Via Praetorian Capital,

Last summer, I was having lunch with a friend at a plain vanilla shop, who kept checking his phone and muttering, “this NVIDIA is killing me.”

After the third time in five minutes, I had to ask:

Me: You run a long-only fund. You don’t short. How is NVIDIA killing you?

Him: Kuppy, you don’t get it. You do your own thing. I’m benchmarked. I’m underweight NVIDIA and trailing massively. There are guys at my firm who are 500bps overweight. One guy is even 700bps overweight. They’re killing it.

Me: Who cares?? Just buy something else.

Him: NVIDIA goes up every day. Clients keep asking about it. I feel like an idiot to be underweight.

Me: So, then why don’t you buy some if it’s worrying you so much?

Him: I keep waiting for a pullback. Damn thing is up another 3% today. It never pulls back. I’m getting further and further behind. Not sure what I’m going to do. NVIDIA is killing my year…

The whole experience was surreal. I miss all sorts of trades. I don’t let them bother me. If something is killing me, it’s because I’m losing money. I’ve never worried about making less. It’s just not an emotion that I’ve experienced. Besides, my friend was trailing his benchmark by a few hundred basis points. To me, that’s a bad day, a rounding error—certainly not a crisis. However, I don’t live in the benchmarked world. In that world, trailing your benchmark is existential. Sure, you can do it for a quarter, or maybe even a full year. When that happens, your bonus will suffer, but if you trail for two years in a row, it becomes existential. You’ll get fired. My friend was really sweating it.

His whole way of thinking was so foreign to me. I buy cheap stocks with tailwinds. I don’t know when they’ll work, and I mostly don’t care. If I have a bad quarter or even a bad year, that’s just part of the process. I built my firm specifically to support my investing style. I wanted the flexibility to underperform, to be volatile, to have nasty drawdowns, to be able to avoid owning overpriced garbage if it enters a bubble. My friend didn’t have that luxury and a few hundred basis points of tracking error were killing him. It was impairing his ability to think. He couldn’t even enjoy lunch.

Did my friend ever buy NVIDIA?? I assume he did. It was probably the day of a local peak when he couldn’t take the pain any longer, right before a nasty pullback. He likely swept the book and then got drunk. I’m almost sure the pain of missing got the better of him, and he paid up. One can never underestimate the pain of underperformance.

I mention this because I’m reading a lot of year-end fund letters. Everyone is bemoaning the MAG7, their disproportionate effect on the S&P 500 (which is effectively the index that everyone competes against), and the fact that their funds underperformed. It’s amazing how few funds owned the MAG7 last year. It seems like only retail boomers owned them, as no self-respecting hedge fund will ask for 2 and 20, only to buy Apple. As a result, many funds dramatically trailed their index, even worse, they trailed the MAG7 that their boomer clients are clustered in. Trust me, it feels mighty embarrassing to trail your clients, and still pretend you’re the expert in the room.

Even in the hedge fund game, there are performance pressures. In some cases, they’re even worse than in the closet indexing world. You’re given a pass if you underperform for a year, as long as you’re not down on the year, but you’re not allowed to keep underperforming. At some point, the redemptions start, and they don’t stop. No one wants to pay 2 and 20, when they can buy an ETF that charges 15bps and tracks the index.

Look at the MAG7 screaming higher in January. Every day, portfolio managers are falling further behind. They’re saying to themselves, “Not again! I gotta catch up!!” They’re rolling out of their core portfolio positions, and they’re telling their brokers to, “get me some MAG7!!” Maybe they’re not lifting every name, but they’re going for the ones like NVIDIA that are making new highs every day. They’re not investing, they’re surviving. This is existential. If NVIDIA goes up another $100 and they don’t have it, they’re out of a job. This is how blowoff tops get made.

Do you remember the first quarter of 2000?? Tech screamed. Everyone chased. Sure, there was a bubble in speculative internet stocks. We all remember Pets.Com. What’s less remembered is the mad rush into mega-cap tech names. Plain vanilla funds had spent years ignoring these names as they were overvalued. Eventually, they had no choice but to pay crazy multiples for the big liquid names that dominated the indexes. The underperformance led to redemptions; it became existential to trail the indexes. They had to close their eyes and buy overpriced tech. Cisco, Nortel, Microsoft, Sun Microsystems, AOL, JDS Uniphase, Yahoo, etc. These stocks went up every day, relentlessly. Everything else got sold to fund it. Even the greats of our industry, guys like Druck, got sucked in. He simply couldn’t stand to underperform. That pressure is powerful, and it makes guys do stupid things.

I feel like we’re reliving the first quarter of 2000, but in the narrow world of the MAG7. On one side, capital keeps flowing into a handful of names. On the other side, there is a relentless undertow in everything else—as it’s sold to fund more NVIDIA. I look at my book and feel my names under pressure, names that I think are going to report amazing year-end quarters. These names shouldn’t be getting sold, but they are—guys need to fund more MAG7.

I don’t know when this ends, as these things have a way of feeding on themselves. I just know that it eventually ends. I also know that it usually doesn’t end in a gradual way. Rather, it ends with a violent sector rotation, as capital floods back into the companies that have underperformed, and out of the MAG7. Think back to the first quarter of 2022. I think it’s going to be like that, but even more violent. The catalyst is likely going to be a big break in bonds. They’re starting to leak again. They’re sick, and I think it’s terminal. In that case, I feel like we’re a few points away from bonds infecting other duration assets.

I cannot time when this rotation happens, but I can recognize what’s happening. I’m immune to these performance pressures. If I’m destined to underperform for a period, then I’ll underperform. I’m not going to do something foolish, just to have a few months with better numbers. A lot of portfolio managers do not have that luxury. They’re stampeding in, fully expecting that they can get out in time. They’ll all get trapped.

But at least they’ll track their benchmarks…

In the latest reinforcement of the country’s reputation for rampant corruption, Ukraine’s SBU intelligence agency says it has uncovered a $40 million embezzlement scheme in which a defense firm agreed to supply the country’s army with 100,000 mortar rounds — but never delivered even one.  

No names have been named yet. However, the shadow of guilt extends beyond officials at the firm, Lviv Arsenal, to include current and former senior Ukraine Defense Ministry officials, the SBU said in a statement on Saturday.  Five individuals have been formally charged so far, and The Guardian reports that two are from the defense ministry. At least one was said to be caught trying to flee Ukraine; all face up to 12 years in prison. 

The Defense Ministry has been cooperative, according to the SBU. In September, Ukraine President Volodymyr Zelensky fired defense minister Oleksii Reznikov. At the time, his ouster was linked to various financial improprieties that that had emerged in his ministry — though Reznikov himself wasn’t directly implicated. Of course, his firing also came after Ukraine’s highly-touted 2023 counteroffensive essentially accomplished nothing — other than pointlessly killing and maiming Ukraine soldiers. 

The mortar-shell scheme goes back to a contract signed in August 2022. That was just six months after Russia invaded in February of that year. “However, [Lviv Arsenal] never sent a single round to our country, while moving the money into the shadows,” the SBU said in its statement. The shadowy destinations reportedly included a Balkan bank account. 

At a time when American citizens and GOP legislators are growing increasingly reluctant to continue funding the proxy war in Ukraine, this latest news cuts two ways. It highlights the fact that American money has been wasted in the war, but also demonstrates some Ukrainian resolve to clamp down on bureaucrats in and out of government skimming money and weapons off the top.  

The $40 million mortar scam is certainly just the tip of the iceberg. Earlier this month, the Department of Defense inspector-general issued a report concluding that the Pentagon had failed to properly track approximately $1 billion of weapons transferred to Ukraine.  

“While the DoD (Department of Defense) has improved execution of EEUM (enhanced end use monitoring) since the full‑scale invasion began in February 2022, the DoD did not fully comply with the EEUM program requirements for defense article accountability in a hostile environment,” wrote the IG.  

While the anti-Cathie Wood ETF, SARK, was launched at just the right time and experienced significant gains in its short lifespan (still up more than 250% since inception), Tuttle Capital Management’s Jim Cramer ETFs have both shuttered. 

This means that the Inverse Cramer Tracker ETF (SJIM) and the Long Cramer Tracker ETF (LJIM) have both shut down, per Bloomberg. Sadly, if investors want to lose money on Jim Cramer now, they’re going to have to do it the old fashioned way: tuning into CNBC and following along with his stock picks live.

In a press release out in summer of last year, Matthew Tuttle, brain child behind both ETFs, stated last summer when the long ETF shut down: “We started LJIM in order to facilitate a conversation with Jim Cramer around his stock picks as the other side to the Short Cramer ETF. Unfortunately, Mr. Cramer and CNBC have been unwilling to engage in dialogue and instead have chosen to ignore the funds, therefore there is no reason to keep the long side going. Going forward we will just focus on the short side.”

But it wasn’t just the long side people didn’t want to have anything to do with: it was everything Cramer, it seems. 

And so, upon shutdown of the short ETF, Tuttle commented: “Retail investors are more focused on volatile products, and the interest in a long/short portfolio never fully materialized.”

He said he started the ETF to “point out the danger of following TV stockpickers, Jim Cramer specifically.”

Jane Edmondson, head of thematic strategy at TMX VettaFi, commented to Bloomberg last week: “There are a lot of ‘fad’ thematics, not tied to sound economic principles. Sadly, most of them are destined to fail.”

When the ETFs first hit the market, Cramer expressed on Twitter his openness to people taking opposite positions to his, cautioning that such bets would be against some of the most prosperous U.S. companies, notably Apple Inc. and Alphabet Inc.

In a March 2023 interview with Bloomberg’s Trillions podcast, Tuttle revealed that he and two associates track Cramer’s TV segments and online presence to construct their actively managed investment portfolios, which have a 1.2% fee.

A CNBC representative told Bloomberg that Cramer advocates for long-term investment strategies, emphasizing a mix of index funds and individual stocks.

Authored  by Simon White, Bloomberg macro strategist,

Wednesday sees the Federal Reserve meeting and the Treasury’s quarterly refunding announcement (QRA). It’s the latter, however, that has the most potential to upset markets through possible disruptions to liquidity and funding.

The overlapping of fiscal and monetary policy will be center stage this week as the Treasury today announces its total borrowing estimates, and on Wednesday how it expects to fund this deficit over the next three months. The Yellen pivot, at the beginning of 2023, allowed the government to fund its large borrowing needs without cratering the market. Skewing issuance towards bills let money market funds (MMFs) lend to the government using trillions of dollars of idle liquidity parked at the Fed’s reverse repo facility (RRP).

But bills are now well over 20% of government debt, a level the Treasury has generally preferred to keep the ratio under. The Treasury may therefore continue to increase auction sizes of notes and bonds, as has gradually started to happen. It was larger-than-expected bond auction sizes at the October QRA that was the initial impetus for the bond sell-off into the end of last year.

Expectations are for bond and note auction-sizes to climb again. It is hard to know exactly what is priced in, but there is a risk of a repeat of October if the increase in auction sizes is large.

Not only could that trigger another bond sell-off, but it could also jeopardize hitherto market-friendly liquidity conditions. MMFs cannot directly buy longer-term debt. Moreover, banks have been reducing their UST holdings, and the Fed is not a buyer while QT is ongoing, thus it will fall mainly on the private non-bank sector to buy the bonds using bank deposits, which will eat up reserves and thus worsen liquidity.

But even if the Treasury keeps bill issuance high (and the yields bills offer stay above the RRP’s rate), that could soon lead to funding issues, also problematic for markets if they move in an uncontrolled fashion.

The domestic RRP has fallen sharply from its peak, and now sits at $570 billion. The closer it gets to zero, the closer we are likely approaching the point where reserves can go from abundant to scarce in a flicker. The chart below shows that historically trading in fed funds (i.e. reserves) has dropped notably when the domestic repo has gone below ~$500 billion.

That’s potentially a sign banks are hoarding reserves, and likely the precursor to funding issues, one of the inputs to my Funding Stress Trigger.

So whatever the Treasury decides to do this week, the structure of the monetary system is such that the days where it could innocuously announce its funding intentions, without fear of upsetting markets, are gone for now.

As previewed last night, we are now entering the craziest week of the quarter for two reasons: i) over $10 trillion in market cap is reporting earnings and that represents just 5 tech companies (a total of 32% of the S&P is set to report by market cap). and ii) hedges have never been cheaper as complacency hits never before seen levels. And then there is an absolute avalanche of economic and central bank events.

Let’s take a closer look.

The FOMC ending Wednesday and Payrolls on Friday are the most obvious landmarks, but we also have just five companies accounting for 24% of the S&P 500 (Microsoft, Apple, Alphabet, Amazon and Meta) with $10.5tn of market cap, reporting in a 48-hour window from Tuesday night.

If that’s not enough the US Treasury Quarterly Refunding Announcement (QRA) is out on Wednesday. The last two editions have coincided with first a huge sell-off in bonds and then a huge rally. The precursor is today’s Treasury’s borrowing estimate which is out at 3pm EST. As we previewed, this time there probably won’t be any major surprises but the report is going to be heavily scrutinised. Other US highlights include the JOLTS data and consumer confidence tomorrow, the ADP report on Wednesday and the ISM manufacturing index (DB forecast 48.1 vs 47.4 in December) on Thursday.

In Europe, the latest CPI prints will start coming in on Wednesday with DB expecting the headline Eurozone index to come in at 2.81% YoY (2.9% in December) and core at 3.27% (3.4%). There will also be the Q4 GDP data across key Eurozone economies tomorrow as well as labour market indicators throughout the week. In the UK we have the BoE and Riksbank meetings on Thursday.

Over in Asia, the BoJ ‘summary of opinions’ (tomorrow) from the January meeting will be interesting with economists looking for an indication of how widespread an optimistic take on the outlook for wages and inflation is among the policy board as well as any hints of actual policy revision. In China, the highlight will be the official PMIs on Wednesday as well as the Caixin manufacturing PMI on Thursday.

Now, let’s go through some of the main highlights in more detail now.

For the FOMC, DB’s Jim Reid writes that his bank’s US economists believe that their prior tightening bias will be left behind and ensuring a meaningful overhaul of the post-meeting statement. They expect Powell to echo comments from his colleagues that policy is in a good place, that a restrictive stance will have to be maintained for some time, but that officials do expect to cut rates this year. However, the timing and pace of those cuts will be data dependent and determined on a meeting-by-meeting basis. In this way, Powell would leave open the potential for a rate cut in March, but would not intend to add to those probabilities at this time. In addition, look for an update on their view on QT. It is too early for a decision to be made but clues may be given to their latest thoughts on the timing of any changes.

For payrolls DB expect headline (+200k vs. +216k last) and private (+175k vs. +164k last) payrolls to outperform consensus of 180k and 148k and their three-month averages of 165k and 145k, respectively. Last January was strong and there could be some seasonals to consider which is part of the reason for DB’s elevated forecast. The BLS will also release its revised seasonal factors for the establishment survey on Friday, which may change the complexion of data trends. DB expect unemployment to rise a tenth to 3.8% but every January brings an update to population controls so we could have a different numerator and denominator to December. Overall last month’s report was a bit of a mess so it’ll be interesting if we see a clearer picture this time.

Here is a Day-by-day calendar of events courtesy of Deutsche Bank

Monday January 29

• Data: US January Dallas Fed manufacturing activity, Japan December jobless rate, job-to-applicant ratio
• Central banks: ECB’s Guindos speaks
• Earnings: Ryanair

Tuesday January 30

• Data: US January Conference Board consumer confidence, Dallas Fed services activity, December JOLTS report, November FHFA house price index, UK December net consumer credit, mortgage approvals, M4, Japan December retail sales, industrial production, Italy Q4 GDP, December PPI, Germany Q4 GDP, France Q4 GDP, December consumer spending, Eurozone Q4 GDP, January services, industrial and economic confidence
• Central banks: BoJ Summary of Opinions January MPM, ECB’s Vujcic, Lane, Vasle and Nagel speak
• Earnings: Microsoft, Alphabet, AMD, Danaher, Pfizer, UPS, Stryker, Starbucks, Mondelez, Diageo, General Motors, MSCI, Juniper Networks

Wednesday January 31

• Data: US Q4 employment cost index, January ADP report, MNI Chicago PMI, China January PMIs, UK January Lloyds business barometer, Japan January consumer confidence, December housing starts, Italy December unemployment rate, hourly wages,November industrial sales, Germany January CPI, unemployment claims rate, France January CPI, December PPI, Canada November GDP
• Central banks: Fed’s decision
• Earnings: Novo Nordisk, Mastercard, Samsung Electronics, Novartis, Thermo Fisher Scientific, Qualcomm, Boeing, Boston Scientific, GSK, Hitachi, Hess, Rockwell Automation, Corteva, Fujitsu, H&M
• Auctions: US Treasury Quarterly Refunding Announcement

Thursday February 1

• Data: US Q4 unit labor costs, nonfarm productivity, January ISM index, total vehicle sales, December construction spending, initial jobless claims, China January Caixin manufacturing PMI, Japan January monetary base, Italy January CPI, manufacturing PMI, new car registrations, budget balance, Eurozone January CPI, December unemployment rate, Canada January manufacturing PMI
• Central banks: BoE decision, Decision Maker Panel survey, Riksbank decision, ECB’s Centeno and Lane speak
• Earnings: Apple, Amazon, Meta, Merck & Co, Roche, Shell, Honeywell, Sanofi, Eaton, Ferrari, Royal Caribbean Cruises, Evolution AB, BT Group, United States Steel, Volvo, Peloton

Friday February 2

• Data: US January jobs report, December factory orders, France December industrial production, budget balance
• Central banks: ECB’s Centeno speaks, BoE’s Pill speaks
• Earnings: Exxon Mobil, AbbVie, Chevron, Keyence, Regeneron, Bristol-MyersSquibb, Cigna, Charter Communications, Aon

Finally, turning just to the US, the key economic data releases this week are the Employment Cost Index on Wednesday, the ISM manufacturing report on Thursday, and the employment report on Friday. The January FOMC meeting is on Wednesday. The post-meeting statement will be released at 2:00 PM ET, followed by Chair Powell’s press conference at 2:30 PM.

Monday, January 29

• No major economic data releases scheduled.

Tuesday, January 30

• 09:00 AM FHFA house price index, November (consensus +0.3%, last +0.3%)
• 09:00 AM S&P Case-Shiller 20-city home price index, November (GS +0.5%, consensus +0.45%, last +0.6%)
• 10:00 AM Conference Board consumer confidence, January (GS 114.3, consensus 114.0, last 110.7)
• 10:00 AM JOLTS job openings, December (consensus 8,709k, last 8,790k)

Wednesday, January 31

• 08:15 AM ADP employment change, January (GS +130k, consensus +148k, last +164k): We estimate a 130k rise in ADP payroll employment in Janaury, reflecting the recent slowdown in gross hiring and ADP’s underexposure to the outperforming healthcare and government segments. Unlike nonfarm payrolls, ADP does not generally exhibit large weather effects, and we assume a modest drag of roughly 10k in the January ADP report (mom sa).
• 08:30 AM Employment cost index, Q4 (GS +0.90%, consensus +1.0%, last +1.1%): We estimate the employment cost index rose by 0.90% in Q4 (qoq sa), which would lower the year-on-year rate by one tenth to 4.2% (nsa yoy). Our forecast reflects a modest sequential slowdown in wage growth indicators in the quarter.
• 09:45 AM Chicago PMI, January (GS 48.5, consensus 48.0, last 47.2): We estimate that the Chicago PMI rose by 1.3pt to 48.5 in January, reflecting a start-of-year rebound in manufacturing activity indicated by US freight data.
• 02:00 PM FOMC statement, January 30-31 meeting: As discussed in our FOMC preview, we expect the Fed to aim to keep a March cut on the table without sending a decisive signal at its January meeting. We expect the Committee to remove the outdating hiking bias from the post-meeting statement and note that future policy changes will depend on upcoming inflation and other data. We continue to expect the FOMC to deliver a first cut in March and 5 cuts in total in 2024, mainly because progress on inflation has already surpassed the threshold the FOMC has given.

Thursday, February 1

• 08:30 AM Nonfarm productivity, Q4 preliminary (GS +2.8%, consensus +2.3%, last 5.2%); Unit labor costs, Q4 preliminary (GS +0.3%, consensus +1.5%, last -1.2%): We expect nonfarm productivity growth of +2.8% (qoq saar) in the Q4 preliminary reading. We expect unit labor costs—compensation per hour divided by output per hour—to grow 0.3% in the Q4 preliminary reading, which would increase the year-over-year rate to +2.4%.
• 08:30 AM Initial jobless claims, week ended January 27 (GS 210k, consensus 210k, last 214k): Continuing jobless claims, week ended January 20 (GS 1,835k, last 1,833k)
• 10:00 AM ISM manufacturing index, January (GS 47.6, consensus 47.4, last 47.4): We estimate the ISM manufacturing index rebounded by 0.2pt to 47.6 in January, reflecting weakness in other business surveys but a start-of-year rebound in manufacturing activity indicated by US freight data. Our GS manufacturing tracker fell 2.3pt to 45.9 driven by a collapse in the volatile Empire Fed survey.
• 10:00 AM Construction spending, December (GS +1.1%, consensus +0.5%, last +0.4%)
• 05:00 PM Lightweight motor vehicle sales, January (GS 15.5mn, consensus 15.7mn, last 15.83mn)

Friday, February 2

• 08:30 AM Nonfarm payroll employment, January (GS +250k, consensus +180k, last +216k); Private payroll employment, January (GS +215k, consensus +148k, last +164k); Average hourly earnings (mom), January (GS +0.20%, consensus +0.30%, last +0.4%) ; Average hourly earnings (yoy), January (GS +3.99%, consensus +4.1%, last +4.1%); Unemployment rate, January (GS 3.7%, consensus 3.8%, last 3.7%); Labor force participation rate, January (GS 62.6%, consensus 62.6%, last 62.5%): We estimate nonfarm payrolls rose by 250k in January (mom sa), reflecting below-normal end-of-year layoff rates—as indicated by our GS layoff tracker—that more than offset a roughly 50k drag from cold, snowy weather during the survey week. We assume this weather headwinds weighs on the leisure and hospitality, other services, and construction categories. Big Data employment indicators were mixed in the month but are also broadly consistent with low layoff rates and a potentially large weather drag. We estimate that the unemployment rate was unchanged at 3.7%, reflecting a sharp rebound in household survey employment offset by a rebound in the labor force participation rate to 62.6%. We estimate a 0.20% increase in average hourly earnings (mom sa) that lowers the year-on-year rate by one tenth to 4.0%, reflecting waning wage pressures and negative calendar effects (the latter worth roughly -5bps).
• 10:00 AM University of Michigan consumer sentiment, January final (GS 80.4, consensus 79.0, last 78.8); University of Michigan 5–10-year inflation expectations, January final (GS 2.8%, consensus 2.8%, last 2.8%): We expect the University of Michigan consumer sentiment index increased to 80.4 in the final January reading and for the report’s measure of long-term inflation expectations to be unrevised at 2.8%.
• 10:00 AM Factory orders, December (GS flat, consensus +0.2%, last +2.6%); Durable goods orders, December final (last flat); Durable goods orders ex-transportation, December final (last +0.6%); Core capital goods orders, December final (last +0.3%); Core capital goods shipments, December final (last +0.1%): We estimate that factory orders were unchanged in December following a 2.6% increase in November. Durable goods orders were unchanged in the December advance report, while core capital goods orders increased 0.3%.

Source: DB, Goldman, BofA

On Friday, the White House slapped Texas with a “temporary pause on pending decisions of Liquified Natural Gas exports.” 

This pause on new LNG export approvals is because the Biden administration sees “climate crisis for what it is: the existential threat of our time.” 

Texas is the third largest exporter of LNG in the world. And it’s becoming quite apparent radicals in the Biden administration care very little about climate change but, instead, under that guise, are punishing Gov. Greg Abbott for defying the federal government over the border crisis. 

Even Senate Energy Committee Chairman Joe Manchin (D-W.Va.), a top critic within the Democratic Party on energy policies, vowed an investigation into the export suspension. 

In a statement on Friday, Manchin suggested the decision was based on political considerations instead of “indisputable facts”: 

“I have always said that our first concern must be protecting American consumers and growing American businesses, and we need a safety valve in place to ensure Americans aren’t unnecessarily stuck paying a premium for the abundant resources we’re blessed to have.

“But as the superpower of the world, we also have a responsibility to our allies and trading partners who, in our absence, may have no other choice but to turn to countries that don’t share our values. That’s been made abundantly clear in the last two years as we have been able to step in to replace Russian natural gas to cut off funds for Putin’s bombs and bullets.” 

Days after the decision, on Monday, Jack Fusco, CEO of Cheniere Energy Inc., was quoted at the Baker Hughes annual conference in Florence, Italy, via Bloomberg, saying that the Biden administration’s decision to pause approvals of LNG export licenses will be temporary: 

“I’m hopeful that this will be behind us in November.” 

Fusco pointed out that US LNG helps lower emissions from dirtier fossil fuel power generation, adding, “So I was very confused as to why that needs to be reanalyzed.” 

Mike Sommers, president of the American Petroleum Institute, said the decision was “probably the worst energy decision that” Biden has made. He said, “Because of this pause, you’re probably going to see some investment that would have come to the United States, go elsewhere.” 

The good news: Goldman Sachs analysts led by Samantha Dart penned a note Sunday, indicating: 

Also on Friday, the White House confirmed the Department of Energy (DOE) will pause the approval process of proposed US LNG export facilities in order to incorporate a broader impact analysis. As we have discussed , this change in policy does not impact our outlook for US or global gas markets for at least another three years, given our base-cased export projects in the period have already been approved by the DOE.

Let’s hope the LNG pause is a short-term thing. Otherwise, severe supply constraints could emerge later this decade. 

The Czech Republic’s government formally announced that it would replace its current fleet of Swedish JAS-39 Gripen fighter jets with the Lockheed Martin F-35 Lightning II. 

Local news station Czech Radio said Defence Minister Jana Černochová and US Ambassador to the Czech Republic Bijan Sabet signed an agreement for 24 F-35 stealth fighter jets. The deal is valued at 150 billion Czech koruna (or $6.6 billion), and is considered the largest single purchase for the Czech military. 

“By signing this intergovernmental agreement, our country and also our army enter a new era,” Černochová said

The first F-35 will be delivered in 2031, and the rest by 2035. 

The first jets should arrive in the country in 2031, the rest will be delivered by 2035. The US aircraft will replace the Swedish Gripen fighters, which Czechia now leases for CZK 1.7 billion a year. The government approved the purchase at the end of last year. -Czech Radio 

“The F-35 is the only system that can help us succeed in the future’s battlegrounds, and that in the case of need, we’ll manage to effectively defend ourselves against aggression, together with our allies,” chief of the general staff Lt. Gen. Karel Rehka said, who was quoted by The Washington Post. 

This comes amid rising tensions in Eastern Europe, the Middle East, and the Indo-Pacific Region as the world teeters on the edge of major conflict. 

The US has spent years creating F-35 friend circles in allied countries surrounding adversaries. 

The stealth jet is a cornerstone of airpower that helps the West enforce a global security blanket through unmatched connectivity and lethality worldwide. 

Authored by Ven Ram, Bloomberg cross-asset strategist,

Traders in the euro region reckon that the base case is for the European Central Bank to cut interest rates in April, with a tail risk that we don’t get one. Pricing has been emboldened by some dovish statements from officials.

Meeting-dated swaps are now fully pricing in a rate-cut in April, compared with some 87% at the end of last week.

The ramping up of expectations follows Bank of France Governor Francois Villeroy de Galhau remarking over the weekend that “regarding the exact date, not one is excluded, and everything will be open at our next meetings.”

ECB Vice President Luis de Guindos added to that view by remarking that monetary policy will reflect the good news on inflation.

Those remarks are in contrast to President Christine Lagarde’s comments on Thursday, when she stood by her earlier remarks on a first rate cut in the summer.

There are factors that may compel the ECB to loosen policy sooner, contends Adrien Letellier at Bordier & Cie.

Germany is already in recession and will probably drag the euro zone down with it, Letellier, a fixed-income portfolio manager, writes in response to an earlier post.

“It’s increasingly plausible for the ECB to meet its inflation target by April, and I would not completely rule out that it could be close to the target after the February figure,” he reckons.

So we could be in a situation by early March where inflation is back to target or very close, which would should put pressure on the ECB that meets six days later. The ECB can, therefore, still change its mind, he contends.

The odds of a March rate-cut remain low for the ECB and BoE, but the market is pricing a coin-toss for The Fed…

Which will likely swing more positive as the reality of the end of BTFP and Zero-RRP starts to hit the banking system

iRobot shares have been falling over the past week as regulatory opposition has mounted to the previously announced acquisition by Amazon, but this morning IRBT is down over 30% – to its lowest since 2009 – after the two firms announced that they have entered into a mutual agreement to terminate their deal agreement, originally signed on August 4, 2022.

The companies released the following statements today about the decision:

“We’re disappointed that Amazon’s acquisition of iRobot could not proceed,” said David Zapolsky, Amazon SVP and General Counsel.

“We’re believers in the future of consumer robotics in the home and have always been fans of iRobot’s products, which delight consumers and solve problems in ways that improve their lives. Amazon and iRobot were excited to see what our teams could build together, and we’re deeply grateful to everyone who worked tirelessly to try and make this collaboration a reality.

This outcome will deny consumers faster innovation and more competitive prices, which we’re confident would have made their lives easier and more enjoyable.

Mergers and acquisitions like this help companies like iRobot better compete in the global marketplace, particularly against companies, and from countries, that aren’t subject to the same regulatory requirements in fast-moving technology segments like robotics. Undue and disproportionate regulatory hurdles discourage entrepreneurs, who should be able to see acquisition as one path to success, and that hurts both consumers and competition – the very things that regulators say they’re trying to protect.”

Amazon will pay iRobot a $94 million termination fee.

“iRobot is an innovation pioneer with a clear vision to make consumer robots a reality,” said Colin Angle, Founder of iRobot.

“The termination of the agreement with Amazon is disappointing, but iRobot now turns toward the future with a focus and commitment to continue building thoughtful robots and intelligent home innovations that make life better, and that our customers around the world love.”

Separately, iRobot said it will implement an operational restructuring plan and cut about 31% of its workforce, or 350 employees.

As part of this workforce reduction, iRobot expects to record restructuring charges totaling between $12 million and $13 million, primarily for severance and related costs, over the first two quarters of 2024, with the majority of the restructuring charges anticipated in the first quarter of 2024.

iRobot CEO and Chair Colin Angle has stepped down with current iRobot EVP and Chief Legal Officer named interim CEO.

Markets opened the “crazy busy” week unchanged as investors readied for central bank updates from both the Fed the the BOE, braced for the January jobs report and the Treasury refunding announcement, and prepared for a flood of earnings as a third of the S&P by market cap is set to report. As of 8:00am ET, S&P futures were flat after the S&P 500 closed out a third week of gains and finished Friday near its record high; Nasdaq futures rose 0.2% because well, they always rise. Oil touched the highest levels since November in intraday trading, before pulling back as the Biden admin promptly slammed down the move higher that directly jeopardizes Biden’s re-election changes. The US said Iranian-backed militants killed three service members and wounded others in a drone attack in Jordan, with President Joe Biden pledging to retaliate.

Here are some of the more notable premarket movers:

• C4 Therapeutics gains 2.7% after JPMorgan upgrades the biotech to neutral on a more optimistic view of the company’s drug pipeline.
• Revance Therapeutics drops 2.3% after Mizuho cuts its recommendation to neutral and says guidance for 2024 product sales seems too high.
• SoFi Technologies rises 9% after the fintech reached profitability for the first time.
• Vera Therapeutics drops 5.6% after offering $200 million shares
• Warner Bros Discovery slips 1.4% as Wells Fargo cut its recommendation to equal-weight, saying “lower earnings have been the story since the merger, and the trend limits future multiple expansion.”
• Zim Integrated Shipping Services (ZIM) gains 9.2% as Jefferies upgrades to buy, noting the shipping firm’s cash burn has shifted to “significant cash generation.”

Middle East developments add to an already crowded diary of major events for investors, with a Federal Reserve policy decision Wednesday, one from the Bank of England Thursday, US payroll numbers Friday, and the Treasury Refunding Statement out on Wednesday. There’s a blockbuster line-up of earnings too, with Apple, Microsoft, Alphabet, Amazon and Meta among those due to report, and commanding over $10 trillion in market cap among them.

“This week will be very important — earnings, central banks, geopolitical risk — these are three big factors that could move things,” said Andrea Tueni, head of sales trading at Saxo Banque France. “Even if volatility is still very low, you only need one of these three factors to catch fire and that could shake things up.”

On the broader, global outlook for equities, UBS Group AG strategists led by Andrew Garthwaite warned that markets are set to confront a “difficult phase,” where slowing growth will start to dent earnings estimates. Predictions by analysts that revenues will rise strongly despite these conditions throw up a “very unusual” mismatch, according to the UBS team. UBS now expects earnings to disappoint, because profit margins are under threat from rising wages and the delayed impact of higher interest rates. “The market is behaving as though weak economic data is good (more rate cuts, lower bond yields),” a team led by Garthwaite wrote. “At some point this relationship reverses.”

European stocks have struggled for direction, with the Stoxx 600 little changed on the day, holding near the highest level since January 2022, supported by rallying oil majors as heightened Middle East tensions drove up crude prices. BP Plc, Shell Plc and TotalEnergies SE all gained about 2%. Here are the most notable European movers:

• Holcim shares soar as much as 6.7%, before paring the gain, after the building-materials provider said it intends to spin out its North America operations into a separate US entity
• Buzzi gains as much as 4.4%, the most since September, with the Italian cement firm getting a price-target hike from Banca Akros as well as a boost from peer Holcim
• European Energy stocks climb as much as 1.7%, to the highest since Jan. 9, boosted by a rise in oil prices amid continued attacks in the Middle East and the Red Sea
• Galp shares rise as much as 2.5% after the energy company’s production came in ahead of expectations. However, analysts flagged its refining margins were weaker than hoped
• SCA gains as much as 3.3% after the Swedish forestry and paper firm was double-upgraded to buy from sell at Danske Bank, which is optimistic on earnings
• Bayer shares drop as much as 5.7%, the most intraday since Nov. 20, after the German conglomerate was ordered to pay more than $2.2 billion to a former user of Roundup weedkiller
• Philips drops as much as 6.3% after the Dutch manufacturer said it’s suspending sales of sleep apnea devices and ventilators in the US after reaching an agreement with US regulators
• Remy Cointreau falls as much as 4.6% as some analysts questioned whether a 15% rally that followed the cognac maker’s third-quarter results on Friday was fully justified
• Eutelsat Communications shares slump as much as 17%, to a record low, after the French satellite operator said a delay to its infrastructure rollout will dampen its revenue and profit outlook
• FinecoBank drops as much as 6% in Milan trading, the most intraday since August, after JPMorgan analysts placed the Italian lender on negative catalyst watch
• Wacker Chemie shares drop as much as 2.9% after the German chemicals company reported preliminary results and said that a recovery in demand “is currently not in view”

In Asian trading, a gauge of the region’s stocks gained amid optimism over China’s latest measures to bolster its equity market. China’s securities regulator said at the weekend it will halt the lending of certain shares for short selling from Monday. Chinese property shares erased an earlier gain after a Hong Kong court ordered the liquidation of China Evergrande Group. Trading in the company’s shares was suspended after it tumbled 21%.

In FX, the Bloomberg Dollar Spot Index was little changed as traders focus turned to the Federal Reserve’s policy decision on Wednesday. The euro was down 0.3% versus the greenback and the second weakest of the G-10 currencies behind the Swedish krona; EUR/USD fell as much as 0.3% to 1.0824 and European government bonds rallied on growing speculation that the ECB could start cutting interest rates by April. Policymaker Francois Villeroy de Galhau at the weekend raised the prospect of easing at any of the ECB’s coming meetings. Governing Council member Peter Kazimir wrote in an opinion piece Monday that the ECB won’t rush into cuts, saying that June is more likely for a first move. NZD/USD rose as much as 0.5% to 0.6118, while AUD/USD rose as much as 0.4% to 0.6604, as commodity currencies led G-10 gains against the dollar; Oil climbed on Middle East tensions, China tightened securities lending to support the stock market.

In rates, Treasuries climbed with US 10-year yields falling 4bps to 4.10%. US yields richer by 2bp to 3.5bp across the curve with front-end lagging slightly, flattening 2s5s and 2s10s spreads by 1.2bp and 1.5bp on the day. Treasuries are richer and led by core European rates after weekend remarks from ECB’s Francois Villeroy de Galhau, who said the central bank could cut rates at any time this year. Backdrop of Middle-East warfare creates additional demand for haven assets. US 10-year yields around 4.105% with bunds and gilts outperforming 2bp and 1.5bp in the sector. Bunds were also helped by comments from ECB’s Mario Centeno calling for lower rates sooner rather than later. The rally in bunds sees German 10-year yields fall 6bp to 2.24%.

In commodities, oil prices were little changed after jumping in early Asian trading on escalating tensions in the Middle East. Spot gold rises 0.5%.

US economic data includes January Dallas Fed manufacturing activity at 10:30am; ahead this week are consumer confidence, ADP employment, employment cost index, MNI Chicago PMI, ISM manufacturing and January jobs report. Fed officials are in self-imposed quiet period ahead of Jan. 31 policy decision.

Market Snapshot

• S&P 500 futures little changed at 4,916.50
• STOXX Europe 600 little changed at 483.74
• MXAP up 1.0% to 166.73
• MXAPJ up 0.7% to 509.94
• Nikkei up 0.8% to 36,026.94
• Topix up 1.3% to 2,529.48
• Hang Seng Index up 0.8% to 16,077.24
• Shanghai Composite down 0.9% to 2,883.36
• Sensex up 1.6% to 71,847.83
• Australia S&P/ASX 200 up 0.3% to 7,578.45
• Kospi up 0.9% to 2,500.65
• Brent Futures down 0.1% to $83.44/bbl
• Gold spot up 0.6% to $2,030.40
• U.S. Dollar Index little changed at 103.53
• German 10Y yield little changed at 2.25%
• Euro down 0.2% to $1.0832
• Brent Futures down 0.1% to $83.44/bbl

Top Overnight News

• China will impose restrictions on certain shares being lent for short selling as the gov’t takes further steps to bolster its equity markets (analysts anticipate additional measures in the coming weeks and months). SCMP
• Trump is planning a “major economic attack” on China if he wins in November and has talked about imposing tariffs of as much as 60% on all Chinese imports. WaPo
• The Biden administration, eager to highlight a signature economic initiative as elections approach, is expected to award billions of dollars in subsidies to Intel, Taiwan Semiconductor Manufacturing Co., or TSMC, and other top semiconductor companies in coming weeks to help build new factories. The grants are part of the $53 billion Chips Act, intended to reshore production of advanced microchips and fend off China, which is fast developing its own chip industry. WSJ
• China Evergrande received a liquidation order from a Hong Kong court on Monday, setting off an arduous process to sell off what had once been one of China’s largest property firms. BBG
• Washington doesn’t believe Iran is trying to start a wider war in the region following the attack in Jordan (but the death of three soldiers will warrant a larger response from the Pentagon, and there is a debate about whether the US should hit targets inside Iran). NYT
• A ceasefire agreement for Gaza is edging closer toward reality as a deal takes shape that would halt fighting for about two months and release Israeli hostages. NYT
• Israel is struggling to destroy the Hamas tunnel network in Gaza (80% of the tunnel infrastructure remains intact). WSJ
• Charles Evans and Lael Brainard, both former Fed officials, said that US inflation has met the central bank’s definition of “sustained progress” (which means rate cuts could/should be starting soon). WSJ
• The U.S. Treasury Department is likely to announce one more round of increases in its auction sizes when it details its borrowing needs for the coming quarter next week, as it faces higher spending needs due in part to higher social security and interest rate costs. It is expected to pause increases for the rest of the year, however, which could give some relief to investors that have been concerned about increasing supply. Investors will also focus on whether the Treasury’s borrowing estimate comes in higher or lower than its last projection of $816 billion for the quarter. RTRS
• EM Asia was by far the most net bought region on the Prime book last week and saw the largest net buying in over 5 years, driven by long buys and to a much lesser extent short covers (4.2 to 1). EM Asia now makes up 10.9% of the Overall Prime Book’s Global Net Exposure (vs. 9.9% last week), which is in the 40th percentile vs. both the past year and past five years.

A more detailed breakdown of markets courtesy of Newsquawk

APAC stocks began the week mostly on the front foot heading closer to month-end albeit with some of the gains capped by heightened geopolitical tensions in the Middle East and Chinese property sector concerns. ASX 200 finished marginally higher with the index led by the energy sector after the recent upside in oil prices. Nikkei 225 climbed above the 36,000 level with the help of Japanese automakers amid currency effects. Hang Seng and Shanghai Comp were initially lifted after China’s latest measures to stabilise stocks including the suspension of restricted shares lending, although gains were capped after a Hong Kong court ordered China Evergrande to be wound up which saw shares in the world’s most indebted developer drop by as much as 21% before trading in the Co. and its affiliates were halted.

Top Asian News

• White House said US National Security Adviser Sullivan and Chinese Foreign Minister Wang Yi held candid, substantive and constructive discussions on global and regional issues including Ukraine, the Middle East, North Korea, South China Sea and Burma, while Sullivan stressed that although the countries are in competition, both sides need to prevent it from veering into conflict or confrontation. White House also stated US and Chinese officials committed to maintaining a strategic channel of communication and pursuing additional high-level diplomacy and consultations through a call between US President Biden and Chinese President Xi which the US expects to take place sometime in spring. It was also reported that Secretary of State Blinken may revisit Beijing this year, according to Reuters.
• China’s Foreign Ministry said Chinese Foreign Minister Wang told US National Security Adviser Sullivan that the US and China should treat each other as equals rather than be condescending, while Wang stressed the Taiwan issue is China’s internal affair. China’s Foreign Ministry also stated that US and China’s presidents will maintain regular contact to provide strategic guidance for bilateral relations and will make good use of the current strategic communication channels and dialogue mechanisms.
• The first joint meeting of the US-China working group on fentanyl precursor chemicals will be held on January 30th in Beijing with the US to pursue enforcement actions and impose controls of precursors, according to a senior US official.
• China’s securities regulator announced it is to fully suspend restricted shares lending from this Monday, while the Shanghai and Shenzhen stock exchanges will suspend securities lending by strategic investors during lockup periods, according to Reuters.
• Evergrande (3333 HK) received a winding-up order from a Hong Kong court after talks between the Co. and creditors broke down, while Evergrande, Evergrande New Energy Vehicle (708 HK) and Evergrande Property Services (6666 HK) shares were suspended.
• Monetary Authority of Singapore maintained the width, centre and slope of the SGD NEER policy band, as expected, while it stated that current monetary policy settings remain appropriate. MAS said Singapore’s economy is expected to strengthen this year, barring any further global shocks, as well as noted that both upside and downside risks to the inflation outlook remain.

European bourses are on a mixed footing, having initially opened around the unchanged mark; the DAX 40 (-0.5%) underperforms, hampered by Bayer (-4.3%). European sectors hold a negative tilt, though with the overall breadth of the market narrow; Energy outperforms as crude prices remain propped up attributed to heightened geopolitical tensions. Autos underperforms, dragged down by losses in Volvo Cars (-3.8%). US equity futures (ES -0.1%, NQ +0.1%, RTY -0.1%) are on a mixed footing, though overall lacking any real direction as markets await this week’s key events including earnings from four out of the five “Magnificent 7”, Fed Policy Announcement, NFP & Quarterly Refunding highlight the week. Click here and here for the sessions European pre-market equity newsflow, including earnings from Ryanair, Philips, Wacker Chemie & more.

Top European News

• UK Chancellor Hunt is reportedly considering providing workers with another tax cut through a further reduction of national insurance in the March budget as an attempt to take the heat off UK PM Sunak, according to The Guardian.
• Brussels mulls support for solar panel makers as Chinese imports flood the market, according to FT.
• French farmers vowed to blockade Paris and continue protests despite the concessions offered by PM Attal including the scrapping of a diesel tax increase, according to FT.
• The UK is to ban disposable vapes as part of plans to combat the rising number of those 11-17 years old vaping. Once implemented, retailers will have six months to implement changes. Currently unclear when the ban/bill will be introduced, PM Sunak to provide more details on Monday.

FX

• DXY continues to edge higher making session highs at 103.66, though with fresh drivers lacking and contained in Friday’s range of 103.14-72.; the Dollar has largely traded on a 103 handle since 17th Jan.
• EUR nudged lower in recent trade following dovish Centeno comments and towards the bottom end of Friday’s range of 1.0813-86; markets await EZ CPI and GDP metrics this week.
• JPY a touch firmer vs. USD with the pair having oscillated around 148 in recent trading sessions. FOMC could become the next inflection point for the pair as markets consider Fed vs. BoJ policy paths.
• Antipodeans are both firmer vs. the USD despite the flimsy risk tone. AUD/USD has failed to sustain a footing above the 0.66 mark with 0.6620 the best the pair could muster last week.
• PBoC set USD/CNY mid-point at 7.1097 vs exp. 7.1785 (prev. 7.1074).

Fixed Income

• USTs are firmer and hit a 111-13+ high on dovish Centeno comments, albeit well within last week’s 111-13 to 111-19+ range. Fed is the week’s highlight, WSJ’s Timiraos says officials likely to no longer signal rates more likely to rise than fall.
• Bund price action has been dictated by ECB speak; ECB’s Knot remarks on wages capped initial upside, thereafter EGBs extended on a dovish Centeno. Subsequently, ECB’s Kazimir was a little less dovish which led to a marginal and short-lived moved to the downside.
• Gilts are bid printing a 98.95 session high on ECB’s Centeno and in tandem with EGBs; focus on the BoE on Thursday with the docket thin before that.

Commodities

• Crude benchmarks began modestly firmer with geopolitics in focus. Specifically, the US said three troops were killed by an Iran-linked drone attack near the Syrian border; currently Brent futures reside off bests and just shy of USD 83/bbl.
• Spot gold is bid given the heightened geopolitical risk tone; XAU holds just above USD 2025/oz and well within last week’s bounds of USD 2025.2-2037.9 bounds.
• Base metals are pressured as the Dollar picks up and coupled with Evergrande-related newsflow.
• Energy Intel’s Bakr writes “…market has been underestimating the explosive situation we are in today. And with the US clearly blaming Iran for the killing of 3 Americans in Jordan it will get worse”
• Russian Energy Minister said Russia’s 2024 oil output is seen broadly unchanged Y/Y, while the Russian Energy Ministry separately commented that there is no need for additional measures on the fuel market for now.
• Head of Russia’s Gazprom Neft said there is a slight surplus in the global oil market and he sees no need for additional oil supply cuts by OPEC+ oil producers.

ECB Headlines

• ECB’s Centeno says bank should begin cutting rates, sooner rather than later and avoid abrupt moves, according to Reuters; no need to wait for Q1 wage data to make a decision on rates. Inflation is falling in a sustained manner and almost all factors that drive prices higher have dissipated. No visible second-round effects via wages. No need to wait for Q1 wage data to make a decision on rates. Deviations below 2% inflation target are as punishable as deviations above. ECB also has to be a source of stimulus for EZ growth. Comments that sparked modest dovish price action.
• ECB’s Kazimir says the next move will be a rate cut and it is within our reach; rate cut in Jun is more probable that April but exact timing is secondary to the decisions impact. Patience is essential before making pivotal decisions. ECB not behind the curve and it’s the market getting ahead of events. Signs of disinflation are positive but we don’t yet have enough information to make confident conclusion. Comments which began a slight pullback in EGBs.
• ECB’s de Guindos says they will cut rates when they are sure inflation is attaining the 2% goal. Seen good news on inflation recently, sooner/later monetary policy will reflect this. Optimistic on inflation, incl. core.
• ECB’s Knot said Eurozone wage growth needs to slow before rates can be decreased, while he stated that they have a credible prospect that inflation will return to 2% in 2025 but added conviction is missing that wage growth will adapt to the lower inflation, according to Reuters citing an interview with Dutch TV program Buitenhof.
• ECB’s Villeroy said the ECB could cut interest rates at any moment this year and all options are open at upcoming meetings, while he added the central bank is on the right path to defeating inflation as the rise in the deposit rate to a record 4% has already played a very significant part in moderating underlying inflation, according to Bloomberg.

Geopolitics: Middle East

• US President Biden and other top US officials discussed on Sunday a “significant military response” against pro-Iranian militias over the weekend attack which killed three US soldiers, according to Axios
• Three US troops were killed and dozens were injured from an aerial drone attack on US forces in northeastern Jordan near the Syrian border which US President Biden said was carried out by radical Iran-backed militant groups operating in Syria and Iraq. It was later reported that President Biden said the US will respond to the attack, according to Reuters.
• US Senate Minority Leader McConnell and other Republican senators advocate for significant costs to Iran and call for military retaliation against Iran’s forces, both inside the country and across the Middle East.
• Iran denied any link to the deadly attack on US troops in Jordan and blamed Washington for igniting tensions in the region.
• Negotiators were reportedly closing in on a hostage deal that would stop fighting in Gaza for weeks, according to NYT. However, it was separately reported that Israeli PM Netanyahu’s office said the summit to negotiate a hostage deal was constructive but gaps remain and they will continue to negotiate a hostage deal this week, according to Reuters.
• White House said there is no change to its Israel policy after NBC News reported the US was reviewing weapons transfers to Israel.
• Several countries suspending funding for the United Nations Relief and Works Agency for Palestine Refugees are allegations that some staff were involved in the October 7th deadly Hamas attacks on Israel, according to BBC.
• US military said it conducted a strike against a Houthi anti-ship missile aimed towards the Red Sea which was prepared to launch, according to Reuters.
• US official said National Security Adviser Sullivan told Chinese Foreign Minister Wang Yi that Iran is supporting instability in the Red Sea and urged Beijing to use its influence to rein in Tehran, while the official added that China said they are raising Iran’s support for the Houthis with Iran. US also raised with China its deep concerns about the growing relationship between North Korea and Russia.
• Iran said it successfully launched three satellites into space simultaneously with a rocket that previously had multiple failures.

Geopolitics: Other

• US President Biden’s administration is reportedly working on a long-term strategy for supporting Ukraine although the plans do not anticipate significant gains by Ukraine against Russia in 2024, according to The Washington Post.
• Armenian PM Pashinyan said they proposed a mutual arms control mechanism to Azerbaijan and the signing of a non-aggression pact, according to France 24.
• US said the Venezuelan court decision upholding a ban on leading opposition presidential candidate Machado is deeply concerning and the US is currently reviewing its Venezuela sanctions policy based on this development, according to the State Department.
• South Korean military said North Korea fired off multiple cruise missiles, while it was later reported that North Korean leader Kim guided a submarine launch cruise missile test on Sunday and inspected the construction of a nuclear submarine. Furthermore, Kim said nuclear weaponisation of the navy is key to building a state nuclear strategic force.
• US & Philippines eye 2+2 talks in Manila for the first time in which US Secretary of State Blinken and Defence Secretary Austin will meet Philippine counterparts in March, according to Nikkei.
• US wants cloud services providers such as Amazon (AMZN). and Microsoft (MSFT). to actively investigate and flag foreign clients developing AI apps on their platforms, something which could heighten a tech conflict between Washington and Beijing, according to Bloomberg.

US Event Calendar

• 10:30: Jan. Dallas Fed Manf. Activity, est. -11.8, prior -9.3

DB’s Jim Reid concludes the overnight wrap

On Friday night my wife posted on Facebook to her friends that she suspected that had she’d asked me for a divorce that day, then I would have been less upset than how she’d seen me that evening after the news that Liverpool manager Jurgen Klopp is going to leave at the end of the season. All I can say is that she’s a very astute person!

There will be plenty to take my mind off that devastating news this week in an action-packed slate of activity. The FOMC ending Wednesday and Payrolls on Friday are the most obvious landmarks, but we also have 24% of the S&P 500 (Microsoft, Apple, Alphabet, Amazon and Meta), and with $10.5tn of market cap, reporting in a 48-hour window from Tuesday night. If that’s not enough the US Treasury Quarterly Refunding Announcement (QRA) is out on Wednesday. The last two editions have coincided with first a huge sell-off in bonds and then a huge rally. The precursor is today’s Treasury’s borrowing estimate which is out at 3pm EST. Our rates strategists (link here) don’t see any major surprises this week but it’s clearly going to be heavily scrutinised. Other US highlights include the JOLTS data and consumer confidence tomorrow, the ADP report on Wednesday and the ISM manufacturing index (DB forecast 48.1 vs 47.4 in December) on Thursday.

In Europe, the latest CPI prints will start coming in on Wednesday a nd our European economists’ blog here outlines their expectations for the headline Eurozone index to come in at 2.81% YoY (2.9% in December) and core at 3.27% (3.4%). There will also be the Q4 GDP data across key Eurozone economies tomorrow as well as labour market indicators throughout the week. In the UK we have the BoE (DB preview here) and Riksbank meetings on Thursday.

Over in Asia, the BoJ ‘summary of opinions’ (tomorrow) from the January meeting will be interesting with our economist looking for an indication of how widespread an optimistic take on the outlook for wages and inflation is among the policy board as well as any hints of actual policy revision. In China, the highlight will be the official PMIs on Wednesday as well as the Caixin manufacturing PMI on Thursday.

Let’s go through some of the main highlights in more detail now. For the FOMC, our US economists in their preview note herebelieve that their prior tightening bias will be left behind and ensuring a meaningful overhaul of the post-meeting statement. They then expect Powell to echo comments from his colleagues that policy is in a good place, that a restrictive stance will have to be maintained for some time, but that officials do expect to cut rates this year. However, the timing and pace of those cuts will be data dependent and determined on a meeting-by-meeting basis. In this way, Powell would leave open the potential for a rate cut in March, but would not intend to add to those probabilities at this time. In addition, look for an update on their view on QT. It is too early for a decision to be made but clues may be given to their latest thoughts on the timing of any changes.

For payrolls DB expect headline (+200k vs. +216k last) and private (+175k vs. +164k last) payrolls to outperform consensus of 180k and 148k and their three-month averages of 165k and 145k, respectively. Last January was strong and there could be some seasonals to consider which is part of the reason for DB’s elevated forecast. As our economists also note, the BLS will release its revised seasonal factors for the establishment survey on Friday, which may change the complexion of data trends. DB expect unemployment to rise a tenth to 3.8% but every January brings an update to population controls so we could have a different numerator and denominator to December. Overall last month’s report was a bit of a mess so it’ll be interesting if we see a clearer picture this time.

Over the weekend, the ECB speakers have shown a little bit of a split between the doves and the hawks. On the former side Villeroy de Galway said in a media interview, when talking about rate cuts that “…regarding the exact date, not one is excluded, and everything will be open at our next meeting.” On the latter, Knot suggested that the ECB needed to see certainty that wage growth “will adapt to slower inflation” before cutting rates.

Asian equity markets are mostly advancing at the start of the week initially led by a rally in Chinese equities after China’s securities regulator rolled out measures over the weekend to support the market as well as the property sector. However as I type Chinese equities are turning over a bit after the lunch break.

Across the region, the KOSPI (+1.31%) is leading gains along with the Nikkei (+0.80%). The Hang Seng (+0.55%) is still up but was at +1.8% near the open. The Shanghai Composite was up half a percent earlier after the China Securities Regulatory Commission (CSRC) suspended restricted share lending effective from today to further damage short selling, but is now down -0.75% with a couple of hours left in trading. US futures are broadly flat with 10yr US yields ticking down a basis point at the moment.

In stock specific news, trading of China’s Evergrande Group shares were halted after plunging ~20.0% in volatile trading as Hong Kong’s high court ordered the liquidation of the firm after an 18-month long hearing as the debt-laden developer failed to convince the court that it had a viable restructuring plan.

In energy markets, oil prices have moved higher again this morning with Brent futures up +0.61%, trading at $84.06/bbl, as supply concerns persisted after attacks by Iranian-backed militants indicated tensions are ramping up. Brent was up nearly 6.5% last week as you’ll see below.

Recapping last week now, the equity market rally showed some signs of running out of steam on Friday with the S&P 500 narrowly down (-0.07%) after reaching all-time highs for five consecutive sessions. But the index still gained +1.06% over the week and has now advanced 12 of the last 13 weeks as evidence for a soft-landing mounts. The latter was supported by Friday’s robust US personal spending data, which rose by +0.7% in December (vs +0.4% expected and +0.2% prev). This built on the earlier US GDP data for Q4 that posted above every economist’s estimate on Bloomberg. At the same time, Friday’s inflation data confirmed a more sanguine end to 2023. December core PCE rose 0.2% month-on-month as expected, but with the 2.9% year-on-year print coming slightly below expectations (at 3.0%). The NASDAQ underperformed, falling -0.36% on Friday, following poor earnings results from semiconductor firms Intel and KLA Corp. It was up +0.94% over the week.

The faster-than-expected personal spending saw investors pare back expectations of rate cuts this year. The amount of Fed cuts expected by the December meeting fell by -7.2bps on Friday to 134bps (though this was still 1bp higher than a week earlier), with a 50% probability of 25bp now priced for the March meeting. Off the back of this, 2yr Treasury yields jumped +5.5bps on Friday (but retreated -3.7bps in weekly terms) while 10yr yields rose +1.9bps (and +1.4bps over the week) to 4.14%. Over in credit markets, US IG spreads fell -3bps (+1bps on Friday) to again hit their tightest level in two years.

In Europe, the ECB meeting last Thursday led the markets to price prospects of earlier cuts. A 25bps cut is now 87% priced in by the April meeting, from 67% the week before (though slightly reversing on Friday, having been 93% priced in by Thursday’s close). 10yr bund yields were down -4.2bps last week (+0.9bps Friday). On the equity side, Europe even outperformed the US rally, with the STOXX 600 up +3.11% in its strongest week since early November (+1.11% on Friday).

Turning to commodities, oil saw its strongest week since October against the backdrop of the broader risk rally, lower US crude inventories, and additional shipping diversions in the Red Sea. On Friday, oil prices had been on course to reverse some of their earlier rise after OPEC+ announced it was not intending to make any changes to oil output policy at this week’s meeting, but then spiked by around $2/bbl on news that a tanker caught on fire near Yemen after a Houthi missile attack. Overall, Brent crude rose +6.35% over the week to $83.55/bbl (+1.36% on Friday) and WTI by +6.27% to $78.01/bbl (+0.84% Friday). In other energy news, on Friday the Biden administration froze approvals on new licenses to US firms exporting liquified natural gas. This should not impact existing exports, but could drag on the long-term growth of the LNG market.