast regional news outlet: 

Saudi Arabia’s Crown Prince Mohammed bin Salman and UAE President Sheikh Mohammed bin Zayed led mediation efforts that secured the release of two prisoners between the US and Russia, a joint statement issued by both countries’ foreign ministries said on Thursday.

“The ministries said the success of the mediation efforts was a reflection of the mutual and solid friendship between their two countries and the United States and Russia,” the statement said.

And according to details of the exchange:

A senior administration official would not comment directly on MBS’s role but said the U.S. will ‘continue to lean on partners around the world’ to secure the release of unjustly detailed Americans. 

The swap happened at Abu Dhabi airport, where Griner and Bout had to walked past each other to reach their respective parties on the airport tarmac, Russian state media reports.

The official said Griner was ‘all smiles’ on the tarmac as she approached the American delegation. 

Saudi Crown Prince brokered deal to swap WNBA star Brittney Griner for Merchant of Death arms dealer https://t.co/avmWY2EUwA pic.twitter.com/9uDDWTZdBh

— Daily Mail US (@DailyMail) December 8, 2022

Amid the outrage that the Biden administration released a “big catch” notorious Russian criminal, also while leaving Paul Whelan behind to languish in a Russian penal colony, many are questioning the timing of all of this coming together a mere two days after the US government dropped the Khashoggi lawsuit against the Saudi leader.

To review of the timeline and chain of possibly connected events, Biden recently gave MbS immunity for the Jamal Khashoggi murder ironically enough at a moment MbS was pushing production cuts through OPEC (which helped Putin and Russian interests)… and now the White House gets Griner back (and perhaps it will quickly be “forgotten” how the Saudis just humiliated the US administration on oil output).

Biden just traded the guy that inspired “Lord of War” for Brittney Griner, who didn’t even make the cut for “Space Jam 2” pic.twitter.com/eR9gQN7jRB

— Harrison (@HarrisonKrank) December 8, 2022

* * *

Update(8:50ET): During his announcement from the White House, with Griner’s family present, Biden spent a lot of time defending his administration from widespread accusations that Griner’s release was prioritized because of her fame while at the same time other detained Americans were left behind.

“This was not a choice of which American to bring home,” Biden said while vowing to continue working on freeing detained US Marine veteran Paul Whelan. 61-year old teacher Marc Fogel is also languishing in Russian prison. 

You left a Marine to rot so you could get Twitter likes for freeing a celebrity who hates America. https://t.co/XKJxiNrxXK

— Sean Davis (@seanmdav) December 8, 2022

An understandably very frustrated and “devastated” Whelan family has issued the following statement upon the White House announcement of Griner’s release:

Despite the possibility that there might be an exchange without Paul, our family is still devastated. I can’t even fathom how Paul will feel when he learns. Paul has worked so hard to survive nearly 4 years of this injustice. His hopes had soared with the knowledge that the US government was taking concrete steps for once towards his release. He’d been worrying about where he’d live when he got back to the US. And now what? How do you continue to survive, day after day, when you know that your government has failed twice to free you from a foreign prison? I can’t imagine he retains any hope that a government will negotiate his freedom at this point. It’s clear that the US government has no concessions that the Russian government will take for Paul Whelan. And so Paul will remain a prisoner until that changes.

We just traded “The Merchant of Death” Viktor Bout, a man who sold arms to warlords, for Brittney Griner, a WNBA player.

This may be the worst trade deal in history.

— Collin Rugg (@CollinRugg) December 8, 2022

* * *

In a huge and unexpected development, Russia has released into US custody WNBA star Brittney Griner, after in October her 9-year prison sentence was upheld by a Russian court. She had already spent weeks in a harsh penal colony some 300 miles southeast of Moscow.

She was freed in a prisoner exchange which took place in Abu Dhabi Airport on Thursday. In return the Biden administration agreed to give up notorious international arms dealer Viktor Bout. US officials speaking to CBS say the deal had been reached by last Thursday, with the logistics details having been hammered out since then. Biden is imminently expected to address Griner’s release and the prisoner exchange at 8:30eastern. Watch Live: 

“To secure Griner’s release, the president ordered Bout to be freed and returned to Russia. Mr. Biden signed the commutation order cutting short Bout’s 25-year federal prison sentence,” CBS reports.

But the report underscores, “Notably, the Griner-for-Bout exchange leaves retired U.S. Marine Paul Whelan imprisoned in Russia. Whelan has been in Russian custody for nearly four years. He was convicted on espionage charges that the U.S. has called false.”

Moments ago I spoke to Brittney Griner.

She is safe.
She is on a plane.
She is on her way home. pic.twitter.com/FmHgfzrcDT

— President Biden (@POTUS) December 8, 2022

When Russian state media began first signaling that the Kremlin will pursue getting Bout back, and Secretary of State Antony Blinken starting over the summer hinted the administration was actually entertaining the possibility, it unleased a wave of controversy, especially given Griner’s own recent public displays which some interepreted as “anti-US”… most notably refusing to stand for the national anthem and even staying in the locker room during its playing. 

One commenter previously had this to say in summary of the controversial exchange for Bout:

“It took nearly 10 years for US to apprehend Viktor Bout, and close to 3 more years to convict him for terrorism and arms trafficking. Allegedly, thousands of civilians in multiple African countries, were injured and killed by weapons supplied by Bout. Fair trade for Griner?”

It’s likely that the Department of Justice had been vigorously arguing against releasing Viktor Bout, considering it took a significant extradition process (from Thailand) to even get him into US custody over a decade ago.

Before his just-announced release, he was serving a 25-year sentence in federal prison after being convicted in the Southern District of New York for conspiring to kill Americans and conspiring to provide material support to terrorists.

Already there’s brewing anger that Paul Whelan, as well as another American locked up in Russia, 61-year old teacher Marc Fogel, over the widespread perception that they’ve been left behind.

Readers have been well informed that the used car market bubble popped earlier this year (read: here). Cox Automotive reported that its Manheim Used Vehicle Value Index, which tracks the auction prices of used cars, plunged 14.2% from a year ago. The index has also slid to the lowest point since August 2021 as used-car sales tumbled 10% in November. 

November’s monthly decline on a year-over-year basis of 14.2% was the largest ever on Manheim’s data. 

The index fell to 199.4 last month, below the 200 mark for the first time since August 2021, and is down 15% from the peak in January. However, the index is still 58% higher since the start of the pandemic. 

A combination of new car supply and soaring borrowing rates have been the drivers of deflating the bubble. Cox chief economist Jonathan Smoke explained more: 

“New inventory is finally starting to build, and that’s producing momentum in new retail sales, but that momentum appears to be at the expense of used retail. Especially it’s the traditionally used car buyer that’s most impacted by payment affordability.” 

What happens next is that retail prices will start to decrease because of the high correlation to wholesale prices. The used car bubble has possibly, claimed the first victim: Carvana, whose stock imploded Wednesday after its creditors formed a pact as bankruptcy risks soar. 

And like we’ve told readers, wait until 2023 for deals as it’s a process from the time the Federal Reserve hikes interest rates to shooting up borrowing costs for consumers to curbing the demand side while supply side snarls alleviate; all of this are the perfect ingredients for lower prices moving forward. 

Authored by Jesse Felder via The Felder Report,

I came across an interesting factoid the other day:

‘Not a single mutual fund — not one — managed to beat its benchmark regularly and convincingly over the last five years. These results are even worse than those of 2014 and 2015, when I last examined this subject closely.’ https://t.co/X2Ytbku1B6

— Jesse Felder (@jessefelder) December 2, 2022

Fans of passive investing clearly take this as validation of their preference for simply allocating their capital as the index dictates.

However, I think that may be too convenient of a conclusion to derive from this. In fact, it may be looking at things backwards.

If you take a moment to think about the factors that might be behind this statistic, it starts to become far more interesting. Flows to passive funds over the past five years have been massive and accelerating while just about five years ago active funds began to lose assets, a phenomenon which has also accelerated in the years since.

Shift from active to passive funds is accelerating, JPMorgan says https://t.co/c5jALPSXpm pic.twitter.com/136Oak78ht

— Jesse Felder (@jessefelder) December 6, 2022

Is it possible, likely even, that this dramatic outperformance of the index over active funds was driven largely by flows rather than the lack of skill of active managers or some other explanation?

In other words, could it be that the popularity of passive investing explains its success more than its success explains its popularity?

Furthermore, if it is true that the performance of the index has largely been driven by flows over the past five years, rather than the collective opinion of educated active investors, then how efficient is the market truly?

Is it possible that the popularity of passive investing has helped to inflate another stock market bubble?

‘The stock market losses that we’ve observed year-to-date are merely a give-back of the frothiest segment of the recent market bubble. Our most reliable valuation measures still match the extremes we observed in 1929, 2000 and the 2020 pre-pandemic high.’ https://t.co/oGPiHws6xC pic.twitter.com/KoV4FHE9HC

— Jesse Felder (@jessefelder) November 21, 2022

Remember, passive investing is founded upon the idea that the markets are efficient and thus investors mirroring the index will realize the collective returns generated by the underlying businesses. But should the market become divorced from its underlying fundamentals due to the dominance of price-insensitive buying, what then should passive investors expect?

This is not The Onion, but CNN, which produced a whole report in effect arguing that internationally banned weapons are OK if given to Ukraine for the ‘good cause’ of fighting Russia…

“Ukrainian officials and lawmakers have in recent months urged the Biden administration and members of Congress to provide the Ukrainian military with cluster munition warheads, weapons that are banned by more than 100 countries but that Russia continues to use to devastating effect inside Ukraine.”

BUT, the mainstream outlet writes, “For Ukraine, cluster munitions could address two major issues: the need for more ammunition for the artillery and rocket systems the US and others have provided, and a way of closing Russia’s numerical superiority in artillery.”

And never mind those pesky ‘statutory restrictions’ and the greater likelihood of killing innocent civilians…

CNN continues: “The Biden administration has not taken the option off the table as a last resort, if stockpiles begin to run dangerously low. But sources say the proposal has not yet received significant consideration in large part due to the statutory restrictions that Congress has put on the US’ ability to transfer cluster munitions.”

“Those restrictions apply to munitions with a greater than one percent unexploded ordnance rate, which raises the prospect that they will pose a risk to civilians,” the publication then admits, before noting:

“President Joe Biden could override that restriction, but the administration has indicated to the Ukrainians that that is unlikely in the near term.”

CNN’s sources further underscored that at this point President Biden has not rejected the potential transfer of cluster munitions outright. All “options” continue to be on the table… international bans and human rights guidelines be damned, apparently.

Very early following the Feb.24 Russian invasion, Russia’s military stood accused of using banned cluster bombs, for which it received international condemnation – including from US officials and media.

* * *

According to a historical review of cluster bombs in We Are the Mighty, cluster munitions kill indiscriminately, and their widespread use in multiple 20th and early 21st century conflicts eventually led to an international treaty banning their use by nation-states…

“Cluster munitions are explosives that detonate in the air, dispersing bomblets or submunitions across a vast area to destroy several targets simultaneously. These were commonly used before a 2008 treaty forbidding the use of cluster bombs was formulated. Thousands of civilian lives have been lost due to the bomb’s nature. Despite many countries resisting the treaty back then, the majority had their say, and the use of these bombs is now illegal.”

In March, numerous reports showed Russia’s use of cluster bombs in Ukraine, sparking outrage.

A new NYT report says Ukraine used cluster bombs on one of its own villages, prompting denunciations from human rights groups:https://t.co/TvJz7ctYi7

— Glenn Greenwald (@ggreenwald) April 18, 2022

“When the Treaty on Cluster Munitions came into effect, it marked a huge step forward in safeguarding civilians during and after a military confrontation. The international agreement outlaws cluster munitions completely and mandate member states to clean up regions polluted by cluster munition remains within 10 years (after the convention), dismantle their stockpiles in eight years, and aid sufferers.”

“…Bomblets from a cluster munition can strike anywhere and anyone. This makes cluster bombs especially dangerous dealing with innocent lives. Only the main warhead will detonate on the specified targets when a cluster bomb is launched from an airplane. The bomblets, which automatically separate themselves from the main bomb, can land anywhere.”

By Todd Maiden of FreightWaves.com

Transportation capacity continued to grow at a high rate during November with prices falling at the fastest rate on record, according to a monthly survey of supply chain executives released Tuesday.

The Logistics Managers’ Index (LMI) displayed a capacity reading of 71.4 in November, 1.7 percentage points lower than the all-time high established in October. The 12-month forward-looking expectation for the subindex is 65.7.

A reading above 50 indicates expansion while one below that indicates contraction.

A new low for the transportation prices subindex was set during the month. A 37.4 reading was 4.8 points lower than October and “the sharpest rate of contraction we have read in the history of the LMI,” the report said. Contraction was more pronounced among downstream respondents, or those in the supply chain that are closer to the end consumer. That group returned a 28.1 reading.

Expectations for prices one year from now stood at 42.1 as “the transportation market continues to fall from the dizzying heights that had become the norm during 2021.”

Transportation utilization was down 2.8 points to a neutral reading of 50. Responses captured in the second half of November were “slightly more negative,” meaning utilization “may be seeing the beginning of a contraction period” after expanding every month since May 2020.

The overall LMI stood at 53.6 in November, 3.9 points lower sequentially and the second-lowest level captured in the data set’s six-year history. The all-time low was recorded in April 2020 during the height of pandemic-related lockdowns.

FreightWaves’ National Truckload Index, a measure of TL spot rates, remains well off all-time highs established earlier in the year. However, spot rates are potentially bottoming, up nearly 10% from mid-November lows.

Inventories normalizing further?

Inventory growth rates throughout the supply chain slowed significantly during the month. After average readings of 69.6 this year, 62.7 in 2021 and 58.4 in 2020, the subindex fell 10.7 points to 54.8 in November, with respondents at the wholesale level seeing slower growth.

“Inventory levels have decreased significantly, particularly for upstream respondents,” the report said. “This is likely indicative of goods being positioned downstream for the holiday season and, more importantly for supply chains, being purchased by consumers.”

The inventory levels subindex was neutral at 50 in the back half of November, which “suggests that many firms have successfully threaded the needle and worked through the bulk of the goods that have plagued them through the year.”

The report cautioned that when the inventories subindex falls significantly, there is usually an increase in the following period. “So, there is a chance the inventory level index will bounce back up somewhat, post-holiday,” according to the report.

The forward-looking expectation for inventory levels was 47.2.

“The bullwhip effect was probably inevitable, given the sharp oscillations in supply and demand experienced over the last few years,” the report read. “The key now will be to observe whether supply chains have finally now right-sized their inventories, or if they have overcorrected back into a mild shortage.”

Inventory costs (73.4) continued to grow but at a rate 7.5 points lower than in October as warehousing prices (74.4) remained firmly in expansion territory. Higher warehousing costs were driven by contracting capacity (46.8) and growing utilization rates (56.8).

“It will be crucial to observe whether or not transportation metrics begin to bounce back at all in the new year, once the glut of inventory has been wound down further,” the report said.

The LMI is a collaboration among Arizona State University, Colorado State University, Rochester Institute of Technology, Rutgers University and the University of Nevada, Reno, conducted in conjunction with the Council of Supply Chain Management Professionals.

Update(8:50ET): During his announcement from the White House, with Griner’s family present, Biden spent a lot of time defending his administration from widespread accusations that Griner’s release was prioritized because of her fame while at the same time other detained Americans were left behind.

“This was not a choice of which American to bring home,” Biden said while vowing to continue working on freeing detained US Marine veteran Paul Whelan. 61-year old teacher Marc Fogel is also languishing in Russian prison. 

An understandably very frustrated and “devastated” Whelan family has issued the following statement upon the White House announcement of Griner’s release:

Despite the possibility that there might be an exchange without Paul, our family is still devastated. I can’t even fathom how Paul will feel when he learns. Paul has worked so hard to survive nearly 4 years of this injustice. His hopes had soared with the knowledge that the US government was taking concrete steps for once towards his release. He’d been worrying about where he’d live when he got back to the US. And now what? How do you continue to survive, day after day, when you know that your government has failed twice to free you from a foreign prison? I can’t imagine he retains any hope that a government will negotiate his freedom at this point. It’s clear that the US government has no concessions that the Russian government will take for Paul Whelan. And so Paul will remain a prisoner until that changes.

We just traded “The Merchant of Death” Viktor Bout, a man who sold arms to warlords, for Brittney Griner, a WNBA player.

This may be the worst trade deal in history.

— Collin Rugg (@CollinRugg) December 8, 2022

* * *

In a huge and unexpected development, Russia has released into US custody WNBA star Brittney Griner, after in October her 9-year prison sentence was upheld by a Russian court. She had already spent weeks in a harsh penal colony some 300 miles southeast of Moscow.

She was freed in a prisoner exchange which took place in Abu Dhabi Airport on Thursday. In return the Biden administration agreed to give up notorious international arms dealer Viktor Bout. US officials speaking to CBS say the deal had been reached by last Thursday, with the logistics details having been hammered out since then. Biden is imminently expected to address Griner’s release and the prisoner exchange at 8:30eastern. Watch Live: 

“To secure Griner’s release, the president ordered Bout to be freed and returned to Russia. Mr. Biden signed the commutation order cutting short Bout’s 25-year federal prison sentence,” CBS reports.

But the report underscores, “Notably, the Griner-for-Bout exchange leaves retired U.S. Marine Paul Whelan imprisoned in Russia. Whelan has been in Russian custody for nearly four years. He was convicted on espionage charges that the U.S. has called false.”

Moments ago I spoke to Brittney Griner.

She is safe.
She is on a plane.
She is on her way home. pic.twitter.com/FmHgfzrcDT

— President Biden (@POTUS) December 8, 2022

When Russian state media began first signaling that the Kremlin will pursue getting Bout back, and Secretary of State Antony Blinken starting over the summer hinted the administration was actually entertaining the possibility, it unleased a wave of controversy, especially given Griner’s own recent public displays which some interepreted as “anti-US”… most notably refusing to stand for the national anthem and even staying in the locker room during its playing. 

One commenter previously had this to say in summary of the controversial exchange for Bout:

“It took nearly 10 years for US to apprehend Viktor Bout, and close to 3 more years to convict him for terrorism and arms trafficking. Allegedly, thousands of civilians in multiple African countries, were injured and killed by weapons supplied by Bout. Fair trade for Griner?”

It’s likely that the Department of Justice had been vigorously arguing against releasing Viktor Bout, considering it took a significant extradition process (from Thailand) to even get him into US custody over a decade ago.

Before his just-announced release, he was serving a 25-year sentence in federal prison after being convicted in the Southern District of New York for conspiring to kill Americans and conspiring to provide material support to terrorists.

Already there’s brewing anger that Paul Whelan, as well as another American locked up in Russia, 61-year old teacher Marc Fogel, over the widespread perception that they’ve been left behind.

The number of Americans filing for jobless claims for the first rose to 230k last week (higher than the 226k the prior week) but it is the ongoing rise in continuing jobless claims that should be a worry for Americans (and ‘cheer’ for The Fed?).

On a non-adjusted basis, initial jobless claims surged to the highest since January…

Notably, not one state saw claims drop (on an NSA basis) last week…

1.671 million Americans are filing for jobless claims on a continuing basis – the most since February…

Source: Bloomberg

This is the largest rise in continuing claims since the peak of the COVID lockdowns in June 2020.

So the labor is still “tight”?

The 10 straight weeks of increasing continuing claims suggests that Americans who are losing their job are having more trouble finding a new one.

Perhaps the Establishment survey is completely decoupled from reality…

Source: Bloomberg

With claims and the household survey both signaling weakness in American jobs… ‘great news’ for The Fed?!

A blistering rout in US stocks, which saw US markets drop on 8 of the past 9 days and when the S&P 500 lost about $1.3 trillion in market capitalization in the past five days on fears of a staunchly hawkish Federal Reserve amid signs of a resilient economy, was set to pause on Thursday. Contracts on the S&P 500 were up 0.3% by 7:45 a.m. ET following the longest daily losing streak for the index in nearly two months. Nasdaq 100 futures were up 0.2%. Treasuries halted a rally that had sent the 10-year yield to an almost three-month low as investors braced for an economic downturn. The benchmark added three basis points to yield 3.44%, while a gauge of the dollar was little changed.

Among notable movers in premarket trading, Carvana was set to rebound after yesterday’s record 43% plunge as the online car dealer consults with lawyers and bankers regarding options for managing its debt load. Relmada Therapeutics shares are in focus after the failure of its study of an experimental antidepressant. Exxon rose 1.4% premarket after the US E&P giant and cash(flow) cow announced it would expand its stock buyback program by $20BN to $50BN by the end of 2024. Here are some other other notable premarket movers:

• Rent the Runway rises 16% after reporting third- quarter results that beat estimates as its number of active subscribers rose 15% year-on-year. The fashion retailer increased its annual revenue outlook and forecast a positive adjusted Ebitda margin for the year.
• Shares of US-listed Chinese internet firms and casinos that operate in Macau gain in premarket trading on more signs that China is accelerating the pivot away from its zero-tolerance stance on Covid.
• Alibaba +3.7%, Baidu +4%, Bilibili +11%, Li Auto +5.4%, Las Vegas Sands +4.3%, Melco Resorts +8.5%
• Carvana shares jump 7.6% in premarket trading, set to rebound after yesterday’s record 43% plunge as the online car dealer consults with lawyers and bankers regarding options for managing its debt load.
• Relmada’s shares tumbled 40% in US after-hours trading on Wednesday. The failure of the company’s study of an experimental antidepressant was disappointing, though not surprising, analysts said, with some reassessing the possibility of success in upcoming studies.
• Watch Principal Financial stock after it was downgraded to underperform from neutral at Credit Suisse on valuation grounds, with the broker preferring the investment manager’s peer Voya.
• Keep an eye on JPMorgan as Piper Sandler begins coverage on the stock at overweight, saying that the “big four” banks have a unique position leading the industry, with a critical presence in basically all areas of the financial system.
• Watch defense stocks after Citigroup said it is “locked in” on the sector for the next decade, with a more “nuanced” view on the outlook for commercial aerospace. It reinstates General Dynamics, Leidos, Lockheed Martin and Science Applications with buy ratings.

The rally in US stocks since mid-October which propelled the S&P to 4,100 as of Dec 1 and above the 200DMA, has stalled recently as stronger-than-expected economic data suggested the Fed could keep tightening its policy at an aggressive pace (spoiler alert: it won’t). Investors are now looking for clues from the latest inflation data on Tuesday and the Fed’s policy decision on Wednesday.

“The risk-off sentiment more widely on stock markets this week remains hard to kick into touch,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown. The outlook for next year also remains uncertain, with Citigroup Inc. strategists becoming the latest to warn of weakness in equity markets amid a risk to corporate earnings. The MSCI USA index is now implying 4% earnings-per-share growth next year, close to the analyst consensus but far from Citi’s expectation of a 3% contraction, strategists led by Robert Buckland wrote in a note.

“The recent rally means US equities no longer price an EPS contraction, which seems too optimistic,” the Citi strategists wrote. Technical indicators, meanwhile, suggest stock volatility could rise next week. Measures of 30-day implied and realized volatility in the S&P 500 Index started to move closer together in recent sessions, a sign of rising anxiety after the benchmark failed to break through its 2022 downtrend and the key 200-day moving average.

Strategists from Morgan Stanley to JPMorgan have warned investors against piling back into risk on hopes the Fed is getting close to pivoting to easier policy. Translation: buy, buy, buy.

“Presumably if the Fed is pivoting this time around, it’s not for a good reason. It’s a deteriorating fundamental picture,” Joyce Chang, chair of global research at JPMorgan, said in an interview with Bloomberg TV Thursday, forgetting that that “not good reason” could very well be the ongoing devastation in risk assets. “I mean, is that really a reason to be buying risk? I think it’s premature to say that there is a Fed pivot.” No, it’s not.

Traders now await Friday’s US producer price report and the Consumer Price Index print to get a read on how effective Fed policy has been to quell inflation, and whether the central bank will be able to notch down its aggressive campaign.

Back to markets, where European stocks extended a four-day slide, with property and telecommunications firms pacing declines even as energy companies and miners gained. That said, stocks have almost erased all initial losses. Euro Stoxx 50 is little changed. CAC 40 outperforms peers, adding 0.1%, IBEX lags, dropping 0.5%. Here are some other notable European movers:

• Derichebourg rises as much as 14%, biggest intraday gain since February 2021, after the French waste-management company reported revenue for the year that beat the average analyst estimate
• IAG rises as much as 2.1% and Wizz Air as much as 7.4% after Bank of America upgraded both stocks to buy. Lufthansa climbs as much as 1.4% after BofA upgraded to neutral, while EasyJet falls as much as 3.8% after being double-downgraded to underperform
• Vertu Motors rises as much as 6.6% after announcing the acquisition of Helston Garages Group for a total of £117m
• Balfour Beatty gains as much as 3.9%, touching the highest since Sept. 16, with analysts flagging another buyback announcement and a solid outlook from the construction and infrastructure group
• Frasers Group falls as much as 8.1%, the most since Nov. 14, after the Sports Direct and House of Fraser owner reported sales around 4% below RBC expectations after a softer performance in international retail.
• Stadler Rail drops as much as 5.6% as Credit Suisse trims its price target on the train manufacturer, anticipating pressure on profitability.
• Volkswagen falls as much as 1.7% and is among the worst performers on the SXAP autos index after Exane cut its rating on the company’s preference shares to underperform from neutral, citing margin pressures.
• ASML declines as much as 1.6% after Bloomberg News reported that the Netherlands is planning new controls on exports of chipmaking equipment, potentially barring companies from selling gear capable of manufacturing 14- nanometer or more advanced chips

Asian stocks rose, led by a jump in Chinese equities on increasing expectations for reopening, helping investors dispel worries about a possible global economic recession.  The MSCI Asia Pacific Index rose as much as 0.6%, driven by gains in Chinese tech names including Tencent and Alibaba. The gauge erased an earlier drop of as much as 0.5% in another day of volatile trading amid thin volumes. Hong Kong’s Hang Seng Index surged more than 3%, rebounding from Wednesday’s selloff, after a report that the city is seeking to further ease Covid-related rules. Investors have been bullish on Chinese equities of late, with JPMorgan saying that earnings downgrades are “very close to the bottom”.

The positive views have helped lift sentiment on Asia broadly, with Nomura upgrading its outlook for Hong Kong and South Korea stocks. Still, even with Thursday’s gain, the MSCI Asia equity measure is on track for its first weekly loss since the end of October as investors lock in profits after a five-week surge. “Asian investors should use this volatility as an opportunity to raise exposure,” Nomura strategists including Chetan Seth wrote in a report. “Recessions in the US/Europe in 2023 mean that a growing Asia will likely be the outperformer, with softer USD/Asia the additional kicker.”

Markets with heavy dependence on global demand for their manufactured goods, such as Taiwan and South Korea, posted notable losses while the key benchmark in Indonesia, a raw materials exporter sank as much as 2%. Japan’s stock gauge also dropped led lower by its tech and auto exporters, following US shares lower as Treasuries signaled growing concern about a recession next year.  The Topix dropped 0.3% to 1,941.50 as of market close Tokyo time, while the Nikkei 225 declined 0.4% to 27,574.43. Sony Group contributed the most to the Topix’s decline, decreasing 1.9%. Out of 2,164 stocks in the index, 728 rose and 1,292 fell, while 144 were unchanged. “There’s a gradual increase in the view that the economy will probably deteriorate considerably next year,” said Takeru Ogihara, chief strategist at Asset Management One

Australian stocks also extended their losing streak as banks and miners drag: the S&P/ASX 200 index fell 0.8% to close at 7,175.50, marking three consecutive sessions of losses. Bank and materials shares contributed the most to the benchmark’s retreat. Downer EDI was the biggest decliner after cutting its earnings guidance and flagging accounting irregularities. In New Zealand, the S&P/NZX 50 index was little changed at 11,617.14.

In FX, the Bloomberg Dollar Spot Index was flat after temporarily swinging to a loss in early European hours and then modest gains. The dollar strengthened against most of its Group-of-10 peers, though trading was largely confined to narrow ranges.

• The euro was steady around $1.05. Bunds twist- flattened as the 2-year yield rose by 2bps and the 30-year yield fell by 1bp. Money-market wagers on ECB tightening increase very slightly ahead of a slew of speeches, including President Lagarde
• The pound was the worst G-10 performer, while the gilt curve bull-steepened as money markets eased BOE tightening wagers, pricing less than one-point of rate hikes by February for the first time since Nov. 11 ahead of next week’s policy meeting. Thursday marks the Bank of England’s final active QT bond sales of this year, though sales of gilts purchased as part of its recent emergency support measures will continue
• The yen traded heavy after Japan unexpectedly reported a current-account deficit

In rates, Treasuries fell across the curve, apart from the 30-year tenor, which inched up. Declines were most pronounced in the belly, where yields rose about 4bps. The belly of the curve underperformed, with 5- to 7-year yields are cheaper by as much as 3.5bp on outright basis. Long-end outperforms, with yields slightly richer on the day, leaving 5s30s spread flattest since Oct. 20. Few events scheduled during US session. Treasury 10-year yields around 3.45%, cheaper by 2bps on the day and lagging bunds, gilts by 2bp and 1bp; 2s10s spread around -83bp and steeper by 1.5bp on the session after reaching new cycle low -85.2bp Wednesday. Gilts 10-year yield reverses earlier moves as money markets pare BOE rate-hike bets, seeing less than 100bps by Feb. Bunds 10-year yield edges lower while within Wednesday’s range.

In commodities, oil rises after a four-day drop; WTI jumped more than 3% to rise above $74 following news there was an outage at the Keystone pipeline. Spot gold falls roughly $3 to trade near $1,784/oz. Most base metals trade in the green.

To the day ahead now, and central bank speakers include ECB President Lagarde, and the ECB’s de Cos and Villeroy. Data releases include the weekly initial jobless claims from the US. Finally, earnings releases include Costco and Broadcom.

Market Snapshot

• S&P 500 futures up 0.1% to 3,941.25
• STOXX Europe 600 down 0.1% to 435.59
• MXAP up 0.4% to 156.61
• MXAPJ up 0.9% to 511.06
• Nikkei down 0.4% to 27,574.43
• Topix down 0.3% to 1,941.50
• Hang Seng Index up 3.4% to 19,450.23
• Shanghai Composite little changed at 3,197.35
• Sensex up 0.2% to 62,517.40
• Australia S&P/ASX 200 down 0.7% to 7,175.55
• Kospi down 0.5% to 2,371.08
• German 10Y yield down 0.2% to 1.79%
• Euro down 0.1% to $1.0495
• Brent Futures up 1.0% to $77.94/bbl
• Gold spot down 0.2% to $1,783.29
• U.S. Dollar Index up 0.20% to 105.31

Top Overnight News from Bloomberg

• Europe’s governments are expected to sell more new debt in the bond market next year — upwards of €500 billion on a net basis — than anytime this century. And bond investors, scarred by the same inflation surge that the ECB is trying to squelch, aren’t in the mood to tolerate fiscal largesse right now
• The term structures in the major currencies are now in full inversion mode as the one-week tenor captures the last round of risk events for the year. They now envelope the monetary policy meetings by the Federal Reserve, the European Central Bank, the Bank of England, the Swiss National Bank and Norges Bank, as well as the US CPI report for November
• The UK’s pace of hiring and pay growth slowed in November as companies concerned about the UK economy tipping into recession became more reluctant to take on permanent staff, according to a survey
• Australian Treasurer Jim Chalmers said an independent review of the Reserve Bank will help guide his decision next year on whether to reappoint Governor Philip Lowe, whose term expires in September
• Chinese authorities may further soften their stance on property policies at its key economic meeting next week after the Communist Party’s top decision-making body said it will seek a turnaround in the economy for 2023, according to people familiar with the matter
• With China’s Covid Zero policy rapidly dismantled, the threat of economic disruption remains high. Infections are likely to surge, forcing workers to stay home, businesses may run out of supplies, restaurants could be emptied of customers and hospitals will fill up
• Japanese life insurers sold a record amount of foreign bonds last month, preliminary portfolio flow data from the nation’s Ministry of Finance show

A more detailed summary of overnight news courtesy of Newsquawk

APAC stocks traded cautiously after the lacklustre handover from Wall St where the major indices were subdued as participants digested deflationary data and Russian President Putin’s nuclear rhetoric. ASX 200 was led lower by underperformance in the energy sector after oil prices recently slipped to a YTD low and with sentiment not helped by a monthly contraction in both export and imports, as well as the failure of takeover talks between Link Administration and suitor Dye & Durham. Nikkei 225 traded negatively amid reports that the government is to propose a JPY 1tln tax income increase to fund national defence, while data releases were uninspiring as it surprisingly showed the first Current Account deficit since June and although Q3 GDP was revised higher, it remained in negative territory. Hang Seng and Shanghai Comp were mixed with the Hong Kong benchmark buoyed by strength in casino names on the reopening play as Hong Kong is said to be considering easing COVID testing rules for arrivals and may repeal the outdoor mask rule, while the mainland is indecisive amid trade-related headwinds with the Netherlands planning curbs on tech exports to China under an agreement with the US.

Top Asian News

• China is said to be mulling further property market easing measures at next week’s economic meeting, according to Bloomberg sources.
• Macau to relax COVID test rules for Chinese visitors, according to Bloomberg.
• Hong Kong reports 14.4k COVID cases (prev. 11.9k); Hong Kong government says social distancing measures are set to remain in place.
• Japanese PM Kishida said no planning to increase income tax for defense spending.
• Hong Kong Shortens Covid Isolation, Eases Testing for Travelers
• China Car Sales Drop as Covid Lockdowns Kept Buyers at Home
• GoTo Assures Investors It Has Enough Cash to Reach Profitability

European bourses and US futures reside in narrow ranges are essentially pivoting the unchanged mark; Euro Stoxx 50 +0.1, ES +0.1. In Europe, the sectoral breakdown is mixed/lower with no overarching bias emerging. Chinese November Retail Passenger Vehicle Sales -9.5% Y/Y (prev. +6.9% Y/Y in Oct), according to PCA; Tesla (TSLA) exports 37.8k China-made vehicles in November (54.5k in October). Elon Musk’s bankers are reportedly considering providing new margin loans backed by Tesla (TSLA) shares to replace some high-interest debt to acquire Twitter, via Bloomberg citing sources.

Top European News

• UK PM Sunak refused to rule out a ban on strikes by emergency services and said he will do what is needed to keep the public safe during ongoing industrial action as he threatens tougher laws, according to Sky News.
• UK’s Unite union said around 146 members will begin strike action at Petrofac’s (PFC LN) Repsol (REP) installation on December 8th and 9th over pay and working terms, while 76 members at BP (BP/ LN) installations are to strike over working rotation, according to Reuters.
• European Natural Gas Prices Surge as Winter Blast Stokes Demand
• ASML Analysts See Limited Impact From Potential Dutch Curbs
• BAT Says US Consumers Are Switching to Cheaper Cigarettes

FX

• DXY has managed to regroup amid a initial retreat in USTs; though, the index remains around the mid-point of 105.04-105.42 ranges.
• Action which has modestly dented peers across the board, particularly GBP and JPY below and above 1.22 and 137.00 respectively.
• Antipodeans and the EUR are the relative ‘outperformer’, though they are essentially unchanged vs USD
• PBoC set USD/CNY mid-point at 6.9606 vs exp. 6.9603 (prev. 6.9975)

Fixed Income

• EGBs & their UK counterpart have, despite initial pressure, staged a firm rally to a test/eclipse of Wednesdays peaks amid the latest rhetoric from Russia.
• However, USTs have been unable to keep up with this and are still softer to the tune of 10 ticks, with yields firmer across the curve as such; currently, action is most pronounced in the belly.
• German Federal Constitutional Court has rejected the request for temporary injunction on 2021 supplementary budget; decision related to govt credit authorisation of EUR 60bln for climate funds.

Commodities

• Crude benchmarks are consolidating after yesterday’s mid-week pressure, though the rebound this morning is limited and rangebound.
• Spot gold is, once again, sideways around the USD 1775/oz mark while base metals glean some support from the latest touting of Chinese economic measures.
• Former Peruvian President Castillo was detained and is accused of rebellion.
• Commodities trader Trafigura more than doubled net profits in 2022 vs 2021.

Crypto

• US federal prosecutors are investigating whether Sam Bankman-Fried and his hedge fund orchestrated trades that led to the collapse of two cryptocurrencies in May, according to NYT.
• It was initially reported that US House Finance Services Chair Waters doesn’t plan to subpoena Sam Bankman-Fried to testify at the hearing on FTX’s collapse, although Waters later denied the report.
• US SEC has investigations under way focusing on exchanges including Coinbase (COIN) and the U.S. businesses of Binance and FTX, according to WSJ sources.

Geopolitics

• German Chancellor Scholz said the risk of Russia using nuclear weapons has decreased, according to Funke Media.
• Russian Deputy Foreign Minister Ryabkov says if the US deploys medium-range missiles in Asia/Europe then Russia’s approach to the moratorium will changed, via Reuters; adds, Russia’s nuclear deterrence forces are on full alert, according to Al Jazeera.
• Taiwan Defence Ministry said 9 Chinese air force planes crossed the Taiwan Strait median line during the past 24 hours, according to Reuters.
• US, Japan, and South Korea nuclear representatives meeting in Indonesia on the 12th and 13th December over North Korea, Via Yonhap.

US Event Calendar

• 08:30: Nov. Continuing Claims, est. 1.62m, prior 1.61m
• 08:30: Dec. Initial Jobless Claims, est. 230,000, prior 225,000

DB’s Jim Reid concludes the overnight wrap

Markets have continued to trade with a risk-off bias over the last 24 hours as the S&P (-0.19%) saw its 8th loss in the last 9 days, albeit a small one which actually only aggregates up to -2.32% down over those 9 days given that the one up day (last Wednesday) was the second best day for the index in the last 2 years. Sovereign bonds saw the bigger moves though, rallying amidst growing concern about the state of the economy alongside several dovish signals. That prompted another sharp decline in Treasury yields, with the 10yr yield down -11.5bps to 3.42%, which is its lowest level in nearly 3 months and more than -90bps beneath the intraday high of 4.34% in late-October. Ironically terminal at that point was pretty much exactly where we are today so there’s been a massive inversion of terminal-10s, which seems like the bond market is coming around to the idea of a harder and harder landing. Overnight, the 10yr yield seen a partial rebound of +4.5bps as we go to print, taking it back up to 3.46%.

Several factors were behind these moves, but the biggest shift of the day bizarrely coincided with the release of the revised Q3 data on US productivity. So not only a backward-looking indicator, but also a revised estimate as well. The release showed that labour productivity had risen by +0.8% in Q3 (vs. +0.3% previous estimate), whilst the growth in unit labour costs was revised down to +2.4% (vs. +3.5% previous estimate). Clearly that’s good news from the Fed’s perspective, but given the data series is a noisy one that’s often heavily revised (as with yesterday) it’s hard to justify the sizeable reaction that occurred directly as the release came out.

To be fair to investors, there were plenty of other developments yesterday to help justify the moves we saw in yields. In particular, the jitters about the global economy saw oil prices decline for a 4th day running, with Brent crude down -2.75% to $77.17/bbl. In fact, Brent crude fell back into negative YTD territory for the first time since January, closing -0.8% below its levels at the start of the year. And even though the moves have been driven by negative sentiment, it’s clearly good news for policymakers from an inflation standpoint, and it was inflation breakevens that drove the moves lower in Treasury yields, with 10yr breakevens coming down -6.2bps on the day to 2.27%. In turn, the impact is being increasingly felt in the real economy, with US gasoline prices down to a fresh post-January low of $3.355/gallon. Furthermore, data from the Mortgage Bankers Association showed that 30yr mortgage rates fell for a 4th week running to 6.41%, marking their longest run of declines since May 2019.

Another potentially dovish signal (if you squint hard enough) came from the Bank of Canada, which is acting as something of a prelude ahead of the Fed, ECB and BoE decisions next week. In terms of the decision, they hiked rates by 50bps despite plenty of speculation they’d downshift the pace to 25bps. That took the overnight rate up to 4.25%, but there were signs of a future pause in their statement, which said the “Governing Council will be considering whether the policy interest rate needs to rise further”. That’s the first time since the tightening cycle began that they haven’t explicitly said they expect further rate hikes, instead using softer language like “considering”. Nevertheless, the decision to proceed with 50bps dominated the market reaction, with Canadian government bonds underperforming yesterday as the 10yr yield ‘only’ fell -2.2bps. The big question now is whether any of the other central banks follow up with a similarly dovish signal next week.

When it came to equities the mood remained slightly downbeat yesterday, with the S&P 500 (-0.19%) losing ground for a 5th day running, and closing at its lowest level in 4 weeks. Once again, the losses were driven by the more cyclical sectors, with the NASDAQ (-0.51%) and the FANG+ Index (-0.93%) seeing even larger declines, despite the rate rally which would typically support big tech valuations. Meanwhile, bellwether defensives health care (+0.85%), staples (+0.38%), and real estate (+0.26%) led the way. And it was much the same story in Europe too, with the STOXX 600 (-0.62%), the DAX (-0.57%) and the CAC 40 (-0.41%) all losing ground on the day.

Staying on Europe, we’re now exactly a week away from the ECB’s next decision, and there were signs in their latest monthly survey that inflation expectations were continuing to rise. For instance, 1yr expected inflation was up by three-tenths to 5.4%. To be fair, 3yr expectations were unchanged at 3.0%, but that’s still a full point above the ECB’s target. In the meantime, sovereign bond yields continued to fall across the continent, with those on 10yr bunds down -1.5bps at their lowest level in nearly 3 months, whilst yields on 10yr OATs (-1.4bps) and BTPs (-4.4bps) were down as well.

Overnight in Asia, the equity weakness from the US and Europe has continued, with losses for the Kospi (-0.99%), the Nikkei (-0.52%), the CSI 300 (-0.07%0 and the Shanghai Comp (-0.10%). The main exception is the Hang Seng (+2.67%), which has surged following reports that Hong Kong could end their outdoor mask mandate and reduce the isolation period from 7 days to 5 for Covid patients and close contacts. The Hang Seng Tech index has seen even larger gains, advancing +4.79% against this backdrop. More broadly however, futures are still pointing to weakness in US and European equity markets later, with those on the S&P 500 currently down -0.15%.

Elsewhere on the data front, Euro Area growth was revised up in Q3, with the latest data showing a +0.3% expansion (vs. +0.2% previous estimate). That fits in with some recent newsflow suggesting the economic situation may not be as bad as had been feared, even if a recession still remains the consensus expectation. Otherwise, German industrial production also performed better than expected in October, with a -0.1% contraction (vs. -0.6% expected), whilst the previous month’s expansion was also revised up half a point.

To the day ahead now, and central bank speakers include ECB President Lagarde, and the ECB’s de Cos and Villeroy. Data releases include the weekly initial jobless claims from the US. Finally, earnings releases include Costco and Broadcom.

TC Energy Corp said in a statement this morning that it shut the Keystone oil pipeline system after a leak into a creek near Steele City, Nebraska

We have shut down the Keystone Pipeline System and mobilized people and equipment in response to a confirmed release of oil into a creek, approximately 20 miles (approx. 32 kilometres) south of Steele City, NE.

Pursuant to our incident protocols, an emergency shutdown and response was initiated at approximately 8 p.m. CT, on Dec. 7, 2022, after alarms and a detected pressure drop in the system.

The affected segment has been isolated, and booms deployed to control downstream migration of the release. The system remains shutdown as our crews actively respond and work to contain and recover the oil.

We are proceeding to make appropriate notifications, including to our customers and regulators and will work cooperatively with third parties to effectively respond to this incident.

Our primary focus right now is the health and safety of onsite staff and personnel, the surrounding community, and mitigating risk to the environment through the deployment of booms downstream as we work to contain and prevent further migration of the release.

We will provide more information as soon as it becomes available.

The response was swift in WTI, jumping over 3%…

The system can carry more than 600,000 barrels of crude per day.

The nearest time spread for the US benchmark surged over 50 cents into a bullish backwardation structure…

A prolonged outage would significantly tighten markets in Cushing, the delivery point of benchmark US crude futures as well as in the Gulf Coast.