Via SchiffGold.com,

Unrealized losses on securities held by US banks exploded by 22% in the third quarter.

Of course, unrealized losses don’t really matter — until they do.

This is yet more evidence that the financial crisis that kicked off last March continues to bubble under the surface.

Unrealized losses, primarily on US Treasuries and mortgage-backed securities rose by $126 billion in Q3 and now total $684 billion, according to the FDIC’s quarterly bank data release.

Current unrealized losses are only slightly below the record set in the third quarter of 2022. This reflects the fact that the FDIC took over three failed banks earlier his year and ate their unrealized losses when it sold the banks’ assets, thus wiping them from the books.

Unrealized looses on securities are divided between two accounting methods.

• Unrealized losses on held-to-maturity (HTM) securities jumped by $81 billion to $391 billion.

• Unrealized losses on available-for-sale (AFS) securities jumped by $45 billion to $293 billion.

It’s important to understand these are only paper losses. Ostensibly, the banks will hold these bonds until maturity and then will be paid their face value. If it plays out this way, there won’t be any real losses.

The problem is that these unrealized losses drastically decrease a bank’s liquidity. If it has to sell bonds in order to raise capital, the bank will experience significant losses. This is exactly what took down Silicon Valley Bank last March.

Here’s what happened.

SVB sold a large portion of its bond portfolio at a $1.8 billion loss. At the time, SVB CEO Greg Becke said the bank made the sale “because we expect continued higher interest rates, pressured public and private markets, and elevated cash burn levels from our clients.”

The bank bought the bonds when interest rates were low. As a result, the $21 billion available for sale (AVS) bond portfolio was not yielding above cash burn. Meanwhile, rising interest rates caused the value of the portfolio to fall significantly. The plan was to sell the longer-term, lower-interest-rate bonds and reinvest the money into shorter-duration bonds with a higher yield. Instead, the sale dented the bank’s balance sheet and caused worried depositors to pull funds out of the bank.

WolfStreet explained more generally how these “irrelevant” unrealized losses can suddenly become relevant.

Banks, via a quirk in bank regulations, don’t have to mark these securities to market value, but can carry them at purchase price. The difference between market value and purchase price is the ‘unrealized gain or loss’ that the bank must disclose in its quarterly financial filings, so that we the depositors can see them and get spooked by them and yank our money out, us billionaires and centimillionaires first, on the two fundamental principles of investing: 1, he who panics first, panics best; and 2, after us the deluge.”

The Federal Reserve set up a bailout program to allow banks to deal with this problem. Instead of selling bonds at a loss, cash-strapped banks can go to the Fed’s Bank Term Funding Program (BTFP) and borrow against them “at par” (face value). This allows banks to use these undervalued assets to raise cash (at least temporarily) without realizing big losses on their balance sheets.

As unrealized losses rise, banks continue to tap into this bailout program more than nine months after the crisis kicked off.

Total outstanding loans in the BTFP program jumped by just over $5 billion in November alone.

In effect, the Fed managed to paper over the financial crisis with this bailout program.

It basically slapped a bandaid on it. But it has not addressed the underlying issue – the impact of rising interest rates on an economy and financial system addicted to easy money.

By Charles Kennedy of Oilprice.com

The U.S. Department of Treasury has slapped sanctions on an additional 20 entities, including Iranian Sepehr Energy and individuals and companies globally, in connection to the facilitation of finances that support Iran’s military. 

Sepehr is targeted in the newest sanctions package for allegedly serving as a front company for Iranian government oil sales, which the Treasury department says is funding Iran’s “destabilizing regional activities” and supporting “multiple regional proxy groups”, including Hezbollah and Hamas. 

“The IRGC-QF and MODAFL continue to engage in illicit finance schemes to generate funds to fan conflict and spread terror throughout the region,” said Under Secretary of the Treasury for Terrorism and Financial Intelligence Brian E. Nelson.

“The United States remains committed to exposing elements of the Iranian military and its complicit partners abroad to disrupt this critical source of funds.”

While there is still no concrete evidence that Iran was directly or indirectly involved in the Hamas attack on Israel on October 7, the U.S. military has come under constant attack in Syria and Iran from Iran-backed proxy groups since then.

Even Israel has been very public about its theory that Iran was not involved in the Hamas attack. Earlier this month, the EU likewise said it was considering a new round of sanctions targeting Iran for its support of Hamas; however, this is a polarizing effort in the bloc. 

The new round of U.S. sanctions comes as Iran ramps up its crude oil output to 3.1 million barrels per day for October, putting it in the third-place ranking among OPEC producers.

According to the Energy Information Administration (EIA), Iran saw a 50,000-bpd month-on-month increase in production in October. Since the beginning of the year, Iran has increased oil output by more than 500,000 bpd. 

Investors have panic-bought Treasuries, agency, and mortgage debt, recording one of the best months since the 1980s. Stocks are also set to log the best month in a year, as the everything rally has been supported by easing financial conditions fueled by bets the Federal Reserve’s most aggressive interest rate hiking cycle in a generation is not just over but rate cuts are set for late spring next year. 

As the Fed pivot injects optimism into markets, sort of like a junkie shooting up heroin, there has been an increase in activity at the buyback desks of multiple banks. Additionally, corporate insiders are showing confidence in the future of their companies by purchasing shares. 

Bloomberg said the buyback desk at Goldman Sachs reported a “big tick up” in activity from its corporate customers repurchasing shares. At the buyback desk at Bank of America, the firm said it just had its busiest week of execution orders in history.

Recall last week, we cited a BofA client flows report that revealed two weeks of record buybacks:

“Corporate client buybacks accelerated the past two weeks and are tracking above seasonal levels for a second week in a row. YTD, corp. client buybacks as a percentage of S&P 500 mkt. cap (0.19%) are below ’22 highs (0.21%) at this time.”

And visually:

Insider data compiled by Washington Service shows corporate executives are also in the holiday buying mode of shares. These insiders have been purchasing shares of their own firms in November, with the ratio of buyers to sellers hitting six-month highs. 

“We could see insiders buying into the bull case of inflation down, rate hikes over, mission accomplished. Insiders want to take more ownership of that message, and they are willing to pony up real money to do so,” said Mike Bailey, director of research at FBB Capital Partners. 

Bailey continued, “That is a double-barreled sign of optimism, with companies and individual executives buying back their stock.”

Insider data shows 900 corporate execs purchased their own stock in November, more than double the number in October. However, the number of sellers did rise – but the increase was slight. As a result, the buy-sell ratio for insiders was .54, the highest level since May. 

For some context, the current buy-sell ratio pales in comparison with the 2-to-1 reading in March 2020 when stocks crashed in the early days of Covid, and insiders were gobbling up their own shares. Still, increasing buybacks and insider buying activity come as the S&P500 is only 5% off from record highs. 

Nomura’s cross-asset strategist Charlie McElligott pointed out earlier this week that the “everything ripper” rally seen through most of November is a product of financial conditions loosening due to a messaging shift from monetary authorities. 

Goldman’s Vickie Chang, GIR Macro Markets Strategy, describes this period as a financial conditions ‘loop’: 

“I think we are back in FCI loop where you have these periods of tightening and then easing and then back again that’s a result of the inherent difficulty of targeting financial conditions to set monetary policy…

…the market will tend to challenge the edges of some “acceptable” FCI range until something reins them in the other direction.

… it’s starting to look unsustainable this week particularly on the rate relief side.

The market moved fast after the FOMC to take the Fed out of the equation and even before the rally we saw this week it already felt like further yield declines would start to get into “taking it too far” territory with the market clearly pricing more cuts than our “scenario-weighted paths.

At some point those two pillars of this FCI easing will contradict each other and the market is going to have to worry more about the Fed and higher yields and I think that is the risk to hedge going forward.

Meanwhile, last week, Goldman’s Prime Brokerage data revealed that hedge funds were trapped in a massive short squeeze. 

Also, to those who follow fund flows, the outperformance of stocks will hardly come as a surprise. Recall, earlier this month, we revealed that hot on the heels of the biggest 10-day CTA (i.e., trend-following fund) buying frenzy on record…

The soft-landing and Fed-cutting narratives certainly have everyone in a Jim Cramer ‘buy buy buy’ panic. But if financial conditions ease too much, markets will have to worry about high rates and growth again. 

Authored by Mike Shedlock via MishTalk.com,

Don’t we have enough government meddling and useless bureaucracy already? I guess not. The list of agencies involved in Biden’s new announcement is stunning.

Supply chain data from New York Fed download, chart by Mish

Understanding the GSCPI

Have you heard of the GSCPI? Unless you are a real economic data geek you probably haven’t. I haven’t until Biden mentioned it today.

Here is the GSCPI Index Explanation from the New York Fed.

Our index integrates transportation cost data and manufacturing indicators to provide a gauge of global supply chain conditions.

Our goal in constructing the Global Supply Chain Pressure Index (GSCPI) was to develop a parsimonious measure of global supply chain pressures that could be used to gauge the importance of supply constraints with respect to economic outcomes.

Hoot of the Day

Please consider a new White House Fact Sheet emphasis mine.

President Biden Announces New Actions to Strengthen America’s Supply Chains, Lower Costs for Families, and Secure Key Sectors.

As part of his Bidenomics agenda to lower costs for American families, President Biden is announcing nearly 30 new actions to strengthen supply chains critical to America’s economic and national security. These actions will help Americans get the products they need when they need them, enable reliable deliveries for businesses, strengthen our agriculture and food systems, and support good-paying, union jobs here at home.

Today, President Biden will convene the inaugural meeting of the White House Council on Supply Chain Resilience, which will advance his long-term, government-wide strategy to build enduring supply chain resilience.

Who’s Involved?

I glad you asked because the list is small.

Co-Chairs to the White House Council on Supply Chain Resilience

• The National Security Advisor

• The National Economic Advisor

• The Secretaries of Agriculture, Commerce, Defense, Energy, Health and Human Services, Homeland Security, Housing and Urban Development, the Interior, Labor, State, Transportation, the Treasury, and Veterans Affairs

• The Attorney General

• The Administrators of the Environmental Protection Agency and the Small Business Administration

• The Directors of National Intelligence, the Office of Management and Budget, and the Office of Science and Technology Policy

• The Chair of the Council of Economic Advisers

• The U.S. Trade Representative

• Other senior officials from the Executive Office of the President and other agencies.

Perfect Timing!

What better time could there possibly be to create this task force adding over 20 individual agencies as co-chairs to an obviously critical mission than when supply chain pressures are at a record low of -1.74?

Clearly, Biden’s timing could not possibly be better.

What Else is Involved?

• Monitoring of climate impacts. The White House National Security Council, Office of Science and Technology Policy, and the Council of Economic Advisers will co-lead an interagency effort in partnership with the National Oceanic and Atmospheric Administration to monitor global developments related to El Niño, including this climate phenomenon’s impact on U.S. and global commodity prices, agriculture and fishery output, disruptions to global and trade supply chains, and resulting impacts on food security, human health, and social instabilities.

• New Resilience Center and tabletop exercises for supply chain disruptions.

• Launch of DOT Multimodal Freight Office. As part of the Bipartisan Infrastructure Law (“BIL”) implementation, DOT is launching its Office of Multimodal Freight Infrastructure and Policy (“Multimodal Freight Office”). This office is responsible for maintaining and improving the condition and performance of the nation’s multimodal freight network including through the development of the National Multimodal Freight Network, review of State Freight Plans, and the continued advancement of the FLOW initiative in partnership with the Bureau of Transportation Statistics.

• AI hackathons to strengthen critical mineral supply chains. USGS, the Defense Advanced Research Projects Agency (DARPA), and the Advanced Research Projects Agency-Energy (ARPA-E), building on their 2022 prize challenges announcement, will host a series of hackathons beginning in February 2024 to develop novel artificial intelligence approaches to assess domestic critical mineral resources.

• Risk mapping for labor rights abuses. The Department of Labor (DOL) updated its Comply Chain guidance for identifying and addressing labor rights violations in global supply chains.

• A $275 million in grant selections for its Advanced Energy Manufacturing and Recycling Grant Program, investments that will revitalize communities affected by coal mine or coal power plant closures through investment in clean energy supply chains.

• Use of the Defense Production Act to make more essential medicines in America and mitigate drug shortages.

• Global Labor Directive. On November 16, President Biden signed the Presidential Memorandum on Advancing Worker Empowerment, Rights, and High Labor Standards Globally. The President directed several departments to address labor rights abuses in global supply chains and identify innovative approaches to promote internationally recognized labor rights throughout the supply chain, including by collaborating with labor organizations, workers, and other labor stakeholders to consider efforts that support worker-led monitoring of labor rights compliance.

What the H is This Really About?

The answer is twofold. First, Biden will do anything and everything to force people into compliance with his idiotic energy and climate change policies.

Second, it’s a desperate and no doubt counterproductive attempt to shore up his polls.

Why Are Americans in Such a Rotten Mood?

On November 17, I discussed the rotten mood of consumers. Polls show people do not think the economy is humming.

For discussion, please see Why Are Americans in Such a Rotten Mood? Biden Blames the Media

Biden blames the media when people are struggling with Rent and Food. Rent of primary residence has gone up at least 0.4 percent for 27 consecutive months!

And  The Average Increase in the Price of Food Every Month for 32 Months is 0.6 Percent

This new program will add more inflationary bureaucracy to a system overflowing with inflation and ridiculous bureaucracy.

Mercy!

Initial leaks from the OPEC+ meeting suggested that the voluntary nature of additional output cuts is likely contributing to the negative market sentiment.

“Drowning in detail” is how another trader MSG’d as producers are going to have to come up with some hard numbers to convince the market that the cuts are real, and not just a repackaging of previously agreed measures.

But as the communique below shows, there appears to be none.

The full OPEC+ communique has just been released:

The 36th OPEC and non-OPEC Ministerial Meeting (ONOMM), was held via videoconference, on Thursday November 30, 2023.

The Meeting welcomed HE Alexandre Silveira de Oliveira, Minister of Mines and Energy of the Federative Republic of Brazil, which will join the OPEC+ Charter of Cooperation starting January 2024.

The meeting reaffirmed the continued commitment of the Participating Countries in the Declaration of Cooperation (DoC) to ensure a stable and balanced oil market.

In view of current oil market fundamentals, the Meeting:

1. Reaffirmed the Framework of the Declaration of Cooperation, signed on 10 December 2016 and further endorsed in subsequent meetings including the 35th OPEC and Non-OPEC Ministerial Meeting on 4 June 2023; as well as the Charter of Cooperation, signed on 2 July 2019.

2.  Noted that, in accordance with the decision of the 35th OPEC and non-OPEC Ministerial Meeting, the completion of the assessment by the three independent sources (IHS, Wood Mackenzie and Rystad Energy) for production level that can be achieved in 2024 by Angola, Congo and Nigeria as follows: Angola at 1,110 t/bd, Congo at 277 t/bd and Nigeria at 1,500 t/bd.

3. The 37th OPEC and non-OPEC Ministerial Meeting will be held on 1 June 2024 in Vienna.

The reaction is clear – oil prices are falling rapidly as the market had been led to expect 1 million barrels a day of extra cuts, but there’s no mention of them at all in the communique…

Prices are coming off the lows a little…

…as the various nations have begun to announce their voluntary cuts:

• Saudi Extends Voluntary Oil Cut of 1m B/D to End 1Q24: SPA

• Russia Oil-Export Cuts increased by 200k B/D in 1Q 2024 to Reach 500k B/D

• Kuwait Said to Make Additional 135k B/D OPEC+ Oil Output Cut

• Algeria to Make Additional 51k B/D OPEC+ Output Cut

• Oman to Make Additional 42k B/D Oil Output Cut in 1Q

• Kazakhstan to cut oil output by additional 82k B/D in 1Q

• UAE to Make Additional 160k B/D OPEC+ Output Cut

Here’s what Wall Street thinks about OPEC+’s actions (or lack of them)…

Alex Longley, Bloomberg

So why are we lower? Drowning in detail is how one trader put it to me. The additional cuts will be announced by OPEC+ members themselves. Others argue this is a repackaging of previously agreed measures, with some uncertain extras. Throw in a decent rally over the last few days (and not to mention month end and expiry day for Brent contracts!), and that’s why we are where we are. Our latest oil futures take is here:

Julian Lee, Bloomberg:

What appears to be the voluntary nature of additional output cuts is likely contributing to the negative market sentiment. There’s a real worry that this might be little more than the repackaging of cuts that were already extended to the end of 2024 back in June. The producers are going to have to come up with some hard numbers to convince the market that the cuts are real. I agree with Arne Lohmann, the communication has been poor. Perhaps that’s a reflection of the difficulty of getting everyone to agree, but that in itself raises concerns about how much of any extra cut will be real.

It’s looking increasingly like the additional 1 million barrels a day of cuts won’t be formalized in new official output targets. Instead members will individually announce their contributions, just as they did in April for the voluntary reductions that came into effect in May. Those also amounted to a shade over 1 million barrels a day.

Giovanni Staunovo, UBS

“It seems the OPEC+ production cuts are “voluntary” cuts, not part of an OPEC+ agreement. Hence the concern is that a large fraction of it could be a pledge on paper and effectively less barrels being removed from the market.”

Arne Lohmann Rasmussen, A/S Global Risk Management

“They did the right thing and reacted to the looming 2024 surplus. But the performance/execution has been really poor. Quotas being announced individually was not good communication. However, the risk probability of oil going significantly lower should now be small.”

Dominic Ellis, UBS

Potential Reasons Why Oil Is Fading Post Announcement Of OPEC+ Cut. Trying to understand the fade in oil since the news earlier of the ~2mb/d OPEC+ cut for Q1. Potential causes for concern: 1.3mb/d of the total is an extension of the existing Saudi and Russian cuts which, are either already in most assumptions for 1Q24 (in the case of the Saudi 1mb/d) or can’t fully be trusted (in the case of the Russian 300kb/d). Then there’s the incremental 200kb/d cut from Russia, which would be new versus current expectations, but is probably heavily discounted by markets given historic weak Russian compliance. Finally, on the remaining 500kb/d, it isn’t clear how much of this will actually result in barrels coming out of the market, rather than “paper” cuts against higher quotas, or cuts versus quotas that are already not being hit. I still find the drop in oil puzzling, particularly given news that Brazil will be joining the OPEC+ group from January 2024, but this is a good example of OPEC’s opacity being counterproductive.

There will be no press conference after today’s virtual meeting.

By Benjamin Picton, senior strategist at Rabobank

Gift Wrapped

Today is the big day. I’m not talking about the release of the US PCE deflator or the OPEC+ meeting (though both are on the calendar and will be a big deal), but the annual event that is the Spotify Wrapped summary and associated ubiquitous social media posts. Consequently, we can look forward to learning that we spent the whole year listening to the same 3 artists as last year, which might just be the definitive symptom of the cruel descent into middle age.

While millennials are poised to again discover that TayTay was number 1, central bankers are equally surprised to learn that the imminent trajectory for policy rates is down (as it largely has been since Volcker). We had more Fed speak overnight from Raphael Bostic (a dove), who said that he is increasingly confident that inflation’s downward trajectory will continue. Conversely, Thomas Barkin adopted Bowman’s wrongthink of the day before by saying that the Fed needs to keep the option of further hikes on the table, and noted hawk Loretta Mester hedged her bets by suggesting the Fed has the luxury of waiting for more data.

Predictably, markets chose to accentuate the positive. The jubilation over Chris Waller’s dovishness on Tuesday carried into yesterday’s price action for bonds. The US 10-year yield fell another 6.5bps to 4.25% and 2-year yields fell almost 9bps to 4.65%. This was despite a substantial upgrade to Q3 GDP that saw real annualized growth revised up to 5.2% from the originally reported 5%. The core PCE index that accompanied the national accounts ticked a little lower to 2.3%, which perhaps helps to explain the move in yields.

Another likely influence was the deflationary CPI prints out of Spain and Germany yesterday. Spanish CPI fell to -0.4% m-o-m from 0.1% in October, while the German figure also fell to -0.4% from -0.1%, prompting bull-steepening in the Bund curve. That takes year-on-year headline CPI to 3.2% for both countries and follows on from the lower than expected October inflation figures out of Australia yesterday that confirmed deflation for some goods categories. Markets don’t need too much prodding to adopt a rates down narrative at the moment, so these European numbers look like they were just the ticket and there will probably be more to come today when France and Italy report their own CPI numbers for November.

So, inflation is lower and growth is higher. That sounds like the promised soft landing is imminent! Rate cuts soon then? The OECD says no, at least for Europe. In its Economic Outlook released yesterday the organisation said that European rates would remain elevated all the way through 2024 with the first cuts to come in 2025. On the bright side, they DID support our own forecast of a 4.35% peak in the Aussie cash rate and suggested that market pricing on a Fed rate cut by the middle of next year is on the money.

That’s our view too. We have a cut to Fed funds penciled in for June, with another two cuts expected to arrive in the final quarter of the year owing to the three consecutive quarters of negative GDP growth we are forecasting in the USA from Q4 ’23 onwards.

The Austrians among us should be encouraged by that forecast, tracking as it does the developments in the Fed balance sheet and broader measures of money supply. Suspiciously, the peak in inflation came shortly after the peak in the balance sheet, and the disinflationary trend has also followed balance sheet reduction.

Weirdly (for Keynesians), very low rates of unemployment seem to have been no impediment to disinflation occurring in the USA and elsewhere. It’s almost as if enlisting more people to produce goods and services (rather than paying them to sit at home and not produce) is actually helpful for fighting inflation rather than a hindrance. That’s particularly the case if the wages paid to those workers are an accurate reflection of the marginal product of labor (and therefore not inflationary).

We’re in the weeds here though, so it might be best to get back to the job at hand of analysing Spotify habits. Mine are humdrum, and heavily weighted to audiobooks and comedy shows like the ECB podcast. A highlight for me has been the excellent audiobook of Edward Chancellor’s ‘The Price of Time’ which revealed to me that the Emperor Augustus caused a general inflation and pump-primed the market for villas by repatriating the treasure of Egypt into Rome (we might call that an exogenous increase in the money supply).

Tiberius then raised interest rates and got prices under control by hoarding the treasure for his own purposes, before proceeding to cause a general inflation and accidentally inventing quantitative easing by lending the treasure out at zero to Roman patricians. This is the Cantillon Effect in action, and apparently it proved to be politically destabilising after the plebeians realised that the rich were getting richer and food was becoming a luxury. Sound familiar? Truly, there is nothing new under the sun.

Around the same time that this was all going on a Jewish carpenter in Jerusalem struck an early blow against financialization by flipping the tables of the money changers in the temple forecourt. Fast-forwarding to the modern day, discontented citizens in a number of countries are losing patience with monetary frameworks that enrich those closest to the spigot while debasing the coinage of the realm and repeatedly failing in their one main job of preventing economic calamity. Indeed, some would argue that they are more adept at seeding financial calamity. Perhaps that’s why Javier Milei has adopted Andrew Jackson’s views on central banking by seeking to abolish it?

Authored by Tom Ozimek via The Epoch Times (emphasis ours),

The Internal Revenue Service (IRS) has addressed rumors that have emerged on social media claiming that a fourth round of stimulus checks will automatically go out to residents in 10 states on Nov. 30.

The rumor began after the IRS revealed on Nov. 17 that some Americans who were eligible to receive pandemic-era stimulus checks but didn’t apply for them could still get the money by filing amended tax returns for 2020 and 2021 and claiming the funds through the “recovery rebate credit.”

Following the IRS’ announcement on Nov. 17 that some people who missed out on earlier stimulus rounds or got checks but didn’t get all the money they were eligible for, a post on social media claimed that the IRS was going to send out a fourth round of stimulus checks.

The widely shared post claims that a “4th round” of “stimulus checks” is going out at the end of the month in the following 10 states: Alabama, Arizona, Maryland, New York, Virginia, Florida, Georgia, Michigan, Tennessee, and Texas.

“If your account information is on file with the IRS, you will automatically get your money deposited into the account they have on file,” reads the widely shared post. “If you received a paper check for your tax refund this year, you will get your stimulus. So if you moved & they don’t have a new address, that’s your business.”

The post then went on to claim that the payments will range from $500 to $2,000 depending on the state. It also cites its purported sources as “Google & IRS.”

However, a spokesperson for the IRS said that the rumor of a fourth round of stimulus checks is false.

Anthony Burke, an IRS spokesperson, said in an emailed statement that no fourth round of stimulus checks has been authorized.

While it’s true that some states listed in the social media post will be issuing tax-related payments in the coming weeks and months, these are unrelated to pandemic-era stimulus and involve things like Arizona’s Families Tax Rebate program that provides a one-time payment of up to $750 for taxpayers with dependent children.

In 2020 and 2021, the federal government issued $931 billion in stimulus payments, but some people never received those payments, even though they were eligible.

The IRS clarified that those who missed out can still collect the money through the “recovery rebate credit.”

This is a refundable credit that either reduces the amount of taxes owed, is included in a tax refund, or is simply paid out by the IRS to eligible taxpayers if—after claiming the credit—it turns out they overpaid on their taxes.

Others may have received less than the full stimulus payment they were entitled to, and in their case, claiming a recovery rebate credit would top-up to the full stimulus payment amount they’re entitled to.

In order to claim the 2020 and 2021 recovery rebate credits, a taxpayer must meet several criteria.

For the 2020 credit, they must have been a citizen of the United States or a U.S. resident alien in 2020. Also, they must not have been a dependent of another taxpayer for 2020 and possess a valid Social Security number issued before the due date of the tax return that is valid for employment in the United States.

For the 2021 recovery rebate credit, eligibility criteria include being a U.S. citizen or U.S. resident alien in 2021, not being a dependent of another taxpayer for 2021, and having a Social Security number issued by the due date of the tax return.

Alternatively, for the 2021 credit, a person can claim a dependent with a Social Security number issued by the due date of the tax return or claim a dependent with an Adoption Taxpayer Identification Number.

To claim the 2020 recovery rebate credit, individuals must file a tax return (or amend one already filed) for the 2020 tax year. The deadline to do so is May 17, 2024.

For the 2021 recovery rebate credit, the deadline for filing (or amending) a tax return is April 15, 2025.

In order to figure the amount of the recovery rebate credit on a tax return, it’s necessary to know the amount of any stimulus payments received (if any), including plus-up payments.

People can use their IRS Online Account to see if they received any stimulus payments and, if they did, how much they received.

Some people received partial stimulus payments for the 2020 and 2021 tax years, and this will reduce the amount they’re now eligible to collect as part of the recovery rebate credit.

More details about how to calculate the credit for a 2020 tax return can be found here, while further information about calculating the credit for a 2021 tax return is here.

One thing to note is that money received as part of the recovery rebate credit can’t be counted as income when determining the ability of someone to be eligible for federal benefits like Supplemental Security Income (SSI), Supplemental Nutrition Assistance Program (SNAP), Temporary Assistance for Needy Families (TANF) and the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC).

The Government Accountability Office (GAO) found that people who don’t normally file tax returns, first-time filers, mixed immigrant status families, and those experiencing homelessness were among the most likely to have missed getting stimulus payments.

The Associated Press contributed to this report.

US equity futures, European bourses and Asian markets all advanced, and Treasuries steadied at the end of a blistering November run after more dovish comments from hawkish Fed officials this week, and as investors waited for a key US inflation metric for further evidence that price pressure are cooling.  As of 7:55am ET, S&P futures rose 0.3% while US 10-year yields climb 3bp to 4.29%. Treasuries paused their strongest monthly gain since 2008, with yields on 10-year paper up four basis points at 4.30%. The dollar bounced 0.4% at the end of its worst month in a year, sending all major developed- and emerging-market currencies lower. The euro traded down 0.5% versus the greenback as the pace of price growth in the region cooled. Today’s macro focus will be the PCE, Personal Income/Spending and Initial Jobless Claims. The PCE release today will provide us with more details on the disinflation trend in Q4: Consensus sees core PCE printing 3.5% YoY vs. 3.68% prior. Eyes will also be on OPEC+ today as the group may consider a production cut at today’s meeting: RTRS sources said OPEC+ ministers agreed for a preliminary cut for over 1mn bpd.

In premarket trading, megacap tech are leading gains morning, with TSLA +65bp and GOOGL + 29bp. Salesforce jumped about 9% after the application software company’s third-quarter results and profit forecasts beat estimates. Here are some other notable premarket movers:

• HP Enterprise shares are up about 3% and are set to extend gains for a second session as Morgan Stanley raised its recommendation following results.
• ImmunoGen shares are halted after AbbVie (ABBV) agreed to buy the company. Stock is set to resume trading at 8 a.m.
• Nutanix gains about 9% as strong demand fueled a quarterly sales beat.
• Okta Inc. is down about 2% after a pair of analysts issued downgrades following the company’s breach disclosures.
• Pure Storage slumps 17% after the technology company’s outlook disappointed.
• Snowflake climbs about 7% after the US cloud-software company posted 3Q results that beat expectations and the firm gave an outlook that is seen as strong.
• Synopsys shares are up 2% after the maker of electronic design automation software reported fourth-quarter results that beat expectations.

Easing inflation and signs of a milder-than-expected slowdown in the US economy have sent Treasuries, agency and mortgage debt to their best month since the 1980s, triggering a November surge that pulled along assets from stocks to credit to emerging markets.

Oil gained following a Reuters reports that OPEC+ has reached a preliminary agreement on an additional output cut of more than 1mb/d. Details of how the cut will be distributed are yet to be finalised, but it is important that Saudi Arabia appears to have been able to maintain the unified stance from OPEC+ — at least long enough to move through the seasonally low demand period of 1Q24. Front-month Brent crude is up is up 2% at $84.69 a barrel.

Data due Thursday is forecast to show the Fed’s preferred inflation metric — the personal consumption expenditures price index — decelerated in October to the slowest annual rate since early 2021.

“Momentum on the other side of the pond is likely to remain bullish rates,” wrote Evelyne Gomez-Liechti, a multi-asset strategist at Mizuho International Plc in London. “The PCE inflation data for October is most likely going to echo what we already saw in the October CPI and PPI reports and add to the soft-landing narrative.”

Now, traders are looking to a speech by Fed Chair Jerome Powell on Friday.

“Upcoming Fed communication could continue to stress the need hold rates steady for some time,” said Hauke Siemssen, rates strategist at Commerzbank AG. “We expect the air to be getting thinner for further bond market performance ahead of the usual supply wave early next year.”

European stocks are in the green with the Stoxx 600 rising 0.4%, set for their best month since January. Energy, financial and insurance shares are leading gains; oil stocks are the top performers on Europe’s Stoxx 600 index, as OPEC+ producers prepare to discuss additional output cuts of about one million barrels a day.  The euro sank after weak French economic data and a Euro-zone inflation print that came in lower than the estimates of all economists in a Bloomberg poll. Traders are now fully pricing in a rate cut from the ECB by April after data showed euro-area inflation slowed more than expected in November.  Here are some of the biggest movers on Thursday:

• VAT Group shares climb as much as 5.6%, to the highest level since January 2022 after the Swiss chipmaker announced it will end its short-time work scheme in the country’s production sites.
• Leonardo shares rise as much as 4.8%, the most intraday since Oct. 9, as JPMorgan reinstates full coverage of the aerospace and defense company with an overweight rating. A recovery in end markets and “self-help” can drive the shares higher in coming years, according to the analysts.
• ABB shares climb as much as 1.9%, touching the highest level since August, as the Swiss industrial conglomerate’s new revenue and margin targets came in ahead of estimates. The update will trigger low to mid-single digit percentage upgrades to 2025 consensus expectations, according to Citigroup.
• ASR Nederland and NN Group both soar by as much as 15% as ASR’s settlement of a long-standing miss-selling case removes a major overhang for the company and provides optimism of a resolution for its Dutch peer NN.
• Outokumpu shares surge as much as 14%, the most in almost 13 months, after the Finnish steelmaker announces an extension to its partnership with AM/NS within the Americas region, which Morgan Stanley says removes a key overhang.
• ASML shares drop as much as 1.8% after the Dutch chip-equipment maker said Christophe Fouquet will become CEO when Peter Wennink retires next year. Chief Technology Officer Martin van den Brink, who worked at the firm since its foundation in 1984, will also retire.
• Dr Martens shares plummet as much as 27%, dropping to the lowest intraday level on record, after the bootmaker’s first-half revenue missed estimates. The company also said that improvement in the US business will probably take longer than expected. Analysts viewed the results as weak overall, with Morgan Stanley attributing the miss mainly to industry-wide destocking across the Americas wholesale channel.
• OCI falls as much as 9.3% after being downgraded to hold from buy at Jefferies, which said that natural gas supply is becoming ample, potentially hurting profits from company’s planned investments.
• Future plc drops as much as 8.5% after Canaccord Genuity downgrades the media company to sell from hold, saying there is material risk of downgrades to consensus. It is the stock’s only negative analyst rating.
• Elekta shares fall as much as 7.1%, the most intraday in six months, after the Swedish medical equipment firm reported second-quarter results, with analysts noting some weakness in the company’s outlook comments and a strong share-price performance ahead of the release.
• Siltronic shares fall as much as 5.7% after the German silicon wafer manufacturer says chip inventories will remain high for at least the first half of 2024. The company also set mid-term sales growth targets that Jefferies said were slightly below consensus expectations.

Earlier in the session, Asian stocks gained, with investors in Chinese shares shrugging off a weak set of economic data on expectations that Beijing will ramp up support for the flagging economy. The MSCI Asia Pacific Index rose as much as 0.2%, buoyed by Chinese tech giants such as Tencent, with the gauge headed toward its best month since January. Japanese shares fell for a fourth day as the yen strengthened, while Korean stocks advanced after the Bank of Korea held its key interest rate. Hong Kong’s Hang Seng Index rebounded from the lowest level in a year after activity in China’s manufacturing and services sectors shrank in November, adding to expectations of further government support for the economy. Chinese President Xi Jinping’s first visit to Shanghai in three years was also seen as a positive for the tech sector. The relief rally in Chinese stocks could extend into early 2024 on “easing US-China tensions, China’s easing deflation, revenue growth pickup and further cost and interest expense cuts by enterprises lending support to non-financial margins,” JPMorgan & Chase Co. strategists including Wendy Liu wrote in a note.

• Hang Seng and Shanghai Comp were indecisive with only brief pressure seen after the PMI data showed a steeper contraction in China’s factory activity which raises the prospects for further supportive measures.
• Japan’s Nikkei 225 swung between gains and losses amid recent currency strength and with better-than-expected Industrial Production offset by softer Retail Sales.
• Korea’s Kospi was just about kept afloat following the unsurprising decision by the BoK to keep rates unchanged and noted that it will maintain a restrictive policy stance for a sufficiently long period of time.
• Australia’s ASX 200 was choppy after mixed data in which Building Approvals topped forecast and Private Capital Expenditure missed estimates.

In FX, the Bloomberg Dollar Spot Index rose as much as 0.4%; but for the month it is poised to fall around 3%, its worst month in a year. The euro fell 0.5% as German yields slid as markets pulled forward expectations for ECB rate cuts, now fully pricing in the first rate cut by April 2024. Investors have become confident that the Fed has ended its monetary tightening campaign, and have turned their focus on rate cuts for next year, which has weighed on the dollar and boosted Treasuries. “A medium-term US dollar weakening trend is already underway,” Wells Fargo strategists including Aroop Chatterjee wrote in a research note. “The US dollar owes its recent strength to the high levels of US real rates — above 2% across much of the curve. We expect these to head toward more normal levels as the economy slows and disinflation continues”

In rates, treasuries were slightly cheaper across the curve with losses led by long-end, extending Wednesday’s steepening move. US 10-year yields around 4.295%, cheaper by 4bp on the day with bunds outperforming by 3bp in the sector; continued long-end underperformance steepens 2s10s spread by 2.5bp while 5s30s is only slightly wider vs Wednesday close. 10-year touched 4.246% during Asia session, lowest level since September, extending retreat from October’s multiyear high near 5.02% that has fueled the market’s biggest monthly advance since 2008 (3.9% through Nov. 29). Core European rates outperform after French November inflation slowed more than expected.

In commodities, crude futures advance as the OPEC meeting gets underway, with WTI rising 1% to trade near $78.70. Spot gold falls 0.3%.

To the day ahead now, and the main data highlight will be the flash CPI release for the Euro Area in November, which printed below the lowest estimate as European inflation slides, along with the unemployment rate for October. In the US, we’ll get the weekly initial jobless claims, PCE inflation, and personal income and spending for October. Central bank speakers include ECB President Lagarde, the ECB’s Panetta and Nagel, the Fed’s Williams, and the BoE’s Greene. Otherwise, the COP28 summit begins today, and there’s also the OPEC+ meeting taking place.

Market Snapshot

• S&P 500 futures up 0.1% to 4,565.75
• STOXX Europe 600 up 0.2% to 459.86
• MXAP up 0.4% to 162.25
• MXAPJ up 0.3% to 505.27
• Nikkei up 0.5% to 33,486.89
• Topix up 0.4% to 2,374.93
• Hang Seng Index up 0.3% to 17,042.88
• Shanghai Composite up 0.3% to 3,029.67
• Sensex little changed at 66,932.47
• Australia S&P/ASX 200 up 0.7% to 7,087.33
• Kospi up 0.6% to 2,535.29
• German 10Y yield little changed at 2.41%
• Euro down 0.3% to $1.0936
• Brent Futures up 0.8% to $83.80/bbl
• Gold spot down 0.1% to $2,041.77
• U.S. Dollar Index up 0.34% to 103.11

Top Overnight News

• Occidental Petroleum is in talks to buy CrownRock, a major energy producer in the west Texas area of the Permian basin, continuing a frenzy of deal making in the oil patch. A deal for the closely held company, which could be valued well above $10 billion including debt, could come together soon assuming the talks don’t fall apart or another suitor doesn’t prevail, according to people familiar with the matter. WSJ
• Elon Musk told advertisers who have halted spending on X due to his endorsement of an antisemitic post to “go F” themselves, deepening a rift between the billionaire and the companies that generate most of the social media platform’s revenue. FT
• China’s NBS PMIs for Nov fall short of expectations, with manufacturing coming in at 49.4 (down from 49.5 in Oct and below the Street’s 49.8 forecast) and services sliding to 50.2 (down from 50.6 in Oct and below the Street’s 50.9 forecast). FT
• WMT shipped 25% of all its US imports from India between Jan and Aug of ’23 vs. just 2% in ’18 as the firm moves its supply chain away from China (imports from China went from 80% to 60% of the total). RTRS
• China Evergrande seeks to avoid liquidation with a last-minute debt restructuring plan, but creditors are unlikely to accept the new proposal. RTRS
• France’s CPI falls by more than expected in Nov, coming in at +3.8% (down from +4.5% in Oct and below the Street’s +4.1% forecast). RTRS
• Eurozone CPI sinks by more than anticipated in Nov, with headline coming in at +2.4% (down from +2.9% in Oct and below the Street’s +2.7% forecast) and core +3.6% (down from +4.2% in Oct and below the Street’s +3.9% forecast). BBG
• Israel and Hamas agreed to extend their truce for at least another day in an announcement just minutes before it was set to expire. Antony Blinken will discuss the path forward with the Israeli government today. BBG
• Henry Kissinger, the former US secretary of state, died at the age of 100. He defined American foreign policy in the 1970s with his strategies to end the Vietnam War, and remained China’s preferred go-between with Washington until his death. BBG

A more detailed look at global markets courtesy of Newsquawk

APAC stocks were mixed and indecisively capped off this month’s notable gains as the Israel-Hamas truce hung in the balance before the announcement of a last-minute one-day extension, while participants also digested a slew of key data releases including disappointing Chinese official PMI figures. ASX 200 was choppy after mixed data in which Building Approvals topped forecast and Private Capital Expenditure missed estimates. Nikkei 225 swung between gains and losses amid recent currency strength and with better-than-expected Industrial Production offset by softer Retail Sales. KOSPI was just about kept afloat following the unsurprising decision by the BoK to keep rates unchanged and noted that it will maintain a restrictive policy stance for a sufficiently long period of time. Hang Seng and Shanghai Comp were indecisive with only brief pressure seen after the PMI data showed a steeper contraction in China’s factory activity which raises the prospects for further supportive measures.

Top Asian News

• Taiwan is closely monitoring China’s respiratory illnesses outbreak and will adjust epidemic prevention measures when needed.
• BoK kept its base rate unchanged at 3.50%, as expected, with the decision unanimous and four out of the seven board members said the door to a rate hike should remain open. BoK said uncertainties to the growth path are high with the economy facing heightened geopolitical risks and restrictive monetary policies abroad, while it will maintain a restrictive policy stance for a “sufficiently long period” of time (prev. “considerable time”) until the board is confident inflation will converge to the target level. Furthermore. Governor Rhee said the current policy rate is sufficiently restrictive and that restrictive monetary policy could stay for longer than six months.
• Hong Kong Exchange consultation paper on severe weather: severe conditions will no longer have automatic consequential impact on the continuity of trading

European bourses currently post modest gains, Euro Stoxx 50 +0.2%, despite spending the majority of the morning in the red; with the FTSE 100 outperforming, +0.6%, boosted by broader Crude price action pre-OPEC+; DAX 40 is lifted by SAP, +1.1%, as a read-over from Salesforce earnings. European sectors are mixed, though with a positive tilt; Energy significantly outperforms whilst Autos lag. Stateside futures, NQ & ES +0.2%, tilt higher in-fitting with the European bias as markets await US PCE data.

Top European News

• German Finance Minister Lindner said Germany faces a EUR 17bln gap in the 2024 budget.
• Dutch NSC party said it is not ready to negotiate on joining the Cabinet with far-right leader Wilders, according to ANP.
• ECB to, as usual, temporarily pause PEPP purchases (reinvestments) in anticipation of significantly lower market liquidity towards the end of this year. The last trading day before 19th December 2023, and purchases will resume on 2nd January 2024.
• BoE Monthly Decision Maker Panel (3rd-17th Nov): One-year ahead CPI inflation expectations decreased to 4.4% in November, down from 4.6% in October, expected year-ahead wage growth remained unchanged at 5.1%. The three-month moving average fell by 0.2 percentage points to 4.6% in the three months to November. Three-year ahead CPI inflation expectations increased 0.1 percentage point to 3.2% in November.
• ECB will discuss QT in December, via Econostream citing an ECB insider; some preference for coming to a QT decision next year as it means less once in 2024. Lagarde will not try to delay the discussion indefinitely. Will not take many meetings to come to a decision on PEPP, given broad agreement currently. PEPP change is expected, liquidity is high; unworried by how markets will take the change.
• ECB’s Panetta says ECB needs to avoid “useless damage” to the economy and financial stability that would end up also putting price stability at risk; ECB may be able to ease monetary conditions if persistently weak output accelerates decline in inflation; Monetary tightening has not yet had full impact, it will continue to dampen demand in the future

FX

• Dollar resumes recovery rally with a firm fillip from the Euro post-EZ inflation data and pre-US PCE/IJC.
• DXY towards top of 103.35-102.71 range and EUR/USD hovering near bottom of 1.0910-84 band.
• Pound and Yen suffer contagion, with Cable sub-1.2650 and USD/JPY above 147.50 compared to 1.2700+ and 146.85 at one stage.
• Loonie underpinned between 1.3568-1.3616 parameters as oil rebounds in advance of Canadian GDP metrics.
• PBoC set USD/CNY mid-point at 7.1018 vs exp. 7.1273 (prev. 7.1031).
• Banxico Governor Rodriguez said they do not see a rate cut in the December decision but it is possible they could begin a discussion of rate cuts in meetings early next year.

Fixed Income

• Debt futures wane after short squeeze fizzles out.
• Bunds hit brakes just ahead of 133.00 as cool EZ inflation data pre-empted.
• Gilts undermined by extra DMO issuance and probing 97.00 to downside.
• T-note near base of 110-05+/14 range awaiting US PCE and IJC.
• UK DMO Gilt Auction Calendar: December 2023-March 2024. Two Gilts (2053 & 2034) to be sold at the additional auctions on 13th & 19th December; The gilts to be issued at auctions on 5, 6 and 12 December 2023 were previously announced on 31 August 2023. The auctions on 13 and 19 December 2023 were added to the calendar at the remit revision published on 22 November 2023

Commodities

• WTI and Brent, +1.9%, extend gains following reports that OPEC+ has a preliminary agreement for additional oil output cuts in excess of 1mln BPD, according to Reuters; reminder the JMMC commences at 08:30EST and the OPEC+ gathering at 09:30EST.
• Spot Gold is marginally lower, owing to the firmer Dollar, though with overall trade rangebound ahead of US PCE, base metals are mixed/flat following on from weaker Chinese PMI data and the FX influence.
• OPEC “proposal is around Saudi Arabia extending the voluntary cuts of 1 million bpd and then on top of that other states may add additional cuts”, via Energy Intel’s Bakr
• OPEC+ has a preliminary agreement for additional oil output cuts in excess of 1mln BPD, via Reuters citing a delegate; Talks around an OPEC cut of more than 1mln BPD will depend on how much could be contributed by members states, Energy Intel reports; adds almost all member states appear to be aligned that a deeper cut is needed
• Updated OPEC Timings for today: OPEC meeting at 10:00GMT/05:00EST, JMMC meeting at 13:30GMT/08:30EST, OPEC+ meeting at 14:30GMT/09:30EST, according to EnergyIntel’s Bakr
• OPEC/OPEC+ meetings expected to occur as scheduled on Thursday, via Reuters citing sources; OPEC+ continues to discuss additional oil output cut for early-2024
• OPEC+ additional output cut discussions range from 1-2mln BPD, according to Reuters sources
• OPEC+ reportedly mulls new oil production cuts amid the Middle East conflict with Saudi Arabia favouring a curb of up to 1mln BPD, while other members oppose downgrading quotas with Nigeria and Angola resisting a downgrade of their individual quotas and the UAE is also reluctant to cut output. Furthermore, it was stated that a rollover of most existing output curbs is the most likely scenario but talks are continuing, according to WSJ citing delegates.
• Kazakhstan Energy Ministry said oil output was down 34% at Karachaganak oilfield on November 29th due to the Black Sea storm.
• Oil loadings from Novorossiysk and CPC terminals remained shut on Wednesday amid a storm with the November plan for Novorossiysk delayed by over 1mln tons, according to Reuters sources.
• First Quantum (FM CA) announced the suspension of 7,000 contract employees due to force majeure at its Panama mine.

Geopolitics: Israel-Hamas

• Israeli military said the truce will continue in light of mediators’ efforts to release more hostages and Hamas also confirmed that it agreed to extend the truce for a seventh day, according to Reuters.
• Sources in Israel’s war council earlier noted that Hamas’s list of the new batch of hostages to be released did not meet the agreed criteria and Israel officials warned fighting will resume if Hamas does not present a new list by 07:00 local time (05:00GMT/00:00EST), while Hamas confirmed Israel rejected its proposed hostage release and it told its fighters to be ready for renewed battles if the truce with Israel was not extended, according to Al Jazeera, Al Arabiya and Reuters.
• Israeli prison service announced it released 30 Palestinians in the sixth round of Gaza truce swaps on Wednesday.
• UK Defence Minister Shapps is sending a warship to the Gulf region amid fears of a ramp up in Iranian missile attacks. The warship will protect against drone threats and ensure safe flow of trade, according to the Telegraph.
• China issued a position paper on the Israeli-Palestinian conflict which stated that the UN Security Council should respond to the general call of the international community for a comprehensive ceasefire to be put in place to stop the fighting. Furthermore, China’s Foreign Minister Wang Yi said a spillover of the Israeli-Palestinian conflict to the entire Middle East region should be avoided by urging countries that have an impact on the parties to play an active role, while he added that China is to send another batch of emergency humanitarian supplies to Gaza to alleviate the humanitarian situation.
• “Sirens in the Upper Galilee in northern Israel after a march crept in from southern Lebanon”, according to Al Arabiya
• United Nations Interim Force In Lebanon says Israel retaliated to cross-border fire from Lebanon
• “Estimates in Israel indicate that tomorrow is the last day of the truce in Gaza”, according to Al Arabiya citing Israeli Press Yedioth Ahronoth

Geopolitics: North Korea

• North Korean leader Kim inspected satellite photos of a US naval base in San Diego and Kadena air base in Japan, while North Korea said it will never sit face-to-face with the US for negotiations, according to KCNA.

US Event Calendar

• 08:30: Nov. Initial Jobless Claims, est. 218,000, prior 209,000
  • Nov. Continuing Claims, est. 1.87m, prior 1.84m
• 08:30: Oct. Personal Income, est. 0.2%, prior 0.3%
  • Oct. Personal Spending, est. 0.2%, prior 0.7%
  • Oct. Real Personal Spending, est. 0.1%, prior 0.4%
• 08:30: Oct. PCE Deflator MoM, est. 0.1%, prior 0.4%
  • Oct. PCE Core Deflator YoY, est. 3.5%, prior 3.7%
  • Oct. PCE Core Deflator MoM, est. 0.2%, prior 0.3%
  • Oct. PCE Deflator YoY, est. 3.0%, prior 3.4%
• 09:45: Nov. MNI Chicago PMI, est. 46.0, prior 44.0
• 10:00: Oct. Pending Home Sales YoY, est. -8.8%, prior -13.1%
  • Oct. Pending Home Sales (MoM), est. -2.0%, prior 1.1%

Central Bank speakers

• 09:15: Fed’s Williams Speaks on Innovations in Central Banking

DB’s Jim Reid concludes the overnight wrap

Morning from Zurich where it is currently snowing. I know that as the hotel gym is 200 meters away from the hotel and I’ve finished this off on an exercise bike here this morning. That was a long 200 meters dressed in just gym kits!

For markets the sun has shined almost every day this month and as we arrive at the last day, bonds have continued their extraordinary performance over November, driven by growing hopes for a soft landing and a dovish central bank pivot. That excitement meant that we saw another strong rally yesterday, with the 2yr Treasury yield (-8.8bps) falling to its lowest level since July, at 4.65%, whilst other records were being set across the board. For instance, Bloomberg’s global bond aggregate is currently on course for its best month since December 2008, and the US bond aggregate is on course for its best month since May 1985. That said, equities struggled to gain much traction yesterday after an equally dizzying run, with the S&P 500 paring back its initial gains to close down -0.09%.

The main catalyst for this rally was another round of downside surprises on inflation. In particular, the preliminary German CPI reading for November fell to just +2.3% on the EU-harmonised measure (vs. +2.5% expected), which is the lowest it’s been since June 2021. Earlier in the day, we also had a downside surprise from Spain, where CPI fell to +3.2% (vs. +3.7% expected). So all that has set us up nicely for the Euro Area-wide release this morning.

That good news narrative was then supported by some robust data from the US, which saw the strong Q3 GDP performance revised up even higher. The latest estimate showed annualised growth at a +5.2% rate (vs. +4.9% before), and it also included downward revisions to PCE and core PCE inflation, which is the measure the Fed officially targets. Specifically, the Q3 PCE number was revised down a tenth to +2.8%, and core PCE was also revised down a tenth to +2.3%. So all other things being equal the revisions were in a soft landing direction. Today’s PCE and personal spending data for October will give us more colour on where in Q3 these revisions came and the read through for Q4.

This data meant that investors grew even more excited about near-term rate cuts, with futures pricing in the most dovish path in months. For instance, a March rate cut by the Fed was seen as a 50% chance at the close, and a cut is now fully priced in by the May meeting. It’s a similar story at the ECB as well, with a cut now fully priced by April. So when it comes to market pricing, a Q1 rate cut has gone from being a complete out-of-consensus view only a month ago, to a serious proposition now. It will be fascinating to see what Mr Powell makes of all this tomorrow. This rally all started at the last FOMC meeting on 1 November with him repeatedly noting that financial conditions had tightened “significantly”. This shifted the market’s attention from a slight chance of hikes to cuts. Since then this trade has taken a life of its own. With bonds and equities performing so strongly over the past month, it will be very interesting if Powell endorses or pushes back on it.

With rate cuts seemingly coming closer, sovereign bonds rallied very strongly on both sides of the Atlantic, particularly at the front end. For instance, yields on 2yr Treasuries (-8.8bps) fell to their lowest level since July, at 4.65%, and those on 10yr Treasuries (-6.6bps) were at their lowest since September, at 4.26%. In Europe, there was a similar rally, with yields on 10yr bunds (-6.4bps), OATs (-6.4bps) and BTPs (-8.2bps) all seeing a considerable decline. In fact for 10yr bunds, that left them at 2.43%, which is the lowest they’ve been since July .

Whilst hopes were growing about a soft landing, risk assets struggled to gain much traction despite a strong performance at the open. Some of that weakness followed comments from Richmond Fed President Barkin, who struck a more hawkish tone than recent Fed speakers. He pointed out that “if inflation is going to flare back up, I think you want to have the option of doing more on rates. That said, other Fed speakers avoided such hawkish signals. Atlanta Fed President Bostic expressed confidence that the “the downward trajectory of inflation will likely continue”, while Cleveland Fed President Mester said that “monetary policy is in a good place”. Back in Europe, we heard from Greek central bank Governor Stournaras that the first rate cut could come in mid-2024 but that pricing of an April ECB cut seemed a bit optimistic. So some pushback against increased market pricing of cuts coming from one of the more dovish ECB voices.

Equities started the day on the front foot but then lost ground, with the S&P 500 falling back from a gain of +0.72% to close -0.09% lower. The Dow Jones (+0.04%) and the NASDAQ (-0.16%) were also near-flat on the day, with one outperformer being the small-cap Russell 2000, which rose +0.61%. Bank stocks were also a notable outperformer, with the S&P 500 banks index (+1.46%) rising to its highest level since mid-August .

European risk assets outperformed their US counterparts yesterday, with the STOXX 600 advancing +0.45%, whilst the DAX was up +1.09% to its highest level since early August. That was echoed in the credit space too, where the iTraxx Crossover (-10.2bps) moved to its tightest since April 2022, at 367bps. The moves came as we also got some better-than-expected sentiment data, with the European Commission’s economic sentiment indicator ticking up for a second month running to 93.8 (vs. 93.6 expected), having previously been on a run of five consecutive declines.

In the commodities space, oil prices gained ahead of today’s OPEC+ meeting, with Brent crude up +1.74% to $83.10/bbl and WTI up +1.90% to $77.86/bbl. Today’s OPEC+ meeting had previously been scheduled for last weekend but was delayed amid negotiation difficulties over potential new output cuts. The WSJ reported yesterday that the alliance was considering new production cuts of as much as 1mmb/day. In our 2024 World Outlook mentioned at the start, our oil analyst noted that, with subdued oil demand growth and rising non-OPEC production, the global oil market would move into an oversupplied position in early 2024 if there were no further OPEC+ output cuts .

Moving on to Asia, equity markets are trading in a tight range this morning even with the downbeat China PMIs highlighting the sustained softness in the world’s second biggest economy. In terms of specific moves, the Hang Seng (+0.18%), the CSI (+0.24%) and the Shanghai Composite (+0.16%) are trading slightly higher on the hopes for more policy support. Elsewhere, the Nikkei (+0.03%) is reversing its opening losses while the KOSPI (+0.04%) is also fairly flat following the Bank of Korea’s decision to keep its interest rate unchanged at 3.5%. S&P 500 (+0.13%) and NASDAQ 100 (+0.20%) futures are looking to wrap up a stella month in style .

Coming back to China, the official factory activity measure shrank for the second consecutive month in November, slipping to 49.4 (v/s 49.8 expected) from 49.5 in October, dragged down by insufficient demand. Additionally, the official non-manufacturing PMI dropped to 50.2 in November (v/s 50.9 expected) from 50.6 in October, recording its weakest level since December 2022. Elsewhere, retail sales in Japan rose at its slowest pace so far this year, increasing +4.2% y/y in October (v/s +6.0% expected) compared to a revised +6.2% gain in September. Meanwhile, industrial output rebounded +0.9% y/y in October, exceeding market forecasts for a +0.4% increase and after a -4.4% drop in the previous month.

Staying with data, there was some more positive data from the UK yesterday, where mortgage approvals rose to 47.4k in October (vs. 45.3k expected), ending a run of three consecutive declines. That was above every economist’s estimate in Bloomberg’s survey, and it adds to the theme of better-than-expected UK data over the last week, including the flash PMIs and the GfK’s consumer confidence reading.

To the day ahead now, and the main data highlight will be the flash CPI release for the Euro Area in November, along with the unemployment rate for October. In the US, we’ll get the weekly initial jobless claims, PCE inflation, and personal income and spending for October. Central bank speakers include ECB President Lagarde, the ECB’s Panetta and Nagel, the Fed’s Williams, and the BoE’s Greene. Otherwise, the COP28 summit begins today, and there’s also the OPEC+ meeting taking place.

Following cooler than expected CPI from Germany and Spain yesterday, the aggregate euro-zone inflation cooled more than expected this morning with headline CPI tumbling from +2.9% in October to +2.4% in November. Core CPI – that excludes volatile components including fuel and food – also moderated for a fourth month, to 3.6%.

Source: Bloomberg

The decline in inflation was dominated by Energy deflation…

And inflation is slowing across all of Europe…

However, inflation is likely to tick higher before returning to target due to statistical effects and the wind-down of measures deployed last year by governments to offset soaring energy prices.

President Christine Lagarde has warned price gains may quicken “slightly” in the coming months and Bloomberg Economics’ Nowcast for December points to a reading of 3.2%.

And this has raised expectations for ECB rate-cuts next year, bringing forward expectations for the first cut from May to April…

Source: Bloomberg

Additionally, markets are betting on four quarter-point reductions in 2024 – up from three last week – and are assigning a 70% chance of a fifth, which would bring the deposit rate back to 2.75% from a record 4% currently.

ECB officials are adamant, however, that monetary policy must remain tight to ensure inflation makes it all the way back to 2%.

Rice prices are on the verge of hitting new 15-year highs as the damage effects of the El Nino weather phenomenon across Asia have damaged farmlands, leading to dwindling supplies. 

Thai white rice 5% broken hit $640 per ton this week. These prices are back to levels not seen since October 2008. Prices are up over 50% since the start of 2022.

Bloomberg spoke with Chookiat Ophaswongse, an honorary president of the Thai Rice Exporters Association, who provided new details about the deteriorating conditions for global rice markets. 

Ophaswongse said the demand for Thai rice from Brazil and the Philippines continues to rise. He said prices are being pushed up as top producer countries run low on supplies and demand increases elsewhere.

“We’re selling well now because Vietnam is low on stocks,” said Chookiat, whose group sets the weekly price for 5% broken. 

We provided readers with enough understanding that rice, which is critical to the diets of billions of people worldwide, was headed for a shortage:

• Sept. 2022: The Stage Is Being Set For A Massive Global Rice Shortage
• May 2023: Global Rice Shortage Looms, Set To Be The Biggest In Decades
• May 2023: Thai Rice Crop In Crosshairs Of El Nino As Farmers Are Warned About Water Shortages

And the panic started earlier this year: 

• July 2023: “So It Begins “: US Supermarkets Hit With Buying Panic As India Bans Rice Exports

In mid-September, Frederic Neumann, Chief Asia Economist at HSBC Global Research, told clients that soaring rice prices are “a memory of the 2008 Asian food price scare.” 

And just weeks ago, Sara Menker, founder and CEO of Gro Intelligence, told Bloomberg in an interview that the current food crisis surpassed the one in 2007-08, which ultimately sparked Arab Spring across the Middle East a few years later.