Authored by Lance Roberts via RealInvestmentAdvice.com,

Since June, the market rallied on hopes of a “policy pivot” by the Federal Reserve. However, those hopes got dashed each time as Jerome Powell clarified that the “inflation fight” remained the primary focus. Mr. Powell made that point very clear following the latest FOMC announcement.

“The question of when to moderate the pace of increases is now much less important than the question of how high to raise rates and how long to keep monetary policy restrictive.”

Before the pandemic, the Fed’s storyline was to let inflation run hot rather than allow inflation to stay too low for too long. Such makes sense as inflation is easy to deal with by hiking rates and slowing the economy. Deflation is a far different story, as it becomes an entrenched psychological impact that becomes difficult to dislodge.

Today, Powell says the Fed’s concern is entrenched inflation which causes pain to the economy.

The reality is that inflation is not the problem.

If the Fed did nothing, “high prices will cure high prices.” The real risk remains a “deflationary” spiral that depresses economic activity and prosperity. Deflation is a far more insidious problem than inflation longer term.

Such is why, over the past decade, the Fed flooded the economy with liquidity and zero interest rates to boost economic activity. The chart below shows the periods inflation ran above or below the average inflation rate from 1982. Since the “Great Financial Crisis,” inflation has run consistently well below that average and even the Fed’s 2% target rate.

While monetary interventions and zero interest rates failed to generate organic growth above 2% annually, they increased asset prices, inflated asset bubbles, and expanded wealth inequality.

What is important to note is that since the turn of the century, the outcomes have not been positive each time the Federal Reserve has started an aggressive rate hiking campaign. Notably, the Fed is well aware of this but no longer fears creating economic havoc. As Powell recently stated,

“If we overtighten, we can support economic activity.”

In other words, for the bulls hoping for a “pivot,” Powell made it clear that a “policy pivot” is coming. It is only the function of time until it is evident that something breaks in the economy and bailouts are required.

The Policy Pivot Is Coming

One of the interesting comments by Jerome Powell was the “window for a soft landing in the economy was narrowing.” Such confirms what we already know that the Fed is starting to realize the risk of a “hard landing” is becoming increasingly elevated.

Such leaves only two trajectories for monetary policy. The first option is for central banks to pause rates and allow inflation to run its course. Such would potentially lead to a softer landing in the economy but theoretically anchor inflation at higher levels. The second option, and the one chosen, is to hike rates until the economy slips into a deeper recession. Both trajectories are bad for equities. The latter is substantially riskier as it creates an economic or financial “event” with more severe outcomes.

While the U.S. economy has absorbed tighter financial conditions so far, it doesn’t mean it will continue to do so. History is pretty clear about the outcomes of higher rates, combined with a surging dollar and inflationary pressures.

Naturally, once the Fed’s aggressive rate hike campaign “breaks” something, the “policy pivot” will occur. Such will occur as the realization that inflation has now become a “disinflationary” wave in the economy. As Michael Wilson recently noted:

“M2 is now growing at just 2.5%Y and falling fast. Given the leading properties of M2 for inflation, the seeds have been sown for a sharp fall next year. The implied fall in CPI outlined would be highly out of consensus, and while it won’t necessarily play out exactly, we believe it’s directionally correct. We’re closer today [to a ‘policy pivot’] because M2 growth is fast approaching zero, and the 3-month-10-year yield curve finally inverted last week, something Chair Powell has noted is important in determining if the Fed has done enough.“

Given the surge in inflation was caused by increased demand due to “stimmy checks” against a drastic drop in supply as the Government shuttered the economy, the reversal of those dynamics is disinflationary. Notably, inflation will fall in 2023 much faster than the Fed expects, leading to the rapid “policy pivot” the bulls continue to hope for.

However, the bulls may not like what they get.

The Bulls May Not Like The “Pivot”

The bullish expectation is that when the Fed finally makes a “policy pivot,” such will end the bear market. While that expectation is not wrong, it may not occur as quickly as the bulls expect.

Historically, when the Fed cuts interest rates, such is not the end of equity “bear markets,” but rather the beginning. Such is shown in the chart below of previous “Fed pivots.”

Notably, the majority of “bear markets” occur AFTER the Fed’s “policy pivot.”

The reason is that the policy pivot comes with the recognition that something has broken either economically (aka “recession”) or financially (aka “credit event”). When that event occurs, and the Fed initially takes action, the market reprices for lower economic and earnings growth rates.

Currently, forward estimates for earnings and profit margins remain elevated. The spread between the Producer Price and Consumer Price Indices remains problematic. Historically, this suggests that producers will absorb inflation, thereby eroding profit margins as consumer demand deteriorates from inflationary pressures.

Such is what Michael Wilson also concluded:

“Bottom line, inflation has peaked and is likely to fall faster than most expect, based on M2 growth. This could temporarily relieve stocks in the short term as rates fall in anticipation of the change. Combining this with the compelling technicals, we think the current rally in the S&P 500 has legs to 4000-4150 before reality sets in on how far 2023 EPS estimates need to come down.”

Once the reversion sets in, the Fed cuts rates to zero and restarts the next “Quantitative Easing” program, such will start the next bull market cycle.

We will certainly want to buy that opportunity when it comes.

Our warning is that bulls may be early trying to “buy” the initial “policy pivot.”

Oil jumped after China announced some easing of its strict Covid Zero measures, a move that could spark more local and international travel and lift commodity demand.

As reported earlier, China reduced the amount of time people entering the country must spend in quarantine and will scrap a system that penalizes airlines for bringing Covid cases into the nation, according to the National Health Commission. WTI advanced more than 4% to trade above $90 a barrel…

… and the more oil keeps rising, the faster the upswing in gas prices will be in the coming days, considering that there is still about 2.74 million b/d in refinery outages as of Nov. 10, according to data compiled by Bloomberg (outages in the US were at 165,000 b/d, while in Russia, they were at 67,000 b/d)…

… and certainly when Biden’s daily drain of the SPR comes to an end, and send the price of oil on its merry way to $150.

In other news, Saudi Arabia’s energy minister said OPEC+ will remain cautious on oil production, weeks after the group angered the US by lowering output. The 23-nation alliance, led by Riyadh and Russia, is set to meet on Dec. 4 to decide whether to cut production again, keep it stable or reverse course and pump more. Members are looking at the state of the global economy and seeing plenty of “uncertainties,” Prince Abdulaziz bin Salman said.

Authored by Jonathan Turley,

Below is my column in Fox.com on the impact of the likely GOP takeover of the House on the Hunter Biden scandal. Hunter Biden’s laptop is Washington’s Pandora’s Box. Opening up that laptop to greater public scrutiny could expose our local cottage industry of influence peddling.

Here is the column:

In the legend of Pandora’s box, the star-crossed Pandora releases a slew of evils upon the world. Notably, the only thing that she was able to trap in the box or jar was something that is likely to be at a premium in Washington this week: hope.

The likely Republican takeover of the House could yield a slew of investigations in the months to come. Washington is famous for managing scandals. Indeed, it is a virtual artform in the Beltway. However, there is one investigation that comes the closest to Pandora’s box for the Washington establishment. A serious investigation into the Hunter Biden scandal could put the political and media elite into an existential crisis.

Here are the “usual suspects” who could find themselves under a microscope for the first time as a result of a full investigation into Hunter Biden. 

The Bidens

The Biden family has long been associated with influence peddling to the degree that they could add an access key to their family crest. While they may be more aggressive than most families, influence peddling has long been a cottage industry in Washington. For decades, I have written about this loophole in bribery laws. It is illegal to give a member of Congress or a president even $100 to gain influence. However, you can literally give millions to their spouses or children in the forms of windfall contracts or cozy jobs.

President Joe Biden has faced repeated questions about influence peddling involving his family. (Getty Images)

James Biden has been remarkably (even refreshingly) open about marketing his access to his brother. Former Americore executive Tom Pritchard and others allege the Biden openly referenced his access to his brother and his family name in his pitch for clients. James has faced a wide array of litigation over allegedly fraudulent activities as well as a personal loan acquired through Americore before it went into bankruptcy.

Hunter worked with his uncle but also branched off on his own in the family business. While his father recently emphasized that his son was a hopeless addict, that defense stands in glaring contradiction to the fact that he maintained a multimillion-dollar influence-peddling scheme. The question is why foreign figures (including some associated with foreign intelligence) rushed to him international money transfers and complex deals worth millions from Moscow to Kyiv to Beijing.

However, the Biden most concerned may be the president himself. Joe Biden has repeatedly denied knowledge of Hunter Biden’s business entanglements despite numerous emails and pictures showing him meeting with Hunter associates. That includes at least 19 visits to the White House by Hunter’s partner, Eric Schwerin, alone between 2009 and 2015.

While emails on Hunter Biden’s laptop make repeated reference to his father as a possible recipient of funds derived from influence peddling. Indeed, in one email, Tony Bobulinski, then a business partner of Hunter, was instructed by Biden associate James Gilliar that the Bidens wanted to avoid such references: “Don’t mention Joe being involved, it’s only when u [sic] are face to face, I know u [sic] know that but they are paranoid.”

In discussing these deals, Joe Biden is referenced with code names such as “Celtic” or “the big guy.” In one, “the big guy” is discussed as possibly receiving a 10% cut on a deal with a Chinese energy firm. There are also references to Hunter paying off the bills of his father from shared accounts. From his board memberships to venture deals to legal fees to his art deals, Hunter Biden is a tour de force of alleged corrupt practices used in Washington. Indeed, while his skills as a painter and a lawyer have been questioned, Hunter’s remarkable skills at influence peddling could soon be the focus of Washington.

The Beltway Bandits

One of the things that most worries the establishment is that these emails threaten to pull the curtain away from the influence-peddling cottage industry. The emails contain an array of children connected to powerful Democratic and Republican leaders. For example, one of Hunter’s closest associates was John Kerry’s stepson, Chris Heinz. Like Joe Biden, Kerry is also accused of falsely denying knowledge of his son’s business dealings. Even the late mobster James “Whitey” Bulger’s nephew, Jim Bulger, was a business associate of Hunter Biden. The Bulgers were a powerful Democratic family in Massachusetts.

Surrounding these well-connected children are an array of insiders tied to the very top of the Democratic and Republican parties. An array of lawyers and political operatives quickly formed around the kinder of the powerful to cash in on these foreign dealings. An investigation of Hunter Biden could not spotlight his conduct without putting a floodlight on all of those who support the influence-peddling industry. 

The Media

The media is the final group that could be collateral damage in any investigation. This influence peddling could not have occurred without the assurance that the media had the back of the Bidens. Imagine what the media would have done with even one of these deals with foreign political or influence figures if a Trump child was the recipient. The genius of the Biden influence peddling operation was to make the media an early and active participant. The media and social media companies almost universally buried the Hunter Biden scandal before the 2020 election. They became invested in the denial over two years of belittling or dismissing the story.

The disclosure of the corrupt practices linked to the Bidens will erode what little trust remains for the media. Figures like Bobulinski and the underlying emails were available to the media before the 2020 election. However, the media showed strikingly little interest in pursuing the facts of the influence peddling. Bobulinski and others will now presumably have a chance to be heard. 

Obviously, other groups are also worried about what sunshine will expose in this scandal. That includes the FBI which appears to have scuttled or slowed early efforts to investigate the Biden dealings. It also includes Attorney General Merrick Garland, who steadfastly refused to appoint a special counsel despite overwhelming support for such an appointment.

There is of course a difference between opening Hunter’s laptop as opposed to Pandora’s Box: few in the Beltway expected to find hope within its sorted contents. 

Authored by Zachary Stieber via The Epoch Times (emphasis ours),

Cameras at the vote counting facility in a Nevada county still counting midterm election votes stopped broadcasting overnight, officials said on Nov. 10.

The livestream computer application that provides the feeds “lost connection with” the cameras at 11:24 p.m. on Wednesday, according to Bethany Drysdale, a spokesperson for Washoe County.

All staff members left for the night about an hour before the issue and none returned until 7 a.m. on Thursday morning, county officials said.

The connection was restored just before 8 a.m. on Nov. 10.

The Washoe County security administrator was said to have reviewed security cameras at the building, which run on a different system. The cameras showed that no person entered the ballot room or Registrar’s Office while the live feeds were cut off.

Security personnel are working to make that footage public.

A review of staff badges also indicated that no one entered the ballot room or office.

“In the future we will look for a solution that would prevent software disruptions or simply not offer a courtesy livestream feed,” Drysdale said in a statement. “Washoe County has been at the forefront of trying to innovate election transparency, but we have moved from an election night to a much longer election timeframe. The technology we are using to provide this livestream cannot keep up with these demands. We suggest enhancing transparency with security cameras rather than courtesy livestream cameras in future elections.”

Washoe County is among multiple counties in Nevada that have not yet completed tallying for the midterms, even though polls closed on Tuesday night.

Some 100,000 ballots, all cast by mail, remained uncounted as of Thursday afternoon, the Reno Gazette Journal reported. That included more than 50,000 ballots in Clark County.

State law requires election officials to count absentee ballots as long as they were postmarked by Election Day and received by Sunday.

In the latest tranche of votes, reported Thursday by Washoe County and other jurisdictions, Democrats Sen. Catherine Cortez Masto (D-Nev.) and Nevada Secretary of State hopeful Francisco Aguilar gained more votes than their rivals, former Nevada Attorney General Adam Laxalt and Republican Jim Marchant, according to KOLO-TV.

Laxalt still leads Cortez Masto by about 9,000 votes while Aguilar has about 5,350 more votes than Marchant, according to results posted by the office of the Nevada Secretary of State.

Laxalt and the senator have each said they’re confident they will be the winner when the vote count is finally done.

That race could end up determining which party controls the Senate, which is currently split 50–50. Democrats can break ties through Vice President Kamala Harris, the president of the upper chamber.

Two other races—Arizona and Georgia, the latter heading to a runoff—remain uncalled. The race in Alaska is uncalled but Republicans have the top two vote-getters.

As widely expected, FTX – which was clearly insolvent after the biggest fraud in crypto history – has filed for bankruptcy, and its soon-to-be incarcerated boss Sam Bankman-Fried, f/k/a “the JPMorgan of his generation”, has resigned as CEO. SBF is being replaced with John J. Ray, III – the lawyer who helped clean up Enron – as incoming CEO.

Here is a press release that will shortly be published by the main FTX twitter account. Sharing here in interest of time. pic.twitter.com/DxOZmy0aiu

— Ryne Miller (@_Ryne_Miller) November 11, 2022

Press release below:

FIX Group Companies Commence Voluntary Chapter 11 Proceedings in the United States Begin Orderly Process to Review and Monetize Assets for Benefit of Global Stakeholders John J. Ray III Appointed Chief Executive Officer; Sam Bankman-Fried Resigns

FTX Trading Ltd. (d.b.a. FTX.com), announced today that it, West Realm Shires Services Inc. (d.b.a. FTX US), Alameda Research Ltd. and approximately 130 additional affiliated companies (together, the “FTX Group”), have commenced voluntary proceedings under Chapter 11 of the United States Bankruptcy Code in the District of Delaware in order to begin an orderly process to review and monetize assets for the benefit of all global stakeholders.

John J. Ray III has been appointed Chief Executive Officer of the FTX Group. Sam Bankman-Fried has resigned his role as Chief Executive Officer and will remain to assist in an orderly transition. Many employees of the FTX Group in various countries are expected to continue with the FTX Group and assist Mr. Ray and independent professionals in its operations during the Chapter 11 proceedings.

“The immediate relief of Chapter 11 is appropriate to provide the FTX Group the opportunity to assess its situation and develop a process to maximize recoveries for stakeholders,” said Mr. Ray. “The FTX Group has valuable assets that can only be effectively administered in an organized, joint process. I want to ensure every employee, customer, creditor, contract party, stockholder, investor, governmental authority and other stakeholder that we are going to conduct this effort with diligence, thoroughness and transparency. Stakeholders should understand that events have been fast-moving and the new team is engaged only recently. Stakeholders should review the materials filed on the docket of the proceedings over the coming days for more information.”

The news sparked the latest bout of selling in crypto which is back under $17,000 unable to stage even a modest bounce amid the relentless negative newsflow…

And the price FTX Token (FTT) is tumbling…

Authored by Matthew Vadum via The Epoch Times,

Supreme Court Justice Sonia Sotomayor turned away an emergency application on Nov. 10 to halt New York City’s COVID-19 vaccination mandate that applies to firefighters, police officers, and other government employees.

The appeal was from workers who were fired after the city refused their requests to be exempted on religious grounds. Many people object to the various COVID-19 vaccines for religious reasons because aborted human fetal cell lines were involved in their testing, development, or production.

The Alliance Defending Freedom (ADF), a public interest law firm specializing in religious freedom cases, argued in the application filed on Nov. 2 that it was unfair that unvaccinated adult entertainers and athletes were exempted from the mandate while other unvaccinated workers were forced into compliance, and were fired if they refused the jab.

While pandemic-era restrictions have been easing in recent months, some remain.

The Supreme Court threw out a major federal vaccination mandate in January.

The high court voted 6–3 on Jan. 13 in National Federation of Independent Business (NFIB) v. Department of Labor to block the Occupational Safety and Health Administration’s private-sector vaccination regime. On the same day, the court ruled the opposite way in Biden v. Missouri, voting 5-4 to uphold a U.S. Department of Health and Human Services rule requiring more than 10 million employees at health care facilities that participate in the Medicare and Medicaid programs to be vaccinated against COVID-19.

Sotomayor decided the matter on her own, without referring the case to the full Supreme Court, which is her prerogative as a justice after receiving an emergency application. She provided no reasons for her ruling. The case is New Yorkers for Religious Liberty v. City of New York, court file 22A389.

ADF had argued in a brief supporting the application that the employees urgently needed relief because they are “suffering the loss of First Amendment rights, are facing deadlines to move out of homes in foreclosure or with past-due rents, are suffering health problems due to loss of their city health insurance and the stress of having no regular income, and resorting to food stamps and Medicaid just to keep their families afloat.”

John Bursch, senior counsel and vice president of appellate advocacy at ADF, said when the application was filed that “these city heroes have dedicated their lives to serving their neighbors and keeping their city running safely and efficiently, yet New York City officials suspended and fired them because they cannot take the COVID-19 vaccine without violating their sincere religious beliefs.

“But for athletes, entertainers, and strippers, the city found a way to loosen its mandate.”

It’s not just tech giants and Wall Street firms any more. As FreightWaves reports, truck brokerage giant C.H. Robinson Worldwide Inc. is laying off between 1,000 and 1,200 employees, most of whom are at the vice president and general manager level, according to sources familiar with the situation. The move, as FreightWaves CEO Craig Fuller reports, “might be the largest layoff in the history of freight brokerages, not related to a bankruptcy or acquisition.“

This might be the largest layoff in the history of freight brokerages, not related to a bankruptcy or acquisition. https://t.co/NVfB20nMor

— Craig Fuller 🛩🚛🚂⚓️ (@FreightAlley) November 9, 2022

The move comes a week after the Eden Prairie, Minnesota-based company reported weaker-than-expected, third-quarter results and strongly hinted at impending labor cost reductions to combat the impact of slowing demand and increased costs.

“We got ahead of ourselves in terms of head count,” said Bob Biesterfeld, Robinson’s president and CEO, on a post-earnings call. Robinson employs nearly 17,000 people.

Biesterfeld said he did not forecast truckload demand declining as rapidly as it did, as well as spot market and contract rates deflating considerably.

In a statement Wednesday night, the company would not confirm the number of layoffs and disputed the number cited by sources, adding:

“As we said last week in our Q3 earnings, changes in market conditions, coupled with many successful endeavors on our digital roadmap directed at scaling our model to be more efficient, mean we are in a position to reduce our overall cost structure.

“As a result, we’re eliminating some positions at C.H. Robinson. These are not easy decisions, because we recognize the significant contribution of the impacted employees. We have tried to approach this with as much respect and empathy for our former colleagues as possible and are providing transition assistance.”

In late February, Robinson entered into a cooperation agreement with Ancora Holdings Group LLC, an activist investor group. It also named Henry Maier, a former CEO of FedEx Ground, the U.S. ground delivery unit of FedEx Corp., (NYSE: FDX) and Jay Winship, a financial executive, as independent directors.

In addition, Robinson’s board formed a four-member capital allocation and planning committee, which the company said would recommend capital allocation, operations and strategies, including enhanced transparency and disclosures to shareholders. The panel is chaired by Winship and initially includes Scott Anderson, the company’s chairman, as well as Biesterfeld and Maier.

Authored by Simon White, Bloomberg macro strategist,

The longed-for Fed pivot may come quicker than expected — especially after this week’s very soft inflation data — but equities still face more downside if hopes for easier monetary conditions clash with the rising risk of a recession.

The Fed’s battle with inflation this year has pitched the stock market into one its most bearish cycles in decades. The expectation — or hope — is that once the Fed takes its foot off the brake, stocks will cast off their shackles and new a bull market will take flight.

That doesn’t look likely. And that’s despite the fact that evidence is mounting that the Fed is at, or at least very close to, peak hawkishness.

Central-bank rhetoric has begun to soften, the midterms are now behind us, and market expectations of where the Fed rate will peak now consistently exceed the high-point implied by its so-called “dot plot” projections. With the market now helping, not hindering, the Fed in its monetary objectives, the central bank shouldn’t have to keep sharpening its talons for much longer.

On top of that, the Fed pivot could come much sooner than most expect. The median length of time between the peak in inflation and the first rate cut is 22 weeks, according to US hiking cycles going back to 1972. June’s CPI print likely marks this cycle’s peak in headline inflation which, historically speaking, would put the first cut in as little as four to eight weeks.

This is not a prediction. But it does highlight how a Fed reversal could happen more quickly than the market expects. Either way, equity investors should treat it as the false dawn it is.

Firstly, financial conditions continue tightening for about five quarters after the first Fed hike. In the current cycle this would take us until the second half of 2023. Secondly, there’s a still greater squeeze in liquidity to come. The Global Real Policy Rate is still extremely negative and close to the all-time lows of -6% it reached in 1974, before it rose all the way to +3% by the early 1980s. Today it is at -4.4%, barely above its -5.6% nadir.

Overall, global financial conditions, as measured by the Global Financial Tightness Indicator, remain very restrictive, with no respite on the horizon. This will remain a poor environment for equities and other risk assets.

Even then, stocks might avoid the worst if the US dodges a recession, but the chances of that are rapidly diminishing as higher borrowing costs filter through the economy. As one of the most interest-rate sensitive sectors, housing is often first to feel the squeeze of those hawkish Fed claws.

As housing costs mount substantially, price growth is falling rapidly. Existing and pending home sales are declining fast. Mortgage rates have risen to 20-year highs, a trend that’s also contributing to the swift decline in growth of building permits. When residential building slows, it almost always leads to a weaker housing market and thus to a more fragile economy. The falling value of the homes they live in will also dent consumers’ confidence.

Used car prices, the poster-child of rapidly rising inflation last year, are collapsing in year-on-year terms as demand slumps. And credit conditions are deteriorating, leading to wider spreads, reduced liquidity and increased difficulty for borrowers in raising money.

Reliable leading indicators, such as the Philadelphia Fed State Diffusion Index and debit balances in customer margin accounts, are at levels that have always preceded recessions in the past. Even if the Fed were to start cutting rates tomorrow, an economic slump already looks to be baked in.

Have no fear you might say, with the market already down over 20% from its highs, a recession is already in the price. But that’s not what the past tells us.

Stocks are, in fact, pretty poor leading indicators, tending to sell off most once a recession has actually begun. Going back to 1960, the median sell-off of the S&P before the beginning of an NBER recession was 5%, but the market goes on to sell-off double that — 10% — in the months following the downturn.

Stocks may find themselves flipping from the inflation frying-pan into the recessionary fire, as the monetary easing the market has so desperately yearned for sets the stage for a new act, which promises to bring yet more misery.

One day after its best day since April 2020, when the S&P500 added 5.5%, or a near-record $1.8 trillion in market cap in one day, a rare 4-sigma move that has only occurred 10 times over the past decade, which essentially showed how wrong-footed the market was ahead of the inflation surprise.…

… the index was set to extend its gains as a FOMO panic started to spread among traders fueled by a softer-than-expected US inflation print and as China reduced the amount of time travelers and close contacts of virus cases must spend in quarantine, and pulled back on testing, in a significant calibration of the Covid Zero policy that has upended the world’s second-largest economy and raised public ire.

Contracts on the US stock benchmark advanced 0.3% to 3,974 at 730 a.m. in New York, having earlier risen as high as 3,997. Nasdaq 100 futures also gained 0.7%, while Treasury futures weakened, with the cash market closed for the Veteran’s Day holiday. Commodities also rallied while the dollar retreated for a second day.

Overnight Beijing announced that travelers into China will be required to spend only five days in a hotel or government quarantine facility, down from ten, followed by three days confined to home, according to a National Health Commission statement Friday. The latest news on China’s Covid policy tweaks “plays with the grain of the post-US CPI moves down in the dollar,” said Ray Attrill, head of FX strategy at National Australia Bank Ltd. in Sydney. “The dollar is highly attuned to swings in risk sentiment, and for now that means dollar down.”

In US premarket trading, Chinese stocks listed in the US soared after Beijing made significant changes to the stringent Covid Zero policy that has bogged down the economy and dented appetite for the country’s equities. Alibaba and JD.com both advanced at least 3.6%. Amazon.com Inc. and Nvidia also extended their Thursday gains with major US technology and internet firms. Health insurance provider GoHealth Inc slumped as much as 22%, on track for the worst day in three months if the move holds, after the firm’s net revenue for the third quarter missed analyst estimates. Here are some other premarket news:

• Doximity shares jumped as much as 19% in US premarket trading after its earnings beat expectations, putting the online healthcare platform on track for its best day in nine months if the move holds. Analysts were encouraged to see the company reiterating its guidance for the full-year amid robust demand from hospital clients.
• GoHealth shares slumped as much as 22% in US premarket trading, on track for the worst day in three months if the move holds, after the health insurance provider’s net revenue for the third quarter missed analyst estimates. The company held off providing full-year 2022 guidance after suspending it back in August, contributing to an uncertain outlook. GoHealth’s shares had bounced 16% this week ahead of its release, though remain down 87% for the year.
• Matterport shares surged as much as 32% in US premarket trading, with the stock set for its biggest gain since its July 2021 IPO, after the 3D camera maker’s results beat demonstrated the company is holding up well amid a difficult real estate market. Demand for its latest products set it up well for next year, analysts noted, while Matterport also narrowed its revenue guidance for the year. Its shares are down 85% year-to- date.
• Shares in cryptocurrency-exposed companies edged lower on Friday, with the price of Bitcoin under pressure amid the unfolding crisis at FTX. Coinbase -0.2%, Riot Blockchain -0.7%.
• Snail shares climb 83% premarket after the company announced a $5m-stock buyback plan. The repurchase plan represents 5.8% of the company’s current market value, data compiled by Bloomberg show.
• AirSculpt Technologies (AIRS US) shares plunged as much as 26% in US premarket trading, putting the stock on track to hit its lowest level since its initial public offering, after the provider of a type of liposuction to remove unwanted fat cut its year outlook.

The S&P 500 and Nasdaq 100 are poised for their best week since June, after official US data showed the consumer price index rose 7.7% in October from a year before, its smallest annual advance since the start of 2022 That fueled bets that the Federal Reserve would rethink how fast it needs to move with interest rate hikes, and also lowered the terminal Fed Funds rate to 4.90% suggesting less than 4 rate hikes are left until the Fed halts tightening.

The positive mood was reinforced after China reduced the amount of time travelers and close contacts must spend in quarantine, scrapped flight bans and pulled back on testing, in a significant calibration of the Covid Zero policy that has isolated the world’s second-largest economy. Chinese stocks listed in the US soared in premarket trading.

Thursday’s data not only spurred short covering as bearishly positioned investors bought back into the market, but it prompted the biggest one-day gain in such hated indexes as Goldman’s Non-Profitable Tech which exploded over 15% higher in one single day!

“Markets were not ready for good news, which is the key takeaway from yesterday’s market reaction. But having said that, inflation is still 7.7%. It doesn’t make a huge difference compared to 7.9% for the US consumer, and so the pressure is still very much there,” said Maurice Gravier, chief investment officer for the wealth management division of Emirates NBD Bank PJSC in Dubai.
Gravier expects volatility to continue until there is clarity about a Fed pause, which he says is slated for the middle of next year, he told Bloomberg TV.

In Europe, consumer products, miners and real estate are the strongest performing sectors. Euro Stoxx 50 rises 0.7%. CAC 40 outperforms peers, adding 0.8%, FTSE 100 lags, dropping 0.3%. Sterling reclaims $1.17. Here are the biggest European movers:

• Richemont reported 1H operating profit that beat estimates, as growth for the maker of Cartier jewelry and watches was led by retail. Shares rise as much as 21%, the most since October 2008, boosted along with peers as China eased some Covid measures.
• Prudential jumps as much as 9.5% to hit its highest level since Aug. 16, gaining alongside China-exposed sectors like luxury and mining
• European real estate stocks extend gains, following a surge in the previous session after US inflation data fueled optimism that the Fed might slow the pace of interest rate hikes. German landlord Aroundtown is among the biggest contributors to the gain at 10%
• Casino gains as much as 21% after the French grocer bought back €67m of Quatrim 2024 senior secured notes in the market, while as a highly indebted stock it also benefits from some relief following US inflation data.
• Defensive sectors retreat in Europe after Thursday’s softer-than-expected US inflation data and the easing of Covid restrictions in China triggered a market rotation into cyclical and growth stocks such as technology and retail. Thales is among the stocks leading the decline at 7.3% and Saab at 6.8%
• DKSH is initiated with a neutral rating and CHF70 PT at Credit Suisse, with the broker saying the risk-reward looks balanced for the distribution group. DKSH shares fall as much as 7.3%, the most since July.
• ACS declined as much as 3.7% on Friday after the Spanish infrastructure company reported earnings Thursday evening, which Renta 4 said showed pressure in the construction business margin.
• GSK is among the biggest laggards on the Stoxx 600 Health care subindex, falling as much as 5.5%, after UBS downgraded the shares to sell from hold, citing “uncertain times ahead still,” and seeing an “unattractive earnings scenario” after 2026.

Asian stocks also traded higher with gains as the region followed suit to the post-CPI global stock surge, while the adjustment of COVID protocols in China including a shorter quarantine for close contacts provided a late tailwind. Hang Seng and Shanghai Comp conformed to the heightened risk appetite with the Hong Kong benchmark frontrunning the advances as it gained by more than 1,000 points, while the mainland was also boosted in late trade on China relaxing its COVID protocols. Nikkei 225 jumped above the 28,000 level amid the risk-on mood and as participants digested a deluge of corporate earnings which have largely influenced the list of best and worst performers for the index.

Australian stocks soared to post the third weekly gain: the S&P/ASX 200 index rose 2.8% to close at 7,158.00, the highest since June 6, with technology and real estate shares rallying most. The benchmark gained for a third straight week.  The move followed a broad-based rally in Asian stocks after slower-than-projected US inflation spurred bets the Federal Reserve will moderate its aggressive rate-hike path. In New Zealand, the S&P/NZX 50 index rose 2% to 11,311.76.

In FX, the dollar extended Thursday’s steep drop, falling against most Group-of-10 peers and hitting its lowest against the yen since late August after China eased some of its quarantine restrictions for inbound travelers, helping to boost demand for higher-risk currencies.  The Bloomberg Dollar Spot Index dropped 0.9% after closing down 2% Thursday for its biggest fall since March 2009, when a softer CPI reading saw traders pull back bets on US rate hikes.

• USD/JPY fell as much as 1.6%, pushing below the psychologically key 140 level
• The euro rose to a three-month high of 1.0279 and headed for its best week since March 2020. Short-term bets turn bullish for the first time since Feb. 11 as shorts trim exposure
• The pound was among the worst-performing G-10 currencies. The gilt curve twist-steepened very modestly
• Australian dollar recovered from selling driven by leveraged funds trimming longs before the weekend. Bonds give back some of their opening gains in the wake of a softer core CPI reading that saw markets reprice the Federal Reserve’s terminal rate lower

In rates, cash treasury trading is closed for Veteran’s day; Treasury futures are open and are slightly lower on the day but remain near the top of the session range from Thursday, when the curve aggressively bull steepened following a lower-than-estimated CPI report. US futures losses are led by long-end of the curve, where long- bond contracts are around 21 ticks lower vs. Thursday close — 10-year futures around 112-08+, remain close to Thursday session highs. Gilts also lower on the day; BOE announced Thursday that the unwinding of emergency bond purchases will begin Nov. 29. Bunds are lower on the day, feeding through to weakness in Treasury futures, with German yields cheaper by 5.5bp to 9.5bp across the curve with losses led by belly. The German curve bear-flattened, while Italian bonds underperformed their German peers, with the 2-year yield rising by around 16bps. Money markets add to ECB tightening wagers ahead of a large slate of ECB speakers

Commodities from oil to iron ore and copper jumped after China eased some Covid restrictions, raising hopes over a demand recovery in the world’s second-biggest economy. Saudi Arabia’s energy minister said OPEC+ will remain cautious on oil production, weeks after the group angered the US by lowering output. WTI drifts 2.4% higher to trade around $88.53; commodities widely surge after China eased some Covid restrictions. Spot gold rises roughly $6 to above $1,762/oz

In crypto, Bitcoin is modestly softer intraday but holds onto USD 17,000+ status. FTX CEO Bankman-Fried is facing an SEC probe related to his crypto empire, according to Bloomberg. Crypto exchange BlockFi tweeted that it is unable to operate business as usual and is pausing client withdrawals, citing a lack of clarity from FTX.com.

Looking to the day ahead now, and data releases include the University of Michigan’s preliminary consumer sentiment index for November in the US, along with the UK’s GDP reading for Q3. From central banks, speakers will include the ECB’s Vice President de Guindos, Holzmann, Panetta, Lane, de Cos, Centeno and Nagel, along with the BoE’s Haskel and Tenreyro. Finally, the EU Commission will be releasing their latest economic forecasts.

Market Snapshot

• S&P 500 futures up 0.5% to 3,979.75
• STOXX Europe 600 up 0.3% to 433.01
• MXAP up 4.8% to 150.99
• MXAPJ up 5.5% to 485.10
• Nikkei up 3.0% to 28,263.57
• Topix up 2.1% to 1,977.76
• Hang Seng Index up 7.7% to 17,325.66
• Shanghai Composite up 1.7% to 3,087.29
• Sensex up 2.0% to 61,803.85
• Australia S&P/ASX 200 up 2.8% to 7,157.95
• Kospi up 3.4% to 2,483.16
• Brent Futures up 2.3% to $95.80/bbl
• Gold spot up 0.4% to $1,761.68
• U.S. Dollar Index down 0.63% to 107.53
• German 10Y yield up 2.9% to 2.068
• Euro up 0.4% to $1.0249

Top Overnight News from Bloomberg

• The yuan has swung violently from one end of its tightly-managed trading band to the other like never before, as optimism toward a pivot from Covid-Zero evaporated concern about President Xi Jinping’s consolidation of power
• SNB Governing Board member Andrea Maechler expects inflation in Switzerland to stay elevated for at least two more years, she told newspaper L’Agefi
• UK Prime Minister Rishi Sunak faces an extraordinary balancing act in his autumn budget next week. He needs to appease financial markets with a package of spending cuts and tax increases, while also winning over disgruntled voters
• Chancellor of the Exchequer Jeremy Hunt is preparing to cut planned public spending growth to 2% or lower after 2024-25, compared to a previous provisional plan of 3.7% growth, according to a person familiar with his thinking
• The BOE signaled it will move cautiously in selling off the £19 billion ($22 billion) of UK government bonds it snapped up in emergency action in recent weeks, outlining a “demand-led” approach to the sales
• A decade ago this week, former UK chancellor George Osborne declared that income from bonds the Bank of England acquired under its quantitative-easing program could be used to reduce government debt. Now, the government expects to send £11 billion ($12.8 billion) to the central bank to cover an anticipated shortfall on the portfolio in the months to April
• German lawmakers approved next year’s federal finance plan including net new borrowing of €45.6 billion ($46.6 billion), according to documents seen by Bloomberg
• EU officials in Brussels on Friday slashed their forecast for growth next year, predicting barely any expansion, and raised all their projections for consumer prices. They reckon the economy is now shrinking and will keep contracting during the first quarter

A more detailed look at global markets courtesy of Newsquawk

APAC stocks traded with firm gains as the region followed suit to the post-CPI global stock surge, while the adjustment of COVID protocols in China including a shorter quarantine for close contacts provided a late tailwind. ASX 200 was led by tech and the real estate sector amid the lower yield environment. Nikkei 225 jumped above the 28,000 level amid the risk-on mood and as participants digested a deluge of corporate earnings which have largely influenced the list of best and worst performers for the index. Hang Seng and Shanghai Comp conformed to the heightened risk appetite with the Hong Kong benchmark frontrunning the advances as it gained by more than 1,000 points, while the mainland was also boosted in late trade on China relaxing its COVID protocols.

Top Asian News

• China’s National Health Commission released adjusted protocols for COVID prevention and control with quarantine for close contacts cut to 5 days centralised isolation and 3 days home quarantine from 7 days centralised isolation and 3 days home quarantine. China is also to cut COVID quarantine for inbound travellers from 10 days to 8 days and it cancelled the circuit breaker for inbound flights, according to Reuters.
• China disease control researcher earlier said that China is to continually improve its COVID-19 policies and will not relax them while the virus mutates and the epidemic situation changes, according to Reuters.
• Haizhu district of Guangzhou extended its COVID lockdown until November 13th, according to Reuters.
• China is expected to take additional measures to support the economy by conducting the largest cash injection this year through MLF loans or by reducing RRR, according to Bloomberg.
• US customs said it had seized 1,053 shipments of solar equipment since June under the China forced labour ban, while the shipments are primarily from Longi (601012 CH), Trina (688599 CH) and Jinkosolar, according to Reuters.
• Arm IPO unlikely to take place by March 2023, according to Softbank (9984 JT) sources cited by Reuters.

Major bourses in Europe are mostly firmer following CPI-induced optimism which saw further gains on Wall Street after the European cash close, with the sentiment then reverberating in APAC before seeing another boost on reports that China is easing its COVID measures. Sectors in Europe are mostly in the green with the laggards comprising of defensives, whilst the top performers include Tech, Real Estate, Retail, and Basic Resources. US equity futures are trading sideways with modest gains across the board, with futures holding onto yesterday’s upside.

Top European News

• UK Real Estate Slumped to Worst Quarter Since 2009 as Rates Bite
• Richemont Surges on Record Profit and China’s Covid Easing
• European Gas Prices Soften as Storage Fill Limits Rationing Risk
• European Mining Stocks Jump as Metals Gain on China Covid Easing
• United Internet Said to Pick IPO Banks for Web Hosting Unit
• European Stocks Set for Best Week Since March on Fed Bets, China

FX

• DXY remained downtrodden amidst further fallout, or capitulation on the back of October’s comparatively soft CPI data that ramped up Fed pivot expectations.
• G10s are firmer across the board against the Dollar, with the Japanese Yen the outperformer as USD/JPY fell under 140.00.
• The Yuan stands as the EM outperformer after China said it will ease some COVID measures.

Fixed Income

• US Treasuries are hovering midway between its 112-18/03+ overnight range ahead of prelim UoM sentiment and inflation expectations.
• Gilts pared more losses to get within 2 ticks of 105.00 having been down to 104.06.
• Bunds have recovered from a deeper low, at 139.38 and perhaps on technical grounds as 139.35 represents a 50% Fib retracement of Thursday’s rally.

Commodities

• WTI and Brent are extending the gains seen overnight which were sparked by China easing its COVID measures.
• Saudi Energy Minister said OPEC+ will remain cautious on production, via Bloomberg; OPEC+ will not lose sign of what the oil market needs.
• Chinese refiners will reportedly reduce Saudi crude oil term volume loading in December, according to sources cited by Reuters.
• Spot gold extends its gains above its 100 DMA (1,714/oz) and above the USD 1,750/oz mark as the Dollar crumbles.
• Base metals also firmer across the board with added tailwinds from China’s easing of COVID measures – 3M LME copper eyes USD 8,500/t to the upside from a USD 8,271/t intraday base.

Geopolitics

• Russian Kremlin said goals of the special military operation can be achieved with peace talks but peace talks are not possible due to the Ukrainian position. Russian Kremlin said grain deal contacts ongoing, number of issues need to be resolved, via Reuters.
• US Secretary of State Blinken tweeted that he has directed another USD 400mln worth of arms and equipment from Department of Defense inventories to Ukraine.
• US issued a general licence authorising certain transactions relating to energy with some Russian banks. It was also reported that insurers said gaps in the G7/EU Russian oil price cap plan could leave tankers stranded at sea and disputes over compliance with the oil price cap could lead to a loss of insurance cover and refusal to discharge, according to Reuters.
• Chinese President Xi will meet with US President Biden, according to the Chinese Foreign Ministry.
• US Treasury Secretary Yellen is to meet which PBoC Governor Yi Gang on the sidelines of the G20; to discuss global economic situation and hopes to learn more about China’s property sectors; Yellen to update Yi on US economic conditions, via Reuters.
• Russian President Putin to skip the APEC summit (13-17th Nov), according to a Thai official
• Russian Deputy Foreign Minister said Russia-US Commission on New START treaty is to meet late November/early December in Cario, according to Ria.

US Event Calendar

• 10:00: Nov. U. of Mich. Sentiment, est. 59.5, prior 59.9
  • U. of Mich. Current Conditions, est. 62.8, prior 65.6
  • U. of Mich. Expectations, est. 55.5, prior 56.2
  • U. of Mich. 5-10 Yr Inflation, est. 2.9%, prior 2.9%
  • U. of Mich. 1 Yr Inflation, est. 5.0%, prior 5.0%

DB’s Jim Reid concludes the overnight wrap

If ever we needed proof that the market is absolutely desperate for some good news on inflation, yesterday proved it in spades with the market moves up there with the most remarkable since the pandemic began thanks to a -0.2% miss in both headline and core inflation. Both measures missed by that much as recently as July so we have been here before not long ago, but one has to go back to August 2014 to find the last time both headline and core both missed by at least -0.2% before that.

Having said that it’s still a long, long, long path ahead towards anything resembling normal inflation, but with monthly core CPI running at its slowest pace in over a year, investors immediately latched onto hopes that the Fed wouldn’t need to be as aggressive in raising rates, leading to a massive surge across all the major asset classes. For instance, yields on 2yr Treasuries (-24.7bps) saw their largest daily decline since 2008, the S&P 500 (+5.54%) had its best day since April 2020, and the dollar index (-2.12%) suffered its worst daily performance since 2015. So definitely one for the history books.

I don’t think there is anything inconsistent in saying that markets continue to be set up for a rally (technicals, seasonals, better European near-term energy outlook etc.) while also thinking next year could ultimately be pretty bad. Back in April when we first said we thought the US would be in recession by the middle of 2023, the consensus expectation for CPI by Q4 2022 was 4.5%. The headline rate was still 7.7% yesterday. So our conviction remains the same.

Indeed, even with the surge in risk sentiment, the Fed’s preferred yield curve measure (18m3m – 3m) for predicting the cycle spectacularly entered inversion territory yesterday, falling -37.1bps to -13.7bps. When quizzed in the past about the veracity of 2s10s (my preferred yield curve signal), Chair Powell has deflected its recessionary signal, claiming it’s confounded with a number of other variables. Instead, the Fed’s preferred measure strips out the noise and sharply focuses on the near-term policy path, where inversion implies policy rate cuts due to recession. One wonders how he would respond now to questions on yesterday’s inversion.

When it comes to the full details of that report, monthly headline CPI surprised to the downside at +0.4% (vs. +0.6% expected), meaning that the year-on-year number ticked down to +7.7% (vs. +7.9% expected), thus continuing its descent from its June peak of +9.1%. What was even better from a market perspective was the deceleration in core CPI as well, where the monthly reading fell to +0.3% (vs. +0.5% expected). In fact, with core at +0.27% to two decimal places, that’s actually the slowest since September 2021, so an encouraging sign. And in turn, the year-on-year measure for core fell to +6.3% (vs. +6.5% expected), moving off its recent peak in September. One last piece of good news was that the decline in inflation was broad-based rather than being driven by outliers, and the Cleveland Fed’s trimmed mean measure saw its slowest monthly growth since April 2021 at +0.37%.

Even with an optimistic CPI report, Chair Powell has highlighted one of the most persistent sources of inflationary pressures would come from a too-hot labour market. There, yesterday, we got the Atlanta Fed wage growth tracker which showed still sturdy wage gains, with the 3m moving average of yoy wage growth increasing +0.1% to 6.4%. That’s below the 6.7% peak, but above every other print on record outside of recent data. So, progress will be long in coming, and won’t be helped if financial conditions exhibit large knee-jerk easing trends in response to any optimistic news.

For now though with inflation surprising on the downside, investors moved to dramatically reprice their expectations for Fed tightening over the months ahead. In the near term, futures raised the chances that the Fed will slow down the pace of rate hikes to 50bps next month, moving away from the jumbo 75bps pace of the last 4 meetings. Indeed, the amount of hikes priced for the December meeting came down -5.5bps on the day, leaving it at just 50.9bps now. Looking further out, the terminal rate priced for Q2 came down from 5.04% the previous day to 4.89%. And when it comes to end-2023, the rate priced in came down by an even larger -31.4bps to 4.38%, signalling that investors are becoming more confident about the odds of rate cuts as we move deeper into next year.

In response to the CPI release, Fed officials struck their usual cautious tone, with San Francisco Fed President Daly saying it was “far from a victory”, and Dallas Fed President Logan saying it was “a welcome relief, but there is still a long way to go”. And to be fair to them, annualised CPI inflation was still running at +5.4% in October, so there are grounds for caution in spite of the market optimism. Nevertheless, Logan validated market expectations that we’re about to see a downshift in rate hikes, saying that “I believe it may soon be appropriate to slow the pace of rate increases so we can better assess how financial and economic conditions are evolving”, although she also said she believes “a slower pace should not be taken to represent easier policy”. Philadelphia Fed President Harker struck a similar tone on slowing down, saying he expected they would “slow the pace of our rate hikes as we approach a sufficiently restrictive stance”.

As investors moved to expect a more dovish Fed over the coming months, Treasuries surged across the board, with the 2yr yield (-24.7bps) seeing its largest daily decline since 2008, to close at 4.33%. Those declines were driven by a mixture of lower real rates and inflation breakevens, and the 10yr yield (-28.0bps) also saw its biggest daily decline since March 2020 at the height of the pandemic. This sense that central banks were about to be more dovish was evident in Europe too, and downgraded expectations of future ECB tightening sent yields on 10yr bunds (-16.2bps), OATs (-19.0bps) and BTPs (-27.9bps) sharply lower as well.

Equities surged alongside bonds on the back of these hopes about a central bank pivot. In fact, the S&P 500 (+5.54%) had its best daily performance since April 2020, which for now makes this rally an even more aggressive version of the other 6 Fed pivot trades we’ve identified over the last 12 months. Every sector group advanced on the day, but the cyclicals strongly outperformed, and the NASDAQ (+7.35%) had its best performance since March 2020. Unsurprisingly, the FANG+ Index outperformed even more, given the sensitivity of underlying valuations in the index to discount rates, increasing +9.39%, its best day since March of this year. That coincided with a marked reduction in the VIX index of volatility, which fell -2.56pts to a 2-month low of 23.5pts. In Europe there was also a marked turnaround, with the STOXX 600 leaping from marginally positive territory just prior to the report to end the day up +2.75%.

Ironically we were seeing risk assets pretty nervous prior to CPI given all that was going on in the crypto space. The latest here was that Alameda Research, the hedge fund linked to FTX – the crypto exchange whose issues started this week’s crypto route – would be winding down, while there was back and forth about whether FTX would ultimately be rescued. However a soft CPI shunted this into the weeds as Bitcoin closed +13.20% at $17,808, notably above the low during the Asian session of $15,618.

Whilst risk parity was having a great day, there were some marked shifts in FX, where the dollar index (-2.12%) fell to its worst daily performance since 2015, slumping against every other G10 currency. The Japanese Yen was a particular outperformer, gaining +3.90% on the day versus the dollar, as was the British pound which strengthened +3.15% to levels not seen since before the government’s mini-budget. Those moves leave the dollar index at its lowest closing level since mid-August, before Fed Chair Powell delivered his hawkish speech at Jackson Hole.

This morning, equity markets in Asia are matching the upbeat mood, extending the overnight rally on Wall Street. Across the region, the Hang Seng (+7.06%) is leading gains with the Hang Seng Tech Index (+8.36%) echoing that outperformance we saw from US tech stocks, whilst other indices including the KOSPI (+3.36%), the Nikkei (+2.95%), the CSI (+2.86%) and the Shanghai Composite (+2.06%) are all noticeably higher. That was supported by the positive US inflation news, but there were also some developments on the Covid situation in China that bolstered sentiment, since they cut the quarantine time for inbound travellers to 8 days from 10, and also reduced the quarantine time for close contacts to 8 days as well, even as the total number of daily cases moved above 10,000 for the first time since April. Otherwise, US equity futures are pointing higher this morning, with those on the S&P 500 up +0.40%, and the Japanese Yen (-0.43%) has fallen back slightly against the US Dollar after its +3.90% rise in the previous session. That follows data showing that Japan’s producer prices inflation fell to +9.1% year-on-year in October (vs. +8.8% expected), marking the slowest pace of growth since January.

Turning to the midterm election results, we didn’t get much in the way of updates yesterday, and the question of which party ends up controlling each chamber in Congress remains unconfirmed. However, as was the case 24 hours ago, it continues to look as though the Democrats have the stronger chance in the Senate. Indeed, it’s possible that the Democrats hit the 50-mark before the Georgia runoff on December 6 if they can win the two other races in Nevada and Arizona. Meanwhile in the House, the Republicans continue to have the edge, since although they’re not at the 218-majority mark just yet, they’re leading in enough of the outstanding districts to give them a narrow majority as it stands.

Back in Europe, our research colleagues in Frankfurt published their latest gas supply monitor yesterday, where they see an increased likelihood that Germany will be able to avoid rationing this winter. The key risk factors to that are a cold winter spell or pipeline disruptions that affect gas demand and supply respectively. It also looks forward to the EU energy ministers’ meeting on November 24, and points out that the EU Commission could present elements of its gas price cap proposal as early as today for a meeting of EU ambassadors, which is unlikely to include a hard cap but could still pave the way for a compromise. You can see the full report here.

Looking at yesterday’s other data releases, the US weekly initial jobless claims rose to 225k (vs. 220k expected) in the week ending November 5, which leaves the 4-week moving average at 218.75k (vs. 219k previously).

To the day ahead now, and data releases include the University of Michigan’s preliminary consumer sentiment index for November in the US, along with the UK’s GDP reading for Q3. From central banks, speakers will include the ECB’s Vice President de Guindos, Holzmann, Panetta, Lane, de Cos, Centeno and Nagel, along with the BoE’s Haskel and Tenreyro. Finally, the EU Commission will be releasing their latest economic forecasts.

Authored by Irina Slav via OilPrice.com,

• European leaders are unhappy with natural gas prices.

• Some leaders are insisting that the EU impose a price cap on all natural gas imports, regardless of origin. 

• U.S. LNG has been more expensive than pipeline gas coming from Russia in real terms.

Last month, France’s president Emmanuel Macron accused the United States of a “double standard” because of the difference between the price at which liquefied natural gas produced in the U.S. sells in Europe and the price at which natural gas sells within the U.S.

“The North American economy is making choices for the sake of attractiveness, which I respect, but they create a double standard,” Macron said, also adding that “they allow state aid going to up to 80% on some sectors while it’s banned here — you get a double standard.”

He wasn’t alone among European national leaders in being unhappy about gas prices.

In fact, as many as 15 leaders were unhappy, and they insisted that the EU imposes a price cap on all natural gas imports, regardless of origin.

The idea followed delicate attempts to convince Norway to sell its gas at a discount and equally delicate attempts to convince U.S. producers of the same.

Now, the U.S. is striking back at the accusations.

“What’s happening is the companies that hold those long-term contracts with US LNG producers, they’re marking that up and earning that margin in the European market,” Brian Crabtree, an assistant secretary at the Department of Energy, told the Financial Times.

“It’s not the US LNG company, it’s basically European-headquartered international oil companies and traders.”

Indeed, producers of liquefied natural gas do not invariably sell their product directly to the consumer, in the face of a country in Europe, for instance, They work with commodity majors such as Vitol and Trafigura, or the supermajors, including BP and Shell.

Take Cheniere Energy, the biggest producer of LNG in the United States. Earlier this year, Cheniere inked a long-term sale and purchase deal for its LNG with Chevron. Under the deal, Chevron will buy 2 million LNG from Chevron annually, and then it will sell it on for whatever price it deems fair.

Also this year, Cheniere closed another sales and purchase deal, too, with Norway’s Equinor, this time for an annual volume of 1.75 million tons of LNG. Those 1.75 million tons will also be sold at a price that Equinor sets, not Cheniere. 

This is not to say that LNG producers are not benefiting from the much stronger demand for LNG from Europe. And this is exactly the reason they have been benefiting, in the form of higher profits: demand has surged, and when demand surges, prices follow, especially if supply is not growing as fast as demand. 

Earlier this month, Cheniere Energy reported twofold revenue and profit growth for the third quarter, thanks to this stronger demand for its product. Separately, the company said it was ready to sign more long-term supply contracts, both with businesses and governments in Europe, which would motivate its planned capacity expansion.

At the same time, BP reported exceptionally strong performance at its gas-trading unit. This was not the case for Shell, however, whose gas-trading division booked a loss of $1 billion for the third quarter of the year because of the spike in European gas prices after the suspension of exports via Nord Stream 1.

Macron’s—and others’—accusations, then, are not exactly founded on facts, with producers being just the first stop in a supply chain that features middlemen that are among the biggest commodity trading businesses in the world. Besides, even in the best of times, U.S. LNG has been more expensive than pipeline gas coming from Russia in real terms.

The reason for this is purely physical. The production of liquefied natural gas is much more complex process than purifying natural gas and sending it down a pipeline. Because LNG production is more complex, it automatically means it is more expensive because it is quite energy—intensive.

Once produced, this gas needs to be transported on tankers that are in short supply as well this year, which has pushed freight rates through the roof, adding to traders’ expenses in shipping the product to customers.

In other words, Europe seems to want businesses to not act as businesses and take every opportunity to make a profit, which is what businesses are all about.

But instead of addressing these businesses, many of which are based in Europe, as the DoE’s Crabtree told the FT, it is addressing the federal U.S. government, which has little control over the private sector.

Be that as it may, Crabtree told the FT that the U.S. was committed to helping Europe get enough gas “at a price that is affordable to the continent.” It’s hardly a surprise he did not go into detail on how this affordable price would be achieved. It is also no surprise that his statements to the FT contained a warning.

“So it’s especially concerning to us that the discussion in Europe is being presented as though we have some control over the margins that are being earned on our LNG, because we don’t,” the official said.