U.S. oil refining margins, also known as the 3-2-1 crack spread, jumped to a three-month high on Tuesday — and that’s an indication the country faces an ongoing product shortage that might lead to higher gasoline and diesel prices at the pump. 

The 3-2-1 crack spread is a great indicator to gauge fuel product tightness. High spreads indicate gasoline, diesel, jet fuel, and other petroleum products are in short supply, while low spreads mean an abundance of supply. Spread direction is also important — if rising, it would mean fuel inventories are declining. 

The simple calculation of refining margins is for every three barrels of crude oil the refinery processes — it makes two barrels of gasoline and one barrel of distillates like diesel and jet fuel.

On Tuesday, the crack spread hit a three-month high of $42 a barrel. For some context, the five-year January average is $15.56.  

Reuters pointed out that refinery outages exacerbate fuel supply tightness. 

A diesel producing unit at PBF Energy’s (PBF.N) Chalmette, Louisiana, refinery was shut following a fire on Saturday. It could be out for at least a month. Exxon Mobil (XOM.N) said Monday it will perform planned maintenance on several units at its Baytown, Texas, petrochemical complex.

The ongoing refinery maintenance season could be much lengthier than usual, with many U.S. Gulf Coast refineries still running below capacity after Winter Storm Elliott knocked out some 1.5 million barrels per day of refining capacity in December. A Suncor refinery in Commerce City, Colorado, has remained offline since the storm.

Also, the number of refinery overhauls is double the amount this spring. Many of these overhauls were postponed due to the pandemic. Some are due to record-high margins driving increased profitability for oil companies. 

There are at least 15 oil refineries plan maintenance ranging from two to 11 weeks through May, tallies by Reuters and refining intelligence firm IIR Energy show. By mid-February, U.S. refiners will drop some 1.4 million barrels per day of processing capacity, double the five-year average. 

“A lot of plants didn’t want to shut down last year when margins were strong, but they have to get this work done,” said John Auers, refining analyst with Refined Fuels Analytics.

Nine U.S. refineries operated by Marathon Petroleum, Valero Energy, Exxon Mobil, Phillips 66, and BP will shutter some of their fuel-producing units this spring, according to IIR and Reuters sources.

All of the outages and planned overhauls are going to make it difficult for refiners to catch up with demand as inventories are relative to historical levels. 

“If we aren’t hearing the alarm bells, it’s because we’re deaf after refining margins reached eye-watering levels in 2022, when the 3-2-1 crack spread briefly surged above $60. But from a historical perspective, current margins are sky-high, as well,” Bloomberg Opinion’s Javier Blas said. 

According to AAA data, gasoline and diesel prices at the pump are starting to move higher after months of declines following the rise in the 3:2:1 crack spread. 

And the ‘raw materials’ for the refining process are rising rapidly…

Perhaps the victory lap was a little premature? 

Since June, the average gas price has fallen by $1.60 – saving American families with two cars $170 a month.

— The White House (@WhiteHouse) January 23, 2023

Mission Accomplished 2.0?

Authored by Greg Orman via RealClear Wire,

Last week, CBS “Face the Nation” host Margaret Brennan asked Democratic Rep. Dan Goldman why President Biden would dispatch his personal attorney, who didn’t have proper security clearance, to his Delaware home to search for classified documents. Presumably, Brennan believed that when searching for classified documents, one should have the credentials to actually read them. Brennan’s focus on who was reviewing Biden’s papers touched on a potentially interesting line of inquiry. The question hanging in the air, however, relates to the discovery that started this whole process: Why would lawyers be “packing up” Biden’s office in the Penn Biden Center in the first place?

Not unlike other politicians, Joe Biden has done a terrific job of turning political success into a financial windfall. But someone who considered himself “middle-class Joe” for decades should realize the wastefulness of having lawyers perform a task that a trusted intern or aid could perform. As many big-time East Coast lawyers now routinely charge $1,000 an hour, it’s an awfully expensive packing crew – unless the intent wasn’t truly to “pack” but rather to purge. 

The timing here is suspicious as well. Apparently, this moving crew was at Biden’s University of Pennsylvania office a week before midterm elections that were widely anticipated to turn control of the House over to the Republicans. As Republicans had signaled that they were going to be spending considerable time wearing out the subpoena powers of various House committees to investigate Biden and his family, it would be an auspicious time to get rid of anything damaging. By using lawyers to carry out the document purge, Biden would be able to attach attorney-client privilege to their efforts, thereby avoiding damaging testimony about the contents of any shredded documents.

To be clear, there’s nothing illegal about getting rid of musty records in the absence of a valid document retention request. The Biden administration made it clear that it would not consider any such request valid until the new Congress was sworn in and the various committee chair gavels handed out. In a response to document requests made in December from Reps. Jim Jordan and James Comer, an administration lawyer responded, “Congress has not delegated such authority to individual members of Congress who are not committee chairmen, and the House has not done so under its current Rules.” In short, you’ll have to start over. Biden was effectively setting a hard deadline for when document purges go from being propitious to being illegal.

Unfortunately for the president, the attorneys tasked with shutting down his University of Pennsylvania office stumbled across top secret government documents and understood the consequences. Had they not made those discoveries, we likely would have never heard of these high-priced packers.

Republicans, including Donald Trump, have been quick to point out the timing of the initial discovery and the lack of prompt public disclosure. They believe the midterm elections might have been more favorable to Republicans if it was clear that Trump wasn’t the only one potentially breaking the law. Maybe. But the timing and process does lead to questions about what more the current president might have to hide.

For now, President Biden wants us to take him at his word that this whole classified documents mess is nothing more than an honest mistake. As he says, “There’s no there, there.” That may be true, but the activities that preceded the classified document discoveries raise different questions. From a man who campaigned on elevating the standards at the White House, this is disappointing to say the least.

US equity futures slumped on Wednesday after Microsoft started off the tech giants’ earnings parade by pulling off the old pump and dump, first jumping on Azure/Cloud results which beat estimates, but then erasing all gains and slumping during the company’s conference call after the company’s guidance disappointed, forecasting slower earnings and weaker demand (separately, hours later customers reported difficulties across multiple regions in accessing Microsoft 365 services, which the company attributed to networking issues). Earnings reports from companies such 3M, Boeing and chipmaker Texas Instruments also reinforced concerns about the health of corporate America and added to investors’ jitters as they await updates from the likes of Tesla and IBM. Fears also grew that a decision to send German and US tanks to Ukraine would provoke an escalation in the war.

As a result, contracts on the tech-heavy Nasdaq fell 1.3% at 7:15 a.m. ET while S&P 500 futures dropped 0.8%, and traded right around 4,000. The Bloomberg Dollar Spot Index was little changed, leading to mixed trading in Group-of-10 currencies. Treasuries edged higher, mirroring gains in most UK and German government bonds. Brent crude was little changed, while gold and Bitcoin fell.

In premarket trading, all eyes were on Microsoft which fell after saying revenue growth in its Azure cloud-computing business will decelerate in the current period and warned of a further slowdown in corporate software sales. Amazon and Alphabet also fell in sympathy, dragging other cloud stocks lower (Amazon.com -1.6% and Alphabet -1.1%; Snowflake -3.1%, Datadog -4.0%, Adobe  -1.4). Texas Instruments suffered its first sales decline since 2020 and gave a tepid forecast for the current quarter. Microsoft comprises about 12% of the Nasdaq 100, while Texas Instruments has a weighting of 1.4%. Here are other notable premarket movers:

• Enphase Energy (ENPH US) declines 4% after it was cut to neutral from overweight at Piper Sandler as demand for residential solar loans dipped more than the broker expected.
• Precigen (PGEN US) drops 16% after an offering of shares priced at $1.75 apiece, representing a 20% discount to the last close. Proceeds to be used to fund the development of product candidates and for other general corporate purposes.
• Block (SQ US) declines 4% as Oppenheimer cuts the stock to market perform from outperform, saying the firm looks less defensively-positioned than other payments names.
• Intuitive Surgical’s (ISRG US) falls 8.9% as the medical tech firm’s quarterly results are overshadowed by the company saying it won’t launch a new multiport robotic system in FY23, which analysts say removes a positive catalyst for the stock.
• Capital One’s (COF US) slumps 3.3% following the release of results. Its earnings slightly missed expectations and analysts flag a quicker-than-expected acceleration in net charge-offs for the company.
• Keep an eye on Stryker (SYK US) as it was initiated by KeyBanc at sector weight, which says the US med-tech firm’s valuation “reflects an above-average growth rate with some risk of mean reversion over time.”

A weak earnings outlook, fears of US recession as well as the potential escalation in the Ukraine-Russia war were all contributing to the market pullback, according to Kenneth Broux, a strategist at Societe Generale. “The market is definitely worried about slowing earnings growth especially on tech, so there has been a sense the market wants to keep selling tech and the dollar,” Broux said. “But a huge tail risk now is what happens in Ukraine, if there is an escalation in the conflict and Europe gets drawn into the conflict.”

While today’s drop will hurt, the Nasdaq 100 Index has surged 8.3% this year, on track for the best January since 2019. Expectations that the Federal Reserve will soon pivot away from its hawkish policy have aided the rally, though strategists are increasingly preferring non-US equities this year as they hunt for cheaper valuations and grow concerned about a US recession. Investors are now parsing earnings statements for the impact of the economic slowdown on results.

“The main focus is clearly on US big tech,” said Fabio Caldato, a partner at Olympia Wealth Management. “How can those bulls in a China shop reassure the financial community? Just showing growth. We remain very cautious on this aspect and prefer to underweight the whole sector.”

Next, all eyes will be on Tesla when the electric-car maker reports results after the market closes on Wednesday. Investors will focus on demand, profitability and 2023’s expected pace of deliveries. They are also keen to learn whether Chief Executive Officer Elon Musk will name a new CEO of Twitter.

In Europe, the Stoxx 600 was down 0.6% and on course for its first back-to-back declines of the year. Shares in major European software firms such as SAP SE and Sage Group Plc. feeling the heat from Microsoft and Dutch chip-tool maker ASML Holding NV falling after posting a profit miss. Here are the most notable European movers:

• EasyJet shares rise as much as 12% after the budget carrier reported 1Q revenue that was 8% ahead of consensus and projected strong trends will continue into the second quarter
• Aviva shares gain as much as 3.5%, the most since October, with JPMorgan saying the general insurance underwriting update from the group will provide some reassurance
• Caverion shares rise as much as 4.1% after the Bain-led consortium increased its offer for the Finnish building-maintenance-services firm following a rival bid from private equity firm Triton
• Hill & Smith rises as much as 2.2% after delivering an unscheduled trading update guiding to operating profit above expectations, which Jefferies describes as “pleasing to read”
• ASML shares fall as much as 2.3%, trimming a recent rally, after the Dutch chip-tool giant’s profitability target missed higher Street expectations despite its bullish sales growth forecast for 2023
• Netcompany shares plunge as much as 23%, the most on record, after the Danish IT consultant’s Ebitda margin guidance for 2023 missed expectations
• Aroundtown shares dropped as much as 7.4% after Societe Generale cut its recommendation to sell from buy as part of a more cautious view on REITs
• Gjensidige shares fall as much as 9.9% with analysts saying the Norwegian insurer’s results were weak across the board and that the lack of a special dividend will disappoint

Earlier in the session, Asian stocks headed for a fourth straight daily gain as tech stocks rose amid lighter trading volumes and holidays in China and Hong Kong. The MSCI Asia Pacific Index advanced as much as 0.4% to its highest since early June. Samsung Electronics and SK Hynix were among the biggest contributors to the gauge’s advance as Korea traders returned from the Lunar New Year holidays. “With the global growth outlook narrative shifting more toward a soft landing rather than recession, we are seeing the tech sector come back in favor for now,” said Charu Chanana, strategist at Saxo Capital Markets. “But caution is warranted as inflation risks are back on the horizon with China’s reopening.” 

Tech investors also assessed Microsoft’s second-quarter earnings release, which showed profit beat estimates although the company gave a downbeat revenue forecast. Traders are now turning their attention to Tesla’s result announcement later Wednesday. Singapore stocks led gains in Asia Pacific alongside their South Korean peers.

Japanese stocks rose as investors continued to assess the overall economy and shifted their focus to upcoming earnings. The Topix rose 0.4% to 1,980.69 at the close in Tokyo, while the Nikkei advanced 0.4% to 27,395.01. The yen weakened 0.2% to 130.44 per dollar. Keyence contributed the most to the Topix’s gain, increasing 1.7%. Out of 2,161 stocks in the index, 1,342 rose and 699 fell, while 120 were unchanged.  “Global economic recession risk has declined sharply as China and Europe demand is expected to improve this year,” said Daniel Yoo, head of global asset allocation at Yuanta Securities Korea. “Overall tech demand including capex investments of global corporations isn’t slowing down much.”

Stocks in India fell ahead of the expiry of monthly derivative contracts on Wednesday. Adani Group shares were among major decliners after activist investor Hindenburg Research shorted the group. The S&P BSE Sensex slid 0.9% to 60,404.47, as of 11:09 a.m. in Mumbai, while the NSE Nifty 50 Index declined 1%. All but one of BSE Ltd.’s 20 sector sub-indexes declined, led by a gauge of service industry stocks.  HDFC Bank contributed the most to the Sensex’s decline, decreasing 1.8%. All but three of 30 shares in the Sensex dropped.  All stocks controlled by Adani Group fell after Hindenburg Research accused firms owned by Asia’s richest man of “brazen” market manipulation and accounting fraud. Representatives for the Adani Group didn’t immediately respond to calls and emails seeking comment, saying the company would issue a statement in response later.

Meanwhile, Australian stocks dropped after data showed that domestic inflation accelerated to the fastest pace in 32 years in the final three months of 2022. Trading volumes have been light in Asia this week as markets in China, Hong Kong, Taiwan and Vietnam remain closed for the new-year break. A blackout period on communications ahead of the Federal Open Market Committee’s policy meeting next week has supported risk appetite, with the MSCI Asia gauge up about 25% from an October low

In FX, the Bloomberg Dollar Index was little changed even as the greenback advanced against most of its Group-of-10 peers, with notable outperformance in the Aussie dollar after CPI surprised to the upside. Kiwi dollar is the weakest among the G-10’s.

• The pound fell for a third day and gilts rose, led by the belly, after data showed UK factories’ fuel and raw material costs rose at the slowest pace in almost a year. Input prices rose 16.5% in December from a year ago, down from a peak of 24.6% in June. Money markets went to fully price in a 25-basis point rate cut by the Bank of England before the end of the year
• The euro fell a first day in six against the US dollar, though moves were limited to a narrow range. Bunds advanced, outperforming Italian notes.
• The Canadian dollar was little changed while overnight volatility in dollar- loonie rose to its highest level since Jan. 12 as traders position for the Bank of Canada policy decision. The implied breakeven of around 84 pips may be understating the possibility of outsized swings in the pair.
• Australian dollar rose against all of its G-10 peers, to trade at the highest level since August versus the greenback, and the nation’s bonds tumbled after 4Q inflation accelerated to the fastest pace in 32 years in the final three months of 2022. The outcome of 7.8% from a year earlier exceeded forecasts of 7.6% and prompted money markets to price in an interest-rate hike at next month’s central bank meeting.
• Kiwi dollar was the worst G-10 performer as New Zealand inflation held near three-decade high at 7.2% but undershoot RBNZ’s forecast.

In rates, the risk-averse tone benefited bonds, with UK and German 10-year yields falling by 8bps and 6bps respectively. Treasuries also rose as the Treasury curve bull-flattened modestly and as futures extending through Tuesday’s highs, following wider gains across gilts after soft UK factory price inflation data.  Treasury yields richer by around 2bp from belly out to long-end with 10-year at 3.42%, lagging gilts by almost 4bp in the sector after sharp rally across UK bonds. The US auction cycle resumes at 1pm with $43b 5-year sale, before Thursday’s $35b 7-year notes; strong 2- year auction Tuesday traded through the WI by 1.3bp.

In commodities, oil prices are little changed with WTI hovering around $80.10. Spot gold falls roughly 0.6% to trade near $1,926/oz

Bitcoin is back below the USD 23k mark, though remains just above the WTD trough set on Monday at USD 22.3k.

On today’s calendar, we get data on US mortgage application (up 7.0%, vs up 27.9% last week). The EIA will release figures on oil inventories at 10:30 a.m. The US will sell $24 billion of two-year floating-rate notes and $36 billion of 17-week bills at 11:30 a.m., followed by $43 billion of five-year notes at 1 p.m. From central banks, the main highlight will be the Bank of Canada’s latest policy decision. Finally, earnings releases include Tesla, Boeing, IBM, AT&T and Abbott Laboratories.

Market Snapshot

• S&P 500 futures down 0.5% to 4,011.25
• MXAP up 0.3% to 169.09
• MXAPJ up 0.2% to 553.07
• Nikkei up 0.4% to 27,395.01
• Topix up 0.4% to 1,980.69
• Hang Seng Index up 1.8% to 22,044.65
• Shanghai Composite up 0.8% to 3,264.81
• Sensex down 1.3% to 60,174.06
• Australia S&P/ASX 200 down 0.3% to 7,468.30
• Kospi up 1.4% to 2,428.57
• STOXX Europe 600 down 0.3% to 451.94
• German 10Y yield little changed at 2.11%
• Euro little changed at $1.0884
• Brent Futures up 0.5% to $86.56/bbl
• Gold spot down 0.3% to $1,930.94
• U.S. Dollar Index little changed at 101.93

Top Overnight News from Bloomberg

• A gauge of German business expectations by the Ifo institute rose to 86.4 in January from 83.2 the previous month. That’s the fourth consecutive improvement and a bigger increase than economists had anticipated. A measure of current conditions slipped, however
• European natural gas headed for a third day of declines as ample supplies and reserves, along with the return of milder weather, help to ease the region’s energy crisis
• With the Federal Reserve’s Feb. 1 interest-rate decision a week away, traders in the options market are contemplating a scenario in which the rate hike it’s expected to deliver ends up being the last one of the tightening cycle
• Japan’s broken bond market continued to throw up anomalies with central bank ownership of some government debt exceeding the amount outstanding, according to its latest data
• Japan’s government cut its monthly view of the economy for the first time since February 2022, reflecting gathering concerns over the outlook for the global economy

A More detailed look at global markets courtesy of Newsquawk

APAC stocks were mixed after the indecisive performance stateside owing to the varied data releases and geopolitical tensions, while the region also digested firmer-than-expected inflation data from Australia and New Zealand. ASX 200 failed to sustain an initial foray above 7,500 with the index subdued by hot CPI data which printed its highest since 1990 and boosted the market pricing for the RBA to continue with its hiking cycle next month. Nikkei 225 gradually edged higher with trade uneventful in the absence of any pertinent drivers although Dai Nippon Printing outperformed after Elliot Management built a stake in the Co. of slightly under 5%. KOSPI was among the biggest gainers on return from the Lunar New Year holiday with the index also driven by strength in top-weighted stock Samsung Electronics.

Top Asian News

• US Secretary of State Blinken is likely to warn China against aiding Russia when visiting Beijing, according to SCMP.
• Australian PM Albanese said there is increased engagement at different levels between Australian and Chinese agencies, according to Reuters.
• North Korea ordered a 5-day lockdown of its capital Pyongyang due to increasing cases of an unspecified respiratory illness, according to South Korean-based NK News.
• Japan lowers its overall economic view in January; first time in 11 months.
• Japanese Gov’t official, citing BoJ’s Kuroda, says the BoJ will resolutely keep monetary environment easy; BoJ aims to regain market functionality by tweaking YCC operations and maintaining an easy monetary environment.

European bourses are pressured across the board, Euro Stoxx 50 -0.6%, after a sluggish post-MSFT start to the session and thereafter a further waning in the general risk tone. Within Europe, a strong update from ASML has been overshadowed by the MSFT pressure, while the likes of Ryanair and IAG are buoyed by easyJet. Stateside, futures are all in the red with the NQ -1.2% lagging and the ES Mar’23 below 4k and its 200-DMA at 3999, to a 3996.5 session trough. NYSE said it is thoroughly examining the glitch and that the exchange ended Tuesday with a normal close, while a regular open is expected on Wednesday, according to Reuters.

Top European News

• German Economy Minister sees 2023 German GDP at 0.2% (vs -0.4% in Autumn forecast); 2023 inflation seen at 6% (vs prev. 7%); “we do not see signs of marked recession as feared by many observers”. In-fitting with earlier reports via the likes of Bloomberg and Reuters in recent sessions.
• French Regulator Set to Provisionally Close Government EDF Offer
• Traders Reverse Course to Bet BOE Will Cut Rates Before Year-End
• UK’s Growth Potential Falls, Reducing Hunt’s Room for Tax Cuts
• Renault Gets Two Upgrades, Shares Rise as Nissan Deal Nears
• Ukraine Latest: Allies to Send Tanks; Kishida Pressed to Visit
• UK Parliament Seeks Power to Scrutinize Finance Regulators

Notable US Headlines

• US House Speaker McCarthy said they need to have a responsible debt ceiling and called for eliminating wasteful spending, while he added debt is the greatest threat to the nation and that President Biden needs to stop playing politics on the debt ceiling.
• US President Biden is close to naming the next National Economic Council head, Fed Vice Chair Brainard has emerged as the top contender, according to Washington Post sources; current NEC Director Deese is expected to leave soon, no decision made yet.
• US Senator Manchin is to reportedly introduce a bill to delay EV tax credit due to disagreements over how to implement the programme, according to WSJ.

FX

• The DXY has spent the morning in close proximity to the 102.00 mark and has most recently extended to fresh session highs of 102.12 amid a general decline in the risk tone.
• AUD is the standout outperformer after much hotter-than-expected CPI while the NZD was only able to derive fleeting support from its own inflation data, at best AUD/USD and NZD/USD above 0.71 and 0.65 respectively.
• JPY has settled down somewhat after Tuesday’s pronounced action and was relatively resilient to Japan downgrading its economic assessment for the first time in almost a year.
• The aforementioned decline in sentiment that bolstered the USD did so at the expense of Cable and EUR/USD which moved below and further below 1.23 and 1.09 respectively.

Fixed Income

• Core EGBs have continued to extend with the Bund comfortably above 139.00, though the upside seemingly stalled after a brief breach of Fib resistance.
• An easing/pullback that was perhaps spurred by mixed German auction results; though, benchmarks remain elevated overall with Gilts once again outperforming and closer to 106.00 vs 105.08 low (current high 105.79).
• Stateside, USTs are firmer though lagging their EZ peers a touch ahead of a USD 43bln 5yr outing.

Commodities

• WTI and Brent front-month futures trade with no firm direction in early European hours, similar to yesterday’s price action, as market participants await the next catalyst for the complex.
• US Energy Inventory Data (bbls): Crude +3.4mln (exp. +1.0mln), Cushing +3.9mln, Gasoline +0.6mln (exp. +1.8mln), Distillate -1.9mln (exp. -1.1mln)
• US Treasury issued a license allowing Trinidad and Tobago to develop Venezuela’s Dragon offshore gas field.
• Spot gold and base metals have been impacted by the general risk tone with the yellow metal unable to glean any haven support as the USD remains firm.

Geopolitics

• Ukrainian President Zelensky said Russia is readying for new aggression and that Ukraine will prevent further Russian actions, while he added Russia is intensifying its offensive towards Ukraine’s Bakhmut.
• Russian Ambassador to the US said Washington’s possible deliveries of tanks to Ukraine would be a blatant provocation and it is clear Washington is trying to inflict a strategic defeat on us, according to Reuters.
• EU ambassadors have now formally given green light to roll over all the EU’s economic sanctions on Russia for an additional six months, via Radio Free Europe’s Jozwiak.
• German government is to send Leopard 2 tanks to Ukraine, Germany is to approve re-export of Leopard 2 tanks.

US Event Calendar

• 7am: U.S. MBA Mortgage Applications, 7.0%, prior 27.9%

DB’s Jim Reid concludes the overnight wrap

There’s been a little bit of a bias towards risk-off sentiment over the last 24 hours, thanks partly to some weaker-than-expected earnings releases that added to growing concerns about a potential US recession. The S&P 500 (-0.07%) came off its 7-week high from the previous day, oil prices took a sharp turn lower, and sovereign bonds rallied on both sides of the Atlantic. After the close, Microsoft did report better-than-expected earnings due to strength from their cloud-services business (Azure) even as their consumer businesses faltered. Their shares initially traded 4.5% higher before reverting late last night and are now down -1% in after-market trading after news came out during the earnings call that Azure sales could slow in Q1. S&P and NASDAQ futures are -0.46% and -0.78% down respectively as I type.

Those small equity losses in the normal trading session came as the flash PMIs for the US showed the economy still in contractionary territory at the start of the year. To be fair, the numbers were a bit better than expected, but even with the upside surprise the composite PMI was only at 46.6 (vs. 46.4 expected), which is its 7th consecutive month beneath the expansionary 50-mark. Looking at the details, the US PMIs also showed that input price rises had increased in January after 7 months of moderating, so that adds to some other indicators so far this quarter suggesting price pressures might be a bit more resilient than thought. The more negative tone from the data was then cemented by the Richmond Fed’s manufacturing index, which came in at a post-Covid low of -11 (vs. -5 expected).

Although the US numbers continued to point towards contraction, there was some better news from the Euro Area as the flash composite PMI came in at 50.2 (vs. 49.8 expected). That’s the first time it’s been above 50 since June, and came amidst upside surprises in both the services (50.7 vs. 50.1 expected) and manufacturing PMIs (48.8 vs. 48.5 expected) as well. The readings offer yet more evidence that the European economy has been faring better over recent months, echoing the rise in consumer confidence we saw the previous day.

With all this positive news out of Europe lately, our economists updated their forecasts yesterday (link here) and are no longer expecting a recession in 2023 as flagged in our German upgrade two weeks ago. That comes amidst falling gas prices, lower inflation, and declining uncertainty, which means our economists now expect the Euro Area to grow by +0.5% in 2023. They’ve also lowered their headline inflation outlook for 2023 to 5.8%, and now see 2024 at just 1.8%. Nevertheless, they don’t think the ECB can take their foot off the hawkish pedal just yet, since an improved growth outlook and stronger domestic demand raises the threat of more persistent underlying inflation.

Speaking of the ECB, yesterday saw a fresh round of commentary as the Governing Council debate how long to keep hiking rates by 50bps. On the one hand, Lithuania’s Simkus said that “there’s a strong case for staying on the course that’s been set for the coming meetings of 50 basis-point increases.” However the Executive Board’s Pannetta, one of the biggest doves on the council, said that beyond the next meeting in February “any unconditional guidance … would depart from our data-driven approach”. For now, investors are continuing to price in two 50bp moves as the most likely outcome, with +92.1bps worth of hikes priced over the next couple of meetings.

As this debate was ongoing, sovereign bonds rallied strongly on both sides of the Atlantic, with yields on 10yr Treasuries down -5.7bps to 3.45%. That was led by a sharp decline in real yields, which fell -7.6bps on the day. However, near-term policy expectations from the Fed were little changed ahead of their meeting a week from today, and the terminal rate priced for June was down just -0.1bps, whilst the 2yr Treasury yield fell -1.7bps to 4.21%. In Asia 10yr Treasury yields have moved back +1.29bps higher as we go to press. Back to yesterday, and there was a stronger rally in Europe, with yields on 10yr bunds (-5.1bps), OATs (-6.9bps) and BTPs (-11.1bps) all seeing a sharp decline.

As mentioned at the top, it was a bit of a battle for equities, with the major indices struggling to gain much traction after their recent rally. That left both the S&P 500 (-0.07%) and Europe’s STOXX 600 (-0.24%) with modest declines, although that was partly down to a drag from energy stocks after prices took a significant hit yesterday. For instance, Brent crude oil prices (-2.34%) had their worst day in nearly three weeks, falling to $86.13/bbl, whilst natural gas prices in Europe fell -11.71% to €58.27 per megawatt-hour as they closed in on the lows from last week. In the US, one of the worst performing industries for the S&P was Media & Entertainment (-1.02%), whose losses were partially due to the -2.09% pullback by Alphabet as the US Department of Justice did indeed sue the ad-giant under US anti-trust laws. This is the second such suit and a resolution could take years according to legal experts cited by Bloomberg.

Asian equity markets are continuing with their winning streak even with US futures lower. As I type, the KOSPI (+1.27%) is surging as trading has resumed after the Lunar New year holiday while the Nikkei (+0.43%) has rebounded after opening lower in morning trade. Markets in China and Hong Kong remain closed for the holidays. Elsewhere, the S&P/ASX 200 (-0.12%) is in negative territory following disappointing inflation data out from Australia.

Australian inflation rose to +8.4% y/y in December from +7.3% in November while surpassing market expectations for a rise of 7.7%. With inflation pressures broadening, its implication for policy rates pushed 10yr bond yields sharply higher (+5.2 bps) to settle at 3.52%, as we go to print. Meanwhile, the Australian dollar (+0.75%) is trading higher, hitting a 5-month high against the US dollar to trade at $0.7099.

Back to yesterday’s data, and the flash PMI releases were the main data highlight, but we did also get the UK’s public finance statistics for December. That showed public sector net borrowing (ex-banking groups) at £27.4bn (vs. £17.3bn expected), which was driven by more spending on energy support along with higher debt interest. Meanwhile, the latest flash PMIs from the UK weren’t as optimistic as their counterparts in the Euro Area, with the composite PMI falling to 47.8 (vs. 48.8 expected). That’s the lowest reading on that measure in two years, back when the economy went into lockdown again at the start of 2021.

To the day ahead now, and data releases include the Ifo’s business climate indicator for January from Germany. From central banks, the main highlight will be the Bank of Canada’s latest policy decision. Finally, earnings releases include Tesla, Boeing, IBM, AT&T and Abbott Laboratories.

The public has been bombarded with a stream of news stories in recent months seeking to explain the steady rise of heart attacks in western countries in the past two years.  The epidemic is most concerning due to the large number of young and otherwise healthy people that are being stricken with heart problems otherwise reserved for older or clinically obese patients.  

Explanations for the trend blame everything from video games to climate change.  Of course, these scapegoats do not explain the statistical leap in heart failure in the past two years.  The most common narrative is that the covid virus is the cause – The problem with this theory is that there is zero evidence to support the claim that covid causes potential heart ailments.  In fact, studies show that there is no such thing as “covid heart”, a false concept spread by the mainstream media at the onset of the pandemic.

Are the “experts” baffled?  Or, are they trying to avoid the obvious culprit.

Australia is reporting a 17% increase in heart attacks in the first eight months of 2022 alone, and establishment paid researchers seem to be deliberately avoiding any mention of the covid mRNA vaccines.  Instead, they are continuing to blame covid infection along with numerous peripheral and indirect triggers associated with the lockdowns.  

Australia sees a 17% increase in deaths from heart attacks and experts are dumbfounded. pic.twitter.com/sH4Zh7a2tx

— Aaron Ginn (@aginnt) January 22, 2023

Multiple studies now show a direct relationship between vaccine status and Myocarditis, specifically in young people, and the attempts to suppress such information by Big Pharma and governments are failing.  If side effects are related to developing auto-immune disorders triggered by mRNA as some researchers suspect, then symptoms in many vaccinated people may not become visible for months or years.  But, as time passes, the extent of the damage will become clear to the public. 

Pro-vaccine studies related to the dangers often do not include unvaccinated people as a control group for determining side effects, which suggests a desire to hide health risks associated with covid vaccination.  Eventually the questions and the deaths are going to become too prominent for the mainstream to ignore.  Are torches and pitchforks the inevitable end for vaccine enforcers and Big Pharma?                

By Gallup,

The COVID-19 pandemic severely disrupted people’s mobility worldwide, but it didn’t stop them from wanting to move. In fact, Gallup surveys show that in the second year of the pandemic, people’s desire to migrate reached its highest point in a decade.

In 2021, 16% of adults worldwide — which projects to almost 900 million people — said they would like to leave their own country permanently, if they could.

Gallup’s latest update on adults’ desire to move to another country is its first global estimate available since 2018. The 2021 figures are based on interviews with nearly 127,000 adults in 122 countries.

The analysis period coincides with the slow reopening of the world in 2021 after international migration growth dropped by as much as 27% from mid-2019 to mid-2020, according to United Nations estimates. In the 38 wealthy countries that make up the Organization for Economic Cooperation and Development (OECD), migration dropped by more than 30% in 2020 — the lowest level observed since 2003.

Desire Increases in Sub-Saharan Africa, Latin America, Parts of Asia

While there are signs that migrant flows are continuing to rebound from their 2020 levels, particularly across the OECD, in many parts of the world, people’s desire is higher than it has been in a decade.

Desire to migrate rose to decade-high levels in regions that are already well-known for sending migrants, such as Latin America and the Caribbean, sub-Saharan Africa, Southeast Asia, South Asia, and the Commonwealth of Independent States.

However, this was not the case in all parts of the world. After almost a decade of stability, aspirations to migrate fell to decade lows in both the European Union and East Asia — largely thanks to significant declines in countries such as France and Germany in the EU and South Korea and China in East Asia.

In 13 countries, about half or more of the adult population would like to move to another country if they had the chance. These countries represent nearly every region of the world — except for Northern America and the EU. Many of these countries have consistently shown up on this list year after year.

Lebanon made this list for the first time in 2021 after people’s desire to migrate skyrocketed from 26% in 2018 to 63% amid the country’s economic and political crisis.

U.S. Still Top Desired Destination, but Less Attractive Today

The list of countries where potential migrants say they would like to move — if they could — has generally been the same since Gallup started tracking these data in 2007, with the U.S. topping the list of the most desired destinations every year.

This was true in 2021 as well. Just under one in five potential migrants (18%) — or about 160 million adults worldwide — named the U.S. as their desired future residence. However, this figure is down from where it was in all years leading up to 2017, which suggests that policy changes and anti-immigrant rhetoric during the Trump administration likely had a lasting chilling effect on potential migrants’ desire to come to the country.

As potential migrants cooled toward the U.S., and actual migration levels to the country slumped, they warmed to its neighbor to the north. In 2021, Canada achieved its highest level of immigration in its history. And Gallup survey figures show that 8% of potential migrants — or about 74 million people worldwide — would like to relocate to Canada.

Implications

While the increase in the desire to migrate may set off alarms among those who are happy that the pandemic curtailed global migration, it’s important to note that Gallup typically finds that the percentage of those who have plans to move is much lower than the percentage who would like to move. Desire to migrate is not the same as intent to move. Not everyone who wants to move can move, or ever will.

Gallup’s data suggest the COVID-19 pandemic did not dampen people’s desire to move — which is likely an important factor in why migration has been able to rebound so quickly in many places, including in countries such as the U.S. From 2021 to 2022, net international migration exceeded 1 million residents, suggesting that migration patterns may be returning to their pre-pandemic norms.

Further, countries such as Canada are banking on people’s increased desire to come to their country. Canada’s government announced plans late last year to take in nearly 1.5 million more migrants by 2025 to offset its aging population and ease labor shortages.

In the coming months, Gallup will be updating these metrics from our global surveys in 2022.

Authored by Tsvetana Paraskova via OilPrice.com,

• After months of negotiations, the EU finally agreed in December to set a price cap on natural gas.

• European Securities and Markets Authority: The gas price cap could trigger significant and abrupt changes of the broader market environment, which may impact the orderly functioning of markets.

• If risks to the security of supply occur, the European Commission will suspend the price cap rule.

The upcoming price cap on the benchmark European gas contract could abruptly change the gas market and impact the functioning of other markets as well as financial stability, according to the European Securities and Markets Authority (ESMA).  

ESMA was expected to announce on Monday the assessment of the consequences of the gas price cap on the markets.

“It could trigger significant and abrupt changes of the broader market environment, which could impact the orderly functioning of markets, and ultimately financial stability,” ESMA was expected to say, according to the opinion seen by Bloomberg ahead of its publication. 

After months of negotiations, the EU finally agreed in December to set a price cap on natural gas to protect consumers from excessive price spikes and limit inflationary pressure and industrial damage to European economies.

EU energy ministers reached a political agreement on a regulation that sets a so-called “market correction mechanism,” which would come into force on February 15, 2023.  

The market correction mechanism will be triggered if the month-ahead price on the Title Transfer Facility (TTF), Europe’s key benchmark, exceeds $196 (180 euros) per MWh for three working days, and the month-ahead TTF price is $38 (35 euros) higher than a reference price for LNG on global markets for the same three working days.

However, if risks to the security of supply occur, the European Commission will suspend the price cap rule, the EU agreed last month.

“The Commission stands ready to suspend ex ante the activation of the mechanism, if an analysis from ECB, ESMA and ACER shows that the risks outweigh the benefits,” EU Energy Commissioner Kadri Simson said.

Some effects could be seen only after the activation of the gas price cap, and it’s difficult to predict, ESMA says in today’s opinion, according to the draft Bloomberg has seen.

“It is entirely possible that some of the potential effects in the trading and clearing environment might only unfold” after the price cap activation.

Market liquidity could be reduced, says the EU authority, although significant effects could not be identified so far.

In the first assessment on the EU gas price cap rule and the positions limit on the futures contracts in December, ESMA said that “Overall, the position limits set for the spot month and the other months appear to achieve a reasonable balance between the need to prevent market abuse and to ensure an orderly market and orderly settlement, while ensuring that the development of commercial activities in the underlying market and the liquidity of the Dutch TTF Gas commodity contracts are not hampered.”

“ESMA however notes that setting position limits in the uncertain geopolitical environment created by the Russian invasion of Ukraine and Russia’s decision to significantly reduce delivery of natural gas to the EU may prove challenging, especially in relation to the calculation of deliverable supply,” the authority said.

“ESMA also notes that the Dutch TTF Gas contracts may be impacted by the measures that may potentially be taken by the Council and the European Commission regarding the operation of the EU energy spot and derivatives markets.”

The European Union Agency for the Cooperation of Energy Regulators (ACER) said last month that the EU’s price cap on natural gas is an untested tool that may not work as intended to prevent gas price spikes for European households and businesses.

The gas price cap is “a difficult creature. It’s unprecedented, it’s untested,” ACER’s director Christian Zinglersen told the Financial Times in December. Zinglersen also noted that he would be “reluctant to rely on this gas price cap” to protect EU consumers from price spikes.

The benchmark EU gas price at the Dutch TTF is currently well below the price level at which the cap would be activated, trading below $76 (70 euros) per MWh on Friday. Prices slumped last week to levels last seen before the Russian invasion of Ukraine due to milder weather at the start of the year, LNG inflows, and still comfortable EU gas storage levels. Yet, analysts say the market is ripe for further volatility in the coming months.     

Authored by John Cody via Remix News,

Austria’s right-wing Freedom Party (FPÖ), known for its strict stance on immigration and opposition to Russia sanctions, is now the top party in Austria once again after seven years.

Described as a “polling earthquake” by Austrian newspaper Heute.at, the party would win 28 percent of the vote, according to the monthly poll conducted by Unique opinion research Institute for news magazine Profil.

At the same time, the Social Democrats (SPÖ) lost 2-percentage points, dropping to 24 percent. SPÖ fell even farther on the question of chancellor, with only 12 percent of respondents say they would vote for Pamela Rendi-Wagner, while last month that was 15 percent.

Currently, the FPÖ, led by Herbert Kickl, has a 4-point lead over SPÖ. Kickl has gained in popularity, with 17 percent saying they would vote for him, while in December, only 15 percent said they would.

What is fueling the swing towards the FPÖ?

Austria has seen a record number of asylum applications in 2022. In fact, asylum applications nearly tripled from 2021, reaching nearly 60,000. The news has shocked Austria and led to a sharp backlash from a population highly skeptical of mass immigration. The FPÖ, more so than any other major party, has made immigration restriction central to their platform.

At the same time, the FPÖ party is the only major party opposed to Russian sanctions, which it blames for creating inflation and economic turmoil in the Austrian and European economy. Many Austrians are sympathetic with this position.

“It’s finally time to appear in the EU and say: These sanctions harm us much more than Putin. Our people have to foot the bill for them,” said deputy FPÖ chairwoman Dagmar Belakovich in the plenary session of the National Council last year.

The party’s leader, Herbert Kickl, has also pointed to the absolute necessity of Russian energy for Austria’s households and businesses. He blames much of Austria’s inflation woes to economic sanctions on Russia.

“If you were honest, you would have to say to the population: We can’t do without this Russian oil and gas for a long time,” said Kickl. 

“We need this cheap energy for households, for heating, for cooking, for hot water, for manufacturing companies.” 

How do other parties fare?

The poll also showed that incumbent Chancellor Karl Nehammer is still the most popular pick to become chancellor, with 20 percent expressing confidence in him. His Austrian People’s Party (ÖVP) would receive 22 percent of the vote.

The Greens stand at 12 percent while the liberal NEOS remain unchanged in fourth place with 9 percent.

Austria is currently governed by a coalition of the ÖVP and SPÖ.

The poll also asked what people thought should happen to climate protesters of the Last Generation blocking roads. The results show 42 percent of Austrians were in favor of fines, 31 percent for prison sentences and only 19 percent for not punishing the activists.

Authored by Jeffrey Tucker via DailyReckoning.com,

The lockdowns of March 2020 shocked the American people and most public health agencies, not to mention infectious disease doctors.

The idea of school shutdowns, business closures, plus mandatory remote work and other restrictions have previously seemed inconceivable. It was especially remarkable to have such an “all-of-government” response to a virus that we already knew posed a threat mainly to the elderly and infirm.

Issues like public-health precedent, American legal tradition, and medical knowledge about dealing with respiratory viruses, not to mention natural immunity and collateral damage of lockdowns, were all thrown out the window.

Robert Kennedy, Jr.’s book The Real Anthony Fauci mentions a tabletop exercise called “Crimson Contagion” that ran from January through August, 2019. I had not previously heard of it and I found the mention remarkable, simply because it proves that not everyone was shocked by lockdowns.

They were not part of official planning documents of either the CDC or WHO but they were clearly in the plans of someone.

This Is Eerie

I’ve only followed up on this report in light of growing focus on the person who coordinated Crimson Contagion: Robert Kadlec, who served in the Trump administration as Assistant Secretary of Health and Human Services, Preparedness and Response. It was he who also ran the Covid response between HHS and the Department of Homeland Security.

Kadlec’s lifetime government service (and, yes, he is said to be CIA) extends all the way back to the G.W. Bush administration when in 2007 he took the position of Special Assistant to the President and Senior Director for Biodefense Policy on the Homeland Security Council from 2007 to 2009.

The very notion of lockdowns originated in that administration.

The 2019 tabletop exercise involved a huge number of public-sector agencies across all states plus many private-sector associations. It postulated a disease scenario in which a respiratory virus begins in China and spreads around the world by air travelers.

It’s first detected in Chicago. The World Health Organization declares a pandemic 47 days later. But then it was too late: 110 million Americans became sick, with 7.7 million hospitalized and 586,000 dead.

The conclusion of the exercise was that government was not well prepared for a pandemic and urged more planning and fast acting to implement what we now call lockdowns as we await a vaccine. Presumably, the vaccine then fixes everything.

The public knew nothing of this exercise until March 19, 2020, when the New York Times reported on it for the first time. This was one day following the detailed release of stay-at-home orders by the Cybersecurity and Infrastructure Security Agency. The next day, National Public Radio also ran a report on Crimson Contagion.

A Trial Run

The Times reported:

The Crimson Contagion planning exercise run last year by the Department of Health and Human Services involved officials from 12 states and at least a dozen federal agencies. They included the Pentagon, the Department of Veterans Affairs and the National Security Council. Groups like the American Red Cross and American Nurses Association were invited to join, as were health insurance companies and major hospitals like the Mayo Clinic.

The war game-like exercise was overseen by Robert P. Kadlec, a former Air Force physician who has spent decades focused on biodefense issues. After stints on the Bush administration’s Homeland Security Council and the staff of the Senate Intelligence Committee, he was appointed assistant secretary of Health and Human Services for Preparedness and Response.

Also participating were former Trump administration officials Rex Tillerson (Secretary of State, 2017-2018) and John F. Kelly, who was White House chief of staff from 2017 to 2019. The NYT even ran a picture of the two of them at the event.

Here are some direct quotes from the October 2019 report of Crimson Contagion:

The exercise revealed several workforce protection challenges under conditions where medical countermeasures, such as the pandemic vaccine, antiviral medications, and personal protective equipment, are limited. To protect the public prior to vaccine distribution, public health officials issued guidance on the implementation of nonpharmaceutical interventions intended to slow the spread of the virus.

In keeping with non-pharmaceutical intervention recommendations, employers – including government entities – sought to practice social distancing by having a significant portion of their employees work remotely. Employers encountered cascading impacts associated with making, communicating, and implementing such work-distancing decisions.

At multiple levels of government, officials wrestled with identifying employees who are essential and those who are nonessential in the context of an incident forecasted to span many months. In addition, officials faced challenges in determining which employees could perform their duties remotely and hierarchical organizations, such as state and federal departments and agencies, were uncertain as to the process for determining and implementing remote-workforce decisions.

Shut Down the Schools!

Also:

During the exercise, CDC recommended that states delay school openings for six weeks, a follow-up to the initial (pre-exercise) recommendation that states delay the opening of schools for two weeks if the disease is present in the area. Many local jurisdictions and school districts have the authority to decide to close schools (or keep schools open). This distributed approach to school closure decisions caused confusion centered on discrepancies between schools that remained open and those that closed.

In addition, while school delays and dismissals may be necessary over the course of the pandemic response, state participants identified any continued school delays and dismissals as having serious cascading impacts that require a concerted public messaging campaign and government coordination. Multiple states realized that dismissing schools is much more complex than they previously appreciated.

This exercise took place entirely out of the public eye but had strangely prescient foretelling of events only 5 months later. Kadlec, who had organized the entire tabletop exercise, was also later the author of the U.S. Senate Committee on Health Education, Labor and Pensions report: An Analysis of the Origins of the COVID-19 Pandemic, which came out earlier this year.

Robert F. Kennedy, Jr., reports: “second only to his longtime crony and comrade in arms Anthony Fauci, Robert Kadlec played a historic leadership role in fomenting the contagious logic that infectious disease posed a national security threat requiring a militarized response.”

It’s the Law!

By the time of this letter, US intelligence already knew of the Wuhan virus. Four months later, US lockdowns began, starting with the March 8th cancellation of South-by-Southwest by the Austin, Texas mayor, and extending to the March 12th imposition of travel restrictions, the March 13 takeover by FEMA, and the March 16th press conference by Trump, Fauci, and Deborah Birx, which announced nationwide lockdowns.

The same day, Politico ran an article about another pandemic exercise from 2017 in which some incoming Trump officials participated, including Kelly and Tillerson. The article claims that such exercises are required by law.

By the time of Covid lockdowns, they had both been pushed out, only to reemerge as key participants in Crimson Contagion along with most national-security and health-related agencies of the federal government.

The lockdowns — to which Trump agreed only reluctantly and were extended far past the point in which he believed they would control the virus — were the most ruinous of the administration. Trump’s pollsters for 2020 all agreed that these lockdowns created the conditions that drove him from office.

What does it all mean? Perhaps it is all just a series of coincidental data points, that what is called the worst pandemic in 100 years came only a few months after an elaborate multi-agency trial run of the same in which former high officials of the Trump administration participated.

And perhaps the best person to run the Covid response also happened to be the very person who organized and managed the trial run in the previous season.

Many people will surely say there is nothing to see here. There is so much not to see these days.

What do you think?