Authored by Paul D. Thacker via The Disinformation Chronicle,

Update: Gonsalves (aka ‘4G’) has been scalped, and has deleted his account since this article was originally published.

Former White House medical adviser Dr. Anthony Fauci admitted in a congressional deposition last week that the federal government’s COVID guidance for six-feet social distancing was not based on scientific evidence, stating under oath “it sort of just appeared.” Fauci’s testimony came during the second day of his closed-door deposition before the House Select Subcommittee on the Coronavirus Pandemic, and echoed a similar comment made by former FDA Commissioner Dr. Scott Gottlieb.

“The six feet rule was arbitrary in and of itself,” Dr. Gottlieb said during a September 2021 appearance on “Face the Nation” while discussing COVID guidance. “Nobody knows where it came from. The six feet is a perfect example of sort of the lack of rigor of how CDC made recommendations.”

Curious to see who had promoted this arbitrary rule that “sort of just appeared”, I began searching news articles and social media and ran across an expert declaration on Yale’s website, filed by Gregg Gonsalves with the School of Public Health and Yale Law School. Gonsalves also writes regularly for multiple media outlets, including The Nation where he is their public health correspondent. “Data from China indicates that the average infected person passes the virus on to 2-3 other people at distances of 3-6 feet,” Gonsalves claimed in a legal filing.

Every medical crisis is AIDS

In case you’re unaware of Gregg Gonsalves, he’s a 1980s AIDS activist who later in life attended university and then, for some reason, got hired by Yale. But having honed his talents in advocacy, he retains a street activist’s indifference for scholarship and a pugnacious skill in diagnosing every medical crisis as AIDS in the 80s.

1980s Flashback:

Ebola? That’s AIDS, Gonsalves told NPR.

Opioid epidemic? AIDS again, he told New York Times.

How about Monkeypox? Do you need to read this Gregg Gonsalves essay, or is the evidence not clear? Hello, it’s AIDS!

And when the COVID outbreak began, physicians scrambled to study a never before seen virus, struggled to understand how it spread, and argued over how to best stop it.

Meanwhile, Gonsalves offered up another 1980s flashback performance. Can you hear Madonna pumping in the background? Papa Don’t Preach: it’s AIDS all over again.

Speaking to Vox, Gonsalves explained that “Trump’s handling of the crisis feels like an eerie callback to the 1980s, when then-President Ronald Reagan chose to ignore early warnings about the threat from HIV/AIDS.”

With Trump now posing as Reagan with a bad tan and orange hair, Gonsalves then donned a white coat and prescribed a New York Times article as treatment to manage a respiratory virus that had nothing to do with HIV. “Unless we figure out how to sort of move toward what the New York Times called for the other day — a national lockdown of sorts,” Gonsalves told Vox, “We’re just going to see cases increase and emergency rooms and ICUs across the country be filled to capacity.”

On social media, Gonsalves continued arguing for lockdowns, before complaining that he was being mischaracterized as pro-lockdown. And then cycling through this flip flop once again.

It’s the logical consistency of a small-minded hobgoblin.

Which brings me back to Fauci and the “it just sort of appeared” science for six-feet social distancing.

Protestors don’t need data

In a March 2020 expert declaration under penalty of perjury, Gonsalves claimed, “Data from China indicates that the average infected person passes the virus on to 2-3 other people at distances of 3-6 feet.” The declaration apparently supported legal claims that prisoners were at risk of COVID injury and should be released from the hoosegow.

But if you examine Gonsalves’ writing carefully (apparently, he didn’t) you’ll see he cites medical support for his 3-6 feet claim with footnote #7.

But when you go to footnote #7, you find Gonsalves doesn’t cite actual medical evidence; Just as when he argued for lockdowns in Vox, Gonsalves’ medical proof is a news story in the New York Times.

Perhaps you’re unfamiliar with science and how experts rank research, but nowhere in the medical literature do you find “newspaper article” cited as credible evidence. Please see this explanation at Mt. Sinai Medical School, if still in doubt.

But it gets even more odd.

When you read the New York Times article, you find there is no “data from China” as Gonsalves claims. The only proof the newspaper article provides for “six feet social distancing” is—get this—an artist’s drawing.

In short, Yale’s Gregg Gonsalves filed a legal declaration that made a medical claim based on a newspaper article—and that newspaper article doesn’t contain any evidence as Gonsalves claims.

Quite the expert, no?

To understand how this meets Yale’s academic standards, I emailed Gonsalves, asking him to explain.

Read the rest here

*  *  *

Aaaand, he’s gone:

STORY UPDATE: Hours after this story ran documenting Yale’s Gregg Gonsalves’ use of fake data and harassment of reporters and several female physicians, @greggonsalves closed his @x account. https://t.co/Vpx1pzdOYg

Gonsalves has not responded to questions sent to @YaleLawSch pic.twitter.com/wlqYc9Zltt

— Paul D. Thacker (@thackerpd) January 18, 2024

Last night we warned that as a result of the ongoing rout in Chinese capital markets, the CSI 1000 index had tumbled just shy of the key 5180 level which would knock-in (i.e., trigger) over 30 billion yuan ($4.2 billion) in snowball derivatives products tied to the Index, which would in turn unleash a selling cascade and could spark a wholesale market crash.

Well, it seems that Beijing also read the warning, because just minutes later Chinese equity indexes rebounded furiously in afternoon trading, with a volume explosion in some major ETF, a hallmark of aggressive buying by state funds – i.e., China’s Plunge Protection Team – who stepped in to halt the slide.

As shown in the chart below, the total traded value of the Huatai-Pinebridge CSI 300 ETF surged to 15.3 billion yuan ($2.1 billion) on Thursday, the highest since 2015 as the National Team made its presence known, while those for Harvest CSI 300 Index ETF and E Fund CSI 300 ETF also saw extraordinary spikes. That coincided with gains in the CSI 300 benchmark of mainland shares, which closed 1.4% higher after declining as much as 1.8%.

During previous market slumps, state funds were suspected to be behind surges in turnover of such ETFs as they stepped in to rescue the market. For instance, Central Huijin Investment Ltd., a sovereign wealth fund, bought an undisclosed amount of ETFs in October and vowed to keep increasing its holdings.

“The national team is likely stepping to stabilize the market as they have done in previous market crashes,” said Marvin Chen, a strategist at Bloomberg Intelligence.  

And as Beijing bought, foreign investors were again aggressive sellers of mainland stocks after they dumped 13 billion yuan ($1.8 billion) worth of shares in the previous session, the most in more than a year.

Meanwhile, the Hang Seng China Enterprises Index finished the day 0.8% higher, reversing an earlier decline of 0.6%. Down 10% this year, the HSCEI gauge is the world’s worst-performing major index. As for the CSI 1000, it was the familiar diagonal “PPT is here” line as Beijing didn’t leave any doubt about its presence.

The rare advance in Chinese gauges comes after selloff extended into the new year amid even greater doubts about the slowing economy. The latest economic data showed the country’s property crisis deepening, while geopolitical tensions with the US and Beijing’s policy whims continue to put investors on edge. Meanwhile, the bedrock of China’s middle class – property prices  – continues to sink: China December property prices fell month over month at fastest pace since 2015.

And while occasional intervention by the Chinese PPT may help arrest a liquidation now and then, it is powerless to contain the flood of selling that will not stop until China capitulates and – despite its 300% debt/GDP – launches the next massive stimulus bazooka. Sure, Xi can pretend he can survive without one, but a few more months of economic freefall coupled with continued collapse in housing and an all time lows in stocks, and the communist party will find out just how little debt matters when faced with 1 billion very angry Chinese marching on Beijing, pitchforks in hand.

By Michael Every of Rabobank

Decolonise Economics!

Markets started 2024 as wildly optimistic –and wildly wrong– about rates as they did 2023: is there something structurally wrong with economics, or just them? After all, yesterday’s US retail sales were much stronger than expected, industrial production better than consensus, and while the Fed’s Beige Book said the labor market was cooling, with increased consumer “price sensitivity”, businesses expectations were positive and/or improved. In other words, doing nothing is a realistic option for the Fed. Moreover, UK inflation was stronger than expected, as Canadian core CPI had been earlier this week, and Australia’s Melbourne Institute survey today was an unchanged 4.5% y-o-y. On top, we got more central-bank speech saying “We aren’t cutting rates anytime soon.” And they aren’t. That said, Australia’s jobs data today collapsed -65.1K, having been +72.6K last month, with full-time jobs -106.6K, yet unemployment staying at 3.9% due to a plunging participation rate. The AUD didn’t like that much, and neither will the RBA. However, both this and last month’s job figures are mad in a population of 25m.

On economics, markets, and being structurally wrong, Davos just saw “anarcho-capitalist” Argentinian President Milei lambast its attendees for abandoning the “values of the West” – to warm applause. Moreover, JP Morgan CEO Dimon said, “I think this negative talk about MAGA is going to hurt Biden’s electoral campaign,” adding Trump, “was kinda right about NATO. Kinda right about immigration. He grew the economy quite well. Tax reform worked. … I don’t like how he said things about Mexico, but he wasn’t wrong about some of these critical issues, and that’s why they’re voting for him.” Both comments are worth noting regardless of whether one agrees or not.

Best way to listen to the Milei speech in English, rendered using HeyGen, in his own voice. pic.twitter.com/eYsSPLeukc

— David Sacks (@DavidSacks) January 18, 2024

Davos, and ECB President Lagarde, also mentioned Red Sea inflation risks. There, the US has redesignated the Houthis as global terrorists – with a 30-day notice period(!) and massive sanctions carve-outs. The Houthis, apparently as deft at comedy as at disrupting the global economy, released a statement saying the US move “would not affect their operations.” Indeed, they have since hit another ship, and may be shifting their mobile missile launchers to avoid airstrikes and target the Gulf of Aden as well as the Bab El-Mandeb. That makes the maritime area vulnerable to attack even further beyond the protective capabilities of Operation Prosperity Guardian. So what is to be done as the ‘US Empire’ crumbles and the global maritime trading system goes back to a 19th century world of piracy, national navies having to protect trade, and no Suez or Panama Canals? Davos is short of answers.

While doing my own thinking earlier, I came across an EconTalk interview with Bloomberg opinion writer Noah Smith titled ‘Can a Nation Plunder Its Way to Wealth?’ That this is a topic of debate again now says something about the ‘geopolitical’ times we live in! Smith’s simple answer is zero-sum empires and plunder don’t make you rich; innovation and higher productivity do. Yet the reality is sadly far more complicated.

Most of history with metallic money showed if you plundered foes of their metal, you got richer, and they got poorer: Rome did that; so did Spain in the Americas. In more recent history, with a gold standard, a favorable balance of trade supported by gunships helped the UK become global #1. True, evidence also says empires cost so much to run that they can hollow out the economy at the center. Yet, sadly, that is to say empire can be mismanaged, not that it can’t make you rich if operated alongside innovation and higher productivity. Panglossian ‘economics over guns’ theory is wrong in its internal logic – and so we retreat back to guns over economics.

Smith’s counterview that small countries like Singapore prove one can became rich without empire also overlooks that, the brilliance of Lee Kwan Yew aside, its foundation as an entrêpot trading centre was laid, by force, by the British as part of their empire. Likewise, his view that within that empire India never industrialised ‘because they relied on cheap labor, not capital’ obscures that the British *deindustrialised* it at gunpoint, making them buy textiles produced in England’s mill towns.

Let’s think about the Suez Canal for a moment in that light. Who built it? Why was it built? Who fought wars to control it? Also note the 1956 Suez Crisis showed the UK and France were no longer Great Powers with freedom to act geopolitically, only the US and USSR were. And recall Egypt shut the Canal from 5 June 1967 until 5 June 1975, following the Six Day War: correlation is not causation, but what happened to global inflation at that time, even when Asia wasn’t the world’s factory floor?

In some eyes, this relationship is still echoed today under a veneer of neoliberal global capitalism. Indeed, ‘Imperialist appropriation in the world economy: Drain from the global South through unequal exchange, 1990–2015’ argues: “Rich countries and monopolistic corporations leverage their geopolitical and commercial dominance in the world economy to depress or cheapen the prices of resources and labor in the Global South, both at the level of whole national economies as well as within global commodity chains.”

It’s hard to argue with that when the West insists that it must control the highest value-added and best-paid jobs in new green supply chains. That must imply those digging the lithium, nickel, cobalt, etc., are going to add little value and have few well-paid jobs – as is the case now in many other industry value-chains. This is by definition a zero-sum process, regardless of how we dress it up about in neoliberal economic theory. Worse, as we see around us, it can require the use of weapons, or Western-run institutions, to enforce. The above paper uses input-output tables to argue that structural under-pricing, as of 2015, already equated to a net appropriation of resources from the Global South by the North worth trillions of dollars a year. In short, it’s not just bad governance and corruption that holds the Global South back, but a North that leans on the scales while calling it neoliberal economics. (The only thing one could perhaps add is that the West tries to lean on its own workforce too, which makes things even worse!)

You’re wrong if you think that this is all an obscure debate with no link to Milei, Trump, conflict with China copying the past Western playbook back at it, or strains with the BRICS. If so, you aren’t seeing the bigger picture. We need to take a step back and see that what we are doing isn’t working. Things do need to change. Just not how some are proposing.

Indeed, in an age in which Harvard and other Western university literature, history, sociology, language, and even science curricula are being ‘decolonised’, economics is ironically immune; that’s despite the fact that if there is any discipline full of biased, illogical, western-centric, oppressor vs. oppressed, Cantillon elite self-enrichment, it’s not English Lit, but Econ 101. So, is there something structurally wrong with economics? Yes! There are the alternative Marxist, Austrian, or Post-Keynesian schools, yet none have platforms at universities: instead you will find the Marxists in every department but economics, and to the detriment of them all.

In case it isn’t clear, this isn’t to bash the West: I am describing a zero-sum truth to the global system that would be just as badly and unfairly run by anyone else, if not more so – as we may find out at some point in the future. Neither is to cheer Marx: he has no solutions, just good critiques of parts of capitalism. We need fresh ideas badly, not bad ideas dressed up freshly.

I get that markets focused myopically on large near-term rate cuts won’t want to get the above, and won’t be able to do much with it if they do: so, is there something wrong with markets? Yes! Yet, in short, rates may stay higher for longer; and we are heading for a wild ride in which the likes of Milei and Trump may just be our warm-up acts.

Authored by Simon White, Bloomberg macro strategist,

Higher-duration equity sectors are exposed to a resurgence in inflation. Sectors of lower duration such as energy are more resilient to price growth, are less overbought and – unlike tech-focused sectors – continue to act as a hedge for bonds.

After a brief hiatus in 2020/21, investors have been happy to look through inflation risks and sit on duration-heavy portfolios. But this could be the year that that strategy faces a reckoning if, as multiple leading indicators anticipate, inflation returns.

Over the last 12 months, higher-duration sectors have vastly outperformed their lower-duration counterparts.

Moreover, in recent weeks, there has been a surge in inflows to the tech sector, which have become an even-more consensus trade in the wake of the Federal Reserve’s pivot.

However, each Fed cut does not reduce risks – it increases them through stoking an eventual larger rise in inflation. Portfolios that see duration incrementally fall – rather than rise, which might be the temptation – will be more resilient to an increase in price growth.

Equity portfolios with slimmed down duration profiles confer another advantage: they will have a lower – or even still-negative – correlation with bonds. Stocks overall have been negatively correlated with bonds for decades. But in this cycle they have become positively correlated, meaning bonds now reinforce losses from stocks rather than acting as a hedge.

Tech’s correlation with bonds has risen far into positive territory. The energy sector, however, is still negatively correlated with bonds, while in general low-duration sectors are less correlated with fixed-income than high-duration ones.

As well as providing a better risk-adjusted return for multi-asset strategies, lower-duration equity portfolios are cheaper, less prone to a correction, and better placed to weather a recrudescence in inflation.

The number of Americans filing for jobless claims for the first time plunged to just 187k Americans in the week-ending Jan 13th. That is the lowest since Sept 2022…

Source: Bloomberg

…and second lowest level since May 1969…

Source: Bloomberg

New York seems responsible for the huge decline claims last week (while California saw an increase in claims)…

Source: Bloomberg

Continuing claims also continued to trend lower, hovering just above 1.8mm Americans…

Source: Bloomberg

And just like that Goldilocks dream of a soft-landing was destroyed. How does The Fed justify rate-cuts when the labor market is the ‘best’ in over 50 years?

Despite mortgage rates having tumbled (relatively-speaking), and homebuilder sentiment picking back up post-Fed-pivot, expectations were for a plunge back to reality for Housing Starts in December after November’s unexpected surge. Permits were expected to rise only very modestly.

Analysts were right in direction but wrong in magnitude – too bearish. Housing starts declined 4.3% MoM (vs -8.7% MoM exp and +10.8% MoM in November, a big downward revision from the initial +14.8% MoM). Building permits also rose more than expected (+1.9% MoM vs +0.6% exp but saw November’s 2.5% MoM decline upwardly revised to -2.1% MoM…

Source: Bloomberg

On a SAAR basis, Housing Starts and Building Permits are higher YoY

Source: Bloomberg

Under the hood, single-family permits rose for the 12th month in a row (i.e. every month in 2023) but single-family home starts plunged 8.6% MoM after surging 15.4% MoM in November… that is the biggest monthly decline since July 2022…

Source: Bloomberg

Perhaps the optimism among homebuilders about future sales is a little overdone given their actions?

Source: Bloomberg

And why would starts be down so much if rates are tumbling?

Source: Bloomberg

Still along way to go for mortgages to be affordable…

Source: Bloomberg

Will less supply of new homes do anything to help the Shelter component of CPI (hint – no!).

Global stocks and US futures rebounded from three days of losses, and climbed on Thursday as JPM suggests a relief rally may be starting as traders turn their attention to corporate news after conceding that rate cuts may be delayed beyond the first quarter. As of 8:10am, S&P futures rose 0.4% while Nasdaq 100 contracts gained 0.8%. A positive earnings report from Taiwan semiconductor giant TSMC is boosting AMD and NVDA. Europe’s Stoxx Europe 600 index edged higher, having slumped almost 2% in the first three days of the week. China’s benchmark CSI 300 Index advanced 1.4% as a surge in ETF trading pointed toward state funds’ involvement to reverse an earlier rout. The dollar is flat while 10Y yields dipped by 1basis point to 4.09%. Heightened military action in the Middle East is pushing WTI up less than 1% with natgas appearing to react more to the cold snap in the US. Metals are weaker and Ags are rallying. Today’s macro data focus in primarily housing data plus weekly jobless data.

Chipmakers gained in US premarket trading after Taiwan Semiconductor, the main supplier to Apple Inc. and Nvidia Inc., said it expects a return to solid growth this quarter. Microchip Technology Inc., Advanced Micro Devices Inc. and Applied Materials Inc. added more than 2% each. Apple climbed 1.7%, while Nvidia rose 1.6%. Among other premarket movers, Boeing gained after winning an order for 150 of its troubled 737 Max jets from India’s newest airline. Humana Inc. plummeted after the health insurer forecast anemic enrollment growth for this year. Here are some other premarket movers:

• Plug Power (PLUG US) shares drop 16%, set to reach their lowest level since Sept. 2019, after the green hydrogen company filed for a possible at-the-market offering of up to $1 billion shares via B. Riley Securities. Analysts said that the equity raise suggests other financing routes were tricky to access, and questioned whether it would be enough to finance the embattled firm’s operations for the next year.
• Spirit Airlines (SAVE US) shares decline 4.6%, set to extend this week’s 59% drop as the ultra-low cost airline was downgraded to sell from neutral at Citi following the collapse of a planned merger with JetBlue.

Discover Financial (DFS US) shares slide 11% after its fourth-quarter results included earnings that missed estimates and higher provision for credit losses than anticipated by consensus.

Signs that European policy makers are converging around a June rate reduction helped calm markets, along with indications that Chinese state funds are coming to the rescue of equities battered by a flagging economy.

“The medium-term outlook should still be positive for markets as rates will be cut this year,” said Max Wolman, an investment director at abrdn in London. “Timing of the cuts is less relevant because when they start investors will reduce their cash holdings back into risky assets.”

“If US rates fall then most probably the rally will continue, but if inflation makes a come back then no,” said Michel Danechi, a portfolio manager at Vedra Partners. “Some profit-taking after the great run of last quarter is to be expected.”

European stocks inch higher after posting their largest three-day fall since October. The Stoxx 600 is up 0.2%, led by gains in travel, consumer product and technology shares. Luxury stocks are among the biggest gainers after a strong trading update from Cartier owner Richemont. Still, Watches of Switzerland sinks after cutting its full-year revenue guidance. Among individual movers in Europe, gambling group Flutter Entertainment Plc soared more than 10% after reporting results roughly in line with analysts’ estimates. Here are the biggest European movers on Thursday:

• Richemont climbs as much as 10%, the most since 2022, after the Swiss group’s sales came in above expectations and showed top-line resilience in a difficult luxury environment
• European luxury-goods stocks rally on the back of Richemont’s sales beat which assuaged worries over cooling demand for high-end goods, with LVMH rising as much as 4.1%
• ASML and fellow European chip equipment stocks rise after the world’s biggest contract chipmaker, TSMC, said its 2024 capex budget will be between $28b and $32b
• Evotec rises as much as 4.1% after RBC upgrades the German pharmaceutical company to outperform, citing a currently over-discounted valuation as well as underlying fundamentals
• Travis Perkins rises as much as 5.7% after the UK’s largest supplier of building materials said annual operating profit will be in-line with its previous guidance, with analysts flagging some caution
• Cranswick rises 2.9% to hit a one-month high after the food manufacturer said annual adjusted pretax profit will be ahead of expectations following stronger-than-anticipated trading
• Watches of Switzerland falls as much as 32% to the lowest since November 2020 after the luxury watch and jewelery dealer cut full-year revenue guidance due to “volatile” trading
• Harbour Energy shares slide as much as 8% after the UK-based energy company forecast lower production for 2024 than expected, something Canaccord attributes to planned shutdowns
• Ahold Delhaize falls as much as 3.1% after UBS cut the grocery-store operator to neutral from buy, citing a challenging backdrop and lack of catalysts for upside
• Sage falls as much as 2.7% after the software maker reported 10% total revenue growth in the quarter ending December, which analysts said was solid but already factored into elevated expectations

Earlier in the session, Chinese equity benchmarks rebounded in afternoon trading, recovering from what was a rout early in the session with a jump in turnover in some major exchange-traded funds raising speculation that buying by state funds maybe behind the reversal.  Traded value of the Huatai-Pinebridge CSI 300 ETF surged to 15.3 billion yuan ($2.1 billion) on Thursday, the highest since 2015, while those for Harvest CSI 300 Index ETF and E Fund CSI 300 ETF also saw extraordinary spikes. That coincided with gains in the CSI 300 benchmark of mainland shares, which closed 1.4% higher after declining as much as 1.8%.

The drop in bond prices reflected a shift in investor expectations for a Federal Reserve rate cut in March. Swaps pricing shows the chances of such a cut slipped below 60% on Wednesday for the first time since the middle of December. That’s down from 80% on Friday. The decline followed comments from Fed officials this week pushing back against market expectations for imminent cuts and stronger-than-expected retail sales data Wednesday. Bumper consumer spending helped propel the economy in recent weeks, the Fed said in its Beige Book survey.

In FX, the dollar snapped a four-day rally against a basket of peers as the Bloomberg Dollar Spot Index fell 0.1%. The yen and Aussie share top spot among the G-10’s, rising 0.2% respectively.

• USD/JPY dropped 0.2% to 147.87 as the yen led G-10 gains against the dollar; Selling into the Tokyo fix contributed to the dollar gauge’s broad weakness, according to an Asia-based FX trader
• AUD/USD fell as much as 0.4% to 0.6526 before recovering to trade 0.2% higher at 0.6566; Australian unemployment surprisingly tumbled in December as the economy shed 65,100 roles
• USD/CHF steadied at 0.8643 giving the Swiss franc a breather from its longest losing steak against the dollar since September; SNB’s Jordan said Wednesday the franc’s strength is materially affecting the inflation outlook

In rates, treasuries climbed after further selling on Wednesday, which was concentrated on the short end of the curve. The policy-sensitive two-year yield fell four basis points after jumping 14 basis points on Wednesday, its biggest one-day gain since June. 10-year yields fell as much a 3bps to 4.07% before reversing. German 10-year yields are down 1bps at 2.31% as ECB officials look to be converging around June for their first rate cut.

In commodities, West Texas Intermediate held above $73 per barrel as twin incidents in the Middle East underlined the region’s rapidly escalating tensions, which have already snarled global shipping and carry the potential for interruptions to crude production. Gold rose after falling more than 1% Wednesday.

Looking to the day ahead now, and data releases include US housing starts and building permits for December, along with the weekly initial jobless claims, and the Philadelphia Fed’s business outlook for January. Meanwhile from central banks, we’ll hear from ECB President Lagarde and the Fed’s Bostic, and we’ll also get the ECB’s account of their December meeting. Japanese CPI will be out early tomorrow morning.

Market Snapshot

• S&P 500 futures little changed at 4,775.75
• STOXX Europe 600 up 0.2% to 468.63
• MXAP up 0.4% to 162.35
• MXAPJ up 0.4% to 493.18
• Nikkei little changed at 35,466.17
• Topix down 0.2% to 2,492.09
• Hang Seng Index up 0.8% to 15,391.79
• Shanghai Composite up 0.4% to 2,845.78
• Sensex down 0.5% to 71,149.02
• Australia S&P/ASX 200 down 0.6% to 7,346.48
• Kospi up 0.2% to 2,440.04
• German 10Y yield little changed at 2.31%
• Euro up 0.1% to $1.0896
• Brent Futures up 0.4% to $78.23/bbl
• Gold spot up 0.3% to $2,012.36
• U.S. Dollar Index down 0.20% to 103.24

Top Overnight News

• China is pouring stimulus into green manufacturing as the government looks to bolster its economy. WSJ
• TSMC rose premarket after signaling a return to “healthy growth” this year, adding to signs of recovery in the chip sector. Profit fell less than feared last quarter. With AI as the main driver, the company sees revenue growing as much as 25%. BBG
• ECB officials who until recently had been wary of even discussing interest-rate cuts now look increasingly open to commencing them in June. Speaking this week in Davos, President Christine Lagarde and several of her colleagues dismissed investor bets on reductions before then. But they signaled the chance of a move around mid-year, when they’ll know more about inflation, wages and the stuttering economy, as well as the harm to supply chains by Yemen’s Houthi rebels.
• The oil market may remain “reasonably well supplied” this year, as output from outside OPEC+ jumps 25% on gains in the Americas, the IEA said. In the US, gasoline and distillate stockpiles jumped, the API is said to have reported. BBG
• Oil rose as twin incidents in the Middle East underlined escalating tensions. The US struck more than a dozen Houthi missile launchers in its latest response to the Iran-backed group’s attacks on shipping. Separately, Pakistan carried out retaliatory strikes on what it called “terrorist hideouts” in Iran. BBG
• One of Nikki Haley’s billionaire backers has warned that he may withhold further support for her presidential candidacy unless she has a strong showing in next week’s Republican primary in New Hampshire. Ken Langone, the co-founder of US retail chain Home Depot, said he was prepared to give Haley “a nice sum of money” — but may wait until after Tuesday’s primary ballot before making the “major gift”. “If she doesn’t get traction in New Hampshire, you don’t throw money down a rat hole,” Langone told the Financial Times. FT
• McConnell said the Senate next week will likely vote on a Ukraine/border compromise bill, although it’s unclear whether this can make it through the House (Speaker Johnson’s rhetoric on Wednesday suggested the House could block the Senate’s bill). NYT  
• AMZN is working on a new paid subscription version of Alexa, w/the updated product powered by AI technology. Business Insider
• Boeing could not “afford another slip-up” with its 737 Max family of aircraft and must set aside financial targets to focus solely on quality and safety, warned the head of one of the world’s largest aircraft owners. “Given what has happened with the two fatal crashes and this incident, the financial targets have to take a back seat for Boeing and its supply chain,” said Aengus Kelly, chief executive of the world’s biggest aircraft leasing company AerCap. FT

A more detailed look at global markets courtesy of Newsquawk

APAC stocks traded mixed with the region mostly negative after the unwinding of central bank rate cut pricing. ASX 200 was dragged lower by the mining-related sectors with attention on BHP’s lower quarterly iron ore output. Nikkei 225 swung between gains and losses after recent currency weakness and disappointing machinery orders. Hang Seng and Shanghai Comp were mixed as the Hong Kong benchmark composed itself following yesterday’s near-4% collapse, while the mainland index slipped to its lowest level since 2020 after recent data and rate disappointment.

Top Asian News

• Working group of US Treasury and Chinese officials will meet on Thursday in Beijing for the first time, while the topics to be discussed include financial stability, cross-border data regulations, capital markets, sustainable finance, anti-money laundering, financial terrorism and IMF policies, according to FT.
• “The possibility of the BOJ being behind the curve in addressing inflationary risks is small; “There’s no pressure to rush towards the exit”, according to sources cited by Asahi

Bourses are mixed and have traded fairly contained throughout the European morning, though have just edged towards session highs in recent trade. The CAC 40 (+0.5%) outperforms, lifted by gains in the Luxury sector, post Richemont (+8.7%) earnings. European sectors are mixed; Significant outperformance in Travel & Leisure, due to hefty gains in Flutter (+10.7%) after strong earnings. Tech is also higher after strong TSMC earnings; ASML (+1.6%), ASM International (+3.5%). US equity futures are meandering around the unchanged mark, with slight outperformance in the NQ (+0.2%); with optimism filtering through into the Tech-heavy index post TSMC earnings. TSMC (2330 TT / TSM) guidance: Sees Q1 revenue between USD 18-18.8bln (exp. 18.26bln); Sees Q1 operating margin between 40-42% (vs 41.6% in Q4), sees Gross Margin between 52-54% (vs 53% in Q4); says 2023 was a “challenging year”

Top European News

• ECB’s de Cos said he backs US proposals to impose more stringent requirements on banks than their US and EU counterparts and said countries should go beyond global regulations if required, according to FT.
• Maersk (MAERSK DC) says winter weather conditions and Red Sea contingencies are expected to affect operations across Europe and hub terminals
• EU27 New Car Registrations (Dec) -3.3% Y/Y “. This drop can be attributed to the high baseline performance in December 2022. December also marked the first month of contraction after 16 consecutive months of growth.”
• A primer for the ECB Minutes at 12:00GMT/ 07:00 ET can be found here.
• DHL (DHL GY) CEO says still have sufficient air freight capacity despite pressure on supply chains amid Red Sea attacks; says e-commerce is rising after the post-COVID-19 dip
• BoE Credit Conditions Survey – 2023 Q4: Lenders reported that the availability of secured credit to households increased in the three months to end-November 2023 (Q4). It was expected to be unchanged over the next three months to end-February 2024.
• BoE Bank Liabilities Survey – 2023 Q4: Lenders reported that total funding volumes increased in the three months to end-November 2023 (Q4). Total funding volumes were expected to decrease in the three months to end-February 2024 (Q1)
• UK PM Sunak’s Rwanda bill passed the third reading in the Commons by 320 votes to 276.

FX

• DXY is contained albeit with a slight downward bias, with the index within a 103.14-39 intraday parameter at the time of writing in the absence of news flow ahead of the weekly jobless claims – in which initial claims coincide with the BLS survey period.
• EUR trades in tandem with the Dollar after seeing more pushback against market pricing for an ECB cut yesterday; EUR/USD sits in the middle of a 1.0875-1.0906 range with the 50 DMA (1.0913) to the upside.
• A firm session for the JPY with overnight desks citing importers supporting the currency at the Tokyo fix, whilst USD/JPY continued to retrace yesterday’s upside which took the pair to a 148.52 peak.
• Antipodeans benefit amid their high-beta status with the broader market risk tone holding above water with the support of firmer commodities.
• PBoC set USD/CNY mid-point at 7.1174 vs exp. 7.1976 (prev. 7.1168).

Fixed Income

• USTs are steadily grinding higher since yesterday’s Retail Sales hit which prompted a decline to the 111-09 region before edging back towards 111-20 highs in early European hours.
• Bunds are contained having kicked off the session subdued but found support at 134.15 despite a lack of drivers this morning; contracts are languishing not far off overnight lows following the recent slew of pushback from ECB officials on market pricing.
• Gilts resumed trade at 98.25 (vs yesterday’s 98.33 close) with the UK bonds attempting to trim some of the losses from yesterday’s hotter-than-expected CPI.
• Spain sells EUR 6.265bln vs exp. EUR 5.5-6.5bln 2.50% 2027, 1.25% 2030, 3.90% 2039 Bono
• France sells EUR 11.99bln vs exp. EUR 10.5-12bln 2.50% 2027, 2.75% 2029, 0.50% 2029 OAT

Commodities

• Crude futures are firmer following yesterday’s mixed settlement, with the contracts seemingly underpinned by the expanding geopolitical arena. Prices saw fleeting downticks on the IEA OMR which, after suggestions that the IEA “stands ready to respond decisively if there is a supply disruption”.
• Precious metals trade horizontally with modest gains in the absence of a catalyst in the European morning and amid a stead Dollar; XAU is confined to a tight USD 2,005.02-2,013.89/oz intraday range.
• Base metals are mostly but modestly firmer trade across base metals, in fitting with the broader performance seen in European equities.
• IEA OMR (Jan): 2024 global oil demand growth forecast upgraded by 180k BPD to 1.24mln BPD, citing improved GDP outlook and Q4 23 price drop; “IEA stands ready to respond decisively if there is a supply disruption”
• Iraqi oil minister said oil exports are not affected by the Red Sea as most of the country’s oil goes to Asia
• Qatar set March-loading Al-Shaheen crude term price at USD 0.88/bbl above Dubai quotes.

Geopolitics: Middle East

• US Central Command said a drone launched from Houthi-controlled areas in Yemen struck a US-owned vessel in the Gulf of Aden, while there were no injuries and some damage reported. US military also announced it conducted strikes on 14 Houthi missiles that were loaded to be fired from Yemen and said the missiles presented an imminent threat to merchant vessels and US Navy ships in the region.
• Houthi-controlled Saba News Agency said US and British aircraft targeted several governorates in Yemen.
• UK Foreign Secretary Cameron met with the Iranian Foreign Minister at the WEF and condemned the attacks in Erbil, Iraq, while he also made it clear that the Houthi attacks on shipping in the Red Sea are illegal and unacceptable, according to Reuters.
• Pakistan’s Foreign Minister held a call earlier with his Iranian counterpart and underscored the attack conducted by Iran inside Pakistani territory was a serious breach of Pakistan’s sovereignty and a violation of international law, while he added that Pakistan reserved the right to respond to this provocative act. It was later reported that Pakistan hit Baluchi militant targets in Iranian territory.
• Pakistan Foreign Ministry said it undertook a series of military strikes against terrorist hideouts in the Sistan and Baluchistan Province of Iran, while it added that Pakistan fully respects the sovereignty and territorial integrity of Iran and it will continue to endeavour to find joint solutions with Iran against terrorism, according to Reuters.
• Lebanon’s Foreign Minister said the war on Lebanon is not easy for Israel and will be a regional war, adds if a regional war breaks out, rockets will fall on Israel from all sides, according to Al Arabiya.
• Pakistan’s armed forces are on “extremely high alert”, adds that any more “misadventure” from Iran will be met forcefully, according to Reuters citing Pakistan’s top security official

Geopolitics: Other

• Russian Defence Ministry said air defence units shot down Ukrainian drones in Moscow and Leningrad regions, according to Reuters.
• Chinese Foreign Ministry official and Philippines Deputy Foreign Secretary reaffirmed that the South China Sea dispute is not the whole story of bilateral relations and they believe maintaining communication and dialogue is essential to maintaining maritime peace. Furthermore, they agreed to improve maritime communication and continue to properly manage maritime conflicts and differences through friendly consultations, while they agreed to properly handle maritime emergencies in certain waters of the South China Sea.
• Philippines Foreign Ministry said the Philippines and China had frank and productive discussions to de-escalate the situation in the South China Sea, while both sides agreed to calmly deal with any incidents through diplomacy and they assured each other of mutual commitment to avoid escalation of tensions, according to Reuters.
• Russian-installed official says Ukraine attempted to attack Russian oil terminal in St. Petersburg with drones overnight,

US Event Calendar

• 08:30: Jan. Initial Jobless Claims, est. 205,000, prior 202,000
• 08:30: Jan. Continuing Claims, est. 1.84m, prior 1.83m
• 08:30: Dec. Housing Starts MoM, est. -8.7%, prior 14.8%
• 08:30: Dec. Housing Starts, est. 1.43m, prior 1.56m
• 08:30: Dec. Building Permits MoM, est. 0.6%, prior -2.5%, revised -2.1%
• 08:30: Dec. Building Permits, est. 1.48m, prior 1.46m, revised 1.47m
• 08:30: Jan. Philadelphia Fed Business Outl, est. -6.7, prior -10.5, revised -12.8

DB’s Jim Reid concludes the overnight wrap

The big question for markets at the moment is whether 2024 to date is just a understandable hangover to an exceptionally good end to 2023 or a marker for a more challenging year ahead. I suppose our highest conviction thought so far this year has been that the least likely scenario would be the level of rate cuts priced in by the market occurring without a recession. Such a scenario has felt completely out of place with history and still does. We have corrected back a bit this week after a slew of relatively ‘hawkish’ central bank speak (vs. market expectations), and yesterday’s surprisingly strong US retail sales, but it still feels optimistic to assume such levels of cuts without economic troubles.

The recent very strong correlation between bonds and equities that started bearishly for both in August around the QRA (quarterly refunding announcement) and flipped bullish in October around the QRA, has flipped bearish again in 2024. History tells us the tight correlation won’t last forever, and one will break out from the other, but for now the relationship is lockstep and yesterday was another day where both sold off as investors dialled back the prospect of near-term rate cuts. There were several drivers behind that, including comments from ECB President Lagarde pushing back on market expectations, an upside surprise for UK inflation, as well as strong data on US retail sales. And given the comments from Fed Governor Waller the previous day about cutting “methodically and carefully”, it all fed (pardon the pun) the narrative that central banks aren’t in a hurry to cut rates. In turn, that led to a sizeable market sell-off, with yields on 2yr Treasuries up by +14.0bps on the day, their sharpest rise since June, whilst the S&P 500 (-0.56%) put in its worst performance in two weeks. Overnight China equities are back down to March 2020 levels.

Looking at those drivers in more detail, the first were comments from several central bank officials, including ECB President Lagarde. She struck a concerned tone about market pricing, saying that it was “not helping our fight against inflation, if the anticipation is such that they are way too high compared with what’s likely to happen”. Separately, Slovenia’s Vasle said that for him “it’s absolutely premature to expect the first cuts at the beginning of the second quarter”. Meanwhile, Dutch central bank governor Knot made similar comments to Lagarde, saying that markets were “getting ahead of themselves, it’s pretty clear, and the problem for us is that in the end that might become self-defeating”.

All that pushed back on the prospect of imminent ECB rate cuts, and by yesterday’s close the amount of cuts priced in by the December meeting was down by -8.0bps to 138bps (and down -25bps since last Friday). That also helped drive a sell-off across European sovereign bonds, with yields on 10yr bunds (+5.7bps), OATs (+6.4bps) and BTPs (+8.8bps) all moving higher on the day. The moves were even more pronounced at the front end. For instance, 2yr German yields were up +10.2bps, and 2yr Italian yields were up +13.4bps.

Nevertheless, the biggest bond sell-off was in the UK yesterday, which followed an upside surprise in the latest CPI print. That showed a rebound in headline CPI to +4.0% in December (vs. +3.8% expected), with core CPI also holding steady at +5.1% (vs. +4.9% expected). That led investors to dial back the likelihood of rate cuts from the Bank of England, with the probability of a cut by May down from 88% on Tuesday to 54% by yesterday’s close. And for the year as a whole, the amount of cuts priced by the December meeting came down by -20.0bps to 111bps, so the better part of a 25bp rate cut being taken out of market pricing in 2024. For gilts, that led to a dramatic sell-off, with the 10yr yield up +18.7bps to 3.98%, which was its biggest daily move higher since February last year, whilst the 5yr yield saw an even larger increase of +23.7bps, taking it up to 3.90%.

That narrative pushing back on rate cuts got further support from the US data yesterday, which pointed to continued resilience in December. For instance, retail sales were up by +0.6% (vs. +0.4% expected), whilst the retail control group was up +0.8% (vs. +0.2% expected). So Q4 US GDP forecasts will get a decent boost. Moreover, industrial production then saw growth of +0.1% (vs. -0.1% expected), albeit with a downward revision of two-tenths to the previous month’s growth. Lastly, we found out that the NAHB’s housing market index had risen to a 4-month high of 44 in January (vs. 39 expected). On the back of the data, the Atlanta Fed’s GDPNow estimate for Q4-23 improved from +2.2% to +2.4%. That equates to the US economy growing in line with its 25-year trend.

As in Europe, this all contributed to the push-back on rate cuts, with the likelihood of a Fed cut by March down to its lowest level since the last Fed meeting, at just 59%. That helped the US Dollar inch further up, with the dollar index (+0.09%) closing at its highest level in over a month. But for Treasuries there was a pretty sharp sell-off, with the 2yr yield seeing its sharpest daily rise since June (+14.0bps) to 4.36%, whilst the 10yr yield saw a more muted rise of +4.5bps to 4.10%. Overnight in Asia, 2 and 10yr US yields are back down by -2.7bps and -1.3bps respectively.

For equities, all this proved to be a tough backdrop, which left the S&P 500 down -0.56% on the day. This decline was very broad, with 22 of the 24 industry groups in the S&P 500 down on the day. Tech stocks saw similar declines, with the NASDAQ down -0.59%, while the small-cap Russell 2000 (-0.73%) saw its 4th consecutive daily decline. With equities under pressure, the VIX volatility index (+0.9pts to 14.8) rose to its highest level since early November. And over in Europe there were even sharper losses, as the STOXX 600 fell -1.13%, its largest decline in nearly three months.

Asian equity markets are mixed this morning with most markets higher but with China slumping again. As I check my screens, the Hang Seng (+0.64%) is reversing its initial sell-off with the Nikkei also rebounding +0.27% along with the KOSPI (+0.12%). However, the Shanghai Composite (-1.59%) has fallen to its lowest level since March 2020 and the CSI (-0.63%) is also lower. S&P 500 (-0.13%) and NASDAQ 100 (-0.14%) futures are slightly lower.

Early morning data showed that Australia’s unemployment rate held steady at 3.9% for a second month in December despite employment dropping by 65,000 people, compared with an expected increase of 15,000 people. At the same time, the labour participation rate also fell more than expected to 66.8%, down from the Bloomberg estimates of 67.1% and below November’s 67.3%. Our economists’ first take is that a lot of the odd anomalies in the report are more likely to be noise than a signal. See his reaction here.

To the day ahead now, and data releases include US housing starts and building permits for December, along with the weekly initial jobless claims, and the Philadelphia Fed’s business outlook for January. Meanwhile from central banks, we’ll hear from ECB President Lagarde and the Fed’s Bostic, and we’ll also get the ECB’s account of their December meeting. Japanese CPI will be out early tomorrow morning.

Shares of Watches of Switzerland Group Plc crashed as much as 32% to the lowest level since November 2020 after the luxury retailer slashed guidance for the 2024 fiscal year.  

Watches of Switzerland, a seller of Audemars, Cartier, Rolex, and Piguet, blamed a downturn in luxury spending for its misfortunes: 

“Despite a positive start to the early part of Q3 FY24, WOSG then experienced a volatile trading performance in the run-up to and beyond Christmas, as the challenging macro-economic conditions impacted consumer spending in the luxury retail sector,” the company said in an update. 

“We now expect these challenging conditions to remain for the balance of our fiscal year.”

That said, the company cut its full-year revenue target to between £1.53-1.55 billion ($1.94-1.97 billion) from the previous guidance of £1.65-1.7 billion. Revenue growth was revised sharply lower from 8 to 11% to 2 to 3%,

Shares trading in London plunged as much as 32%. 

Shares are back to levels not seen since early Covid. 

“The festive period was particularly volatile this year for the luxury sector, with consumers allocating spend to other categories such as fashion, beauty, hospitality and travel. Whilst we are disappointed with this trend, we are encouraged by our market share gains in both the US and the UK,” Chief Executive Officer Brian Duffy wrote in a statement. 

“The extent of the adjustments to the guidance range will be painful to navigate in the near term,” analysts at Jefferies wrote in a note. 

Analysts at Peel Hunt said today’s warning was “a blow to sentiment.” 

The warning from Watches of Switzerland comes as the luxury downturn persists into the new year.

Several X users allege a Chinese company on the e-commerce website Alibaba was selling a suicide or kamikaze drone under the guise of a “UAV Surveying Mapping” drone. 

“Sunlipo Energy Shenzhen Co., Ltd. was revealed to be selling a fixed-wing loitering drone, XHZ-50, for $57K on http://Alibaba.com and can be shipped anywhere in the world,” one X user said. 

Sunlipo Energy Shenzhen Co., Ltd. was revealed to be selling a fixed-wing loitering drone, XHZ-50, for $57K on https://t.co/ZAOEf4pFqQ and can be shipped anywhere in the world.

However, shortly after that. the product was removed from the website.https://t.co/pP7g1LVt70 pic.twitter.com/Kv0OHKvGyl

— Iron Lady (@nuwangzi) January 17, 2024

On Tuesday evening, the user noted that the listing on Alibaba mysteriously disappeared shortly after X users posted about the drone. 

Other users said:

Damn it’s actually true.

Even has four 5-star reviews as well lol, being consistent with any Chinese product’s bot generated reviews.

Truly what a time to be alive.https://t.co/SWRILlCcWh https://t.co/zb80Y4dsQv

— Rohan Sachdeva (@iRohanSachdeva) January 16, 2024

🚨 Allegedly, Chinese Alibaba is now selling kamikaze UAVs online for $57,000

Source: Clash Report pic.twitter.com/HCE9SFCN8X

— Mario Nawfal (@MarioNawfal) January 17, 2024

Compare and contrast a suicide drone in Ukraine versus the Alibaba drone. 

Not all X users were convinced that the Chinese drone was capable of warfare: “In the effort of fairness what on here says “Kamikaze.”” 

However, a recent New York Times report said Ukraine has received millions of Chinese-made drones and spare parts. And these cheap drones have also been flooding battlefields in the Middle East.  

Authored by Ven Ram, Bloomberg cross-asset strategist,

German’s long-dated bonds have rallied deep and hard since the start of the fourth quarter, leaving them with minuscule further upside in 2024.

The yield on the nation’s 10-year bonds slumped as much as 95 basis points to 1.89% at the end of December.

They have since corrected to around 2.25% on Tuesday.

A model of yields based on interest-rate swaps, the European Central Bank’s policy rates and front-end sovereign notes that can explain more than 98% of movements in Germany’s long-dated bonds shows that bund yields won’t be able to probe below 2% this year  – unless the ECB were to cut interest rates deeper and more aggressively than what the markets are currently pricing.

ECB officials have been pretty vocal in recent days, suggesting that the central bank may not cut rates as soon as March.

Neither have they seemed willing to lower rates as many as six times this year, which interest-rate traders have been using as their ballpark.

Governing Council member Joachim Nagel remarked that any reduction can wait for the summer break, a view that President Christine Lagarde subsequently endorsed, citing consensus among officials.

While one could dismiss Nagel’s stance as that of a arch-hawk, even the more dovish Philip Lane said that reductions that are too quick might stoke a new wave of inflation, putting policymakers in “a far worse scenario.”

Lane also commented that Eurostat national accounts data – which he highlighted as key to the ECB’s policy decision – would be available in time for the June rate review, pouring cold water on the possibility of rate cuts sooner.

His colleague Madis Muller remarked that the market’s pricing of some 150 basis points of reductions this year “is quite an aggressive expectation indeed,” given labor costs in the euro zone. The annual increase in regional wages is running above 5%, while the jobless rate is at the lowest it has ever been, which may yet keep inflation simmering.

Germany’s 10-year bond yield slid precipitously from almost 3% at the start of October through the end of December.

While the start of the new year has seen a paring back of that exuberance, the correction may have further to run.

That’s not to say that bund yields will climb a whole lot from here given that the ECB will still cut rates this year.

Rather, the point is that the deep rally of the past three or so months has fundamentally skewed the risk-reward equation on bunds for the remainder of 2024.

Positioning for a re-visit of the December lows seems premature.