By Tsvetana Paraskova of OilPrice.com

Gas station owner Sunoco LP will buy pipeline and liquids terminal operator NuStar Energy in an all-equity transaction valued at around $7.3 billion, including debt, the companies said on Monday in the latest merger deal in the U.S. energy sector.

Under the terms of the definitive agreement, NuStar common unitholders will receive 0.400 Sunoco common units for each NuStar common unit, implying a 24% premium based on the 30-day VWAP’s of both NuStar and Sunoco as of January 19, 2024.

Sunoco has secured a $1.6-billion one-year bridge term loan to refinance NuStar’s Series A, B, and C Preferred Units, Subordinated Notes, Revolving Credit Facility, and Receivables Financing Agreement, Sunoco said.

The Sunoco-NuStar combination diversifies and adds scale to the business, as well as captures the benefits of vertical integration.

The deal is expected to increase distributable cash flow per unit by more than 10% by the third year following the closing of the transaction, which is expected in the second quarter of 2024.

The transaction has been unanimously approved by the board of directors of both companies and is expected to close in the second quarter of 2024 upon the satisfaction of closing conditions, including approval by NuStar’s unitholders and customary regulatory approvals, the companies said.

Prior to closing, NuStar will make a cash distribution of $0.212 per common unit to its common unitholders.

NuStar has around 9,500 miles of pipeline and 63 terminal and storage facilities that store and distribute crude oil, refined products, renewable fuels, ammonia, and specialty liquids.

The Sunoco-NuStar deal is the latest combination in the U.S. energy industry, following several large merger deals of the past months, including big all-stock acquisitions that both Exxon and Chevron have announced.

In one of the latest transactions, Chesapeake Energy Corporation and Southwestern Energy agreed earlier this month to merge in an all-stock transaction valued at $7.4 billion, which will create the biggest U.S. natural gas producer by market value and production.  

It’s no secret that ongoing Houthi attacks against international shipping in the Red Sea is a massive headache for the Biden administration going into the November presidential election. If the US does nothing (or opts simply for occasional missile strikes on Yemen), then commercial transit will continue being choked off in the vital waterway which serves 12% of all global trade. But doing more to go on the offensive also risks the US being sucked into another regional quagmire which steadily escalates, but with no guarantee the Houthis will halt the attacks.

Over the weekend US officials told The Washington Post that the Biden administration is planning for a “sustained military campaign” against the Iran-backed Yemeni rebels, even after some seven rounds of major strikes have done nothing to deter or degrade their drone and missile attacks. Notably, US leaders have still refused at this point refused to use the word “war” in relation to the large-scale US coalition attacks on Houthis as part of Operation Prosperity Guardian.

Some US officials cited in the Post expressed concern that an “open-ended operation could derail the war-ravaged country’s fragile peace and pull Washington into another unpredictable Middle Eastern conflict.” This in reference to the war which raged since 2015, and saw the Saudi-led coalition which also included the UAE and the US conduct hundreds of airstrikes, often killing civilians.

Amid the White House deliberations over what to do, there is an acknowledgement that it will be extremely difficult to completely halt all Houthi missile and drone attacks in the region, at least in the near-term. This comes in the following from the report:

Administration officials, speaking on the condition of anonymity to discuss internal deliberations, described their strategy in Yemen as an effort to erode the Houthis’ high-level military capability enough to curtail their ability to target shipping in the Red Sea and Gulf of Aden or, at a minimum, to provide a sufficient deterrent so that risk-averse shipping companies will resume sending vessels through the region’s waterways.

“We are clear-eyed about who the Houthis are, and their worldview,” a senior U.S. official said of the group, which the Biden administration designated this week as a terrorist organization. “So we’re not sure that they’re going to stop immediately, but we are certainly trying to degrade and destroy their capabilities.”

Importantly, officials expressed optimism that the conflict in the Red Sea won’t drag on for “years” akin to US operations in Afghanistan, Iran and Syria – the latter country which is still occupied by hundreds of US troops (in the northeast oil and gas rich areas primarily).

Officials acknowledged to WaPo that they are unable to identify an “end date or provide an estimate for when the Yemenis’ military capability will be adequately diminished.”

Critics have said there’s another option that Biden refuses to consider–a major peace deal or negotiated permanent ceasefire…

Biden is starting another war in the Middle East just so that Israel can continue slaughtering people in Gaza.

A ceasefire in Gaza would likely end the Houthi attacks.

But Biden is choosing war instead.#CeasefireNOW https://t.co/PFDzKacjLp

— Trita Parsi (@tparsi) January 21, 2024

This kind of rhetoric in the early phase of a conflict is always alarming and eyebrow-raising considering the pattern of US intervention in the region over the past two decades. When there’s a US “debate” over not putting an “end date” to a new offensive or area of operations, that’s a sure sign things are headed toward escalation with no off-ramp.

In Gaza, Israel too has refused to put an end-date to its ground and aerial offensive. The Houthis have vowed to keep up the attacks on foreign vessels so long as Israel stays in Gaza. The conflict has steadily been spilling over into Syria, Iraq, and Lebanon too. As for the prospect of the US sinking into a bigger regional war, mainstream media has increasingly claimed there are ‘no alternatives’. New analysis in Moon of Alabama exposes this tactic, which is typical whenever the American military machine prepares expanded action.

Authored by William Brooks via The Epoch Times,

“Someone must have been telling lies about Josef K., he knew he had done nothing wrong but, one morning, he was arrested.”

– Franz Kafka, “The Trial.”

In Franz Kafka’s early 20th-century novel, a reputable bank clerk is caught up in a prosecutorial nightmare. The story of Joseph K. begins when court authorities suddenly arrive at his residence to tell him he’s to be indicted, but they can’t or won’t explain the exact nature of the charges against him.

Joseph K.’s accusers leave him with feelings of apprehension and anxiety. Throughout the novel, he struggles to defend himself within a hostile and complex legal process. At the end of the story, he’s led away to a summary execution. During the entire ordeal, the accused never really understands the reasons behind his mysterious prosecution.

This dark story about the destruction of an innocent man led to the term “Kafkaesque” entering the English language as a way to describe situations in which honorable people are threatened by unfounded allegations. Kafka had a special talent for identifying the convergence between reality and absurdity.

Bizarre Allegations About an American President

A hundred years after “The Trial” was first published, the West has descended into an era in which absurd allegations are the new normal.

In the Rainbow Reichs of the Woke, witch hunting has become the order of the day.

One of the most notorious Kafkaesque events in modern history developed around the unforeseen political success of Donald J. Trump.

Over recent years, the man Americans elected as the 45th president—and his team members—has been subjected to more bizarre allegations, secret investigations, partisan impeachments, preposterous indictments, and prejudiced legal proceedings than even Franz Kafka could have imagined.

President Trump has endured some of the most savage and desperate partisan assaults in U.S. history. Despite it all, he has retained the loyalty of legions of ordinary citizens and is the leading candidate for reelection in 2024. Individuals throughout North America are praying that President Trump’s landslide win in Iowa will lead to a decisive victory for the “Make America Great Again Movement.”

Brutal Assaults on a Defenceless School Trustee

At the national level in the United States and Canada, opinion polls are predicting a return to center-right common sense leadership.

But, at the level of civic, cultural, and educational governance, enraged neo-Marxists will hold on to their power by any means necessary.

The brutality of North America’s left was on display last year when a painful Kafkaesque episode occurred in the prairie city of Winnipeg, Manitoba.

Early in June, news outlets reported that Francine Champagne, an elected trustee of the Louis Riel School Division, was suspended for taking “inappropriate actions” relative to the “Trustee Code of Conduct.”

School Division authorities asserted that Ms. Champagne had breached a progressive code of conduct by expressing opposition to the hyper-sexualization of children in public schools. A complete account of the battering inflicted on Ms. Champagne can be found in my June 23, 2023, Epoch Times column and a Nov. 29 update from Lee Harding.

Essentially, Ms. Champagne’s accusers focused on memes she had shared on a restricted-access Facebook page. One of them read: “Make men masculine again. Make women feminine again. Make children innocent again.” Louis Riel School Division trustees voted to suspend Ms. Champagne without pay for three months. They said she threatened the school board’s commitment to “human sexual diversity.”

Parents who supported Ms. Champagne asserted that her objections to the ideological grooming of children are shared by millions of North American families. The dissident trustee believes she was elected in Ward 1 of the Louis Riel School Division to make a case for quality education and traditional values—actual literacy, not political literacy.

The case against Francine Champagne gained enormous momentum. In October, she received another 30-day suspension for declining to sign a so-called “code of conduct” agreement that would make it impossible for her to question the radical educational agenda she had challenged during her successful election campaign.

When another progressive investigator-in-search-of-a-crime discovered a casual online conversation in which Ms. Champagne had mentioned the stereotypical description of a familiar item on an Asian restaurant menu she was instantly charged with “racism.” Ms. Champagne was suspended for another three months and vilified by media organizations for demonstrating “abusive behavior.”

Late in November, Ms. Champagne reluctantly decided that she could no longer perform her duties as a school trustee for the Louis Riel School Division because her working environment had become unbearable.

As a result of the board’s allegations, she also lost her teaching contract at St. Boniface University. In a public letter, she finally concluded that “a school trustee who holds traditional views will not be tolerated.”

Kafkaesque Persecutions Must Be Challenged

Few drag queen story hours feature in the novels of Franz Kafka, but the author’s insights remain valuable.

Kafka understood that corrupt authorities have the capacity to ruin almost anyone they disapprove of. “The Trial” shows how Orwellian legal institutions can isolate individuals, make them appear guilty, and render them helpless.

So far, President Trump has overcome the moral failures of the American judicial system, and he has an excellent chance of winning back the White House in 2024.

Donald T. isn’t likely to suffer the same fate as Kafka’s Joseph K.

Francine C.’s future is considerably less certain.

Without political support, financial resources, and professional help, challenges to the left by intrepid citizens are unlikely to continue.

That’s why the suffocating nature of our Kafkaesque culture must be forthrightly resisted by honorable men and women.

Authored by Mike Shedlock via MishTalk.com,

Hertz is dumping EVs but the decline in the price of used Teslas started long before that.

$2 Billion in Subsidies, Only 2 EV Stations Opened

On January 18, I commented $2 Billion in Subsidies, Only 2 EV Stations Opened, the Holdup is Social Justice

In yet another example of Biden incompetence, the administration is setting up rules making it harder to deliver EV charging stations.

I also stated “EVs are more expensive.” Reader Robert replied ….

I think to be fair, your analysis should also consider EVs resale value. Everything I have read indicates that EVs have extremely strong resale value, beating almost all gasoline powered vehicles except maybe Porsche.

This is the real reason Hertz is selling its used Teslas now, to sell them now when their resale value is at a premium so Hertz can plow that money back into its business.

Right?

Right? Uh … No!

The average price of a used Tesla has declined 18 months in a row, moving from a record high of $67,900 in July 2022 to a record low of $35,844 today (-47%). $TSLA pic.twitter.com/vuTK2C4oZB

— Charlie Bilello (@charliebilello) January 19, 2024

Hertz Is Selling 20,000 EVs Due to Lack of Customer Demand

On January 11, I noted Hertz Is Selling 20,000 EVs Due to Lack of Customer Demand

Hertz is selling a third of its EVs globally, with 20,000 in the US and will use some of the money to buy more Internal Combustion Engine (ICE) gasoline-powered cars.

Add that to the list of inconvenient facts.

Hertz Deals

Want a used Tesla? You can find them at Hertz Car Sales.

Hertz is selling some Tesla Model 3 for as low as about $20,000, about half the purchase price for the cheapest variant of the compact sedan.

Hertz will log a $245 million incremental net depreciation charge.

Only 6 Percent in the US want an EV for their Next Vehicle

Prices are plunging because Only 6 Percent in the US want an EV for their Next Vehicle and the damn things are stacking up on dealer lots and rental car agencies who bet on EVs made a stupid mistake.

Prices were plunging long before Hertz started dumping.

Ford Loses $36,000 on Each EV, Cuts Production of Electric Trucks

In case you missed it, please see Ford Loses $36,000 on Each EV, Cuts Production of Electric Trucks

Demand for EVs is nowhere close to projections so car makers are slashing production.

Chilled US stockpiles of pork bellies, the cut of meat from the underside of a pig that makes delicious bacon, have trended below a 5-year average since the back half of 2023. This occurred alongside a decline in overall pork production, which has ignited a rally in wholesale spot prices. 

Since August, the number of pork bellies in US cold storage has been under a 5-year average, or 50 million pounds. 

Since mid-December, wholesale spot prices for boxed pork belly 200 pounds jumped from $80 to more than $133, or about a 66% increase on tightening supplies. 

The environment for pork producers was challenging in 2023, with many losing, on average, $32 per head. This trend is expected to continue this year. 

Last month, Smithfield Foods, the world’s pork processor, revealed it would shutter 26 of its contracted hog operations across Utah. 

“Our industry and company are experiencing historically challenging hog production market conditions,” Shane Smith, president and CEO of Smithfield, wrote in a statement in early December. 

Smithfield has also shuttered pork plants in Charlotte, North Carolina, and closed 35 hog farms in Missouri last year. 

“Profitability as we look at 2023 and 2024 is going to be potentially the worst two-year stretch ever for pork producers,” said Lee Schulz, an economist and professor at Iowa State University, who recently spoke with QZ. 

Traders will be focused on the USDA’s World Agricultural Supply and Demand Estimates report on Feb. 8 for the latest status on the pork market. 

Authored by Ven Ram, Bloomberg cross-asset strategist,

Even though market pricing centered on an interest rate cut from the Federal Reserve as early as March has withered in recent days, traders are still assigning about a 50:50 chance of one. 

Should the meltup in stocks continue, the chance of a reduction will crumble to zero.

As demanding as Nasdaq’s valuations seemed toward the end of the week, technology stocks screamed higher to a new record on Friday. Meanwhile, 10-year inflation-adjusted Treasury yields are about 75 basis points lower than they were just three months ago. Little wonder that financial conditions are now near the loosest they have been since the Fed started to tighten policy in this cycle.

[ZH: The lagged effect of that massive loosening of financial conditions is about to send macro-economic data soaring…]

The exuberance around stocks seems to be reverberating through the Fed corridors, with a well-known dove pushing back against market pricing for an early pivot.

San Francisco Fed President Mary Daly cautioned Friday that it is premature to think that rate cuts are around the corner and that policymakers “don’t want to loosen policy too quickly, only to find that inflation gets stuck at way above target.”

We get a pulse check of the latter this week, with data on the Fed’s preferred core PCE forecast to show an uptick in December from a month earlier.

We also get a snapshot of how the US economy is faring: while gross domestic product is expected to have risen at a more moderate clip of 2% in the three months through December, it may still be above what the Fed sees as long-term trend growth of 1.8% – suggesting that the central bank’s cumulative policy tightening in this cycle isn’t strangling the economy.

[ZH: Simply put, the reflexive cycle of stronger stocks (on expectations of easier policy) driving financial conditions dramatically looser (doing The Fed’s job for it), remove the need for actual rate-cuts from The Fed… and remove the pillar that is supporting the buying-panic in stocks… and around we go.

Be careful what you wish for…]

The more the markets rejoice on the idea of an impending rate cut by engendering looser and looser financial conditions, the less is the chance that we get a reduction even in May – let alone in March. For, if the markets are already doing the job on behalf of the Fed, there is little incentive for the Fed to add fuel to fire and stoke inflation all over again.

Shares of the video-streaming platform Rumble jumped 15% in premarket trading in New York after announcing a partnership with Dave Portnoy’s Barstool Sports.

A Rumble press release provided color on what exactly a Rumble/Barstool Sports partnership means:

• Rumble users get access to all Barstool Sports content on the platform, including live streams. 

• Additionally, Barstool Sports will market and promote Rumble as their preferred video home. The wide-ranging partnership will also include an advertising arrangement under which both companies will help bring brand advertisers to the Rumble platform.

• Another big step for both companies – Barstool Sports will get access to the Rumble Cloud as its service provider for essential cloud services like computing, storage, and network.

“I’m excited about Rumble’s commitment to sports and broadening audiences,” Portnoy said in a statement. 

He added: “With the power of Barstool Sports, we are going to help Rumble be the top player in the video, cloud, and live streaming space.”

Barstool Sports has grown its audience by 194% and reached 1.6 billion podcast downloads over the past three years. Much of this growth was seen during the Covid era. 

“The partnership with Barstool Sports is a major step in pursuit of our mission to continue building a portfolio of widely popular sports and entertainment content,” said Rumble Chairman and CEO Chris Pavlovski.

Will Dave pump Rumble’s stock to his millions of followers as he did with Penn during the Covid mania?

With the Fed now on their blackout period ahead of next week’s FOMC and with the ECB quiet before their meeting on Thursday, DB’s Jim Reid writes that we’ll have a few days break from what has been relatively hawkish central bank rhetoric over the past week. Even the BoJ meeting tomorrow is now likely to be a non-event, just as we said in December when everyone was buying the yen in anticipation of an “imminent” rate hike by the BOJ (in fact shorting the USDJPY was a top consensus trade for 2024, well good luck with those huge losses).

Risk was briefly shaken by central bankers pushing back on the market in the first half of last week as rate expectations and yields moved higher. Although yields continued to move higher in the second half, risk fought back and we saw a decoupling between rates and equities that is potentially the biggest test of the very tight relationship the two have seen since August (both bearish and bullish). So although 1 0yr yields are now up +23bps in 2024, the S&P 500 closed at an all-time high on Friday, the first since January 2022, and largely on the back of chip optimism sparked by Taiwan Semi, when the whole story was just China scrambling to buy chips ahead of a new round of sanctions.

Looking at the key events this week, we’ll get two bites at US core PCE trends this week, first within the first estimate for Q4 GDP (Thursday) and then in the personal income and spending report (Friday). Although CPI disappointed higher in December the components of this and PPI suggest a more benign core PCE reading. So this will be very important. Last week’s retail sales beat, and especially the control group, meant DB’s economists upped their Q4 GDP forecast from 2.0% to 2.3%. Durable goods and trade data on the same day as GDP could add a bit of uncertainty to the print though.

Staying with the US, today’s leading indicators will likely still be at levels only really seen in recessions, but the direction of travel may well be moving in a more positive direction if consensus is correct. Elsewhere, tomorrow brings the second state to vote in the Republican nomination process with the New Hampshire primary. Last night DeSantis pulled out of the race and endorsed Trump. The latest polling in the state before the news had Trump on 49.8%, Haley with some momentum on 36.1%, and DeSantis slipping in recent weeks to 5.8%. So it’s now effectively a two-horse race and a winner could materialise in the next few weeks. In 2016 Trump became the presumptive nominee on May 3rd.

Earnings season will be busy with the highlights being Tesla, Netflix, Intel and ASML on Wednesday. We note the other main companies reporting in the calendar at the end.

Outside of the US we have the flash PMIs for key countries due on Wednesday. It’s worth noting that both manufacturing and services indicators remain below 50 in both France and Germany.

In terms of those central bank meetings, DB expects the BoJ to stick with its current policy stance tomorrow but further out sees the BoJ abandoning its negative interest rate policy in April (until that is pushed out again some time in 2025, then 2026 and so on). Tokyo CPI is out on Thursday as an aside.

For the ECB, most economists expect the ECB to stay cautious on the inflation front and continue pushing back against a rate cut in Q1. DB’s team sees the first rate cut in April (50bps back to back in April-June and 150bps in total in 2024) amid weak growth and inflation ahead. Note that the ECB bank lending survey is out tomorrow. This will show whether banks are starting to be less cautious about extending lending to the economy from tight levels and will be an interesting preview to the US equivalent (SLOOS) in a couple of weeks.

Staying with Europe, a number of sentiment gauges will be out this week including consumer confidence metrics for the UK, Germany and France on Friday as well as the Ifo survey for Germany on Thursday.

Below, courtesy of DB, is a day-by-day calendar of events

Monday January 22

• Data: US December leading index, China 1-yr and 5-yr loan prime rates, France December retail sales
• Earnings: United Airlines

Tuesday January 23

• Data: US January Richmond Fed manufacturing index, business conditions, Philadelphia Fed non-manufacturing activity, UK December public finances, Japan December trade balance, Eurozone January consumer confidence
• Central banks: BoJ decision, Outlook Report, ECB’s bank lending survey
• Earnings: Johnson & Johnson, Procter & Gamble, Netflix, Verizon, Texas Instruments, General Electric, RTX, Lockheed Martin, Halliburton
• Auctions: US 2-yr Notes ($60bn)

Wednesday January 24

• Data: US, UK, Japan, Germany, France and the Eurozone January PMIs
• Central banks: BoC decision
• Earnings: Tesla, ASML, Abbott Laboratories, SAP, IBM, ServiceNow, AT&T, Lam Research, CSX, Freeport-McMoRan, Crown Castle
• Auctions: US 2-yr FRNs ($28bn), 5-yr Notes ($61bn)

Thursday January 25

• Data: US Q4 GDP advance reading, core PCE, January Kansas City Fed manufacturing activity, December durable goods orders, advance goods trade balance, new home sales, retail inventories, Chicago Fed national activity index, initial jobless claims, Japan January Tokyo CPI, December PPI services, Germany January Ifo survey, France Q4 total jobseekers, January business and manufacturing confidence
• Central banks: ECB decision, BoJ minutes of the December meeting
• Earnings: Visa, LVMH, Intel, T-Mobile US, Comcast, Union Pacific, Blackstone, NextEra Energy, KLA, Northrop Grumman, SK Hynix, Valero Energy, STMicroelectronics, Nokia
• Auctions: US 7-yr Notes ($41bn)

Friday January 26

• Data: US December personal spending and income, PCE deflator, pending home sales, January Kansas City Fed services activity, UK January GfK consumer confidence, Germany February GfK consumer confidence, France January consumer confidence, Eurozone December M3
• Central banks: ECB’s survey of professional forecasters, ECB’s Panetta, Kazaks and Vujcic speak
• Earnings: American Express, Volvo, Lonza Group

* * *

Finally, looking at just the US, Goldman writes that the key economic data releases this week are the Q4 GDP advance release and durable goods report on Thursday, and the core PCE inflation report on Friday. Fed officials are not expected to comment on monetary policy this week, reflecting the blackout period in advance of the FOMC meeting January 30-31.

Monday, January 22

• No major data releases.

Tuesday, January 23

• 10:00 AM Richmond Fed manufacturing index, January (consensus -6, last -11)

Wednesday, January 24

• 09:45 AM S&P Global US manufacturing PMI, January preliminary (consensus 47.5, last 47.9); S&P Global US services PMI, January preliminary (consensus 51.0, last 51.4)

Thursday, January 25

• 08:30 AM GDP, Q4 advance (GS +2.1%, consensus +2.0%, last +4.9%); Personal consumption, Q4 advance (GS +2.9%, consensus +2.5%, last +3.1%): We estimate that GDP rose 2.1% annualized in the advance reading for Q4, following +4.9% annualized in Q3. Our forecast reflects strength in consumption (+2.9% qoq ar) and government spending (+3.5%) but a pullback in housing (-6.3%) and a -0.7pp GDP growth contribution from inventories (qoq ar).
• 08:30 AM Durable goods orders, December preliminary (GS +4.0%, consensus +1.1%, last +5.4%); Durable goods orders ex-transportation, December preliminary (GS +0.1%, consensus +0.2%, last +0.4%); Core capital goods orders, December preliminary (GS -0.1%, consensus +0.2%, last +0.8%); Core capital goods shipments, December preliminary (GS -0.1%, consensus +0.2%, last -0.2%): We estimate that durable goods orders rose 4.0% in the preliminary December report (mom sa), reflecting a jump in commercial aircraft orders. We forecast weaker details however, including a 0.1% decline in both core capital goods orders and core capital goods shipments. The latter forecast reflects an end-of-year lull in global manufacturing activity and the related pullback in industrial production of business equipment in December.
• 08:30 AM Advance goods trade balance, December (GS -$87.5bn, consensus -$88.5bn, last -$89.3bn)
• 08:30 AM Wholesale inventories, December preliminary (consensus -0.2%, last -0.2%)
• 08:30 AM Initial jobless claims, week ending January 20 (GS 195k, consensus 200k, last 187k): Continuing claims, week ending January 13 (GS 1,830k, consensus 1,840k, last 1,806k)
• 10:00 AM New home sales, December (GS +10.5%, consensus +10.0%, last -12.2%)
• 11:00 AM Kansas City Fed manufacturing index, January (last -1)

Friday, January 26

• 08:30 AM Personal spending, December (GS 0.3%, consensus 0.4%, last 0.2%); Personal income, December (GS 0.3%, consensus 0.3%, last 0.4%); PCE price index, December (GS +0.18%, consensus +0.2%, last -0.1%); Core PCE price index, December (GS +0.18%, consensus +0.2%, last +0.1%): We estimate personal spending increased 0.3% and personal income increased 0.3% in December. We estimate that the core PCE price index rose +0.18%, corresponding to a year-over-year rate of 2.94%. Additionally, we expect that the headline PCE price index increased by 0.18% from the prior month, corresponding to a year-over-year rate of 2.63%. Our forecast is consistent with a 0.19% increase in our trimmed core PCE measure (vs. 0.12% in November and 0.17% in October).
• 10:00 AM Pending home sales, December (GS +4.5%, consensus +2.0%, last flat)

Source: DB, Goldman, BofA

Authored by Simon White, Bloomberg macro strategist,

Speculators are reducing the number of currencies they are short versus the dollar, as well as increasing the size of their bets against it. The real yield curve shows that the dollar should trend lower over the coming months.

The dollar may have had a good start to the year, with the DXY up almost 2%, but speculators appear to have little faith this strength will continue.

Based on positioning data in the Commitments of Traders report, speculators’ net short positioning in CHF, JPY, CAD and NZD has almost halved (as a percentage of open interest) over the last month.

Moreover, carry is looking increasingly attractive in EM currencies.

Net positioning in the BRL and the MXN has remained historically quite elevated, while positioning in the ZAR has shot to close to a five-year high in recent weeks.

The percentage of currencies (of the eleven covered in the COT report) net short versus the dollar is steadily declining. This tends to be a reasonably good indicator of the dollar’s trend.

Overall, speculators are much net shorter the dollar versus EM compared to DM currencies (again, in open-interest terms).

But as mentioned above, they are also progressively reducing their shorts in currencies such as the Swiss franc and the Canadian dollar, while maintaining net longs in the euro and sterling.

The Fed’s pivot has given store to the notion that there may be better carry options in currencies outside of the US. This is corroborated by the real yield curve, which leads the growth in the dollar by about six-to-nine months.

The dollar is driven at the margin by the foreign buyer of US assets.

The re-flattening in the real yield curve after the Fed’s pivot means the real return from longer-term US debt is falling again relative to the real cost of borrowing dollars, which should reduce demand for them.

Speculators hope so anyway.

Who could have seen this coming?

Last week we exposed the ugly reality sitting just below the headlines of the Chinese stock market – the massive liquidation threat from so-called ‘snowball derivatives’.

Specifically, we warned that for those looking for the tipping point, pay especially close attention to the CSI 1000 Index dropping below the 5,300 level, where a wave of knock-ins triggers could accelerate exponentially.

According to Guotai Junan Futures, there are about 30 billion yuan ($4.2 billion) of snowball derivatives products tied to the CSI 1000 Index are near levels that trigger losses at maturity, according to Guotai Junan Futures Co, as the stock rout in #China’s stock market pushes the derivatives to near knock-in levels. 

Another 60 billion yuan of the derivatives are 5%-10% away from their knock-in thresholds!

Finally, as Sino Market points out, most Snowball derivatives were opened from Feb to April 2023.

Since the downside knock-in put barriers are set to 75% or 80% of the spot price, dealers estimate that most of those are set at 5,180 points on the CSI 1000 index. 

Additionally, we highlighted Beijing’s series of desperation moves to support the flailing stock market, from The National Team (plunge-protectors) stepping in to the idiocy of short-selling bans (that have always worked so well in the past).

Sure enough, after the short-selling ban, we saw – as we always do – heavy selling pressure (long-selling) hit overnight since such trading prohibitions impede investors from determining accurate prices of assets and reduce market liquidity.

Research has consistently shown that banning short selling during stretches of particularly volatile equity market activity intensifies the volatility.

But, again, as Chinese stocks began freefalling, Bloomberg reports a sudden and sizable bidder emerged. Turnover on a handful of ETFs tracking the CSI 300 Index and the SSE 50 Index jump in afternoon trading, a sign that state-led buying continues.

But The National Team could not hold back the waterfall of liquidations from the snowball derivatives that smashed through trigger levels in both the CSI 500 and CSI 1000…

In other words, we are this close to a Chinese market crash… and with it the collapse of yet another wealth source for the ‘average jao’… and the potential threat that the CCP fears most – revolution.

Everything that Chinese authorities have tried has failed to convince money managers that the worst is behind us.

“China is a waiting game and we continue to be waiting,” said Mark Matthews, head of Asia research at Bank Julius Baer & Co., which is mostly avoiding Chinese equities.

How much longer can Beijing wait?

While no one really knows what Xi and his pals are thinking, some are wondering if the knock-in liquidation cascade will be the trigger that crashes the market and finally wakes up Chinese officials, forcing it to trigger the stimulus bazooka?