Authored by Lance Roberts via RealInvestmentAdvice.com,

As the stock market hit all-time highs this past week, there remains an interesting disconnect from the more dour economic concerns of the average American. A recent survey by Axios, a left-leaning website that supports the current Administration, addressed this issue.

“Poll after poll shows that the country is bummed out by the economy. Voters blame Biden. Nearly four in 10 Americans rate their financial situation as poor, according to a new Axios Vibes survey by The Harris Poll. In the language of our new Vibes series — which taps into the depth of Americans’ feelings — those surveyed feel sad about jobs and the economy.”

We compile a consumer sentiment composite index using the University of Michigan and Conference Board measures to confirm that assessment. Interestingly, while the stock market is hitting all-time highs, the gap between economic expectations and current conditions remains profoundly negative.

That gap should be unsurprising given the increases in borrowing costs directly impacting the average American. As shown, both the headline composite sentiment index and expectations are far off their highs as the Federal Reserve aggressively hiked borrowing costs.

However, the upside is that if the market can continue to register further all-time highs, which we will discuss why in a moment, such should translate into increased consumer confidence. Such is because even though the average household has very little money invested in the financial markets, the drumbeat of all-time highs from the media reduces economic concerns. Improvements in consumer confidence lead to increases in consumer spending, which translates into economic growth.

However, given that higher rates remain and consumers have drained most of their savings, there is likely only a limited impact on further improvements in confidence. While stocks are currently registering all-time highs, much of that gain is based on the assumption that the Federal Reserve will cut rates and reintroduce monetary liquidity.

Front-Running The Fed

The last paragraph is critical. We previously discussed how the Federal Reserve used “Pavlov’s experiment” to train investors over the last decade. To wit:

“Classical conditioning (also known as Pavlovian or respondent conditioning) refers to a learning procedure in which a potent stimulus (e.g., food) is paired with a previously neutral stimulus (e.g., a bell). Pavlov discovered that when the neutral stimulus was introduced, the dogs would begin to salivate in anticipation of the potent stimulus, even though it was not currently present. This learning process results from the psychological “pairing” of the stimuli.”

In 2010, then Fed Chairman Ben Bernanke introduced the “neutral stimulus” to the financial markets by adding a “third mandate” to the Fed’s responsibilities – the creation of the “wealth effect.”

“This approach eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose, and long-term interest rates fell when investors began to anticipate this additional action. Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.” – Ben Bernanke, Washington Post Op-Ed, November, 2010.

Importantly, for conditioning to work, the “neutral stimulus,” when introduced, must be followed by the “potent stimulus” for the “pairing” to be completed. For investors, as each round of “Quantitative Easing” was introduced, the “neutral stimulus,” the stock market rose, the “potent stimulus.” 

That analysis also corresponds to the Fed cutting rates as well. The chart below compares the Fed rate hiking cycle and its balance sheet contraction and expansion to the S&P 500 index. Since 2008, the Federal Reserve, through its messaging, has trained investors to respond to increased liquidity actions. Previously, markets tended to correct during periods of monetary tightening, as should be expected. However, this time, investors are front-running the Fed to get ahead of the reversal in monetary tightening.

While there has been previous debate on the impact of the Fed’s balance sheet changes on the markets, there is a very high correlation between the two, suggesting it is more than a coincidence. The correlation explains the Federal Reserve’s control over the financial markets.

The influence of the Federal Reserve on the markets is evident in a recent BofA survey of professional managers on the “biggest driver of equity prices in 2024.” While fundamentals and corporate earnings should have been the top answer, 52 percent said “The Fed.” However, since “Liquidity” is controlled by the Fed, it was 59%.

Such makes it clear how the markets can obtain all-time highs despite the underlying view of the average American who has very little or no participation in it.

It’s A Narrow Market

Another issue worth delving into with the market breaking out to all-time highs is the narrow participation in that rally. The chart below shows each market sector of the S&P 500 rebased to 100 as of January 2021. I have compared each to the S&P 500 itself. While the overall market is indeed reaching new all-time highs, it is the function of just one sector – Technology.

While the Technology sector can grow earnings in a slower economic environment, market liquidity has chased just a handful of stocks over the last year. Through the end of 2023, the S&P 500 market-capitalization weighted index doubled the return of the equal-weighted index. The reason is that the top-10 stocks in the index absorb more than 30% of all flows into passive indexes.

In 2024, that deviation continues as the chase for “artificial intelligence” dominates media headlines.

Given that Mega-capitalization stocks are a place of safety where major asset managers can place large amounts of capital, and the bulk of expected earnings growth will come from those companies, it is not surprising we are seeing the divergence again. However, while such a deviation is unsustainable long-term, the recent breakout to all-time highs may continue as “F.O.M.O” outpaces fundamentals and valuations. Given that the 24% advance in 2023 was primarily a function of valuation expansion, current valuation multiples are at risk of disappointment if earnings fail to achieve rather lofty expectations.

Earnings Are Key

Economic activity generates the revenues, and ultimately earnings, for corporations. Therefore, the consumer’s return of confidence in the economy is the key to sustaining the all-time highs in the market. The overriding problem for the average American is the decline in savings and wages and increases in the cost of debt.

What most economists and mainstream analysts miss is that while the economy remains robust, it remains a function of massive increases in deficit spending. The problem, and why Americans are so sour on the economy, is that while deficit spending keeps the economy from recession, it is temporary and does not increase the wealth or prosperity of the average American.

The problem for the market is that as the monetary impulse from the 2020 stimulus campaign to the Inflation Reduction and CHIPs Act continues to support economic activity, the rest of the economy is slowing. Ultimately, such will show up in the reduction of rather lofty earnings expectations, which are already declining.

Lastly, given that most sectors are experiencing stagnating earnings growth because of slower economic activity, any risk arising that impacts the earnings of the handful of stocks driving the market could be significant. With valuations elevated, any disappointment, or worse, a potential recession, could lead to a considerable market repricing.

For now, the market’s breakout to all-time highs is bullish and will likely lead to further gains. However, the critical message is not to forget there is still substantial risk underlying the current economy and the market.

Narrow markets are fine until they aren’t.

The problem with that statement is that it is difficult to realize when something has changed. As is always the case with investing, market risks always occur “slowly, then all at once.”

In a move that would have been unthinkable a year ago, the WEF has formed a discussion panel at their annual Davos conference titled “What If Ukraine Loses?”  The panel represents, at the very least, an admission by the globalists that Ukraine could be defeated by Russia despite the deluge of money, armaments and intel assets that Ukraine has been given access to by western governments.

Since 2022, the narrative has shifted from talk of complete victory over Russia including the retaking of the Donbas and even Crimea, to merely holding the current front and keeping a steady supply of ammo and recruits.  

The realities on the ground cannot be denied.  The long vaunted “counter-offensive” that was supposed to crush Russian forces was a complete failure.  No significant ground was gained and no significant victories have been won.  It was a considerable propaganda error to hype up the counter-offensive the way Ukraine did, because when it turned out to be a dud all their other claims quickly came under suspicion.    

At the end of 2023, the average age of Ukrainian soldiers was older than 40 (compare this to the US where the average age is 27).  Rumors out of Ukraine abound that most younger soldiers are dead and that collection teams (government enforcers) now prowl the streets of cities like Kiev.  They search for and kidnap any fighting age men they find, only to send them to the front with little or no training.  

These are the kinds of stories that go mostly ignored by the wider western media.  When they are mentioned, it is usually in support of the Ukrainian government, chastising people who don’t want to fight and die in a globalist proxy war as “draft dodgers.”  The level to which journalists have acted as a propaganda arm of NATO and Ukraine has been grotesque, but it does help to explain why so many Americans and Europeans were deluded about the war for so long.  All they have heard about for the past two years is that Ukraine is on the verge of imminent victory.

It’s simply not true.

This is likely why the WEF is now forced to address the issue at Davos – The situation is becoming undeniable and the fact that the elites are allowing discussion about a Ukraine loss suggests that defeat might be closer than we know.

The panel itself is largely made up of Ukrainian representatives who are there to spin the facts, not have a frank discussion about the realities in the trenches.  Journalist Niall Ferguson seems to be the only member with a modicum of honesty on the panel, as he admits the situation in Ukraine has degraded dramatically.  He does, however, join with the Ukrainians in admonishing the American public’s growing opposition to monetary and military support.

The underlying message?  If Ukraine loses, it will be your fault.     

Why should Americans be relied upon to dump hundreds of billions of dollars into a losing war against an opponent that has nothing to do with them?  The same question should be considered by Europeans, but their proximity is used as leverage against them.  The primary argument from political warhawks like Lindsay Graham and puppets like Zelensky is that when Ukraine falls, Putin intends to invade Europe next.  

It’s the old Vietnam era “domino effect” narrative, repeated ad nauseum.  The problem is that warhawks along with Zelensky and his propagandists are caught in a Catch-22:  They have been promoting the idea that Russia’s military is in shambles and that US and EU aid is bringing Ukraine to victory.  At the same time, they want to frighten Europeans and Americans with the prospect that Russia is strong enough to invade the EU.  They can’t have it both ways – Either Russia’s armies are crippled and ripe to be overrun, or, they are incredibly strong and capable of leaping into a series of invasions against Ukraine’s neighbors.  

The notion that Vladimir Putin intends to blitz Eastern Europe and that Ukraine is the only thing stopping him has never been supported by any significant evidence.  Putin has never made this threat and there is no hard intel that confirms this is his strategy.  There was a multitude of reasons for Russia to invade Ukraine and take the Donbas region; there is no strategic reason for them to engage in conflict with any other nation.  

Rather than going into the ugly facts about Ukraine’s chances, the Davos panel comes off more as a sales pitch for continued shipments of cash and weapons.  A disturbing cost/benefit analysis is offered up to the audience – For the cost of a couple hundred billion dollars and the lives of hundreds of thousands of Ukrainian citizens, here is what you get in return…

The speakers even refer to this dynamic as an “investment.”  Some of the more revealing comments include…

1)  Panel members demand that more needs to be done to give Ukraine the means to strike into the heart of Russia (meaning long range missiles), which would only open the door to total bombardment of Ukraine’s civilian population centers (which Putin has so far kept to a minimum, especially when you compare operations by the US in places like Iraq).  Escalation could include nuclear strikes, which Putin has mentioned on multiple occasions.   

2)  The panel asserts that the “global community” needs to collectively approve the use of more aggressive strikes on Russia.  The nature of these strikes is not really discussed but this could include anything from bombardment of Russian cities, manufacturing, energy and agriculture to terror attacks on civilian populations.  One could say that all is fair in war, but this is not the point.  The point is that escalation is assured and many civilians (most of them Ukrainian) will die should Ukraine be armed with high tech weaponry or use tactics that risk much higher collateral damage.  This is not a scenario that the majority of Americans want to facilitate.

3)  Possibly the most interesting and disturbing comment of the panel came from politician Yehor Cherniev, who noted that the problem with America is that the government is forced to “listen to the people,” which slows down decisions on Ukraine.  In other words, a dictatorship in the US would serve Ukrainian interests better.  Given that Ukraine is essentially a dictatorship right now, this sentiment is not surprising but still interesting to hear in a public forum.       

The clinical manner in which the war is being handled and sold suggests a sociopathy beyond reckoning, but it also lets us know that the war is intended to last.  So far, there has not been a single serious gesture from NATO leaders to engage in diplomatic negotiations or peace talks with the Kremlin.  And (if it hasn’t happened already) eventually Ukraine will run out of soldiers to fight.  Under the circumstances, a devastating loss is assured, to the point that it appears to be the only outcome that is allowed to happen.     

Authored by Simon White, Bloomberg macro strategist,

As the Federal Reserve proceeds with quantitative tightening, markets are increasingly sensitive to funding and liquidity conditions. That makes it paramount to identify – ahead of time – when funding stress is about to manifest.

September 2019 is not a month the Fed wants to revisit. Funding conditions rapidly deteriorated, leading to spikes higher in repo and other short-term interest-rates that are at the base of financial markets. Without smoothly functioning funding markets all assets are vulnerable, as the cost of financing positions becomes punitive, or evaporates altogether.

Can we identify when funding stress is imminent? It’s not easy, as it typically happens abruptly. But we can build a Funding Stress Trigger that in the past has given at least a crucial day or two notice that funding rates may be about to shift notably higher. If and when the trigger activates in the current cycle would be sign QT has run its course (if the Fed hadn’t already ended it by then).

First, a brief reminder on 2019.

Then, as now, the Fed had been reducing the size of its balance sheet, while at the same time Treasury issuance was rising. Even though the Fed had stopped its balance-sheet run-off in August 2019, reserves continued to fall as other liabilities on its balance sheet, such as the Treasury account (TGA), rose.

The straws that broke the camel’s back were a corporate tax-payment day and a large settlement of long-term USTs. The tax payment drained reserves as the Treasury deposited the proceeds at the TGA, while the settlement of USTs meant dealers’ demand for repo funding jumped.

Cue a sudden and non-linear deterioration in funding markets that led to the Fed having to step in and offer term and overnight repo loans.

Funding rates quickly fell back down, but the risk to financial markets from a repeat of this episode is real and therefore very much worth trying to prepare for.

That’s even more the case as asset-prices’ sensitivity to the Fed’s balance sheet today is higher than it was in 2019. The Treasury’s decision to fund most of its borrowing using bills in this cycle – therefore making use of the trillions of reserves that have been idling in the Fed’s reverse repo facility (RRP) – has meant stocks and bonds have continued to rise despite the government running a vast fiscal deficit.

The chart below shows stocks’ sensitivity, i.e. their beta, to reserves plus the domestic RRP (the brown line). That sensitivity is rising as the RRP falls (white line in chart), indicating that stocks are becoming more vulnerable to falling reserves. Similarly for Treasuries.

That’s why holders of stocks and bonds should care about how fast the RRP is falling and the total amount of reserves in the system.

The big unknown is how many reserves are needed for the smooth functioning of funding markets. Fed member Christopher Waller has suggested that the so-called lowest comfortable level of reserves (LCLOR) is about 10-11% of GDP, i.e. ~$3 trillion, compared with the current level of $3.6 trillion. The Fed’s Senior Financial Officer Survey also asks banks what they think their LCLOR is and how much of a buffer they would prefer to hold above it.

The problem with using this information as the basis for a funding-stress signal is that it is lagging.

Reserves are released on a weekly basis, while the survey is only biannual.

Instead we need to use daily data. In building the Finance Stress Trigger we use a few key insights:

• Funding stress tends to show up first at the tails of the daily repo rates traded between counterparties

• Funding volumes of domestic banks in fed funds (i.e. reserves) typically rise as total reserves fall, while foreign banks’ volumes tend to decline when funding issues develop

• Foreign banks are much bigger borrowers of fed funds than their domestic counterparts

• Overall funding volumes (domestic + foreign banks) thus tend to initially fall, before quickly rising again, at the time of funding problems

• Stress in funding markets is typically preceded by a rise in the volatility of the spread between different funding rates

The trigger is shown in the chart below. It uses only four criteria based on the above points, bearing in mind Einstein’s maxim that models should be “as simple as possible, but no simpler.”

It has only activated twice: in 2018 and 2019. In 2018 it triggered on the 20th December. This was several days before the sharp rise in funding rates at the end of that year. The normal, year-end turn when demand for cash rises was exacerbated by Basel III regulation for GSIBs (Global Systemically Important Banks), who stockpiled reserves to ensure their loss-absorbency requirements did not rise.

The trigger also activated in the 2019 funding episode, perhaps appropriately on Friday the 13th of September, ahead of the acute stress seen the following week that led to the Fed’s emergency repo provisioning.

No signal is perfect and all are necessarily subject to retrofitting bias: there’s no guarantee the next funding flare-up will manifest itself in exactly the same way as prior episodes. The possibility of a false negative means maintaining vigilance to funding-market conditions is essential even in the absence of the signal being active.

Furthermore, the Fed introduced a standing repo facility in 2021 allowing banks to access funding at a punitive rate, while it has also been trying to de-stigmatize the use of the discount window.

Nonetheless, there is no guarantee either of these would see notable use before the funding-stress cat is out of the bag. The trigger, on the other hand, uses daily price and volume data that ideally captures general signs of funding distress before it significantly worsens.

In the current environment of deeply intertwined fiscal and monetary policy, assets are increasingly sensitive to funding markets, while the latter are more prone to abrupt meltdowns.

Butterflies flapping their wings in the monetary plumbing should therefore be taken seriously by traders and investors across all asset classes.

S&P futures are flat after back-to-back record closing highs for the S&P 500 index, with Europe mixed and Asia higher after a Bloomberg report indicated that China was “mulling” a 2 trillion yuan market rescue package to contain the relentless rout hammering Chinese stocks. As of 8:05am, S&P futures were up 0.1% despite a barrage of disappointing earnings releases from the likes of DR Horton, General Electric, and 3M. Nasdaq futures, as usual, gained more and were last trading up 0.3%. The Bloomberg dollar index was flat, erasing an earlier loss while the yen reversed an earlier gain following hawkish comments from BOJ head Ueda. WTI crude oil futures are down 0.5%, with Brent trading just under $80/barrel.

In premarket trading,United Airlines jumped trading on the back of forecast-beating earnings. General Electric dropped after predicting profit that undershot estimates. 3M also also slumped 7% after the manufacturing giant forecast 2024 profits and sales growth below Wall Street expectations. US-listed Chinese shares also gained in premarket trading after Bloomberg News reported Beijing is considering a package of measures to stabilize the falling stock market (Alibaba (BABA) +2.4%, Nio (NIO) +3.7%, Li Auto (LI) +4.2%). The Hang Seng Index jumped 2.6%. Here are some other notable premarket movers:

• Coinbase falls 4.5% after JPMorgan issued a downgrade, saying enthusiasm surrounding cryptocurrency ETFs has the potential to deflate further.
• D.R. Horton drops 4.9% after the homebuilder posted first-quarter earnings per share that missed analyst estimates.
• Enphase Energy (ENPH) and Sunnova Energy (NOVA) are up at least 4% as Truist raised its recommendation on both to buy, saying the pair will be among the biggest beneficiaries of Federal Reserve rate cuts this year.
• General Electric drops 3.7% after the company predicts profit this quarter will fall short of Wall Street’s estimates.
• Rumble (RUM) climbs 6.1%, set to extend gains after jumping 36% on Monday following the announcement of a partnership with Barstool Sports for advertising and cloud services.
• Sirius XM declines 1.5% after the satellite radio company received a downgrade from Wells Fargo, which said the merger with Liberty SiriusXM “clouds the valuation.”
• United Airlines jumps 6.4% after providing a 2024 profit outlook range with a midpoint that’s higher than analysts expected.
• Verizon Communications climbs 4.4% after the company gained retail mobile-phone customers in the fourth quarter.
• Zuora (ZUO) rises 2.9% after the cloud billing technology company received an upgrade to buy at Goldman Sachs on its improving risk-reward.

More earnings reports are due later in the day, with Netflix, Johnson & Johnson and Procter & Gamble Co. scheduled to report. Stock markets have broadly shrugged off the Federal Reserve’s warnings that interest-rate cuts are some way off. Instead they have cheered the economy’s resilience even after the most aggressive policy-tightening cycle in decades.  

“There’s been no sign so far of a US recession, that’s why the fourth-quarter earnings season is so important,” said Kenneth Broux, a strategist at Societe Generale SA in London. “Investors will want to see what companies’ guidance is for 2024 on consumer demand and profit margins.”

Besides earnings and economic data, central banks are also in focus this week. While the Bank of Japan held rates steady, Governor Kazuo Ueda said the certainty of achieving its projections has continued to gradually increase. That language supports the prevailing view among economists that the BOJ will raise rates at some point in the first part of this year. Swaps see a 45% probability of a rate hike by the April meeting, with the likelihood rising to 100% by the July gathering. His comments send the USDJPY down to a low of 146.99 before the entire move was promptly reversed as nobody believes anything the BOJ claims.

Investor attention now shifts to the European Central Bank’s Thursday meeting and whether officials may indicate a start to policy easing.

European stocks failed to capitalize on a positive handover from Asia, where shares rose on reports of a fresh market rescue package from Beijing. The Stoxx 600 fell 0.3%, as a rally for miners failed to offset weakness in sectors including health care and tech, with investors awaiting clues on interest rates from the European Central Bank. Ericsson AB fell after the Swedish company warned that its market outside of China will continue to decline in 2024. Swatch Group AG also slipped after failing to hit the sales record predicted by management. Here are the most notable European movers:

• Shares in HelloFresh jump as much as 8.7% after Morgan Stanley upgraded the stock to overweight, saying the risk-reward profile “is now skewed to the upside.”
• Shares in Nordex rise as much as 5.8% after Goldman Sachs raised its recommendation on the wind turbine producer to buy from neutral, saying its underperformance compared with peers including Vestas and Siemens is unjustified.
• Shares in Crest Nicholson rise as much as 2.3% after reporting 2023 results. Drops in revenue and profit were as expected following the housebuilder’s trading update last week, analysts said, turning their focus to news that Martyn Clark is joining as CEO.
• Shares in Encavis slump as much as 5.7% after the renewable power company was downgraded to sell from hold by Stifel, which warned an “unfavourable alignment” of factors this year means there is no justification for its premium valuation.
• Shares in Ericsson fall as much as 4.2% after the telecom equipment maker warned that market uncertainties would prevail in 2024, with clients outside of China still cautious on spending. Taking usual seasonality into account, that means implied 1Q profit indications are much lower than what consensus estimates have factored in, according to analysts.
• Shares in Swatch drop as much as 3.5% after the Swiss watch company’s full-year 2023 results fell short of expectations. Analysts flagged a rise in investments and a strong currency as denting earnings, while the lower-than-anticipated dividend increase also weighed.
• Shares in Logitech drop as much as 7.8% after the Swiss maker of computer accessories reported results. A boost to guidance is positive, but was widely expected, while the shares had a strong run ahead of the results, up about 34% in the three months through Monday’s close.
• Shares in Topdanmark slump as much as 6.5% after reporting a drop in annual profit. Analysts flag the cost of claims was much higher than expected and that markets have set a high bar for the insurer in 2024.
• Shares in Compass Group slip as much as 2.5% after HSBC downgraded the caterer to hold, saying there is better value elsewhere.

Earlier in the session, Asian stocks advanced, led by Hong Kong, on news that Chinese authorities are considering a rescue package to stem an extended market slump. The MSCI Asia Pacific Index rose as much as 0.9%, with all sub-sectors gaining except utilities. A gauge of Chinese shares traded in Hong Kong jumped 2%, while the onshore CSI 300 Index briefly erased losses after Bloomberg reported that policymakers are seeking to mobilize $278 billion as part of a stabilization fund to buy onshore shares. That came after Premier Li Qiang called for “forceful” steps to support the market.

“The selloff has reached irrational levels due to a crisis of confidence,” said Vey-Sern Ling, an analyst at Union Bancaire Privee. “A rescue package may be insufficient on its own to prop up the market in terms of value injected, but will certainly help dispel the idea that the government doesn’t care.”

• Hang Seng and Shanghai Comp were somewhat varied with Hong Kong boosted by reports that China was mulling an equity market rescue package which could be announced as soon as this week, while tech names were also helped after China’s gaming regulator took down draft rules for controlling spending on video games from its website. Conversely, the mainland lagged as the initial support from the news of a potential equity market rescue waned given that potential support measures remain speculation and more stimulus will likely be needed to revive the property sector.
• Australia’s ASX 200 was led higher by financials, tech and defensives, while stocks also shrugged off mixed business surveys.
• Japan’s Nikkei 225 extended on gains after the BoJ maintained its ultra-easy policy, as widely expected, which briefly lifted the index to just shy of the 37,000 level where it then hit resistance and eventually wiped out all its earlier spoils.

In FX, the Bloomberg Dollar Spot Index is little changed. The yen is off its best levels, having rallied during the course of the BOJ press conference where Governor Ueda made a few hawkish hints. USD/JPY dropped 0.1% to 148 after weakening to as low as 146.99. Pair earlier rose as much as 0.3% when the BOJ kept its short-term rate at minus 0.1% and retained its current yield-curve control parameters Fast-money funds sold spot before and during Ueda’s press conference as JGB futures fell on the prospect of possible tighter policy, according to Asia-based FX traders

“The change in tone from Ueda is apparent, and keeps the April meeting live,” said Charu Chanana, head of FX strategy for Saxo Capital Markets, Still, the “yen will likely struggle to hold on to these gains in the near-term given that US yields are likely to remain volatile as the markets start to price in a Trump presidency and US economic data remains robust”

In rates, treasuries fall, with US 10-year yields rising 2bps to 4.13%. Bunds and gilts also decline. Treasuries remained cheaper by 1bp to 3bp across the curve following losses during Asia session, when futures were pressured as JGBs fell; the catalyst was BOJ Governor Kazuo Ueda’s comments that certainty in the outlook is rising gradually and he’ll consider ending negative rates if the bank’s inflation goal comes into view. The US 10-year yield trades near session highs at around 4.13% with gilts lagging by 2bp in the sector and bunds slightly outperforming; Treasury curves are slightly steeper, most spreads within 1bp of Monday’s closing levels. UK gilts underperform in European bond markets. US session includes a $60BN 2-year note auction, first of three coupon sales this week (the remainder are a $61b 5-year and $41b 7-year Wednesday and Thursday). The When Issued on the 2-year yield at around 4.37% is ~6bp cheaper than result of December’s, which stopped through by 0.7bp.

In commodities, oil prices are in the red; WTI falls 0.6% to trade near $74.30. Spot gold rises 0.3%. Bitcoin falls 1.8% to ~$39,000.

To the day ahead now, and data releases in the US include the Richmond Fed’s manufacturing index for January, whilst in the Euro Area, we’ll get the ECB’s quarterly Bank Lending Survey and the European Commission’s preliminary consumer confidence indicator for January. Otherwise, earnings releases include Netflix, General Electric, Procter & Gamble, Johnson & Johnson, and Lockheed Martin.

Market Snapshot

• S&P 500 futures little changed at 4,881.50
• STOXX Europe 600 down 0.3% to 471.51
• German 10Y yield little changed at 2.31%
• Euro little changed at $1.0891
• MXAP up 0.4% to 164.72
• MXAPJ up 0.5% to 498.27
• Nikkei little changed at 36,517.57
• Topix down 0.1% to 2,542.07
• Hang Seng Index up 2.6% to 15,353.98
• Shanghai Composite up 0.5% to 2,770.98
• Sensex down 1.7% to 70,239.02
• Australia S&P/ASX 200 up 0.5% to 7,514.94
• Kospi up 0.6% to 2,478.61
• Brent Futures down 0.5% to $79.68/bbl
• Gold spot up 0.4% to $2,029.92
• US Dollar Index down 0.11% to 103.22

Top Overnight News

• BOJ left policy unchanged, as expected, but signaled a growing confidence that inflation conditions were continuing to move in a direction supportive of ending negative rates. RTRS
• China’s government is looking to mobilize ~$275B worth of funds to bolster its stock market as officials grow more anxious about slumping prices. Also, Chinese Premier Li came out Monday and called for the gov’t to take additional steps to bolster the country’s beleaguered stock market. BBG
• China’s gaming regulator has removed from its website the controversial draft rules that crushed the sector several weeks ago, an action that caused industry stocks to spike. Nikkei
• ECB published its latest bank lending survey and revealed a further tightening of lending standards while demand for loans continued to fall (albeit at a slightly reduced rate). ECB   
• The Israeli military suffered its deadliest day of the Gaza ground invasion on Monday, with 24 soldiers killed in the territory, 21 of them in a single blast. The military announced the soldiers’ deaths early Tuesday. Most of the soldiers were inside two two-story buildings that collapsed Monday afternoon, in a blast apparently involving explosives placed by Israel’s own military to level the buildings. NYT
• The United States and Britain carried out large-scale military strikes on Monday against eight sites in Yemen controlled by Houthi militants, according to the two countries. The strikes signaled that the Biden administration intends to wage a sustained and, at least for now, open-ended campaign against the Iran-backed group that has disrupted traffic in vital international sea lanes. NYT
• A top US regulator has pushed back at banks’ claims that stricter capital rules will increase borrowing costs, saying the lenders could always cut dividends and buybacks instead. The comments from Michael Hsu, acting director of the Office of the Comptroller of the Currency, are the latest shot across the bow to banks, which have complained for months about regulators’ plans for stricter rules under the so-called Basel III endgame framework. FT
• Bill Gross has some advice for the Federal Reserve: stop winding down its balance sheet now, and start cutting interest rates in coming months to avoid recession. BBG
• Sanofi agreed to buy the US biotech Inhibrx Inc. for as much as $2.2 billion, giving the French drugmaker a potential therapy for a genetic disorder that affects the lungs and liver.
• The acquisition is the latest in a string of small- and mid-sized deals as Sanofi looks to double down on innovative medicines and reduce its reliance on the blockbuster asthma medicine Dupixent. BBG
• Chinese President Xi Jinping vowed to “amplify” ties with Moscow during a meeting with Russian Prime Minister Mikhail Mishustin, as the two sides continue to deepen relations. The Chinese leader said the “robust resilience” of their cooperation was demonstrated by bilateral trade hitting its annual goal of $200 billion last month, according to the state-run China Central Television. BBG

A more detailed look at global markets courtesy of Newsquawk

APAC stocks mostly gained after the fresh record levels on Wall St but with gains capped ahead of risk events, while the region also digested the BoJ policy decision and reports of a potential Chinese equity market rescue package. ASX 200 was led higher by financials, tech and defensives, while stocks also shrugged off mixed business surveys. Nikkei 225 extended on gains after the BoJ maintained its ultra-easy policy, as widely expected, which briefly lifted the index to just shy of the 37,000 level where it then hit resistance and eventually wiped out all its earlier spoils. Hang Seng and Shanghai Comp were somewhat varied with Hong Kong boosted by reports that China was mulling an equity market rescue package which could be announced as soon as this week, while tech names were also helped after China’s gaming regulator took down draft rules for controlling spending on video games from its website. Conversely, the mainland lagged as the initial support from the news of a potential equity market rescue waned given that potential support measures remain speculation and more stimulus will likely be needed to revive the property sector.

Top Asian News

• China is to reportedly expand stock selling curbs to insurers, according to Bloomberg
• China is said to consider an equity market rescue package backed by USD 278bln, according to Bloomberg sources.
• BoJ kept its policy settings unchanged, as expected, with rates at -0.10% and QQE with YCC to flexibly target 10yr JGB yields at around 0%, while it maintained the 1% upper bound reference rate for market operations. BoJ made no change to its forward guidance as it reiterated that it will continue with QQE with YCC for as long as needed and won’t hesitate to take additional easing steps if needed. BoJ also noted that inflation expectations are gradually heightening and inflation will likely gradually accelerate towards the BoJ target through to the end of the projected period. Furthermore, the BoJ cut the Fiscal 2023 Real GDP median forecast to 1.8% from 2.0% but raised the Fiscal 2024 Real GDP median view to 1.2% from 1.0%, while it cut its Fiscal 2024 Core CPI median forecast to 2.4% from 2.8% but raised the Fiscal 2025 Core CPI median view to 1.8% from 1.7% in the latest Outlook Report.
• BoJ Governor Ueda says that Japan’s economy is to gradually pick up in the coming months; says the likelihood of achieving 2% inflation is rising gradually; must carefully watch financial and FX moves alongside the impact on the economy and prices. Full press conference can be found here.
• Japanese Chief Cabinet Secretary Hayashi says monetary policy falls under the BoJ’s jurisdiction, no comment on the government’s view of the BoJ decision.
• PBoC leaders will hold a press conference on Wednesday at 07:00GMT/02:00EST to introduce the implementation of the CEWC decisions and financial support for the real economy, according to reports

European bourses, Stoxx600 (-0.3%), started the session on a firmer footing, though dipped at the open and continued to edge into negative territory throughout the European morning; APAC bourses were mostly firmer at the handover, focus on BoJ & Chinese stimulus reports. European sectors are similarly pressured overall; though, Basic Resources tops the pile helped by higher base metals prices following Chinese stimulus optimism. US equity futures are on a mixed footing, with futures (bar the RTY) oscillating on either side of the unchanged mark with US specific newsflow light into key earnings and New Hampshire tonight; the Russell (+0.7%) continues yesterday’s outperformance.

Top European News

• UK train drivers called off extra walkouts as the threat of an anti-strike law was dropped, according to FT.
• ECB Bank Lending Survey: Credit standards tightened in Q4 for firms and households; further tightening expected in Q1. Demand for loans by firms and households continued to decrease substantially, albeit less steeply than in the previous quarter. Banks expect a small net increase in demand for loans to firms and for housing loans in the first quarter of 2024. Bank lending conditions tightened more in real estate and construction than in other sectors. Across loan categories, the decline in demand was driven by the general level of interest rates. Moreover, lower fixed investment dampened firms’ demand for loans, while subdued consumer confidence and housing market prospects reduced demand from households for loans.

FX

• A softer morning for the broader Dollar largely as a function of JPY price action following the BoJ press conference; DXY trades towards the bottom of a 102.98-103.39 range after eclipsing yesterday’s high (103.37).
• JPY is the marked G10 outperformer as BoJ Governor Ueda delivered a hawkish-leaning press conference after the central bank maintained policy settings across the board whilst the latest Outlook Report also provided very little to catch markets off guard.
• EUR benefits slightly from the softer Dollar but gains capped by the firmer JPY; EUR/USD trades around the middle of a 1.0877-1.0915 range.
• Antipodeans hold an upward bias following overnight gains in the Yuan coupled with upside in commodities as sentiment in APAC hours was lifted by reports China is said to consider an equity market rescue package.
• PBoC set USD/CNY mid-point at 7.1117 vs exp. 7.2033 (prev. 7.1105).

Fixed Income

• USTs are bear-steepening, though only modestly so, after BoJ’s Ueda press conference and with the Fed in Blackout; docket has a US 2yr outing (USD 60bln due) and Philadelphia/Richmond Fed surveys.
• JGBs were choppy on the initial BoJ announcement, where settings/guidance was maintained. Thereafter, there was some marked bearish action during Ueda’s press conference which was hawkish overall.
• Bunds are pressured in tandem with JGBs, German Green supply passed without note. Unreactive to the latest ECB Bank Lending Survey, where credit standards tightened in Q4 and are expected to continue to do so in Q1.
• Netherlands sells EUR 1.72bln vs exp. EUR 1.5-2.0bln 0.00% 2038 DSL: average yield 2.759% (prev. 2.992%)
• Orders for the UK 2054 Gilt exceed GBP 70bln (prev. GBP 60bln); price guidance set at 1.75bps over 2053 Gilt (prev. 1.75-2.25bps), via Reuters citing bookrunner.

Commodities

• WTI and Brent hold a mild downward bias after crude contracts settled higher by USD 1.50/bbl apiece yesterday, with today’s price action somewhat muted; Brent holds below the USD 80/bbl level.
• Precious metals see a modest upward tilt amid the softer Dollar, but price action is capped ahead of this week’s key risk events including US Q4 GDP, Dec PCE & ECB. XAU sits within recent ranges in a USD 2,019.38-2,037.79/oz band.
• Base metals are firmer across the board as a function of the weak Greenback coupled with overnight headlines that China is said to consider an equity market rescue package backed by USD 278bln – in turn lifting sentiment in China.
• German Economy Minister Habeck says we have started a trend reversal in offshore wind and demand is high
• Norway’s prelim December oil production 1.847mln BPD (prev. 1.779mln BPD in Nov); December gas production 11.75bcm (prev. 10.90bcm in Nov)
• Dubai set the official crude differential for April at parity to DME Oman

Geopolitics

• Israel proposed a two-month fighting pause in Gaza for the release of all hostages, according to Axios.
• US and British forces conducted a fresh round of strikes in Yemen against Houthi targets, while the US, UK, Bahrain and other nations confirmed in a joint statement that an additional round of proportionate and necessary strikes was conducted against 8 Houthi targets in Yemen, according to Reuters.
• White House said President Biden and UK PM Sunak discussed in a call the ongoing Iranian-backed Houthi attacks against merchant and naval vessels in the Red Sea and discussed securing the release of hostages held by Hamas.

US Event Calendar

• 08:30: Jan. Philadelphia Fed Non-Manufacturing Activity, prior 6.3
• 10:00: Jan. Richmond Fed Business Conditions, prior 0
• 10:00: Jan. Richmond Fed Index, est. -6, prior -11

DB’s Jim Reid concludes the overnight wrap

As those of us in Europe brace ourselves for a second storm in three days today, markets are sailing in calm waters at the moment, and put in another decent performance yesterday, with the S&P 500 (+0.22%) hitting an all-time high for a second consecutive session and Europe catching up a bit of the recent underperformance. Bonds also rallied and in addition EUR IG spreads reached their tightest level in 21 months, just as Brent crude oil prices closed at a new YTD high, at $80.06/bbl.

The chink in the armour at the moment is rate expectations as the last 10-day trend of Q1 rate cut expectations being priced out continued. Indeed, futures are now pricing in just a 42% chance of a Fed rate cut by March (49% Friday), which is a big shift from the end of 2023, when a cut by March was fully priced in. Even intraday on January 12th there was an 88% probability.

Central banks have been in the spotlight overnight too, as the Bank of Japan kept its ultra-dovish policy unchanged as widely expected. They revised down their core inflation forecast for the next fiscal year (staring this April) to 2.4% from 2.8% in October but marginally increased the core CPI estimate to 1.8% from 1.7%. Following the decision, yields on 10-year JGBs (-0.7bps) inched lower, trading at 0.65% with the Japanese yen strengthening +0.12% to trade at 147.93 against the dollar. The Nikkei has dipped (-0.1%) from earlier highs as the meeting was seen as a slightly hawkish one.

Elsewhere in Asia, the Hang Seng is rebounding (+2.8%) after a Bloomberg report revealed that Chinese authorities are considering mobilizing a package of measures worth 2 trillion yuan ($278 billion) to stabilise its stock markets. For context even with the rally so far this morning the index is still -9.8% YTD after just three weeks of trading. Mainland Chinese stocks have swung about a bit but are broadly flat as I type. US futures are also little changed at the moment.

That follows on from the S&P 500 (+0.22%) last night posting a third consecutive gain for the first time in 2024. Industrials (+0.74%) and financials (+0.43%) led the gains. Moreover, small-cap stocks did very well, and the Russell 2000 surged by +2.01%, whereas the Magnificent 7 posted a slight loss (-0.22%). However, the Russell 2000 is still down -2.16% YTD, in contrast to a +3.44% gain for the Magnificent 7. Yesterday’s rally was evident in Europe too, where the STOXX 600 (+0.77%) had its best start to the week since August, with the STOXX Technology Index posting a +2.08% gain.

That optimism extended to bonds, where yields on 10yr Treasuries came down by -1.8bps to 4.11%. The muted moves came in the absence of any obvious catalysts, and we won’t hear from Fed officials now until after next week’s decision. Overnight they are another -1.5bps lower. Even as investors dialled back the chance of a Fed March cut, it was clear that they still expect a fairly rapid pace over the year as a whole, with 133bps of cuts still priced in by the December meeting. Meanwhile in Europe, yields on 10yr bunds (-5.1bps), OATs (-4.7bps) and BTPs (-4.1bps) all moved lower as well.

In the commodity space, Brent (+1.91% to $80.06/bbl) and WTI (+2.42% to $75.19/bbl) crude oil prices both rose to YTD highs, supported by solid risk sentiment as well as supply concerns. The latter included ongoing tensions in the Red Sea and an outage at a gas-condensate export terminal on Russia’s Baltic coast after a Ukrainian drone strike over the weekend.

Looking forward to today, the ECB’s Bank Lending Survey for Q4 2023 will give the latest colour on banking conditions in the euro area. In the last round of the survey banks expected a sizeable improvement during Q4, but their expectations had proved too optimistic over the previous few quarters. Still, with nascent signs that bank lending flows have bottomed out, we’ll be watching if the BLS signals that the peak drag from the ECB’s tightening is now behind us.

Later on in the day, attention will be back on US politics, since the New Hampshire primary is taking place, which is the second contest on the Republican side after last week’s Iowa Caucus. Right now, the polling average on FiveThirtyEight puts former President Trump in the lead with 52.3%, with former South Carolina Governor Nikki Haley on 36.7%. And those are the only two major candidates still in the race, since Florida Governor Ron DeSantis dropped out on Sunday and endorsed Trump. Bear in mind as well that in the era of modern primaries, no Republican has ever lost the nomination after winning both Iowa and New Hampshire, so if Trump is able to win again today, it would take a historically unprecedented collapse for him to lose the nomination from here. Results should become available after polls start closing at 7pm ET.

Finally, there wasn’t much data yesterday, although we did get the Conference Board’s Leading Index for December. That posted a -0.1% decline (vs. -0.3% expected), but it was actually the smallest move lower since March 2022, which speaks to the growing signs that the outlook is improving.

To the day ahead now, and data releases in the US include the Richmond Fed’s manufacturing index for January, whilst in the Euro Area, we’ll get the ECB’s quarterly Bank Lending Survey and the European Commission’s preliminary consumer confidence indicator for January. Otherwise, earnings releases include Netflix, General Electric, Procter & Gamble, Johnson & Johnson, and Lockheed Martin.

Whether it begins in Eastern Europe, the Middle East, or the South China Sea, World War III threats are mounting with each passing week. But what’s more concerning is America’s bloated military-industrial complex is not prepared for the next major conflict. 

Bloomberg reports RTX Corporation, formerly Raytheon Technologies Corporation, is behind schedule in delivering “aircraft carrier killer” missiles to the US Navy to counter China in the Indo-Pacific region. This recently forced a House defense spending committee to block the Pentagon’s request for another multi-billion missile contract with the defense contractor. 

The Defense Contract Management Agency said only half of the 625 Standard Missile-6 missiles required under a five-year contract from 2019 have been delivered. Despite RTX’s snarled supply chains, the Pentagon wants to purchase another 825 missiles. 

 “The extent to which those delays and cost impacts were fully within Raytheon’s control is not entirely clear,” DCMA told Bloomberg. 

Other delays include engine motors manufactured by Aerojet Rocketdyne, which L3Harris Inc. now owns. 

DCMA continued:

 “Pending any unforeseen issues, we anticipate Raytheon will be back on schedule before” Sept. 30 as its delivery “has improved over the last two years.” 

However, Rep. Ken Calvert, the Chairman of the House Defense Appropriations Subcommittee, remains skeptical RTX can resolve supply chain woes in the near term, and that is why he rejected the Pentagon’s most recent Standard Missile-6 missile order. 

“I believe there’s value in multi-year procurement when it’s appropriate, which is why the fiscal 2024 bill authorizes most of the other multi-year contracts requested,” Calvert said, adding, “But everything we approve has to be justified and scrutinized, and the fact is the performance on the previous multi-year contract for the SM-6 gives us concern” because it behind schedule. 

Even the Navy’s top readiness official, Fleet Forces Command head Admiral Daryl, scolded the military-industrial complex at a recent conference: “I need SM-6 delivered on time. I need MK-48 torpedoes delivered on time.” 

Cantor Fitzgerald CEO Howard Lutnick spoke with Fox Business host Maria Bartiromo on the sidelines at the World Economic Forum in Davos, Switzerland, last week. He offered a bleak outlook on the commercial real estate sector, warning a “very ugly” two years is ahead. 

“Coming due in the next two and a half years at these higher rates – you’re not going to get proceeds, meaning when you have a $120 million loan on a building, and someone says I’ll give you 90 million at a much higher rate – than it throws the keys back to the lenders – and there’s going to be a lot of them that are going to get wiped out,” Lutnick told Bartiromo.

“I think $700 billion could default … The lenders are going to have to do things with them. They’re going to be selling. It’s going to be a generational change in real estate coming at the end of 2024 and all of 2025. We will be talking about real estate being just a massive change,” Lutnick said.

He warned: “I think it’s going to be a very, very ugly market in owning real estate over the next, you know, 18 months, two years.” 

Lutnick noted that loan sales are set to become a major business opportunity with the upcoming maturity of CRE mortgages. He highlighted that an estimated trillion dollars of CRE debt is coming due over the next 2.5 years.  

Shortly after the regional bank implosion in March 2023, Morgan Stanley penned a note to clients about a $2.5 trillion wall of CRE debt coming due over five years. 

A recent survey of Terminal users by Bloomberg’s Markets Live found most respondents believe the office tower market needs a deeper correction before a rebound materializes. 

Lutnick pointed out, “Real estate equity, REITS, are going to be in trouble … a lot of them are going to be wiped out, so many defaults, I think.” 

Bloomberg office REITs have been plunging since early 2022 when the Federal Reserve embarked on the most aggressive interest rate hiking cycle in a generation to tame inflation. 

“Commercial real estate is experiencing a meaningful repricing as cap rates correlate to long-term to interest rates,” Morgan Stanley told clients in a recent report, adding, “Patience is required while refinancing to higher debt costs gradually triggers valuation adjustments.” 

Lutnick’s not the only one with a dismal outlook on CRE. 

In a recent interview, Scott Rechler, Chairman and CEO of RXR Realty, told Goldman’s Allison Nathan that the CRE downturn is still in the early innings. 

Authored by Ven Ram,. Bloomberg cross-asset strategist,

The franc recoiled the most in well more than a year against the dollar last week. 

The Swiss currency has further to fall this year.

The franc’s 1.9% decline, which may look outsized at first sight, needs to be seen in the context of a currency that surged almost 9% through the last quarter.

The drop has further to run given that the Swiss National Bank, which had changed tack to buying the franc to quell imported inflation through much of the current policy cycle, abandoned that stance in December.

As a reminder, that strengthening wasn’t lost on the SNB, whose President Thomas Jordan remarked last week:

“For quite a long time we had mainly a nominal appreciation – that was very helpful, because that shielded us from the inflation pressure from abroad.

In the last couple of weeks of last year, we saw real appreciation. That makes the situation for some of our firms more difficult.”

That brings the SNB to its more familiar role of containing inordinate strength in its currency, a stance that it held for years on end before it started raising interest rates in 2022.

The SNB torpedoed the markets in June 2022 when it surprised the markets with a 50-basis point rate increase, which came one month before the European Central Bank’s hike.

Given that the ECB seems to be converging on a rate cut in June, the SNB has to cut rates in March if it wants to get a head start again…

…while the SNB meets in June, too, its review is scheduled later than the ECB’s – not to mention the Fed…

A rate cut would expose those long the franc against the dollar to carry bleed because of the already considerable interest-rate differentials.

The negative carry is now almost 1.45 basis points a day.

While that wasn’t much of a hurdle to overcome when the SNB was selling foreign currencies to contain inflation, it is a significant barrier in the context of a central bank that is confident that inflation will moderate toward its target in the coming months.

“The shortage [of manpower] is palpable,” Ukraine’s military top spy chief, Lieutenant General Kyrylo Budanov, told Financial Times in a new interview, describing the most pressing situation facing the country after nearly two years of war.

He warned that “it is not even conceivable to think that we can do without mobilization” — which reflects the consensus of the military’s leadership, and strongly points to staggering losses by the Ukrainian side, though an official running casualty count has never been revealed. Russia has also likely suffered immense losses, but can tap into much greater manpower and artillery, which is also allegedly being supplied from such nefarious actors as North Korea.

As part of its report, FT has reviewed that Zelensky recently revealed that his army chiefs requested him “to mobilize about 400,000 to 500,000 new soldiers to replace those killed or wounded, and to rest those involved in the most intense fighting.”

Still, Budanov tried to paint an optimistic picture at a moment that even mainstream US press has lamented the current state of the war as a total failure and disaster for Ukraine: 

Ukrainian troops never managed to decisively breach Russia’s heavily fortified defences: the frontline remains almost the same as it looked a year ago. But Budanov maintains he was not wrong.

“Although the original plans suggested something different, we kept our promise. This summer, our units repeatedly entered Crimea,” he said, referring to his commandos sneaking on to the peninsula to carry out raids on Russian bases.

Not only have Ukrainian operatives done brief but ineffective raids into Crimea, but the last several weeks have seen stepped-up cross border drone and rocket attacks against Russian border regions, particularly targeting Belgorod city, resulting in dozens of casualties over months of sporadic waves of strikes.

Many war analysts have looked upon these attacks on Russian territory as a sign of increasing desperation. The Ukrainian strikes have been focused on civilian areas of Belgorod, and have little or no strategic value, but is more an act of ‘revenge’ and perhaps part of seeking to impose a “cost” on the Russian population in hopes of pressuring the Putin government. 

Kiev has been mulling a new mass mobilization since at least December, when media reports first cited Zelensky as saying, “This is a serious number,” while explaining further he has to look at more arguments to support this direction.” He added at the time, “I need concrete information on what will (then) happen with the one-million military of Ukraine,” according to The Kyiv Independent.

Any new mass mobilization is likely to be met with fierce pushback among the population and some government officials. Already there have been signs of fracture within the government over what to do as it’s increasingly clear Ukrainian forces are ‘losing’ – especially in manpower, arms, and ammo. 

Zelensky’s security services and military recruiters have also been accused of abusing their power under martial law, also amid allegations of corruption, with The New York Times having previously reported Ukrainian army recruiters have become “increasingly aggressive in their efforts to replenish the ranks, in some cases pulling men off the streets and whisking them to recruiting centers using intimidation and even physical force.”

There have even been reports of men with diagnosed mental disabilities being subjected to attempted drafts. Currently, men ages 18-60 may be mobilized and still have no right to leave Ukraine, per the stipulations under martial law.

“If you are of mobilization age, you should be in Ukraine”

– Zelensky

“This is a fact. And then you will fight or not fight. You will work. You cannot rest. You either work or fight,” said the President of Ukraine.
pic.twitter.com/SYQEcnlc6o

— The_Real_Fly (@The_Real_Fly) January 17, 2024

FT has underscored that Ukraine’s prospects look bleak at the start of this new year:

Finally returning to the subject of the war, Budanov declined to make any bold predictions for 2024. “No,” he said. “I hope that our success will be greater than theirs.” Then he slipped out of the darkened room.

Meanwhile, Ukrainian forces have continued their desperate tactics while the frontlines have not moved and Russia solidifies hold over the Donbass. On Sunday, at least 27 people were killed after Ukrainian forces heavily shelled a market on the outskirts of the Russian-controlled city of Donestk.

“As a result of Ukraine’s artillery shelling attack on the Tekstilshchik district, 27 civilians have died. Twenty-five more, including two teenagers, received various wounds,” announced Denis Pushilin, head of the Donetsk People’s Republic.

Authored by Steve Watson via Modernity.news,

An extreme trans lobbyist group is pressuring schools in the UK to stop calling pupils ‘boys and girls’ and use the pronoun ‘they’ instead of ‘he’/’she’, in an effort to “remove any unnecessarily gendered language” from the classroom.

The Daily Mail reports that the radical LGBTQ+ Stonewall charity is asking hundreds of schools and nurseries, where children are as young as two, to change their policies after signing up to its ‘champions’ scheme.

The group also wants to see gender-neutral bathrooms installed, and having boys and girls wear the exact same uniforms.

The report also notes that children are offered rewards if they comply with not using gendered language at school.

An extreme trans lobbyist group is pressuring schools to stop calling pupils ‘boys and girls’, use ‘they’ rather than ‘he’/’she’, have all kids wear the same uniform, and use gender-neutral bathrooms in a scheme they are also profiting from. Full report https://t.co/KvkSLpXU43 pic.twitter.com/vEoJqHEelV

— m o d e r n i t y (@ModernityNews) January 22, 2024

Incredibly, the charity’s scheme costs every school £99, and in order to achieve  ‘Stonewall gold status’, they have to inject LGBTQ+ propaganda into teaching, including “writing a trans-inclusion policy, adapting the School Journey policy to be LGBTQ+ inclusive, and collating LGBTQ+ inclusive lessons from across the curriculum.”

The report further notes that Stonewall made £2.9million from the scheme last year and received another £1.2 million in grants, some of which were government funded.

Conservative MP Nick Fletcher, a member of the Education Select Committee, commented “The Education Act is clear that partisan and ideological material should not be promoted in our schools,” adding “Surely Stonewall continually promoting the unscientific and highly contentious idea of ‘gender identity’ is exactly this.”

“Is it time for the Government to draw up a blacklist of organisations that ignore these Education Act provisions and who therefore should not be used by our schools?” Fletcher added.

Stephanie Davies-Arai of campaign group Transgender Trend noted that “Stonewall has cynically used their credibility as a once highly respected organisation to become peddlers of an extremist ideology and they have deliberately set out to target children from the start.”

‘Stonewall has cynically used their credibility as a once highly respected organisation to become peddlers of an extremist ideology and they have deliberately set out to target children from the start.’https://t.co/I8YEBnFwWF

— TransgenderTrend (@Transgendertrd) January 21, 2024

Transgender Trend also revealed that trans lobbyists are urging ‘activist’ teachers to ignore government guidance published last month that essentially said schools do not have to adopt ‘gender identity ideology’ or recognise ‘social transitions’ among pupils.

The lobbyist groups are holding events and asking teachers to attend to essentially get their marching orders for how to inject radical LGBTQ+ ideas into state funded schools.

An undercover therapist at one event commented that it “felt like a cult meeting”.

We also attended this event where activist teachers advised getting pupils to respond to the government’s consultation.
They said the guidance was transphobic & signposted to Mermaids.
This is political indoctrination, breaching the 1996 Education Act.https://t.co/pMIm5hjs3S

— TransgenderTrend (@Transgendertrd) January 21, 2024

*  *  *

Your support is crucial in helping us defeat mass censorship. Please consider donating via Locals or check out our unique merch. Follow us on X @ModernityNews

Previously we featured analysis pointing out that the West risks falling into an ‘escalation trap’ in Gaza and the region. Certainly the Israeli army (IDF) finds itself in a quagmire to some extent in Gaza, given the extreme difficulty of grueling urban combat. 

It’s already been long known that the US has sent MQ-9 Reaper drones to collect intelligence over Gaza, as part of assistance to the IDF and Mossad. These flights have reportedly increased as Washington has gotten more involved in an advisory capacity. But fresh investigative reporting from Declassified UK shows that Britain’s role has expanded as well.

“The UK military has flown 50 surveillance missions over Gaza since December, it can be revealed,” Declassified UK writes. “The flights have taken off from Britain’s controversial air base on Cyprus, RAF Akrotiri, and averaged around one a day since the beginning of December.”

The report documents that the surveillance flights are near daily at this point, with the Shadow R1 being the main drone of choice. The aircraft is manufactured by US company Raytheon, and another £110m contract has recently been awarded. 

Data collected by the independent UK media outlet shows that most flights last an average of six hours, amid increasingly busy skies over the Gaza Strip. 

While Hamas has a variety and likely thousands of surface-to-surface rockets that it continues to use against Israel, the group appears to lack sophisticated anti-air missiles. Otherwise, it might be expected that US, UK, or Israeli drones might have been shot down by now.

Already it’s become obvious that the Western coalition has been drawn more deeply into the Red Sea and Yemen conflict. At this point, the members of Operation Prosperity Guardian have bombed Houthi positions in at least seven waves of airstrikes. 

Israel is meanwhile conducting more drone strikes in south Lebanon as the tit-for-tat with Hezbollah escalates…

Forget the propaganda being spun by the Mighty Wurlitzer.

The Israel-Gaza conflict is escalating and is regional.

Today, a targeted Israeli drone strike in southern Lebanon left two dead, according to @AFP.pic.twitter.com/6g8XWZKstW

— Steve Hanke (@steve_hanke) January 22, 2024

So far these have not deterred the Iran-linked Houthis, and the US is now mulling longer term more committed offensive action. The UK is expected to sign on, and all of this suggests the aforementioned ‘escalation trap’ is spiraling… and this might have been Hamas’ plan all along.