Individual Economists

Trump Invites China's Xi To Attend Inauguration In 'Signal To The Planet'

Zero Hedge -

Trump Invites China's Xi To Attend Inauguration In 'Signal To The Planet'

In a huge and unprecedented overture, President-elect Donald Trump has invited Chinese President Xi Jinping to attend his inauguration on January 20, a move which some have already called a 'signal to the planet'. A Chinese president attending a US presidential inauguration would be a first in history.

Transition spokesperson Karoline Leavitt confirmed to CBS News on Thursday that Trump invited Xi and that it's an example of Trump "creating an open dialogue with  leaders of countries that are not just our allies but our adversaries and our competitors too."

Via EFE

There are plans to also invite other foreign leaders and dignitaries, such as Hungarian Prime Minister Viktor Orbán. The Hungarian leader's office says he is "still considering" whether to attend.

"World leaders are lining up to meet with President Trump because they know he will soon return to power and restore peace through American strength around the globe," Leavitt further said.

Former House Speaker Newt Gingrich has been among the first Republican pundits and strategists to weigh in on the global "signal." It's as yet not clear what Xi's answer will be.

"Look, I think Trump believes in constant offense, constant momentum, keeping things going forward," Gingrich told Fox. "I think he gets up every day and tries to figure out, you know, ‘Let’s go to McDonald’s or let’s go to the garbage truck,’ whatever it takes but he wants to be on offense," he continued.

"I suspect he woke up, looked around and thought, ‘Yeah, I think my good friend Xi Jinping, we haven’t been together in a long time, why don’t I…?’"

And below is Bloomberg's reaction:

Donald Trump invited Xi Jinping to attend his inauguration, CBS reported. Xi’s attendance would be unprecedented and may signal an effort by Trump to court him amidst threats of fresh tariffs against China. 

And a note from Goldman:

Xi invited to the inauguration… a bit of an olive branch and maybe enough to help some support to China related sentiment overnight. "Chinese shares related to consumption surged Thursday amid expectations for more concrete measures from a key economic policy meeting to boost domestic demand." (BBG) Still awaiting clarity from CEWC.

This does seem to be Trump saying 'we don't have to be enemies' and 'we could choose diplomacy and avoid conflict' - a track he appears also ready to take with Russia, in order to end the war in Ukraine.

But he's of course also threatened to impose new tariffs on China, a threat that's extended to Canada and Mexico as well, on his first day in office. In China's case the tariff will be 10% on all goods, on top of existing tariffs. 

Tyler Durden Thu, 12/12/2024 - 12:40

Fed's Flow of Funds: Household Net Worth Increased $4.8 Trillion in Q3

Calculated Risk -

The Federal Reserve released the Q3 2024 Flow of Funds report today: Financial Accounts of the United States.
The net worth of households and nonprofits rose to $168.8 trillion during the third quarter of 2024. The value of directly and indirectly held corporate equities increased $3.8 trillion and the value of real estate decreased $0.2 trillion..
...
Household debt increased 3 percent at an annual rate in the third quarter of 2024. Consumer credit grew at an annual rate of 2.5 percent, while mortgage debt (excluding charge-offs) grew at an annual rate of 3.1 percent.
Household Net Worth as Percent of GDP Click on graph for larger image.

The first graph shows Households and Nonprofit net worth as a percent of GDP.  
Net worth increased $4.8 trillion in Q3 to an all-time high.  As a percent of GDP, net worth increased in Q3 but is below the peak in 2021.
This includes real estate and financial assets (stocks, bonds, pension reserves, deposits, etc.) net of liabilities (mostly mortgages). Note that this does NOT include public debt obligations.

Household Percent EquityThe second graph shows homeowner percent equity since 1952.

Household percent equity (as measured by the Fed) collapsed when house prices fell sharply in 2007 and 2008.

In Q3 2024, household percent equity (of household real estate) was at 74.7% - down from 75.0% in Q2, 2024. This is close to the highest percent equity since the 1960s.

Note: This includes households with no mortgage debt.

Household Real Estate Assets Percent GDP The third graph shows household real estate assets and mortgage debt as a percent of GDP.  

Mortgage debt increased by $105 billion in Q3.

Mortgage debt is up $2.58 trillion from the peak during the housing bubble, but, as a percent of GDP is at 45.2% - down from Q2 - and down from a peak of 73.3% of GDP during the housing bust.

The value of real estate, as a percent of GDP, decreased in Q3 and is below the peak in Q2 2022, but is well above the median of the last 30 years.

"That's Journalism": ProPublica Pats Itself On Back After Hegseth Hitpiece Humiliation

Zero Hedge -

"That's Journalism": ProPublica Pats Itself On Back After Hegseth Hitpiece Humiliation

Authored by Luis Cornelio via Headline USA,

Leftist attack dog ProPublica seemed unfazed by the widespread ridicule it faced on social media after its botched attempt at a smear campaign against Pete Hegseth backfired.

The publication had plotted to accuse Hegseth of falsely claiming he was accepted into West Point. In response, Hegseth got ahead of the publication and shared his acceptance letter confirming that he had been accepted into the military academy—though he declined the offer.

In a now-viral tweet, Hegseth wrote, “We understand that ProPublica (the Left Wing hack group) is planning to publish a knowingly false report that I was not accepted to West Point in 1999.”

Hegseth also shared his letter of acceptance signed by Army Lieutenant General and then-West Point Superintendent Daniel Christman. 

As criticism mounted against ProPublica, its editor, Jesse Eisinger, attempted to defend the outlet but inadvertently made the situation worse. He claimed West Point had falsely informed the publication that Hegseth was never admitted to the military academy. 

“We asked West Pt public affairs, which told us twice on the record that he hadn’t even applied there,” Eisinger wrote on X. “We reached out. Hegseth’s spox gave us his acceptance letter. We didn’t publish a story. That’s journalism.” 

Despite Eisinger’s attempt to save face, Hegseth’s defenders said the real story ProPublica should have published was that West Point had incorrectly discredited Hegseth. 

Initially, ProPublica quoted West Point as stating, “According to the admissions office – Hegseth had not applied for admission to the U.S. Military Academy.”  

After being pressed for clarification, West Point admitted: “A review of our records indicates that Mr. Peter Hegseth was offered admission to West Point in 1999 but did not attend West Point.” 

West Point confirmed Hegseth had been offered admission for the class of 2023, issuing a statement to correct the record. 

“An incorrect statement involving Mr. Hegseth’s admission to the United States Military Academy was released by an employee on December 10, 2024,” the academy said. “Upon further review of an achieved [sic] database, employees realized this statement was in error.”

The academy added it was taking “this situation very seriously” and issued an apology “for this administrative error.” 

ProPublica’s failed attempt to smear Hegseth appeared to be part of a broader campaign aimed at thwarting his nomination as the next secretary of the Department of Defense. 

Trump announced his decision to nominate Hegseth following his landslide victory in the 2024 presidential election. Despite relentless media attacks on Hegseth’s personal life, the president-elect has stood by his side. 

“He will be a fantastic, high energy, Secretary of Defense,” Trump wrote on Truth Social earlier this month, later adding: “Pete is a WINNER, and there is nothing that can be done to change that!!!” 

Tyler Durden Thu, 12/12/2024 - 12:20

What If A Nuke Detonated In Los Angeles?

Zero Hedge -

What If A Nuke Detonated In Los Angeles?

Submitted by Angel Studios,

As the Deep State continues its desperate push to cause as much chaos as possible before Trump takes office with the overthrow of Assad in Syria and deeper strikes into Russia causing Putin to loosen his nuclear weapons doctrine, Newsweek recently published a harrowing analysis showing the effect of a R-36M2 missile impact in major U.S. cities.

Screenshot from movie Homestead. © Angel Studios

Also know as SS-18 "Satan", the nuclear-grade missile is a cornerstone of the Russian arsenal since the Soviet Union with a range of up to 10,000 miles and yield of 20 megatons (over 1,000x Hiroshima). Just one impact in any major U.S. city would dwarf America's WWII losses in minutes, to wit:

  • Washington, D.C.: Approximately 6.1 million people would be within the total blast range, with fatalities reaching 1.64 million. Capitol Hill would fall within the fireball radius being melted.

  • New York City: With an average of 16.3 million people present, fatalities could exceed 5.46 million. The destruction would extend to surrounding areas like New Brunswick and Stamford.

  • Chicago: Fatalities might approach 2 million, with Lake Michigan absorbing much of the fallout.

  • Houston: In this city, over 1.2 million deaths and 2 million injuries are estimated.

  • Phoenix, Philadelphia, San Antonio, San Diego, and Dallas: Each city would suffer extensive casualties and injuries, with death tolls ranging from nearly 1 million in Phoenix to 1.6 million in Philadelphia.

Behind NYC, the most devastating metropolitan blast would occur in Los Angeles. Per Newsweek:

“Some 2,758,790 would die and 4,369,390 would be injured. In any given 24-hour period, there are on average 12,092,715 people in the full blast range (all four circles) of the simulated detonation. Thermal radiation would hit Santa Monica, Calabasas, Long Beach and parts of Pomona.”

A map showing the impact of an attack on Los Angeles. Newsweek used maps produced by Alex Wellerstein to assess what the impact would be if Moscow attacked with its R-36M2 (also known as the SS-18 Satan).

In the above image, the “fireball radius” (small inner yellow circle) is the zone in which everything would be vaporized by intense heat rising to millions of degrees Fahrenheit. This would reach around 15.1 square miles of surface area. The more moderate blast damage radius (inner gray circle) covers 442 square miles of the blast and would destroy residential buildings, causing widespread fires.

Anyone within 2,360 square miles of the explosion (the thermal radiation radius: wider orange circle) would be at risk of suffering third-degree skin burns, "often painless because they destroy the pain nerves," which can cause severe scarring, disablement and require amputation.

Within the light blast damage radius (wider gray circle), 3,490 square miles from the blast, glass windows should be expected to break.

Thank you Victoria Nuland…

An LA-based nuclear blast is also the core plot of the new upcoming movie Homestead by Angel Studios. In 2023, Angel released Sounds of Freedom, which grossed $250 million against a $14.5 million budget. It has become one of the most successful independent films in history and exposed the horrors of child trafficking. Now they've returned with a not-so-cheery Christmas movie:

<br />

Showtimes are selling out across the country. To support a Christian film studio that is taking on the Hollywood monopoly, preorder tickets with this link within the next 3 days for a chance to win a tiny-home (valued at $139k), a bitcoin, and tons of other prepper gear. More info here:

Tyler Durden Thu, 12/12/2024 - 11:40

Trump Considers a16z's Crypto Policy Head For CFTC Chair; Report

Zero Hedge -

Trump Considers a16z's Crypto Policy Head For CFTC Chair; Report

Authored by Josh O'Sullivan via CoinTelegraph.com,

Brian Quintenz, a former United States Commodity Futures Trading Commission (CFTC) commissioner, has reportedly emerged as the top contender for the CFTC chair position under the incoming administration of President-elect Donald Trump.

According to a Bloomberg report, people familiar with the matter said that Quintenz had been interviewed for the position.

Currently the head of policy at Andreessen Horowitz’s crypto division, a16z, Quintenz’s background includes overseeing key policy initiatives at the CFTC between 2017 and 2021.

The appointment of the former CFTC commissioner may shift the scales in the long-debated jurisdictional lack of clarity over cryptocurrencies between the CFTC and the US Securities and Exchange Commission.

Looking for a guy in finance?

Quintenz previously served as a Republican-appointed commissioner at the CFTC, advocating for financial innovation of the digital asset industry and currently pushes for regulatory clarity as head of policy at a16z.

During his tenure at the CFTC, he supported the integration of digital asset derivatives and event contracts into the federal agency’s regular framework, focusing on improving innovation while maintaining market integrity. 

At a16z, Quintenz advocates for regulations that balance scrutiny with flexibility in crypto, using his dual experience in traditional finance (TradFi) and crypto regulation to bridge the two playing fields.

Quintenz’s criticism of the SEC

In March, the former CFTC commissioner criticized the SEC for how it handled Ether’s status as a security, arguing that the regulator already “explicitly acknowledged” that Ether ETH$3,960.53 is a non-security asset as of October 2023 when it approved Ether futures exchange-traded funds (ETFs).

Quintenz stated that “if the SEC had any doubt about the regulatory treatment of ETH [...] it wouldn’t have approved the ETF,” adding that if it were a security, the CFTC-listed future contracts “would be illegal.” 

Since then, spot Ether ETFs have not only been approved, but they have flourished, recording their biggest single day of inflows with an aggregate of $431.5 million pouring in on Dec. 5.

Crypto under the Trump administration

The venture capital firm a16z has expressed its opinion on the upcoming Trump administration, stating that it expects “greater flexibility to experiment” in the crypto regulatory shakeup.

The crypto company said it is “very optimistic” about the next government due to its promised pro-crypto political stance — something crypto firms and communities consider lacking under the previous administration.

A16z has been one of the largest investors in the crypto industry, funding hundreds of startup firms, including Maker, Solana, Avalanche, Aptos, EigenLayer, Lido, Nansen, OpenSea, Coinbase and more.

Tyler Durden Thu, 12/12/2024 - 11:40

Ukraine Sent Drones & Operators To HTS Before Offensive That Ousted Assad, WaPo Confirms

Zero Hedge -

Ukraine Sent Drones & Operators To HTS Before Offensive That Ousted Assad, WaPo Confirms

While it had been reported in independent as well as Russian media previously, this week The Washington Post offered further confirmation that Ukrainian intelligence had provided Hayat Tahrir al-Sham (HTS) with direct drone support in the weeks leading up to the shock offensive which led to the overthrow of Syrian President Bashar al-Assad.

"Ukrainian intelligence sent about 20 experienced drone operators and about 150 first-person-view drones to the rebel headquarters in Idlib, Syria, four to five weeks ago," wrote Washington Post columnist David Ignatius this week.

Via Ukrinform

Ukrainian officials had previously openly boasted that they would assist in hitting Russian assets and bases in Syria, in order to bog its forces down there and distract the top Russian command from the Ukrainian front lines.

Small drone warfare has been said by many analysts to be a key component further demoralizing Syrian Army positions after Assad's military and state institutions had been essentially hollowed out after years of grinding war and crippling Western sanctions.

The Washington Post wrote:

The aid from Kyiv played only a modest role in overthrowing Syrian President Bashar al-Assad, Western intelligence sources believe. But it was notable as part of a broader Ukrainian effort to strike covertly at Russian operations in the Middle East, Africa and inside Russia itself.

Ukraine’s covert assistance program in Syria has been an open secret, though senior Biden administration officials said repeatedly in answer to my questions that they weren’t aware of it. Ukraine’s motivation is obvious: Facing a Russian onslaught inside their country, Ukrainian intelligence has looked for other fronts where it can bloody Russia’s nose and undermine its clients.

Russia has acknowledged and vehemently condemned this, after Assad fled to Moscow where he and his family were given asylum.

"Ukrainian military instructors from the GUR are present… training HTS fighters for combat operations," Russian Ambassador to the UN Vassily Nebenzia told a UN audience soon after the HTS offensive started and took Aleppo.

And more from WaPo on Ukraine entering a 'dirty war' in Syria:

Russian Foreign Minister Sergei Lavrov had made a similar claim in September about "Ukrainian intelligence emissaries" in Idlib. He claimed they were conducting “dirty operations,” according to the Syrian newspaper Al-Watan, which asserted that Lt. Gen. Kyrylo Budanov, head of the GUR, had been in touch personally with HTS.

Not only does this mean the Zelensky government was directly supporting a US-designated terror organization, but clearly such a clandestine operation would have involved some degree of NATO coordination

While it's very clear NATO member Turkey has been propping up both HTS and the "Syrian National Army" (SNA), the latter primarily in Aleppo and north of it, it's a bit of an open question the degree to which Western intelligence was directly guiding the HTS offensive. Certainly HTS has had NATO assistance in the recent past, at the very least. For example a Western intelligence staffed 'operations room' in southern Turkey helped the Islamist coalition take Idlib from Assad forces in the first place, in 2015.

Tyler Durden Thu, 12/12/2024 - 11:20

Biden Announces Largest One-Day Act Of Clemency In History: Pardons 39, Commutes 1,500 Sentences

Zero Hedge -

Biden Announces Largest One-Day Act Of Clemency In History: Pardons 39, Commutes 1,500 Sentences

By Zachary Stieber of Epoch Times

President Joe Biden on Dec. 12 announced he was pardoning 39 people and commuting the sentences of nearly 1,500 others, in the largest single-day act of clemency in history.

The pardons are going to individuals who were convicted of nonviolent crimes such as drug offenses, the White House said. Those who are having their sentences commuted were placed in home confinement during the COVID-19 pandemic and “have successfully reintegrated into their families and communities,” according to the White House.

“America was built on the promise of possibility and second chances,” Biden said in a statement. “As President, I have the great privilege of extending mercy to people who have demonstrated remorse and rehabilitation, restoring opportunity for Americans to participate in daily life and contribute to their communities, and taking steps to remove sentencing disparities for non-violent offenders, especially those convicted of drug offenses.”

Officials did not release the names of any of the individuals being granted relief.

They said the people include a nurse who helped spearhead COVID-19 vaccination efforts, an addiction counselor who volunteers to help young people, and a military veteran who assists frail, fellow church members.

Biden made the move after pardoning his son, Hunter Biden, who was convicted of illegal possession of a firearm and pleaded guilty to intentionally not paying taxes.

Biden is set to leave office on Jan. 20, 2025, after he bowed out of his bid for reelection. President-elect Donald Trump beat Vice President Kamala Harris in the November race.

At this point in his presidency, Biden has already commuted more sentences than his recent predecessors, including Trump. He has also issued categorical pardons to people convicted of using or possessing marijuana, and former military members convicted of consensual sodomy.

The White House said that before Biden leaves office he “will take additional steps to provide meaningful second chances and continue to review additional pardons and commutations.” The White House added that “there is more to come.”

Lawmakers had not yet reacted to the new pardons and commutations by the time of publication.

Biden has received criticism for pardoning his son, especially because jurors cast a verdict in one of the cases.

The White House has defended the move, which took place after the president and the White House said a pardon for Hunter Biden would not happen.

 

Biden has also been reportedly considering pre-pardons for certain individuals whom a second Trump administration may investigate. Former President Bill Clinton said this week that he hoped Biden does not issue pre-pardons.

Tyler Durden Thu, 12/12/2024 - 11:00

'USA' Chants Roar As Trump Rings NYSE Bell After Being Named TIME 'Person Of The Year'

Zero Hedge -

'USA' Chants Roar As Trump Rings NYSE Bell After Being Named TIME 'Person Of The Year'

Donald Trump has been crowned TIME magazine's Person of the Year after reclaiming the presidency, marking him as only the second U.S. president in history to serve non-consecutive terms. The announcement came on Thursday, placing Trump at the pinnacle of a contentious list of global influencers.

"Trump's political rebirth is unparalleled in American history," TIME wrote in an announcement, after speaking with the President-elect ahead of the announcement.

Trump dubbed his campaign "72 Days of Fury" after a term that Trump himself coined. This win sets Trump apart as a political figure of singular historical significance, having first held the title in 2016 when he initially seized the presidency from Hillary Clinton.

Trump’s political rebirth is unparalleled in American history. His first term ended in disgrace, with his attempts to overturn the 2020 election results culminating in the attack on the U.S. Capitol. He was shunned by most party officials when he announced his candidacy in late 2022 amid multiple criminal investigations. Little more than a year later, Trump cleared the Republican field, clinching one of the fastest contested presidential primaries in history. -TIME

The competition for this year's title was fierce, with Trump edging out other high-profile names such as Vice President Kamala Harris, his tech mogul supporter Elon Musk, Israeli Prime Minister Benjamin Netanyahu, and Catherine, Princess of Wales. Notably, Musk was the magazine’s pick back in 2021.

Reflecting on his tumultuous path to victory, Trump's year included overcoming significant challenges: a stark clearing of the GOP field, a conviction in a New York courtroom, and surviving not one, but two assassination attempts.

The campaign saw surprising alliances, including consolidations of support from unexpected quarters such as Robert F. Kennedy Jr. and Elon Musk, alongside a dramatic shift in the Democratic nomination.

According to TIME, Trump's win gave him the "political capital to address the sources of American discontent at home and abroad" Trump himself suggested a bold agenda, including plans to pardon Jan. 6 political prisoners.

"It's going to start in the first hour ... maybe the first nine minutes," Trump told the outlet.

The Person of the Year title, a tradition since 1927, is not necessarily a mark of honor but rather a recognition of influence. TIME has historically selected presidents during their election victories, with Joe Biden and Kamala Harris jointly receiving the nod in 2020, and other repeat honorees including Barack Obama and George W. Bush.

Trump’s victory lap included ringing the opening bell at the New York Stock Exchange in Manhattan, where chants of "USA' broke out...

Trump is the first president to ring the bell since Ronald Reagan.

Tyler Durden Thu, 12/12/2024 - 11:00

Swiss National Bank Surprises With Jumbo Rate Cut

Zero Hedge -

Swiss National Bank Surprises With Jumbo Rate Cut

By Charlotte de Montpellier and Chris Turner, senior strategists at ING Economics

Once again, the Swiss National Bank decided to surprise the markets with a 50bp rate cut, compared with the expected 25bp cut. The SNB’s key rate is now 0.5%, compared with 1% previously

The SNB justified this measure by the fact that inflationary pressures have eased further. While consumer price inflation stood at 1.1% in August, it fell to 0.7% in November, with weaker price growth for both goods and services. Inflation in Switzerland remains within the SNB's defined range for price stability (0 to 2%), but it consistently falls short of forecasts. The SNB's inflation forecasts for 2025 have again had to be revised downwards. The central bank now expects inflation to average 0.3% in 2025, compared with the 0.6% expected at the September meeting. The SNB expects inflation to reach 0.2% in the second quarter of 2025. But given the surprises of recent months, the uncertainty surrounding inflation forecasts is very high. The risk is that the appreciation of the Swiss franc will continue to push inflation down via its impact on import prices and economic activity and that at some point, the inflation figure will move into negative territory. While the SNB has indicated that it is prepared to tolerate inflation temporarily going into negative territory, it does not seem to want this situation to continue for several months. This seems to be the justification for today's decision.

The probability of negative rates in 2025 has increased, but this is still not the base case

Going forward, we expect a major internal debate within the SNB. Since the European Central Bank still has 125bp of rate cuts to come (after today's expected 25bp cut), the SNB could in theory be forced to go negative again after all in order to ease pressure on the Swiss franc. With the SNB's key rate now at 0.5%, it will be difficult to cut rates without going back into negative territory, whereas the ECB, with a rate of 3.25% this morning, has much more room. A series of rate cuts by the ECB that is not followed by the SNB could lead to a further rise in the Swiss franc against the euro. All the more so given that next year's environment will be characterised by trade tensions, which generally tend to push the Swiss franc higher. Added to this is the risk of being labelled as a currency manipulator by the Trump administration, which will probably limit the SNB's willingness to intervene in the foreign exchange market and leave it with few tools to work with other than interest rates.

The question remains whether it is really worthwhile for the SNB to deprive itself of ammunition for possible future negative shocks and to suffer the adverse effects of negative interest rates once again, against a backdrop in which the Swiss economy is likely to see its inflation rate next year remain low, but above zero on average over the year, i.e. within the price stability range, and its GDP growth remain between 1 and 1.5%. We remain sceptical.

In our view, today's decision can be seen as a front-loading of rate cuts rather than a sign that negative rates will soon be back. In contrast to the 2025 forecast, the SNB's inflation forecasts for 2026 and 2027 have been revised slightly upwards. The SNB expects average inflation to be 0.8% in 2026, compared with 0.7% previously forecast. For the first three quarters of 2027, inflation is expected to be 0.7%. These figures seem to indicate that the SNB is not anticipating a prolonged period of deflation in Switzerland and is not overly concerned that the objective of price stability will not be met in the medium term. At this stage, we therefore believe that the SNB could continue to cut rates in 2025 but will avoid moving into negative territory. That said, given today's large rate cut, the probability of a negative rate next year has increased.

Temporary relief for EUR/CHF

EUR/CHF has enjoyed a good bounce on the delivery of a more aggressive 50bp SNB rate cut. The relief should be temporary, however, with the ECB set to ‘out-cut’ the SNB through 2025.

In a world of lower interest rates, the low-yielding Swiss franc typically outperforms and 2025 should be no exception. Yes, the SNB does actively control the Swiss franc as part of its monetary policy toolkit for a small, open economy, but we suspect the market will question the ability of the SNB to intervene heavily given the advent of a new Trump administration. Remember that heavy FX intervention would tick the third of the three boxes for the US Treasury to name Switzerland a currency manipulator – as it did in 2020. Despite SNB protestations of policy independence when it comes to FX intervention, Switzerland runs a large trade surplus with the US and investors will question whether there is political appetite in Switzerland to irk Washington.

Given the prospect of a winter recession in the eurozone, tariffs and broader geopolitical risks all year, we look for EUR/CHF to grind towards 0.90 in 2025.

Tyler Durden Thu, 12/12/2024 - 10:25

FDIC: Number of Problem Banks Increased Slightly in Q3 2024

Calculated Risk -

The FDIC released the Quarterly Banking Profile for Q3 2024:
The Industry’s Net Income Decreased From the Prior Quarter, Driven by One-Time Items
Third quarter net income for the 4,517 FDIC-insured commercial banks and savings institutions decreased $6.2 billion (8.6 percent) from the prior quarter to $65.4 billion. The quarterly decrease in net income was largely driven by the absence of about $10 billion in one-time gains on equity security transactions reported in the previous quarter. The absence of these nonrecurring gains was partially offset by strong net interest income in the third quarter.
...
Asset Quality Metrics Remained Generally Favorable, Though Weakness in Certain Portfolios Persists
The past-due and nonaccrual (PDNA) loan ratio increased 6 basis points from the prior quarter to 1.54 percent. This ratio was 18 basis points higher than the year-earlier quarter but below the pre-pandemic average of 1.94 percent.2 Quarterly, banks reported an increase in the PDNA ratio in credit card loan portfolios (up 20 basis points to 3.36 percent), nonfarm nonresidential commercial real estate (CRE) loan portfolios (up 7 basis points to 1.69 percent), 1–4 family residential loan portfolios (up 3 basis points to 1.83 percent), and auto loan portfolios (up 5 basis points to 3.13 percent). Annually, the industry reported the largest PDNA increases in nonfarm nonresidential CRE loan portfolios (up 43 basis points to 1.69 percent), credit card loan portfolios (up 27 basis points to 3.36 percent), and commercial and industrial loan portfolios (up 20 basis points to 1.17 percent).

The industry’s net charge-off ratio decreased 1 basis point to 0.67 percent from the prior quarter but was 16 basis points higher than the year-earlier quarter. This ratio was also 19 basis points above the pre-pandemic average and remained the highest quarterly ratio reported by the industry since second quarter 2013. Credit card and nonfarm nonresidential CRE loan charge-offs drove the quarterly decrease in the net charge-off ratio, which was partially offset by an increase in commercial and industrial loan charge-offs. The credit card net charge-off ratio was 4.48 percent in the third quarter, down 34 basis points quarter over quarter but still 100 basis points higher than the pre-pandemic average. The net charge-off ratio for nonfarm nonresidential CRE loans decreased 9 basis points quarter over quarter to 0.29 percent but was 25 basis points higher than the pre-pandemic average.
emphasis added
FDIC Problem Banks Click on graph for larger image.

From the FDIC:
The Number of Problem Banks Increased
The number of banks on the FDIC’s “Problem Bank List” increased from 66 to 68. Total assets held by problem banks rose $3.9 billion to $87.3 billion. Problem banks represent 1.5 percent of total banks, which is within the normal range of 1 to 2 percent of all banks during non-crisis periods.
This graph from the FDIC shows the number of problem banks.

Janet Yellen "Sorry" After Presiding Over $15 Trillion Increase In US Debt

Zero Hedge -

Janet Yellen "Sorry" After Presiding Over $15 Trillion Increase In US Debt

Something funny happened in late November.

Outgoing Treasury Secretary, and former Fed chair and vice chair, Janet Yellen said that she spoke with Donald Trump’s nominee to be her successor, Scott Bessent, after he was selected for the job. During a Tuesday event organized by the WSJ, Yellen said that in a call before Thanksgiving, she told Bessent, a veteran hedge-fund manager, about the breadth of the job and strength of the department’s staff.

Yellen, who had never worked one day in the private sector let alone a hedge fund where you are only as good as your last trade and only successful if you outsmart most of your peers, reiterated previous warnings against encroaching on Federal Reserve independence and on broad tariff hikes, while expressing regrets on the fiscal situation.

“What research has shown and this is certainly what I see from my own experience is that countries perform better — they have not only inflation performance — but real performance in terms of job creation and growth is also stronger when a central bank is left to use its best judgment without political influence,” Yellen said, apropos of nothing as the Fed is and always has been a political entity to be used and abused by whoever is in power. Case in point: Yellen, like her predecessor Bernanke, kept rates too low for too long so that her Democratic overlords could enjoy a period of relative tranquility (while also spawning what will soon be the biggest financial crisis in US history).

None of that was funny, however. What was is that Yellen also expressed regret over failing to make more progress in narrowing the fiscal deficit during her tenure.

“I am concerned about fiscal sustainability and I am sorry that we haven’t made more progress,” she said adding that “I believe that the deficit needs to be brought down especially now that we’re in an environment of higher interest rates.”

This is really funny for two reasons.

First, it was under Yellen's watch that the US experienced its biggest debt increase in history. As shown below, Yellen was Fed chair from Oct 2010 until Feb 2014, and then Fed Chair from Feb 2014 until Feb 2018, a period during which she intentionally kept rates at zero for almost the entire duration of her "apolitical" tenure. We say "apolitical" because in January 2021 the mask came off, and Yellen was picked for her political ideology to serve as Biden's top debt printing Democrat by taking control of the US Department of Treasury, where on more than one occasion she intentionally manipulated US debt issuance to boost risk assets at the expense of a harrowing debt crisis that looms under Trump's administration as trillions in debt now have to be rolled over at a much higher rate. But more to the point, under Yellen total US debt increased by $6.8 trillion while she was Fed Chair/vice-Chair and then another $8.4 trillion while she has been Biden's Treasury Secretary.

In other words, Yellen has personally presided over a gargantuan $15.2 trillion increase in US debt, or about 42% of all US debt ever issued! No one other government official can make even a remotely similar claim.

So yes, the world certainly has every reason to be "concerned about fiscal sustainability" but the last person allowed to seek accountability is Yellen, who is the one person in the US most directly complicit in making US fiscal sustainability a huge joke. And no, saying she is "sorry" just won't cut it.

The second reason why Yellen's words are a laughable grotesque, is that as we showed earlier, in its final days, the Biden administration - which is best known for spending trillions to buy votes in the US (and inexplicably, in the Ukraine) - has decided to go out with a bang, and at a time when government spending is hitting new record high month after month, even as US tax revenue has flatlined for the past five years...

... the US just start its latest fiscal year with the biggest two-month increase in the budget deficit on record.

Meanwhile, US interest expense is now $1.2 trillion, the second largest government outlay surpassing defense and health spending, and is just one debt crisis and/or interest rate spike away from exceeding Social Security spending as the largest government outlay for the world's most indebted government.

So yes, Janet, we too are "sorry"...  sorry that under your various official tenures the US took irrevocable steps to losing the world's reserve currency (don't believe us, just as gold and bitcoin), and sorry that the US is just a few months away from the biggest financial crisis in history. Of course, we also realize that at 78 your forecast that there will be "no major crisis in your lifetime" is - one way or another - likely spot on. If only that was also true for the rest of us.

Tyler Durden Thu, 12/12/2024 - 09:45

US Appeals Court Vacates Nasdaq Board Diversity Rule

Zero Hedge -

US Appeals Court Vacates Nasdaq Board Diversity Rule

Authored by Katabella Roberts via The Epoch Times,

A U.S. appeals court on Dec. 11 struck down a Nasdaq rule requiring companies listed on the stock exchange to have “diverse representation” on their boards, finding the Securities and Exchange Commission (SEC) acted unlawfully in approving the policy.

The rule was introduced by the SEC and Nasdaq as part of efforts to boost racial and gender diversity in corporations. They say it is a disclosure requirement that provides standardized information on board diversity.

In a 9–8 ruling, the New Orleans-based Fifth U.S. Circuit Court of Appeals found the rule should not have been signed off by the SEC in August 2021 because the regulator lacked legal authority.

“SEC has intruded into territory far outside its ordinary domain,” U.S. Circuit Judge Andrew Oldham wrote for the majority.

According to the rule, companies listed on the exchange must have at least two “diverse board members,” including “at least one director who self-identifies as a female,” and at least one who “self-identifies as Black or African American, Hispanic or Latinx, Asian, Native American or Alaska Native, Native Hawaiian or Pacific Islander, two or more races or ethnicities, or as LGBTQ+.”

Companies that do not have at least two such members on their board of directors must explain why they do not. They must also disclose annually how board members identify in those categories.

The National Center for Public Policy Research and the Alliance for Fair Board Recruitment, a group formed by conservative legal activist Edward Blum, filed a lawsuit against the rule in August 2021.

They argued the rule amounted to an attempt to coerce companies into satisfying a “diversity quota,” was unconstitutional, and violated the Exchange Act, the Administrative Procedure Act, and free speech.

“Nasdaq’s discriminate-or-explain command is unlawful because it fails to advance any legitimate exchange purpose,” the plaintiffs wrote in their lawsuit.

The rule, plaintiffs said, is designed to promote board diversity as opposed to preventing fraud or further any other legitimate purpose under the Exchange Act.

“Even if Nasdaq’s diversity rule were legally permissible and supported by substantial evidence (and it is not), it is not permissible under the U.S. Constitution,” they argued.

Plaintiffs pointed to the U.S. Constitution’s Fifth Amendment, which prohibits federal discrimination based on sex, race, or sexual orientation except in very narrow circumstances.

“To approve the proposed discrimination, the SEC would have to conclude that Nasdaq’s rule survives the exacting scrutiny needed to justify the discriminatory treatment of individuals based on their sex, race, or sexual orientation,” they wrote.

A three-judge panel of the Fifth Circuit in October 2023 struck down the lawsuits challenging the Nasdaq rule, saying the SEC acted within its authority. However, the appeals court opted to have all of its judges reconsider the matter.

In Wednesday’s ruling, Oldham said the SEC’s rule was “far removed” from the 1934 Securities Exchange Act, which governs stock trading and dictates that stock exchange rules approved by the regulator must promote “just and equitable principles of trade.”

“We are not aware of any established rule or custom of the securities trade that saddles companies with an obligation to explain why their boards of directors do not have as much racial, gender, or sexual orientation diversity as Nasdaq would prefer,” Oldham wrote.

Eight judges dissented, including U.S. Circuit Judge Stephen Higginson, who stated that the SEC’s limited role in reviewing Nasdaq’s proposed rules precluded it from making a different decision.

In a statement to multiple media outlets after the ruling, a Nasdaq spokesperson said, “We maintain that the rule simplified and standardized disclosure requirements to the benefit of both corporates and investors.”

Separately, Mark Chenoweth, president of the New Civil Liberties Alliance, which represented the National Center for Public Policy Research, said the court’s ruling “should chasten SEC to stick to its knitting and stop trying to abuse its market-regulating power.”

The Epoch Times contacted Nasdaq for further comment but received no reply by publication time.

Tyler Durden Thu, 12/12/2024 - 09:25

Producer Price Inflation Comes In 'Red Hot' In November

Zero Hedge -

Producer Price Inflation Comes In 'Red Hot' In November

Following yesterday's reported re-ignition in consumer price inflation (despite people seemingly being exuberant that it was 'as expected' - we don't remember The Fed's mandate being stable prices in line with consensus expectations?), this morning's producer prices were expected to accelerate further also to +2.6% YoY from +2.4% YoY.

But it didn't...

Headline PPI surged 0.4% MoM (+0.2% MoM exp) - biggest MoM jump since June - which lifted the YoY rise in producer prices to +3.0% - far above expectations and the highest since Feb 2023...

Source: Bloomberg

Headline PPI's big jump was driven by food costs (rising at their fastest since Nov 2022)...

Source: Bloomberg

A quarter of the November rise in prices for final demand goods is attributable to a 54.6-percent jump in the index for chicken eggs.

Prices for fresh and dry vegetables, fresh fruits and melons, processed poultry, non-electronic cigarettes, and residential electric power also increased. In contrast, the index for oilseeds declined 4.7 percent. Prices for diesel fuel and for primary basic organic chemicals also decreased.

Services costs are accelerating fast on a YoY basis and Energy's deflationary pressure is evaporating rapidly...

Source: Bloomberg

Not only was much of the PPI report better than expected, the underlying components were too.

The percentage of those rising on an annual basis is at 80%.

As the chart shows, this is typically consistent with PPI remaining elevated.

Spot the difference (food costs just hit a new record high)...

Source: Bloomberg

Core PPI (ex-food and energy) rose 0.2% MoM as expected but the YoY core PPI jumped dramatically to +3.4% YoY - also the hottest since Feb 2023...

Source: Bloomberg

Most problematically, businesses will start to face margin pressure going forward... or they will have to raise prices...

Source: Bloomberg

Given the resurgence in money supply, it should not be a surprise that PPI (and CPI) are on the rise again...

Source: Bloomberg

Does that look like an inflationary backdrop that needs a rate-cut next week?

Tyler Durden Thu, 12/12/2024 - 09:15

Supreme Court Rules 9–0 Federal Judges Cannot Second-Guess Visa Revocations

Zero Hedge -

Supreme Court Rules 9–0 Federal Judges Cannot Second-Guess Visa Revocations

Authored by Matthew Vadum via The Epoch Times (emphasis ours),

The U.S. Supreme Court ruled unanimously on Dec. 10 that federal courts may not review the federal government’s decision to revoke an immigration visa.

The court’s 9–0 opinion in Bouarfa v. Mayorkas was written by Justice Ketanji Brown Jackson. The respondent is U.S. Department of Homeland Security (DHS) Secretary Alejandro Mayorkas.

The U.S. Supreme Court in Washington on Dec. 2, 2024. Madalina Vasiliu/The Epoch Times

In the case, the DHS revoked a Palestinian man’s visa after it found he previously attempted to pass off another one of his marriages as legitimate to obtain permanent resident status. Because the government determined he engaged in fraud before, the current marriage was deemed fraudulent, and his visa, which had been approved, was canceled.

The petitioner, Amina Bouarfa, a U.S. citizen, married noncitizen Ala’a Hamayel. They produced three children, all of whom are U.S. citizens, according to Bouarfa’s petition to the Supreme Court.

Around three years after they married, Bouarfa filed an immigration petition to classify her husband as an immediate relative, which would make him eligible for adjustment to permanent resident status.

In 2015, U.S. Citizenship and Immigration Services (USCIS), an agency of the DHS, approved the wife’s petition, but in 2017 it moved to revoke its approval, citing evidence Hamayel’s first marriage was fraudulent. The agency said if it had known of the sham marriage, it would not have granted the petition.

Bouarfa disputed the decision the same year and the Board of Immigration Appeals ruled against her in 2021, finding federal law barred approval of the petition.

In January 2022, Bouarfa sued in a federal district court in Florida, requesting a review of the board’s decision under the Administrative Procedure Act, which governs how government agencies create and enforce rules. The court dismissed the case, finding it lacked authority to hear it.

A panel of the U.S. Court of Appeals for the 11th Circuit affirmed, holding that federal law precludes judicial review of the revocation of a visa and that revocations are “discretionary—no matter the basis for revocation.”

In the Supreme Court’s ruling, Jackson wrote that the decision to revoke involved “a quintessential grant of discretion” to DHS that judges are unable to review.

Jackson wrote that the law provides that the DHS secretary “may, at any time, for what he deems to be good and sufficient cause, revoke the approval of any [visa] petition.”

Despite this, Bouarfa still has options, as the government acknowledges. “Nothing prohibits a citizen from filing another petition on behalf of the same relative,” the justice wrote, adding that nothing in the law requires the secretary to uphold the sham marriage determination.

In fact, Bouarfa has already re-filed and if her petition is turned down again because of the sham marriage finding, she may seek judicial review, Jackson added.

The Supreme Court affirmed the ruling of the 11th Circuit.

The Epoch Times reached out for comment to the U.S. Department of Justice, which represents the DHS, and Bouarfa’s attorney, Samir Ibrahim Deger-Sen of Latham and Watkins in New York City. No replies were received by publication time.

Tyler Durden Thu, 12/12/2024 - 09:00

Jobles Claims Explode Higher In First Week Of December

Zero Hedge -

Jobles Claims Explode Higher In First Week Of December

The number of Americans filing for jobless benefits for the first time jumped significantly last week (from 225k to 242k - well above expectations of 220k) - the highest since the first week of October.

On an un-adjusted basis, claims exploded higher (highest since January)...

Source: Bloomberg

Oh, and in case you need someone to blame for this utter farce - it's California of course. Just look at the last four weeks of unadjusted claims - exploding higher and crashing lower like a penny stock? Must be all those sanctuary-seeking illegals?

Continuing jobless claims remains below the 1.9mm Maginot Line (1.886mm) - hovering near the highest levels since Nov 2021...

Source: Bloomberg

The seasonals in the initial claims data is just the 'excuse' The Fed needs to feed the beast with another rate-cut next week... and then 'revise' the print lower once again.

Tyler Durden Thu, 12/12/2024 - 08:45

ECB Cuts Rates As Expected, Euro Tumbles After Reference To "Restrictive Policy" Is Dropped

Zero Hedge -

ECB Cuts Rates As Expected, Euro Tumbles After Reference To "Restrictive Policy" Is Dropped

As expected, the ECB cut rates by the bare minimum 25bps, avoiding a 50bps cut which some had penciled in and said is required at a time when Europe's economy is in freefall even though inflation remains sticky. The ECB's fourth rate cut of this easing cycle pushed the Deposit rate to 3.0% from 3.25%, and also trimmed the Refi Rate and Lending Facility rate to 3.15% and 3.40% respectively.

While the decision was inline, there were some big changes to the ECB’s policy language. Gone are the references to restrictive policy settings and inflation returning to the target. Reading between the lines here, the ECB judges it’s basically there.

NEW LANGUAGE:

The Governing Council is determined to ensure that inflation stabilises sustainably at its 2% medium-term target. It will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. In particular, the Governing Council’s interest rate decisions will be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. The Governing Council is not pre-committing to a particular rate path.

OLD LANGUAGE

The Governing Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner. It will keep policy rates sufficiently restrictive for as long as necessary to achieve this aim. The Governing Council will continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate level and duration of restriction.

The biggest highlight is that the ECB dropped the term "it will keep policy rates sufficiently restrictive for as long as necessary to achieve this aim". That reflects the fact that at 3.0%, even for the most hawkish members of the committee, the policy rate is considered to be neutral rather than restrictive. According to UBS, "this isn't in itself a dovish signal, rather it's a statement of fact. Policy isn't considered to be restrictive so the reference has to go."

The ECB also downgraded the inflation section, which now has the line: "The disinflation process is well on track." However, that's tempered by the fact the inflation forecasts are still sending the same signal. Inflation averages above target in 2025 and is well above target on core, at 2.3% (which is unchanged from September's forecast).

The ECB maintained in the statement the warning on wage growth: "[Inflation] remains high, mostly because wages and prices in certain sectors are still adjusting to the past inflation surge with a substantial delay."

Some more details from the report:

STANCE:

  • Governing Council is not pre-committing to a particular rate path.
  • Will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance.
  • Monetary policy remains restrictive

ECONOMY:

  • Staff now expect a slower economic recovery than in the September projections
  • The gradually fading effects of restrictive monetary policy should support a pick-up in domestic demand

The ECB also downgrade its economic forecasts:

HICP INFLATION:

  • 2024: 2.4% (prev. 2.5%),
  • 2025: 2.1% (prev. 2.2%).
  • 2026: 1.9% (prev. 1.9%),
  • 2027: 2.1%

HICP CORE INFLATION (EX-ENERGY & FOOD):

  • 2024: 2.9% (prev. 2.9%),
  • 2025: 2.3% (prev. 2.3%),
  • 2026: 1.9% (prev. 2.0%), 2027: 1.9%.

GDP:

  • 2024: 0.7% (prev. 0.8%),
  • 2025: 1.1% (prev. 1.3%),
  • 2026: 1.4% (prev. 1.5%), 2027: 1.3%

According to UBS, the ECB's commentary was "disappointing" with the refusal to acknowledge the economic challenges in the Eurozone or give any indication the markets are pricing correctly. The ECB said it was not pre-committing to any particular rate path. It said it was determined that inflation should stabilise sustainably at the 2% target. It said inflation had slowed, but remains high overall.

Commenting on the rate cut, DB's European chief economist Mark Wall said that “this ECB easing cycle has further to go. The ECB delivered the fourth quarter-point rate cut of this easing cycle at the December meeting and the second back-to-back cut. More importantly, the door has been opened more clearly to further cuts. The ECB continued to describe current financing conditions as tight but dropped the reference to needing to keep policy sufficiently restrictive for as long as necessary. This combination signals an easing bias. For a market that has been pricing the chances of a sub-neutral terminal rate in 2025 today’s ECB decision will feel like an endorsement."

The euro fell to a fresh day low of $1.0470 and it’s down to the ECB dropping the ‘restrictive policy’ part from its statement. That doesn’t mean however that policy language is outright dovish. Moves in euro area bonds are muted.

There was also a  relatively choppy reaction in EGBs with Bund Mar‘25 slipping from 135.76 to 135.64 before paring and then lifting to 135.84 over the course of three minutes. Here is the latest ECB Pricing expectations:

  • Jan‘25 -27bps
  • Mar'25-63bps
  • End-2025-125bps

And now we turn attention to Lagarde's presser.

Tyler Durden Thu, 12/12/2024 - 08:36

Weekly Initial Unemployment Claims Increase to 242,000

Calculated Risk -

The DOL reported:
In the week ending December 7, the advance figure for seasonally adjusted initial claims was 242,000, an increase of 17,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 224,000 to 225,000. The 4-week moving average was 224,250, an increase of 5,750 from the previous week's revised average. The previous week's average was revised up by 250 from 218,250 to 218,500.
emphasis added
The following graph shows the 4-week moving average of weekly claims since 1971.

Click on graph for larger image.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased to 224,250.

The previous week was revised up.

Weekly claims were above the consensus forecast.

Futures Drop, Yields Rise Ahead Of Fourth ECB Rate Cut

Zero Hedge -

Futures Drop, Yields Rise Ahead Of Fourth ECB Rate Cut

US equity futures and European bourses trade lower as bond yields rise 2-3bps across the curve as Treasury yields rose ahead of the Fed's policy meeting next week and ahead of today's ECB rate cut (preview here). As of 8:00am ET, S&P futures are down 0.2% and Nasdaq futures slide 0.4% after disappointing guidance by Adobe sent the stock tumbling, even though pre-mkt, Mag7 names are mostly higher led by GOOG/TSLA, but Tech overall is lagging after the Nasdaq set a new ATH yesterday. Both indexes made strong gains on Wednesday, when an in-line US inflation print cemented swap markets’ expectations of a a quarter-point rate cut at the Fed’s Dec. 17-18 meeting. The USD is weaker and commodities are mostly bid led by energy, Ags, and base metals. Banks are weaker despite positive reports at an industry conference. Today’s macro focus is on PPI (Core exp. 0.2% MoM, 3.2% YoY) and Jobless Claims (exp. 220K).

In premarket trading, Adobe tumbled 11% after giving a disappointing annual sales outlook, underscoring anxieties that the software company may lose business to emerging artificial intelligence-based startups.

  • Gambling.com Group (GAMB) climbs 5% as the company is in advanced negotiations to buy OddsJam, an online service that helps sports bettors find the best odds, according to people familiar with the matter.
  • Keros Therapeutics (KROS) plunges 71% after halting higher dosing in a part of the drug developer’s trial of an experimental therapy for patients with a lung disease, citing side effects.
  • Kroger (KR), whose planned merger with fellow grocery giant Albertsons was scuttled this week, climbs 2% after announcing a $7.5 billion share buyback program.
  • Lovesac (LOVE) tumbles 19% after the furniture retailer cut its net sales guidance for the full year.

Next up we get the European Central Bank, which is expected to lower policy rates by a quarter-point, following on from the Swiss National Bank’s surprising 50 basis-point reduction earlier in the day. With an ECB cut, its fourth this year, already baked in, traders will wait for clues from rate-setters on the extent of loosening needed in this cycle.

We anticipate a dovish 25-basis-point rate cut, alongside signals of flexibility on future adjustments,” said Mohamad Al-Saraf, an FX and rates analyst at Danske Bank. “Post-decision communication will be pivotal, given divisions within the Governing Council.” Ahead of the ECB, the euro firmed as much as 0.7% against the Swiss franc, while Switzerland’s stocks and bonds climbed immediately after the rate cut, which aims to prevent further franc gains and stop an inflation undershoot.

The ECB cut will be the latest of this week’s moves towards more policy easing by major central banks. Prior to the Swiss rate cut, Canada lowered its policy rates by a half point, Australia hinted it’s moving toward cuts and China vowed to deliver rate cuts. Japan, however, signaled it’s in no hurry to hike rates.

Traders are also waiting for US producer inflation numbers due later Thursday, alongside the weekly jobless claims print for further clues on prices and the health of the economy. Analysts at Brown Brothers Harriman noted that still-elevated price pressures “argue for a shallow Fed easing cycle.”

Among individual stock movers, software firm Adobe Inc. dropped more than 10% in US premarket trading after a weaker-than-expected full-year forecast, while Uber Technologies Inc. was lifted by upbeat management comments at an industry conference.

European stocks are little changed as losses in retail and health care shares are offset by gains in autos and energy. Luxury goods firm Brunello Cucinelli SpA rallied after an increased revenue growth forecast. Luxury stocks were broadly firmer alongside other China-exposed sectors such as miners, after the country’s commerce ministry said it’s open to trade talks with the US. Here are the biggest movers Thursday:

  • Lonza shares jump as much as 7.7%, the most since July, after the health care group announced that it would divest from its capsule business at an appropriate time
  • Diageo shares rise as much as 3.9% after the alcoholic beverage maker was upgraded by analysts at UBS in a note published on Wednesday. They believe the earnings downgrade cycle is approaching its end and see upside potential to its US business
  • Grifols shares gained as much as 9.2% after the Spanish drugmaker raised €1.3 billion in a private debt placement and its long-term rating was upgraded by S&P to B+ from B
  • Temenos shares gain as much as 7.9% to a one-month high after it received an upgrade to buy from hold at Jefferies, which sees the Swiss banking software firm’s new CEO and strategy as providing a “welcome kick-start”
  • Brunello Cucinelli shares rise as much as 7.1% to a eight-month high after the luxury goods maker increased its revenue growth forecast. Analysts said that this shows the Italian firm’s resilience and the benefits of its exposure to the US market and wealthy clients
  • Watches of Switzerland shares gain 4.1% after Kepler Cheuvreux lifts to buy on its exposure to high-end watches and the US market
  • Inditex shares drop as much as 3.3%, after RBC downgraded the Zara owner to underperform from sector perform. RBC notes the valuation remains quite full, even with the sharp decline after Wednesday’s nine-month earning
  • Sopra Steria shares fall as much as 6.9%, the most since July, after some analysts found the IT services provider’s new Ebit margin outlook disappointing. The firm’s management will explain its strategy at its capital markets day this morning
  • Nemetschek drops as much as 4.8%, the most in 14 weeks, after JPMorgan starts coverage of the German real estate software firm at underweight and says earnings-growth trajectory is being overestimated by consensus
  • SThree shares plummet as much as 36%, a record drop that has sent the stock to a four-year low, after the recruitment company significantly downgraded its profit expectations for FY25

Earlier in the session, Asian stocks rose, driven by gains in tech shares after benign US inflation backed the case for a Federal Reserve rate cut next week. The MSCI Asia Pacific Index jumped as much as 1.1%, the most in a week. Major contributors to the gauge’s rise included TSMC, Tencent and Samsung Electronics. A sub-gauge of information technology shares gained as much as 1.8%. The advance tracks a rally on Wall Street, where the tech-heavy Nasdaq 100 Index jumped 1.9% to a record high. Also of focus in the region is whether China will release details on the outcome of a key economic meeting that’s expected to conclude Thursday. Benchmarks in Hong Kong rose more than 1% on bets for stronger stimulus. Japanese equities closed higher for a fourth consecutive day, supported by the yen’s recent weakness. Bloomberg News reported that Bank of Japan officials see little cost to waiting before raising interest rates. Shares in South Korea jumped on expectations that President Yoon Suk Yeol may get impeached in a parliament vote this weekend for his failed martial law bid. Some market watchers have been saying that his ouster will ease political uncertainty and help stabilize sentiment.

“We are yet to be convinced to go overweight in Chinese equities, largely because we have not really seen a meaningful pick up in domestic demand,” Dayeon Hong, a multi-asset portfolio manager at Shinhan Asset Management Co. in Seoul, said in a Bloomberg TV interview. She added that China may see more upside potential in growth next year if boosted by “moderately loose” monetary policy and proactive fiscal policy.

In FX, the Bloomberg dollar index steadied as China set a stronger yuan fixing, a day after the currency weakened following a Reuters report that a depreciation was being considered. The euro adds a few pips ahead of the ECB decision where a 25-bp interest rate cut is widely expected. Most economists also saw the Swiss National Bank delivering a quarter-point reduction but policymakers opted for a larger 50-bp move, sending the franc to the bottom of the G-10 FX leader board with 0.2% fall against the dollar. The Aussie dollar is still the best performer, rising 0.8% after solid jobs data prompted traders to pare their rate cut bets.

In rates, treasury futures are near session lows in early US dealing as concession continues to build for $22 billion 30-year bond auction at 1pm New York time. Treasuries fell for a fourth day, pushing US 10-year yields up 3 bps to 4.30%. European government bonds also decline, led by Italy. Other factors include crude oil extending its weekly climb and a curve-steepening selloff in gilts. ECB rate decision at 8:15am is expected to be a quarter-point rate cut, following a surprise 50bp cut by the SNB. US yields are 2.5bp to 3bp higher across maturities, with the 10-year around 4.3%, outperforming gilts by roughly 1bp in the sector; US curve spreads are little changed on the day. Week’s Treasury auction cycle concludes with the 30-year bond reopening; demand was strong for Wednesday’s 10-year note sale , which stopped through by 1.7bp.

In commodities, oil prices are off the highs after the IEA said markets still face a glut next year despite the recent OPEC+ decision. WTI rises 0.2% to $70.40. Spot gold falls $5. Bitcoin rises back above $100,000.

Today's US economic data calendar includes November PPI and weekly jobless claims (8:30am) and 3Q household change in net worth (12pm).

Market Snapshot

  • S&P 500 futures down 0.2% to 6,082.00
  • STOXX Europe 600 little changed at 519.44
  • MXAP up 0.7% to 187.53
  • MXAPJ up 0.6% to 589.57
  • Nikkei up 1.2% to 39,849.14
  • Topix up 0.9% to 2,773.03
  • Hang Seng Index up 1.2% to 20,397.05
  • Shanghai Composite up 0.8% to 3,461.50
  • Sensex down 0.4% to 81,228.48
  • Australia S&P/ASX 200 down 0.3% to 8,330.26
  • Kospi up 1.6% to 2,482.12
  • German 10Y yield little changed at 2.16%
  • Euro up 0.2% to $1.0513
  • Brent Futures up 0.4% to $73.83/bbl
  • Brent Futures up 0.4% to $73.84/bbl
  • Gold spot down 0.1% to $2,716.44
  • US Dollar Index down 0.16% to 106.54

Top Overnight News

  • Donald Trump invited Xi Jinping to attend his inauguration, CBS reported. Xi’s attendance would be unprecedented and may signal an effort by Trump to court him amidst threats of fresh tariffs against China. BBG
  • The Bank of Japan is leaning toward keeping interest rates steady next week as policymakers prefer to spend more time scrutinizing overseas risks and clues on next year's wage outlook. Any such decision will heighten the chance of an interest rate hike at the central bank's subsequent meeting in January or March. RTRS
  • The Japanese parliament’s lower house passed a ¥13.9 trillion extra budget to help finance PM Shigeru Ishiba’s economic stimulus package. BBG
  • South Korea’s opposition filed a second impeachment motion against President Yoon Suk Yeol as more ruling party members indicated they’ll support it. BBG
  • The Swiss franc fell after the SNB delivered a bigger-than-expected half-point cut to its key rate to 0.5%. Another reduction will probably come in March, taking the rate to 0.25%, citing pressure from the easing of other central banks. BBG
  • Mike Waltz, Trump’s national security advisor, warned that Iran will see a significant increase in sanctions and pressure once the new administration takes office. BBG
  • Hamas has yielded to two of Israel’s key demands for a cease-fire deal in Gaza, raising hopes of an agreement that could release some hostages within days despite the repeated collapse of previous negotiations. WSJ
  • Oil markets globally will see plentiful supply in 2025 even if the OPEC+ production cuts aren’t unwound according to the IEA (oil supply is on track to increase 630K B/D this year and 1.9M in 2025 even in the absence of OPEC+ unwinding). IEA
  • The US plans a new loophole-closing rule aimed at curbing Chinese firms’ sourcing of AI chips from unrestricted third-party countries, the SCMP reported. BBG

A more detailed look at global markets courtesy of Newsquawk

APAC stocks eventually mimicked the sentiment on Wall Street and traded mostly higher following a slow start to the session and despite a lack of macro news flow. ASX 200 saw its earlier gains hampered after a strong Aussie jobs report which followed the dovish RBA yesterday, in which Governor Bullock said the Board will be watching all data including employment. Nikkei 225 reclaimed the 40,000 level for the first time since mid-October with gains driven by the Industrial and IT sectors, although at one point, the upside was capped by the firmer JPY. Hang Seng and Shanghai Comp were somewhat lethargic at the start, but momentum picked up, although there was little  notable reaction seen on reports that US President-elect Trump invited Chinese President Xi to attend his inauguration next month, whilst it was not clear whether Xi has accepted the invitation. Participants now await the outcome of the Central Economic Work Conference.

Top Asian News

  • South Korean opposition files a second motion to impeach President Yoon, via Bloomberg
  • China's Commerce Ministry say China is open to contact and communication with the Trump administration's economic and trade team
  • US President-elect Trump has invited Chinese President Xi to attend his inauguration next month, multiple sources told CBS News; it was not clear whether Xi has accepted the invitation.
  • BoJ is reportedly leaning toward keeping rates steady next week, according to Reuters sources; there is no consensus within the bank on the final decision, some believe conditions have been met for a December hike; BoJ could hike if FOMC decision triggers JPY selloff. Many policymakers appear in no rush to pull the trigger with little risk of inflation overshooting, sources added.
  • Japanese companies are reportedly worried about tariff hikes and US-China relations, according to a Reuters survey; Nearly three-quarters of Japanese companies expect Trump's next term to have a negative impact on the business environment.
  • South Korean Finance Minister said they will closely monitor financial markets and respond to boost investor sentiment if needed, according to Reuters.
  • South Korean President Yoon said he will fight until the last moment, according to Reuters.

European bourses began the session entirely in the green, albeit modestly so. As the morning progressed, some indices slipped into negative territory to display a slightly more mixed picture in Europe. European sectors began the session with a strong positive bias, but in a turn of fortunes now display a mostly negative picture. Autos lead, followed by Energy/Basic Resources; the pair lifted by gains in the underlying. Retail is the clear underperformer, continuing the pressure seen in the prior session. US equity futures are very modestly on the backfoot, with the NQ paring back some of the hefty gains seen in the prior session.

Top European News

  • UK RICS Housing Survey (Nov) 25.0 vs. Exp. 19.0 (Prev. 16.0); highest since September 2022.
  • India-UK Free Trade Agreement talks to commence at the end of January, according to an Indian government source cited by Reuters.
  • Swiss SNB Policy Rate (Q4) 0.50% vs. Exp. 0.75% (Prev. 1.00%); "also remains willing to be active in the foreign exchange market as necessary". SNB's Schlegel says development of CHF is still the important factor. Remains willing to intervene as necessary. Rate cuts remain the main policy instrument if further easing is required. Uncertainty on future inflation path is high, inflationary pressure has decreased markedly over the medium term. SNB still has room for further interest rate moves. Main instrument is policy rate, with that can influence the economy and exchange rate. This step us intended to stabilise inflation between 0 and 2%. Can tolerate weakening of inflation below 0-2% target range, as long as it is temporary. SNB Chair Schlegel says the SNB does not like negative interest rates; the likelihood of negative interest rates has become small.
  • German Economy expected to stagnated in 2025 (prev. forecast 0.5%); German GDP expected to expand by 0.9% in 2026.
  • Ifo institute forecasts Germany's growth between 0.4 - 1.1% in 2025. If German economy fails to overcome structural challenges, only 0.4% growth compared to the 1.1% if the right economic policy course is set. Expects 2.3% inflation in 2025 and 2.0% in 2026, in both scenarios

FX

  • USD is steady after an early bout of weakness that didn't appear to be driven by any particularly obvious catalyst. Looking ahead, focus remains on price data following yesterday's CPI report with PPI metrics due on deck. DXY remains within yesterday's 106.26-80 range.
  • EUR/USD is just about holding above the 1.05 mark in the run-up to today's ECB rate decision. Consensus looks for the ECB to deliver a 25bps rate cut with just an 18% chance of a deeper 50bps cut. EUR/USD currently sits within yesterday's 1.0480-1.0539 range.
  • USD/JPY is a touch higher after a choppy APAC session which saw initial JPY strength fade following source reporting via Reuters that the BoJ is leaning towards keeping rates steady next week, albeit, there is no consensus within the bank on the final decision. Currently sits towards the top end of yesterday's 151.00-152.86 range.
  • GBP is relatively contained vs. the USD as UK-specific drivers remain light. Tomorrow's monthly GDP print unlikely to be a gamechanger for the BoE. Cable briefly eclipsed yesterday's best, printing a session peak at 1.2787 before settling into yesterday's 1.2714-1.2782 range.
  • AUD is at the top of the G10 leaderboard following the Aussie jobs report which saw Employment Change topping forecasts (driven by full-time employment) whilst the Unemployment Rate surprisingly fell to 3.9% despite forecasts of an uptick to 4.2% from 4.1%, although the Participation Rate surprisingly dipped. AUD/USD saw a boost nonetheless and moved back onto a 0.64 handle.
  • CHF is on the backfoot after the SNB surprised markets by pulling the trigger on a deeper 50bps cut vs. expectations of a smaller 25bps move. The decision was accompanied by a reiteration that the Bank remains willing to intervene in the FX market as necessary whilst 2024 and 2025 inflation forecasts were lowered.
  • PBoC set USD/CNY mid-point at 7.1854 vs exp. 7.2438 (prev. 7.1843)

Brazil Central Bank

  • Brazilian Selic Interest Rate 12.25% vs. Exp. 12.0% (Prev. 11.25%); decision unanimous; in light of more adverse inflation scenario, the committee sees hikes of the same magnitude at the next two meetings.
  • Brazilian Finance Minister Haddad said BCB decision was a surprise but pricing pointed to a move like that; and added there is no decision about changing the fiscal package, according to Reuters.
  • Banxico financial stability report: Mexico's financial system has a resilient and solid position; stress tests confirmed that the banking system as a whole has the capacity to absorb significant shocks.

Fixed Income

  • USTs are in the red, but only modestly so. Action which came after a selloff emerged at the end of Wednesday’s US session into settlement, no specific driver behind this at the time. Currently at a low of 110-16 and continuing to slip from an initial 110-24 high print.
  • Bunds are a little softer in-fitting with peers but ultimately awaiting the ECB later. Macro drivers otherwise have been somewhat light aside from the SNB which delivered a 50bps move. An announcement which sparked some modest EGB upside. As it stands, Bunds are at a 135.56 base having faded from an SNB-driven peak of 135.85, downside which was marginally added to by SNB’s Schlegel remarking that they do not like negative rates and the likelihood of a return to NIRP is small.
  • OATs are a little softer with President Macron expected to announce his new PM today. As it stands, it is unclear who Macron will propose with the likes of former Justice Minister Bayrou and current Defense Minister Lecornu among those touted.
  • Gilts are in-fitting with peers. Lost the 95.00 mark early doors and has since slipped to a 94.89 base.
  • Italy sells EUR 8.5bln vs exp. EUR 6.75-8.5bln 2.70% 2027, 3.15% 2031, 3.35% 2035, 4.30% 2054 BTP:

Commodities

  • WTI and Brent are incrementally firmer on the session, though only modestly so in comparison to the action seen on Wednesday. Nonetheless, benchmarks continue to advance on the USD 70/bbl and USD 73/bbl handles respectively; in recent trade, prices have almost entirely pared overnight strength. Downside was seen following the IEA OMR, where it cut its 2024 world oil demand growth forecast.
  • Gold is essentially unchanged at the USD 2715/oz level. Unable to gain any traction amid ongoing USD strength and yield advances, though the metal has avoided a move into the red seemingly on the back of the tepid/mixed European risk tone.
  • Base metals generally hold a positive bias; copper is a little more contained, with 3M LME just above the USD 9.2k mark.
  • Saudi crude supply to China is to rise to around 46mln barrels in January, via Reuters citing sources (around 36.5mln in Dec., around 46mln in Nov).
  • IEA Monthly Oil Market Report: cuts 2024 world oil demand growth forecast to 840k BPD (prev. 920k BPD); raises 2025 forecast to 1.1mln BPD (prev. 990k BPD), citing Chinese stimulus measures. World oil market looks comfortably supplied next year. Current balances suggest a 950k BPD overhand in 2025 if OPEC+ begins unwinding voluntary cuts as of the end of March 2025.
  • India is reportedly to decide soon on whether to impose curbs on the imports of steelmaking raw materials, via Reuters citing sources.

Geopolitics: Middle East

  • Israeli troops have entered Syria buffer zone on a temporary basis, according to Bloomberg
  • "Hamas agreed to the presence of Israeli forces in Gaza after a ceasefire goes into effect", according to Kann News.
  • "Israeli army announces the withdrawal from the tents area in southern Lebanon in accordance with the ceasefire agreement ", according to Al Arabiya.

Geopolitics: Other

  • China's President Xi says China is willing to strengthen strategic alignment with Russia, and tap into the intrinsic driving force of bilateral cooperation, via state media.
  • Russia's Navy Chief says that NATO has increased its military activity in the arctic region, via Ria; naval grouping of Russian nuclear forces has been completely renewed, via Tass.
  • US President-elect Trump is reportedly considering ex-intelligence chief Richard Grenell as Special Envoy for Iran, according to Reuters sources; the article suggests consideration of a key ally for the position sends a signal that Trump may be open to talks.
  • US House of Representatives passed USD 895bln defence policy bill, according to Reuters.

US Event Calendar

  • 08:30: Dec. Initial Jobless Claims, est. 220,000, prior 224,00008:30: Nov. PPI Final Demand YoY, est. 2.6%, prior
    • Nov. Continuing Claims, est. 1.88m, prior 1.87m
  • 08:30: Nov. PPI Final Demand MoM, est. 0.2%, prior 0.2%
    • Nov. PPI Ex Food and Energy MoM, est. 0.2%, prior 0.3%
    • Nov. PPI Final Demand YoY, est. 2.6%, prior 2.4%
    • Nov. PPI Ex Food and Energy YoY, est. 3.2%, prior 3.1% 
  • 12:00: 3Q US Household Change in Net Worth, prior $2.76t

DB's Jim Reid concludes the overnight wrap

Markets put in a decent performance yesterday, as the US CPI report came in broadly as expected, which was seen as giving the all-clear for the Fed to cut rates next week. That meant futures dialled up the likelihood of a 25bp rate cut to 99% by the close. And on top of that, the S&P 500 (+0.82%) ended the session just a whisker beneath its all-time high, with the Magnificent 7 (+3.08%) powering forward to a new record.

In terms of the details of that CPI print, the monthly headline and core CPI readings were both at +0.31% in November. So that was basically in line with the +0.3% print the consensus was expecting. So even though inflation was still running a bit too fast for the Fed to be comfortable, markets were relieved that it wasn’t an even higher number that would prevent the Fed cutting rates next week. After all, core CPI has now been running at +0.3% for four consecutive months, and the 3-month annualised rate for core CPI ticked up to +3.7%, so this isn’t just a case of one strong print. And in turn, that’s led to growing concern that inflation is becoming sticky above target, even if we’re not seeing the really high numbers of a couple of years ago. For the year-on-year numbers, the latest release meant headline CPI ticked up to +2.7%, whilst the core CPI print was steady at 3.3%, where it’s been for the last three months now.

Admittedly, one piece of good news was that shelter and services inflation moderated, and those are fairly sticky categories, even if this decline was offset by stronger goods prices. But even though Treasury yields fell by several basis points after the CPI print, lingering inflation concerns saw this move reverse later on. For instance, 10yr yields closed near the session highs (+4.5bps to 4.27%), rising for a third consecutive day despite a solid 10yr auction.

Nevertheless, when it comes to the Fed, the CPI print left little doubt among investors that another rate cut will happen next week. Indeed, futures moved up the likelihood of a cut from 86% right before the CPI came out to 99% by the close. It’s true that inflation is still too fast for their liking, but last week’s jobs report also saw a fresh rise in the unemployment rate, so our US economists think that will still enable them to cut next week.

Looking forward, central banks will stay in the spotlight today, as the ECB are announcing their latest policy decision at 13:15 London time. They’re widely expected to cut their deposit rate by another 25bps, taking it down to 3%, and that would bring their total rate cuts to 100bps since they began in June. Our European economists are also looking for a 25bp cut today, and they expect the doves and hawks to compromise on a mildly dovish evolution in communications. For next year, they then see the ECB continuing to cut by 25bps per meeting in H1, followed by quarterly 25bp cuts in H2, leaving the deposit rate at 1.5% by end-2025. See their full preview here for more details.

Ahead of the ECB, European assets put in a strong performance yesterday. At the front-end, bond yields fell across the continent, with French, Italian and Spanish 2yr yields falling to their lowest levels since 2022. And while 10yr bund yields inched up (+0.7bps), both the Italian and Spanish 10yr spreads over bunds reached their tightest level in three years yesterday, at 106bps and 63bps, respectively. Equities put in a decent performance too, with the STOXX 600 (+0.28%) clawing back some of the previous day’s losses as the DAX (+0.34%), CAC 40 (+0.39%) and FTSE 100 (+0.26%) all advanced.

For US equities, it was another day of the tech mega caps dominating. Four of the Magnificent 7 posted new record highs, namely Alphabet (+5.52%), Amazon (+2.32%), Meta (+2.16%) and Tesla (+5.93%). And Broadcom (+6.63%) surged after a report that it was working on an AI chip with Apple. That saw the S&P 500 (+0.82%) close less than 0.1% beneath its all-time high, even though the equal-weighted version of the index is still over -2% beneath its record.

Elsewhere yesterday, the Bank of Canada delivered a 50bp rate cut that took their policy rate down to 3.25%. That’s the second 50bp cut in a row they’ve delivered, but they sounded more cautious about future cuts, saying in their statement that “we will be evaluating the need for further reductions in the policy rate one decision at a time.” That saw the 10yr Canadian yield move +6.7bps higher to 3.08%.

Meanwhile in Germany, the election process started to get under way yesterday, as Chancellor Scholz requested a confidence vote next Monday in the Bundestag. It follows the collapse of the federal coalition last month, when Scholz sacked the finance minister Christian Lindner, who leads the FDP. Once the government loses the vote of no confidence, Scholz can then request an election from the President, which is planned for February 23.

Overnight in Asia, those strong gains on Wall Street have continued across the board, with global markets hopeful about another Fed rate cut. Most of the major indices have posted a decent gain, including the Nikkei (+1.28%), the Hang Seng (+1.31%), the CSI 300 (+0.59%), the Shanghai Comp (+0.50%) and the KOSPI (+1.22%). The only notable exception to that is Australia’s S&P/ASX 200 (-0.28%), which follows a very strong employment report for November that’s led markets to dial back the likelihood of rate cuts from the RBA. It showed the unemployment rate unexpectedly falling to 3.9% (vs. 4.2% expected), and Australia’s government bond yield is up +8.0bps overnight in response, and the Australian Dollar has strengthened by +0.73% against the US Dollar. Looking forward, US equity futures are pointing a bit lower this morning, with those on the S&P 500 down -0.13%, whilst the 10yr Treasury (+1.2bps) is up to 4.28% overnight.

Separately in the FX space, yesterday saw the Japanese yen weaken after Bloomberg reported that Bank of Japan officials saw little cost of waiting to hike rates. The report suggested that even if they waited until January or longer, they only saw a low risk of inflation overshooting. Following the report, investors further dialled back the likelihood of a December rate hike, and the Japanese Yen ended the session -0.32% weaker against the US Dollar, where it remains unchanged this morning. In the meantime, China’s offshore yuan weakened -0.29% yesterday, which followed a Reuters report that policymakers were considering allowing the currency to depreciate as a response to any trade war with the US.

To the day ahead now, and the main highlight will be the ECB’s latest policy decision, along with President Lagarde’s subsequent press conference. In terms of data, we’ll also get the US PPI for November and the weekly initial jobless claims.

Tyler Durden Thu, 12/12/2024 - 08:13

Goldman Finds Walmart Maintains Lead In Value Pricing War

Zero Hedge -

Goldman Finds Walmart Maintains Lead In Value Pricing War

Analysts at Goldman analyzed prices across 38 grocery items in the dairy, frozen goods, dry grocery, HPC, and produce categories at Kroger, Albertsons (Randalls banner), Walmart, Sprouts Farmers Market, Whole Foods, and Dollar General to determine which retailers provide the best value for consumers. 

Goldman analysts led by Leah Jordan found that Walmart continued to offer the best all-around grocery deals for cash-strapped consumers.

"WMT had the lowest prices at -11.2% vs. the group average (narrowed from -12.7% last month), followed by DG at -5.6% (vs -3.8% last month). ACI had the highest prices in the group at +9.7%, followed by WFM at +7.3%. KR had the highest SKU availability for the products surveyed at 38, followed by WMT at 37," Jordan said. 

... and the lowest prices in most categories

"WMT had the lowest prices in dairy products (-10.3%), frozen foods (-14.2%), dry grocery (-11.7%), and produce (-18.2%), while DG had the lowest prices in HPC (-14.3%). On the other hand, ACI had the highest prices in dairy products (+4.9%), HPC (+5.3%), and produce (+15.7%), while DG had the highest prices in frozen foods (+14.6%). Additionally, SFM had the highest prices in dry grocery (+8.7%), although we note a limited SKU count." 

The analysts noted that since the last price check in November, the "basket was relatively stable m/m as increases in produce and dairy were largely offset by decreases in HPC and frozen foods," adding, "By retailer, we observed the most sequential increases from KR and ACI with 3 out of 5 categories and the most sequential decreases from KR, ACI, and WMT with 2 out of 5 categories." 

For much of the year, Walmart and Dollar General lead all other retailers versus the group average in offering the best deals

Here are all 38 SKUs analyzed by the analysts. 

Grocery Pricing Survey

Grocery Pricing Survey - Variance vs. Group Average

Walmart reigns supreme nationwide in offering cash-strapped consumers the best deals (read here & here) amid persistent inflation and high interest rates, which continue to financially strain working-poor households.

Tyler Durden Thu, 12/12/2024 - 07:45

ECB Preview And Cheat Sheet: How To Trade The 4th Rate Cut

Zero Hedge -

ECB Preview And Cheat Sheet: How To Trade The 4th Rate Cut

Submitted by Newsquawk

  • ECB policy announcement due Thursday December 12th; rate decision at 13:15GMT/08:15EST, press conference from 13:45GMT/08:45EST
  • Expectations are for the ECB to cut the Deposit Rate by 25bps to 3.00%
  • The backdrop of the meeting comes amid a highly uncertain growth outlook for the Eurozone

OVERVIEW: The ECB is expected to follow up the October rate cut with another 25bps reduction, its 4th rate cut in a row, disappointing some of those looking for a deeper cut of 50bps on account of ongoing growth concerns. The ECB will most likely maintain a gradual approach to rate cuts with accompanying macro projections potentially set to not fully reflect recent negative events in the Eurozone. If the GC surprises markets by going for 50bps it will be a highly pre-emptive move and a step away from data-dependency. In order to get a consensus for such a move, the doves will need to convince the hawks that this is not a precursor for a move into sub-neutral territory.

PRIOR MEETING: As expected, the ECB opted to cut the Deposit Rate by 25bps. Despite the bank seemingly positioning itself for an unchanged rate in the wake of the September meeting, soft outturns for inflation and survey data forced the hand of the Bank into easing policy. Accordingly, the ECB reaffirmed its data-dependent credentials and reiterated that it will keep policy rates sufficiently restrictive for as long as necessary. The only minor tweak in the policy statement was that the Bank now sees inflation at 2% in the course of 2025 vs. previous guidance of H2 2025. At the follow-up press conference, Lagarde noted that there will be a lot more data available before the December 12th meeting, which suggests that there is not a preset expectation on the GC over what happens at the final meeting of the year. Furthermore, Lagarde stated that she has not opened the door to another rate reduction in December. That being said, she noted that there is no question that policy is currently restrictive. With regards to the decision, the President noted that it was a unanimous one on the GC.

RECENT ECONOMIC DEVELOPMENTS: On the inflation front, headline Y/Y CPI rose in November to 2.3% from 2.0%, which was largely expected on account of base effects. Core inflation remained at a stubborn level of 2.7% whilst services inflation ticked marginally lower to 3.9% from 4.0%. The ECB's Consumer Expectations Survey saw the 12-month inflation forecast rise to 2.5% from 2.4% with the 3yr forecast holding steady at 2.1%. The 5y5y inflation forward has pulled back to 2.00% from the 2.14% seen at the time of the last meeting. On the growth front, Q3 GDP came in at 0.4% Q/Q, whilst the November Eurozone Composite PMI slipped to 48.1 from 50.0 amid heavy pessimism surrounding the French economy. The accompanying release noted "the eurozone's manufacturing sector is sinking deeper into recession, and now the services sector is starting to struggle after two months of marginal growth." In the labor market, the unemployment rate remains at a historic low of 6.3%.

RECENT COMMUNICATIONS: Since the prior meeting, President Lagarde has noted that the medium-term economic outlook is uncertain and therefore the Bank is not pre-committing to a particular rate path. Chief Economist Lane said while inflation had fallen close to the ECB’s target of 2%, there is a little bit of distance to go. He added that while data dependence falls down in priority, the new challenge would be assessing the incoming risks on a meeting-by-meeting basis, via FT. The influential Schnabel of Germany has stated that she sees only limited room for additional cuts, adding that the ECB should take a gradual approach and not go to an accommodative stance. In the hawkish camp, Austria's Holzmann has said that a 25bps rate cut is conceivable in December but not more. Interestingly, the typically centrist Villeroy of France said interest rates should clearly go to the neutral rate and would not exclude going below the neutral rate in the future. He added that negative rates should remain in the ECB’s toolkit. Elsewhere, Italy’s Panetta has said that the ECB should move to a neutral monetary stance, or expansionary if necessary, adding that the ECB is still a long way away from neutral.

RATES/ECONOMIC PROJECTIONS: Expectations are for the ECB to cut the deposit rate by 25bps to 3.0% with markets assigning a circa 82% chance of such an outcome (with an 18% probability for a 50bps rate cut). Despite the weak growth outlook for the Eurozone, which is also complicated by Trump’s return to the White House, developments on the inflation front suggest there is still more work done to return inflation to target. In recent weeks, policymakers have also stressed the need for the Bank to step away from recent data dependency and focus on forward-looking expectations. On which, the accompanying macro projections are likely to be viewed as stale given that the cut-off date did not encapsulate the latest French political woes, whilst as highlighted by ING, “the ECB normally also applies a ‘no policy change’ assumption to its forecasting". ING expects projections to be little changed vs. September (other than a slight downward revision for growth and inflation in 2025). As such, those on the GC looking for a 50bps cut are unlikely to be supported by the latest forecasts. If the GC surprises markets by going for 50bps it will be a highly pre-emptive move and a step away from data- dependency. In order to get a consensus for such a move, the doves will need to convince the hawks that this is not a precursor for a move into sub-neutral territory. Looking beyond the upcoming meeting, assuming the ECB cuts by 25bps, an additional 125bps of loosening is seen by the end of 2025.

Current forecasts:

  • HICP INFLATION: 2024: 2.5%, 2025: 2.2%. 2026: 1.9%
  • HICP CORE INFLATION (EX-ENERGY & FOOD): 2024: 2 9%, 2025: 2.3%, 2026: 2.0%
  • GDP: 2024: 0.8%, 2025: 1.3%, 2026: 1.5%

* * *

How to trade today's ECB rate cut?

Here is Bloomberg's Vassilis Karamanis explaining why "Euro Traders Brace For Risk In Lagarde Guidance"

Options traders see the euro moving by the most since May 2023 on the day of a European Central Bank meeting, even amid market consensus on the policy decision. It’s mostly about forward-guidance expectations and a new FX volatility environment that’s been shaping up since the US elections.

Euro-dollar overnight volatility rises to 16.56%, the fifth highest reading in the past 19 months, pointing to a potentially game-changing moment for investors. Money markets fully price a quarter-point interest rate cut by the ECB later Thursday, assigning next to zero chances of a larger cut.

The updated inflation and growth projections are one part of the uncertainty surrounding the decision. The biggest surprise would of course come from a jumbo rate cut, but it’s mostly down to what President Christine Lagarde will offer to the market in terms of verbal projections.

Questions include whether the central bank sticks to restrictive-rates language and delivers a modest hawkish surprise, or if officials are comfortable in communicating that a move below neutral levels is on the cards by the summer of 2025. Traders may be also looking for clear guidance on what the ECB has in store in case of a global trade war or should political risks in the euro area’s largest economies spill over to spreads.

Lagarde has been careful in maintaining full flexibility during the press conferences that follow a policy decision, sporadically offering only subtle messaging on the Governing Council’s thinking for the next move. While options pricing points to chances that today’s messaging could be more revealing, high euro hedging costs also reflect the shaping up of expectations for higher volatility next year.

Chances of a global trade war, lingering geopolitical risks and diverging inflation paths for the world’s largest economies — and in turn monetary policy, make the case for long-volatility exposure in the currency space which is seen once again as a strong alpha-generating asset class. Interbank traders say that positioning is now much lighter in the euro, as many desks have trimmed exposure ahead of year-end, and that leaves room for a wide move, even if it all goes according to consensus.

Tyler Durden Thu, 12/12/2024 - 07:35

Pages