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Goldman, BofA Agree: Only A Fed Panic Will End This Crash

In a market where traders are increasingly stumped by daily, violent gyrations that take place with no seeming rhyme or reason, we have frequently said that just two things matter: first, the market will only stop panicking when the Fed starts panicking...

"Markets stop panicking when central bankers start panicking" - Michael Hartnett

getting very close

— zerohedge (@zerohedge) May 6, 2022

... and two, the market will panic when it crashes, which will be soon enough as every single Fed tightening cycle ends in a - you guessed it - financial crisis, default and bankruptcy of governments, banks and investors (ironic, because Janet Yellen vowed a few years ago there would be no more financial crises in her lifetime - spoiler alert: there will be).

In short, the only cure to the terrible "liquidity affliction" that is dragging stocks lower every day is... a crash, and as history has shown amply, and as we recently concluded in our simplistic view of markets, the moment the Fed capitulates is when everything will explode higher.

The instant Powell hints he won't be hiking to 4%, spoos will go limit up.

— zerohedge (@zerohedge) May 18, 2022

This morning, strategists at both Goldman and Bank of America agreed that the only thing that will push stocks higher is a capitulation by the Biden Fed.

In a note from BofA's Benajmin Bowler, the derivatives guru writes that “the Fed has offered no help to risk assets and appears far from stepping in,” and adds that market stress indicators, such as credit spreads and liquidity in S&P 500 futures, are now at levels seen during previous Fed interventions.

And, channeling Zero Hedge, he next says that “markets will continue to test the Fed put, but that it will take more market panic for the Fed to start panicking."

Conveniently, just yesterday we discussed where the Fed Put resides, and noted that amid a monthly slide in the BofA Fund Manager Survey, which now sees the put strike slide to 3529...

... which however is still too high for Morgan Stanley strategist Michael Wilson who said that it is still "too early to get bullish" as the real Fed Put is at (or below) 3,400.

And while we wait to see just what S&P price will finally trigger the Fed, Goldman strategist Vickie Chang echoed BofA and said what is by now patently obvious to all, namely that the selloff will only bottom once the Fed signals the end of tightening--which may not happen until recession is apparent.

In a note published on Monday (and available to professional subscribers), Chang said that “it may be necessary for the market to become more confident than it is that financial conditions tightening has been sufficient and that the Fed has delivered and signaled enough tightening... Monetary policy has historically stopped tightening about three months before equities bottom, and shifted to easing about two months afterwards.”

In the past, such monetary tightening-fueled stock market corrections have tended to bottom when the Fed pivoted toward easing, regardless of a trough in economic activity as investors bet that activity will rise anyways thanks to rate cuts, according to Goldman. Chang said this time equities investors are unlikely to get a clear signal from the Fed about a policy shift until there’s solid evidence of moderating growth and cooling prices... which they just got thanks to today's catastrophic new home sales.

“Using history as a guide, in order for equities to come off their recent lows (and stop declining), this kind of monetary-tightening induced contraction is most likely to end when the Fed itself shifts,” Chang said. “It may be that the market needs to see signs of the inflation deceleration that our US economists expect in the second half of the year in order to see sustained relief.”

So how should one trade this no-man's land in stocks which will lead to more pain until the Fed panics? Well, as Bloomberg notes, the BofA strategists recommend owning local S&P 500 skew near 10-year lows through December put ratios to position for further market declines, where investors test the “Fed put” - when the central bank alters policy to prop up equity markets after a sharp decline - to find that it’s “heavily compromised in the face of inflation.”

Meanwhile, Goldman chimes in that “a shift to Fed easing is unlikely without a clear move into recession, but - as in late 2018 - a clear signal that tightening risks are receding may be sufficient."

We agree, and is why yesterday we highlighted Bostic's warning that a September pause may be coming...

*BOSTIC: MAY MAKE SENSE TO PAUSE IN SEPT., DEPENDING ON ECONOMY

And there it is: the first "pause" hint
Expect many more, and then a hard stop

— zerohedge (@zerohedge) May 23, 2022

... and sure enough moments ago - after this morning's horrendous housing data - we get this:

  • FED SWAPS DOWNGRADE CHANCE OF A HALF-POINT HIKE IN SEPTEMBER

To be sure, it will be extremely embarrassing - if not outright humiliating - for the Fed to be forced to pause tightening before it has even done any real QT but it no longer has a choice. And while we wait for Powell to capitulate, investors are looking ahead to this week’s minutes of the most recent FOMC meeting to get some more insight into the US central bank’s tightening path, which now appears woefully obsolete.

Both Goldman and BofA reports are available to pro subs in the usual place.

Tyler Durden Tue, 05/24/2022 - 10:49
Author: Tyler Durden
Posted: May 24, 2022, 2:49 pm
Stocks Dump, Bonds & Bullion Jump After Dismal Data

Following the cataclysmic drop in new home sales, notably weak PMIs, and ugly Richmond Fed data, reality is starting to bite this morning as 'real' economic data confirms the apparent collapse in ad-spend that Snap's warning signals.

The reaction to all this was dramatic to say the least.

Stocks puked back all their gains from yesterday and then some, with Nasdaq and Small Caps now at Friday's lows (before the late-day melt-up)...

Bond yields are crashing hard, down around 13-15bps across the curve, led by the short-end...

Short-end yields did start sliding earlier in the day (as stocks were weaker from Snap), but the initial leg down was on the weak PMI data and then when New Home Sales crashed, yields tumbled...

Rate-hike expectations are sliding notably, and at the same time, subsequent rate-cut expectations are rising...

Gold is also extending gains...

As the dollar dumps to one-month lows...

Bad news is bad news... for stocks.

Tyler Durden Tue, 05/24/2022 - 10:37
Author: Tyler Durden
Posted: May 24, 2022, 2:37 pm
'Blue-Checks' Furious After Henry Kissinger Says Ukraine Should Cede Territory For Peace With Russia

Veteran US statesman Henry Kissinger has urged the West to stop trying to inflict a crushing defeat on Russian forces in Ukraine, warning that it would have disastrous consequences for the long term stability of Europe.

“I hope the Ukrainians will match the heroism they have shown with wisdom,” Kissinger warned an audience at the World Economic Forum in Davos, Switzerland, adding with his famous sense of realpolitik that the proper role for the country is to be a neutral buffer state rather than the frontier of Europe.

As The Telegraph's Ambrose Evans-Pritchard reports, Kissinger's comments came amid growing signs that the Western coalition against Vladimir Putin is fraying badly as the food and energy crisis deepens, and that sanctions may have reached their limits.

The former US secretary of state and architect of the Cold War rapprochement between the US and China told the gathering of elites that it would be fatal for the West to get swept up in the mood of the moment and forget the proper place of Russia in the European balance of power.

“Negotiations need to begin in the next two months before it creates upheavals and tensions that will not be easily overcome.

Ideally, the dividing line should be a return to the status quo ante.

Pursuing the war beyond that point would not be about the freedom of Ukraine, but a new war against Russia itself,” he said.

The architect of the détente with China under the Nixon administration suggested that 'status quo' ante means "how things were before," implying that Ukraine should accept a peace deal to restore the situation on February 24, where Russia formally controlled the Crimea peninsula and informally controlled part of the Donetsk region in east Ukraine.

The 98-year-old statesman is making no friends among the blue-check-mark brigade who seem to see only one path for humanity... and it ends in a mushroom cloud...

Henry Kissinger should give himself to the morgue. https://t.co/oVOSCWLerv

— Yashar Ali 🐘 (@yashar) May 24, 2022

This is absurdly bad advice.

"Former secretary of state Henry Kissinger has said Ukraine should accept giving up part of its territory to reach a peace deal with Russia, and end the now three-month-long war immediately."https://t.co/nOtCdRrqtb

— William Nee (@williamnee) May 24, 2022

However, one 'blue-check' appears to comprehend what Kissinger is saying - end this escalation now before it ends badly for all of us...

According to prevailing consensus, the US must indefinitely underwrite Ukraine's war effort, with no conditions, while incrementally scaling up the US's own direct military involvement. The same people who moaned about "perpetual war" now want to be fighting for Crimea in 2029

— Michael Tracey (@mtracey) May 24, 2022

Kissinger appeared at a Financial Times conference over the weekend warning that "we are now living in a totally new era..."

The key exchange, expanding on his most recent comments regarding the West and Russia, was as follows:

Financial Times: The Biden administration is framing its grand geopolitical challenge as being democracy versus autocracy. I’m picking up an implicit hint that it's the wrong framing?

Henry Kissinger: We have to be conscious of the differences of ideology and of interpretation that exists. We should use this consciousness to apply it in our own analysis of the importance of issues as they arise, rather than make it the principal issue of confrontation, unless we are prepared to make regime change the principal goal of our policy. I think given the evolution of technology, and the enormous destructiveness of weapons that now exist, [seeking regime change] may be imposed on us by the hostility of others, but we should avoid generating it with our own attitudes.

...

We are now [faced] with technologies where the rapidity of exchange, the subtlety of the inventions, can produce levels of catastrophe that were not even imaginable.

But there’s almost no discussion internationally about what would happen if the weapons actually became used.

My appeal in general, on whatever side you are, is to understand that we are now living in a totally new era, and we have gotten away with neglecting that aspect.

Food for thought from someone who's been 'in the room'.

Tyler Durden Tue, 05/24/2022 - 10:30
Author: Tyler Durden
Posted: May 24, 2022, 2:30 pm
Pentagon Chief Says Ukraine To Get Harpoon Anti-Ship Missiles From Denmark

Authored by Dave DeCamp via AntiWar.com,

On Monday, Secretary of Defense Lloyd Austin hosted a meeting of over 40 nations to discuss military aid for Ukraine and announced afterward that Denmark will be providing Kyiv with Harpoon anti-ship missiles.

"I’m especially grateful to Denmark, which announced today that it will provide a harpoon launcher and missiles to help Ukraine defend its coast," Austin said at a joint press conference with Chairman of the Joint Chiefs of Staff Gen. Mark Milley.

Reuters reported last week that the US was looking for ways to get Harpoons and Naval Strike Missiles in Ukraine’s hands. The transfer of Harpoons marks an escalation in NATO military aid for Ukraine as the missiles have a range of about 300km, making Russian warships blockading the Ukrainian port of Odesa potential targets and widening the area where Kyiv can use Western-provided arms.

On Friday, a Ukrainian official said the US was readying plans to destroy Russia’s Black Sea Fleet. "The US is preparing a plan to destroy the Black Sea Fleet … Deliveries of powerful anti-ship weapons are being discussed," Ukrainian Ministry of Internal Affairs adviser Anton Gerashchenko wrote on Twitter (which he later deleted). The Pentagon denied Gerashchenko’s characterization of the US push to get advanced anti-ship weapons in Ukraine’s hands, likely out of fear of provoking Moscow.

Austin said that about 20 countries pledged new military aid for Ukraine at Monday’s meeting, which was held in a new forum known as the Ukraine Defense Contact Group. "

We also heard some very welcome announcements this morning about even more security assistance for Ukraine. That includes some 20 countries that announced new security assistance packages," he said.

A few days after DoD denial/non-denial of news that the US may give Ukraine Boeing-made Harpoon anti-ship missiles to sink Russian fleet, reports now that Denmark will be sending them.

NEW from WaPo: https://t.co/j6gb0SSALw

My piece Saturday: https://t.co/RsDvrwkcrO

— Kelley B. Vlahos (@KelleyBVlahos) May 24, 2022

Austin said that Italy, Poland, Greece, and Norway will be sending Ukraine artillery systems and ammunition, and he thanked the Czech Republic for providing attack helicopters, tanks, and missile systems. Austin said other countries made commitments for new training programs for the Ukrainian military.

Tyler Durden Tue, 05/24/2022 - 10:15
Author: Tyler Durden
Posted: May 24, 2022, 2:15 pm
US New Home Sales Collapse In April

Following the unexpectedly large decline in existing home sales (directionally not unexpected given the surge in mortgage rates, plunge in mortgage apps, slump in homebuilder sentiment, drop in building permits, and weakening in labor market signals that are emerging), analysts expected new home sales to slide 1.8% MoM in April. They were right in direction but drastiucally wrong in magnitude - New Home Sales in April collapsed a stunning 16.6% MoM - that is the worst drop since the peak of the COVID crisis (and before that the taper tantrum in 2013)

Source: Bloomberg

This is the 4th straight month of new home sales declines - the longest streak since October 2010.

The new home sales SAAR dropped to 591k, the lowest since April 2020...

Source: Bloomberg

New home prices exploded higher, with the massive surge in the mean price relative to the median prices suggesting the mix shift is increasingly skewed to the higher end homes selling.

Home ownership is becoming increasingly out of reach for many Americans, as a rapid run-up in mortgage rates compounds the effects of limited inventory and record prices. The average rate on a 30-year mortgage was 5.25% last week, up from around 3% at the end of 2021, Freddie Mac data show.

But the silver lining for some is the fact that the number of houses for sale in April rose 8.3% m/m to 444,000, leaving the months’ supply at 9.0 in April compared to 6.9 prior month.

Tyler Durden Tue, 05/24/2022 - 10:06
Author: Tyler Durden
Posted: May 24, 2022, 2:06 pm
US PMIs Disappoint In May, Signal Growing Stagflation Fears

Amid a slew of disappointing US Macro data, preliminary May US PMIs were expected to show slowdowns in btoh manufacturing and services, and the actual prints were worse than expected:

  • S&P Global US Manufacturing PMI missed expectations, printing 57.5 (3mo low), below 57.7 expected and down from 59.2 in April

  • S&P Global US Services PMI missed expectations, printing 53.5 (4mo low), below 55.2 expected and down from 55.6 in April.

Source: Bloomberg

Input prices soared higher again, with the pace of increase edging up to a new series high (since October 2009).

Average prices levied for goods and services also rose markedly, albeit with the rate of inflation easing from April’s series-record high as some companies reported challenges passing further surges in costs on to customers. The pace of increase was the second-fastest on record, however.

This combined drop dragged the composite index down to 4-month lows, but despite all of the headwinds facing businesses, the survey data remain indicative of the economy growing at an annualised rate of 2%, which is also supporting stronger payroll growth. However, as S&P Global notes, "cost pressures have risen to a new survey high which, alongside the encouraging output and employment numbers, will fuel further speculation about the need for further imminent aggressive rate hikes.”

Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said:

The early survey data for May indicate that the recent economic growth spurt has lost further momentum. Growth has slowed since peaking in March, most notably in the service sector, as pent up demand following the reopening of the economy after the Omicron wave shows signs of waning. Companies report that demand is coming under pressure from concerns over the cost of living, higher interest rates and a broader economic slowdown.

Manufacturers in particular also report that capacity continues to be constrained by supply shortages, though these bottlenecks showed further encouraging signs of easing.

All indications remain above 50 and thus signals 'growth', therefore offering no respite for a hawkish Fed. Slowing growth but soaring prices - Stagflation, anyone?

Tyler Durden Tue, 05/24/2022 - 09:55
Author: Tyler Durden
Posted: May 24, 2022, 1:55 pm
Rabobank: It's A Market Where The Majority Have Hotdogs For Brains

By Michael Every of Rabobank

Ambiguity? Yes. Strategic? Mmm...

The market focus yesterday - in what Bloomberg is this morning in Asia calling a ‘Ray of Light’, risk-on day - was deliberately, myopically on all the wrong interpretations of all the wrong things. In fact, Monday’s ‘Risk-on Regardless’ was so egregious that it had me thinking back to ‘Everything Everywhere All At Once’ and wondering if the majority of those involved are not perhaps from an alternate universe where mankind evolved hotdogs for brains.

The trigger for ‘optimism’ was that US President Biden, speaking in Japan, flagged that when he returns home, he will discuss current US tariffs on Chinese goods with Treasury Secretary Yellen, adding to whispers going round that he may remove some of them.

“Well,” said the hotdog-brains, “This means a reduction in US-China tensions and cheaper stuff and lower inflation and ketchup and mustard and fried onions!” In this reality, Biden was answering questions at the launch of his Indo-Pacific Economic Framework (IPEF) aimed at building a geostrategic economic block deliberately excluding China. Yes, this White House is capable of hotdog-brain double-think. However, did the US president really fly all that way to undermine his own policy in front of his Japanese hosts?

Also note US Trade Representative Tai is in favor of existing tariffs, though she admits they will not change Chinese behavior, and is opposed to removing them without a quid pro quo from China, which is short of more than a few quid in that regard. There is bipartisan support in Congress for the tariffs. Removing them is not a November vote winner. And despite a Peterson Institute study on the topic, existing US tariffs on China have NOT driven inflation and would have a negligible downwards effect on CPI now given the issue is physical supply, not price.

The details of the IPEF for those easily distracted by the smell of fried onions, are that it involves the US, Brunei, India, Indonesia, Japan, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, and Vietnam, representing 40% of world GDP. (And the EU, Canada, UK, and Mexico will easily slot in on top, which makes it the lion’s share of world GDP.) 

Yes, the IPEF will lower tariffs. Frankly, who cares? These are already very low. Instead, it offers four pillars:

  • Connected Economy: ‘High-standard rules of the road’ in the digital economy; helping SMEs; addressing online privacy and “discriminatory and unethical use of Artificial Intelligence”; and strong labour and environment standards, and corporate accountability provisions. All of which presumably China will fail, and the others pass.
  • Resilient Economy: First-of-their-kind supply chain commitments that better anticipate and prevent disruptions in supply chains to create a more resilient economy and guard against price spikes, by establishing an early warning system, mapping critical mineral supply chains, improving traceability in key sectors, and coordinating on diversification efforts. Which will surely mean a map to help decouple from China, or at least to build up alternatives.
  • Clean Economy: First-of-their-kind commitments on clean energy, decarbonization, and infrastructure that promote good-paying jobs. Which won’t work for China if it keeps embracing coal, though how any of this will be funded is entirely unclear.
  • Fair Economy: To enact and enforce effective tax, anti-money laundering, and anti-bribery regimes, including provisions on the exchange of tax information, criminalization of bribery in accordance with UN standards, and beneficial ownership recommendations. In other words, trying to introduce Western standards – which will exclude China (and rankle others if applied strictly).

In short, the IPEF is highly ambiguous in terms of what can actually be achieved, but clearly very strategic in what is *trying* to achieve: a US pushback against China in the Indo-Pacific without lowering its own tariffs, but rather by raising common non-tariff barriers.

How do you like them onions?

Meanwhile, tariff talk eclipsed the real issue yesterday: President Biden, when asked if the US would come to the defense of Taiwan if it were attacked by China, answered unambiguously – “Yes”.

This is not the first time he has done this, but the third, and was again walked back by an underling. Moreover, he is not the first US president to say it (George W Bush was). Nonetheless, we either have a US leader who does not understand international treaties, because the US is not legally beholden to defend Taiwan, or one willing to drop all pretense of “strategic ambiguity” over the issue.

“Mmm, fried onions!”, say some. But in the real world, really serious people are now worried.

  1. First, Biden’s words were not a surprise to China, and won’t see a halt to the massive, rapid military build-up underway there that will make a move on Taiwan physically possible ahead. However, the likes of Henry Kissinger --who is *still* going at it at Davos this year-- fear the US statement may prompt China to move even faster, and especially if it sees an IPEF shield being raised against it, I might add.
  2. Second, this places the onus on the US --and AUKUS-- to prepare to defend Taiwan. And they are far from prepared; more so if there is also a war going on in Ukraine. Some military observers believe the US could not stop a Russian-style Chinese seizure of Taiwan, nor orchestrate the same kind of pushback it currently is in Ukraine, and that the trend is getting worse, not better.

In short, the worst possible combination for the US, the region, and the world is to rattle a sabre with a blunted blade: yet today the US risks just that with over-stretched logistics, an under-funded navy, no spare capacity to ramp up production, partially offshored defense industries, and an about-to-be-closed Redhill fuel depot in Hawaii. All of that can change, and may well do ahead: but lowering US tariffs on China is arguably more rust on its blade, not less.

Of course, some also argue that if China moves on Taiwan, the US will simply blockade the world’s seas, ensuring nothing gets in or out of Chinese ports to the wider world – including food and energy. That would instantly militarize global merchant shipping, which is something China (with 5,500 vessels) is preparing for and the US (with 79) isn’t. If you think we have supply-chain shocks now, try that scenario on for size.

Relatedly, the World Food Programme head, at Davos, just tweeted: ‘With a devastating global hunger crisis at our doorstep, it is all hands on deck to pull millions back from the brink of famine. We need EVERYONE's help to save lives today: from world leaders to the private sector and billionaires!!’ Which is basically what I pleaded on Friday.

One idea being floated is naval intervention. The UK is seriously considering backing a Lithuanian proposal to send a naval coalition ‘of the willing’ --but *not* NATO-- to de-mine the Black Sea, and then escort merchant shipping there, so it can take out Ukraine’s grain. As the Lithuanian foreign minister put it yesterday, “Time is very, very short. We are closing in on a new harvest and there is no other practical way of exporting the grain except through the Black Sea port of Odessa. There is no way of storing this grain and no other adequate alternative route. It is imperative that we show vulnerable countries we are prepared to take the steps that are needed to feed the world.”

If Russia allows this to happen, it would help alleviate the risk of mass global starvation and, with a flow-through, mean a partial easing of inflation pressures globally. If Russia does not, then it is sticking to a policy of weaponizing food and driving global starvation and high inflation.

The only other logical recourse on the naval front would then be for a broader coalition, presumably including NATO, going in anyway and daring Russia not to attack them as they get Ukrainian grain out; and if Russia were to sink them, it could then mean World War 3 according to Article 5.

Is Russia agreeing to remove its geostrategic chokehold over key commodities likely? If not, project what the world will soon look like. It isn’t pretty at all.

Is NATO risking World War 3 likely? Probably not – in which case see above. Yet if it isn’t, ask yourself if the US is really going to defend Taiwan or not. And if it isn’t, ask yourself what the Indo-Pacific, and the world, will look like ahead.

The massive ambiguity of the current global situation should be clear. The strategic thinking is sadly not.

And hotdog-brains should arguably be in charge of ‘Nothing, Anywhere, Continuously’. But they are already bored with US tariffs anyway, and are off to focus on gloom regarding US tech/social media.

“Mmm, fried onions!”

Tyler Durden Tue, 05/24/2022 - 09:42
Author: Tyler Durden
Posted: May 24, 2022, 1:42 pm
Scott Minerd: I'd Take Art And Real Estate Over Stocks, Market Will "Overshoot" The Bottom On Tech Stocks

Chief investment officer at Guggenheim, Scott Minerd, said this week that if was given $10,000 to invest on a five year horizon, he would steer clear of stocks and would put the money either into art or real estate. 

Additionally, he added that he'd like to see stocks lower before investing in the market, according to a Yahoo/Bloomberg writeup.

Minerd believes that the Fed is going to continue on “auto-pilot” until such time as the market sees a real, panic-driven sell off. 

He also told CNBC that he thinks tech stocks are fairly valued, but that they will experience further pain because markets "tend to overshoot" to the low side during these types of repricings. He said the VIX needs to be over 40 and closer to 50 to mark a bottom. 

He is looking for markets to fall 20% in a week or two in order for the Fed to consider pivoting. 

Finally, he noted that he thought the “majority of crypto is garbage", but that Bitcoin and Ethereum would wind up surviving the market chaos.

However, he said that if crypto is going to wind up as a currency, we haven't had the correct prototype yet. 

Tyler Durden Tue, 05/24/2022 - 09:31
Author: Tyler Durden
Posted: May 24, 2022, 1:31 pm
Watch: Biden Admits Skyrocketing Energy Prices Are Part Of Green "Transition"

Authored by Steve Watson via Summit News,

Joe Biden let the veil slip Monday, telling reporters gathered at a press conference in Tokyo that unaffordable gas prices in the U.S. are part of a deliberate “transition” to green energy.

Suddenly, Vladimir Putin isn’t to blame anymore as a reporter asked if a U.S. recession is unavoidable.

Struggling to speak coherently, Biden said “When it comes to the gas prices, we’re going through an incredible transition that is taking place that God willing when it’s over we’ll be stronger.”

“The world will be stronger and less reliant on fossil fuels when this is over,” Biden added.

Biden also claimed he attempted to combat soaring prices by releasing 180 million barrels of oil from emergency stockpiles in late March, but admitted that it hasn’t had any effect.

Watch:

I thought he was fixing that? https://t.co/UdiTHrYNb1

— Steve Franklin (@MyGuySteve) May 23, 2022

The average price of a gallon of gas has hit $4.59 nationwide, up from $4.11 in April, according to AAA.

In places like Los Angeles it’s hitting high above $7:

Gas was $7.29 in Los Angeles today. pic.twitter.com/h6EEFcC9Lg

— Jake Coco (@jakecoco) May 22, 2022

They have a strategy though right?

“Great question”:

Releasing oil from the strategic reserve "has not had an effect really on gasoline prices...how do you increase [oil] refinery capacity?"

Biden advisor Brian Deese: "Great question." pic.twitter.com/6pmQlVvMpI

— RNC Research (@RNCResearch) May 23, 2022

*  *  *

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Tyler Durden Tue, 05/24/2022 - 09:07
Author: Tyler Durden
Posted: May 24, 2022, 1:07 pm
WHO Says Monkeypox 'Can Be Contained' As US Distributes Vaccines

The World Health Organization says the current monkeypox outbreak is unusual but can still be stopped, according to Bloomberg.

A section of skin tissue, harvested from a lesion on the skin of a monkey, that had been infected with monkeypox virus, is seen at 50X magnification on day four of rash development in 1968. (CDC/Handout via Reuters)

"It’s not something we’ve seen over the last few years," said Sylvie Briand, director of the WHO’s epidemic and pandemic preparedness and prevention department Tuesday.

According to Briand, the disease is 'still containable' - and that countries can stop transmission by raising awareness and teaching people to recognize the symptoms.

The illness itself begins like many acute viral diseases -- with high fever, muscle pain and swollen lymph nodes. Those symptoms can be followed by a skin rash often starting in the face before spreading elsewhere and sometimes growing into fluid-containing pustules that form a scab. The illness usually lasts two to four weeks. -Bloomberg

According to the latest data reported by BNO, There have been 178 confirmed cases and 90 suspected cases across 19 nations.

Monkeypox is less contagious than smallpox, and has milder symptoms. Both viruses belong to the same genus, Orthopoxvirus, which includes the vaccina virus, and the cowpox virus.

Bloomberg also reports that "a large proportion of cases have been among homosexual men, and may have been transmitted along sexual networks.

To address the situation, dozens of Jynneos vaccine are being released in the United States, according to the Centers for Disease Control (CDC).

Symptoms of one of the first known cases of the monkeypox virus on a patient’s hand on May 27, 2003. (CDC/Getty Images)

As the Epoch Times notes:

There are more than 1,000 doses of the Jynneos vaccine that were approved in the United States in 2019 and are in the strategic national stockpile, Jennifer McQuiston, deputy director of the Division of High Consequence Pathogens and Pathology at the CDC, told reporters at a media briefing on Monday.

The strategic national stockpile stores pharmaceuticals and medical supplies in case of an emergency that causes local supplies to be depleted. McQuiston said the United States has stock of the vaccine because it was preparing for a potential smallpox outbreak. She added that Jynneos vaccine doses are expected to ramp up very quickly in the coming weeks.

The Jynneos vaccine is approved in the United States to be used against smallpox and monkeypox in people aged 18 and over, determined to be at high risk of infection.

It is made by Denmark-based biotech group Bavarian Nordic, which recently announced that the Biden administration has placed an order for millions of doses, which would be manufactured and invoiced in 2023 and 2024.

Right now we are hoping to maximize vaccine distribution to those that we know would benefit from it,” McQuiston said. “So those are people who’ve had contact with known monkeypox patients, health care workers, very close personal contacts, and those in particular who might be at high risk for severe disease.”

She added: “I can report that there has been a request for release of the Jynneos vaccine from the national stockpile for some of the high-risk contacts of some of the early patients. So that is actively happening right now.”

There are also more than 100 million doses of an older generation smallpox vaccine, ACAM2000, which has some potentially significant side effects, McQuiston told reporters. ACAM2000 was previously produced by Sanofi and is now made by Emergent BioSolutions.

*  *  *

"There’s one pandemic we’re still in the middle of, and another emerging zoonosis that once again breached the species barrier is now transmitting in multiple countries," said Mike Ryan, head of the WHO's health emergencies program. "It’s a containable event nonetheless."

Tyler Durden Tue, 05/24/2022 - 08:44
Author: Tyler Durden
Posted: May 24, 2022, 12:44 pm
A "Lost Decade" Ahead For Markets?

Authored by Lance Roberts via RealInvestmentAdvice.com,

Is a “lost decade” ahead for markets? We and many others have discussed a topic regarding financial market valuations and forward returns. Now, halfway into 2022, all of a sudden, the “crazy talk” of valuations seems a lot less crazy as bear markets growl.

However, it wasn’t that long ago the mainstream media discounted valuations and forward returns. For example, in December 2021, Ben Carlson recounted a presenter at a 2010-2011 conference who discussed valuations for a 60/40 allocation in the 95th percentile. Historically, that suggested investors were doomed for a low-return environment of roughly 2-3% over the next decade. As he states:

“Instead, this happened.”

“U.S. growth is up almost 20% per year. The S&P 500 is up more than 16% per year. Small caps are up almost 14% per year. REITs rose more than 11% annually. Everyone has been dancing on the grave of value stocks for years now, yet they’re up nearly 14% per year over the last decade.

A simple 60/40 portfolio of U.S. stocks and bonds is up around 11% per year over the past 10 years.”

Valuation and forward return assumptions were wrong then.

Or were they?

Real Market Returns

Over the last 120-years, valuations have consistently proved to be a strong predictor of future returns with lost decades a common occurrence. However, as we discussed previously in “Rationalizing High Valuations:”

“The mistake investors repeatedly make is dismissing the data in the short-term because there is no immediate impact on price returns. Valuations by their very nature are HORRIBLE predictors of 12-month returns. Investors avoid any investment strategy which has such a focus. In the longer term, however, valuations are strong predictors of expected returns.”

The chart below shows valuations and rolling 10-year total real returns. The obvious conclusion is that overpaying for value leads to lost decades.

However, let’s go back to Ben’s comment above. In 2009, valuations had corrected significantly, not only from the “Financial Crisis” peak but also from the preceding “Dot.com” bubble. Therefore, investors should have expected forward returns on equities to be higher over the next decade.

The chart below shows this more clearly. I highlighted the three previous points for reference.

  1. The “Dot.com” bubble peak.

  2. January 2009 (Start of the current bull market cycle)

  3. Ending valuation for 2021.

From 2000 through 2010, a lost decade, annual returns after inflation were indeed negative. Such is what 43x earnings predicted at that time.

An Artificial Support

The Wall Street Journalrecently discussed the last decade’s stellar returns.

“Investors’ optimism is easier to understand if one looks at the 10 years through the end of 2021, during which the compound annual return of the benchmark S&P 500 was a very good 16.6%. Not so far from what those surveyed extrapolated. Its components need closer scrutiny, though.”

While the Wall Street Journal then tries to make the case that profit margins were responsible for the bulk of the gains, the reality is most of the excess returns came from just two unique sources.

  1. A decade of monetary interventions and zero interest rate policies; and,

  2. A massive spending spree by corporations on share repurchases.

The chart below via Pavilion Global Markets shows the impact of stock buybacks on the market over the last decade. The decomposition of returns for the S&P 500 breaks down as follows:

  • 21% from multiple expansions,

  • 31.4% from earnings,

  • 7.1% from dividends, and

  • 40.5% from share buybacks.

In other words, in the absence of share repurchases, the stock market would not be pushing record highs of 4700 but instead levels closer to 2800.

Such would mean that stocks returned a total of about 3% annually or 42% in total over those 14 years.

Given the low growth economic environment, low rates, and weak inflation, a market return significantly lower over the last decade is logical. However, given the injections of over$43 Trillion in liquidity, corporate stock buying, and the artificial suppression of rates, the outsized returns were not surprising.

The question is whether those artificial influences can be sustained for another decade?

Lost Decade Ahead?

“As sour as the mood has seemed lately, the S&P 500 would drop by another 45% or so if both margins and price/earnings multiples reverted to their long-run averages. Such would take the benchmark back to a level it first crossed five years ago.

That sounds alarmist, but stocks’ level in 2031 could be the same whether Mr. Grantham is correct or not about a sharp bear market. The alternative could be milder selloffs and recoveries along the lines of what we have experienced recently that lead stocks exactly nowhere.” – WSJ

“Reversions to the mean” is one of the most powerful forces in finance, The importance of which often gets lost during a raging “bull market” that seemingly defies all logic. Such was a point made by David Leonhardt previously:

“The classic 1934 textbook ‘Security Analysis’ – by Benjamin Graham, a mentor to Warren Buffett, and David Dodd – urged investors to compare stock prices to earnings over ‘not less than five years, preferably seven or ten years.’ Ten years is enough time for the economy to go in and out of recession. It’s enough time for faddish theories about new paradigms to come and go.

What does such mean for future equity returns?

Vanguard regularly puts out expected returns for various asset classes using ranges in their estimates. Here are their latest 10 year forward return projections:

With a projected inflation rate of around 2% per year, the real return estimate for U.S. stocks is somewhere in the range of 0-2% real. They have growth stocks going negative after inflation over the next decade.” – Ben Carlson

Notably, while such commentary is often cast as “bearish,” such forecasts are a reflection of:

  1. Math; and,

  2. Reversions

The second is critically essential.

The Most Powerful Force In Finance

Throughout history, whether it is valuations, prices, profits, or any other metric, eventually, and always, deviations revert to the mean. Such was a point discussed in “The Market Is Disconnected From Everything.”

Profit margins are probably the most mean-reverting series in finance, and if profit margins do not mean-revert, then something has gone badly wrong with capitalism. If high profits do not attract competition, there is something wrong with the system, and it is not functioning properly.” – Jeremy Grantham

Data Through 2021

Markets are not cheap by any measure. If earnings growth fails to achieve high expectations, interest rates rise, or profit margins shrink due to inflation, the bull market thesis will collapse as “expectations” collide with “reality.”

A Lesson To Be Learned

Such is not a dire prediction of doom and gloom, nor is it a “bearish” forecast. It is just a function of how “math works over long periods.” However, during a “raging bull market,” investors always lose sight of long-term realities. As Howard Marks noted in a Bloomberg interview:

“Fear of missing out has taken over from the fear of losing money. If people are risk-tolerant and afraid of being out of the market, they buy aggressively, in which case you can’t find any bargains. That’s where we are now. That’s what the Fed engineered by putting rates at zero.

“We are back to where we were a year ago—uncertainty, prospective returns that are even lower than they were a year ago, and higher asset prices than a year ago. People are back to having to take on more risk to get return. At Oaktree, we are back to a cautious approach. This is not the kind of environment in which you would be buying with both hands.

The prospective returns are low on everything.”

For investors, understanding potential returns from any given valuation point are crucial when considering putting “savings” at risk. Risk is an essential concept as it is the expectation of “loss.” 

The more risk investors take within a portfolio, the greater the destruction of capital when reversions occur.

This time is “not different.” The only difference will be what triggers the subsequent valuation reversion and when it eventually occurs. 

Two previous bear markets taught many this lesson. Unfortunately, a whole generation of investors are learning this lesson the hard way.

Tyler Durden Tue, 05/24/2022 - 08:26
Author: Tyler Durden
Posted: May 24, 2022, 12:26 pm
Futures Slide As Snap Forecast Steamrolls Rebound Optimism

It's not every day that a relatively small social media company (whose market cap is now less than Twitter) slashing guidance can send shockwaves across global markets and wipe out over a trillion in market cap, yet SNAP's shocking crash after it cut its own guidance released one month ago which hammered risk assets around the globe, and here we are. Add to this the delayed realization that Biden was just spouting his usual senile nonsense yesterday when he said Chinese trade tariffs would be discussed and, well, wave goodbye to the latest dead cat bounce as futures unwind much of Monday's rally.

SNAP just crushed any hope of a sustained dead cat bounce

— zerohedge (@zerohedge) May 23, 2022

US futures declined as technology shares were set to come under pressure after Snap warned it would miss second-quarter profit and revenue forecasts amid deteriorating macroeconomic trends. Nasdaq 100 futures slid 1.5% at 7:30 a.m. ET and S&P 500 futures retreated 1.0% just as the benchmark was starting to pull back from the brink of a bear market amid fears the Federal Reserve’s tightening could hurt growth. Meanwhile in other markets, Chinese tech stocks fell by more than 4%, while Europe’s Stoxx 600 Index dropped 1%, led by losses in shares of utilities and retail companies. The dollar was little changed, while Treasuries advanced.

Snapchat plunged more 31% in premarket trading, while Facebook Meta and other companies that rely on digital advertising also tumbled amid fears that the sudden collapse in ad spending is systemic. Technology shares have been hammered this year amid rising interest rates and soaring inflation, with the Nasdaq 100 trading near November 2020 lows and at the cheapest valuations since the early days of the pandemic. Social media stocks are on course to erase more than $100 billion in market value Tuesday after Snap’s warning: Meta Platforms (FB US) declined 6.3%, Twitter (TWTR US) -4.1%, Alphabet (GOOGL US) -3.8% and Pinterest (PINS US) -12%.

“It highlights how fleeting swings in sentiment are now and also that investors are running at the first sign of trouble,” Jeffrey Haley, a senior market analyst at Oanda Asia Pacific, wrote in a note. “The market continues to turn itself inside out and back to front as it tries to decide if it has priced all of the impending rate hikes, soft landing or recession, inflation or stagflation, China, Ukraine, US summer driving season, supply chains, the list goes on.”

Among other notable moves in US premarket trading, Zoom Video’s shares rallied as much as 6.3% after better-than-expected guidance. Deutsche Bank said the video-software maker’s continued post-pandemic growth in its Enterprise business is encouraging, though analysts remain cautious on the company’s comments around free cash flow. Tesla shares fell 2.6% in premarket trading on Tuesday, amid news that it may take the electric-vehicle maker at least until later this week to resume full production at its China factory. Also, Daiwa analyst Jairam Nathan lowered his price target on TSLA to $800 from $1150, the latest in a string of target cuts by Wall Street analysts. Nathan cited the lockdowns in Shanghai and supply chain concerns impacting ramp-up of Austin and Berlin plants, and lowered the EPS estimates for 2022 and 2023. Elsewhere, Frontline shares rallied 3.1% after the crude oil shipping company reported net income for the first quarter that beat the average analyst estimate. Here are some other notable premarket movers:

  • Social media and other digital advertisers fell in US premarket trading after Snap cut its forecasts.
  • Albemarle (ALB US) shares may be in focus as analysts raise their price targets on the specialty chemicals maker amid a boost from higher lithium prices.
  • BitNile (NILE US) swings between gains and losses in US premarket trading, after the crypto miner reported 1Q results amid a broader slump across high-growth stocks.
  • Nautilus (NLS US) got a new Street-low price target after exercise equipment maker’s “lackluster” guidance, with the company’s shares slumping as much as 24% in US extended trading on Monday.
  • INmune Bio (INMB US) shares dropped 23% in postmarket trading on Monday after the FDA placed the company’s investigational new drug application to start a Phase 2 trial of XPro in patients with Alzheimer’s disease on clinical hold.
  • Abercrombie & Fitch (ANF IS)  falls as much as 21% premarket after the clothing retailer reported an unexpected loss for its first quarter

Equities have been volatile as investors assess the outlook for monetary policy, inflation and the impact of China’s strict Covid policies on the global economy. Minutes on Wednesday of the most recent Federal Reserve rate-setting meeting will give markets insight into the US central bank’s tightening path.

“With the era of cheap money hurtling to an end the focus will be on a speech from Jerome Powell, the chair of the Federal Reserve later, with investors keen to glean any new titbit of information about just how far and fast the US central bank will go in raising rates and offloading its mass bond holdings,” Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, wrote in a note.

In Europe, the Stoxx 50 slumped 1.4%. FTSE 100 outperformed, dropping 0.6%, while CAC 40 lags. Utilities, retailers and consumer products are the worst performing sectors. Utilities were the biggest decliners in Europe, as Drax Group Plc, Centrica Plc and SSE Plc all sank on Tuesday following a report about UK plans for a possible windfall tax. Air France-KLM fell after plans to sell about 2.26 billion euros ($2.4 billion) of new shares to shore up its balance sheet. Oil and gas stocks underperformed the European equity benchmark in morning trading as crude declines amid investors’ concerns about Chinese demand, while mining shares also fall alongside metal prices.  Here are some of the biggest European movers:

  • Big Yellow shares gain as much as 4% after what Citi described as a “strong set” of results, supported by structural tailwinds.
  • SSP rises as much as 13% after the U.K. catering and concession-services company reported 1H results that Citi says were above expectations.
  • Adevinta climbs as much as 7.8% after reporting 1Q results that were broadly as expected, with revenue slightly below expectations and Ebitda ahead, according to Citi.
  • Frontline gains as much as 6.4% in Oslo after the crude oil shipping company reported 1Q net income that beat the average analyst estimate.
  • Moonpig gains as much as 8.2%, extending a rise of 11% on Monday when the company announced the acquisition of Smartbox Group UK
  • U.K. utility firms sink after the Financial Times reported that Chancellor of the Exchequer Rishi Sunak has ordered officials to prepare plans for a possible windfall tax on power generators as well as oil and gas firms. SSE declines as much as 11%, Drax Group -19% and Centrica -12%
  • European technology and advertising stocks slump with Nasdaq futures after Snap cut its revenue and profit forecasts below the low end of its previous guidance. Just Eat falls as much as 4.8%, Deliveroo -4.9%, Delivery Hero -4.4%, STMicro -3%, Infineon -2.8%, AMS -3%
  • Prosus drops as much as 6.7% in Amsterdam and Naspers declines as much as 6.1% in Johannesburg as Barclays cuts ratings on both stocks after downgrading Tencent in the prior session.

The latest flash PMI data showed that Europe’s two largest economies kept growing in May as they benefited from a sustained rebound in services that offset fallout from Russia’s invasion of Ukraine. Meanwhile, the pound fell after a report showed the UK economy faces an increasing risk of falling into a recession as firms and households buckle under the fastest inflation rate in four decades. At the same time, the euro climbed above $1.07 for the first time in four weeks as ECB President Christine Lagarde said the currency bloc has reached a “turning point” in monetary policy and rejected the idea that the region is heading for a recession, but said the ECB won’t be rushed into withdrawing monetary stimulus.

Earlier in the session, Asian stocks dipped as traders remained cautious on global growth concerns while assessing the impact of China’s fresh fiscal stimulus.  The MSCI Asia Pacific Index fell as much as 1.2%, with tech names the biggest drags. Lower revenue and profit forecasts from Snap Inc. weighed on the broader sector. Chinese stocks led declines in the region as the government’s new support package including more than 140 billion yuan ($21 billion) in additional tax relief failed to impress investors. Covid-19 lockdowns remain a key overhang, while market participants are looking to major China tech earnings this week, including Alibaba and Baidu, for direction. Hong Kong equities also dropped after the city’s outgoing leader said border controls will remain in place for now.  Hong Kong’s Hang Seng Tech Index tumbles as much as 4.2% in afternoon trading on Tuesday, on track for a second day of declines. 

“Markets have caught a glimpse of the impact of regulatory risks and Covid-19 lockdowns from Tencent’s recent lackluster earnings,” and a potential mirroring of the weakness by big tech earnings ahead “may be driving some caution,” Jun Rong Yeap, a market strategist at IG Asia Pte., wrote in a note

Japanese equities dropped as investors mulled China’s new stimulus measures and amid growing concerns over global economic health.  The Topix Index fell 0.9% to close at 1,878.26 on Tuesday, while the Nikkei declined 0.9% to 26,748.14. Recruit Holdings Co. contributed the most to the Topix’s decline, as the staffing-services firm tumbled 6.6%. Among the 2,171 shares in the index, 1,846 fell, 249 rose and 76 were unchanged. “The markets will continue to be in an unstable situation for a while as the US is still in the process of raising its interest rates and we are entering a phase where the effects of interest rate tightening on the economy will start to be felt in the real economy,” said Hiroshi Matsumoto, senior client portfolio manager at Pictet Asset Management.

Indian stocks also declined, dragged by a selloff in information technology firms, as investors remained cautious over global economic growth.  The S&P BSE Sensex fell 0.4% to 54,052.61 in Mumbai while the NSE Nifty 50 Index eased 0.6%. The gauges have now dropped for four of five sessions and eased 5.3% and 5.7% this month, respectively. All but two of the 19 sector sub-indexes compiled by BSE Ltd. declined on Tuesday, led by information technology stocks. Foreign funds have been net sellers of Indian stocks since end of September and have taken out $21.3 billion this year through May 20. The benchmark Sensex is now 12.5% off its peak in Oct. Corporate earnings for the March quarter have been mixed as 26 out of 41 Nifty companies have reported profit above or in line with consensus expectations. “There is a lot of skepticism among investors over interest rate hikes in the near term and its impact on growth going ahead,” according to Kotak Securities analyst Shrikant Chouhan.

In FX, the dollar dipped while the euro jumped to a one-month high versus the US dollar after the European Central Bank reiterated its plans to end negative rates quickly, bolstering market expectations that rates will rise as early as July. It pared some gains after ECB Governing Council’s Francois Villeroy de Galhau argued against a 50 bps increase. “The single currency is dancing to the tune of ECB policymakers this week as the Governing Council attempts to talk up the euro to insure against imported inflation,” said Simon Harvey, forex analyst at Monex Europe. “The euro’s rally highlights how dip buyers are happy to buy into the ECB’s messaging in the near-term.”

Elsewhere, the pound slid and gilts rallied after a weak UK PMI reading ramped up speculation that the country is heading toward recession. The Australian and New Zealand dollars led declines among commodity currencies after Snapchat owner Snap Inc. slashed its revenue forecast, spurring doubts about the strength of the US economy. Japan’s yen snapped a two-day drop as Treasury yields resumed their decline. Japanese government bond yields eased across maturities, following their US peers.

In rates, Treasuries were richer by up to 4bp across belly of the curve as S&P futures gapped lower from the reopen and extended losses over Asia, early European session. Treasury 10-year yields around 2.815%, richer by 3.5bp vs. Monday close US session focus to include Fed Chair Powell remarks and 2-year note auction. Gilts outperformed following soft UK data. Gilts outperform by additional 1.5bp in the sector after May’s preliminary PMI prints missed expectations. Belly-led gains steepened the US 5s30s by 1.8bp on the day while wider bull steepening move in gilts steepens UK 5s30s by 5bp on the day.  The US auction cycle begins at 1pm ET with $47b 2- year note sale, followed by $48b 5- and $42b 7-year notes Wednesday and Thursday.

In commodities, oil and gas stocks underperformed as crude declined amid concerns about Chinese demand, while mining shares also fall alongside metal prices. WTI is in the red but recovers off worst levels to trade back on a $109-handle. Most base metals trade poorly; LME nickel falls 4.5%, underperforming peers. Spot gold rises roughly $5 to trade above $1,858/oz.

Looking at the day ahead, we’ll get the rest of the May flash PMIs from Europe and the US, along with US new home sales for April and the Richmond Fed’s manufacturing index for May. Otherwise, central bank speakers include Fed Chair Powell, the ECB’s Villeroy and the BoE’s Tenreyro.

Market Snapshot

  • S&P 500 futures down 1.3% to 3,920.75
  • STOXX Europe 600 down 0.9% to 432.44
  • MXAP down 1.1% to 163.24
  • MXAPJ down 1.3% to 531.58
  • Nikkei down 0.9% to 26,748.14
  • Topix down 0.9% to 1,878.26
  • Hang Seng Index down 1.7% to 20,112.10
  • Shanghai Composite down 2.4% to 3,070.93
  • Sensex down 0.3% to 54,148.93
  • Australia S&P/ASX 200 down 0.3% to 7,128.83
  • Kospi down 1.6% to 2,605.87
  • Gold spot up 0.3% to $1,859.38
  • US Dollar Index down 0.11% to 101.96
  • Brent Futures down 0.2% to $113.15/bbl
  • German 10Y yield little changed at 0.99%
  • Euro up 0.2% to $1.0713

Top Overnight News from Bloomberg

  • Social media stocks are on course to shed more than $100 billion in market value after Snap Inc.’s profit warning, adding to woes for the sector which is already reeling amid stalling user growth and rate-hike fears.
  • The US must be “strategic” when it comes to a decision on whether to remove China tariffs, Trade Representative Katherine Tai said a day after President Joe Biden mentioned he would review Trump-era levies as consumer prices surge.
  • China rolled out a broad package of measures to support businesses and stimulate demand as it seeks to offset the damage from Covid lockdowns on the world’s second-largest economy.
  • China’s central bank and banking regulator urged lenders to boost loans as the economy is battered by Covid outbreaks that have threatened growth this year.
  • President Joe Biden is seeking to show US resolve against China, yet an ill-timed gaffe on Taiwan risks undermining his bid to curb Beijing’s growing influence over the region.
  • Europe’s two largest economies kept growing in May as they benefited from a sustained rebound in services that offset fallout from Russia’s invasion of Ukraine.
  • Russia’s currency extended a rally that’s taken it to the strongest level versus the dollar in four years, prompting a warning from one of President Vladimir Putin’s staunchest allies that the gains may be overdone.

A more detailed look at global markets courtesy of Newqsuawk

Asia-Pac stocks mostly declined after Snap's profit warning soured risk sentiment and weighed on US tech names. ASX 200 was rangebound but kept afloat for most of the session by resilience in tech and mining stocks, while PMIs remained in expansion territory. Nikkei 225 fell below 27,000 although losses are stemmed by anticipation of incoming relief with Finance Minister Suzuki set to present an additional budget to parliament tomorrow. Hang Seng and Shanghai Comp were pressured after further bank downgrades to Chinese economic growth forecasts, while the recent announcement of targeted support measures by China and reports of the US mulling reducing China tariffs, did little to spur risk appetite.

Top Asian News

  • Shanghai will allow supermarkets, convenience stores and drugstores to resume operations with a maximum occupancy of 50% before May 31st and 75% after June 1st, according to Global Times.
  • Hong Kong Chief Executive Carrie Lam said they are unlikely to lift the quarantine in her term, according to Bloomberg.
  • US President Biden said there is no change to the policy of strategic ambiguity regarding Taiwan, while Defense Secretary Austin earlier commented that he thinks US President Biden was clear that US policy has not changed on Taiwan, according to Reuters.
  • USTR Tai said the US is engaging with China on Phase 1 commitments of trade, while she added they must be strategic on tariffs and that President Biden's team believes trade needs new ideas, according to Reuters.
  • China's push to loosen USD dominance is said to take on new urgency amid Western sanctions on Russia and some Chinese advisers are urging the government to overhaul the exchange rate regime to turn the Yuan into an anchor currency, according to SCMP.

European bourses are subdued following the Snap-headwind, further hawkish ECB rhetoric and disappointing Flash PMIs; particularly for the UK, Euro Stoxx 50 -0.7%. US futures are similarly subdued and the Nasdaq, -1.7%, is taking the brunt of the pressure as tech names are hit across the board, ES -1.1%. Snap (SNAP) said the macroeconomic environment has deteriorated further and faster than anticipated since its last guidance issuance and it now believes it will report revenue and adjusted EBITDA below the low end of its Q2 guidance range, according to the filing cited by Reuters. Samsung (005935 KS) is to reportedly invest USD 360bln on chips and biotech over a period of five years, according to Bloomberg. Tesla (TSLA) could take until later this week to restore full production in China after quarantining thousands of workers. Uber (UBER) has initiated a broad hiring freeze across the Co. as it faces increased pressure to become profitable, according to Business Insider sources

Top European News

  • UK Chancellor Sunak ordered officials to draw up a plan for a windfall tax on electricity generators' profits, according to FT.
  • ECB's Nagel said it seems clear that the wage moderation seen for 10 years in Germany is over and they think they will see high numbers from German wage negotiations.
  • Germany's Chambers of Commerce DIHK cuts 2022 GDP growth forecast to 1.5% (vs prev. view of 3% made in Feb).

FX

  • Yen outperforms on risk off and softer yield dynamics, USD/JPY at low end of wide range stretching from just above 128.00 to just over 127.00 and multiple chart supports under the latter.
  • Franc and Euro underpinned as SNB and ECB pivot towards removal of rate accommodation, USD/CHF sub-0.9650, EUR/USD 1.0700-plus.
  • Dollar suffers as a result of the above, but DXY contains losses under 102.000 as Pound plunges following disappointing UK preliminary PMIs; Cable recoils from the cusp of 1.2600 to touch 1.2475.
  • Aussie, Loonie and Kiwi all suffer from aversion and latter also cautious ahead of RBNZ on Wednesday; AUD/USD loses grip of 0.7100 handle, NZD/USD under 0.6450 having got close to 0.6500 yesterday and USD/CAD probing 1.2800 vs virtual double bottom around 1.2765.
  • Lira loses flight to stay above 16.0000 vs Buck as Turkish President Erdogan refuses to acknowledge Greek leader and sets out plans to strengthen nation’s southern border defences.

Fixed Income

  • Gilts fly after UK PMIs miss consensus and only trim some gains in response to much better than expected CBI distributive trades
  • 10 year bond holds near the top of a 118.86-117.92 range
  • Bunds bounce from sub-153.00 lows after more hawkish guidance from ECB President Lagarde, but Italian BTPs lag under 128.00 as books build for 15 year issuance
  • US Treasuries bull-flatten ahead of 2 year note supply and Fed's Powell, T-note just shy of 120-00 within 120-02+/119-18 band
  • Italy has commenced marketing a new syndicated 15yr BTP, guidance +11bp vs outstanding March 2037 bond, according to the lead manager via Reuters; subsequently, set at +8bp.

Commodities

  • WTI and Brent are subdued amid the broader risk environment with familiar factors still in play; however, the benchmarks are off lows amid USD downside.
  • Meandering around USD 110/bbl (vs low 108.61/bbl) and USD 113/bbl (vs low USD 111.70/bbl) respectively.
  • White House is considering environmental waivers for all blends of US gasoline to lower pump prices, according to Reuters sources.
  • Spot gold is modestly firmer though it has failed to extend after briefly surpassing the 21-DMA at USD 1856/oz.

Central Banks

  • ECB's Lagarde believes the blog post on Monday was at a good time, adding we are clearly at a turning point, via Bloomberg TV; adds, we are not in a panic mode. Rates are likely to be positive at end-Q3; when out of negative rates, you can be at or slightly above zero. Does not comment on FX levels, when questioned about EUR/USD parity. Click here for more detail, analysis & reaction.
  • ECB's Villeroy says he believes the ECB will be at a neutral rate at some point next year, via Bloomberg TV; 50bps hike does not belong to the Governing Council's consensus, does not yet know the terminal rate.
  • NBH Virag says continuing to increase rates in 50bp increments is an options, increasing into double-digits is not justified.

US Event Calendar

  • 09:45: May S&P Global US Manufacturing PM, est. 57.6, prior 59.2
    • May S&P Global US Services PMI, est. 55.2, prior 55.6
    • May S&P Global US Composite PMI, est. 55.6, prior 56.0
  • 10:00: May Richmond Fed Index, est. 10, prior 14
  • 10:00: April New Home Sales MoM, est. -1.7%, prior -8.6%; New Home Sales, est. 750,000, prior 763,000

Central Banks

  • 12:20pm: Powell Makes Welcoming Remarks at an Economic Summit

DB's Jim Reid concludes the overnight wrap

These are pretty binary markets at the moment. If the US doesn’t fall into recession over the next 3-6 months then it’s easy to see markets rallying over this period. However if it does, the correction will likely have further to run and go beyond the average recession sell-off (that we were close to at the lows last week) given the rich starting valuations. For choice I don’t think the US will go into recession over this period but as you know I do think it will next year. As such a rally should be followed by bigger falls next year. Two problems with this view. Timing the recession call and timing the market’s second guessing of it. Apart from that it's all very easy!!

This week started on a completely different basis to most over the past few months. So much so that there's hope that the successive weekly losing S&P streak of seven might be ended. 4 days to go is a long time in these markets but after day one we're at +1.86% and the strongest start to a week since January. And that comes on top of its intraday recovery of more than +2% late on Friday’s session, after the index had briefly entered bear market territory, which brings the index’s gains to more than 4% since its Friday lows at around the European close. However just when you thought it was safe to emerge from behind the sofa, S&P 500 futures are -0.84% this morning with Nasdaq futures -1.42% due to Snapchat slashing profit and revenue forecasts overnight. Their shares were as much as -31% lower in after hours, taking other social media stocks with it. Asia is also weaker this morning as we'll see below.

Before we get there, yesterday's rally was built on a few bits of positive news that are worth highlighting. Investors were buoyed from the get-go by remarks from President Biden that he’d be considering whether to review Trump-era tariffs on China. It had been reported previously that such a move was under consideration, but there are also geopolitical as well as economic factors to contend with, and a Reuters report last week cited sources who said that US Trade Representative Katherine Tai favoured keeping the tariffs in place. Biden said that he’d be discussing the issue with Treasury Secretary Yellen following his return to the United States, so one to watch in the coming days with the administration under pressure to deal with inflation. This comes as the Biden administration unveiled the Indo-Pacific Economic Framework yesterday, which covers 13 countries and approximately 40% of the world’s GDP. Conspicuously, China was not one of the included parties, but US officials said there was a path for them to join. The framework reportedly does not contain any new tariff reductions, but instead seems focused on new labour, environmental, and anti-money laundering standards while seeking to build resilience. The 13 involved countries said in a joint statement, “This framework is intended to advance resilience, sustainability, inclusiveness, economic growth, fairness, and competitiveness for our economies.” It is not clear what is binding, or what Congress will think about the framework, but regardless, this is battle to halt or slow the anti-globalisation sentiment so prominent in recent years.

It was not just Biden who helped encourage the rally. We then had a further dose of optimism in the European morning after the Ifo Institute’s indicators from Germany surprised on the upside. Their business climate indicator unexpectedly rose to 93.0 in May (vs. 91.4 expected), thus marking a second successive increase from the March low after Russia’s invasion of Ukraine. This morning we’ll get the May flash PMIs for Germany and elsewhere in Europe, so let’s see if they paint a similar picture.

Ahead of that, equity indices moved higher across the world, with the S&P 500 up +1.86% as mentioned, joining other indices higher including the NASDAQ (+1.59%), the Dow Jones (+1.98%), and the small-cap Russell 2000 (+1.10%). It was a very broad-based advance, with every big sector group moving higher on the day, and banks (+5.12%) saw the largest advance in the S&P 500. Meanwhile, consumer discretionary (+0.64%) continues to lag the broader index. Over in Europe there were also some major advances, with the STOXX 600 (+1.26%), the DAX (+1.38%) and the CAC 40 (+1.17%) all rising. They have lagged the US move since Friday's Euro close mostly because they have out-performed on the downside.

Staying on Europe, we had some significant developments on the policy outlook as ECB President Lagarde published a blog post that basically endorsed near-term market pricing for future hikes. In turn, that helped the euro to strengthen against other major currencies and led to a rise in sovereign bond yields. In the post, Lagarde said that she expected net purchases under the APP “to end very early in the third quarter”, which would enable rates to begin liftoff at the July meeting in just over 8 weeks from now. Furthermore, the post said that “on the current outlook, we are likely to be in a position to exit negative interest rates by the end of the third quarter”, so implying that we’ll see more than one hike in Q3, assuming they move by 25bp increments.

Interestingly, Bloomberg subsequently reported that others at the ECB wanted to keep open the possibility of moving even faster. Indeed, it said that Lagarde’s plan had “irked colleagues” seeking to keep that option open, and was “a position that leaves some more hawkish officials uncomfortable.” So according to this, some officials want to keep the option of moving in 50bp increments like the Fed did earlier this month, although so far only Dutch central bank Governor Knot has openly referred to this as a possibility.

That move from Lagarde to endorse an exit from negative rates in Q3 sent sovereign bonds noticeably higher after the blog post was released, with 10yr bund yields giving up their initial decline to rise +7.5bps by the close, aided by the broader risk-on move. Those on 10yr OATs (+7.1bps) and BTPs (+3.3bps) also moved higher, with a rise in real yields driving the moves in all cases. Nevertheless, when it came to what the market was pricing for future rate hikes, Lagarde’s comments seemed to just solidify where they’d already reached, with the amount priced in for the ECB by year-end rising just +5.5bps to remain above 100bps.

Given the ECB’s more hawkish rhetoric of late as well as the upside Ifo reading, the Euro gained further ground against the US dollar over the last 24 hours, strengthening by +1.20% in yesterday’s session. In fact, the dollar was the second-worst performer amongst all the G10 currencies yesterday, narrowly edging out the yen, and the dollar index has now shed -2.64% since its peak less than two weeks ago. That’s in line with what our FX colleagues argued in their Blueprint at the end of last week (link here), where they see the reversal of the dollar risk premium alongside ECB tightening sending EURUSD back above 1.10 over the summer. But even though the dollar was losing ground, US Treasury yields still moved higher alongside their European counterparts, with 10yr yields up +7.0bps to 2.85%. They given back around a basis point this morning.

Over to Asia and as discussed earlier markets are weaker. The Hang Seng (-1.50%) is extending its previous session losses with stocks in mainland China also lagging. The Shanghai Composite (-1.09%) and CSI (-0.80%) are both trading lower even as the government is offering more than 140 billion yuan ($21 billion) in extra tax relief to companies and consumers as it seeks to offset the impact of Covid-induced lockdowns on the world’s second biggest economy. Among the agreed new steps, China will also reduce some passenger car purchase taxes by 60 billion yuan. Meanwhile, the Nikkei (-0.51%) and Kospi (-0.90%) are also trading in the red.

Early morning data showed that Japan’s manufacturing activity expanded at the slowest pace in three months in May after the au Jibun Bank flash manufacturing PMI slipped to +53.2 from a final reading of +53.5 in April amid supply bottlenecks with new orders growth slowing. Meanwhile, the nation’s services PMI improved to +51.7 in May from +50.7. Elsewhere, manufacturing sector activity in Australia expanded at the slowest pace in four months as the S&P Global flash manufacturing PMI fell to +55.3 in May from April’s +58.8 level while the services PMI dropped to +53.0 in May.

While markets try to judge whether or not a near-term recession is imminent and how severe it may be, another external shock to contend with is the growing Covid case count in mainland China and how stiff the lockdown measures authorities will impose to contain outbreaks. As we reported yesterday, Beijing registered record case growth over the weekend. The Chinese mainland on Monday reported 141 locally-transmitted confirmed COVID-19 cases, of which 58 were in Shanghai and 41 in Beijing. So these numbers will be closely watched over the next few days.

To the day ahead now, and we’ll get the rest of the May flash PMIs from Europe and the US, along with US new home sales for April and the Richmond Fed’s manufacturing index for May. Otherwise, central bank speakers include Fed Chair Powell, the ECB’s Villeroy and the BoE’s Tenreyro.

Tyler Durden Tue, 05/24/2022 - 08:08
Author: Tyler Durden
Posted: May 24, 2022, 12:08 pm
Oh Snap: Social Media Stocks Set To Erase $100 Billion In Market Cap

US equity futures declined Tuesday as Snap Inc.'s profit warning hammered technology shares premarket. 

As of 0615 ET, Snap shares plunged 29% in premarket trading -- if losses hold up until the cash session, it would mean an $11.4 billion wipeout in market capitalization. Snap's peers, including Facebook-owner Meta Platforms Inc., Google-owner Alphabet Inc., Twitter Inc., and Pinterest Inc. were all considerably lower, indicating if losses were held until the market opens, the group could see a mind-boggling $100 billion in market cap vanish.   

Snap sparked the selloff on Monday after hours when it warned that second-quarter profit and revenue forecasts would miss Wall Street expectations amid deteriorating macroeconomic trends. 

"Snap pointing out the obvious macro headwinds was yet another reminder for traders to not get back in too early.

"On the way down to what's looking increasingly like a full-on S&P bear market, we've seen all dip-buying end in tears for impatient investors," Max Gokhman, chief investment officer at AlphaTrAI. 

Snap's profit warning is another sign that technology shares could remain under pressure as digital advertising slumps amid threats of stagflation spilling over into recession. Rising interest rates and soaring inflation have already battered technology companies. 

"The market continues to turn itself inside out and back to front as it tries to decide if it has priced all of the impending rate hikes, soft landing or recession, inflation or stagflation, China, Ukraine, US summer driving season, supply chains, the list goes on," Jeffrey Haley, a senior market analyst at Oanda Asia Pacific, wrote in a note. 

Nasdaq 100 futures slid about 1.7% at the time of writing this note, and S&P 500 futures tumbled 1.4%, both wiping out most of Monday's gains. 

Fewer companies are topping earnings estimates this quarterly reporting season, and the scare in consumer stocks (TGT & WMT) last week is an ominous sign market mood has turned slightly more negative amid the Federal Reserve's most aggressive tightening spree in decades. 

Tyler Durden Tue, 05/24/2022 - 08:00
Author: Tyler Durden
Posted: May 24, 2022, 12:00 pm
"It's Going To Get Truly Horrific": Gas, Electricity Bills In Europe Could Jump To 4.5% Of Disposable Income In 2023

By Charles Kennedy of OilPrice.com

The higher the energy bills in Europe become, the higher the chances are for a windfall tax on energy companies and utilities, as governments will be forced to ease the growing pressure on household finances, Citigroup says.

Europe as a whole could see a utility bill rise of over 3 percent of gross domestic product (GDP) through 2024, Citigroup Global Markets analysts Piotr Dzieciolowski, Jenny Ping, and Antonella Bianchessi wrote in a note on Monday carried by Bloomberg.

Gas and electricity bills in Europe could jump to 4.5 percent of household disposable income in 2023, up from 3.5 percent in 2021. The utility bills could further rise to 4.8 percent of household disposable income in 2024, according to Citi analysts.  

In countries in Eastern Europe, where the prices of commodities account for a larger share of bills, the disposable income is likely to shrink the most, the investment bank says.

Per a Citi survey, one-quarter of respondents across Europe aged 18 to 29 say they would not be able to pay their bills on time if bills rose by one-tenth.   

Bills have been surging in Europe since the autumn of 2021 when the natural gas shortage led to higher gas and electricity prices. The Russian invasion of Ukraine further strained household income as utility bills surged with the skyrocketing commodity prices.

Spain and Portugal set a cap on the price of gas used for generating electricity, after the EU allowed them to do so, acknowledging their exceptional energy requirements.

Outside the EU, in the UK, soaring energy prices are hitting households and energy providers in a market that has realized that the cost-of-living crisis in Britain is not going away soon and will get even worse come next winter.

The UK has a so-called Energy Price Cap in place, which protects households from excessively high bills by capping the price that providers can pass on to them, but which additionally burdens energy providers.

But as the price cap was raised significantly in April—because of the high energy prices in the six months prior to the decision for the increase made by energy market regulator Ofgem in February—households are increasingly struggling to pay their energy bills.

The cost of living crisis “is going to get truly horrific” in October, Keith Anderson, chief executive at one of the largest providers, ScottishPowertold a Parliament committee last month.  

Tyler Durden Tue, 05/24/2022 - 07:45
Author: Tyler Durden
Posted: May 24, 2022, 11:45 am
Truckload Spot-Rates Tank Fast Thanks To Soaring Fuel-Costs

By Zach Strickland, FreightWaves Market Expert and Analyst,

Truckload spot rates for dry van freight (NTI) have plummeted 18% since the start of the year, but if you remove fuel (NTIL), it nearly doubles to 32%.  

Chart of the Week: National Truckload Index (Linehaul Only), National Trucking Index, Diesel Truck Stop Price per gallon – USA  

From an annualized perspective, those numbers moderate to -7% and -22%, respectively, but are still impressive nonetheless. The big takeaway from all this is that carriers that rely on spot market freight have seen their margins erode faster than the rates alone imply. 

This week’s chart illustrates how fuel costs (DTS) have seemingly not had much influence on keeping market rates afloat.

Normally, spot rates and cost inflation move in a similar direction as they are inherently connected. This is an extremely rare occurrence when operating costs are moving in polar opposition to the market rate. So what are the implications?

The truckload spot market has four primary functions for shippers:

  1. To find capacity when contracted carriers are unable to provide it.

  2. To cover a purely transactional move that occurs too inconsistently to have a contracted rate.

  3. To get service outside of a normal expectation — i.e., expedited.

  4. To get capacity covered at a discount to the contracted rate.

Finding capacity outside of the contracted provider has been the main driver of spot market activity over the past two years. This is supported by a tender rejection rate averaging above 20%. 

Tender rejections are a measure of carrier compliance, whereas high rates of rejection indicate carriers are either unwilling or unable to provide capacity for a contracted customer at a previously set rate. A national rejection rate around 5% is indicative of a relatively loose trucking market. 

Contracted freight is heavily biased toward the larger shippers and carriers as they have the scale and infrastructure that makes having set rates more efficient. Smaller fleets get an opportunity to haul these loads when the rejection rates start to climb. Essentially, they get the overflow freight. 

Small carriers grab a lot of these “rejected” loads on the spot market as they are not large enough to form ongoing relationships with some of the largest shippers. Prior to the pandemic consumption boom, they were largely only able to take advantage of this overflow around seasonal booms when larger carrier networks were disrupted. 

Over the past two years smaller operations have become dependent on spot volumes and elevated rates. Even though there were few people who expected freight to move at such overheated levels forever, it is very difficult to know how to grow your operation sustainably in this environment. 

With equipment shortages prevalent, ironically due in part to the lack of equipment for transporting the raw materials for manufacturing, used truck prices for 3-year old units increased from $54,000 in July of 2020 to $140,000, according to ACT Research. 

Small operators get a lot of their equipment on the used truck market due to lack of relationship with the OEMs and their affordability. They had to make the choice to stagnate or spend money to grow.

With many carriers making investment decisions based on an overheated and unsustainable market, they are now left exposed as the costs of operating continue to climb and the market for their service has dwindled significantly. The smaller operations are the most at risk for failure this year.   
Larger fleets have taken a much different approach, with many larger carriers such as Heartland drawing the ire of the financial sector for selling older trucks for premiums and stockpiling cash, which now looks like a heads-up move. Employing a long-term strategy has put them in a decidedly better position to weather the storm if the market continues to deteriorate.

Tyler Durden Tue, 05/24/2022 - 07:20
Author: Tyler Durden
Posted: May 24, 2022, 11:20 am
Can We Make It Eight?

The sheer relentlessness of the equity market sell-off continued apace last week with the Dow capping off its first run of 8 successive weekly declines since 1923. Meanwhile, the S&P 500 saw its first run of 7 successive weekly declines (tumbling 15.1% over this period) since the dotcom bust aftermath in 2001.

As DB's Jim Reid notes in his Chart of the Day on Monday, there have only been three previous declines of 7 or more successive weeks. We had a 7-week losing stretch ending in March 1980 (total -15.8%) and two 8-week stretches ending in March 2001 (-16.9%) and May 1970 (-21.5%). We have never had a 9-week stretch of losses: will Biden take the the first ever credit for that? In any case, we are around record-breaking territory.

A reminder from this weekend, this is the 6th largest non-recession (so far) correction in post WWII history. Including recessions, there are fifteen larger post WWII selloffs with the median recession sell-off at -23.9%.

From here, DB's equity strategist Binky Chadha expects stocks to move towards the average recession decline in the near term, which would put the S&P 500 at 3650 (down from the current 3977). The bank's base case is then that a recession doesn't materialize this year and the S&P closes 2022 at c.4750, however it then reverses all gains in 2023 when the recession does hit (as a reminder, DB is the only bank on Wall Street to officially forecast a recession next year). Which is why, as Reid concludes, "regardless of whether it reaches that level in 2022, if the recession then comes in 2023, as we expect, then get ready for large declines again!"

Tyler Durden Tue, 05/24/2022 - 06:55
Author: Tyler Durden
Posted: May 24, 2022, 10:55 am
Peter Schiff: The Recession Is Already Here And It Won't Be Mild

Via SchiffGold.com,

The mainstream is concerned about the Fed pushing the economy into a mild recession as it battles inflation. Peter Schiff recently appeared on NTD News to talk about the economy. He said the recession is already here and it’s not going to be mild!

First of all, I think the recession has already started. I think we’re in it now. It’s just early.”

Peter reminded the audience that the first-quarter GDP data already came in as a negative print.

I don’t think it’s going to be a mild recession. I think this recession is going to be worse than the Great Recession that started following the 2008 financial crisis.”

Few people in the mainstream saw the Great Recession coming either.

In fact, when we were six or seven months into that recession, the Federal Reserve and other economists still claimed that there was no recession anywhere in sight. So, this recession is going to be much worse than that one.”

Peter said ongoing inflation will make this recession particularly problematic.

Inflation is actually going to be exacerbated by the recession. So, Americans are going to have the worst of both worlds. A worse recession than the Great Recession of ’08 but worse inflation than anything we experienced in the 1970s.”

Mainstream pundits say one reason we don’t have to worry about a financial crisis like the one in ’08 is because banks are in good shape. Peter said the banks are only in good shape until the value of their collateral collapses and people can’t repay their loans.

That’s what happened in the last financial crisis. This one is going to be even bigger because the economy has a lot more debt now than it did in 2008. And Americans are less able to pay it when interest rates rise because the balances are much greater. So, we’re in much worse shape as a result of all the bailouts and all the stimulus that papered over the last crisis. So, now the one we’re dealing with is going to be much worse because we kicked the can down the road instead of solving the problem when we had a chance.”

Is there a remedy? Or is the damage already done?

There is a remedy, but it’s not without pain. And unfortunately, it’s the middle class and the poor who are going to feel the pain the most. Because if the Fed fights inflation, it’s middle class and poor people who are going to suffer the most during the inflation fight. If they don’t fight inflation because they think they want to spare the middle class the pain of a horrible recession, well then they’re going to suffer even more with massive inflation.”

The stock market has been in a freefall for weeks. How much lower can stocks go?

They can drop a lot further and they will drop a lot further until the Fed does an about-face and acknowledges how weak the economy is.”

Peter emphasized that the Fed is only pretending it’s going to fight inflation.

Because it’s also pretending the economy is strong enough to withstand the fight. It’s not. Even though the fight is inadequate to solve the inflation problem, it’s going to cause a big problem for the economy that is so levered up on debt.”

Meanwhile, you have people like Elizabeth Warren saying businesses are gouging customers.

They’re not. They’re actually not raising prices enough. They have to raise prices more because businesses have been taking a hit in their margins. They’re going to have to prepare for reduced sales at higher prices because customers don’t have the money and that’s when the layoffs begin.”

Peter said this is a recipe for rising inflation and surging unemployment at the same time.

So, what should Americans do?

Stock up on the stuff that you need now while they can still afford it. Prices are going to go much higher for basic necessities.”

And Peter said that we could see government price controls down the road. That would make things even worse, causing more widespread shortages. But would the government really impose price controls?

We did it in the 1970s. Why wouldn’t they do it again? The government has a history of repeating its mistakes. It never learns from them.”

Tyler Durden Tue, 05/24/2022 - 06:30
Author: Tyler Durden
Posted: May 24, 2022, 10:30 am
Inflation Concerns Are Soaring Around The World

The world’s political and economic elites have descended once more on Davos, Switzerland, for the World Economic Forum (WEF), after a two-year hiatus due to the pandemic. This year’s round of talks, which run from May 22 to 26, will deal with, among other topics, the Russian invasion of Ukraine, food shortages, climate change and inflation.

As Statista's Anna Fleck details below, according to data from The Global Consumer Survey, the latter issue is at the forefront of residents’ minds in several countries around the world.

Infographic: Inflation Concerns Growing Around the World | Statista

You will find more infographics at Statista

Inflation has become an increasingly common concern in the UK of late, with 52 percent of respondents saying it was one of their country’s leading problems in 2021/22, up from 35 percent in 2020/21. This trend mirrors the rising costs of living in the country, with the latest figures showing prices jumping nine percent - the highest in 40 years.

Brits aren’t alone in their fears however, as other European countries are also showing signs of growing worry over the tightening of purse strings, following more than two years of a pandemic and an energy crisis, including Germany (from 33 percent to 44 percent), Spain (41 percent to 51 percent) and Italy (from 29 percent to 37 percent).

Russians harbor the most worries over inflation, according to the data, which perhaps comes as no surprise, given the heavy sanctions that have hit the country following its invasion of Ukraine. They are closely followed by Argentina, which, according to Deutsche Welle, is expected to see inflation of at least 60 percent by the end of 2022, with poverty having risen by over 43 percent since the start of the year.

While the GCS figures suggest that there was a slight drop in the share of people saying it was a concern from the year before in Argentina, it was still at a high 67 percent of respondents when the survey was taken.

Tyler Durden Tue, 05/24/2022 - 05:45
Author: Tyler Durden
Posted: May 24, 2022, 9:45 am
Posobiec Gives Details Of Davos Detention

Update (1753ET): Posobiec has detailed what went down, via TPUSA.

"The World Economic Forum under Klaus Schwab has its own paramilitary police force called the World Economic Forum Police," he said.

"Two minivans full of officers, essentially a quick reaction force pop up, everybody storms out, they've got MP5s, one of the guys is flagging me... and then each of us was taken, the entire crew - one by one - behind the building and behind this stack of tables, and we were made to empty our pockets, and we were frisked," he continued.

Watch:

Watch the full interview: https://t.co/8acGyDhWgr

— Turning Point USA (@TPUSA) May 23, 2022

*  *  *

Journalist Jack Posobiec and his crew were briefly detained without explanation in Davos, Switzerland on Monday, where the World Economic Forum has kicked off its annual conference.

In a clip posted to Twitter, Davos police can be seen surrounding Posobiec of Human Events, along with his crew. When a woman he was with began asking questions, a policewoman in plain clothes asked her to stop filming.

The policewoman said "We're just making a normal police patrol, because you know, it's WEF..."

"Is there a reason he specifically was targeted?" the woman asked.

"There is a reason, because we have to have a reason to control a person."

When asked what the reason was, the policewoman said "I don't have to tell you."

Watch:

BREAKING: Detained at Davos pic.twitter.com/H1RdaOebDI

— WEF Detainee Poso (@JackPosobiec) May 23, 2022

BREAKING: We just got detained at Davos pic.twitter.com/WVLTUTzkgg

— WEF Detainee Poso (@JackPosobiec) May 23, 2022

We just got DETAINED at Davos by WEF Police https://t.co/C4gz5UFWUE

— WEF Detainee Poso (@JackPosobiec) May 23, 2022

Posobiec attended CPAC Hungary last weekend where he was a guest speaker.

War zone equipment here.

The Globalist Military.

You WILL eat the bugs and LIVE in the pod. pic.twitter.com/qYvkxUmD3A

— Benny Johnson (@bennyjohnson) May 23, 2022
Tyler Durden Tue, 05/24/2022 - 05:11
Author: Tyler Durden
Posted: May 24, 2022, 9:11 am
Saudi Arabia Signals Backing For Russia In OPEC+

Authored by Tom Ozimek via The Epoch Times,

Saudi Arabia has signaled its support for Russia as a continued member of the OPEC+ oil cartel, which comes amid ongoing Western pressure to sanction and isolate Moscow over the Ukraine invasion.

Saudi energy minister Prince Abdulaziz bin Salman told the Financial Times in an interview published on May 22 that he sees Russia as an integral part of the OPEC+ group of oil producers, adding that politics should be kept out of the alliance.

He said Saudi Arabia hopes “to work an agreement with OPEC+ … which includes Russia,” referring to a new crude production deal. Oil pumping quotas under the current OPEC+ agreement struck in 2020 are set to expire in several months.

While the United States banned oil imports from Russia in March, member states of the European Union remain divided on phasing out Russian crude imports.

OPEC and its allies are unwinding record output cuts put in place during the worst of the pandemic in 2020, although they have rebuffed Western pressure to raise output at a faster pace as energy consumers grapple with the highest oil prices in years.

Oil prices surged above $130 per barrel in March over concerns of disrupted supplies from Russia, although they have since eased.

Brent crude futures rose by 22 cents to $112.77 a barrel by midafternoon on May 23, while the U.S. benchmark West Texas Intermediate crude fell 49 cents to $109.79.

High crude prices have translated into pain at the pump for drivers. The average price of regular-grade gasoline in the United States spiked 33 cents over the past two weeks to $4.71 per gallon, according to the Lundberg Survey, while JPMorgan analysts expect prices to climb above $6 a gallon by the end of the summer.

In his interview with the Financial Times, Prince Abdulaziz blamed soaring gasoline prices on taxes and a lack of global refining capacity.

The U.S. Energy Information Administration (EIA) said that the Russia–Ukraine conflict has injected greater volatility into oil markets.

“Sanctions on Russia and other independent corporate actions contributed to falling oil production in Russia and continue to create significant market uncertainties about the potential for further oil supply disruptions,” EIA said in the outlook, noting that Russia sanctions came against a backdrop of persistent upward oil price pressures and low oil inventories.

Global oil inventory levels in April in developed countries stood at 2.63 billion barrels, up marginally from February, when they fell to their lowest level since April 2014, EIA said.

“Because oil inventories are currently low, we expect downward oil price pressures will be limited and market conditions will exist for significant price volatility,” EIA noted.

The agency predicts Brent will average $103 per barrel in the second half of 2022, before falling to $97 per barrel in 2023.

In its most recent monthly report, OPEC cut its forecast for growth in world oil demand in 2022, citing the impact of the Ukraine war, surging inflation, and pandemic curbs in China.

Tyler Durden Tue, 05/24/2022 - 05:00
Author: Tyler Durden
Posted: May 24, 2022, 9:00 am
What It Means That 'Hillary Clinton Did It'

Authored by David Zukerman via AmericanThinker.com,

The Wall Street Journal ran a scathing editorial on May 20, called "Hillary Clinton Did It".

This editorial began:

"The Russia-Trump collusion narrative of 2016 was a dirty trick for the ages -- and now we know it came from the top -- candidate Hillary Rodham Clinton."

The editorial quickly explained:

"That was the testimony Friday by 2016 Clinton campaign manager Robby Mook in federal court [in Washington, D.C.], and while this news is hardly a surprise, it's still bracing to find her fingertips on the political weapon."

(Also not surprisingly, The May 20 print edition of The New York Times did not include a story on Mook's testimony.)

Mook's testimony was heard at the trial of attorney Michael Sussman, charged with lying to the FBI in calling to their attention a story that Donald J. Trump, by means of connections with Russia's Alfa Bank, was colluding with Russian President Vladimir Putin.

The lie at issue was not the false claim about a Trump-Alfa connection, but the charge that Sussman brought this matter to the FBI as a good citizen, and not as a representative of the Clinton campaign.

As the Journal editorial noted:

"Prosecutors say [Sussman] was working for the Clinton campaign."

The editorial pointed out,

"Mr. Mook said Mrs. Clinton was asked about the plan [to call attention to the Trump-Alfa ties] and approved it. A story on the Trump-Alfa Bank allegations thus appeared in Slate, a left-leaning online publication."

After that, the Journal explained how the Clinton campaign used the self-generated news of the investigation and the initial Slate article that came of it, both of which they had planted, as the basis for making tweet after tweet to the press about the Slate report to churn up mass coverage about it in the press and convince the public that the investigation was about something serious.

The concluding paragraphs of the editorial are worth quoting in full:

In short, the Clinton campaign created the Trump-Alfa allegation, fed it to a credulous press that failed to confirm the allegations but ran with them anyway, then promoted the story as if it was legitimate news. The campaign also delivered the claims to the FBI, giving journalists another excuse to portray the accusations as serious and perhaps true.

Most of the press will ignore this news, but the Russia-Trump narrative that Mrs. Clinton sanctioned did enormous harm to the country. It disgraced the FBI, humiliated the press, and sent the country on a three-year investigation to nowhere. Vladimir Putin never came close to doing as much disinformation damage.

The harm done to the United States by the perfidy of the Clintonistas cannot be overemphasized.

That "three-year investigation to nowhere" represented the Clinton-Obama attempted takeover of the government. (Call it the COAT campaign.) With congressional Republicans unwilling to prevent the COAT campaign, the Trump administration was blocked from putting U.S.-Russia relations on a rational, mutually beneficial footing, to the point that, under the present Senate leadership, the specter of war with Russia is no longer an unthinkable thought. The COAT campaign succeeded in keeping the Ukraine pot boiling, with the water first heated by Obama's stirring up of anti-Russian feelings in Ukraine, leading to the Maidan revolution that ousted the legitimately elected president of Ukraine, Viktor Yanukovych.

A political opposition ready to lie about Donald J. Trump, supported by a media prepared to believe the worst about Mr. Trump has given us the current reality where the deep state is using NATO as an instrument to humiliate Russia, and Republican leaders in Congress are going along with the plans of the deep state to make the globe an unsafe place except for the globalist hegemony.

Most of the press will indeed ignore disclosure of the source of the baseless accusations of Trump-Russia collusion -- it is no accident that the New York Times ignored the Mook testimony in its May 20 editions. It is, moreover, unlikely that the press will be humiliated by its mendacious coverage of Hillary Clinton; the media, on the contrary, wears its mendacious coverage of Clinton and the anti-Trump neo-totalitarians as deserving of journalistic honors.

Never in the history of this Republic have so many citizens been so ill-served by so many "elitists" in government and the media.

Tyler Durden Tue, 05/24/2022 - 04:22
Author: Tyler Durden
Posted: May 24, 2022, 8:22 am
What Weapons Are Banned Or Restricted In War?

For thousands of years, there have been rules to control the types of weapons in warfare - for instance, the use of poison in armed combat was forbidden in Ancient Greece.

But it wasn’t until the 19th century that international agreements were made to legally regulate the types of weapons that are allowed (and banned) in wars around the world.

In the infographic below, Visual Capitalist's Carmen Ang and Sabrina Fortin outlines the weapons that are banned or limited in war, according to international humanitarian laws that are outlined in the United Nations Convention on Certain Conventional Weapons (CCW).

CCW and The Five Protocols

The CCW, also known as the Inhumane Weapons Convention, is an international agreement that restricts the use of weapons that have been deemed unnecessarily cruel and inhumane.

Currently, there are 125 State Parties involved in the agreement, with signatures from an additional four states.

In the CCW, there are five protocols outlined that restrict or limit the use of the following weapons:

  • Non-detectable fragments: weapons specially designed to shatter into tiny pieces, which aren’t detectable in the human body. Examples are fragmented bullets or projectiles filled with broken glass.

  • Mines, booby traps, and other devices: This includes anti-personnel mines, which are mines specially designed to target humans rather than tanks.

  • Incendiary weapons: Weapons that cause fires aren’t permitted for use on on civilian populations or in forested areas.

  • Blinding lasers: Laser weapons specifically designed to cause permanent blindness.

  • Explosive remnants of war: Parties that have used cluster bombs in combat are required to help clear any unexploded remains.

It’s worth flagging that, under the CCW, the use of cluster bombs is not outright banned. However, their use and production is prohibited under separate legislation called the Convention on Cluster Munitions (CCM).

At this time, the CCW does not have enforcement processes in place, or systems to resolve any breaches of the agreement.

The Chemical Weapons Convention

Another international treaty that aims to limit the use of unnecessarily dangerous weapons is the Chemical Weapons Convention (CWC), which prohibits the creation, acquisition, stockpiling, and use of chemical weapons by State Parties.

193 State Parties have signed the CWC, and one more state (Israel) has technically signed the agreement but hasn’t yet made it official.

Syria signed the agreement back in 2013, but according to reports from UN human rights investigators, the Syrian government has used chemical weapons on numerous occasions throughout its ongoing civil war.

Is Russia Using Prohibited Weapons in Ukraine?

In the current conflict between Russia and Ukraine, it’s been reported that Russia’s been using several weapons that are banned by international legislation, including cluster bombs and explosive weapons. Harvard Law expert Bonnie Docherty explains why these weapons are so dangerous:

  • They scatter submunitions over vast areas of land, meaning they can hit unintended targets

  • Many don’t explode and end up laying dormant for years

According to reports from Human Rights Watch, Russia has been using cluster bombs in several areas of Ukraine, such as the heavily populated city of Mykolaiv, and in Solyani, a suburban area just outside of Mykolaiv.

AI in Weapons and Warfare

Over the last few decades, certain protocols and restrictions in the CCW have been amended and changed based on societal changes and technological improvements.

So, as military weapons continue to improve, and technology like commercial drones become more common, proper legislation around drone use in warfare may be necessary.

Currently, there is no international legislation that bans the use of drones in war. However, several global defense companies are popping up to try and find ways to counter these new military technologies. In fact, the global addressable market for counter drones and tracking systems is estimated at $10 billion worldwide.

Tyler Durden Tue, 05/24/2022 - 04:15
Author: Tyler Durden
Posted: May 24, 2022, 8:15 am
Russian Soldier Handed Life Sentence In Ukraine's First War Crimes Trial

A district court in the Ukrainian capital has wrapped up the country's first ever war crimes trial involving a Russian soldier who stood accused of shooting 62-year old Oleksandr Shelipov in northeastern Ukraine’s Sumy region during the first week of the invasion in late February. It's unprecedented given the timing, as the war is still ongoing.

The 21-year old Russian soldier, identified as Vadim Shishimarin, earlier pleaded guilty, and has now been sentenced to life in prison by the Ukrainian court. The ten day trial against the Russian army sergeant examined charges of "violating the rules and conduct of war."

21-year-old tank commander Vadim Shishimarin in a Kiev court, via Reuters

Shishimarin had defense counsel - with his lawyer stating the defense will appeal the verdict. "This is the most severe sentence and any level-headed person would challenge it," his lawyer was quoted as saying after the verdict and sentencing. "I will ask for the cancellation of the court's verdict."

The Russian soldier's defense team said it currently has no contact with the Kremlin, with Putin's office appearing to take a hand's off approach. "We have no way to protect his interests on the ground," Russian presidency spokesman Dmitry Peskov said at a Monday press briefing. He said Moscow will pursue "other channels."

According to the court proceedings, a higher ranking commander had told the young sergeant to execute the Ukrainian civilian:

Judge Serhiy Agafonov said Shishimarin, carrying out a "criminal order" by a soldier of higher rank, had fired several shots at the victim's head from an automatic weapon.

"Given that the crime committed is a crime against peace, security, humanity and the international legal order ... the court does not see the possibility of imposing a (shorter) sentence," he said.

Further, as Reuters reports the atrocity happened after a small group of Russian troops were separated from their unit while under attack:

Ukrainian state prosecutors said Shishimarin and four other Russian servicemen stole a car to escape after their column was targeted by Ukrainian forces.

After driving into Chupakhivka, the soldiers saw Shelipov riding a bicycle and talking on his phone. Shishimarin was ordered to kill Shelipov to prevent him reporting on their location, the prosecutors said.

In court last week, Shishimarin acknowledged he was to blame and asked the victim's widow to forgive him.

A Kiev court sentences a Russian soldier to life in prison for killing an unarmed civilian, in the first trial involving what authorities in Ukraine describe as “war crimes” by Moscow's troopshttps://t.co/45mmmLI7EX

— TRT World (@trtworld) May 23, 2022

The proceeds set a precedent for what Ukraine has indicated will be more war crimes trials to come. Likely this will be "answered" by Russia's own war crimes tribunals against captured members of Azov battalion who last week emerged from the Azovstal steelworks plant in Mariupol. 

"We are planning to organize an international tribunal in the republic," Donetsk People’s Republic (DNR) Denis Pushilin said. He stated that a charter for the tribunal is "in the works." Western media has been speculating that particularly Azov commanders could face execution.

Tyler Durden Tue, 05/24/2022 - 02:45
Author: Tyler Durden
Posted: May 24, 2022, 6:45 am
UK's Johnson Urges Talks As Unions Threaten "Biggest Rail Strike In Modern History"

Authored by Alexander Zhang via The Epoch Times,

British Prime Minister Boris Johnson has urged rail unions to talk to the government before causing “irreparable damage” with strike action.

The National Union of Rail, Maritime, and Transport Workers (RMT) is holding a ballot of its 40,000 members on plans to strike over jobs, pay, and conditions. The ballot is set to close on Tuesday, and the union has claimed that a yes vote could lead to “the biggest rail strike in modern history.”

Another union, the Transport Salaried Staffs’ Association (TSSA), has also warned of a “summer of discontent” with similar action on the way unless pay disputes are resolved.

The prime minister’s official spokesman said on Monday:

“Railways are going through difficult times with passenger numbers down. We need to make sure they’re fit for the future.”

He said the government wants “a fair deal for staff, for passengers, and taxpayers” so that “money isn’t taken away from other essential services” such as the National Health Service.

“The prime minister is firmly of the view that unions should talk to the government before causing irreparable damage to our railways—strikes should be the last resort not the first,” he added.

Transport Secretary Grant Shapps told The Sunday Telegraph that ministers are looking at drawing up laws which would make industrial action illegal unless a certain number of staff are working.

Shapps said the government hopes the unions will “wake up and smell the coffee” and suggested that strikes could put more people off rail travel.

He also accused unions of going straight to industrial action rather than using it as a last resort, adding that railways were already on “financial life support” because of the CCP (Chinese Communist Party) virus pandemic.

Referring to a pledge in the Conservative Party’s 2019 election manifesto, which promised minimum services during rail strikes, he said:

“We had a pledge in there about minimum service levels. If they really got to that point then minimum service levels would be a way to work towards protecting those freight routes and those sorts of things.”

Unions have reacted to the threat with anger.

RMT General Secretary Mick Lynch said, “Any attempt by Grant Shapps to make effective strike action illegal on the railways will be met with the fiercest resistance from RMT and the wider trade union movement.”

He said the government needs to “focus all their efforts on finding a just settlement” to the rail dispute rather than “attack the democratic rights of working people.”

Tyler Durden Tue, 05/24/2022 - 02:00
Author: Tyler Durden
Posted: May 24, 2022, 6:00 am
Mitt Romney Calls On NATO To Prepare For Potential Russian Nuclear Strikes

Authored by Jack Phillips via The Epoch Times,

The United States and other NATO nations should prepare a devastating response to a possible Russian nuclear strike, Sen. Mitt Romney (R-Utah) said on Saturday.

Romney, in an opinion article for the New York Times, said that “Russia’s use of a nuclear weapon would unarguably be a redefining, reorienting geopolitical event,” adding: 

“We should imagine the unimaginable, specifically how we would respond militarily and economically to such a seismic shift in the global geopolitical terrain.”

There is little evidence to suggest that Russia is going to use a nuclear weapon in its conflict with Ukraine, as doing so would risk a significant escalation under the doctrine of mutual assured destruction. Several weeks ago, UK Prime Minister Boris Johnson downplayed concerns Moscow may use nukes in a bid to avoid defeat in Ukraine, where Russian forces have struggled.

But Romney, 75, claimed that if Russian President Vladimir Putin “loses in Ukraine, he not only will have failed to achieve his life’s ambition to reverse what he sees as the ‘greatest geopolitical catastrophe’ of the 20th century—the collapse of the Soviet Union—but he will also have permanently diminished Russia as a great power and reinvigorated its adversaries.”

Neither Putin nor other top Kremlin officials have said they would launch a nuclear strike in connection with the Ukraine war, although Russia’s leadership has often said they would respond with nuclear force if Russia’s existence is threatened.

Russia’s Deputy Foreign Minister Alexander Grushko said in May that Russia would use a nuclear weapon if conditions written into its military doctrine are met.

One of those says that Russia can use nuclear weapons if its enemies are also using them or using other weapons of mass destruction against Russian territories or allies. If Russia’s critical military or government sites are attacked, that could also trigger a nuclear response.

Romney, a former GOP presidential candidate in 2012, also suggested that the United States or NATO “could engage” in Ukraine and “potentially obliterat[e] Russia’s struggling military” if nuclear weapons are deployed.

As President Joe Biden signed a $40 billion military package Saturday to provide assistance to Ukraine, Western nations, Romney said, should continue to provide support to the country by sending weapons or other forms of aid in its fight against Russia.

It comes as Director of National Intelligence Avril Haines suggested that Russia may use a nuclear weapon if top officials believe they are losing the war.

“We’re supporting Ukraine, but also we don’t want to ultimately end up in World War III, and we don’t want to end up in a situation where actors are using nuclear weapons,” Haines told the Senate Armed Services Committee on May 10.

“We perceive that as something that [Putin] is unlikely to do unless there is effectively an existential threat to his regime and to Russia from his perspective.

But in somewhat of a contrast to Romney’s comments, Sen. Ed Markey (D-Mass.) last week called on the White House to deescalate the conflict and guarantee that the United States won’t engage in a first-use nuclear strike against Russia. Markey called on the administration to announce a no-first-use during a Senate hearing with Haines.

“I think that, increasingly, people in our country and around the world are worried that this could escalate and that nuclear weapons could become involved,” Markey remarked. “So, from my perspective, I think it would be wise for our country to say flat out, ‘We will not use nuclear weapons if nuclear weapons have not been used against Ukraine or the United States.’”

Tyler Durden Mon, 05/23/2022 - 23:40
Author: Tyler Durden
Posted: May 24, 2022, 3:40 am

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