By Todd Maiden of FreightWaves.com

Transportation capacity continued to grow at a high rate during November with prices falling at the fastest rate on record, according to a monthly survey of supply chain executives released Tuesday.

The Logistics Managers’ Index (LMI) displayed a capacity reading of 71.4 in November, 1.7 percentage points lower than the all-time high established in October. The 12-month forward-looking expectation for the subindex is 65.7.

A reading above 50 indicates expansion while one below that indicates contraction.

A new low for the transportation prices subindex was set during the month. A 37.4 reading was 4.8 points lower than October and “the sharpest rate of contraction we have read in the history of the LMI,” the report said. Contraction was more pronounced among downstream respondents, or those in the supply chain that are closer to the end consumer. That group returned a 28.1 reading.

Expectations for prices one year from now stood at 42.1 as “the transportation market continues to fall from the dizzying heights that had become the norm during 2021.”

Transportation utilization was down 2.8 points to a neutral reading of 50. Responses captured in the second half of November were “slightly more negative,” meaning utilization “may be seeing the beginning of a contraction period” after expanding every month since May 2020.

The overall LMI stood at 53.6 in November, 3.9 points lower sequentially and the second-lowest level captured in the data set’s six-year history. The all-time low was recorded in April 2020 during the height of pandemic-related lockdowns.

FreightWaves’ National Truckload Index, a measure of TL spot rates, remains well off all-time highs established earlier in the year. However, spot rates are potentially bottoming, up nearly 10% from mid-November lows.

Inventories normalizing further?

Inventory growth rates throughout the supply chain slowed significantly during the month. After average readings of 69.6 this year, 62.7 in 2021 and 58.4 in 2020, the subindex fell 10.7 points to 54.8 in November, with respondents at the wholesale level seeing slower growth.

“Inventory levels have decreased significantly, particularly for upstream respondents,” the report said. “This is likely indicative of goods being positioned downstream for the holiday season and, more importantly for supply chains, being purchased by consumers.”

The inventory levels subindex was neutral at 50 in the back half of November, which “suggests that many firms have successfully threaded the needle and worked through the bulk of the goods that have plagued them through the year.”

The report cautioned that when the inventories subindex falls significantly, there is usually an increase in the following period. “So, there is a chance the inventory level index will bounce back up somewhat, post-holiday,” according to the report.

The forward-looking expectation for inventory levels was 47.2.

“The bullwhip effect was probably inevitable, given the sharp oscillations in supply and demand experienced over the last few years,” the report read. “The key now will be to observe whether supply chains have finally now right-sized their inventories, or if they have overcorrected back into a mild shortage.”

Inventory costs (73.4) continued to grow but at a rate 7.5 points lower than in October as warehousing prices (74.4) remained firmly in expansion territory. Higher warehousing costs were driven by contracting capacity (46.8) and growing utilization rates (56.8).

“It will be crucial to observe whether or not transportation metrics begin to bounce back at all in the new year, once the glut of inventory has been wound down further,” the report said.

The LMI is a collaboration among Arizona State University, Colorado State University, Rochester Institute of Technology, Rutgers University and the University of Nevada, Reno, conducted in conjunction with the Council of Supply Chain Management Professionals.

Update(8:50ET): During his announcement from the White House, with Griner’s family present, Biden spent a lot of time defending his administration from widespread accusations that Griner’s release was prioritized because of her fame while at the same time other detained Americans were left behind.

“This was not a choice of which American to bring home,” Biden said while vowing to continue working on freeing detained US Marine veteran Paul Whelan. 61-year old teacher Marc Fogel is also languishing in Russian prison. 

An understandably very frustrated and “devastated” Whelan family has issued the following statement upon the White House announcement of Griner’s release:

Despite the possibility that there might be an exchange without Paul, our family is still devastated. I can’t even fathom how Paul will feel when he learns. Paul has worked so hard to survive nearly 4 years of this injustice. His hopes had soared with the knowledge that the US government was taking concrete steps for once towards his release. He’d been worrying about where he’d live when he got back to the US. And now what? How do you continue to survive, day after day, when you know that your government has failed twice to free you from a foreign prison? I can’t imagine he retains any hope that a government will negotiate his freedom at this point. It’s clear that the US government has no concessions that the Russian government will take for Paul Whelan. And so Paul will remain a prisoner until that changes.

We just traded “The Merchant of Death” Viktor Bout, a man who sold arms to warlords, for Brittney Griner, a WNBA player.

This may be the worst trade deal in history.

— Collin Rugg (@CollinRugg) December 8, 2022

* * *

In a huge and unexpected development, Russia has released into US custody WNBA star Brittney Griner, after in October her 9-year prison sentence was upheld by a Russian court. She had already spent weeks in a harsh penal colony some 300 miles southeast of Moscow.

She was freed in a prisoner exchange which took place in Abu Dhabi Airport on Thursday. In return the Biden administration agreed to give up notorious international arms dealer Viktor Bout. US officials speaking to CBS say the deal had been reached by last Thursday, with the logistics details having been hammered out since then. Biden is imminently expected to address Griner’s release and the prisoner exchange at 8:30eastern. Watch Live: 

“To secure Griner’s release, the president ordered Bout to be freed and returned to Russia. Mr. Biden signed the commutation order cutting short Bout’s 25-year federal prison sentence,” CBS reports.

But the report underscores, “Notably, the Griner-for-Bout exchange leaves retired U.S. Marine Paul Whelan imprisoned in Russia. Whelan has been in Russian custody for nearly four years. He was convicted on espionage charges that the U.S. has called false.”

Moments ago I spoke to Brittney Griner.

She is safe.
She is on a plane.
She is on her way home. pic.twitter.com/FmHgfzrcDT

— President Biden (@POTUS) December 8, 2022

When Russian state media began first signaling that the Kremlin will pursue getting Bout back, and Secretary of State Antony Blinken starting over the summer hinted the administration was actually entertaining the possibility, it unleased a wave of controversy, especially given Griner’s own recent public displays which some interepreted as “anti-US”… most notably refusing to stand for the national anthem and even staying in the locker room during its playing. 

One commenter previously had this to say in summary of the controversial exchange for Bout:

“It took nearly 10 years for US to apprehend Viktor Bout, and close to 3 more years to convict him for terrorism and arms trafficking. Allegedly, thousands of civilians in multiple African countries, were injured and killed by weapons supplied by Bout. Fair trade for Griner?”

It’s likely that the Department of Justice had been vigorously arguing against releasing Viktor Bout, considering it took a significant extradition process (from Thailand) to even get him into US custody over a decade ago.

Before his just-announced release, he was serving a 25-year sentence in federal prison after being convicted in the Southern District of New York for conspiring to kill Americans and conspiring to provide material support to terrorists.

Already there’s brewing anger that Paul Whelan, as well as another American locked up in Russia, 61-year old teacher Marc Fogel, over the widespread perception that they’ve been left behind.

The number of Americans filing for jobless claims for the first rose to 230k last week (higher than the 226k the prior week) but it is the ongoing rise in continuing jobless claims that should be a worry for Americans (and ‘cheer’ for The Fed?).

On a non-adjusted basis, initial jobless claims surged to the highest since January…

Notably, not one state saw claims drop (on an NSA basis) last week…

1.671 million Americans are filing for jobless claims on a continuing basis – the most since February…

Source: Bloomberg

This is the largest rise in continuing claims since the peak of the COVID lockdowns in June 2020.

So the labor is still “tight”?

The 10 straight weeks of increasing continuing claims suggests that Americans who are losing their job are having more trouble finding a new one.

Perhaps the Establishment survey is completely decoupled from reality…

Source: Bloomberg

With claims and the household survey both signaling weakness in American jobs… ‘great news’ for The Fed?!

A blistering rout in US stocks, which saw US markets drop on 8 of the past 9 days and when the S&P 500 lost about $1.3 trillion in market capitalization in the past five days on fears of a staunchly hawkish Federal Reserve amid signs of a resilient economy, was set to pause on Thursday. Contracts on the S&P 500 were up 0.3% by 7:45 a.m. ET following the longest daily losing streak for the index in nearly two months. Nasdaq 100 futures were up 0.2%. Treasuries halted a rally that had sent the 10-year yield to an almost three-month low as investors braced for an economic downturn. The benchmark added three basis points to yield 3.44%, while a gauge of the dollar was little changed.

Among notable movers in premarket trading, Carvana was set to rebound after yesterday’s record 43% plunge as the online car dealer consults with lawyers and bankers regarding options for managing its debt load. Relmada Therapeutics shares are in focus after the failure of its study of an experimental antidepressant. Exxon rose 1.4% premarket after the US E&P giant and cash(flow) cow announced it would expand its stock buyback program by $20BN to $50BN by the end of 2024. Here are some other other notable premarket movers:

• Rent the Runway rises 16% after reporting third- quarter results that beat estimates as its number of active subscribers rose 15% year-on-year. The fashion retailer increased its annual revenue outlook and forecast a positive adjusted Ebitda margin for the year.
• Shares of US-listed Chinese internet firms and casinos that operate in Macau gain in premarket trading on more signs that China is accelerating the pivot away from its zero-tolerance stance on Covid.
• Alibaba +3.7%, Baidu +4%, Bilibili +11%, Li Auto +5.4%, Las Vegas Sands +4.3%, Melco Resorts +8.5%
• Carvana shares jump 7.6% in premarket trading, set to rebound after yesterday’s record 43% plunge as the online car dealer consults with lawyers and bankers regarding options for managing its debt load.
• Relmada’s shares tumbled 40% in US after-hours trading on Wednesday. The failure of the company’s study of an experimental antidepressant was disappointing, though not surprising, analysts said, with some reassessing the possibility of success in upcoming studies.
• Watch Principal Financial stock after it was downgraded to underperform from neutral at Credit Suisse on valuation grounds, with the broker preferring the investment manager’s peer Voya.
• Keep an eye on JPMorgan as Piper Sandler begins coverage on the stock at overweight, saying that the “big four” banks have a unique position leading the industry, with a critical presence in basically all areas of the financial system.
• Watch defense stocks after Citigroup said it is “locked in” on the sector for the next decade, with a more “nuanced” view on the outlook for commercial aerospace. It reinstates General Dynamics, Leidos, Lockheed Martin and Science Applications with buy ratings.

The rally in US stocks since mid-October which propelled the S&P to 4,100 as of Dec 1 and above the 200DMA, has stalled recently as stronger-than-expected economic data suggested the Fed could keep tightening its policy at an aggressive pace (spoiler alert: it won’t). Investors are now looking for clues from the latest inflation data on Tuesday and the Fed’s policy decision on Wednesday.

“The risk-off sentiment more widely on stock markets this week remains hard to kick into touch,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown. The outlook for next year also remains uncertain, with Citigroup Inc. strategists becoming the latest to warn of weakness in equity markets amid a risk to corporate earnings. The MSCI USA index is now implying 4% earnings-per-share growth next year, close to the analyst consensus but far from Citi’s expectation of a 3% contraction, strategists led by Robert Buckland wrote in a note.

“The recent rally means US equities no longer price an EPS contraction, which seems too optimistic,” the Citi strategists wrote. Technical indicators, meanwhile, suggest stock volatility could rise next week. Measures of 30-day implied and realized volatility in the S&P 500 Index started to move closer together in recent sessions, a sign of rising anxiety after the benchmark failed to break through its 2022 downtrend and the key 200-day moving average.

Strategists from Morgan Stanley to JPMorgan have warned investors against piling back into risk on hopes the Fed is getting close to pivoting to easier policy. Translation: buy, buy, buy.

“Presumably if the Fed is pivoting this time around, it’s not for a good reason. It’s a deteriorating fundamental picture,” Joyce Chang, chair of global research at JPMorgan, said in an interview with Bloomberg TV Thursday, forgetting that that “not good reason” could very well be the ongoing devastation in risk assets. “I mean, is that really a reason to be buying risk? I think it’s premature to say that there is a Fed pivot.” No, it’s not.

Traders now await Friday’s US producer price report and the Consumer Price Index print to get a read on how effective Fed policy has been to quell inflation, and whether the central bank will be able to notch down its aggressive campaign.

Back to markets, where European stocks extended a four-day slide, with property and telecommunications firms pacing declines even as energy companies and miners gained. That said, stocks have almost erased all initial losses. Euro Stoxx 50 is little changed. CAC 40 outperforms peers, adding 0.1%, IBEX lags, dropping 0.5%. Here are some other notable European movers:

• Derichebourg rises as much as 14%, biggest intraday gain since February 2021, after the French waste-management company reported revenue for the year that beat the average analyst estimate
• IAG rises as much as 2.1% and Wizz Air as much as 7.4% after Bank of America upgraded both stocks to buy. Lufthansa climbs as much as 1.4% after BofA upgraded to neutral, while EasyJet falls as much as 3.8% after being double-downgraded to underperform
• Vertu Motors rises as much as 6.6% after announcing the acquisition of Helston Garages Group for a total of £117m
• Balfour Beatty gains as much as 3.9%, touching the highest since Sept. 16, with analysts flagging another buyback announcement and a solid outlook from the construction and infrastructure group
• Frasers Group falls as much as 8.1%, the most since Nov. 14, after the Sports Direct and House of Fraser owner reported sales around 4% below RBC expectations after a softer performance in international retail.
• Stadler Rail drops as much as 5.6% as Credit Suisse trims its price target on the train manufacturer, anticipating pressure on profitability.
• Volkswagen falls as much as 1.7% and is among the worst performers on the SXAP autos index after Exane cut its rating on the company’s preference shares to underperform from neutral, citing margin pressures.
• ASML declines as much as 1.6% after Bloomberg News reported that the Netherlands is planning new controls on exports of chipmaking equipment, potentially barring companies from selling gear capable of manufacturing 14- nanometer or more advanced chips

Asian stocks rose, led by a jump in Chinese equities on increasing expectations for reopening, helping investors dispel worries about a possible global economic recession.  The MSCI Asia Pacific Index rose as much as 0.6%, driven by gains in Chinese tech names including Tencent and Alibaba. The gauge erased an earlier drop of as much as 0.5% in another day of volatile trading amid thin volumes. Hong Kong’s Hang Seng Index surged more than 3%, rebounding from Wednesday’s selloff, after a report that the city is seeking to further ease Covid-related rules. Investors have been bullish on Chinese equities of late, with JPMorgan saying that earnings downgrades are “very close to the bottom”.

The positive views have helped lift sentiment on Asia broadly, with Nomura upgrading its outlook for Hong Kong and South Korea stocks. Still, even with Thursday’s gain, the MSCI Asia equity measure is on track for its first weekly loss since the end of October as investors lock in profits after a five-week surge. “Asian investors should use this volatility as an opportunity to raise exposure,” Nomura strategists including Chetan Seth wrote in a report. “Recessions in the US/Europe in 2023 mean that a growing Asia will likely be the outperformer, with softer USD/Asia the additional kicker.”

Markets with heavy dependence on global demand for their manufactured goods, such as Taiwan and South Korea, posted notable losses while the key benchmark in Indonesia, a raw materials exporter sank as much as 2%. Japan’s stock gauge also dropped led lower by its tech and auto exporters, following US shares lower as Treasuries signaled growing concern about a recession next year.  The Topix dropped 0.3% to 1,941.50 as of market close Tokyo time, while the Nikkei 225 declined 0.4% to 27,574.43. Sony Group contributed the most to the Topix’s decline, decreasing 1.9%. Out of 2,164 stocks in the index, 728 rose and 1,292 fell, while 144 were unchanged. “There’s a gradual increase in the view that the economy will probably deteriorate considerably next year,” said Takeru Ogihara, chief strategist at Asset Management One

Australian stocks also extended their losing streak as banks and miners drag: the S&P/ASX 200 index fell 0.8% to close at 7,175.50, marking three consecutive sessions of losses. Bank and materials shares contributed the most to the benchmark’s retreat. Downer EDI was the biggest decliner after cutting its earnings guidance and flagging accounting irregularities. In New Zealand, the S&P/NZX 50 index was little changed at 11,617.14.

In FX, the Bloomberg Dollar Spot Index was flat after temporarily swinging to a loss in early European hours and then modest gains. The dollar strengthened against most of its Group-of-10 peers, though trading was largely confined to narrow ranges.

• The euro was steady around $1.05. Bunds twist- flattened as the 2-year yield rose by 2bps and the 30-year yield fell by 1bp. Money-market wagers on ECB tightening increase very slightly ahead of a slew of speeches, including President Lagarde
• The pound was the worst G-10 performer, while the gilt curve bull-steepened as money markets eased BOE tightening wagers, pricing less than one-point of rate hikes by February for the first time since Nov. 11 ahead of next week’s policy meeting. Thursday marks the Bank of England’s final active QT bond sales of this year, though sales of gilts purchased as part of its recent emergency support measures will continue
• The yen traded heavy after Japan unexpectedly reported a current-account deficit

In rates, Treasuries fell across the curve, apart from the 30-year tenor, which inched up. Declines were most pronounced in the belly, where yields rose about 4bps. The belly of the curve underperformed, with 5- to 7-year yields are cheaper by as much as 3.5bp on outright basis. Long-end outperforms, with yields slightly richer on the day, leaving 5s30s spread flattest since Oct. 20. Few events scheduled during US session. Treasury 10-year yields around 3.45%, cheaper by 2bps on the day and lagging bunds, gilts by 2bp and 1bp; 2s10s spread around -83bp and steeper by 1.5bp on the session after reaching new cycle low -85.2bp Wednesday. Gilts 10-year yield reverses earlier moves as money markets pare BOE rate-hike bets, seeing less than 100bps by Feb. Bunds 10-year yield edges lower while within Wednesday’s range.

In commodities, oil rises after a four-day drop; WTI jumped more than 3% to rise above $74 following news there was an outage at the Keystone pipeline. Spot gold falls roughly $3 to trade near $1,784/oz. Most base metals trade in the green.

To the day ahead now, and central bank speakers include ECB President Lagarde, and the ECB’s de Cos and Villeroy. Data releases include the weekly initial jobless claims from the US. Finally, earnings releases include Costco and Broadcom.

Market Snapshot

• S&P 500 futures up 0.1% to 3,941.25
• STOXX Europe 600 down 0.1% to 435.59
• MXAP up 0.4% to 156.61
• MXAPJ up 0.9% to 511.06
• Nikkei down 0.4% to 27,574.43
• Topix down 0.3% to 1,941.50
• Hang Seng Index up 3.4% to 19,450.23
• Shanghai Composite little changed at 3,197.35
• Sensex up 0.2% to 62,517.40
• Australia S&P/ASX 200 down 0.7% to 7,175.55
• Kospi down 0.5% to 2,371.08
• German 10Y yield down 0.2% to 1.79%
• Euro down 0.1% to $1.0495
• Brent Futures up 1.0% to $77.94/bbl
• Gold spot down 0.2% to $1,783.29
• U.S. Dollar Index up 0.20% to 105.31

Top Overnight News from Bloomberg

• Europe’s governments are expected to sell more new debt in the bond market next year — upwards of €500 billion on a net basis — than anytime this century. And bond investors, scarred by the same inflation surge that the ECB is trying to squelch, aren’t in the mood to tolerate fiscal largesse right now
• The term structures in the major currencies are now in full inversion mode as the one-week tenor captures the last round of risk events for the year. They now envelope the monetary policy meetings by the Federal Reserve, the European Central Bank, the Bank of England, the Swiss National Bank and Norges Bank, as well as the US CPI report for November
• The UK’s pace of hiring and pay growth slowed in November as companies concerned about the UK economy tipping into recession became more reluctant to take on permanent staff, according to a survey
• Australian Treasurer Jim Chalmers said an independent review of the Reserve Bank will help guide his decision next year on whether to reappoint Governor Philip Lowe, whose term expires in September
• Chinese authorities may further soften their stance on property policies at its key economic meeting next week after the Communist Party’s top decision-making body said it will seek a turnaround in the economy for 2023, according to people familiar with the matter
• With China’s Covid Zero policy rapidly dismantled, the threat of economic disruption remains high. Infections are likely to surge, forcing workers to stay home, businesses may run out of supplies, restaurants could be emptied of customers and hospitals will fill up
• Japanese life insurers sold a record amount of foreign bonds last month, preliminary portfolio flow data from the nation’s Ministry of Finance show

A more detailed summary of overnight news courtesy of Newsquawk

APAC stocks traded cautiously after the lacklustre handover from Wall St where the major indices were subdued as participants digested deflationary data and Russian President Putin’s nuclear rhetoric. ASX 200 was led lower by underperformance in the energy sector after oil prices recently slipped to a YTD low and with sentiment not helped by a monthly contraction in both export and imports, as well as the failure of takeover talks between Link Administration and suitor Dye & Durham. Nikkei 225 traded negatively amid reports that the government is to propose a JPY 1tln tax income increase to fund national defence, while data releases were uninspiring as it surprisingly showed the first Current Account deficit since June and although Q3 GDP was revised higher, it remained in negative territory. Hang Seng and Shanghai Comp were mixed with the Hong Kong benchmark buoyed by strength in casino names on the reopening play as Hong Kong is said to be considering easing COVID testing rules for arrivals and may repeal the outdoor mask rule, while the mainland is indecisive amid trade-related headwinds with the Netherlands planning curbs on tech exports to China under an agreement with the US.

Top Asian News

• China is said to be mulling further property market easing measures at next week’s economic meeting, according to Bloomberg sources.
• Macau to relax COVID test rules for Chinese visitors, according to Bloomberg.
• Hong Kong reports 14.4k COVID cases (prev. 11.9k); Hong Kong government says social distancing measures are set to remain in place.
• Japanese PM Kishida said no planning to increase income tax for defense spending.
• Hong Kong Shortens Covid Isolation, Eases Testing for Travelers
• China Car Sales Drop as Covid Lockdowns Kept Buyers at Home
• GoTo Assures Investors It Has Enough Cash to Reach Profitability

European bourses and US futures reside in narrow ranges are essentially pivoting the unchanged mark; Euro Stoxx 50 +0.1, ES +0.1. In Europe, the sectoral breakdown is mixed/lower with no overarching bias emerging. Chinese November Retail Passenger Vehicle Sales -9.5% Y/Y (prev. +6.9% Y/Y in Oct), according to PCA; Tesla (TSLA) exports 37.8k China-made vehicles in November (54.5k in October). Elon Musk’s bankers are reportedly considering providing new margin loans backed by Tesla (TSLA) shares to replace some high-interest debt to acquire Twitter, via Bloomberg citing sources.

Top European News

• UK PM Sunak refused to rule out a ban on strikes by emergency services and said he will do what is needed to keep the public safe during ongoing industrial action as he threatens tougher laws, according to Sky News.
• UK’s Unite union said around 146 members will begin strike action at Petrofac’s (PFC LN) Repsol (REP) installation on December 8th and 9th over pay and working terms, while 76 members at BP (BP/ LN) installations are to strike over working rotation, according to Reuters.
• European Natural Gas Prices Surge as Winter Blast Stokes Demand
• ASML Analysts See Limited Impact From Potential Dutch Curbs
• BAT Says US Consumers Are Switching to Cheaper Cigarettes

FX

• DXY has managed to regroup amid a initial retreat in USTs; though, the index remains around the mid-point of 105.04-105.42 ranges.
• Action which has modestly dented peers across the board, particularly GBP and JPY below and above 1.22 and 137.00 respectively.
• Antipodeans and the EUR are the relative ‘outperformer’, though they are essentially unchanged vs USD
• PBoC set USD/CNY mid-point at 6.9606 vs exp. 6.9603 (prev. 6.9975)

Fixed Income

• EGBs & their UK counterpart have, despite initial pressure, staged a firm rally to a test/eclipse of Wednesdays peaks amid the latest rhetoric from Russia.
• However, USTs have been unable to keep up with this and are still softer to the tune of 10 ticks, with yields firmer across the curve as such; currently, action is most pronounced in the belly.
• German Federal Constitutional Court has rejected the request for temporary injunction on 2021 supplementary budget; decision related to govt credit authorisation of EUR 60bln for climate funds.

Commodities

• Crude benchmarks are consolidating after yesterday’s mid-week pressure, though the rebound this morning is limited and rangebound.
• Spot gold is, once again, sideways around the USD 1775/oz mark while base metals glean some support from the latest touting of Chinese economic measures.
• Former Peruvian President Castillo was detained and is accused of rebellion.
• Commodities trader Trafigura more than doubled net profits in 2022 vs 2021.

Crypto

• US federal prosecutors are investigating whether Sam Bankman-Fried and his hedge fund orchestrated trades that led to the collapse of two cryptocurrencies in May, according to NYT.
• It was initially reported that US House Finance Services Chair Waters doesn’t plan to subpoena Sam Bankman-Fried to testify at the hearing on FTX’s collapse, although Waters later denied the report.
• US SEC has investigations under way focusing on exchanges including Coinbase (COIN) and the U.S. businesses of Binance and FTX, according to WSJ sources.

Geopolitics

• German Chancellor Scholz said the risk of Russia using nuclear weapons has decreased, according to Funke Media.
• Russian Deputy Foreign Minister Ryabkov says if the US deploys medium-range missiles in Asia/Europe then Russia’s approach to the moratorium will changed, via Reuters; adds, Russia’s nuclear deterrence forces are on full alert, according to Al Jazeera.
• Taiwan Defence Ministry said 9 Chinese air force planes crossed the Taiwan Strait median line during the past 24 hours, according to Reuters.
• US, Japan, and South Korea nuclear representatives meeting in Indonesia on the 12th and 13th December over North Korea, Via Yonhap.

US Event Calendar

• 08:30: Nov. Continuing Claims, est. 1.62m, prior 1.61m
• 08:30: Dec. Initial Jobless Claims, est. 230,000, prior 225,000

DB’s Jim Reid concludes the overnight wrap

Markets have continued to trade with a risk-off bias over the last 24 hours as the S&P (-0.19%) saw its 8th loss in the last 9 days, albeit a small one which actually only aggregates up to -2.32% down over those 9 days given that the one up day (last Wednesday) was the second best day for the index in the last 2 years. Sovereign bonds saw the bigger moves though, rallying amidst growing concern about the state of the economy alongside several dovish signals. That prompted another sharp decline in Treasury yields, with the 10yr yield down -11.5bps to 3.42%, which is its lowest level in nearly 3 months and more than -90bps beneath the intraday high of 4.34% in late-October. Ironically terminal at that point was pretty much exactly where we are today so there’s been a massive inversion of terminal-10s, which seems like the bond market is coming around to the idea of a harder and harder landing. Overnight, the 10yr yield seen a partial rebound of +4.5bps as we go to print, taking it back up to 3.46%.

Several factors were behind these moves, but the biggest shift of the day bizarrely coincided with the release of the revised Q3 data on US productivity. So not only a backward-looking indicator, but also a revised estimate as well. The release showed that labour productivity had risen by +0.8% in Q3 (vs. +0.3% previous estimate), whilst the growth in unit labour costs was revised down to +2.4% (vs. +3.5% previous estimate). Clearly that’s good news from the Fed’s perspective, but given the data series is a noisy one that’s often heavily revised (as with yesterday) it’s hard to justify the sizeable reaction that occurred directly as the release came out.

To be fair to investors, there were plenty of other developments yesterday to help justify the moves we saw in yields. In particular, the jitters about the global economy saw oil prices decline for a 4th day running, with Brent crude down -2.75% to $77.17/bbl. In fact, Brent crude fell back into negative YTD territory for the first time since January, closing -0.8% below its levels at the start of the year. And even though the moves have been driven by negative sentiment, it’s clearly good news for policymakers from an inflation standpoint, and it was inflation breakevens that drove the moves lower in Treasury yields, with 10yr breakevens coming down -6.2bps on the day to 2.27%. In turn, the impact is being increasingly felt in the real economy, with US gasoline prices down to a fresh post-January low of $3.355/gallon. Furthermore, data from the Mortgage Bankers Association showed that 30yr mortgage rates fell for a 4th week running to 6.41%, marking their longest run of declines since May 2019.

Another potentially dovish signal (if you squint hard enough) came from the Bank of Canada, which is acting as something of a prelude ahead of the Fed, ECB and BoE decisions next week. In terms of the decision, they hiked rates by 50bps despite plenty of speculation they’d downshift the pace to 25bps. That took the overnight rate up to 4.25%, but there were signs of a future pause in their statement, which said the “Governing Council will be considering whether the policy interest rate needs to rise further”. That’s the first time since the tightening cycle began that they haven’t explicitly said they expect further rate hikes, instead using softer language like “considering”. Nevertheless, the decision to proceed with 50bps dominated the market reaction, with Canadian government bonds underperforming yesterday as the 10yr yield ‘only’ fell -2.2bps. The big question now is whether any of the other central banks follow up with a similarly dovish signal next week.

When it came to equities the mood remained slightly downbeat yesterday, with the S&P 500 (-0.19%) losing ground for a 5th day running, and closing at its lowest level in 4 weeks. Once again, the losses were driven by the more cyclical sectors, with the NASDAQ (-0.51%) and the FANG+ Index (-0.93%) seeing even larger declines, despite the rate rally which would typically support big tech valuations. Meanwhile, bellwether defensives health care (+0.85%), staples (+0.38%), and real estate (+0.26%) led the way. And it was much the same story in Europe too, with the STOXX 600 (-0.62%), the DAX (-0.57%) and the CAC 40 (-0.41%) all losing ground on the day.

Staying on Europe, we’re now exactly a week away from the ECB’s next decision, and there were signs in their latest monthly survey that inflation expectations were continuing to rise. For instance, 1yr expected inflation was up by three-tenths to 5.4%. To be fair, 3yr expectations were unchanged at 3.0%, but that’s still a full point above the ECB’s target. In the meantime, sovereign bond yields continued to fall across the continent, with those on 10yr bunds down -1.5bps at their lowest level in nearly 3 months, whilst yields on 10yr OATs (-1.4bps) and BTPs (-4.4bps) were down as well.

Overnight in Asia, the equity weakness from the US and Europe has continued, with losses for the Kospi (-0.99%), the Nikkei (-0.52%), the CSI 300 (-0.07%0 and the Shanghai Comp (-0.10%). The main exception is the Hang Seng (+2.67%), which has surged following reports that Hong Kong could end their outdoor mask mandate and reduce the isolation period from 7 days to 5 for Covid patients and close contacts. The Hang Seng Tech index has seen even larger gains, advancing +4.79% against this backdrop. More broadly however, futures are still pointing to weakness in US and European equity markets later, with those on the S&P 500 currently down -0.15%.

Elsewhere on the data front, Euro Area growth was revised up in Q3, with the latest data showing a +0.3% expansion (vs. +0.2% previous estimate). That fits in with some recent newsflow suggesting the economic situation may not be as bad as had been feared, even if a recession still remains the consensus expectation. Otherwise, German industrial production also performed better than expected in October, with a -0.1% contraction (vs. -0.6% expected), whilst the previous month’s expansion was also revised up half a point.

To the day ahead now, and central bank speakers include ECB President Lagarde, and the ECB’s de Cos and Villeroy. Data releases include the weekly initial jobless claims from the US. Finally, earnings releases include Costco and Broadcom.

TC Energy Corp said in a statement this morning that it shut the Keystone oil pipeline system after a leak into a creek near Steele City, Nebraska

We have shut down the Keystone Pipeline System and mobilized people and equipment in response to a confirmed release of oil into a creek, approximately 20 miles (approx. 32 kilometres) south of Steele City, NE.

Pursuant to our incident protocols, an emergency shutdown and response was initiated at approximately 8 p.m. CT, on Dec. 7, 2022, after alarms and a detected pressure drop in the system.

The affected segment has been isolated, and booms deployed to control downstream migration of the release. The system remains shutdown as our crews actively respond and work to contain and recover the oil.

We are proceeding to make appropriate notifications, including to our customers and regulators and will work cooperatively with third parties to effectively respond to this incident.

Our primary focus right now is the health and safety of onsite staff and personnel, the surrounding community, and mitigating risk to the environment through the deployment of booms downstream as we work to contain and prevent further migration of the release.

We will provide more information as soon as it becomes available.

The response was swift in WTI, jumping over 3%…

The system can carry more than 600,000 barrels of crude per day.

The nearest time spread for the US benchmark surged over 50 cents into a bullish backwardation structure…

A prolonged outage would significantly tighten markets in Cushing, the delivery point of benchmark US crude futures as well as in the Gulf Coast. 

By Michael Msika, Bloomberg Markets Live reporter and analyst

If you’re wagering on a big recovery for European stocks after what’s set to be their worst year since 2018, you may be in for a disappointment.

The Stoxx Europe 600 Index will end 2023 at 449 points, according to a Bloomberg survey of 14 strategists, indicating gains of less than 2% versus Monday close. The poll shows that market watchers aren’t convinced about the longevity of a rally that has put the benchmark on track for its best quarter since 2015, with a gain of 13% being fueled by optimism of lower interest-rate hikes and China’s reopening.

That follows this year’s 10% decline, which was spurred by stubbornly-high inflation, an energy crisis and ongoing monetary tightening. More recently, several benchmarks including the euro-area Stoxx 50, Germany’s DAX and Italy’s FTSE MIB have entered bull markets. While the Stoxx 600 isn’t quite there yet, it’s back above where it was prior to the start of the war in Ukraine, after adjusting for dividends.

For Bank of America strategist Milla Savova, central banks’ aggressive monetary policy will lead to a weakening of global growth momentum in the first half of 2023, though the impact on equities will be partly offset by a decline in real bond yields. She sees more than 15% downside for the Stoxx 600 by the end of the second quarter, before a rebound from 365 points to 430 points by year-end as economies start to recover.

Goldman Sachs shares a similar view. “We expect 2023 to prove tougher after the resilience in earnings this year,” says strategist Sharon Bell, citing margin pressure due to higher costs that will be harder to pass on in a recession.

The range of forecasts for the Stoxx 600 is relatively wide. Deutsche Bank strategists are the most optimistic at 495, representing a 12% increase from current levels, while TFS Derivatives is the most bearish at 355, implying nearly 20% downside.

Deutsche Bank has an overweight on the old continent for 2023, citing a heavy valuation discount to US peers, a peaking dollar and very low positioning on the region’s stocks. The Stoxx 600 trades near a record 30% discount to the S&P 500 in terms of forward price-to-earnings multiples, due to the plethora of European value and cyclical shares such as banks, energy and autos that still trade at depressed valuations.

For BNP Paribas’s Ankit Gheedia, such low valuations aren’t enough to justify the recent rally. Adjusted for higher rates and the 10% earnings downgrade he expects next year, stocks still look expensive, according to Gheedia, who forecasts a 19% drop in the Euro Stoxx 50 in 2023.

TFS’s Stephane Ekolo, who correctly predicted the market drop earlier this year, is on a similar page. Slowing economic growth, falling earnings estimates, and geopolitical and trade tensions are likely to be detrimental for stocks, he says.

According to Bloomberg’s survey, it won’t be any better for the region’s other major indexes, with the UK’s FTSE 100 seen mostly flat, while the German DAX is expected to rise only 2.2%.

Over two-dozen people were arrested in Germany on Wednesday for allegedly plotting to overthrow the government, the NY Times reports.

Around 3,000 German police and Special Forces officers were involved in the operation to detain individuals believed to be members of a domestic terrorist organization formed in late 2021, Reichsbürger [Citizens of the Reich] movement, with planned to overthrow the government and form their own state.

According to prosecutors, the group believes that “Germany is currently ruled by members of a so-called deep state” which needs to be overthrown.

Breaking News: Germany arrested dozens of people suspected of supporting a domestic terror organization that was planning to overthrow the government. https://t.co/qTyRh4dRHn

— The New York Times (@nytimes) December 7, 2022

Two other individuals were arrested outside the country – one in Austria and the other in Italy. In total, 52 suspects are reportedly under investigation.

Among those detained were a member of the far-right Alternative for Germany party who had served in the German Parliament, a member of the German nobility and a Russian citizen accused of supporting the group’s plans. Federal prosecutors said that they were investigating a total of 52 suspects. -NYT

One of the members from an old aristocratic family, Heinrich XIII, is alleged to have been central to their plans.

The group’s plans included an armed attack on the Reichstag parliament building. Members had been conducting organized arms training and attempted to recruit German security services personnel. They are also accused of forming a sort of shadow government which they would install if their plans were successful. 

The Times notes that officials have no idea how close the group was to acting on their plans.

According to the report, the group wanted “to overcome the existing state order in Germany and to establish its own form of state, the outlines of which have already been worked out.”

“The members of the organization were aware that this goal can only be achieved through the use of military means and violence against state representatives. This also included commissioning killings.”

Authored by John Cody via Remix News,

Following Morocco’s shock World Cup penalty shoot-out victory over the Spanish national team on Tuesday, Moroccan fans have once again rioted across multiple countries, including Spain, France, Italy, Belgium, and the Netherlands.

The scenes of chaos mark the third time Moroccan fans have rioted following a World Cup victory, with the first two times last month already drawing condemnation.

Video of last night’s riots have been spread across social media, including from the account of Italian Transportation Minister Matteo Salvini, who wrote, “Morocco eliminates Spain, so they ‘celebrate’ in Milan… I hope that those responsible are identified and pay all damages.”

Il Marocco elimina la Spagna, così “festeggiano” a Milano…
Mi auguro che i responsabili vengano identificati e ripaghino tutti i danni. #MaroccoSpagna pic.twitter.com/K5n0MxTtEn

— Matteo Salvini (@matteosalvinimi) December 6, 2022

Critics are pointing at the now weekly scenes of mass unrest from Moroccan fans as a case in point for the failure of multiculturalism, with these fans not only rooting for a rival national team but also actively destroying their own cities.

Moroccan fans celebrating in a number of Spanish cities turned to violence, such as in Bilbao, where multiple videos show fans rampaging through the streets.

Celebración de los aficionados de Marruecos en Bilbao #Qatar2022 #WorldcupQatar2022 #WorldCup #WorldCup2022 #espanamarruecos #espanavsmarruecos #ESPvsMAR #ESPvMOR pic.twitter.com/vYiXgucAie

— Radio Sports (@RadioBa1oncesto) December 6, 2022

Hinchas marroquíes incendian las calles de Bilbao #espanamarruecos #Qatar2022 #FIFAWorldCup2022 #Morocco #Marruecos #seleccionEspanola #MarruecosVsEspana #espanavsmarruecos #Espana pic.twitter.com/ncYwTRCRRu

— ÍdoloMadridista97 (@IMadridista97) December 6, 2022

Fans also set cars on fire in the Spanish city of Reus, according to reports from BNN Spain.

WATCH: #BNNSpain Reports

Moroccan celebrations set fire to a car in #Reus, #Tarragona, Spain, as a result of #Morocco‘s victory over #Spain in today’s #WorldCup2022 match.#Qatar #FIFAWorldCup pic.twitter.com/3L0NVf6R1d

— Gurbaksh Singh Chahal (@gchahal) December 6, 2022

Before the match, Moroccan fans and Spanish fans were already clashing in Huelva, a city in Andalusia, prior to kick-off.

Pelea entre aficionados de España y de Marruecos en la previa del partido del mundial

📹 Huelva pic.twitter.com/N6eFYb6eTz

— SocialDrive (@SocialDrive_es) December 6, 2022

The widespread nature of the riots, including outside of Spain, underlines the level of animosity some Moroccans feel for the European nations they live in. The Dutch national team has not even faced off against Morocco yet, but fans in the country battle with riot police in Amsterdam, just as they did after Morocco’s victory over Belgium.

Apart from Belgium and France, young Moroccan fans also rioted in Netherlands tonight.

Clashes took place with the riot police in Amsterdam after Morocco defeated against Spain and advanced to the next stage of the World Cup.

pic.twitter.com/CHduIZ2xq6

— Visegrád 24 (@visegrad24) December 6, 2022

WATCH: #BNNNetherlands Reports

Riots have broken out in #Amsterdam as a result of the celebration of #Morocco‘s victory over #Spain in today’s #WorldCup2022 match.#FIFAWorldCup #Qatar pic.twitter.com/106M3puRII

— Gurbaksh Singh Chahal (@gchahal) December 6, 2022

The Hague also saw chaos on the streets, with fans attacking police vehicles in the Schilderswijk neighborhood.

Law enforcement is called in to secure the Schilderswijk neighbourhood in The Hague as Moroccan rioters cause trouble in the streets.

🌍 @European_Insider | pic.twitter.com/02Rcxc8Ux5

— 🍁En el barrio de Cortes viven residentes (@VecBarrioCortes) December 6, 2022

In France, the city of Lille saw Moroccan fans starting fires and attacking police with fireworks. Riot police responded by charging the revelers in an attempt to disperse them and restore calm.

La police charge, les Marocains répliquent avec des mortiers. pic.twitter.com/DFy2NJPOmo

— Pierre Sautarel (@FrDesouche) December 6, 2022

Fans in the French city of Nice also fired pistols into the air, blocked streets, and terrorized residents.

“Are we still in France? Tram blocked and rocked, police attacked and cars burned. This is the result of Morocco’s victory in the streets of Nice! Zero tolerance against these criminals who defy our laws!” wrote Les Republicans politician and former presidential candidate Eric Cotti on Twitter.

Sommes-nous encore en France ?

Tramway bloqué et caillassé, policiers attaqués et voitures brûlées, voilà le résultat de la victoire du Maroc dans les rues de Nice !

Tolérance zéro face à ces délinquants qui défient nos lois ! pic.twitter.com/HMeGM6kIeB

— Eric Ciotti (@ECiotti) December 6, 2022

Brussels, the capital of Belgium, was also hit with mass riots following Morocco’s victory over Spain, with fans attacking police vehicles. Belgium has one of the largest Moroccan populations in Europe, numbering over 500,000 in a country of 11.5 million.

#Update: just in – Video showing you Maroccon rioters attacking Belgian police in #Antwerp in #Belgium, after #Morocco advanced further to the quarter finals. pic.twitter.com/dX8dN5elYH

— Sotiri Dimpinoudis (@sotiridi) December 6, 2022

As Remix News previously reported, Belgium and the Netherlands were hit by widespread riots following Morocco’s victory last month. Video footage of these previous incidents can be seen here.

The police raid on Deutsche Bank AG and its asset management arm, DWS Group, in Frankfurt, Germany, earlier this year was a wake-up call for the entire asset management industry because the days of exaggerating green investments in environmental, social and governance (ESG) products has come to an end. 

In October, a German consumer group sued DWS for allegedly misrepresenting its green credentials in marketing materials — this is a practice known as “greenwashing.” 

Now Bloomberg reports CEO Stefan Hoops, who took office in June amid a greenwashing scandal, said the firm will dial back hype in ESG sales pitches. 

Speaking Wednesday, Hoops said green marketing had been “exuberant” and now would be an appropriate time to “tone down” ESG investing opportunities.  

Whistleblower and former DWS sustainability chief Desiree Fixler first raised questions about the legitimacy of the firm’s ESG investment products in August 2021. Investigations into DWS followed shortly after that. 

Hoops said he “stands by” the firm’s previous ESG disclosures while authorities in the US and Germany investigate greenwashing claims. 

Hoops said he’s carefully reviewed how DWS arrived at previous ESG disclosures, including those made in the firm’s 2020 and 2021 annual reports, which were singled out by Fixler for criticism. That review gave him “confidence” that the information contained in them was accurate at the time, though he said evolving regulation meant DWS subsequently changed how it handles ESG disclosures. -Bloomberg 

The German consumer group alleges DWS told investors in marketing material that it allocates zero funds to controversial sectors such as fossil fuels, though material from the fund outlined it could include companies with up to 15% of revenue from that industry. 

DWS is the highest-profile case of greenwashing in Europe. Other funds have also backed away from green hype in advertising ESG funds amid an aggressive regulatory environment. 

Money managers have been waking up this year to ESG nonsense. Matt Lawton, T. Rowe Price Group Inc.’s sector portfolio manager in the Fixed Income Division, recently concluded: “It’s becoming increasingly difficult to find credible sustainability-linked bonds.” 

Authored by Owen Evans via The Epoch Times,

In an emergency press conference, the National Farmers Union (NFU) said the government needed to step in to assist farmers who are under severe strain.

The British farming industry is facing major issues across almost all sectors, with the price of animal feed and nitrogen fertiliser, and fuel skyrocketing. The union warned that yields of crops will likely slump to record lows this year with farmers also considering reducing the size of their herds.

Under Threat

In the emergency press conference, NFU president Minette Batters said that “shoppers up and down the country have for decades had a guaranteed supply of high-quality affordable food produced to some of the highest animal welfare, environmental, and food safety standards in the world.”

“That food, produced with care by British farmers, is critical to our nation’s security and success. But British food is under threat,” she added.

“We have already seen the egg supply chain crippled under the pressure caused by these issues and I fear the country is sleepwalking into further food supply crises, with the future of British fruit and vegetable supplies in trouble. We need government and the wider supply chain to act now—tomorrow could well be too late.”

According to the NFU, since 2019 the price of wholesale gas has increased by 650 percent, with nitrogen fertiliser up by 240 percent and agricultural diesel up 73 percent. Furthermore, animal feed raw material has increased by 75 percent.

Nearly 1 in 10 NFU members who produce beef said they were considering reducing the size of their herd in the next 12 months.

Production of tomatoes and cucumbers is expected to fall to the lowest levels since records began in 1985. In terms of dairy, the NFU said that rising costs may force farmers to reduce cow numbers to survive in response to short-term market signals.

Some UK supermarkets are also rationing eggs, with over a third of egg farmers considering quitting the industry because they say it is no longer economically viable to farm hens.

‘Deaf Ears’

Steve Evans, a dairy farmer based in Pembrokeshire, West Wales, told The Epoch Times by email that the issues “lie firmly at the government’s door.”

“We have warned and warned about this since the turn of the year, both Gareth Wyn Jones and myself have been on TV several times and yet our views fell on deaf ears in both the government and with the retailers,” he said.

Gareth Wyn Jones, is a sheep and cow farmer, and well-known TV presenter who lives in Ty’n Llwyfan, North Wales. Jones has also said that the country is “sleepwalking into food shortages” and has criticised how farmers around the world are being accused of being “peak polluters” in net zero measures, warning that “state-sponsored famine for billions of people is on the horizon.”

“When you have on-farm inflation hitting 30 percent plus then it was always going to happen, farmers (myself included) have cut back since the start of spring due to cash flow management decisions that had to be made,” said Evans.

“This coupled with the dry summer which came off the back of a relatively dry year last year and a dryish winter then these issues were looming large and yet the government seems to have parked the issue with the retailers and let them sort it,” he said.

“Passing the buck and now the issues lie firmly at the government’s door,” said Evans.

Last month, Batters told the committee that the UK was in “an extraordinary situation.”

“Time is not on our side to do that; there is a real level of urgency,” she said.

“Many farmers are producing food at a lower cost of production, which is unsustainable in the long term,” she added.

Highly Resilient

A government spokesperson told The Epoch Times by email that the UK “has a large and highly resilient food supply chain.”

“Our high degree of food security is built on supply from diverse sources; strong domestic production as well as imports through stable trade routes,” he said.

“The government is in regular contact with the food and farming industries to ensure they are well prepared for a range of scenarios, and we continue to take all the necessary steps to ensure people across the country have the food they need,” he added.

Andrew Opie, director of Food & Sustainability at the British Retail Consortium, told The Epoch Times by email that: “Retailers are adept at managing pressures across their supply chain; they have long-standing, established relationships with farmers and know how important maintaining these are for their customers and suppliers.”

“Supermarkets source, and will continue to source, the vast majority of their food from the UK and know they need to pay a sustainable price to farmers.

“Given the pressure on British farmers at the moment, retailers are paying more for their produce. However, retailers are also facing additional costs and are working incredibly hard to limit price increases for consumers during a cost-of-living crisis where many people are struggling to afford the essentials”