Authored by Sam Bourgi via CreditNews.com,

Housing affordability is one of the biggest issues facing Americans today.

Although much has been written about elevated mortgage rates and sky-high house prices impacting would-be homeowners, what about people who actually live in their own homes?

Creditnews Research delved into the most recent Census Bureau data to assess the housing costs of existing homeowners and how many of them are struggling to keep roofs over their heads.

Our research found that nearly a third of U.S. homeowners are “house poor”—a term that refers to families that spend 30% or more of their gross income on housing costs.

According to the Department of Housing and Urban Development, households above that threshold are much more likely to run into financial challenges.

We also ranked states based on the percentage of house-poor households in the population and discovered that 17 states exceed the national average. Interestingly, our rankings show little correlation with the median household income in the state.

Key findings

• Nationwide, 30.8% of homeowners, whether with or without a mortgage, are considered to be “house poor”;

• Among homeowners with a mortgage, 37.2% are spending on housing above their means;

• Surprisingly, 20.8% of homeowners without mortgages fall into the same category;

• On a state level, California (43%), Hawaii (42.4%), New York (39.3%), New Jersey (37.7%), and Massachusetts (37.1%) have the greatest share of house-poor households;

• Interestingly, Hawaii, Massachusetts, New Jersey, and California—four of these states—are in the top ten by average inflation-adjusted income over the past 12 months;

• States with the lowest percentage of house-poor residents include West Virginia (19.5%), North Dakota (22.1%), Indiana (22.7%), Iowa (22.8%), and South Dakota (23.6%). Households in these states earn less than the national average ($73,477).

“House poor” rankings by state

Across the United States, nearly one in three (30.8%) homeowners are considered to be house poor. This number jumps to 37.2% for residents who have a mortgage.

Approximately one in five (20.8%) homeowners who don’t have a mortgage find themselves in the same boat, suggesting that the rising costs of maintaining a home (i.e., utilities, property tax, insurance, repairs, etc.) are taking their toll.

On a state level, California has the highest share of house-poor households at 43%, followed by Hawaii (42.3%), New York (39.3%), New Jersey (37.7%), Massachusetts (37.1%), and Florida (36.8%).

19 states and the District of Columbia have a house-poor population share of at least 30%. All but five of them boast an average income that’s higher than the national average ($73,477).

The states with a house-poor population share above 30% but earn less than the national average are: Texas ($72,284), Nevada ($72,333), Maine ($69,543), Florida ($69,303), and Illinois ($66,785). Vermont is right on the edge, with an average income of $73,991.

While the District of Columbia is ranked 18th with a house-poor population share of 30.8%, it has the highest average household income in the country at $101,027—likely due to its proximity to federal government jobs.

West Virginia has the smallest share of house-poor families at 19.5%—despite having a median income of $54,329, which is well below the national average.

North Dakota has the second-lowest house-poor population share at 22.1%, followed by Indiana (22.7%), Iowa (22.8%), South Dakota (23.6%), Ohio (23.8%), and Arkansas (23.8%).

In fact, every state in the bottom ten has lower income levels than the national average.

It all comes down to home prices

It comes as no surprise that the states with the highest percentage of house-poor families also have some of the highest home prices.

According to Redfin data analyzed by Creditnews Research, California ($793,600) and Hawaii ($714,100) have the highest median home prices of existing homes in the country. These states also have the highest share of house-poor families.

By comparison, the median price of existing homes was $387,600 nationwide as of November 2023.

New York and Massachusetts—also in the top five house-poor states—have some of the highest existing home prices at $649,000 and $595,700, respectively.

At the other end of the spectrum, states with the lowest share of house-poor families have much lower real estate prices.

The median existing-home price is $284,000 in West Virginia, $334,075 in North Dakota, $284,500 in Indiana, $289,900 in Idaho, and $300,200 in Iowa—all significantly below the national average.

Methodology

To rank house-poor states, Creditnews analyzed Census Bureau data on household income, median monthly housing costs, and the percentage of homeowner-occupied units that pay at least 30% of their monthly income on housing.

The data only includes homeowners—both with and without mortgages. Renters are excluded.

Housing costs include mortgage payments, contracts to purchase, home equity lines of credit, real estate taxes, utilities, and condominium fees where applicable.

Households are considered to be house poor if their monthly housing expenses exceed 30%. This figure is consistent with the U.S. Department of Housing and Urban Development’s affordability measures.

According to HUD, “a household should spend no more than 30% of its income on housing costs.

Authored by Jonathan Turley,

The majority of Americans oppose the decisions in Colorado and Maine to disqualify former President Donald Trump from the 2024 ballot. 

Other polls put the balance slightly in favor, but all polls show a deeply divided country on this effort. The Maine decision will now be reviewed by the Maine state courts, but the Colorado decision is scheduled for oral argument in a matter of weeks.

A reversal of the Colorado decision is now supported by 27 states, which filed with the Supreme Court to oppose the underlying theory under the Fourteenth Amendment. 

It is relatively rare to see states opposing the expansion of their own authority vis-a-vis Congress. The brief reinforces the view of states like Colorado as outliers in the country in embracing this anti-democratic theory.

The attorneys general of Indiana, West Virginia and 25 other states, warn the court that this novel theory will produce “chaos” in the country.

“The Colorado Supreme Court has cast itself into a ‘political thicket,’ Evenwel v. Abbott, 578 U.S. 54, 58, (2016), and it is now up to this Court to pull it out. ‘Confidence in the integrity of our electoral processes is essential to the functioning of our participatory democracy.’ Purcell v. Gonzalez, 549 U.S. 1, 4 (2006) (per curiam). If the Colorado decision stands, that critical confidence will be harmed. Many Americans will become convinced that a few partisan actors have contrived to take a political decision out of ordinary voters’ hands.”

Advocates are pushing this dangerous theory at a time of deepening divisions in our country. As I have previously said, the four Colorado justices are recklessly throwing matches at a powder keg.

That is why I am hopeful that at least one of the liberal justices will follow the lead of the three democratically appointed Colorado justices, who dissent from this anti-democratic decision.

Here is the filing: Trump Ballot Amicus

After a few months of late summer increases in the 1-Year inflation expectation as tracked by the NY Fed’s monthly consumer survey, December saw the third consecutive decline in this series which traditionally is also a proxy for the price of oil, and which last month dropped to the lowest since Jan 2021. The drop in 1 year inflation expectations was matched by moves in the other series, as both the 3 and 5 year inflation expectations also dropped notably in the last month of the year. And while that would be great news in isolation, it wasn’t isolated, because as the NY Fed also found, the disinflation data is actually the “bad kind” since the December survey found that earnings growth and spending growth expectations also decreased to their lowest recorded levels since 2021.

Here are some more details: as shown in the chart below, inflation expectations at the one-year horizon decreased to 3.01% in December from 3.36% in November, while median inflation expectations at the three- and five-year ahead horizon also dropped: to 2.6% from 3.0% at the three-year ahead horizon, and to 2.5% from 2.7% at the five-year ahead horizon.

The survey’s measure of disagreement across respondents (the difference between the 75th and 25th percentile of inflation expectations) increased at the one-year ahead horizon, and decreased at the three-year and five-year ahead horizons.

Amusingly, inflation views among those over age 60 retreated to a fresh three-year low, while every age group was also at or near a multi-year low. One almost wonders just who are these people the NY fed “randomly” calls up to “survey.”

The latest survey comes three days before the release of December CPI report, where economists forecast headline inflation will post a modest increase to 3.2% from 3.1% in November, while core inflation dips to 3.8% from 4.0% YoY.

The pullback in consumers’ near-term inflation views reflected a number of factors, but most notably a pullback in the expected price changes for food and rent. The cost of college is anticipated to climb at a faster rate, while forecasts for gasoline prices and medical care stabilized: as shown in the next chart, the expected price changes for the cost of a college education increased by 0.5 percentage points to 6.3%, decreased by 0.3 percentage point for food to 5.0%, decreased by 0.7 percentage point for rent to 7.3%, and remained flat for gas at 4.5% and the cost of medical care at 9.1%.

Median home price growth expectations remained unchanged at 3.0%, remaining well above the series 12-month trailing average of 2.4%. And with the Fed preparing to cut rates, this is about to explode higher.

The bigger problem for the Fed is that while overall inflation expectations dipped, it wasn’t for good reasons; indeed, the expected year-ahead earnings growth fell to the lowest level since April 2021 as median expected growth in household income decreased by 0.1 percentage point to 3.0%. The decline was driven by respondents with a high school diploma or less, the New York Fed said. People earning less than $50,000 expect 1% income growth, while those earning $100,000 or more expect 3%. The series has been moving within a narrow range of 2.9% to 3.3% since January 2023.

Median household spending growth expectations also declined by 0.2% point to 5.0%, reaching the lowest level recorded since September 2021. Still, the series remains above its February 2020 pre-pandemic level of 3.1%.

Despite the pullback in expected earnings growth, respondents were more upbeat about the jobs market. The perceived probability of losing one’s job fell, and more consumers anticipate the unemployment rate will be lower one year from now. A larger share of respondents also expect looser credit conditions in the coming year.

Here are some other observations from the latest survey, first focusing on the labor market:

• Median one-year-ahead expected earnings growth decreased by 0.2 percentage point to 2.5%, the lowest level since April 2021. The decline was driven by respondents with at most a high school diploma.
• Mean unemployment expectations—or the mean probability that the U.S. unemployment rate will be higher one year from now—decreased by 1.4 percentage points to 37.0%, remaining below the series 12-month trailing average of 39.5%.
• The mean perceived probability of losing one’s job in the next 12 months decreased slightly by 0.2 percentage points to 13.4%, remaining above the series 12-month trailing average of 12.3%. The mean probability of leaving one’s job voluntarily in the next 12 months increased by 0.8 percentage point to 20.4%.
• The mean perceived probability of finding a job (if one’s current job was lost) increased marginally to 55.9% from 55.2% in November.

… and on consumers’ household finances:

• Perceptions of credit access compared to a year ago were largely unchanged. Expectations about credit access a year from now instead improved with a larger share of respondents expecting looser credit conditions and a smaller share of respondents expecting tighter credit conditions a year from now.
• The average perceived probability of missing a minimum debt payment over the next three months increased by 0.6 percentage point to 12.4%, a level above the series 12-month trailing average of 11.5% but comparable to those prevailing just before the pandemic.
• The median expected year-ahead change in taxes at current income level remained unchanged at 4.1%.
• Median year-ahead expected growth in government debt decreased to 9.4% from 10% in November.
• The mean perceived probability that the average interest rate on saving accounts will be higher in 12 months decreased by 3.6 percentage points to 25.9%, its lowest level since November 2021.
• Perceptions about households’ current financial situations improved with fewer respondents reporting being worse off than a year ago. Year-ahead expectations also improved with a smaller share of respondents expecting to be worse off and a larger share of respondents expecting to be better off a year from now.
• The mean perceived probability that U.S. stock prices will be higher 12 months from now increased by 0.2 percentage point to 36.7%.

More in the full NY Fed note available here.

Bitcoin’s price trend continues to be dominated by the ETF narrative, and after Friday’s re-filings of various ETF applications, SEC Chair Gary Gensler just dropped the biggest hint yet that the Spot ETF approval is imminent.

This follows eleven of the asset managers that have applied for permission to launch a spot Bitcoin ETF filed 19b-4 amendments on Jan. 5.

The filers included BlackRock, Valkyrie, Grayscale, Bitwise, Hashdex, ARK Invest and 21Shares, Invesco and Galaxy, Fidelity, Franklin Templeton, VanEck and WisdomTree.

And, in a three-part post on X, Gensler issues the clearest cover-your-ass narrative yet suggesting the approval is imminent:

A thread 🧵

Some things to keep in mind if you’re considering investing in crypto assets:

— Gary Gensler (@GaryGensler) January 8, 2024

1. Those offering crypto asset investments/services may not be complying w/ applicable law, including federal securities laws. Investors in crypto asset securities should understand they may be deprived of key info & other important protections in connection w/ their investment.

2. Investments in crypto assets also can be exceptionally risky & are often volatile. A number of major platforms & crypto assets have become insolvent and/or lost value. Investments in crypto assets continue to be subject to significant risk.

3. Fraudsters continue to exploit the rising popularity of crypto assets to lure retail investors into scams. These investments continue to be replete w/ fraud- bogus coin offerings, Ponzi & pyramid schemes, & outright theft where a project promoter disappears w/ investors’ money.

To which we charitably added a fourth warning:

4️⃣ Unlike banks and the entire western financial system, crypto has never had a central bank bailout. In fact, central banks are actively conspiring against it. And yet its price is fast approaching all time highs having survived countless crises on its own

— zerohedge (@zerohedge) January 8, 2024

Bitcoin topped $45,000 this morning amid the growing confidence in SEC approval…

Bloomberg Intelligence’s ETF analyst Eric Balchunas said he would “probably go with 5% at this point” in reference to the likelihood of the SEC rejecting the spot Bitcoin ETF applications on its desk.

“It’s basically done,” Balchunas tweeted on Jan. 5, noting that the United States Securities and Exchange Commission (SEC) has been “trying to line everyone up for a Jan. 11 launch.”

He stressed, however, that the SEC had not officially confirmed that timeline.

Participants in crypto betting platform Polymarket are more cautious, currently placing the odds at approval of a spot Bitcoin ETF by January 15 at 82%.

Finally, as Decrypt reports,  Bitcoin ETF hopefuls have been given until Monday morning to submit last-minute revisions to their applications. The SEC has an open window until January 10 in which it could approve multiple applications simultaneously.

The first stage in approval of a spot Bitcoin ETF would be the SEC signing off on 19b-4 filings by the exchanges planning to list the ETFs, all of which were submitted by 6 p.m. ET on Friday.

The SEC would then need to approve the issuers’ S-1 applications; with both approved, the ETFs could technically begin trading the next business day.

Authored by Ven Ram, Bloomberg cross-asset strategist,

The recent correction in the bond markets is being reflected in options positioning, with sentiment toward Treasuries showing a remarkable pullback from the exuberance we saw toward the go-go days of November and December.

As the chart shows, market positioning is a lot less lopsided now, especially given that fund managers are likely to hold onto or build on their conviction about the merits of duration this late in the cycle.

Even so, theta decay is probably a bigger risk than other Greeks, and last week’s jobs data that showed an acceleration in average hourly earnings growth of 4.1% in December – inconsistent with its 2% overall inflation target – would suggest that the urgency for the Fed to cut rates isn’t so high.

The Treasury 10-year maturity is fairly valued at 3.98% on my model, and at 4.03% as I write this, the incentive for a further increase in yields is limited.

The December reading of the inflation metrics is expected to bring “a touch higher” narrative in the on-month number, though core is expected to remain flat at 0.3%.

Barring shock readings higher, long-dated Treasuries will bob around current levels for now.

House Republicans on Monday introduced contempt resolutions against Hunter Biden, recommending that he be held in Contempt of Congress for failing to comply with subpoenas and appear for testimony in front of the House Oversight and Judiciary Committees on Dec. 13.

Hunter, who was handsomely compensated for doing nothing on the board of Ukrainian energy giant Burisma (right before his father strong armed the Ukrainians into firing their chief prosecutor – who was investigating Burisma), skipped out on his closed-door deposition, and instead said he would only appear for public testimony – where questions would be far more limited.

According to the committees, “Biden has violated federal law, and must be held in contempt of Congres.”

The committees said they want to get information from Hunter Biden to determine whether his father, President Joe Biden, was involved in any bribery schemes, abused his positions of political power as president or vice president, or knowingly participated in any scheme to enrich himself or his family, including through contact with foreign entities. –Just the News

As Constitutional law professor Jonathan Turley noted in December;

Few people expected Hunter to testify in the deposition. The evidence against him is overwhelming, as shown in his second federal indictment on tax charges. He and his uncles were allegedly engaged in one of the largest influence-peddling operations in history involving millions of dollars from various foreign sources. Hunter simply could have done what prior witnesses have done: Go in and take the Fifth. That is what attorney and former IRS official Lois Lerner did — twice — when House Republicans wanted to ask her about the Obama administration targeting conservative groups.

It was a no-brainer that someone appears to have radically over-thought on the Hunter Biden legal team.

Hunter can now be held in contempt of Congress. That will force the hand of Attorney General Merrick Garland, who aggressively pursued Trump figures for contempt, including former Trump adviser Steve Bannon. Despite some of us writing to the contrary, Bannon claimed his lawyers told him he did not have to appear before a House committee. He was swiftly charged and convicted by Garland’s prosecutors.

In this instance, the contempt case would go to the U.S. Attorney in D.C., Matthew Graves, who previously declined to assist in bringing tax charges against the president’s son. Yet by pulling a Bannon, Hunter now faces the expectation in many circles that he will get the full Bannon treatment from Garland.

Authored by Daniel Lacalle,

Market expectations of rapid disinflation and a soft landing remain, but January has given a few new risks to the optimistic estimates of disinflation with no impact on the economy.

The first risk comes from the commodity complex and freight costs. Market participants have all but ignored the spread of geopolitical risk and assumed the extraordinary and counterintuitive decline in commodity prices in 2023 as something permanent. However, January has shocked analysts with a dramatic increase in freight costs and a significant bounce in oil prices. Furthermore, the December inflation figures in the eurozone proved that the base effect was an uncomfortably large driver of the consumer price index annual decline in November. In fact, all the components published by Eurostat in the December advance came significantly above the European Central Bank target.

The second risk comes from the significant bounce in net liquidity and effective money supply both in the United States and the euro area. Thus, the following three months will be critical to understanding the real disinflation process and whether market estimates are too optimistic. Unless the money supply declines again, the path to reaching 2% inflation may be challenging. The FOMC minutes came as a surprise to many when, like the ECB, members maintained their commitment to wait and see more than implementing immediate rate cuts.

We have been discussing too much about rate cuts and too little about net liquidity, sometimes forgetting that rising net liquidity has driven markets higher in the fourth quarter, and the first quarter will likely be more challenging considering the estimated volatility in the reverse repo figures. Additionally, massive deficit spending by the U.S. government may keep inflationary pressures above the level that broad and base money reductions would suggest.

The third risk comes from the inflationary impact of government protectionism. As trade barriers continue to build, the monetary disinflation process may be decelerating due to governments implementing trade wars, barriers to commerce, and tariffs. Unfortunately, governments in the euro area and the United States are tightening protectionist measures disguised sometimes as “environmental policies,” making competition more challenging and prices of food and shelter more expensive, by slashing access to land and farming as well as limiting building projects. Interventionism and trade wars make goods and services more expensive for citizens by placing a floor on prices even when monetary aggregates decline.

Food, commodities, and real estate inflation are all monetary effects. More units of newly created currency are going to relatively scarce assets. At the same time, deficit spending and the rising weight of government in the economy reduce the positive effects of monetary contraction and certainly decelerate the disinflation process. However, all those negative effects combined also contribute to the risk of a hard landing, especially when the U.S. and Europe are already in a private sector recession.

We need to be careful with excessive optimism about inflation and even more aware of the perils of expecting disinflation with no economic harm. Many market participants are suddenly surprised that January has started with a negative trend, but this is explained by the excessive expectations of aggressive and immediate rate cuts.

Iran-backed Houthi rebels in Yemen have targeted commercial vessels with drones and missiles passing through the southern Red Sea. They say the attacks on ships destined for Israel are in solidarity with Palestinians and to facilitate humanitarian aid into the Gaza Strip. As a result, one major shipping company has had enough of the disruptions and decided to halt sails to Israel to avoid being attacked on the critical waterway that connects to the Suez Canal. 

Bloomberg reports that Chinese state-owned shipping giant Cosco suspended all container ship transits through the Red Sea to Israel. This is to avoid being attacked. 

The head of the Israeli Chambers of Commerce, Amir Shani, said Cosco informed him of the decision today. A source told Bloomberg that Cosco bookings to Israel will end next week. 

Major shipping companies, such as Maersk and Hapag-Lloyd, suspended container ship sailings through the Red Sea in recent weeks. This has forced shippers to re-route cargo to the Cape of Good Hope, adding 1-2 weeks to sails plus additional costs. Longer sails have reduced container capacity, which has sent shipping rates surging higher. 

So far, shippers have diverted more than $200 billion in trade over the last several weeks.

As of Monday morning, there are no container ships with destinations for Europe and North America in the Red Sea. 

However, Bloomberg noted a “majority of oil and gas tankers continue to transit the Red Sea despite ongoing attacks, although some vessels have taken diversions to avoid the route.”

Still, the critical waterway that’s responsible for 10-12% of global seaborne trade by volume is still a highly contested area. Yet more evidence of the Pentagon’s Operation Prosperity Guardian mission to police the Red Sea is failing. 

Authored by Simon White, Bloomberg macro strategist,

US data from last week were not enough, from the perspective of the economy, to endorse the amount of rate cuts from the Federal Reserve expected by the market.

Payrolls and the jobs data released last week demonstrated why the market – and the Fed – shouldn’t take it too seriously as a real-time snapshot of the labor market.

On the surface, the data was solid next to expectations, but if you go digging you will always find elements to back up a bullish or bearish case.

A more positive interpretation came from the headline data versus what was expected, while the negative view would point out that government played a big part in the rise of payrolls.

Moreover total downward revisions for 2023 are 443,000 (so far – payrolls is typically revised up to two years after the fact).

Either way, it really is not a good reflection of where the labor market is today. Nonetheless, traders love volatility, so it will continue to have market impact. In that case, it makes sense to pay more attention to the more leading aspects of the employment data.

Temporary help services tends to lead the labor market as employers are more likely to hire and fire these people first. Temp help has been contracting since late 2022 but, as I pointed out on Friday, the drop was largely a function of temp help in medical services, and temp medical services is now stabilizing. Average weekly hours worked, also a leading indicator for the labor market, remained at the stable level it has been at for most of the last year.

Overall, the message from the data is of a jobs market that is slowing, but not at an accelerating rate.

That on its own (nor the weaker-than-expected ISM services data on Friday) is not enough to justify the size of the Fed cuts expected by the market (from an economic perspective, however after the bank’s December pivot, there’s good chance its reaction function may have changed).

But higher rates will increasingly bite as the year goes on, increasing the odds of a recession.

As the chart above shows, the US’s peak real rate has been positive from early last year, considerably longer than in Europe and the UK.

US stock futures dipped on Monday and Treasury yields gained as traders jostled for position in the wake of last week’s selloff coupled with at very confusing jobs report which was strong at the headline level and a disaster when looked closer. As of 7:40am ET, S&P 500 futures declined 0.1% with Boeing retreating almost 8% after a fuselage section on a 737 Max 9 aircraft ejected during a flight over the weekend, leading to another FAA-mandated grounding of the aircraft. Spirit AeroSystems, which installed the panel, slumped 21%. European stocks followed declines in Asia. The dollar was flat, bitcoin reversed earlier losses and and oil slid almost 3% after Saudi Arabia cut official selling prices for all regions amid persistent weakness in the market.

In premareket trading, the most notable mover was Boeing whose shares fell 8.4% after a panel blew out on a brand-new Alaska Airlines jet mid-flight, causing a temporary grounding of some 737 Max jets. Analysts saw need for greater focus on quality control if both Boeing and key supplier Spirit AeroSystems wanted to ramp up production, though hoped that a fix for the issue would be found quickly. Here are some other notable movers:

• DoorDash gains 2.3% after Jefferies upgraded the online food-delivery company to buy from hold on expectation the company will double its Ebitda in the next two years. Increased advertising penetration and lower losses in international restaurant delivery will drive the gains, it predicts.
• Harpoon Therapeutics shares surge 104% in premarket trading after Merck was reported to be in advanced talks to acquire the cancer drugmaker.
• PulteGroup shares fell 1.5% after the homebuilder was downgraded to neutral from buy at Citi, with analysts citing valuation and the company’s business model in a falling rates scenario.
• Crocs rises 7.6% after the footwear company’s boosted revenue forecast for the full year topped the average analyst estimate.
• Dell Technologies climbs 2.3% after JPMorgan upgraded the computer company to overweight.
• DoorDash gains 3.6% after Jefferies upgraded the online food-delivery company to buy on expectations that the firm will double its Ebitda in the next two years.
• Genesco tumbles 16% after the footwear and accessories retailer cut its year adjusted earnings per share forecast.
• Harpoon Therapeutics surges 110% after Merck was reported to be in advanced talks to acquire the cancer drugmaker.
• Lululemon slips 1% after the sportswear maker’s raised fourth-quarter revenue outlook lagged behind the average analyst estimate at the midpoint of the forecast range.
• Moderna rises 1% after product sales for 2023 modestly beat analyst estimates.
• Axonics gains 21% after Boston Scientific entered into a definitive agreement to acquire the  medical technology company.

Markets are looking for direction after mixed US economic data on Friday capped a week that saw global equities sink the most since October on speculation the Federal Reserve was in no rush to reduce interest rates. Further catalysts may come from the US inflation print due Thursday and the earnings season kicking off Friday with US financial names including JPMorgan and Citigroup Inc.  

“Multiples are already priced at rich levels,” BNP Paribas analysts including Calvin Tse and Sam Lynton-Brown wrote in a note. “With the probability of a disappointment in full-year earnings elevated, we believe that downside risks outweigh upside ones.”

Elsewhere, yields on US Treasuries reversed earlier declines and were back to Friday’s closing level of 4.05%. Some traders are unfazed by the recent pullback, seeing it as a chance to seize on elevated yields before the Fed starts driving down rates. The dynamic was on display Friday, when bond prices dipped after the Labor Department reported that job growth unexpectedly accelerated last month. But the selloff was curtailed because buyers swooped in as 10-year Treasury yields neared 4.1%, the highest since mid-December.

Energy names lead a selloff in European stocks, tracking a drop in oil after Saudi Arabia cut its official selling prices by more than analysts expected. The Stoxx 600 is down 0.2% having snapped a seven-week win streak on Friday with energy, real estate and mining stocks the biggest laggards. German factory orders rose much less than anticipated in November, a discouraging sign for Europe’s largest economy, data showed on Monday. Here are the most notable European movers:

• ASML gains as much as 1.4% after Kepler Cheuvreux upgrade, saying the chip equipment giant is positioned to benefit from new chipmaking facilities and the rising use of AI-centric devices.
• Airbus rises as much as 1.6% after carriers across the globe pulled Boeing’s 737 Max 9 model from service after a fuselage section on a brand-new Alaska Airlines jet blew out during a flight.
• Novartis gains as much as 0.6% after its Scemblix drug showed positive results at week 48 of an ongoing late-stage trial for newly diagnosed patients with chronic myeloid leukemia.
• HSBC rises as much as 0.8% after Citi opens a positive catalyst watch ahead of results.
• Drax soars as much as 7.8% after the Telegraph reported this weekend that the UK government is set to approve a multibillion-pound carbon capture project for the UK energy company this week.
• Argenx rises as much as 5% after preliminary 4Q sales for the biotech firm’s Vyvgart medication beat the average analyst estimate.
• Shell falls as much as 2.5%, after the company said profits from buying and selling oil products and chemicals will be lower in the fourth quarter.
• TotalEnergies drops as much as 2.1%, as part of a pullback in energy stocks, after Saudi Arabia cut official selling prices for all regions, underscoring a worsening outlook.
• Galp declines as much as 4.7% after Morgan Stanley cut its and Equinor’s ratings late Friday as part of a broader industry downgrade

Earlier in the session, Asia stocks fell, weighed by Chinese and Hong Kong shares as concerns over the country’s regulatory developments in the technology space and the broader economy’s growth persisted. The MSCI Asia Pacific Excluding Japan Index slipped as much as 0.8%, with Tencent and Alibaba among the biggest drags. The tech selloff weighed on the broader benchmarks on the mainland and Hong Kong, with a gauge of Chinese stocks listed in the city poised to close at its lowest level in more than a year.  The Hang Seng China Enterprises Index closed down 2.3%, led by a selloff in technology shares.  Sentiment remains quite negative in China, Nomura Group analysts including Chetan Seth in Singapore wrote in a client note. “There have been more signs of support for the economy, but equity investors still do not appear convinced,” they said.

In FX, the Bloomberg Dollar Spot Index is flat. The Japanese yen tops the intraday G-10 rankings, rising 0.2% versus the greenback. The Taiwan dollar gained after falling in the previous five sessions as bets on the Federal Reserve interest rate-cuts eased after a robust jobs report Friday.

In rates, treasuries were unchanged despite a drop in their European counterparts. US 10-year yields reversed 2bps of earlier losses and last traded around 4.05% with WTI futures down almost 3% into early US session; in 10-year sector bunds and gilts underperform Treasuries by 3.5bp and 4bp on the day ahead of this week’s supply. It’s a busy week for sovereign debt supply includes Treasury auctions and European Union 5- and 10-year offerings, while Italy, Belgium, Ireland and Spain are possible candidates for syndicated bond sales. Data highlights this week include US CPI and PPI. Treasury auctions resume Tuesday with $52b 3-year notes, followed by $37b 10- and $21b 30-year sales Wednesday and Thursday

In commodities, Brent crude fell below $77 a barrel, after rising 2.2% last week. State producer Saudi Aramco lowered its flagship Arab Light price to Asia by a more-than-expected $2 a barrel due to persistent weakness in the global crude market. Its pricing is the lowest since November 2021. Gold resumed its slide after whipsawing moves at the end of last week, with a recent rebound in the dollar and US bond yields posing a threat to the precious metal’s appeal.

Looking at today’s calendar, US economic data includes December New York Fed 1-year inflation expectations (11am) and November consumer credit (3pm); December CPI and PPI are ahead this week. Fed members scheduled to speak include Bostic at 12:30pm; Barr, Williams and Kashkari are slated to appear later this week

Market Snapshot

• S&P 500 futures down 0.4% to 4,716.00
• MXAP down 0.7% to 164.75
• MXAPJ down 1.0% to 510.68
• Nikkei up 0.3% to 33,377.42
• Topix up 0.6% to 2,393.54
• Hang Seng Index down 1.9% to 16,224.45
• Shanghai Composite down 1.4% to 2,887.54
• Sensex down 0.9% to 71,368.41
• Australia S&P/ASX 200 down 0.5% to 7,451.55
• Kospi down 0.4% to 2,567.82
• STOXX Europe 600 down 0.7% to 473.03
• German 10Y yield little changed at 2.18%
• Euro down 0.2% to $1.0925
• Brent Futures down 1.2% to $77.85/bbl
• Gold spot down 0.8% to $2,028.73
• U.S. Dollar Index up 0.19% to 102.60

Top Overnight News

• China has detained an executive of Evergrande’s vehicle unit, threatening to further complicate the outlook for the restructuring of the world’s most indebted property group.
• China’s chip industry comes under further scrutiny in Washington as a bipartisan group of lawmakers call on the White House to take steps aimed at countering Beijing’s growing footprint in making older-generation semiconductors. WSJ
• The Israeli military says it has successfully destroyed Hamas as an organized fighting force in northern Gaza and has shifted its focus to the center and south of the battered territory in a fresh stage of its war against the Palestinian militant group. FT
• Hezbollah fired a barrage of rockets in northern Israel Saturday morning, a move analysts called a “symbolic response” to the recent assassination of a Hamas official in Lebanon rather than a significant escalation. NYT
• Obama has expressed concern to Biden about the state of the president’s 2024 reelection campaign, warning that Trump will be a formidable opponent. WaPo
• Dallas Fed President Logan warned that easing financial conditions could require the Fed to hike rates further. Logan also hinted at slowing the pace of QT during her Sat speech (“given the rapid decline of the ON RRP, I think it’s appropriate to consider the parameters that will guide a decision to slow the runoff of our assets. In my view, we should slow the pace of runoff as ON RRP balances approach a low level”). Dallas Fed
• Congressional leaders announced a bipartisan deal on top-line spending levels for the current fiscal year, lessening the chances of a partial shutdown on Jan. 20. The move clears the way for the Senate and House to work out detailed spending bills. BBG
• Boeing fell ~10% premarket as carriers pull the 737 Max 9 model after a door-shaped panel on a brand-new Alaska Airlines jet blew out. The FAA grounded 171 planes. The problem on the Alaska Airlines 737 MAX 9 plane was likely a manufacturing error and not a design flaw (SPR/Spirit manufactured and initially installed the fuselage part in question). BBG
• NVDA faces a problem in China as customers there don’t want to buy its new degraded chips (Nvidia has degraded the performance of its chips for the Chinese market that firms like Alibaba, Tencent, and others, are seeking alternatives). WSJ
• Consensus expects 4Q profits for the aggregate S&P 500 index will grow by 3% year/year. Analysts have not entered a quarterly reporting season with positive S&P 500 EPS growth expectations since 3Q 2022. EPS growth estimates for 4Q create a higher bar for positive surprises compared with recent quarters (-7% ahead of 1Q, -9% in 2Q, 0% in 3Q) when results beat expectations by 4 pp on average. Nonetheless, Goldman expects S&P 500 firms in aggregate will benefit from continued strong economic growth and subsiding input cost pressures and beat consensus forecasts. GIR

A more detailed look at global markets courtesy of Newsquawk

APAC stocks gradually deteriorated following a muted start and last Friday’s post-data whipsawing stateside with Japanese participants absent for Respect for the Aged Day and markets awaiting this week’s key inflation data releases. ASX 200 declined as initial gains in energy, resources and financials were overshadowed by losses in miners and tech. KOSPI was initially underpinned by strength in Samsung Electronics after its unit showcased a line-up of various foldable displays, although the gains were later faded amid geopolitical tensions after North Korea conducted a third day of artillery firing on Sunday. Hang Seng and Shanghai Comp were pressured amid shadow banking woes and geopolitical frictions, with the losses in Hong Kong exacerbated by tech selling and as China Evergrande New Energy Vehicle shares slumped following the arrest of its vice chairman.

Top Asian News

• China’s State Council issued guidelines on improving operating budget systems for state-owned capital.
• US lawmakers reportedly push to defuse China’s dominance of older-generation chips with House panel leaders reported to have sent a letter to the Commerce and Trade Secretaries urging action including possible tariffs, according to WSJ.
• China is to sanction five US defence manufacturers regarding US arms sales to Taiwan, according to Bloomberg.
• Taiwan’s Defence Ministry said they detected three Chinese balloons flying over the Taiwan Strait on Sunday.
• US intelligence sees a less likelihood that Chinese President Xi will contemplate major military action in the coming years due to several examples of the impact of graft and corruption in China’s Rocket Forces, according to Bloomberg.
• Sony (6758 JT) is reportedly set to call off the USD 10bln Zee (ZEEL) merger, according to Bloomberg citing sources.

European equities, Stoxx600 -0.2%, on the backfoot amid a cautious risk tone; the FTSE 100 -0.3% underperforms amid broad based losses in the Energy space. European sectors are mainly in the red; though Airbus (+1.7%) lifts Industrial Goods & Services whilst Energy and Basic Resources are hampered by downbeat commodity benchmarks. US Equity Futures (ES, -0.2%) are modestly lower, in-fitting with the broader risk tone in APAC and early European trade; Boeing (-8.4%) slumps after the FAA directed over 170 Boeing 737 Max 9 planes to be grounded for inspection.

Top European News

• UK’s RMT trade union said strike action on the London Underground planned for this week was suspended after the union made progress in discussions with TFL, according to Reuters.
• British employers increased pay and regained some of their appetite for hiring in December, according to a survey from the Recruitment and Employment Confederation.
• Germany’s GDL train drivers’ union called for a rail strike in Germany on January 10th-12th, according to Reuters.
• EU Council President Michel will run in the election for the European Parliament in June and will leave his post in mid-July if elected, according to an interview with De Standard.

FX

• DXY is choppy and within a tight range between 102.32-62 with little upside resistance until 103.00.
• EUR is a touch softer and towards the bottom of a 1.0924-52 range and unreactive to mixed German data.
• JPY is the G10 outperformer, starting the week on firmer footing after hefty selling in the prior week; resides just shy of its 144.92 peak.
• Antipodeans are softer against the Dollar alongside losses in Chinese stocks overnight.
• PBoC set USD/CNY mid-point at 7.1006 vs exp. 7.1499 (prev. 7.1029)
• Czech Central Bank Vice Governor Zamrazilova said interest rate cuts will continue in relation to the decline in inflation and that a faster decline could lead to larger than 25bps lowering steps, according to Reuters.

Fixed Income

• USTs are contained given an absence of overnight trade owing to the Japanese holiday. Little by way of specific newsflow aside from weekend commentary from Fed’s Logan.
• Bunds began the session on the backfoot and overall unreactive to mixed German data; recently Bunds have edged higher in tandem with peers.
• Gilts lag against its European peers with action largely a continuation of last week’s moves as markets scale back the magnitude of easing expected across 2024 from the BoE.

Commodities

• WTI and Brent (-2.2%) continue to edge lower amid the firmer Dollar and broader risk aversion in early European trade; Saudi Aramco slashed its OSPs further hampering the complex.
• Precious metals are falling victim to the firmer USD with Base Metals also suffering from the downbeat risk tone; XAU falls below USD 2050/oz and under its 21 DMA at 2035/oz.
• Saudi Arabia cut its February light crude OSP to Asia by USD 2/bbl from January to a premium of USD 1.50/bbl over Oman/Dubai quotes which is a 27-month low, while it set light crude OSP to NW Europe at a premium of USD 0.90/bbl over ICE Brent settlement and light crude OSP to the US at a premium of USD 5.15/bbl over ASCI, according to Reuters.
• Qatar set February marine crude OSP at Oman/Dubai minus USD 0.75/bbl and set land crude OSP at Oman/Dubai minus USD 0.75/bbl, according to Reuters.
• Libya’s NOC declared a force majeure in the Sharara oil field effective on Sunday due to its closure by protesters and said that negotiations are ongoing to resume production as soon as possible.
• “Report on an attack on the Al-Omar oil facility in eastern Syria, where there is an American presence”, according to Walla News’ Elster

Geopolitics

• Israel said it has destroyed Hamas as a fighting force in northern Gaza and that the war is moving into a fresh phase with a more targeted focus on the centre and south of the Palestinian enclave, according to FT. It was separately reported that Israel’s military chief of staff asserted there would be ongoing military operations in Gaza throughout the entire year, while PM Netanyahu instructed to prepare for a return of residents to the Gaza town of Sderot by February 4th, according to Al Arabiya.
• Hezbollah said it hit an Israeli observation post with 62 rockets as a preliminary response to the killing of Hamas’s deputy chief.
• Qatar’s PM said the killing of a senior Hamas official on Tuesday has affected Qatar’s efforts to negotiate between Hamas and Israel, but Qatar continues to negotiate.
• US Secretary of State Blinken said this is a moment of profound tension in the region and conflict could easily metastasize, while he added that they will continue to defend maritime security in the region after Houthi attacks on shipping in the Red Sea.
• Jordan’s King Abdullah warned US Secretary of State Blinken of the catastrophic repercussions of the continuation of the war in Gaza and said Washington should put pressure on Israel to agree to an immediate ceasefire in Gaza, according to a royal court statement.
• EU foreign policy chief Borrell said it is ‘absolutely necessary’ to avoid Lebanon being dragged into a regional conflict and no one will win from a regional conflict, while he visited Saudi Arabia to discuss steps toward peace in the region.
• French Foreign Minister Colonna said she told her Iranian counterpart that the risk of regional conflagration has never been greater, while she added that Iran and proxies must immediately stop their destabilising actions, according to Reuters.
• US Central Command said an unmanned aerial vehicle launched from Yemen was shot down in self-defence by USS Laboon in international waters of the southern Red Sea which was in the vicinity of multiple commercial vessels, according to Reuters.
• Russia launched a large-scale air assault on several Ukrainian regions with all of Ukraine under air raid alerts, according to Ukraine’s military cited by Reuters.
• South Korea’s military said North Korea fired shots on Sunday into the sea north of Yeonpyeong Island, while it urged North Korea to cease military activity raising tensions near the border and said North Korea’s provocation will face an overwhelming response.
• North Korea’s army said it conducted a coastal artillery firing drill on Sunday and that the drill did not pose any threat to the enemy. There was also a prior report that North Korean leader Kim’s sister said North Korea did not fire artillery shells but instead detonated explosives and she warned that the army would launch a ‘baptism of fire’ at any provocation, according to state media.

US Event Calendar

• 11:00: Dec. NY Fed 1-Yr Inflation Expectat, prior 3.36%
• 15:00: Nov. Consumer Credit, est. $9b, prior $5.13b

Central Bank speakers

• 12:30: Fed’s Bostic Speaks on the Economic Outlook

DB’s Jim Reid concludes the overnight wrap

I’m off to Helsinki today where yesterday it was -26C, with a wind chill factor of -32C. Today it’s supposed to be slightly warmer so happy days. I’ve been going there every year at this time for probably 25 years and it’s a marvel that everything works as normal regardless of the weather.

As I pack my thermals and take the plunge, the week after payrolls is usually a quieter one for data but this week the orientation of the calendar means we have US CPI this Thursday as an exception to this rule it’s hard to look much beyond this over the next few days but before we preview it, review a payrolls report on Friday that was much weaker under the surface than the headlines, and finally look back on a fascinating first week of the year, let’s quickly summarise the rest of the global highlights for the week ahead.

In the US Friday’s PPI is the next most important release but we also have consumer credit and the latest NY Fed 1yr inflation expectations survey today and the international trade balance tomorrow. There is a decent list of Fed speakers that you’ll see in the week ahead diary at the end but if you want want more detail of their biases ahead of their speeches, Brett Ryan’s US week ahead here gives a good overview. We also have 3, 10 and 30-yr Treasury auctions Tuesday, Wednesday and Thursday which will be interesting given the first set back in bonds in a couple of months. Before we leave the US, note that US earnings season unofficially starts on Friday with the release of several big financials’ Q4 results (including JPM, Citi, BoA and Blackrock). Elsewhere, important inflation numbers are also released in China on Friday with the country still battling with deflation. Japanese wages and the Tokyo CPI tomorrow will also be of note.

In Europe it will be relatively quiet with the German trade balance and factory orders today and industrial production tomorrow. At the Eurozone level, there will be a number of sentiment indicators today as well. Otherwise, notable economic data includes industrial production (Thursday) and retail sales in Italy, as well as industrial production in France (both Wednesday). The UK monthly GDP report for November is also out on Friday.

Now onto US CPI on Thursday. Our economists expect headline CPI (+0.26% forecast vs. +0.10% previously. Consensus at 0.2%) to come in roughly in line with core (+0.28% vs. +0.28%. Consensus at +0.3%). This would equate to 3.9% and 3.3% YoY, a tenth ahead of consensus. We were at 4.0% and 3.1% last month. So core is not yet breaking through 3% on the downside and the 3 and 6m annualised rates are also likely to stay slightly above this mark.

Asian equity markets are most trading lower this morning. The Hang Seng Tech Index (-3.3%) is the standout and is heading towards its lowest level since November 2022. The latest moves are being exacerbated by fears of tighter gaming regulation rules. This in turn is weighing on the Hang Seng (-2.04%), the Shanghai Composite (-0.91%) and the CSI (-0.89%). Elsewhere, the KOSPI (-0.31%) is also losing ground with markets in Japan closed for a public holiday. Outside of Asia, S&P and NASDAQ futures are both down around -0.1% with DOW futures -0.37% likely influenced by Boeing after the inflight blowout in the Alaska Airline’s 737 Max 9 fuselage over the weekend.

There is no trading of USTs in Asia on account of the Japanese holiday but futures prices are slightly lower. Yesterday US congressional leaders agreed on a $1.6 trillion top-line federal spending level deal that will reduce the risk of a government shutdown later this month. Elsewhere on Saturday Dallas Fed President Lorie Logan created some attention by suggesting that given we no longer live in a world where Fed liquidity is super abundant, there may be a case for slowing the pace of QT. This follows a similar mention in the FOMC minutes last week so the debate is moving that way at the moment.

Looking back at last week now, markets had a challenging start to the New Year, as the strong late 2023 rally lost steam. Risk assets regained some composure on Friday but bonds continued to lose ground.

Friday saw significant rates volatility amid mixed signals from the December payrolls and the services ISM print in the US. The headlines of the jobs report painted a solid picture, with stronger headline payrolls (+216k vs +173k expected), the unemployment rate staying at 3.7% (vs 3.8% expected) and average hourly earnings rising +0.4% on the month (vs +0.3% expected). That said, other details were some somewhat softer with -71k of payroll revisions for the previous two months, a decline in the average working week (34.3 vs 34.4 previous) and with unemployment rate stability coming thanks to a decline in the participation rate (62.5% vs 62.8%) after -673k supposedly left the labour force (surely unlikely). Indeed the household survey showed a loss of -686k jobs, the largest since the first April 2020 lockdowns. This follows gains of +586k the previous month so its hard to believe these spot numbers in isolation although the momentum is certainly trending lower for the household survey.

If that mess of a data release wasn’t enough, 90 minutes later, we had a clear disappointment in the December services ISM. The headline index fell from 52.7 to 50.6 (vs 52.5 expected), its weakest in seven months, and with a dramatic decline in the employment subcomponent from 50.7 to 43.3, which is its weakest level since the initial Covid disruption in 2020. So sowing some doubts over the resilience of the US economy even if the numbers again look unbelievable taken at face value.

Having closed at 4.00% on Thursday, 10yr Treasury yields almost touched 4.10% immediately after the payrolls print on Friday, before soon reversing and trading as low 3.95% after the services ISM. However, the bond sell-off dominated in the end, with the 10yr closing at 4.05% (+4.6bps), its highest level since the December FOMC. Over the week, the 10yr yield was up +16.7bps, its largest rise in 11 weeks. The 2yr yield was up +13.1bps to 4.38% (-0.4bps Friday). The front-end outperformance on Friday came as the weak ISM saw the chances of a rate cut being priced by March inch up from 69% to 73% (but still down from being fully priced in a week earlier).

European rates saw a similar sell-off last week, with 10yr bund yields up +13.4bps over the week to 2.15%, their highest level in nearly a month (+3.2bps Friday). OATs (+13.9bps) and BTPs (+15.3bps) saw slightly larger sell-offs during the week. But it was gilts that led the bond sell-off in Europe, with the 10yr yield up +25.0bps over the week (+6.0bps Friday) helped by several stronger data releases. When it comes to ECB pricing, the chances of a 25bp cut by March fell to 49% on Friday, down from 65% at the start of the week.

Broad equity weakness saw the S&P 500 post a weekly decline of -1.52% after nine consecutive weekly gains. It did see a slight recovery on Friday (+0.18%) after falling for the first three trading days of the year. The equity weakness included an unusual pattern of major underperformance for both tech stocks and small caps, with the NASDAQ (-3.25%) and Russell 2000 (-3.75%) indices both seeing their worst weeks since September. The Russell 2000 has now declined for six sessions in a row since its recent peak on December 27, after rising by an impressive +26.2% over the previous two months. Back in Europe, the Stoxx 600 fell -0.27% on Friday, but saw a more modest decline over the course of the week (-0.54%). Credit also lost ground, with US high yield spreads up +30bps over the week to 353bp (-7bps Friday), their largest weekly rise since the banking stress last March.

One of the few assets to see a strong performance last week was the US dollar, with the broad dollar index (+1.06%) having its best week since July. In the commodity space, oil prices also gained amid a supply outage in Libya and ongoing risks over shipping via the Red Sea – with Brent up +2.23% to $78.76/bbl (+1.51% Friday) and WTI up +3.01% to $73.81/bbl (+2.24% Friday).

Lets see what week 2 brings!