Shares of Pfizer tumbled in premarket trading in New York after the pharmaceutical company announced a forecasted revenue slump next year. The dismal outlook falls below the average estimates of analysts, attributed to sliding demand for Pfizer’s Covid vaccines and other related products. 

Pfizer wrote in a press release titled “Pfizer Provides Full-Year 2024 Guidance” that full-year 2024 revenues are expected to be in the range of $58.5 to $61.5 billion, below the $62.9 billion analysts surveyed by Bloomberg expected. It expects annual earnings of $2.05 to $2.25 a share, far below analysts’ $3.21 average estimate. 

The revenue guidance for next year also includes an estimated $8 billion from its Covid vaccine Comirnaty and its antiviral Paxlovid, along with approximately $3.1 billion from Seagen and about $1 billion from the reclassification of its royalty income from other (income)/deductions into the revenue. 

“Pfizer’s product portfolio remains strong. In 2024, Comirnaty and Paxlovid are expected to deliver combined revenues of approximately $8 billion and our remaining portfolio of combined Pfizer and Seagen products is expected to achieve year-over-year operational revenue growth in the range of 8% to 10%,” stated Dr. Albert Bourla, Pfizer Chairman and Chief Executive Officer. 

Bourla continued, “In addition, we expect our cost realignment program to deliver savings of at least $4.0 billion by the end of 2024, which puts us on a path to potentially regain our pre-pandemic operating margins.” 

PFE shares are down 7% in premarket trading. Year-to-date, shares are down 44%, touching lows not seen since 2016. 

Bourla told investors on a recent conference call: “We are acutely aware that all these uncertainties are making it difficult to project the future revenues of Pfizer — and are also affecting our stock price.” 

Similar concerns have sent shares of Moderna tumbling while broader markets trend higher.

Headlines for “Covid” across US media have tumbled.

The pharma-industrial complex is under severe pressure to find new avenues of growth as Covid revenues plummet. Only another pandemic can turnaround the industry.  

Authored by Tsvetana Paraskova via OilPrice.com,

• COP28 ends with a historic compromise text, marking the first global call for transitioning away from fossil fuels.

• The United Arab Emirates, as the summit host, celebrates the agreement as a groundbreaking deal to reduce emissions.

• The final text reflects a significant step but faces watered-down language due to objections from oil-exporting countries, particularly led by Saudi Arabia.

The COP28 climate summit, which ran one day into extra time amid heated debates on the future of fossil fuel use and production, ended early on Wednesday with a compromise text referencing for the first time a call to all parties to transition away from fossil fuels.

The summit host, the United Arab Emirates, which is also one of OPEC’s top producers and exporters, hailed “the UAE consensus” as a historic deal to reduce emissions.

The final text adopted by the countries references for the first time in such summit declarations an explicit call for transitioning away from fossil fuels.

But the final agreement is watered down compared to any references to phasing out or phasing down of fossil fuels, as objections from many oil exporting countries – led by Saudi Arabia – held back talks in the final days and sent the conference into overtime on Wednesday, a day later than its planned end early on Tuesday.

The Conference of the Parties “Further recognizes the need for deep, rapid and sustained reductions in greenhouse gas emissions in line with 1.5 °C pathways and calls on Parties to contribute to the following global efforts, in a nationally determined manner, taking into account the Paris Agreement and their different national circumstances, pathways and approaches,” the text reads.

One of the “global efforts” is “Transitioning away from fossil fuels in energy systems, in a just, orderly and equitable manner, accelerating action in this critical decade, so as to achieve net zero by 2050 in keeping with the science.”

COP28 President Sultan Al Jaber said after the agreement was announced:

“We delivered world first after world first. A global goal to triple renewables and double energy efficiency. Declarations on agriculture, food and health. More oil and gas companies stepping up for the first time on methane and emissions. And we have language on fossil fuels in our final agreement.”

Here are some reactions to the deal:

U.S. special climate envoy John Kerry:

“I am in awe of the spirit of cooperation that has brought everybody together.”

Former U.S. vice president Al Gore:

“The decision at COP28 to finally recognize that the climate crisis is, at its heart, a fossil fuel crisis is an important milestone. But it is also the bare minimum we need and is long overdue. The influence of petrostates is still evident in the half measures and loopholes included in the final agreement.“

“Whether this is a turning point that truly marks the beginning of the end of the fossil fuel era depends on the actions that come next and the mobilization of finance required to achieve them.”

A source familiar with Saudi Arabia’s position:

The deal is “a menu where every country can follow its own pathway” and “shows the various tracks that will allow us to maintain the objective of 1.5 (degrees) in accordance with the characteristics of every nation and in the context of sustainable development.”

“We must use every opportunity to reduce emissions regardless of the source. We must use all technologies to this effect.”

Most importantly, Great and Al Gore are happy (no matter that it’s pure bullshit platitudes to justify authoritarian globalist government policies around the world).

There’s been a fresh attack on commercial shipping in the Red Sea on Wednesday, which reportedly resulted in a US warship intervening and firing on an inbound drone believed launched by Yemen’s Houthi rebels.

The American warship had responded to reports that the oil and chemical tanker Marshall Islands-flagged Ardmore Encounter had come under attack. The Ardmore Encounter had been traveling north toward the Suez Canal in the Red Sea from India at the time.

The vessel, which had a security crew aboard, reported an “exchange of fire” with a speedboat some 55 nautical miles (or just over 100km off Yemen’s main port of Hodeidah, according to emerging Associated Press reporting.

The approaching speedboat claimed to be the Yemeni Navy and ordered the commercial vessel to halt, but a nearby warship identified as a “coalition” naval vessel told the Ardmore Encounter to maintain its course. When the hostile boat approached within 300 meters, it unleashed small arms fire.

During the incident, a responding US warship shot down a suspected Houthi drone which was inbound. According to regional sources and breaking reports, the hostile speedboat is harassing additional commercial vessels in the area: 

Shortly after the tanker incident, Ambrey said, the speedboat approached a Malta-flagged bulk carrier 52 nautical miles off Hodeidah’s shores, adding that it would provide updates as relevant.

Britain’s Maritime Trade Operations (UKMTO) agency says it is closely monitoring the situation after another incident involving armed men on a speedboat making a hostile approach against two additional vessels transiting off Yemen.

This marks at least half a dozen serious attacks against commercial shipping in the Red Sea. Yemen’s Iran-backed Houthis have threatened to close the whole area to shipping due to the ongoing Israeli onslaught in Gaza. The group weeks ago ‘declared war’ on Israel and has sent several ballistic missiles toward Israel.

In some instances, US warships have been able to intercept the missiles, which has also included increased drone launches. 

The US Navy has warned it will continue to act against threats to international shipping in the Red Sea. “These attacks represent a direct threat to international commerce and maritime security,” a recent US military statement said. “They have jeopardized the lives of international crews representing multiple countries around the world.”

After collapsing 0.5% MoM in October (the most since April 2020) on the back of plunge in gasoline prices, analysts expect Producer Prices to be unchanged MoM in November and they were spot on (although October was revised up to a 0.4% MoM decline).

Headline PPI YoY declined to +0.9% – the lowest since June.

Source: Bloomberg

Excluding food and energy, the core PPI was cooler than expected, unchanged MoM in November versus expectations of a 0.2% MoM rise. That dragged the Core PPI YoY down to 2.0% – its lowest since January 2021…

Source: Bloomberg

Energy was once again a big driver of the decline…

While Food and Services inched higher MoM…

…thanks to as 58.8% surge in the price of chicken eggs.

Final demand goods:

The index for final demand goods was unchanged in November after dropping 1.4 percent in October. In November, price increases of 0.6 percent for final demand foods and 0.2 percent for final demand goods less foods and energy offset a 1.2-percent decrease in the index for final demand energy.

Product detail: Within final demand goods in November, prices for chicken eggs jumped 58.8 percent. The indexes for fresh fruits and melons, utility natural gas, electric power, and carbon steel scrap also moved higher. In contrast, prices for gasoline fell 4.1 percent. The indexes for processed poultry, industrial chemicals, jet fuel, and liquefied petroleum gas also moved lower.

Final demand services:

The index for final demand services remained unchanged in November, the same as in October. In November, prices for final demand services less trade, transportation, and warehousing edged up 0.1 percent. Conversely, the indexes for final demand trade services and for final demand transportation and warehousing services declined, 0.2 percent and 0.5 percent, respectively. (Trade indexes measure changes in margins received by wholesalers and retailers.)

Product detail: Within the index for final demand services in November, prices for traveler accommodation services rose 4.0 percent. The indexes for deposit services (partial); health, beauty, and optical goods retailing; food and alcohol wholesaling; and apparel, footwear, and accessories retailing also advanced. In contrast, margins for automobile retailing (partial) declined 5.1 percent. The indexes for chemicals and allied products wholesaling, portfolio management, furniture retailing, and truck transportation of freight also fell.

There was some more good news: intermediate PPI, widely seen as a leading indicator to final PPI, remains firmly in deflation…

Source: Bloomberg

This all seems like great news but we remind readers that the swing factor continues to be commodity prices, which in turn depend on how much stimulus China decides on, how much oil OPEC+ will pump and how much crude Biden will quietly dump to keep gas prices low into the election year.

S&P 500 futures continued to grind to fresh 2023 highs, quickly approaching all-time highs ahead of the Federal Reserve’s last interest rate decision for 2023, after Tuesday’s cash close was at highest level since January 2022. As of 7:45am ET, S&P futures rose 0.12% while Nasdaq futures continued their relentless ascent, adding another 0.2% as investors looked ahead to the Federal Reserve’s interest-rate decision, bracing for any warnings from Chair Jerome Powell that market expectations of policy easing are overdone (our full FOMC preview is here). European stocks are also ahead, with the Stoxx 600 rising 0.2%. Asian stocks fell, with Chinese equities leading declines on disappointment over a lack of more stimulus from a key economic leadership meeting, while European stocks rose, with the Stoxx 600 rising 0.2%, and touching fresh 2023 highs. Sterling tumbled after UK GDP printed -0.3%, contracting more than the lowest consensus estimate while the Bloomberg Dollar Index rose 0.2%. oil prices are little changed, with WTI trading near $68.70. Spot gold rises 0.1%.Bitcoin traded just above $41,000. Today’s macro focus is on PPI and the Fed. The Fed is expected to make no changes to its policy, Powell is expected deliver a hawkish press conference, and for the dot plot decline by 50bps. For markets the keys will be the dot plot and whether Powell discusses a pathway for cuts.

In premarket trading, Tesla dropped 1.4% after announcing an “over the air” fix – which the media has dubbed a recall which it isn’t – for more than 2 million vehicles to fix autopilot safety flaws. Here are some other notable premarket movers:

• Coherent falls as much as 2.4% as Morgan Stanley cuts the recommendation on the semiconductor device company to equal-weight from overweight. The broker says recent stock performance largely captures the near-term upside opportunity from artificial intelligence and machine learning.
• Hertz Global Holdings is down 4% after Oppenheimer cut the recommendation to perform from outperform and removed the price target, saying that the company will face several headwinds in 2024.
• Microsoft jumps as much as 0.6% after Truist Securities initiated coverage on the tech giant with a buy rating, and assigned it a 3-year price target of $600. Target is 60% above Tuesday’s closing price.
• Pfizer tumbles as much as 8.7% after the drugmaker gave an adjusted earnings forecast for 2024 that was below the average analyst estimate. The company also forecasted sales for the 2024 year that missed expectations.
• Roblox rises as much as 1% after Wells Fargo initiated coverage on the stock with an overweight recommendation. The broker notes that the video-game company operates a growing audience platform with advertising upside.
• Take-Two Interactive Software rises as much as 4.3% as Nasdaq said the Grand Theft Auto VI owner’s stock will be added to the Nasdaq-100 Index, with Seagen set to leave.
• Vertex Pharmaceuticals rallies 7.5% after the firm announced positive results from a mid-stage study of an investigational non-opioid drug to treat painful diabetic peripheral neuropathy.
• Xponential Fitness rises 6.5% after Stifel upgrades to buy from hold, saying it likes current risk/reward with the company’s valuation reflecting overly negative short-term sentiment rather than significant fundamental issues.

Today the market’s focus will be on the conclusion of the Fed’s final policy meeting of 2023 later Wednesday. The central bank is widely expected to hold, but the latest US inflation data raised doubts about the likelihood of an aggressive pivot toward policy easing. Indeed, traders are most interest how hard Powell will push back on the record easing of financial conditions observed in November, which sent risk assets across the world soaring and yields tumbling (see our preview here).

“The market doesn’t agree with the Fed about inflation, so I expect some push back from Powell, but no game changer really,” said Francois Rimeu, a strategist at La Francaise Asset Management in Paris. “The train has been in motion for a month and a half and one better not stand in front of it,” he said, referring to the rally in markets on hopes of easing. Indeed, one look at the options market confirms that the market expects nothing but perfection: as spotgamma notes, today’s 4,650 at-the-money straddle is currently just: $25.5 or 54bps, or barely any market response!

With the Fed expected to keep its target rate range steady for the third straight meeting at 5.25% to 5.5%, traders will carefully scrutinize any signals from Powell on the path for policy and the update to its quarterly forecasts. How the Fed frames its outlook for rate policy ending next year and 2025 via its “dot plot” could inject some uncertainty into a market, given that it has run ahead of the central bank’s current forecast.

“It’s unlikely the Fed will pivot to the extent that it aligns with the very optimistic expectation currently priced into the markets,” said Craig Erlam, senior market analyst at Oanda. “That isn’t to say they won’t get there over the next few months.”

Meanwhile, the S&P 500 closed at the highest since January 2022 on Tuesday after rallying about 10% since the last Fed meeting on Nov. 1 – the biggest intermeeting gain since 2009 –  while Treasury yields have tumbled on speculation of more than a full percentage point of rate cuts next year. Markets have slightly trimmed their bets on easing, still projecting four, starting in May.

Europe’s Stoxx 600 index edged higher, rising 0.2% to fresh 2023 highs, with Inditex SA climbing after the Zara owner forecast a stronger gross margin. The pound fell and UK bonds rose as data showed the economy shrank more than expected in October, figures that prompted traders to ramp up bets on Bank of England interest-rate cuts next year. And here is something remarkable: Europe went from 2023 lows to 2023 highs in just over a month.

Here are some of the biggest European movers today:

• BASF rises as much as 4.2% as the German chemicals company gets a double-upgrade from UBS, seeing the sector improving in 2024; UBS also upgrades Arkema, which rises as much as 5.8%
• Entain shares rise as much as 7.5% after CEO Jette Nygaard-Andersen announced her immediate resignation from the gambling giant. Investec sees “an initial victory for activist shareholders”
• Better Collective rises as much as 8.1% after Jefferies initiated coverage of the Swedish digital sports media firm with a buy recommendation, seeing Ebitda estimates triple by 2027
• Paragon Banking Group rises as much as 3.4% after RBC raised stock to outperform, expecting the shares to rise 49% in 2024 on softening of Basel 3.1 regulation and IRB accreditation
• Volution Group rises as much as 6.3% after the ventilation product maker said it will deliver annual earnings ahead of current expectations. Jefferies said the update is “impressive”
• Pagero gains as much as 70% to SEK35.70 and trades just below Vertex public tender offer to acquire information technology solutions company for SEK36 cash per share
• Porsche rises as much as 1.3% while Ferrari falls as much as 2% as HSBC says the latter looks stretched, while the former is attractive in that its “upcoming refresh” has been ignored
• Repsol and Shell shares decline after BNP Paribas Exane downgrades in note to investors. Shell cut after stock outperformance, Repsol on weakening refining
• Nel shares fall as much as 12% after the Norwegian hydrogen technology firm said its customer HyCC had cancelled a 40 MW order, negatively impacting its backlog by €12 million
• B&M European Value Retail drops as much as 8.8% after announcing a share placing at a discount, with JPMorgan saying the stock could come under “significant pressure”
• Energean falls as much as 3.4% after Kerogen Investments No 38 sold shares in the oil and gas company at a discount to the last closing price, according to a regulatory filing
• Storebrand falls as much as 4.7%, the largest drop since May, after the insurer and asset manager announced new targets. Jefferies said the new targets came in shy of the consensus

Earlier in the session, Asian stocks fell with Chinese equities leading declines on disappointment over a lack of more stimulus from a key economic leadership meeting. The MSCI Asia Pacific Index dipped 0.2%, with Tencent and Alibaba among the biggest contributors.

• A gauge of Chinese stocks listed in Hong Kong lost more than 1% after top leaders vowed to make industrial policy their top economic priority next year, a letdown for investors hoping to see more forceful moves to boost consumption and growth. Shares also dropped on the mainland.
• Australia’s ASX 200 was led by strength in healthcare after Sigma shares surged by over 70% shortly after the return from a trading halt and the recent announcement of a merger with Chemist Warehouse, while the energy sector lagged after yesterday’s continued slide in oil prices.
• Japan’s Nikkei 225 was underpinned by an encouraging Tankan survey which mostly beat expectations and showed sentiment amongst Japan’s large manufacturers and non-manufacturers was at the highest since March 2020 and November 1991, respectively.

In FX, the pound slid 0.4% after UK GDP data showed the economy shrank more than expected in October, figures that prompted traders to boost bets on up to 100bps of Bank of England interest-rate cuts next year. The Bloomberg dollar index rose 0.2%; the USDJPY rose 0.1%.

In rates, treasuries edged higher, leaving yields richer by 2bp-3bp across the curve at the start of US session that includes Fed rate decision at 2pm New York time. 10-year yields were around 4.18%, down 2bps on the day with gilts outperforming by 6bps; sharp bull-steepening of gilt curve sets tone for Treasuries ahead of Fed rate decision. Market positioning appears to be long in the front-end of the curve, suggesting that a bear-flattening reaction to Wednesday’s Fed communications is the pain trade. Gilts led gains for most developed sovereign bond markets, sending UK 2-year yields to lowest level since June, as money markets priced in 100bps of Bank of England rate cuts after UK GDP printed below the lowest estimate. UK 10-year yields fell 7bps while the pound drops 0.4%. US economic calendar includes November producer prices.

In commodities, oil prices were little changed, with WTI trading near $68.70; despite today’s stability, oil continues to get hammered and is on track for its 8th consecutive red week which would be the longest since 2015. Spot gold rises 0.1%.

To the day ahead now, and the main highlight will be the Federal Reserve’s policy decision and Chair Powell’s subsequent press conference. Otherwise, we’ll get UK GDP for October, Euro Area industrial production for October, and US PPI for November.

Market Snapshot

• S&P 500 futures up 0.1% to 4,652.25
• STOXX Europe 600 up 0.2% to 473.66
• MXAP down 0.3% to 161.12
• MXAPJ down 0.5% to 499.89
• Nikkei up 0.3% to 32,926.35
• Topix little changed at 2,354.92
• Hang Seng Index down 0.9% to 16,228.75
• Shanghai Composite down 1.2% to 2,968.76
• Sensex little changed at 69,517.47
• Australia S&P/ASX 200 up 0.3% to 7,257.79
• Kospi down 1.0% to 2,510.66
• German 10Y yield little changed at 2.20%
• Euro little changed at $1.0788
• Brent Futures down 0.4% to $72.96/bbl
• Gold spot up 0.1% to $1,981.77
• U.S. Dollar Index little changed at 103.93

Top Overnight News

• China’s top leaders including President Xi Jinping vowed to make industrial policy their top economic priority next year, a letdown for investors hoping to see more forceful stimulus to boost growth. BBG
• A top Chinese housing official pledged to avoid a cascade of debt defaults by property developers, among the strongest commitments yet to cushion an escalating real estate liquidity crisis. BBG
• Argentina’s new libertarian government will devalue the peso by about half, slash public spending and reduce energy and transport subsidies as it battles to contain an economic crisis and spiraling inflation. FT
• Britain’s economy shrank in October, official data showed on Wednesday, raising the risk of a recession and testing the Bank of England’s resolve to stick to its tough anti-inflation line against cutting interest rates from their 15-year high. GDP fell by 0.3% from September, the Office for National Statistics said, adding that exceptionally wet weather might have impacted the data. RTRS
• The COP28 climate talks in Dubai ended in a historic deal that committed the world to a transition away from all fossil fuels for the first time. The president of this year’s UN-sponsored summit, the UAE’s Sultan Al Jaber, brokered an agreement that was strong enough for the US and European Union on the need to dramatically curb fossil fuel use while keeping Saudi Arabia and other oil producers on board. BBG
• Washington expects the most intensive phase of Israel’s war on Hamas in southern Gaza to be scaled back and become more targeted as soon as early January, US officials said. FT
• Guyana will defend itself “by all and any means” as fears mount that neighboring Venezuela’s strongman president Nicolás Maduro will try to annex part of its territory, its vice-president has said. FT
• We expect the FOMC’s median projection to show two cuts next year, as it did in September, and to show the same 125bp of cuts in 2025 and another 100bp of cuts in 2026. Some participants might pencil in more cuts than before in response to the inflation news, but others might hold back to avoid encouraging the market to price too many cuts too soon. GIR
• Tesla filed a recall of more than 2 million vehicles to fix autopilot issues after the NHTSA determined its driver-assistance system doesn’t do enough to prevent misuse. Shares down 2% premarket. BBG

A more detailed look at global markets courtesy of Newsquawk

Asia-Pac stocks traded mixed with participants cautious heading into the FOMC announcement. ASX 200 was led  by strength in healthcare after Sigma shares surged by over 70% shortly after the return from a trading halt and the recent announcement of a merger with Chemist Warehouse, while the energy sector lagged after yesterday’s continued slide in oil prices. Nikkei 225 was underpinned by an encouraging Tankan survey which mostly beat expectations and showed sentiment amongst Japan’s large manufacturers and non-manufacturers was at the highest since March 2020 and November 1991, respectively. Hang Seng and Shanghai Comp were pressured despite the detailing of China’s policy focus for next year and support pledges, as the statement from the Central Economic Work Conference refrained from any major stimulus announcements.

Top Asian News

• China senior party official said China should set fiscal deficit and special local government bonds at appropriate levels in 2024. The official added that the key is to optimise the structure of fiscal expenditure, as well as improve the efficiency of fiscal fund utilisation and policy effectiveness, according to Reuters.
• Australian government’s Mid-Year Economic and Fiscal Outlook sees 2023/24 budget deficit at AUD 1.1bln vs 13.9bln forecast in May, while it sees a budget deficit of AUD 18.8bln in 2024/25 and a deficit of AUD 35.1bln in 2025/26. Furthermore, it forecasts GDP growth at 1.75% in 2023/24, 2.25% in 2024/25 and 2.50% in 2025/26.
• New Zealand passed the law to return the RBNZ to a single inflation mandate, as expected.
• Japanese PM Kishida says the government and the BoJ are in agreement on the goal of achieving economic growth accompanied by wage gains, as well as the need for sustained stable achievement of price target

European equities, Eurostoxx50 (+0.2%) are trading on a firmer footing; though the IBEX 35 underperforms (U/C) amid losses in Repsol (-2.1%). European sectors are mixed with a slight positive bias, though the breadth of the market to the upside is fairly narrow; Chemicals is the clear outperformer, propped up by gains in BASF (+3.4%) and Arkema (+3.6%); Energy lags due to broader losses in crude prices. US equity futures are trading in the green, posting gains similar to their European counterparts, NQ (+0.2%), as attention turns to US PPI and the much-awaited Fed Policy Announcement.

Top European News

• German government has reportedly come to an agreement over the dispute for the 2024 budget, via Reuters citing government sources; German coalition officials to deliver a briefing at 11:00GMT/06:00EST, on the 2024 budget. Furthermore, the Germany government has agreed, at least initially, to not declare an emergency situation which would suspend the debt brake for 2024, according to government sources cited by Reuters
• German economy to contract 0.5% in 2024 due to budget crisis, via IW Economic Institute
• IFW Institute German Forecasts – GDP: 2023 -0.3% (prev. -0.5%), 2024 +0.9% (prev. +1.3%). 2025 +1.2% (prev. +1.5%); Inflation: 2023 5.9%, 2024 2.3%, 2025 1.8%
• ECB’s Villeroy said inflation’s path to 2.4% from 10.6% is impressive while he also commented that Europe needs a plan to deepen its financial and economic unity if it is to emerge from crises affecting its democracy and society.
• HSBC sees S&P 500 2024 year-end price target of 5,000, says a soft-landing scenario could pave the way for further upside
• Goldman Sachs (GS) cuts UK’s 2023 GDP growth forecast to 0.5% (prev. 0.6%); cuts 2024 forecast to 0.6% (prev. 0.7%)
• JP Morgan lowers its 2023 UK GDP forecast to 0.5% from 0.6% with 2024 cut to 0.2% from 0.4%
• UK PM Sunak has seen off a Conservative rebellion over his flagship Rwanda bill but still faces a battle to get it through Parliament, according to the BBC.

FX

• A positive start to the session for the broader Dollar and index with some assistance from a weaker GBP and as the clock ticks down to the FOMC policy announcement.
• Sterling is among the G10 laggards following the dismal GDP data on the eve of the BoE, although the data will likely not have any influence on tomorrow’s decision, where expectations are for the MPC to stand pat.
• The NZD lags in the G10 bunch following the larger NZ current account deficit reported overnight coupled with reports that New Zealand passed the law to return the RBNZ to a single inflation mandate
• PBoC set USD/CNY mid-point at 7.1126 vs exp. 7.1717 (prev. 7.1163).
• Argentina’s Economy Minister Caputo said that they will move forward with eliminating taxation on exports and will reduce energy and transport subsidies, while he announced FX rate will weaken to 800 pesos per dollar. Argentina’s Economy Ministry also stated the Central Bank will announce measures related to monetary policy, interest rate and debt on Wednesday.

Fixed Income

• USTs are essentially unchanged heading into the FOMC announcement with yields incrementally lower across the curve.
• Bunds are a touch firmer, holding towards the midpoint of 135.07-135.41 parameters and as such within Tuesday’s 134.80-135.60 bounds; awaiting clarity on the 2024 German budget.
• Once again, Gilts buck the trend having gapped higher from Tuesday’s 98.73 close to a 99.02 open before extending in short order to the current 99.48 session high, driven by soft October growth data.
• UK sells GBP 2bln 3.75% 2053 Gilt: b/c 2.70 (prev. 2.34x), average yield 4.43% (prev. 4.664%) & tail 0.5bps (prev. 1.5bps)
• Italy sells EUR 6bln vs exp. EUR 5-6bln 3.85% 2026 & 4.00% 2030 BTP; EUR 3bln 3.85% 2026: b/c 1.56x (prev. 1.54x) & gross yield 3.24% (prev. 3.75%); EUR 3bln 4.00% 2030: b/c 1.54x (prev. 1.50x) & average yield 3.63% (prev. 4.21%)

Commodities

• WTI Jan and Brent (U/C) Feb futures are essentially flat after being softer at the beginning of the session, futures initially trundled lower in APAC hours with little by way of fresh fundamentals in the European session to shift sentiment for the complex.
• Spot gold remains flat ahead of today’s risk events, with the yellow metal contained to a USD 1,972.78-82.59/oz parameter.
• Base metals are mostly softer as the Dollar remains firm and risk remains cautious in the run-up to the FOMC decision.
• COP28 draft text was published which didn’t include the words ‘phase out’ but called on parties to accelerate efforts towards a phase-down of unabated coal power, according to Reuters.
• Chilean copper miner Antofagasta (ANTO LN) and workers at the Centinela mine extend talks to allow workers to vote on a new contract offer, according to the union cited by Reuters.
• Azerbaijan oil output at 27.6mln tons between Jan-Nov (vs 25.3mln between Jan-Oct), according to the Energy Ministry cited by Reuters
• Gulf Keystone Petroleum says there remains no official timeline for reopening of Iraq-Turkey pipeline
• OPEC to issue monthly oil market report at 12:23GMT (07:23 EST)

Geopolitics: Israel/Middle East

• UN General Assembly voted overwhelmingly to adopt a resolution demanding an immediate humanitarian ceasefire in Gaza, the immediate and unconditional release of all hostages and ensuring humanitarian access, in which the resolution passed by a majority vote of 153 in favour vs 10 against and 23 abstentions.
• Israeli PM Netanyahu said he would block the Biden administration’s post-war plan to have the Palestinian Authority take over Gaza, according to WSJ. It was separately reported that US President Biden said the government in Israel is making it very difficult for the world and that PM Netanyahu has to change his government.
• Houthi officials commented via social media platform X that vessels navigating through the Red Sea should not turn off radios and must respond to Houthi orders, while vessels navigating through the Red Sea were advised not to travel towards “occupied Palestine”.
• A source noted via social media platform X that there were reports of casualties following an Israeli airstrike in southern Lebanon.
• UK Maritime Organisation has received report of an incident in the vicinity of Bad El Mandeb, Yemen. Authorities are investigating. Report issued at 05:30GMT, incident time 03:45GMT; subsequently another report of an incident approximately 90mn South of AL DUQM (off the coast of Oman); Authorities are investigating
• “The Houthis targeted a Marshall Islands-flagged oil tanker coming from India and heading towards the Suez Canal with an armed crew on it”, according to Al Jazeera citing AP

Other

• US President Biden said Russian President Putin has failed to subjugate Ukraine and is banking on the US failing to deliver for Ukraine, while Biden added that he will not walk away from Ukraine and neither will the American people. Biden also stated that his team is trying to find bipartisan compromise on immigration and he confirmed USD 200mln in additional military aid to Ukraine. Furthermore, Biden said National Security Adviser Sullivan will visit Israel and Defense Secretary Austin will also travel to the Middle East, while he responded assertions are being made that there are no hostages in tunnels when asked about reports of Israel flooding Hamas tunnels.
• Ukrainian President Zelensky said the idea of giving up territory to end the war is insane and stated who controls the skies controls the war’s duration, while it was also reported that Zelensky told US senators that Ukraine is considering the conscription of men over the age of 40.

US Event Calendar

• 07:00: Dec. MBA Mortgage Applications, prior 2.8%
• 08:30: Nov. PPI Final Demand MoM, est. 0%, prior -0.5%
  • Nov. PPI Final Demand YoY, est. 1.0%, prior 1.3%
  • Nov. PPI Ex Food and Energy MoM, est. 0.2%, prior 0%
  • Nov. PPI Ex Food and Energy YoY, est. 2.2%, prior 2.4%
• 14:00: Dec. FOMC Rate Decision

DB’s Jim Reid concludes the overnight wrap

The eagle-eyed amongst you will notice that Henry has been on lead EMR duties for 3 of the last 4 days before and after the weekend. Well it’s felt like a lost several days for me as I’ve been as ill as I’ve been for a long time. I’ve still been working but in a near zombie state and not up for early morning starts. The long and short of it is that I still can’t hear due to infections in both ears but at least I’m starting to feel better outside of that. My family are fed up screaming at me to make themselves heard and my wife is fed up of having the subtitles on so we can still watch TV.

Thankfully I haven’t missed too much market drama and the last 24 hours have proved to be quieter than they might had been as the US CPI numbers didn’t rock any boats. The baton will be passed to the Fed tonight for their FOMC meeting. With no surprises in the data, markets have done well on the whole over the last 24 hours, with the S&P 500 (+0.46%) at a fresh 20-month high, whilst the VIX index of volatility fell to a post-pandemic low of just 12.07pts. US Treasuries did sell off after the CPI but still managed to rally on the day. Chinese equities are weaker this morning though as China’s annual economic work conference continued with no silver bullet stimulus packages .

Let’s go through in more detail now. In terms of that inflation data, headline US CPI came in at +0.1% in November (vs. unch. expected), taking the year-on-year reading down a tenth to +3.1%. But even as lower gasoline prices helped push down the headline reading, core CPI was a tenth stronger (as expected) at +0.3%, which left the year-on-year reading for core CPI unchanged at +4.0%. That’s still too fast for the Fed to be comfortable, and even if you look at the past 3 months as a whole, core CPI was still running at +3.4% on an annualised basis. So the Fed are going to need some weaker prints before they can be confident inflation is durably at target. The bulls will look at the fact that rents and OER are still elevated as a reason for optimism as the forward looking indicators suggest these should be heading notably lower. However, so far rental disinflation has disappointed relative to these indicators, as noted by our US economists in their reaction piece here. So whether rents catch-down could be the most important global macro variable in the next few months.

With the CPI generally a bit stronger than expected, that built on the narrative from the jobs report on Friday, and investors moved to dial back the chance of near-term rate cuts again. For instance, the chance of a cut as soon as March was down to 43%, the lowest in two weeks having peaked at 76% on December 5. In turn, sovereign bond yields saw a decent turnaround following the release, with yields on 10yr Treasuries ending the day down -3.2bps at 4.20%, having been as low as 4.14% just before the CPI came out. Similarly, there was a sharp reversal at the front-end, but with the 2yr yield ending the day up +2.2bps at 4.73%. Overnight, 10yr yields are down half a basis point.

At the long-end, the post-CPI bond sell-off saw a partial reversal after a well-digested 30yr Treasury auction at 1pm EST. T he auction saw bonds issued just below (-0.3bps) the pre-sale yield with a solid share of indirect bids (68.5% vs 64.4% average over the last 4 auctions). The 10yr yield had been trading flat on the day just before the auction, but 10yr and 30yr yields rallied by 3-4bps immediately after.

So now the CPI and auctions are out of the way, the stage is clear for the Fed’s latest policy decision today, where they’re widely expected to leave rates unchanged for a third consecutive meeting. As a result, the focus is likely to be on the latest dot plot for where they see rates moving over the next couple of years. Our US economists think it will only show 50bps of cuts in 2024, which would be a direct challenge to market expectations, since futures are currently pricing in 109bps of cuts by the December 2024 meeting. Apart from that, the focus will be on what Chair Powell says in the press conference, particularly if there’s any potential timeline for reducing rates. However, our economists believe that Powell will stop short of declaring the tightening cycle as over, likely restating that “We are prepared to tighten policy further if it becomes appropriate to do so.” See their full preview here.

With all that to look forward to, risk assets posted steady gains yesterday, with the S&P 500 (+0.46%) rising to a new 20-month high. The gains were fairly broad, but led by tech stocks with the NASDAQ (+0.70%) and Magnificent Seven (+0.86%) outperforming. The equity rise came as the VIX index (-0.6pts) fell to a post-pandemic low of 12.1pts, whilst Bloomberg’s index of US financial conditions reached its most accommodative level since the Fed began hiking rates last year. So there’s plenty of optimism going into the decision tonight.

By contrast in Europe, there was more of a small risk-off picture, with the S TOXX 600 (-0.21%) coming off its 22-month high from the previous session. There was also a sharper move lower for sovereign bond yields, with those on 10yr bunds (-4.4bps), OATs (-5.3bps) and BTPs (-6.1bps) all falling back. That was most pronounced for UK gilts (-11.1bps), which followed the release of UK labour market data, which showed that growth in average weekly earnings (excluding bonuses) was down to +7.3% over the three months to October (vs. +7.4% expected), which is the lowest it’s been in 6 months. Moreover, the number of vacancies continued to decline, falling to 949k in the three months to November, which is the lowest in over two years.

In the commodities space, oil prices fell to their lowest in five months, with a higher estimate of US oil production this year and a jump in shipments of Russian crude adding to oversupply concerns. Brent crude was down -3.67% to $73.24/bbl and WTI down -3.80% to $68.61/bbl. Oil is currently on track to record its eighth weekly decline in a row, which would be the longest down streak since 2015 .

Asian stock markets are mostly lower this morning led by China after no new firm policy measures were announced at the annual economic work conference. See our economist’s interpretation here. As a result the CSI (-0.92%), Hang Seng (-0.74%) and Shanghai Composite (-0.48%) are on the weaker side and joined by the KOSPI (-0.61%). The Nikkei (+0.11%) is just holding onto gains and S&P 500 (+0.15%) and NASDAQ 100 (+0.18%) futures are also ticking higher.

Early morning data showed that business confidence at large manufacturers in Japan improved in the three months to December for a third straight quarter, coming in at 12.0 (v/s +10.0 expected) compared to the prior reading of +9.0. At the same time, the large Non-Manufacturing Outlook for Q4 came in at 24.0 (v/s +25.0 expected) versus 21.0 previously.

In emerging market news overnight, Argentina announced a 54% devaluation of its official exchange rate to 800 pesos per US dollar. The move comes two days after libertarian Javier Milei was sworn in as President amid a package of measures that also includes major spending cuts. This brings the total devaluation of the peso to 78% year-to-date, and moves it closer to the unofficial blue dollar exchange rate which has been at about 1000 recently .

Looking at yesterday’s other data, the NFIB’s small business optimism index from the US fell to 90.6 in November (vs. 90.7 expected). Interestingly, the net percentage expecting credit conditions to ease was down to -11%, which is the lowest since December 2012. Elsewhere, the German ZEW survey picked up relative to November, with the expectations component at a 9-month high of 12.8 (vs. 9.5 expected), and the current situation ticked up to a 4-month high of -77.1 (vs. -76.0 expected). This tends to be correlated to the DAX so given the recent all time high on the index that would help explain the move even with the recent concern about German growth in 2024.

To the day ahead now, and the main highlight will be the Federal Reserve’s policy decision and Chair Powell’s subsequent press conference. Otherwise, we’ll get UK GDP for October, Euro Area industrial production for October, and US PPI for November.

Authored by Ven Ram, Bloomberg cross-asset strategist,

Markets expect the European Central Bank to start slashing interest rates in the spring, followed by the Bank of England in the summer.

And once the central banks start, traders reckon they will keep going at a brisk pace.

That might be pricing too much, too soon.

There is no denying that euro-zone headline inflation has slowed impressively so far, having gone from about 9% at the start of the year to within striking distance of 2%.

That may embolden the ECB to reduce its inflation estimates for 2024 and beyond when it meets this week, though the central bank is unlikely to say that it is willing to consider rate cuts yet.

Yes, momentum in the euro-area economy is waning.

But, with the jobless rate holding near a multi-decade low, the governing council is unlikely to pivot soon. Not when core inflation is still running near 4%. Given that the ECB’s real policy rate is just modestly positive, there isn’t much scope for easing as yet. Which is why President Christine Lagarde may not offer any Christmas gift to the markets.

Meanwhile, the BOE led by Governor Andrew Bailey is in a far worse predicament.

Headline inflation is still around 5%, core inflation within reach of 6% and services inflation not too far from 7%. While data this morning showed weekly earnings growth slowed, the reality is that it is still above 7%.

Last I looked, those aren’t numbers screaming “2% inflation is here,” so the right question for the markets to ask isn’t really how many times the BOE will be able to cut rates in 2024, but whether it can avoid tightening more.

While headline inflation came in at 4.6% for October, each of the three prints before that was 6.7% or higher.

Those are not numbers that suggest the disinflationary process in the UK is clear and well embedded — unlike the case in the US and the euro zone.

Sure, there is room for some policy loosening next year, especially from the ECB.

Still, overstating that point in terms of rates’ positioning may not be what the doctor ordered.

Authored by Thomas Brooke via ReMix News,

The Netherlands has raised its terror threat to its second-highest level with the country’s National Coordinator for Security and Counterterrorism (NCTV) warning of a “real chance” of a terrorist attack.

In its Terrorist Threat Assessment for the Netherlands report, NCTV announced the threat level had been upped from 3 to 4 which means the threat of attack is “substantial” – it is the highest threat level reached in the country for over four years.

The counter-terrorism agency warned that “the jihadist-inspired terrorist threat to the Netherlands is on the rise” and noted that Islamic extremist groups operating within Europe are “using the war in Gaza to urge sympathizers to carry out attacks in the West.”

“Individuals or small groups within the jihadist movement may feel inspired to commit acts of violence” as a result of increasing tensions in the Middle East that are now being felt among communities in the Netherlands and the wider European continent, its report stated.

NCTV acknowledged that several arrests were made by counter-terrorism police in the Netherlands this year of suspects “intending to carry out an attack with jihadist motives,” and sought to assure the public that these successful preventative measures showed that “European intelligence and security services are able to identify terrorism and thwart attacks”.

However, the report also noted that attacks had already slipped through the net so far this year in France, Germany, Belgium, and the United Kingdom which illustrate “the risks posed by radicalized individuals who are inspired by current events and terrorist organizations”.

There is a “huge risk of terror attacks in the EU” during the #Christmas season, according to top EU official @YlvaJohansson. Her warning comes after a terror attack that killed 1 at a Paris Christmas market.

This is now the new “normal” in Europe. pic.twitter.com/IoD1dC6K7n

— Remix News & Views (@RMXnews) December 11, 2023

The move by the Dutch authorities followed remarks made by the European Commissioner for Home Affairs Ylva Johansson late last month who warned of a “huge risk” of terror attacks in the European Union during the Christmas season.

“With the war between Israel and Hamas, and the polarization it causes in our society, with the upcoming holiday season there is a huge risk of terrorist attacks in the European Union,” Johansson told reporters.

“We saw this recently in Paris,” she said, referring to the German-Filipino tourist stabbed to death near the Eiffel Tower on Dec. 2. The attack left two others injured and was conducted by an Islamist extremist French national of Iranian origin who had already been incarcerated for four years for planning an attack in the Parisian business hub of La Défense in the summer of 2016.

Another Islamist terror attack was planned against a German Christmas market, this time with the 2 foreign suspects planning to “burn infidels” and ram a truck into market attendees in #Cologne.

European Christmas markets now look feature police with machine guns and security… pic.twitter.com/2TGcGhLpQy

— Remix News & Views (@RMXnews) December 1, 2023

“We saw it earlier as well,” Johansson continued, alluding to the shooting of Swedish nationals in Brussels, and the foiled attack planned by foreign nationals in Germany earlier this month who aimed to ram a truck into attendees of the Christmas markets in Cologne.

…

Read more here…

According to the IMF, the most indebted poor countries in the world all have taken big loans from China.

Critics refer to this as “debt-trap diplomacy,” in which China deliberately provides loans to countries it knows are unable to pay, with the hope of gaining political leverage.

Visual Capitalist’s Marcus Lu and Bruno Venditti use data from the US-China Economic and Security Review Commission to show in the graphic below, the most heavily indebted countries by their total loans from China.

China’s Massive Belt and Road Initiative

Much of China’s loans are part of the country’s wider investments in global infrastructure: the Belt and Road Initiative (BRI).

Launched in 2013 and also referred to as the New Silk Road, the BRI stands as one of the most ambitious infrastructure projects ever conceived. Its goal is to create a vast network of railways, energy pipelines, highways, and streamlined border crossings.

In the process, Chinese state-owned creditors rapidly scaled up the provision of foreign currency-denominated loans to resource-rich countries, specially in Africa.

Among the heavily indebted countries, 14 of 15 are African nations, many of the poorest in the world, like Sudan, Niger, Mozambique, Chad, and the Democratic Republic of Congo. The sole non-African country on the list, Bolivia, is also one of the poorest nations in South America.

According to the US-China Economic and Security Review Commission, 60% of China’s debtor nations were in financial distress in 2022, up from 5% in 2010.

In addition to gaining preferential infrastructure accesses, China is gaining political allies. Many countries on this list, like the Republic of the Congo, have publicly supported China’s positions in Hong Kong and in the South China Sea.

Authored by Steve Watson via Modernity.news,

Children at schools in the UK are being taught that St Hadrian, an abbot who played a pivotal role in the early history of the English Church, was black, despite the fact that there is no record of him being black at all.

The Telegraph reports “The Dark Age abbot St Hadrian of Canterbury has been referred to as a ‘black scholar’ in primary school teaching material, despite the holy man being of north African origin and not black.”

🔴 Schoolchildren taught St Hadrian was ‘black’ scholar – even though he wasn’t https://t.co/XYY2DTTZcY

— The Telegraph (@Telegraph) December 9, 2023

Hadrian was from Cyrenaica, a region that is now Libya, meaning he was likely of Berber descent.

Yet material that is being used in schools to teach ‘black British history’ describes Hadrian as “a black scholar [who] becomes abbot of an abbey in Canterbury”, the Telegraph notes.

Historian Dr Zareer Masani told the outlet that it’s yet another example of “absurd wokedom” that is “reaching across millennia to claim people of colour”.

Dr Alka Sehgal-Cuthbert, director of the race relations group Don’t Divide Us, added “The compulsive search for ‘lost’ black Britons is not only embarrassing, but it weakens and distorts the truth value of the claim being made.”

“This is bad enough for content aimed at adults. For school purposes, where the main aim is to educate the young, it is unconscionable,” Sehgal-Cuthbert further asserted, urging “What kind of society is so casual about curriculum content, that it either thinks political interests supersede educational ones, or it can’t tell the difference anymore?”

This is far from an isolated incident. The report notes that Roman emperor Septimius Severus previously appeared in teaching materials and books as a ‘black Briton’ despite not being black.

Roman emperor hailed as ‘black Briton’ by the BBC, the Museum of London, Black Lives Matter & Puffin books – even though he wasn’t black, nor British

Utterly pathetic rewriting of our history!https://t.co/Irr5OCebjt

— Martin Daubney 🇬🇧 (@MartinDaubney) October 31, 2023

In another incident, the BBC had to remove a plaque it had installed celebrating the “first black Briton” after scientific evidence revealed the person was not African, but from Cyprus.

“BBC plaque to mark earliest black Briton removed because she ‘was from Cyprus’

“New DNA analysis suggests BBC programme’s claims about the origins of ‘Beachy Head Lady’ were wrong”https://t.co/hriOgF95X8

— Tony Dowson (@TonyDowson5) October 25, 2023

Some teaching materials have also seriously claimed that Britain was a black country and that black people built Stonehenge, despite there being no concrete evidence at all to back up the assertions.

This bizarre quest to make everything black has also translated over to entertainment, where black actors have been cast as non-black historical figures such as Anne Boleyn, wife of King Henry VIII:

Remember the black Anne Boleyn series? It was a flop! pic.twitter.com/ldHmYnXJuG

— OrgConservAmericans (@OCAmericans) December 10, 2023

And Hannibal:

Once again we have a black actor playing a white historical figure. Hannibal was white, as was Cleopatra. Hijacking our history again. https://t.co/zU4J5FJtbe

— James (@jden1035) November 13, 2023

And Cleopatra:

Debate has gone back and forth over the casting of a Black actress in the role of Clepatra as others stated that is not true to the real life race of the Queen. @AliMirajUK asks: Should an actor’s skin colour be a relevant factor when casting historical figures? pic.twitter.com/CeEdOd3XlG

— LBC (@LBC) May 13, 2023

The bizarre race swapping agenda doesn’t end there:

If something purports to be a documentary or historically accurate, rather than fiction, it should actually be accurate

— Elon Musk (@elonmusk) December 10, 2023

Isaac Newton is depicted as Indian in the Newest Episode of Doctor Who pic.twitter.com/woDj9eb6ZQ

— ɖʀʊӄքǟ ӄʊռʟɛʏ 🇧🇹🇹🇩 (@kunley_drukpa) December 2, 2023

Doctor Who changed the ethnicity of the Toymaker character from Asian to a white German man so they could make him racist, according to the show’s head writer.https://t.co/WJ7ZIQIO8h

— Paul Joseph Watson (@PrisonPlanet) December 10, 2023

“Why does it matter if the actor playing a white character is black?”

Ok, now imagine if they did this: pic.twitter.com/fFB38kxVJq

— Anti Woke (@ANTlWOKE) March 28, 2023

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